Attached files
file | filename |
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EX-23.(A) - REX AMERICAN RESOURCES Corp | c65168_ex-23a.htm |
EX-21.(A) - REX AMERICAN RESOURCES Corp | c65168_ex-21a.htm |
EX-23.(B) - REX AMERICAN RESOURCES Corp | c65168_ex-23b.htm |
EX-23.(D) - REX AMERICAN RESOURCES Corp | c65168_ex-23d.htm |
EX-23.(C) - REX AMERICAN RESOURCES Corp | c65168_ex-23c.htm |
EX-23.(E) - REX AMERICAN RESOURCES Corp | c65168_ex-23e.htm |
EX-32 - REX AMERICAN RESOURCES Corp | c65168_ex32.htm |
EX-99.(A) - REX AMERICAN RESOURCES Corp | c65168_ex-99a.htm |
EX-99.(C) - REX AMERICAN RESOURCES Corp | c65168_ex-99c.htm |
EX-99.(B) - REX AMERICAN RESOURCES Corp | c65168_ex-99b.htm |
10-K - REX AMERICAN RESOURCES Corp | c65168_10k.htm |
EX-31 - REX AMERICAN RESOURCES Corp | c65168_ex31.htm |
EX-4.(O) - REX AMERICAN RESOURCES Corp | c65168_ex-4o.htm |
EX-4.(P) - REX AMERICAN RESOURCES Corp | c65168_ex-4p.htm |
Exhibit 99(b)1
Patriot Renewable Fuels, LLC
Financial Statements for the
Years Ended December 31, 2008 and 2007 and
Independent Auditors Report
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PATRIOT RENEWABLE FUELS, LLC |
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TABLE OF CONTENTS |
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Page |
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INDEPENDENT AUDITORS REPORT |
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1 |
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FINANCIAL STATEMENTS: |
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Balance Sheets |
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2 |
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Statements of Operations |
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3 |
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Statements of Members Equity |
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4 |
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Statements of Cash Flows |
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5 |
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Notes to Financial Statements |
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7 |
INDEPENDENT AUDITORS REPORT
To the Board of Directors
Patriot Renewable Fuels, LLC
Annawan, Illinois
We have audited the accompanying balance sheets of Patriot Renewable Fuels, LLC (the Company) as of December 31, 2008 and 2007, and the related statements of operations, members equity, and cash flows for the years ended December 31, 2008 and 2007. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
November 24, 2009
PATRIOT RENEWABLE FUELS, LLC
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BALANCE SHEETS |
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DECEMBER 31, 2008 AND 2007 |
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2008 |
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2007 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
2,181,961 |
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$ |
193,263 |
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Accounts receivable |
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6,096,918 |
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Inventory |
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6,230,835 |
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Prepaid expenses and other |
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1,852,846 |
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510,094 |
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Total current assets |
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16,362,560 |
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703,357 |
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PROPERTY AND EQUIPMENT: |
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Property and equipment, at cost |
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155,812,610 |
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114,544,604 |
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Accumulated depreciation |
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(2,984,707 |
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(25,937 |
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Property and equipment, net |
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152,827,903 |
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114,518,667 |
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OTHER NONCURRENT ASSETS: |
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Deferred financing costs, net |
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708,074 |
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760,809 |
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Notes receivable |
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23,788,083 |
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12,927,685 |
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Interest receivable |
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2,033,506 |
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387,096 |
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Total other noncurrent assets |
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26,529,663 |
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14,075,590 |
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TOTAL ASSETS |
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$ |
195,720,126 |
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$ |
129,297,614 |
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LIABILITIES AND MEMBERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
5,188,218 |
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$ |
12,534,249 |
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Accrued expenses |
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3,576,850 |
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481,582 |
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Current portion of long term debt |
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7,608,529 |
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Total current liabilities |
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16,373,597 |
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13,015,831 |
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NONCURRENT LIABILITIES: |
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Long-term debt |
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91,512,811 |
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33,765,282 |
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Revolving loan |
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2,013,204 |
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Derivative liability |
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6,318,012 |
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2,629,872 |
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Deferred income |
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26,646,364 |
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21,927,685 |
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Total liabilities |
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142,863,988 |
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71,338,670 |
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MEMBERS EQUITY: |
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Members capital |
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64,016,373 |
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60,016,373 |
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Retained deficit |
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(11,160,235 |
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(2,057,429 |
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Total members equity |
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52,856,138 |
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57,958,944 |
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TOTAL LIABILITIES AND MEMBERS EQUITY |
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$ |
195,720,126 |
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$ |
129,297,614 |
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See notes to financial statements.
- 2 -
PATRIOT RENEWABLE FUELS, LLC
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STATEMENTS OF OPERATIONS |
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FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
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2008 |
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2007 |
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NET REVENUE |
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$ |
63,534,383 |
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COST OF GOODS SOLD |
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65,562,932 |
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GROSS MARGIN |
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(2,028,549 |
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OPERATING EXPENSES |
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2,426,152 |
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$ |
1,309,588 |
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Loss from operations |
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(4,454,701 |
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(1,309,588 |
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OTHER (INCOME) EXPENSE: |
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Interest expense |
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2,603,204 |
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Interest income |
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(1,671,990 |
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(1,583,077 |
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Derivative loss |
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3,688,140 |
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2,629,872 |
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Other (income) expense |
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28,751 |
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(143,383 |
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Total other expense |
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4,648,105 |
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903,412 |
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NET LOSS |
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$ |
(9,102,806 |
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$ |
(2,213,000 |
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See notes to financial statements.
- 3 -
PATRIOT RENEWABLE FUELS, LLC
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STATEMENTS OF MEMBERS EQUITY |
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FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
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Members |
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Retained |
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Total |
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BALANCE AT JANUARY 1, 2007 |
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$ |
60,136,523 |
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$ |
155,571 |
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$ |
60,292,094 |
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Abandoned contributions |
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(120,150 |
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(120,150 |
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Net loss |
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(2,213,000 |
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(2,213,000 |
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BALANCE AT DECEMBER 31, 2007 |
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60,016,373 |
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(2,057,429 |
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57,958,944 |
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Issuance of convertible debt |
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4,000,000 |
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4,000,000 |
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Net loss |
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(9,102,806 |
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(9,102,806 |
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BALANCE AT DECEMBER 31, 2008 |
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$ |
64,016,373 |
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$ |
(11,160,235 |
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$ |
52,856,138 |
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See notes to financial statements.
- 4 -
PATRIOT RENEWABLE FUELS, LLC
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STATEMENTS OF CASH FLOWS |
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FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
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2008 |
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2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(9,102,806 |
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$ |
(2,213,000 |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Abandoned equity contributions |
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(120,150 |
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Depreciation and amortization |
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2,686,510 |
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152,918 |
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Gain on disposal of equipment |
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(1,793 |
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Interest income on tax increment financing notes receivable |
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(1,646,410 |
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(387,096 |
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Derivative loss |
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3,688,140 |
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2,629,872 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(6,096,918 |
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Inventory |
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(6,230,835 |
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Prepaids and other current assets |
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(1,342,752 |
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(449,304 |
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Accounts payable |
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2,666,821 |
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(3,497 |
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Accrued expenses |
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3,095,268 |
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21,965 |
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Net cash flows from operating activities |
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(12,282,982 |
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(370,085 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of investments |
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(15,000,000 |
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Proceeds from sale of investments |
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32,300,000 |
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Other proceeds from property and equipment |
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13,939 |
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Purchase of property and equipment |
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(56,889,651 |
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(96,309,640 |
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Net cash flows from investing activities |
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(56,889,651 |
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(78,995,701 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from tax increment financing |
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9,000,000 |
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Payments on deferred financing costs |
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(78,301 |
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(13,850 |
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Advances on line of credit, net |
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2,013,204 |
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Proceeds from debt |
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66,234,718 |
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33,765,282 |
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Payments on long term debt |
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(1,008,290 |
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Proceeds from convertible subordinated debt |
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4,000,000 |
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Net cash flows from financing activities |
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71,161,331 |
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42,751,432 |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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1,988,698 |
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(36,614,354 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
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193,263 |
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36,807,617 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
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$ |
2,181,961 |
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$ |
193,263 |
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(Continued) |
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- 5 -
PATRIOT RENEWABLE FUELS, LLC
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STATEMENTS OF CASH FLOWS |
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FOR THE YEAR ENDED DECEMBER 31, 2008 AND 2007 (CONCLUDED) |
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2008 |
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2007 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - |
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Cash paid during the year for interest, net of amount capitalized |
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$ |
1,054,522 |
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$ |
1,347 |
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NONCASH INVESTING AND FINANCING ACTIVITIES: |
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Accounts payable incurred for property and equipment |
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$ |
2,500,000 |
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$ |
12,512,852 |
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Notes receivable included in deferred income |
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10,860,398 |
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12,927,685 |
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Donation of roadway to municipality |
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5,608,972 |
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See notes to financial statements.
- 6 -
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PATRIOT RENEWABLE FUELS, LLC |
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NOTES TO FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 |
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1. |
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES |
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Nature of Business Patriot Renewable Fuels, L.L.C., an Illinois Limited Liability Company, (the Company) is a dry mill, corn-based processing facility that produces ethanol and distillers grains that are derived from corn. The ethanol plant is located in Annawan, Illinois and will produce 100 million gallon per year of denatured fuel grade ethanol and approximately 320,000 tons of dried distillers grains with soluble (DDGS) and process 35.7 million bushels of corn at nameplate (guaranteed by the design-builder) capacity. |
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The Company began construction of the facility in November 2006 and it was commissioned on August 31, 2008. The year ended December 31, 2008 reflects approximately four full months of operations from the time of commissioning and eight months of construction activity. The ethanol plant processed 12.1 million bushels of corn and produced 33.8 million gallons of denatured fuel grade ethanol in the year ending December 31, 2008, along with approximately 96,000 tons of DDGS. |
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Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. |
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Concentration of Credit Risk The Company performs periodic credit evaluations of its marketers and has not required collateral. The Companys operations vary with the volatility of the market for inputs (including corn, natural gas, chemicals, and denaturant) and for finished products (ethanol and DDGS), and to mitigate that volatility the Company actively seeks to minimize inventory and accounts receivable levels. |
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Cash Equivalents All highly liquid investments with a maturity of three months or less at the time of purchase are considered to be cash equivalents. The Company maintains cash and cash equivalents primarily in accounts with two financial institutions which, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts or any losses in connection with these balances. At December 31, 2008, the Company had $2,511,762 in money market funds which are classified as cash equivalents and recorded at cost which approximates fair value. |
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Accounts Receivable Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company does not have any off-balance sheet credit exposure related to its customers, nor has it experienced any write-offs of uncollectible accounts and no allowance for doubtful accounts is recorded. |
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Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first in, first out method. Inventories consist of raw materials (corn, chemicals, denaturant), work in process, finished goods (ethanol and DDGS). |
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All materials and production costs related to the production of ethanol and distillers grains not sold are capitalized as inventory and recognized as cost of sales when the sale of the product is recognized. |
- 7 -
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Prepaid Expenses Prepaid expenses are recorded for non-inventory purchases that will be consumed in less than one year. Included in prepaid expenses and other assets are certain costs paid in advance for natural gas expenses. As of December 31, 2008 the amount included on the balance sheet is $1,229,420 for prepaid natural gas expenses. |
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Property and Equipment Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is determined using the straight-line method for financial reporting purposes over the estimated useful lives of the assets. |
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Estimated useful lives are as follows: |
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Land improvements |
30 years |
Buildings |
15 30 years |
Process equipment |
10 20 years |
Grain handling equipment |
10 years |
Railroad and rail equipment |
20 years |
Office and computer equipment |
3 5 years |
|
|
|
The Company expenses maintenance and repair expenses as incurred, major improvements are capitalized. |
|
|
|
The Company initiated ethanol and DDGS production on August 31, 2008 and began depreciating the plant on that date. Prior to that time, the Company capitalized interest on its construction in progress activities related to the ethanol plant. Interest capitalized for the years ended December 31, 2008 and 2007 was $2,208,197 and $532,194, respectively. |
|
|
|
The Company reviews property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset or assets may be impaired and that the undiscounted cash flows expected to be generated by the assets are less than the carrying amount of those assets. The Company has identified no such impairment losses. |
|
|
|
Deferred Financing Costs Costs incurred in connection with the acquisition of financing for the ethanol plant were deferred and amortized over the term of the respective financing using the straight-line method. Accumulated amortization was $272,091 and $141,056 at December 31, 2008 and 2007, respectively. |
|
|
|
Notes Receivable During the years ended December 31, 2008 and 2007, the Company received cash and promissory notes from the Village of Annawan (the Village) under a tax increment financing agreement (TIF). The Village provided funds in the form of interest bearing notes and cash proceeds from a TIF bond issuance. The notes will bear interest at a fixed rate established at the time of issuance based on the prime rate, not to exceed 9% per annum. |
|
|
|
Interest Rate Swap The Company entered into an interest rate swap to fix the interest rate for a portion of its long term debt. The Company records the interest rate swap at fair value with changes in fair value recognized in earnings since the interest rate swap was not designated as a cash flow hedge. The Company recognizes the fair value of its interest rate swap as Derivative liability on the balance sheets. |
|
|
|
Deferred Income Proceeds received from the Village under the TIF agreement are recorded as deferred income and amortized into income over the life of the related property and equipment. |
- 8 -
|
|
|
Convertible Debt The Company issued $4,000,000 of convertible subordinated notes on November 25, 2008, the proceeds of which are recorded as long term debt, at a discount based on the conversion feature. The notes bear interest at a rate of 16% and are convertible to units each year at the anniversary date as follows: $1,500 per unit at November 25, 2009, $1,000 per unit at November 25, 2010, and $500 per unit at November 25, 2011. The intrinsic value of the beneficial conversion feature at the time of issuance was recorded as a discount on note and a component of members equity. The discount will be amortized to expense over the three year term of the convertible subordinated debt. |
|
|
|
Revenue Recognition The Company sells ethanol and DDGS pursuant to marketing agreements, and recognizes revenue at the time of loading ethanol or distillers grains into trucks, railcars, or containers. This is the point at which the marketer takes ownership of the product and assumes risk of loss. |
|
|
|
In accordance with the Companys agreements for the marketing and sale of ethanol and related products, commissions and freight due to the marketers are deducted from the gross sales price at the time payment is remitted to the Company. Product sales are recorded net of freight and commission. For the year ended December 31, 2008, ethanol sales are recorded net of commissions totaling $730,228 and freight totaling $4,630,789. DDGS sales are also recorded net of commissions and freight of $199,513 and $1,641,901, respectively, for the year ended December 31, 2008. |
|
|
|
Expense Recognition Cost of goods sold primarily consists of costs for raw materials, utilities, conversion costs, warehousing costs, salaries, wages and expenses for plant operating staff and plant management depreciation and amortization expenses, general facility overhead charges, property taxes and property and casualty insurance. |
|
|
|
Operating expenses consist primarily of salaries and expenses for management, administrative and accounting employees, fees paid to outside service providers such as legal, accounting, and consulting firms. |
|
|
|
Income Taxes The Company is organized as a limited liability company. This provides that in lieu of corporate income taxes the members are to separately account for their proportionate share of the Companys items of income, deductions, losses and credits. Therefore, these financial statements do not include a provision for income taxes. |
|
|
|
Fair Value The carrying amounts for cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value. Fair values of derivative financial instruments are determined based on quoted market prices. Fair values of interest rate swap agreements are computed based on nominal and current interest rates, and have been evaluated for credit swap default risk. The fair value of the debt approximates their carrying value due to their short maturity or floating interest rates, as applicable. |
|
|
|
Impact of New Accounting Pronouncements Effective July 1, 2009, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) became the single official source of authoritative, nongovernmental generally accepted accounting principles (GAAP) in the United States. The historical GAAP hierarchy was eliminated and the ASC became the only level of authoritative GAAP. The Companys accounting policies were not affected by the conversion to ASC. |
|
|
|
In July 2006, the FASB issued new accounting guidance of the accounting for uncertainty in income taxes. This guidance prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. This guidance is effective for fiscal years beginning after December 15, 2008. The Company currently evaluates uncertain tax positions by estimating the amount that is probable and estimable of being payable, if successfully challenged by such tax authorities, under the provisions of accounting for contingencies. The Company has not yet determined the impact of adopting the new guidance. |
- 9 -
|
|
|
In September 2006, the FASB issued new accounting guidance of the accounting for fair value measurements and disclosures. This guidance defines fair value of financial and nonfinancial assets and liabilities, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This guidance applies to fair value measurements that are already required or permitted by existing standards except for measurements of share-based payments and measurements that are similar to, but not intended to be, fair value and nullifies the Emerging Issues Task Force guidance that prohibited recognition of gains or losses at the inception of derivative transactions whose fair value is estimated by applying a model. This guidance clarifies that fair value is the amount that would be exchanged to sell an asset or transfer a liability, in an orderly transaction between market participants. This guidance is effective for the Companys year ending December 31, 2008. On November 14, 2007, the FASB approved to defer the effective date for all nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. The Company adopted this guidance, as it relates to financial assets and liabilities as of January 1, 2008 (see Note 12). The Company does not anticipate that the adoption of this guidance, as it relates to the nonfinancial assets and liabilities will have a material impact on its financial position, results of operations or cash flows. |
|
|
|
In March 2008, the FASB issued new accounting guidance of the accounting for derivatives and hedging. This guidance requires, among other things, enhanced disclosure about the volume and nature of derivative and hedging activities and a tabular summary showing the fair value of derivative instruments included in the statement of financial position and statement of operations. This guidance also requires expanded disclosure of contingencies included in derivative instruments related to credit risk. This guidance is effective for the Companys year ending December 31, 2009. The adoption of this guidance is not expected to have a material effect on the Companys financial statements other than providing certain enhanced disclosures. |
|
|
|
In May 2009, the FASB issued new accounting guidance of the accounting for subsequent events, which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is effective for interim periods ending after June 15, 2009. The adoption of this guidance is not expected to have a material effect on the Companys financial statements other than providing certain enhanced disclosures. |
|
|
2. |
INVENTORY |
|
|
|
A summary of inventory at December 31, 2008 is as follows: |
|
|
|
|
|
Raw materials |
|
$ |
2,639,996 |
|
Work in process |
|
|
1,269,110 |
|
Finished goods |
|
|
1,954,742 |
|
Other |
|
|
366,987 |
|
|
|
|
|
|
|
|
$ |
6,230,835 |
|
|
|
|
|
|
- 10 -
|
|
3. |
PROPERTY AND EQUIPMENT |
|
|
|
A summary of property and equipment at December 31, 2008 and 2007 is as follows: |
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
|
|
Land and land development |
|
$ |
18,187,718 |
|
$ |
3,681,142 |
|
Process and grain handling equipment |
|
|
110,544,360 |
|
|
|
|
Buildings |
|
|
26,337,650 |
|
|
749,336 |
|
Furniture, fixtures and computer equipment |
|
|
742,882 |
|
|
183,276 |
|
Construction in progess |
|
|
|
|
|
109,930,850 |
|
|
|
|
|
|
|
|
|
|
|
|
155,812,610 |
|
|
114,544,604 |
|
Accumulated depreciation |
|
|
(2,984,707 |
) |
|
(25,937 |
) |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
152,827,903 |
|
$ |
114,518,667 |
|
|
|
|
|
|
|
|
|
|
|
4. |
TAX INCREMENT FINANCING |
|
|
|
During the years ended December 31, 2008 and 2007, the Company received amounts from the Village under a TIF agreement. The Village provided funds in the form of interest bearing notes and cash proceeds from a TIF bond issuance. The notes will bear interest at a fixed rate established at the time of issuance based on the prime rate, not to exceed 9% per annum. Bonds issued under the TIF arrangement are not a liability of the Company but are an obligation of the Village since the Company does not guarantee the TIF debt and has no obligation to satisfy any shortfall in annual debt service requirements. The bonds and related notes are to be repaid by the Village from the incremental increase in property taxes related to the improvement of the Companys real property. The proceeds of the financing have been recorded as deferred income and are amortized into income with such amortization amount based on the life of the related property and equipment. The amount of reimbursements to be received under the TIF agreement is not to exceed $41,772,000 plus related interest on the TIF notes receivable. As of December 31, 2008 and 2007, the Company had received $9,000,000 in cash from the Village in addition to $23,788,083 and $12,927,685 of notes receivable, respectively. The Company recorded $32,788,083 of deferred income related to the amounts received, and has amortized $532,927 of deferred revenue, which is included in the statement of operations for the year ended December 31, 2008. The Company also reduced deferred income by $5,608,792 related to the transfer of property rights for the plant access road from the Company to the Village. The fair value of the asset was determined to approximate the cost basis due to the recent construction. As of December 31, 2008 and 2007 the remaining unamortized deferred income balance was $26,646,364 and $21,927,685, respectively. Interest of $2,033,506 and $387,096 was accrued on the notes receivable at an interest rate of 7.2% and included in the statements of operations for the years ended December 31, 2008 and 2007, respectively. |
- 11 -
|
|
5. |
LONG TERM DEBT |
|
|
|
Debt consists of the following at December 31, 2008 and 2007: |
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
|
|
Construction loan, variable interest of 90 day LIBOR plus 300 basis points |
|
|
|
|
$ |
33,765,282 |
|
|
|
|
|
|
|
|
|
Fixed rate loan, variable interest of 90 day LIBOR plus 300 basis points, swapped to fixed rate of 8.655% |
|
$ |
46,950,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate loan, variable interest of 90 day LIBOR plus 300 basis points |
|
|
33,050,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term reducing revolving loan, variable interest of 30 day LIBOR plus 300 basis points |
|
|
18,991,710 |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated debt, unsecured, fixed interest rate of 16% convertible to membership units |
|
|
4,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Discount on convertible subordinated debt |
|
|
(3,870,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,121,340 |
|
|
33,765,282 |
|
Less current maturities |
|
|
7,608,529 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion |
|
$ |
91,512,811 |
|
$ |
33,765,282 |
|
|
|
|
|
|
|
|
|
|
|
|
On November 28, 2006, the Company entered into a loan agreement (the Agreement) with a financial institution (the Bank) for a construction loan of up to $93,900,000, a revolving loan of $7,000,000 and letters of credit of $3,000,000 to provide financing for construction and operation of the ethanol plant. In connection with the Agreement, the Company also entered into an interest rate swap agreement fixing the interest rate on $46,950,000 of debt. |
|
|
|
On September 22, 2008, the Agreement was amended (the Amendment) to increase the amount available under the construction loan to $100,000,000, increase the revolving loan to $12,000,000, and reduce the letters of credit to $972,685. In addition, the Amendment also provided for a $4,000,000 bridge loan to be issued subject to replacement by issuance of convertible subordinated debt (Subordinated Debt) by the Company. |
|
|
|
On October 8, 2008 (Completion Date) the construction loan was converted into three term loans. One term loan, the fixed rate loan, is for $46,950,000, and the balance is subject to the interest rate swap agreement (see Note 6). The remaining amounts of the construction loan were converted to a variable rate loan of $33,050,000 and a long-term reducing revolving loan of $20,000,000. |
- 12 -
|
|
|
The Agreement also provides for a revolving loan under which the Company can borrow the lesser of (1) a borrowing base calculation defined in the Agreement or (2) $12,000,000 and matured on April 30, 2009. On April 30, 2009, and May 31, 2009, respectively, the revolving loan was amended to reduce the amount available from $12,000,000 to $6,000,000 and to extend the maturity date from April 30, 2009 to August 31, 2009. Interest is payable quarterly on outstanding borrowings. At December 31, 2008 the Company had borrowings of $2,013,204 under the revolving loan. On August 31, 2009, the Company executed an extension to the revolving loan as described in Note 13. |
|
|
|
The fixed and variable rate notes bear interest at a variable rate of 90 day LIBOR plus three hundred basis points, and the long-term reducing revolving loan and the revolving loan bear interest at a variable rate of 30 day LIBOR plus three hundred basis points (7.52% and 4.54%, respectively, at December 31, 2008). The borrowings under the Agreement are collateralized by substantially all assets of the Company. The term loans require quarterly interest and principal payments and mature five years after the Completion Date of the construction loan. In addition, subsequent to the Completion Date, the Company must make additional annual principal payments based on an excess cash flow calculation, as defined in the Agreement. As of December 31, 2008, no additional amounts were owed under this calculation. Annual expected maturities for long term debt are as follows as of December 31, 2008: |
|
|
|
|
|
|
Year Ending |
|
|
|
|
|
December 31, |
|
|
|
|
|
2009 |
|
|
$ |
7,608,529 |
|
2010 |
|
|
|
8,200,730 |
|
2011 |
|
|
|
8,952,098 |
|
2012 |
|
|
|
9,481,919 |
|
2013 |
|
|
|
64,878,064 |
|
|
|
|
|
|
|
|
|
|
$ |
99,121,340 |
|
|
|
|
|
|
|
|
|
|
The Agreement contains various restrictive covenants which, among other matters, require that the Company meet certain financial ratios. At December 31, 2008 the Company was subject to a minimum net worth covenant, the requirement of which was deferred to March 31, 2009. Beginning in February 2009 the Company was to be subject to a minimum working capital covenant and in March 2009 to a minimum fixed charge covenant. The requirement for these covenants was also deferred to March 31, 2009. The Company was in violation of these covenants as of March 31, 2009 and obtained a waiver of the violations on May 31, 2009 extending the covenant measurement until August 31, 2009. On August 31, 2009, the Company entered into an amended and restated agreement with the Bank as described in Note 13. |
|
|
|
On November 25, 2008, the Company issued Subordinated Debt totaling $4,000,000 to five related parties (see Note 7). The Subordinated Debt bears interest at a rate of 16%, has a term of three years, and is convertible to membership units at each anniversary date at a cost of $1,500, $1,000, and $500 per unit, respectively, on November 25, 2009, 2010, and 2011. |
|
|
6. |
INTEREST RATE SWAP |
|
|
|
As discussed in Note 6, the Company entered into a forward starting interest rate swap (the Swap) in the notional amount of $46,950,000 during 2007. The Swap fixed the variable interest rate portion of the term loan subsequent to the Completion Date at 8.655%. The variable rate under the Agreement is equal to LIBOR plus three hundred basis points. The Swap is effective as of October 8, 2008 and terminates on October 8, 2013. |
|
|
|
At December 31, 2008 and 2007, the Company recorded a liability related to the fair value of the Swap of $6,318,012 and $2,629,872, respectively. The change in fair value of the Swap was recorded in the statements of operations. |
- 13 -
|
|
7. |
RELATED PARTY TRANSACTIONS |
|
|
|
The Company has engaged CGB Enterprises Co. (CGB), an equity member, to source corn for the plant under a long term agreement on a fee per bushel basis. During the construction of the ethanol plant, the Company engaged Scheckel Construction Co. (Scheckel) for the land preparation. The sole owner of Scheckel is a Board member of the Company. The Company has also engaged Fagen, Inc. (Fagen) as the general contractor for the design and construction of the Project. The sole owner of Fagen is an equity member of the Company. |
|
|
|
Total amounts paid to related parties during the years ended December 31, 2008 and 2007 were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
||
|
|
|
|
|
|
|
|
|
|
|
Fagen |
|
$ |
47,848,996 |
|
$ |
75,628,825 |
|
|
Scheckel |
|
|
434,289 |
|
|
3,163,551 |
|
|
CGB |
|
|
51,949,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
100,233,050 |
|
$ |
78,792,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts payable to related parties at December 31, 2008 and 2007 were as follows: |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
||
|
|
|
|
|
|
|
|
|
|
|
Fagen |
|
$ |
2,500,000 |
|
$ |
11,139,627 |
|
|
Scheckel |
|
|
|
|
|
318,556 |
|
|
CGB |
|
|
1,393,245 |
|
|
|
|
|
Other |
|
|
|
|
|
37,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,893,245 |
|
$ |
11,495,283 |
|
|
|
|
|
|
|
|
|
|
|
|
The Company has engaged Murex N.A, LTD, (Murex), an equity member, to market ethanol for the plant under a long term agreement on a percentage of revenue commission basis. Total amounts owed to the Company from Murex, as of December 31, 2008 were $5,012,279. |
|
|
|
As discussed in Note 5, the Company entered into convertible subordinated debt agreements with certain equity members of the Company. |
|
|
8. |
CONTINGENCIES |
|
|
|
The Companys operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of material in its location. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational heath, and the production, handling, storage and use of hazardous materials to prevent environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the Companys liability is probable and the costs can be reasonably estimated. No such liabilities were recorded at December 31, 2008 and 2007 and the Company is not currently a party to any unsettled legal proceedings at December 31, 2008. |
- 14 -
|
|
9. |
COMMITMENTS |
|
|
|
The Company executed a corn origination agreement with CGB, an equity member of the Company, whereby CGB is entitled to the exclusive right for procurement of 100% of the corn needs for the plant. The Company executed a marketing agreement with Murex, an equity member of the Company, whereby Murex is entitled to the exclusive right for sale and distribution of 100% the plants ethanol. The Company executed a marketing agreement with CHS, Inc., whereby CHS, Inc. is entitled to the exclusive right for sale and distribution of 100% of the plants dried distillers grains with solubles, wet distillers grains and solubles. |
|
|
10. |
MAJOR CUSTOMERS |
|
|
|
For the year ended December 31, 2008, two customers accounted for all of the Companys revenues and trade accounts receivable. Revenues for the ethanol marketer represented 85% of total revenues for the year ended December 31, 2008. Revenues for the dry distiller grains marketer represented 15% of total revenues for the year ended December 31, 2008. Accounts receivable for the ethanol marketer represented 82% of total outstanding receivables at December 31, 2008. Accounts receivable for the dry distiller grains marketer represented 14% of total outstanding receivables at December 31, 2008. |
|
|
11. |
MEMBERS EQUITY |
|
|
|
As specified in the Companys operating agreement, the Company has one class of membership units. The Company is authorized to issue up to 65,000 membership units. No additional units may be issued for less than $500 per unit without the consent of the majority of the membership units then outstanding. Profits and losses of the Company are allocated to members based on the proportion of units held. As of December 31, 2008 and 2007 the Company had 45,741 membership units issued and outstanding. |
|
|
12. |
FAIR VALUE MEASUREMENTS |
|
|
|
The Company determines the fair market value of its interest rate swaps, based on the fair value definition and hierarchy levels established in the accounting guidance for fair value measurements and disclosures. This guidance establishes three levels within its hierarchy that may be used to measure fair value: |
|
|
|
|
Level 1: |
Quoted prices (unadjusted) in active markets for identical assets or liabilities. |
|
|
|
|
Level 2: |
Observable inputs, including Level 1 prices that have been adjusted; quoted prices for similar assets or liabilities; quoted prices in markets that are less active than traded exchanges; and other inputs that are observable or can be substantially corroborated by observable market data. |
|
|
|
|
Level 3: |
Unobservable inputs that are supported by little or no market activity, which requires the Company to develop its own assumptions. |
|
|
|
|
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The following table sets forth, by level, the Companys assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2008. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|||
|
|
|
|
|
|
|
|
|||
|
Interest rate swap liability |
|
$ |
|
|
$ |
6,318,012 |
|
$ |
|
- 15 -
|
|
13. |
SUBSEQUENT EVENT |
|
|
|
On August 31, 2009, the Company entered into an amended and restated loan agreement (the Restated Agreement) with the Bank. The Restated Agreement reduced the maximum availability on the revolving loan to $5,000,000 and extended the maturity date under the revolving loan to July 31, 2010. The Restated Agreement also revised the fixed charge and net worth covenant requirements; eliminated the working capital covenant; increased the base rate on the various loans, except for the fixed rate loan, to LIBOR plus four hundred fifty basis points with a minimum interest rate of 5.5%; and established a required debt service reserve of $5,000,000 to be funded by an annual excess cash flow calculation. |
|
|
|
The Company is in compliance with the covenants of the Restated Agreement as of September 30, 2009 and expects to be in compliance with the covenants throughout 2010. |
* * * * *
- 16 -