Attached files
file | filename |
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EX-31.1 - EX-31.1 - Western Dubuque Biodiesel, LLC | c20063exv31w1.htm |
EX-32.1 - EX-32.1 - Western Dubuque Biodiesel, LLC | c20063exv32w1.htm |
EX-32.2 - EX-32.2 - Western Dubuque Biodiesel, LLC | c20063exv32w2.htm |
EX-31.2 - EX-31.2 - Western Dubuque Biodiesel, LLC | c20063exv31w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended June 30, 2011
OR
o | Transition report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the transition period from to
Commission file number 000-52617
WESTERN DUBUQUE BIODIESEL, LLC
(Exact name of registrant as specified in its charter)
Iowa | 20-3857933 | |
(State or other jurisdiction of organization) | (I.R.S. Employer Identification No.) |
904 Jamesmeier Rd.
P.O. Box 82
Farley, IA 52046
P.O. Box 82
Farley, IA 52046
(Address of principal executive offices)
(563) 744-3554
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
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, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: As of August 15, 2011, there were 29,779 membership units
outstanding.
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
WESTERN DUBUQUE BIODIESEL, LLC
BALANCE SHEETS
BALANCE SHEETS
(UNAUDITED) | ||||||||
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 2,496,977 | $ | 2,105,760 | ||||
Margin deposits |
33,494 | 33,494 | ||||||
Trade accounts receivable |
4,161 | | ||||||
Other receivables |
18,705 | 12,904 | ||||||
Inventory |
3,990,534 | 417,963 | ||||||
Utility deposits |
87,099 | 87,099 | ||||||
Prepaid feedstocks and expenses |
84,792 | 113,615 | ||||||
Total current assets |
6,715,760 | 2,770,835 | ||||||
PROPERTY, PLANT AND EQUIPMENT |
||||||||
Land and land improvements |
3,091,093 | 3,091,093 | ||||||
Office building and equipment |
417,392 | 417,392 | ||||||
Plant and process equipment |
37,850,626 | 37,850,626 | ||||||
Vehicles |
42,537 | 42,537 | ||||||
Total, at cost |
41,401,648 | 41,401,648 | ||||||
Less accumulated depreciation |
8,578,105 | 7,487,298 | ||||||
Total property, plant and equipment |
32,823,543 | 33,914,350 | ||||||
OTHER ASSETS |
||||||||
Restricted cash |
406,929 | 406,929 | ||||||
Loan origination fees, net of amortization |
142,739 | 190,318 | ||||||
Total other assets |
549,667 | 597,247 | ||||||
TOTAL ASSETS |
$ | 40,088,970 | $ | 37,282,432 | ||||
LIABILITIES AND MEMBERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Accounts payable: |
||||||||
Trade |
$ | 3,903,259 | $ | 51,378 | ||||
Related party |
| 11,113 | ||||||
Current portion of long-term debt |
22,409,172 | 24,067,852 | ||||||
Accrued liabilities |
90,830 | 73,527 | ||||||
Deferred rent |
23,500 | 24,800 | ||||||
Total current liabilities |
26,426,761 | 24,228,670 | ||||||
MEMBERS EQUITY |
||||||||
Contributed capital |
26,230,096 | 26,230,096 | ||||||
Accumulated deficit |
(12,567,887 | ) | (13,176,334 | ) | ||||
Total members equity |
13,662,210 | 13,053,762 | ||||||
TOTAL LIABILITIES AND MEMBERS EQUITY |
$ | 40,088,970 | $ | 37,282,432 | ||||
See accompanying notes to financial statements.
1
Table of Contents
WESTERN DUBUQUE BIODIESEL, LLC
STATEMENTS OF OPERATIONS (UNAUDITED)
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||||||
June 30, 2011 | June 30, 2010 | June 30,2011 | June 30, 2010 | |||||||||||||
REVENUES |
||||||||||||||||
Biodiesel and by product sales |
$ | 21,032,641 | $ | 214,913 | $ | 24,995,126 | $ | 214,913 | ||||||||
COST OF SALES |
||||||||||||||||
Materials, labor and overhead |
19,428,169 | 656,583 | 23,697,635 | 1,519,850 | ||||||||||||
Net losses (gains) on derivative instruments |
| (524,603 | ) | | (355,692 | ) | ||||||||||
Total cost of sales |
19,428,169 | 131,980 | 23,697,635 | 1,164,158 | ||||||||||||
Gross profit (loss) |
1,604,472 | 82,933 | 1,297,491 | (949,245 | ) | |||||||||||
OPERATING EXPENSES |
||||||||||||||||
Consulting and professional fees |
113,175 | 41,707 | 205,111 | 119,523 | ||||||||||||
Office and administrative expenses |
145,843 | 80,976 | 247,864 | 143,959 | ||||||||||||
Total operating expenses |
259,018 | 122,683 | 452,975 | 263,482 | ||||||||||||
OTHER INCOME (EXPENSE) |
||||||||||||||||
Other income |
215,258 | 650 | 215,908 | 1,300 | ||||||||||||
Interest income |
1,589 | 7,496 | 3,828 | 17,514 | ||||||||||||
Interest expense |
(225,465 | ) | (369,014 | ) | (455,804 | ) | (615,708 | ) | ||||||||
Total other expense |
(8,618 | ) | (360,868 | ) | (236,068 | ) | (596,894 | ) | ||||||||
NET INCOME (LOSS) |
$ | 1,336,836 | $ | (400,618 | ) | $ | 608,447 | $ | (1,809,621 | ) | ||||||
BASIC AND DILUTED INCOME (LOSS) PER UNIT |
$ | 44.89 | $ | (13.45 | ) | $ | 20.43 | $ | (60.77 | ) | ||||||
WEIGHTED AVERAGE UNITS OUTSTANDING,
BASIC AND DILUTED |
$ | 29,779 | 29,779 | 29,779 | 29,779 | |||||||||||
See accompanying notes to financial statements.
2
Table of Contents
WESTERN DUBUQUE BIODIESEL, LLC
STATEMENTS OF CASH FLOWS (UNAUDITED)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended | Six Months Ended | |||||||
June 30, 2011 | June 30, 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income(loss) |
$ | 608,447 | $ | (1,809,621 | ) | |||
Adjustments to reconcile net income(loss) to net cash
used in operating activities: |
||||||||
Depreciation |
1,090,808 | 1,095,200 | ||||||
Amortization |
47,580 | 47,579 | ||||||
Effects of changes in operating assets and liabilities |
||||||||
Margin deposits |
| (485,175 | ) | |||||
Accounts receivable |
(4,161 | ) | 160,416 | |||||
Other receivables |
(5,800 | ) | (200,308 | ) | ||||
Incentive receivables |
| 3,494,322 | ||||||
Inventory |
(3,572,571 | ) | (7,124,347 | ) | ||||
Deposits |
| (87,099 | ) | |||||
Prepaid feedstocks and expenses |
28,824 | 63,659 | ||||||
Derivative instruments |
| (75,516 | ) | |||||
Accounts payable |
3,840,769 | (1,351,299 | ) | |||||
Accrued liabilities |
17,301 | 4,000 | ||||||
Deferred rent |
(1,300 | ) | (1,300 | ) | ||||
Net cash provided by(used in) operating activities |
2,049,897 | (6,269,489 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Net borrowings under short-term financing with related party |
| 5,658,500 | ||||||
Payments on long-term debt |
(1,658,680 | ) | (494,581 | ) | ||||
Net cash provided by (used in) financing activities |
(1,658,680 | ) | 5,163,919 | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
391,217 | (1,105,570 | ) | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
2,105,760 | 3,379,382 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 2,496,977 | $ | 2,273,812 | ||||
See accompanying notes to financial statements.
3
Table of Contents
WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Western Dubuque Biodiesel, LLC located in Farley, Iowa was organized on November 14, 2005 to own
and operate a 30 million gallon annual production biodiesel plant for the production of fuel grade
biodiesel. The Companys fiscal year ends on December 31. Significant accounting policies
followed by the Company are presented below:
Use of Estimates in Preparing Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Basis of Presentation
The Company has prepared the financial statements included herein without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). However, all adjustments
have been made to the accompanying financial statements which are, in the opinion of the Companys
management, necessary for a fair presentation of the Companys operating results. All adjustments
are of a normal recurring nature. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information presented herein not
misleading. It is recommended that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Companys latest annual report on Form
10-K.
Revenue Recognition
Revenue from the production of biodiesel and related products is recognized upon shipment to
customers or under the terms of a tolling service agreement. Revenue is recorded upon the transfer
of the risks and rewards of ownership and delivery to customers. Interest income is recognized as
earned.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be cash equivalents.
The Company maintains its accounts primarily at one financial institution. At times during the
year, the Companys cash and cash equivalents balances exceed amounts insured by the Federal
Deposit Insurance Corporation. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk.
Restricted Cash
The Company is required to maintain cash balances to be held at a bank as a part of their financing
agreement as described in Note 4.
Accounts Receivable
Accounts receivable are presented at face value, net of the allowance for doubtful accounts. The
allowance for doubtful accounts is established through provisions charged against income and is
maintained at a level believed adequate by management to absorb estimated bad debts based on
historical experience and current economic
conditions. Management believes all receivables will be collected and therefore the allowance has
been established to be $-0- and $-0- at June 30, 2011 and December 31, 2010, respectively.
4
Table of Contents
WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
Account balances with invoices past stated terms are considered delinquent. No interest is charged
on trade receivables with past due balances. Payments of accounts receivable are applied to the
specific invoices identified on the customers remittance advice or, if unspecified, to the
customers total balances.
Derivative Instruments and Hedging Activities
Topic 815 of the Accounting Standards Codification (ASC), Derivatives and Hedging, requires a
company to evaluate its contracts to determine whether the contracts are derivatives. Certain
contracts that literally meet the definition of a derivative may be exempted from ASC 815 as normal
purchases or normal sales. Normal purchases and normal sales are contracts that provide for the
purchase or sale of something other than a financial instrument or derivative instrument that will
be delivered in quantities expected to be used or sold over a reasonable period in the normal
course of business. Contracts that meet the requirements of normal sales are documented as such,
and exempted from the accounting and reporting requirements of ASC 815. The Company has entered
into agreements to purchase feedstocks for anticipated production needs. These contracts are
considered normal purchase contracts and exempted from ASC 815.
Inventories
Inventory is stated at the lower of cost, determined on a first in, first out basis, or market
value.
Property and Equipment
Property and equipment are stated at cost. Significant additions are capitalized, while
expenditures for maintenance, repairs and minor renewals are charged to operations when incurred.
Depreciation and amortization are computed using the straight-line method over the estimated useful
lives of the assets determined as follows:
Years | ||||
Land improvements |
20 40 | |||
Office equipment |
5 10 | |||
Office building |
30 | |||
Plant and process equipment |
10 40 | |||
Vehicles |
5 7 |
Depreciation expense for the six months ended June 30, 2011 and 2010 was $1,090,808 and $1,095,200,
respectively.
The Company reviews its property and equipment for impairment whenever events indicate that the
carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum
of the future cash flows is less than the carrying amount of the asset. The amount of the loss is
determined by comparing the fair market value of the asset to the carrying amount of the asset.
Loan Origination Fees
Loan origination fees are stated at cost and will be amortized on the straight-line method over the
life of the loan agreements. Amortization commenced as the Company borrowed funds on the loans.
Amortization for each of the six months ended June 30, 2011 and 2010 was $47,580 and $47,579,
respectively.
Income Taxes
The Company is organized as a limited liability company under state law and is treated as a
partnership for income tax purposes. Under this type of organization, the Companys earnings pass
through to the partners and are taxed at the partner level. Accordingly, no income tax provision
has been calculated. Differences between financial statement basis of assets and tax basis of
assets is related to capitalization and amortization of organization and start-up costs for tax
purposes, whereas these costs are expensed for financial statement purposes. Differences also
exist in the treatment of expenses capitalized for inventory for tax purposes, prepaid expenses and
differences between depreciable lives and methods used for book and tax purposes.
5
Table of Contents
WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
Income/Loss Per Unit
Income/Losses per unit are calculated based on the period of time units have been issued and
outstanding. For purposes of calculating diluted earnings per capital unit, units subscribed for
but not issued are included in the computation of outstanding capital units based on the treasury
stock method. As of June 30, 2011 and 2010, there was not a difference between basic and diluted
earnings per unit as there were no units subscribed.
Cost of Sales
The primary components of cost of sales from the production of biodiesel products are raw materials
(feedstocks, hydrochloric acid, methanol, and other catalysts), energy (natural gas and
electricity), labor and depreciation on process equipment.
Under the tolling services agreements, the feedstock inputs are generally provided by the buyer.
Primary components of cost of sales under the tolling services agreements are other raw material
costs (hydrochloric acid, methanol, and other catalysts), energy (natural gas and electricity),
labor and depreciation on process equipment.
Fixed costs during the periods when the plant is idle are classified in cost of sales. Cost of
sales when the plant is idled primarily consisted of labor, depreciation on process equipment, and
other indirect costs.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and are included in the cost of sales.
Environmental Liabilities
The Companys operations are subject to federal, state and local environmental laws and
regulations. These laws require the Company to investigate and remediate the effects of the
release or disposal of materials at its location. Accordingly, the Company has adopted policies,
practices and procedures in the areas of pollution control, occupational health, and the
production, handling, storage and use of hazardous materials to prevent material, environmental or
other damage and to limit the financial liability which could result from such events.
Environmental liabilities are recorded when the liability is probable and the costs can be
reasonably estimated.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument held by the Company:
Current assets and current liabilities The carrying value approximates fair value due to the
short maturity of these items. |
Long-term debt The carrying amount of long-term obligations approximated fair value based on
estimated interest rates for comparable debt. |
Insurance Proceeds
The Company received insurance proceeds of $214,608 due to a pump failure resulting in significant
downtime. Insurance paid for a replacement pump and ten days of downtime.
6
Table of Contents
WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
New Accounting Standards
In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. ASU 2010-20 amends FASB ASC 310 to require
additional disclosures about the credit quality of financing receivables and the allowance for
credit losses. ASU 2010-20 defines two levels of disaggregation portfolio segment and class of
financing receivables and amends existing disclosure requirements to include information about
the credit quality of financing receivables and allowance for credit losses at a greater level of
disaggregation. It also requires disclosures on credit quality indicators, past due information,
and modifications of financing receivables by class of financing receivables and significant
purchases and sales by portfolio segment. The new disclosures as of the end of a reporting period
are effective for interim and annual reporting periods ending on or after December 15, 2010, or
December 31, 2010 for the Company. The new disclosures about activity that occurs during a
reporting period are effective for interim and annual reporting periods beginning on or after
December 15, 2010, or three months ending March 31, 2011 for the Company. ASU 2010-20 is not
expected to have a material effect on the Companys financial position and results of operations.
In January 2011 ASU 2010-20 was amended to delay the effective date until after June 15, 2011.
In April 2011, the FASB issued ASU 2011-4 to amend Fair Value Measurement (Topic 820) to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in
this Update change the wording used to describe the requirements in U.S. GAAP for measuring fair
value and for disclosing information about fair value measurements. The amendments in this Update
are to be applied prospectively for public entities and effective during interim and annual periods
beginning after December 15, 2011. ASU 2011-4 is not expected to have a material effect on the
Companys financial position and results of operations.
NOTE 2 INCENTIVE PAYMENTS AND RECEIVABLE
Revenue from federal incentive programs is recorded when the Company has sold blended biodiesel and
satisfied the reporting requirements under the applicable program. When it is uncertain that the
Company will receive full allocation and payment due under the federal incentive program, it
derives an estimate of the incentive revenue for the relevant period based on various factors
including the most recently used payment factor applied to the program. The estimate is subject to
change as management becomes aware of increases or decreases in the amount of funding available
under the incentive programs or other factors that affect funding or allocation of funds under such
programs.
The Company receives federal incentive revenues from the Biodiesel Blenders Tax Credit and
Commodity Credit Corporation (CCC) Bioenergy Programs. The blenders tax credit expired on
December 31, 2009, and was reinstated in December 2010 and made retroactive for 2010. There were no
incentive revenues recorded for the six months ended June 30, 2011 and 2010. The amount of
incentives receivable was $-0- and $-0- as of June 30, 2011 and December 31, 2010.
NOTE 3 INVENTORY
Inventory consists of:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Raw material |
$ | 1,291,031 | $ | 185,481 | ||||
Work in progress |
2,626,166 | 106,328 | ||||||
Finished goods |
73,337 | 126,154 | ||||||
Total |
$ | 3,990,534 | $ | 417,963 | ||||
7
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WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTE 4 LONG-TERM DEBT AND FINANCING
Long-term obligations of the Company are summarized as follows:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Note payable to Beal Bank see details below |
$ | 22,259,172 | $ | 23,887,852 | ||||
Note payable to the Iowa Department of Economic
Development see details below |
150,000 | 180,000 | ||||||
Total |
22,409,172 | 24,067,852 | ||||||
Less current portion |
22,409,172 | 24,067,852 | ||||||
Long-term portion |
$ | | $ | | ||||
Debt has been classified as current because of lack of compliance with covenants as described
below.
On July 5, 2006, the Company entered into a $35,500,000 loan agreement with Marshall BankFirst, and
in July 2009, the loan agreement was acquired by Beal Bank. The loan commitment was the lesser of
$35,500,000 or sixty one percent of total project costs. The loan term is seventy-four months
which consists of the construction phase and a term phase. The construction phase ended March 1,
2008 and the term phase commenced thereafter. Monthly interest payments were required during the
construction phase with monthly interest and principal required during the term phase to be based
on a ten year principal amortization. Monthly payments of $339,484 including interest at a
variable rate commenced March 1, 2008 under the term phase with the remaining principal and
interest due at maturity, January 1, 2013. The agreement was amended and monthly payments were
reduced to $150,000 beginning in November 2009 and continuing until November 2010. The loan
commitment also includes a provision for additional payments during the term phase, based on
one-third of all monthly earnings before interest, taxes, depreciation and amortization (EBITDA)
remaining after the regularly scheduled principal and interest payments have been paid in full.
The agreement also includes provisions for reserve funds for capital improvements, working capital,
and debt service.
As of June 30, 2011, balances of $354,708 and $52,221 remain in the debt service reserve and
capital reserve funds as restricted cash. During the term phase, the Company has the option of
selecting an interest rate at 25 basis points over the prime rate as published in the Wall Street
Journal or 300 basis points over the five-year LIBOR/Swap Curve rate. On March 1, 2008, upon
commencement of the term phase the Company selected the variable rate option of 25 basis points
over the prime rate (3.50% at June 30, 2011 and December 31, 2010). The notes are secured by
essentially all of the Companys assets. Under the terms of the agreements, the Company is to
adhere to certain financial covenants. The Company is to adhere to minimum debt service coverage,
fixed charge coverage, and current ratio requirements, as well as a maximum debt as a percentage of
earnings before interest, taxes, depreciation and amortization (EBITDA) ratio. The Company was not
in compliance with certain covenants as of June 30, 2011 and December 31, 2010.
The Company has been awarded $400,000 from the Iowa Department of Economic Development consisting
of a $300,000 zero interest deferred loan and a $100,000 forgivable loan. The zero interest
deferred loan requires sixty monthly installments of $5,000 beginning December 2006. In January
2007, the zero interest deferred loan was amended, and deferred monthly installments until August
2007, with remaining principal due at maturity, May 2012. The Company must satisfy the terms of
the agreement, which include producing 30,000,000 gallons of biodiesel and
wage and job totals, to receive a permanent waiver of the forgivable loan. The loan is secured by
a security agreement including essentially all of the Companys assets.
8
Table of Contents
WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
The Company had issued a $116,132 letter of credit through American Trust Bank in favor of Black
Hills Energy (previously Aquila, Inc.). The letter of credit was effective for the period February
6, 2007 through February 6, 2010. The letter of credit expired in February 2010 and the Company
placed funds on deposit with Black Hills Energy. The deposit is to be adjusted annually based on
volume used.
During 2010 the Company entered into a financing agreement with a related party to produce a
specified number of biodiesel gallons and finance the feedstock purchases (See Note 7). The
agreement called for specified fees based on gallons produced and interest on feedstock purchased.
Interest was payable monthly at the prime rate plus 4.0% (7.25% at June 30, 2011 and December 31,
2010). Outstanding borrowings and fees under this agreement are payable upon sale of the
biodiesel. There was no outstanding balance under this agreement as of June 30, 2011 or December
31, 2010. The agreement was secured by feedstock and biodiesel inventory. Upon the sale of
biodiesel, credit may be extended when a new agreement is entered. As part of the agreement, the
Company was required to hedge 85% of the biodiesel gallons produced. During 2010 the Company was
not in compliance with these terms due to a pending sale with REG which was not finalized until
October 2010. The Company obtained a waiver for this violation. This agreement expired in 2011.
NOTE 5 MEMBERS EQUITY
The Companys operating agreement provides that the net profits or losses of the Company will be
allocated to the members in proportion to the membership units held. Members will not have any
right to take part in the management or control of the Company. Each membership unit entitles the
member to one vote on any matter which the member is entitled to vote. Transfers of membership
units are prohibited except as provided for under the operating agreement and require approval of
the board of directors.
NOTE 6 CASH FLOW DISCLOSURES
Supplemental disclosure for interest paid:
Three Months Ended | Three Months Ended | |||||||
June 30, 2011 | June 30, 2010 | |||||||
Cash paid for interest |
$ | 408,225 | $ | 568,129 | ||||
NOTE 7 RELATED PARTY TRANSACTIONS
The Companys general contractor (Renewable Energy Group, LLC) entered into an agreement to
construct the plant. On July 31, 2006, the general contractor formed a new related entity called
Renewable Energy Group, Inc. (REG, Inc.). The new entity, REG, Inc. is contracted to provide the
management and operational services for the Company. On August 9, 2006, REG, LLC assigned its
construction agreement to the newly formed entity REG, Inc., which became the general contractor.
The Company entered into an agreement with REG, Inc. to provide certain management and operational
services. The agreement provides for REG, Inc. to place a general manager and operations manager,
acquire substantially all feed stocks and basic chemicals necessary for production, and perform
substantially all the sales and marketing functions for the Company. The agreement with REG, Inc.
requires a per gallon fee, paid monthly, based on the number of gallons of biodiesel produced or
sold. In addition, REG will be paid an annual bonus based on a percentage of the plants
profitability with such bonus not to exceed $1,000,000 per year.
On June 5, 2009, the Company received from REG, Inc., a notice of termination of its management and
operational services agreement. The notification from REG, Inc. states that it shall constitute
such twelve month advance termination notice required by the terms of the agreement. The Company
and REG, Inc. were operating under an amended management and operational services agreement dated
November 25, 2009. The management and operational services agreement expired on August 1, 2010.
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WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
The Company had sales to REG, Inc. for the six months ended June 30, 2011 and 2010 of $83,030 and
$-0-, respectively. The Company incurred management and operational service fees, feed stock
procurement fees, and sales fees with REG, Inc. For the six months ended June 30, 2011 and 2010,
the Company incurred fees of $0 and $15,311, respectively. The amount payable to REG, Inc. as of
June 30, 2011 and December 31, 2010 was $0 and $11,113, respectively.
The Company purchased feedstocks under a financing agreement from a company related to a member of
the board of directors during 2010. The agreement called for specified fees based on gallons
produced and interest on feedstock purchases. For the six months ended June 30, 2011 and 2010, the
Company purchased feedstocks and incurred fees plus interest of $0 and $6,375,202, respectively.
During 2010, the Company entered into a short-term financing arrangement with this related company
to finance biodiesel production and feedstock purchases (Note 4). As of June 30, 2011 and December
31, 2010, the Company had no payables to this related party. This financing agreement expired in
2011.
A member of the board of directors is also a member of the board of directors of the Companys
depository bank.
NOTE 8 COMMITMENTS AND CONTINGENCIES
The Company has received refunds from an industrial new jobs training program. The Company funds
the program through diverting their state payroll tax withholdings. In the event these
withholdings arent enough to cover the bond payments, the Company will need to advance the funds
to cover the program costs. As of June 30, 2011, there was a total of $364,902 committed under the
program of which $208,553 remained to be covered by future state payroll tax withholdings.
In June 2007, the Company entered into a water use agreement with the City of Farley. The
agreement requires a minimum usage of 50,000 gallons per day over the life of the agreement, which
expires 2026. At June 30, 2011, the remaining estimated minimum cost under the agreement was
$582,560. The following is a schedule of future minimum costs under the agreement as of June 30,
2011:
2012 |
$ | 34,345 | ||
2013 |
36,548 | |||
2014 |
36,548 | |||
2015 |
36,548 | |||
2016 |
36,548 | |||
Thereafter |
402,024 | |||
Total |
$ | 582,560 | ||
Water usage costs for the six months ended June 30, 2011 and 2010 was $24,407 and $20,537,
respectively.
During 2011, the Company entered into a buy/sell agreement with an unrelated party to produce a
specified number of biodiesel gallons and finance the feedstock purchases. The agreement calls for
specified fees based on gallons produced. The Company purchases necessary feedstock from the
customer and payment is made when the biodiesel is sold. The amount payable under this agreement
as of June 30, 2011 was $3,729,388. The purchase contract guarantees a specified margin for
biodiesel produced thru year-end subject to a 90 day cancellation notice terminating December 31,
2011.
NOTE 9 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company adopted ASC Topic 815, Derivatives and Hedging. This guidance was intended to improve
financial reporting about derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an entitys financial
position, financial performance, and cash flows.
Objectives and Strategies for Holding Derivative Instruments
In the ordinary course of business, the company enters into contractual arrangements (derivatives)
as a means of managing exposure to changes in biodiesel prices and feedstock costs under
established procedures and controls. The company has established a variety of approved derivative
instruments to be utilized in each risk management program, as well as varying levels of exposure
coverage and time horizons based on an assessment of risk factors related to each hedging program.
As part of its trading activity, the Company uses option and swap contracts offered through
regulated commodity exchanges to reduce risk and is exposed to risk of loss in the market value of
biodiesel inventories and input costs.
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WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
Commodity Risk Management
Commodity price risk management programs serve to reduce exposure to price fluctuations on
purchases of feedstocks and biodiesel prices. The company enters into over-the-counter and
exchange-traded derivative commodity instruments to hedge the commodity price risk associated with
feedstocks and commodity exposures. There were no derivative commodity instruments open at June
30, 2011 or December 31, 2010.
Accounting for Derivative Instruments and Hedging Activities
All derivatives are designated as non-hedge derivatives. Although the contracts may be effective
economic hedges of specified risks, they do not meet the hedge accounting criteria of ASC 815. At
June 30, 2011 and December 31, 2010, the Company had no net derivative liabilities or assets
related to these instruments.
During the three months ended June 30, 2011 and 2010, net realized and unrealized losses on
derivative transactions were recognized in the statement of operations as follows:
Derivative (Gain) Loss | Derivative (Gain) Loss | |||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
June 30, 2011 | June 30, 2010 | |||||||||||||||
Statement of | Statement of | |||||||||||||||
Operations Location | (Gain) Loss | Operations Location | (Gain) Loss | |||||||||||||
Commodity contracts -
Heat oil swaps |
Cost of sales | $ | -0- | Cost of sales | $ | (524,603 | ) | |||||||||
Derivative (Gain) Loss | Derivative (Gain) Loss | |||||||||||||||
Six Months Ended | Six Months Ended | |||||||||||||||
June 30, 2011 | June 30, 2010 | |||||||||||||||
Statement of | Statement of | |||||||||||||||
Operations Location | (Gain) Loss | Operations Location | (Gain) Loss | |||||||||||||
Commodity contracts -
Heat oil swaps |
Cost of sales | $ | -0- | Cost of sales | $ | (355,692 | ) | |||||||||
NOTE 10 LIQUIDITY, BASIS OF PRESENTATION AND MANAGEMENTS PLANS
The accompanying financial statements have been prepared assuming that the Company will continue
as a going concern. For the six months ended June 30, 2011, the Company generated net income of
$608,447. We are not guaranteed similar results in the future since the sales contract could be
terminated within 90 days due to volatile and uncertain conditions. The Federal blenders credit
expired on December 31, 2009 until December 2010, when it was reinstated retro actively for 2010.
The credit is set to expire on December 31, 2011. The elimination or reduction in the credit may
materially impair the Companys ability to profitably produce and sell biodiesel. In an effort to
increase profit margins and reduce losses, the Company anticipates producing biodiesel from
refined animal fats, canola oil and soybean oil to lower input costs. The Company also plans to
seek to produce biodiesel on a toll basis where biodiesel would be produced using raw materials
provided by someone else. Finally, the Company plans to scale back on its production or
temporarily shut down the biodiesel plant depending on the Companys cash situation and its
ability to purchase raw materials to operate the plant.
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WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2011
The Company has also undertaken significant borrowings to finance the construction of its
biodiesel plant. The loan agreements with the Companys lender contain restrictive covenants,
which require the Company to maintain minimum levels of working capital, and minimum financial
ratios including; debt service coverage, fixed charge coverage and debt as a percentage of
earnings before interest, taxes, depreciation, and amortization (EBITDA). The Company was not in
compliance with certain restrictive covenants at June 30, 2011 and December 31, 2010, and it is
projected the Company will fail to comply with one or more loan covenants, including the working
capital covenant throughout the Companys 2011 fiscal year. This raises significant doubt about
whether the Company will continue as a going concern. These loan covenant violations constitute
an event of default under the Companys loan agreements which, at the election of the lender,
could result in the acceleration of the unpaid principal loan balance and accrued interest under
the loan agreements or the loss of the assets securing the loan in the event the lender elected to
foreclose its lien or security interest in such assets. The Companys ability to continue as a
going concern is dependent on the Companys ability to comply with the loan covenants and the
lenders willingness to waive any non-compliance with such covenants.
Management anticipates that if additional capital is necessary to comply with its loan covenants
or to otherwise fund operations, the Company may issue additional membership units through one or
more private placements. However, there is no assurance that the Company would be able to raise
the desired capital.
NOTE 11 SUBSEQUENT EVENTS
Management evaluated subsequent events through the date the financial statements were issued.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
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 and six
month periods ended June 30, 2011. You should read this discussion together with the financial
statements and notes and the information contained in our annual report on Form 10-K for the fiscal
year ended December 31, 2010.
Cautionary Statements Regarding Forward-Looking Statements
This report contains forward-looking statements that involve known and unknown risks and
relate to future events, our future financial performance and our expected future operations and
actions. In some cases, you can identify forward-looking statements by words such as may, will,
should, expect, plan, anticipate, believe, estimate, future, intend, could,
hope, predict, target, potential, or continue or the negative of these terms or other
similar expressions. These forward-looking statements are only our predictions based upon current
information and involve numerous assumptions, risks and uncertainties. Our actual results or
actions may differ materially from these forward-looking statements for many reasons, including
those described in this report. While it is impossible to identify all such factors, factors that
could cause actual results to differ materially from those estimated by us include, without
limitation:
| The status of the $1.00 per gallon blenders credit and other federal biodiesel
supports; |
| Our ability to enter into or retain toll manufacturing agreements or other
arrangements that shift responsibility for feedstock procurement and costs to other
parties; |
| Our ability to secure and retain service providers to procure feedstock for us and
to market our products; |
| The availability and terms of credit or equity financing needed to continue
operations if our income from operations is insufficient for us to continue producing
biodiesel; |
| Our ability to generate free cash flow to invest in our business and service our
debt; |
| Our ability to negotiate reduced loan payments with our lender; |
| Our ability to comply with our loan covenants and our lenders response to our
noncompliance with such covenants; |
| Our ability to market our products and our reliance on others to market our
products; |
| Fuel prices, diesel and biodiesel consumption and consumer attitudes regarding
biodiesel use; |
| Prices of vegetable oils (particularly soybean oil), animal fats and other
feedstock; |
| The continued imposition of tariffs or other duties on biodiesel exported to Europe; |
| Overcapacity within the biodiesel industry resulting in increased competition and
costs for feedstock and/or decreased prices for our biodiesel and glycerin; |
| Changes in soy-based biodiesels qualification under the Renewable Fuels Standard
(RFS and RFS2) and similar legislation; |
| The availability of soybean oil, refined animal fat or other feedstock that we can
process at our plant; |
| Our ability to locate alternative feedstock to respond to market conditions,
particularly since we lack the capability to pre-treat and process raw animal fats and
certain crude vegetable oils at our plant; |
| Laws, tariffs, trade or other controls or enforcement practices such as: national,
state and local energy policy; federal biodiesel tax incentives; and environmental laws
and regulations; |
||
| The biodiesel industrys ability to successfully lobby for legislation beneficial to
the biodiesel industry; |
| Changes in plant production capacity or technical difficulties in operating the
plant, including changes due to events beyond our control or due to intentional
reductions or shutdowns; |
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| Changes and advances in biodiesel production technology, including our competitors
ability to process raw animal fats or other feedstock which we cannot process; |
| Competition from alternative fuels; and |
| Other factors described in this report. |
We undertake no duty to update these forward-looking statements, even though our situation may
change in the future. We cannot guarantee future results, events, activity levels, performance, or
achievements. You should not 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 differ materially from what we currently expect. We qualify our
forward-looking statements by these cautionary statements.
Overview
Western Dubuque Biodiesel, LLC (we or us) was formed on November 14, 2005 as an Iowa
limited liability company. We own and operate a 30 million gallon per year biodiesel production
plant in Farley, Dubuque County, Iowa and produce and sell biodiesel and its primary co-product,
glycerin. We began producing biodiesel on August 1, 2007, but we have historically operated at less
than our capacity due to such factors as high feedstock prices and lack of demand for biodiesel.
For the three months covered by this report, we produced 6,190,892 gallons of biodiesel and
generated net income of $1,336,836. As of the date of this report, we are producing biodiesel under
a short-term master netting agreement which incorporates a feedstock purchase agreement and
biodiesel sales agreement.
We anticipate that lack of demand for biodiesel will continue into our 2011 fiscal year due to
uncertainty surrounding the Renewable Fuels Standard (RFS and RFS2) and the biodiesel tax credit
known as the blenders credit. The blenders credit is $1.00 per gallon of biodiesel blended and
allows biodiesel to be more competitive with petroleum diesel. The credit initially expired on
December 31, 2009. As a result, demand for biodiesel was drastically reduced in 2010, and many
producers, including us, reduced or stopped production. In December 2010, the credit was reinstated
and made retroactive to January 1, 2010 and will again expire on December 31, 2011. It remains
uncertain whether the one-year extension of the blenders credit for will be sufficient to
stimulate demand for biodiesel, and whether the credit will be renewed after December 31, 2011. In
addition, application of the RFS2 has remained unclear. To the extent RFS2 and the blenders credit
are not swiftly and effectively implemented, or if either of these supports expire or are
terminated, we will likely continue to experience lack of demand and instability in our business.
We continue to seek and negotiate arrangements with large companies such as Gavilon, ADM and
Renewable Energy Group, Inc. (REG) to provide us feedstock or financing to purchase feedstock.
Without such arrangements, we do not currently have sufficient working capital to purchase
feedstock for production and hold biodiesel until it can be sold. We are currently producing
biodiesel under a binding master netting arrangement. However, since the master netting arrangement
allows early termination upon relatively short notice, it must be considered a short term
arrangement. If we are unable to retain this agreement or replace it with a similar arrangement, we
anticipate we would have operating interruptions throughout the remainder of our 2011 fiscal year
and into 2012 because of our liquidity position and the lack of demand for biodiesel.
We are currently out of compliance with all of the financial covenants of our loan agreement
with our primary lender, Beal Bank Nevada (Beal Bank), and we anticipate that we will be out of
compliance with such covenants during at least the rest of 2011. Our net losses, lack of a
long-term relationship with a product marketer, our failure to satisfy our loan covenants and the
uncertainty of important federal biodiesel supports have raised doubts as to our ability to
continue as a going concern.
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Results of Operations for the Three Months Ended June 30, 2011
The following table shows the results of our operations and the percentage of revenues, cost
of sales, operating expenses and other items in relation to total revenues for the quarters ended
June 30, 2011 and 2010:
Three Months Ended | Three Months Ended | |||||||||||||||
Jun 30, 2011 | June 30, 2010 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Income Statement Data | Amount | Percent | Amount | Percent | ||||||||||||
Revenues |
$ | 21,032,641 | 100.00 | % | $ | 214,913 | 100.00 | % | ||||||||
Cost of Sales |
19,428,169 | 92.37 | % | 131,980 | 61.41 | % | ||||||||||
Gross Profit (loss) |
1,604,472 | 7.63 | % | 82,933 | 38.59 | % | ||||||||||
Operating Expenses |
259,018 | 1.23 | % | 122,683 | 57.08 | % | ||||||||||
Other Income (Expense) |
(8,618 | ) | (0.00 | )% | (360,868 | ) | 167.91 | % | ||||||||
Net Income (Loss) |
$ | 1,336,836 | 6.36 | % | $ | (400,618 | ) | 186.41 | % | |||||||
Revenues
Revenues from operations for the quarter ended June 30, 2011 were $21,032,641. Our revenues
were significantly higher than revenues for the same period in 2010 because we sold much less
biodiesel during the quarter ended June 30, 2010 due to the expiration of the blenders credit and
unfavorable market conditions.
Average B100 biodiesel prices for Iowa, as reported by the USDA National Weekly Ag Energy
Round Up, for the week of July 29, 2011 increased sharply to $5.25 $5.61, compared to $3.15 -
$3.30 for the same week in 2010. High fuel prices are attributed to instability in the Middle East
and other economic factors. However, diesel fuel prices per gallon remain lower than biodiesel
prices, which makes it difficult for us to sell our product. We expect these trends to continue
into 2011. Management anticipates that there may be increased demand for biodiesel under the EPAs
final RFS2 regulations discussed in our annual report on Form 10-K. There can be no assurance,
however, that the RFS2 will increase demand for biodiesel, and any increase may be offset by the
loss of the biodiesel blenders credit. If we cannot sell our biodiesel at acceptable prices for
sustained periods, we expect continued temporary shutdowns, and we may have to shut down the plant
permanently.
Industry-wide factors affect our operating and financial performance. Our operating results
are largely driven by the prices at which we sell our biodiesel and glycerin, feedstock costs and
other operating costs. In addition, our revenues are impacted by such factors as our dependence on
one or a few major customers to market and distribute our products; the intensely competitive
nature of our industry; the extensive environmental laws that regulate our industry; legislation at
the federal, state and local level; and changes in biodiesel supports and incentives.
Cost of Sales
The primary components of cost of sales from biodiesel production are raw materials
(feedstock; hydrochloric acid; methanol; and sodium methylate), energy (natural gas and
electricity), labor and depreciation on process equipment. Costs of sales for the three-month
period ending June 30, 2011 were significantly higher than sales for the same period in 2010,
primarily due to increased production.
Our plant can produce biodiesel from refined animal fats and crude and refined vegetable oils
(such as soybean oil). Corn oil and raw or crude animal fats must be refined before we process them
at our plant. Soybean oil prices remain high in comparison to prices at which we can sell our
biodiesel. Jacobsen Publishing Company reported that the central Illinois soybean oil price for
August 1, 2011 was $0.6153 per pound, as compared to
$0.39.44 per pound for the same time in 2010. Our ability to use feedstock other than soybean
oil and refined animal fats depends on whether we can gain access to a consistent feedstock supply
at competitive prices and obtain feedstock that has been pretreated for use at our plant if
necessary. Moreover, we do not currently have sufficient working capital to purchase feedstock for
production and hold biodiesel until it can be sold. Therefore, if we cannot obtain adequate
feedstock through tolling or financing arrangements, we expect temporary shutdowns to continue, and
we may have to shut down the plant permanently.
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Operating Expenses
Operating expenses were $259,018 for the three months ended June 30, 2011 and $122,683 for the
same period in 2010. Our operating expenses are primarily consulting and professional fees and
office and administrative expenses. We expect that our operating expenses will be less in future
periods if our reclassification and deregistration is approved, since we would not be required to
incur expenses related to preparing and filing reports with the SEC. (See Part II. Item 5. Other
Information for more information regarding the reclassification.)
Other Income (Expenses)
Other income
and expense for the three months ended June 30, 2011 was expense of $8,618, which
primarily consisted of interest expense of $225,465, partially offset by insurance proceeds of
$214,608 related to a replacement pump and 10 days of downtime. We expect that our interest expense
in future periods will be consistent; however, we do not expect we will have additional insurance
proceeds in future periods to offset such interest expense.
Results of Operations for the Six Months Ended June 30, 2011
The following table shows the results of our operations and the percentage of revenues, costs
of goods sold, operating expenses and other items in relation to total revenues for the six months
ended June 30, 2011 and June 30, 2010:
Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Income Statement Data | Amount | Percent | Amount | Percent | ||||||||||||
Revenues |
$ | 24,995,126 | 100.00 | % | $ | 214,913 | 100.00 | % | ||||||||
Cost of Sales |
23,697,635 | 94.81 | % | 1,164,158 | 541.69 | % | ||||||||||
Gross Profit (Loss) |
1,297,491 | 5.19 | % | (949,245 | ) | (441.69 | )% | |||||||||
Operating Expenses |
452,975 | 1.81 | % | 263,482 | 122.60 | % | ||||||||||
Other Income (Expense) |
(236,068 | ) | (0.94 | )% | (596,894 | ) | (277.74 | )% | ||||||||
Net Income (Loss) |
$ | 608,447 | 2.43 | % | $ | (1,809,621 | ) | (842.02 | )% | |||||||
Revenues
Our revenues are significantly higher in the six months ended June 30, 2011 than the same
period in 2010, primarily due to selling more biodiesel in 2011.
Cost of Sales
We sold significantly more biodiesel in the first six months of 2011, and our costs of sales
for the period are substantially more than our costs of sales for the same period in 2010, due
primarily to increased production.
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Operating Expenses
Our operating expenses were $452,975 and $263,482 for the six months ended June 30, 2011 and
2010, respectively. Our operating expenses are primarily due to expenses for consulting and
professional fees and office and administrative expenses. We expect that our operating expenses
will be less in future periods if our reclassification and deregistration is approved, since we
would not be required to incur expenses related to preparing and filing reports with the SEC. (See
Part II. Item 5. Other Information for more information regarding the reclassification.)
Other Income (Expenses)
Other income
and expense for the six months ended June 30, 2011 was expense of $236,068, which
primarily consisted of interest expense of $455,804, partially offset by insurance proceeds of
$214,608 related to a replacement pump and 10 days of downtime. We expect that our interest expense
in future periods will be consistent; however, we do not expect we will have additional insurance
proceeds in future periods to offset such interest expense.
Changes in Financial Condition for the Three Months Ended June 30, 2011
The following table sets forth our sources of liquidity at June 30, 2011 and December 31,
2010:
June 30, 2011 | December 31, 2010 | |||||||
Current Assets |
$ | 6,715,760 | $ | 2,770,835 | ||||
Current Liabilities |
$ | 26,426,761 | $ | 24,228,670 | ||||
Total Members Equity |
$ | 13,662,210 | $ | 13,053,762 |
Current Assets
The increase in current assets is primarily due to an increase in inventory (primarily raw
material and work in progress).
Current Liabilities
Our long-term debt is classified as a current liability due to our failure to meet the
financial covenants under our term loan. These loan covenant violations constitute an event of
default under our loan agreement, which, at our lenders election, could result in the acceleration
of the unpaid principal loan balance and accrued interest or a loss of the assets securing the loan
if the lender elects to foreclose the loan.
The increase in our current liabilities is primarily due to an increase in accounts payable.
Members Equity
The change in members equity is due to a decrease in the accumulated deficit from $13,176,334
to $12,512,887 due to net income of $1,391,836.
Plan of Operations for the Next 12 Months
Plant Operations
For the three months covered by this report, we produced 6,190,892 gallons of biodiesel and
generated net income of $1,391,836. As of the date of this report, we are producing biodiesel under
a short-term master netting arrangement. In the event of termination of our current arrangement, we
expect we would continue to seek similar arrangements. Management believes that our current
arrangements are promising in that they have allowed us to increase our biodiesel production.
Nonetheless, we expect to face continued liquidity issues as discussed throughout this report.
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We are operating at reduced employment levels because the biodiesel plant is experiencing
reduced production and shutdowns. The plant originally operated with 31 employees, over half of
which were laid off. As of June 30, 2011, we have increased our staff to 15 full-time employees,
including our general manager, Tom Brooks, and one part-time employee. We are seeking additional
employees to assist with increased production. We currently do not have an operations manager.
Operating Budget and Financing of Plant Operations
We have exhausted the funds available under our debt facilities and do not have further
commitments for funds from any lender. We do not believe that market conditions will be favorable
for us to secure additional debt or equity financing during 2011. However, management continues to
consider all opportunities to increase our liquidity, including through additional debt or equity
financing and joint ventures or other arrangements with strategic business partners.
We anticipate that we will continue to employ our current production strategy over the next 12
months, producing biodiesel only when tolling arrangements or other arrangements allow us to
maintain positive cash flows. However, our ability to do so depends on factors described throughout
this report, many of which are outside of our control. If we are unable to generate sufficient
revenue to finance our operations and service our debt, we may be forced to shut down the plant
temporarily or permanently.
Critical Accounting Estimates
Management uses 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.
Revenue Recognition
Revenue from the production of biodiesel and related products is recorded upon transfer of the
risks and rewards of ownership and delivery to customers. Interest income is recognized as earned.
Derivative Instruments and Hedging Activities
ASC 815, formerly Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, or SFAS No. 133, requires a company to evaluate its
contracts to determine whether the contracts are derivatives. Certain derivative contracts may be
exempt under ASC 815 as normal purchases or normal sales, which are contracts that provide for the
purchase or sale of something other than a financial instrument or derivative instrument that will
be delivered in quantities expected to be used or sold over a reasonable period in the normal
course of business. Generally, our forward contracts related to the purchase of soybean oil
feedstock and home heating oil contracts that correlate with feedstock are considered normal
purchases and, therefore, are exempted from the accounting and reporting requirements of ASC 815.
Contracts related to exchange traded commodities are considered non-hedge transactions, with
unrealized gains and losses recorded as a component of cost of sales. We do not have any forward
contracts for the period covered by this report.
Liquidity and Capital Resources
Cash Flows
Cash Flow from Operating Activities. We had net cash of $2,049,897 provided by operating
activities for the six months ended June 30, 2011, compared to $6,269,489 used in operating
activities for the six months ended June 30, 2010. This was due to increases in accounts payable
and increases in inventory partially offset by decreases in incentives receivables.
Cash Flow from Financing Activities. Net cash used in financing activities was $1,658,680 for
the six months ended June 30, 2011, as compared to net cash provided by financing activities of
$5,163,919 for the six months ended June 30, 2010. Cash provided by financing in 2010 was due to
the advances from Innovative Ag
Services (IAS). Cash used in the six months ended June 30, 2010 was less than in 2011 because our
loan payments were temporarily reduced in 2010. Our agreement with IAS is expired as of the date of
this report, and we are currently paying the full payments on our loan payments.
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Sources of Funds
Equity Financing. We used all of the proceeds from our equity offerings to fund the plant
construction and operations. We do not believe that market conditions will be favorable for us to
secure additional equity financing for at least the remainder of the 2011 fiscal year. However,
management continues to consider all opportunities to increase our liquidity, including through
additional debt or equity financing and joint ventures or other arrangements with strategic
business partners.
Debt Financing. In October 2006, we closed on our term loan with Marshall Bankfirst. In July
2009, state banking regulators shut down Marshall Bankfirst, and Beal Bank Nevada became our new
lead lender. The loan documents we executed with our lender describe the requirements of our term
loan in more detail. The loan term is seventy-four months, which consists of a construction phase
and a term phase. The term phase commenced on March 1, 2008. We selected the variable rate option
for the loan of 0.25% over the prime rate (3.50% at June 30, 2011). Monthly payments are $339,484
including interest at a variable rate. Payments are calculated in an amount necessary to amortize
the principal amount of this note plus interest over a 10-year period. The remaining unpaid
principal balance, together with all accrued but unpaid interest, is due in full on January 1,
2013. As of June 30, 2011, the outstanding balance on our term loan was $22,259,172. We have
exhausted the funds available under our debt facilities and do not have further commitments for
funds from any lender.
Our lender allowed us to make reduced payments on our term loan of $150,000 per month from
November 2009 to November 2010. However, payments are now payable and applied according to the
original terms of the loan agreement. We are currently discussing the possibility of further
reduced payments with our lender, but we have not entered into any alternative agreements with
regard to any future payments.
We executed a mortgage in favor of our lender creating a first lien on substantially all of
our assets, including our real estate, plant, all personal property located on our property and our
revenues and income. Due to our lenders security interest in our assets, we cannot sell our assets
without its permission, which could limit our operating flexibility. Additionally, our term loan
agreement imposes various covenants upon us that may restrict our operating flexibility. The term
loan requires us to: maintain up to $125,000 in a capital improvements reserve fund that we must
replenish as we use these funds for capital improvement expenditures; maintain certain financial
ratios; and obtain our lenders permission before making any significant changes in our material
contracts with third-party service providers. The term loan requires us to certify to our lender at
intervals designated in the term loan that we are meeting the financial ratios required by the loan
agreement.
We are not in compliance with all of the financial covenants in our loan agreement as of June
30, 2011, and management projects that we will fail to comply with one or more loan covenants
through at least part of our 2011 fiscal year. Failure to comply with such covenants constitutes a
default under our loan agreement. While we are in default, our lender may elect to take several
actions, including, without limitation, acceleration of the unpaid principal balance and accrued
interest or foreclosure on its mortgage and security interest. Such actions could result in the
loss of our assets and a permanent shutdown of our plant.
Although our lender has not elected to exercise its remedies as of the date of this report, it
may do so in the future. Our lender has not provided us a waiver of our failure to satisfy the
covenants or otherwise agreed not to take action. Our default has caused doubts about our ability
to continue as a going concern.
Government Programs and Grants. We have entered into a loan agreement with the Iowa Department
of Economic Development (IDED) for $400,000. This loan is part of the IDEDs Value Added Program
and $100,000 of the loan is forgivable. As of June 30, 2011, we owe $165,000. The loan requires us
to maintain production rates at our nameplate capacity and certain employment levels. Effective
September 17, 2009, IDED agreed to amend the loan requirements to extend the project completion
date and the project maintenance date. This means that beginning on May 31, 2011, we must have 30
full time employees and maintain those positions through May 31, 2013. Our failure to satisfy these
requirements constitutes a default, and may result in acceleration of the loan, as well as partial
or full repayment of the forgivable portion if IDED exercises the remedies available to it.
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On July 1, 2009, the USDA preliminarily approved our application for financial assistance. If
finalized as proposed, the arrangement would allow us to use a $10 million guarantee by the USDA to
secure a new $20 million loan from a third-party lender, which we expect we would use to replace
our existing debt financing. However, final approval and receipt of the funds is contingent upon
several conditions, some of which are outside of our control. For example, we do not have an
agreement with any third-party lender to lend us the funds. As a result, we may be unable to obtain
third-party funding or satisfy the requirements for receipt of funds under the USDA guarantee.
Distribution to Unit Holders
As of June 30, 2011, our board of directors had not declared any distributions.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. | Quantitative and Qualitative Disclosures about Market Risks |
We are a smaller reporting company, and are therefore not required to provide the disclosures
under this item.
Item 4. | Controls and Procedures |
Our management, including our Chief Executive Officer (the principal executive officer), Bruce
Klostermann, along with our Chief Financial Officer (the principal financial officer), George
Davis, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of June 30, 2011. Based on
this review and evaluation, these officers have concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods required by the forms and rules of the SEC; and to ensure that the information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
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 as of June 30, 2011, and there has been no change that has materially affected or is
reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
None.
Item 1A. | Risk Factors |
We are a smaller reporting company, and are therefore not required to provide the disclosures
under this item.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
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Item 3. | Defaults upon Senior Securities |
We are in default of the financial covenants contained in our term loan agreement with our
lender. Our failure to comply with these covenants is an event of default, entitling our lender to
exercise its remedies under the loan documents and applicable law, including, but not limited to,
acceleration of the unpaid principal balance and accrued interest and foreclosure of its mortgage
and security interest. As of the date of this report, our lender has also chosen not to exercise
its remedies. However, if we continue to be in default, our lender may not continue to forebear
from exercising such additional remedies.
Item 4. | (Removed and Reserved) |
Item 5. | Other Information |
On April 4, 2011, the board of directors announced its intent to engage in a reclassification
and reorganization of the Companys membership units. The proposed transaction will provide for the
reclassification of the Companys membership units into three separate and distinct classes. All
members will have the opportunity to vote on the decision to deregister. The board expects to hold
a combined special member meeting and annual meeting on September 21, 2011. Before the meeting,
members will receive a proxy statement announcing the meeting date and location and explaining the
proposed amendments to the companys operating agreement needed for the deregistration.
Based on the proposed meeting date of September 21, 2011, to be considered for inclusion in
the proxy statement for the meeting, member proposals must be submitted in writing to us by May 25,
2011 (approximately 120 days before the estimated date for the meeting). Proposals must comply
with the Securities and Exchange Commission regulations regarding the inclusion of member proposals
in the proxy materials. As the regulations make clear, submitting a proposal does not guarantee
that it will be included in our proxy materials.
Members who intend to present a proposal at the meeting without including such proposal in the
proxy statement must provide us notice of the proposal no later than August 7, 2011 (approximately
45 days before the estimated date for the meeting).
We reserve the right to reject, rule out of order, or take appropriate action with respect to
any proposal that does not comply with the foregoing and other applicable requirements. We suggest
that member proposals for the meeting be submitted by certified mail-return receipt requested or by
other means which permits proof of the delivery date.
Item 6. | Exhibits |
The following exhibits are filed as part of, or are incorporated by reference into, this
report:
Exhibit | ||||||
No. | Description | Method of Filing | ||||
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
|
* | ||||
101 | The following financial information from
Western Dubuque Biodiesel, LLCs Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2011, formatted in XBRL (eXtensible
Business Reporting Language): (i) Balance
Sheets as of June 30, 2011 and December 31,
2010, (ii) Statements of Operations for the
three and six months ended June 30, 2011 and
2010, (iii) Statements of Cash Flows for the
six months ended June 30, 2011 and 2010, and
(iv) the Notes to Financial Statements.
|
** |
(*) | Filed herewith. |
|
(**) | To be filed by amendment. |
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SIGNATURES
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.
WESTERN DUBUQUE BIODIESEL, LLC |
||||
Date: August 15, 2011 | /s/ Bruce Klostermann | |||
Bruce Klostermann | ||||
Vice Chairman and Director (Principal Executive Officer) |
||||
Date: August 15, 2011 | /s/ George Davis | |||
George Davis | ||||
Treasurer and Director (Principal Financial and Accounting Officer) |
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