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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
 
 
For the quarterly period ended July 31, 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 000-53112
 
SOY ENERGY, LLC
(Exact name of registrant as specified in its charter)
 
Iowa
 
20-4026473
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
4172 19th Street SW, Mason City, Iowa 50401
(Address of principal executive offices)
 
(641) 421-7590
(Registrant's 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.
x Yes     o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes     o No

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 x

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of September 14, 2011, we had 33,018 membership units outstanding.

1

INDEX



2




PART I    FINANCIAL INFORMATION

Item 1. Financial Statements

SOY ENERGY, LLC
(A Development Stage Company)
Condensed Balance Sheets

 ASSETS
July 31, 2011
 
October 31, 2010

 (Unaudited)
 

Current Assets

 

Cash and cash equivalents
$
4,968,119

 
$
6,352,955

Certificates of deposit
519,098

 

Accrued interest receivable
2,424

 
3,993

Inventory
15,292

 

Prepaid cost and other
55,503

 
99,976

Total current assets
5,560,436

 
6,456,924



 

Property, Plant and Equipment

 

Land and improvements
502,176

 
502,176

Buildings
3,272,616

 
3,272,616

Equipment
6,303,038

 
6,242,987

Accumulated depreciation
(18,284
)
 
(5,954
)
Total
10,059,546

 
10,011,825

Construction in progress
8,833,494

 
1,383,899

Net property, plant and equipment
18,893,040

 
11,395,724



 

Other Assets

 

Other
10,804

 

Assets held for sale
1,875,637

 
2,825,380

Escrow deposit
1,052,588

 
6,677,482

Debt service reserve
150,565

 
150,000

Debt issuance costs, net
132,716

 
148,257

Total other assets
3,222,310

 
9,801,119



 

Total Assets
$
27,675,786

 
$
27,653,767



Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.


3




SOY ENERGY, LLC
(A Development Stage Company)
Condensed Balance Sheets


LIABILITIES AND MEMBERS' EQUITY
 
July 31, 2011
 
October 31, 2010

 
 (Unaudited)
 

Current Liabilities
 

 

Accounts payable
 
$
1,006,709

 
$
96,224

Accrued expenses
 
204,929

 
132,081

Current maturities of long-term debt
 
353,606

 

Total current liabilities
 
1,565,244

 
228,305


 

 

Long-Term Debt, Net of Current Maturities
 
5,696,652

 
6,050,048


 

 

Members' Equity
 

 

Member contributions, 33,018 units issued and oustanding
 
31,031,572

 
31,031,572

Deficit accumulated during development stage
 
(10,617,682
)
 
(9,656,158
)
Total members' equity
 
20,413,890

 
21,375,414


 

 

Total Liabilities and Members’ Equity
 
$
27,675,786

 
$
27,653,767


Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.

4

SOY ENERGY, LLC
(A Development Stage Company)
Condensed Statement of Operations


Three Months Ended
 
Three Months Ended
 
Nine Months Ended
 
Nine Months Ended
 
From Inception (December 15, 2005) to

July 31, 2011
 
July 31, 2010
 
July 31, 2011
 
July 31, 2010
 
July 31, 2011

(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
Revenues
$

 
$

 
$

 
$

 
$



 

 

 

 

Operating Expenses

 

 

 

 

General and administrative
271,591

 
73,969

 
607,712

 
185,461

 
2,216,296

Professional fees
64,971

 
193,945

 
227,618

 
535,895

 
2,094,465

Impairment
175,743

 

 
175,743

 
630,863

 
7,729,231

Total operating expenses
512,305

 
267,914

 
1,011,073

 
1,352,219

 
12,039,992



 

 

 

 

Operating Loss
(512,305
)
 
(267,914
)
 
(1,011,073
)
 
(1,352,219
)
 
(12,039,992
)


 

 

 

 

Other Income (Expense)

 

 

 

 

Interest income
6,265

 
11,984

 
43,776

 
35,249

 
1,429,887

Other income
1,072

 
491

 
5,773

 
491

 
20,834

Interest expense

 

 

 

 
(28,411
)
Total other income, net
7,337

 
12,475

 
49,549

 
35,740

 
1,422,310



 

 

 

 

Net Loss
$
(504,968
)
 
$
(255,439
)
 
$
(961,524
)
 
$
(1,316,479
)
 
$
(10,617,682
)
 
 
 
 
 

 

 

Weighted Average Units Outstanding - Basic and Diluted
33,018

 
33,018

 
33,018

 
33,018

 
24,936



 

 

 

 

Net Loss Per Unit - Basic and Diluted
$
15.29

 
$
(7.74
)
 
$
(29.12
)
 
$
(39.87
)
 
$
(425.80
)






Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.







5

SOY ENERGY, LLC
(A Development Stage Company)
Condensed Statements of Cash Flows
 
Nine months ended
 
Nine months ended
 
From Inception (December 15, 2005)
 
July 31, 2011
 
July 31, 2010
 
to July 31, 2011
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
Cash Flows from Operating Activities

 
 
 
 
Net loss
$
(961,524
)
 
$
(1,316,479
)
 
$
(10,617,682
)
Adjustments to reconcile net loss to net cash used for operating activities:

 

 

Depreciation and amortization
12,330

 
1,198

 
20,027

Loss on sale of assets held for sale
45,000

 

 
45,000

Noncash interest income
(5,708
)
 

 
(36,454
)
Impairment of long-lived assets
175,743

 
630,863

 
7,729,231

Write off of construction services related to terminated agreement

 

 
50,000

Write off of debt issuance costs

 

 
25,000

Expenses financed with long-term debt

 

 
50,048

Changes in operating assets and liabilities:

 

 

Accrued interest receivable
1,569

 
880

 
(2,424
)
Inventory
(15,292
)
 

 
(15,292
)
Prepaid costs and other
(146,822
)
 
(7,915
)
 
(151,798
)
Accounts payable
81,622

 
56,307

 
117,210

Accrued expenses
72,848

 
3,208

 
204,929

Net cash used for operating activities
(740,234
)
 
(631,938
)
 
(2,582,205
)


 

 

Cash Flows from Investing Activities

 

 

Capital expenditures
(323,836
)
 
(907
)
 
(15,116,300
)
Proceeds from disposal of property and equipment

 

 
1,725,000

Proceeds from disposal of assets held for sale
200,000

 
5,561

 
205,818

Escrow deposits, net

 
(250,000
)
 
(8,000,000
)
Payments for design services deposit

 

 
(5,450,000
)
Refund of design services deposit

 

 
3,300,000

Payments for construction deposit

 

 
(2,500,000
)
Refund of construction deposit

 

 
2,450,000

Payments for certificates of deposit
(774,820
)
 

 
(2,724,820
)
Proceeds from maturing certificates of deposit
255,722

 

 
2,205,722

Net cash used for investing activities
(642,934
)
 
(245,346
)
 
(23,904,580
)


 

 

Cash Flows from Financing Activities

 

 

Payments for debt issuance costs

 
(40,000
)
 
(175,000
)
Funding debt service reserve

 

 
(150,000
)
Members' contributed capital

 

 
31,968,000

Payments for offering costs

 

 
(186,428
)
Payments on long-term debt
(1,668
)
 

 
(1,668
)
Net cash (used for) provided by financing activities
(1,668
)
 
(40,000
)
 
31,454,904



 

 

Net (Decrease) Increase in Cash and Cash Equivalents
(1,384,836
)
 
(917,284
)
 
4,968,119



 

 

Cash and Cash Equivalents at Beginning of Period
6,352,955

 
19,826,065

 



 

 

Cash and Cash Equivalents at End of Period
$
4,968,119

 
$
18,908,781

 
$
4,968,119



Nine months ended
 
Nine months ended
 
From Inception (December 15, 2005)

July 31, 2011
 
July 31, 2010
 
to July 31, 2011

(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
 
 
 
 
 
Supplemental Cash Flow Information

 

 

Interest expense paid
$

 
$

 
$
26,667

Capitalized interest paid
227,472

 

 
361,028




 


 


Supplemental Schedule of Noncash Investing and Financing Activities


 


 


Construction-in-progress in accounts payable
$
818,744

 
$

 
$
879,380

Equipment in accounts payable
10,119

 

 
10,119

Assets held for sale reclassified to construction-in-progress
529,000

 

 
529,000

Prepaid costs reclassified to construction-in-progress
95,000

 

 
95,000

Amortization of loan fees, discounts and prepaid costs capitalized as construction-in-progress
102,910

 

 
102,910

Payment of construction-in-progress with escrow deposit
5,630,037

 

 
6,953,301

Property and equipment financed with long-term debt

 

 
6,000,000

Assets held for sale reclassified to prepaid costs

 

 
95,000

Long-term debt issued to pay operating expenses

 

 
50,048

Construction-in-progress applied against design services deposit

 

 
963,675

Design services deposit applied against accounts payable to related party

 

 
431,696

Property and equipment returned for member units

 

 
750,000

Property and equipment reclassified to assets held for sale

 

 
3,557,061







Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.








6

SOY ENERGY, LLC
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
July 31, 2011

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the year ended October 31, 2010, contained in the Company's Form 10-K.

In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company's financial position as of July 31, 2011 and the results of operations and cash flows for all periods present.

Nature of Business

Soy Energy, LLC, a development stage Iowa limited liability company, (the Company) was originally organized to develop, own and operate a 30 million gallon per year (MGY) production biodiesel facility between Cleghorn and Marcus, Iowa in Cherokee County. The Company was formed December 15, 2005 to have a perpetual life. As of July 31, 2011, the Company is in the development stage with its efforts being principally devoted to organizational activities and construction of improvements to the Mason City, Iowa plant, which will produce 30 MGY of biodiesel. The Company anticipates construction completion and commencement of operations in September 2011.

Accounting Estimates

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property, plant and equipment and related assumptions related to impairment testing and the carrying value of assets held for sale. In addition, the Company estimates that it has the necessary capital to finish the construction of improvements to get the plant operational. Actual results may differ from previously estimated amounts and such differences may be material to the financial statements.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and depreciated over estimated service lives of related assets using the straight-line method of accounting. Property, plant and equipment undergoing development that is not in service is shown in the balance sheet as construction-in-progress and is not depreciated. Estimated service lives computing depreciation for financial reporting are as follows:

Description
 
Years
Buildings
 
39
Equipment
 
2 to 10

Ordinary maintenance and repairs are expensed as incurred. Cost of renewals and betterments are capitalized in appropriate property, plant and equipment accounts and depreciated as discussed above.

The Company capitalizes construction costs as construction-in-progress until the assets are placed in service. The Company had construction-in-progress of approximately $8,833,000 and $1,384,000 as of July 31, 2011 and October 31, 2010, respectively, relating to the Mason City, Iowa plant improvements.

Construction-in-Progress

The Company continues to make payments for the construction of a 30 MGY plant. The Company anticipates the construction will cost approximately $9,055,000, including capitalized interest, insurance, and certain assets previously held for sale now

7

SOY ENERGY, LLC
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
July 31, 2011

utilized in construction in progress, with approximately $222,000 remaining at July 31, 2011. The Company capitalized interest of approximately $245,000, including amounts accrued, during the nine months ended July 31, 2011.

Debt Issuance Costs

The Company had unamortized debt issuance costs of approximately $133,000 and $148,000 at July 31, 2011 and October 31, 2010, respectively. Accumulated amortization at July 31, 2011 and October 31, 2010 was approximately $17,000 and $2,000, respectively. The Company capitalized the amortization of debt issuance costs as part of the construction-in-progress during the nine months ended July 31, 2011 of approximately $15,000.

Long-Lived Assets

The Company reviews its long-lived assets, such as property, plant and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. During the quarter ended July 31, 2011, the Company recorded an impairment charge totaling approximately $176,000 related to assets held for sale.

Fair Value of Financial Instruments

The Company follows guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company believes the carrying value of cash and equivalents, escrow deposit, debt service reserve, accounts payable, and other working capital items approximate fair value due to the short maturity nature of these instruments. The Company believes the carrying amount of the long-term debt approximates the fair value due to terms of the debt approximating the current market interest rates. The Company is also considering the possibility of raising additional equity financing to increase working capital.


2.    LIQUIDITY

The Company is a developmental stage company and has no operating revenues. The Company has a biodiesel facility in Mason City, Iowa and is in the process of constructing improvements to the plant. The Company anticipates that operations will commence in September 2011 and believes current cash reserves and a line-of-credit from a commercial bank, subject to prices of commodities, will be sufficient to fund construction and all of operations through July 2012. The Company is in the process of obtaining a line-of-credit with a commercial bank.

8

SOY ENERGY, LLC
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
July 31, 2011


3.    FAIR VALUE MEASUREMENTS

Assets held for sale, with a carrying amount of approximately $2,055,000 at April 30, 2011, were written down to fair value of approximately $1,876,000. The fair value of the assets held for sale were based on third party information and knowledge of sales of similar assets, which is considered a Level 2 input in the valuation hierarchy. The resulting impairment charge of approximately $176,000 was included in earnings for the quarter ended July 31, 2011.

4.    ASSETS HELD FOR SALE

The Company is actively working to sell the assets held for sale. These assets have been recorded at their estimated selling price, less estimated selling costs. The fair value of these assets was determined based on recent sales of similar equipment.

Amounts included in assets held for sale are as follows:

 
July 31, 2011
 
October 31, 2010*
Land
$
250,262

 
$
250,262

Equipment
1,625,375

 
2,575,118

Total assets held for sale
$
1,875,637

 
$
2,825,380


* Derived from audited financial statements.

5.    LONG-TERM DEBT

The Company has a term loan for $6,000,000 with a financial institution with a fixed rate of 5.0% until October 2016. The interest rate will then adjust to the greater of the five-year LIBOR swap rate plus 3.5% or 5.0%. The Company makes monthly interest only payments on the term loan until November 1, 2011, followed by 120 monthly principal and interest payments sufficient to fully amortize the principal balance at maturity in September 2021.

The Company has a non-interest bearing note with the same financial institution for $77,595 which will be due in full in September 2021. The carrying value of the loan is shown net of unamortized discount of $25,669 and $27,547 as of July 31, 2011 and October 31, 2010, respectively, and is calculated using a 5.0% market interest rate. The amortization of the debt discount is recognized as interest costs.

The loans are secured by substantially all business assets and are subject to various financial and non-financial covenants that limit distributions, capital expenditures, and require minimum debt service coverage requirements. The Company negotiated a change to the loan agreements with the financial institution in March 2011 whereby a covenant calculation was clarified as well as certain defined terms.

Amounts included in long-term debt are as follows.

 
July 31, 2011
 
October 31, 2010*
Term loan
$
5,998,332

 
$
6,000,000

Term loan
51,926

 
50,048

Total long-term debt
6,050,258

 
6,050,048

Less current maturities
353,606

 

 
$
5,696,652

 
$
6,050,048


* Derived from audited financial statements.

9

SOY ENERGY, LLC
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
July 31, 2011


The estimated maturities of long-term debt, net of unamortized discount, at July 31, 2011 are as follows:

2012
$
353,606

2013
492,538

2014
517,737

2015
544,225

2016
572,069

Thereafter
3,570,083

Total
$
6,050,258


6.    COMMITMENTS AND CONTINGENCIES

Construction Agreement

On August 11, 2010, the Company entered into a construction agreement with an unrelated party (contractor) for the design and construction of modifications of the Mason City, Iowa biodiesel facility allowing for the use of multiple feedstocks. Substantial completion of the work shall be achieved no later than 270 days after the date of notice to proceed has been delivered. The notice to proceed was delivered on October 1, 2010, so the date of which substantial completion of the work to be achieved is July 1, 2011. The agreement includes a grace period clause in which it is possible that certain amounts could be paid to the Company. The Guaranteed Maximum Price of the project is $8,000,000. The amount of the Guaranteed Maximum Price was deposited into an escrow account to be drawn upon as work progresses. The Company may terminate the agreement with seven days notice upon written request without cause; however, the contractor is due any amounts incurred for work completed. The Company may terminate the agreement with cause with seven days notice whereby any unpaid work done by the contractor will only be paid to the extent the Company's costs and expenses to complete the project are less than the unpaid balance of the Cost of the Work. If the costs and expenses to complete the project exceed the Cost of the Work the contractor shall pay the excess. The Company had incurred approximately $7,815,000 on this contract as of July 31, 2011, which is included in construction-in-progress.

Marketing Agreement

On August 12, 2010, the Company entered into a marketing agreement with an unrelated party whereby the marketer would sell and market all of the biodiesel produced by the Company. In the event that the Company is not producing biodiesel by July 15, 2011 either company shall have the option to terminate the agreement with 21 days written notice. The Company shall pay the marketer a fee. The agreement shall commence on the effective date, August 12, 2010, and has an initial term with options to renew for additional terms. Neither company has terminated the agreement and believes it will continue when operations commence. If either party breaches the contract, the other party may terminate the agreement if the breach is not cured within 30 days of written notice. This agreement may also be terminated by mutual consent of both parties.

Agreement for Private Development

On February 3, 2011, the Company entered into a development agreement with the City of Mason City, Iowa providing for the payment of semi-annual Tax Increments to the Company for five years, beginning December 1, 2012, on the construction of the existing facility and eight years, beginning December 1, 2013, on the expansion of the existing facility totaling up to, but not to exceed, approximately $623,000. The Company has agreed to meet certain employment related hiring and retention requirements through December 31, 2021.

Crude Corn Oil Purchase Agreement

On June 19, 2008, the Company entered into a three year contract with an unrelated party to purchase 820,000 pounds of corn oil per month at a price determined substantially by adding $0.24 per pound, the Base Price, to 89% of the excess of the NYMEX Heating Oil First Nearby Contract Average Daily Settlement Price for the related calendar month over the Base Price. The contract provides the Company the option to purchase additional corn oil at the prevailing market price. The agreement also provides for its renewal in one year increments unless terminated by either party with 90 days notice.

10

Item 2. Management's 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 nine month periods ended July 31, 2011. This discussion should be read in conjunction with the financial statements and notes and the information contained in our annual report on Form 10-K for the fiscal year ended October 31, 2010. Unless otherwise stated, references in this report to particular years or quarters refer to our fiscal years ended in October and the associated quarters of those fiscal years.

Forward Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "will," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to, those business risks and factors described elsewhere in this report, in our other Securities and Exchange Commission filings, as well as those listed below.

Overcapacity within the biodiesel industry;
Our ability to successfully install equipment to make the Mason City biodiesel production facility a multi-feedstock capable plant;
Our ability to effectively operate the Mason City biodiesel production facility and manage our business;
Changes in our business strategy, capital improvements or development plans;
Availability and costs of feedstock, particularly soy oil, animal fats and corn oil;
Actual biodiesel and glycerin production varying from expectations;
Changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices such as national, state or local energy policy; federal biodiesel tax incentives; or environmental laws and regulations that apply to the Mason City biodiesel production facility;
Changes in the weather or general economic conditions impacting the availability and price of vegetable oils and animal fats;
Total U.S. consumption of diesel;
Weather changes, strikes, transportation or production problems causing supply interruptions or shortages affecting the availability and price of feedstock;
Changes in interest rates or the availability of credit;
Our ability to generate free cash flow to invest in our business;
Our potential liability resulting from future litigation;
General economic conditions;
Our ability to sell assets held for sale at their carrying value minus selling costs;
Changes and advances in biodiesel production technology;
Restrictive covenants in our loan agreement;
Competition from other alternative fuels; and
Other factors described elsewhere in this report.

We undertake no duty to update these forward looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements which speak only as of the date of this report. You should read this report completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward looking statements by these cautionary statements.

Overview

We are a development stage Iowa limited liability company with no prior operating history. In September 2010, we completed the purchase of a biodiesel production facility located in Mason City, Iowa which was in bankruptcy. We engaged Ball Industrial Services, LLC ("Ball") to retrofit the biodiesel production facility in order to provide greater feedstock flexibility for the biodiesel production facility. Pursuant to our agreement, Ball will provide design, engineering, procurement, testing, training, and construction services and labor, materials, supplies and equipment for modifications to the Mason City biodiesel production facility.


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We are in the process of testing the biodiesel production facility and commencing operations. We have produced biodiesel on a test basis in order to determine that the biodiesel production facility is operating properly. We have identified a few minor issues that we are rectifying and we are in the process of completing staff training on the proper operation of the biodiesel production facility. We are not currently processing corn oil but we anticipate completing staff training on the pretreatment of corn oil soon. Once we have completed our staff training, we anticipate processing corn oil as a feedstock to produce biodiesel. We anticipate that we will generate our first revenue from biodiesel sales during the fourth quarter of 2011.

On March 18, 2011, we entered into a second amendment to our loan agreement with OSM-REO FF, LLC (OSM), which is our primary lender. The purpose of this amendment was to define certain terms in the loan agreement which related to our covenant calculations. This amendment clarified our obligations pursuant to the loan agreement.

We are in the process of negotiating an operating line of credit with First Citizens National Bank ("First Citizens") which will be used to purchase raw materials to operate the biodiesel plant. Management believes that this operating line of credit will be in place by the end of September 2011. Management anticipates that the line of credit will have a principal amount of $4 million which will have a maturity date of October 2012.

We anticipate depending on our marketer to sell our biodiesel at profitable prices. On August 12, 2010, we entered into a biodiesel marketing agreement with RPMG, Inc. (the "Marketing Agreement"). Pursuant to the terms of the Marketing Agreement, we agreed that RPMG will market all of the biodiesel we may produce during the term of the Marketing Agreement, subject to our right to enter into tolling arrangements that will not be subject to the Marketing Agreement. The Marketing Agreement provides that if we have not commenced operations on or before July 15, 2011, then either party may terminate the Marketing Agreement by giving twenty-one days written notice to the other party. We do not anticipate the Marketing Agreement will terminate even though we commenced operations after August 15, 2011.

Iowa recently passed a law that provides incentives for further use of biofuels in Iowa, including biodiesel. This law extends the current biodiesel tax credit of 2 cents per gallon for retailers who sell diesel containing 2% biodiesel (B2) into 2012. Also, the law provides for a 4.5 cents per gallon tax credit for retailers who sell diesel containing 5% biodiesel (B5) for 2012 through 2017. In addition to the retailer credit, the Iowa law provides a biodiesel producer incentive of 3 cents per gallon of biodiesel produced in Iowa for 2012, 2.5 cents per gallon in 2013 and 2 cents per gallon in 2014. These producer incentives are capped at the first 25 million gallons produced by each biodiesel production facility. These Iowa incentives are expected to increase biodiesel production in Iowa and may allow us to operate the biodiesel plant at times when other biodiesel producers in the United States cannot profitably operate.

Biodiesel production in the United States has been significantly more robust during 2011 compared to 2010. During 2010, the vast majority of the biodiesel production facilities in the United States were shutdown due to uncertainty regarding the federal biodiesel blenders' credit and the biodiesel use mandate pursuant to the Federal Renewable Fuels Standard (RFS). Under the RFS, the United States is required to blend 800 million gallons of biodiesel in 2011. Further, biodiesel may be used to satisfy a portion of the RFS which cannot be met by cellulosic ethanol producers. Biodiesel may also be used to fulfill the RFS in future years provided that demand for ethanol does not increase beyond its current levels due to restrictions on the amount of ethanol that can be blended into the United States gasoline market. All of these factors may lead to increased biodiesel demand and corresponding increases in biodiesel prices. However, the total biodiesel production capacity for the United States, as reported by the National Biodiesel Board, is approximately 2.7 billion gallons of biodiesel per year, which is still significantly greater than the RFS for 2011. If this idled biodiesel production capacity were to come back online, it could result in an oversupply of biodiesel in the market.

The biodiesel industry is benefited by a federal tax incentive called the Volumetric Ethanol Excise Tax Credit ("VEETC"). VEETC is frequently referred to as the "blenders' credit." VEETC provides a $1.00 per gallon tax credit for biodiesel produced in the United States. The blenders' credit is scheduled to expire on December 31, 2011. It is unclear whether this tax incentive will be reinstated. When the blenders' credit was allowed to expire at the end of 2009, most biodiesel producers in the United States ceased operating. Management anticipates that if the blenders' credit is not renewed, it may lead to significantly lower biodiesel demand and prices which may make biodiesel production unprofitable. While management anticipates that there will be some demand for biodiesel even without the blenders' credit due to the RFS, the price of biodiesel may be too low for us to operate the biodiesel plant profitably.

To date, we have not generated any revenues and we do not anticipate generating any revenues until we complete the modifications at the Mason City biodiesel production facility and begin operations. We anticipate that we will generate our first revenues during our fourth quarter of 2011. Since we had not commenced operations during our third quarter of 2011, we do not yet have comparable income, production or sales data. From our inception through July 31, 2011, we have incurred accumulated losses of approximately $10,618,000.

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Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents we have on hand, various certificates of deposit and the proceeds of our loans from our primary lender. As of July 31, 2011, we had cash and equivalents of approximately $4,968,000 and we had certificates of deposit of approximately $519,000. In addition, the balance of our escrow account as of July 31, 2011 was approximately $1,053,000. The funds in our escrow account are used to pay our construction costs. We expect to spend the next 12 months commencing operations at the Mason City biodiesel production facility and producing biodiesel and its co-products.

We are in the process of negotiating an operating line of credit with First Citizens which is anticipated to have a principal amount of $4 million. We anticipate using these funds to purchase raw materials to operate the biodiesel production facility. However, if circumstances change, management anticipates that it may need to secure additional capital to operate the biodiesel production facility.

On February 3, 2011, we entered into a development agreement with the City of Mason City, Iowa. This agreement provides that the City of Mason City, Iowa will make certain incentive payments to us based on the increased property tax revenue for 5 years, beginning December 1, 2012, related to the initial construction of the Mason City biodiesel production facility and 8 years, beginning December 1, 2013, based on the equipment installation at the Mason City biodiesel production facility, totaling up to, but not to exceed, approximately $623,000. The agreement also provides for a new water main extension to our site estimated to cost approximately $120,000, of which 25% of the cost will be paid by the City of Mason City and the remaining 75% will be paid using funds held in our escrow account. Additionally under the development agreement, we have agreed to meet certain employment requirements related to hiring and retention through December 31, 2021.

Comparison of the Three and Nine Months Ended July 31, 2011 and 2010

We are currently in the development stage and do not anticipate commencing operations until our fourth quarter of 2011. We are still working to achieve full operating capacity which we anticipate will be complete by the end of September 2011.

During the three and nine months ended July 31, 2011, we had more general and administrative expenses compared to the same periods of 2010, primarily because we have added additional staff in anticipation of commencing operations. We had significantly less professional fees during the three and nine month periods ended July 31, 2011 compared to the same periods of 2010 because we completed the acquisition of the Mason City plant during our 2010 fiscal year and we also completed our debt financing and construction contracts during our 2010 fiscal year. All of these projects required us to use a significant amount of professional services during our 2010 fiscal year. We had an impairment loss of approximately $631,000 during the nine months ended July 31, 2010 due to an impairment analysis we performed as of April 30, 2010 related to the assets that we held for sale. The purpose of the impairment analysis was to adjust the carrying amount of these assets on our financial statements to their current fair values. We had an impairment loss of approximately $176,000 during the three months ended July 31, 2011 related to a similar impairment analysis we completed during our second quarter of 2010. We did not have any other impairment losses during our 2011 fiscal year. Our interest income is related to interest income we earned on our cash and certificates of deposit.

Changes in Financial Condition During the Nine Months Ended July 31, 2011

Our cash and cash equivalents were lower at July 31, 2011 compared to October 31, 2010 primarily due to the fact that we used proceeds of short-term certificates of deposit to purchase longer term certificates of deposit that are no longer classified as a cash equivalent. We also used cash during the nine months ended July 31, 2011 related to our continued development of our project. As of July 31, 2011, we had significantly more construction in progress compared to October 31, 2010 due to our continued construction projects related to the biodiesel plant front-end.

Our assets held for sale were lower at July 31, 2011 compared to October 31, 2010 due to a combination of a reclassification of some of our equipment held for sale into our construction in progress at July 31, 2011, along with the sale of a piece of equipment and impairment charges recognized during our 2011 fiscal year. The balance of funds in our escrow account was lower at July 31, 2011 compared to October 31, 2010 due to continuing payments our primary lender has made to Ball related to the construction of our biodiesel plant front-end.

Our accounts payable was higher at July 31, 2011 compared to October 31, 2010 due to outstanding payables to Ball related to our construction project. Our current maturities of long-term debt was higher at July 31, 2011 compared to October 31, 2010 because we will start making payments on our loans starting in November 2011. Current maturities on our long-term debt includes payments that will be made on our long-term debt within one year of July 31, 2011.


13

Debt Financing
    
On April 2, 2010, we entered into a loan agreement with OSM.  Subject to the terms of the loan agreement, OSM agreed to lend us $6,000,000.  The initial interest rate is 5%.  In October 2016, the interest rate will adjust to the 5-year London Inter-bank Offered Rate (LIBOR) swap rate plus 3.5%, with a minimum annual interest rate of 5%.  During the first year of the loan, we will be required to only pay interest on outstanding amounts.  Beginning in November 2011, we will make scheduled principal and interest payments amortized over a ten-year period. The maturity date of the loan is in September, 2021.
 
The loan agreement requires us to adhere to various covenants which restrict our operating flexibility.  The loan agreement restricts our ability to make distributions to our members, to further pledge our assets for other financing that we might require, and to make payments on subordinated debt we acquire.  In addition, the loan agreement requires us to maintain certain financial ratios and to obtain OSM's permission before taking certain actions affecting our business and material contracts.
 
At closing, we executed a mortgage and security agreement in favor of OSM creating a first lien on the land and property at the Mason City plant. As a result, we must obtain OSM's permission to sell these assets, which could limit our operating flexibility. 
 
The loan agreement provides that certain actions will constitute defaults, which would allow OSM to demand immediate repayment of the entire loan amount and foreclose its lien on our property. 

On September 30, 2010, we entered into an Amended and Restated Loan Agreement with OSM.  The purpose of amending and restating the loan agreement was to address certain items related to closing on the loan and to address additional details related to the Construction and Design Agreement and our anticipated biodiesel production facility modifications to make it multi-feedstock capable.

On March 18, 2011, we entered into a second amendment to the loan agreements with OSM, whereby certain defined terms related to a covenant calculation were clarified.

As of July 31, 2011, we had approximately $6,050,000 outstanding pursuant to our OSM loans and interest accrued at 5% per year.

Critical Accounting Estimates
    
Management uses various estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Accounting estimates that are the most important to the presentation of our results of operations and financial condition, and which require the greatest use of judgment by management, are designated as our critical accounting estimates. We have the following critical accounting estimate:

          We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment testing for assets requires various estimates and assumptions, including an allocation of cash flows to those assets and, if required, an estimate of the fair value of those assets. We review assets held for sale at each reporting date to determine that the carrying value is equal to or greater than the estimated net selling price. The carrying value of assets held for sale is based on the ability to sell or utilize these assets. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management's assumptions, which do not reflect unanticipated events and circumstances that may occur.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is not required to provide the information required by this item because it is a smaller reporting company.

Item 4.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company's management, the Company's

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principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") were effective as of July 31, 2011 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting during the quarter ended July 31, 2011, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers' compensation claims, tort claims, or contractual disputes. We are not currently subject to any material legal proceeding or claims. Management does not believe that there are currently any material unasserted claims against us.

Item 1A. Risk Factors

The Company is not required to provide the information required by this item because it is a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
We did not sell any membership units during the three months ended July 31, 2011. None of our membership units were purchased by or on behalf of the Company or any affiliated purchaser (as defined in Rule 10b-18(a)(3) of the Exchange Act) of the Company during the three months ended July 31, 2011. On February 28, 2008 we filed a Form 10 to register our securities under the Securities Exchange Act of 1934. Our registration statement on Form 10 became effective on May 28, 2008. Our SEC file number is 000-53112.

ESTIMATED USE OF PROCEEDS
 
Use of Proceeds
 
Amount
 
Equity Proceeds Raised
 
$
31,782,000

(1) 
Estimated Proceeds Used in Development and Construction of biodiesel facility in Marcus, Iowa.
 
(8,593,000
)
(2) 
Estimated Proceeds Used in Development and Purchase of biodiesel facility in Mason City, Iowa.
 
(7,982,000
)
 
Proceeds used to purchase the Mason City biodiesel production facility
 
(4,000,000
)
(3) 
Estimated Proceeds Used in Construction of Improvements at Mason City biodiesel production facility
 
(7,827,000
)
 
Proceeds required to complete related improvements on the Mason City biodiesel production facility
 
(173,000
)
 
Interest income earned on cash and equivalents
 
1,429,000

 
Estimated proceeds remaining for start-up of Mason City plant and related expenditures (does not include debt financing from OSM)
 
$
4,636,000

 
(1)    This amount is our total equity proceeds less the redemption agreement for 750 units we executed with Bratney and our offering costs of approximately $186,000. The primary offering costs we incurred in raising capital included legal fees, accounting fees, printing and distribution costs, and meeting costs.
(2) We believe these amounts represent the proceeds we used as of July 31, 2011 on construction, building and facilities, purchase of machinery and equipment and purchases of real estate related to our attempt to construct a biodiesel facility in Marcus, Iowa.
(3) This figure does not include the $6,077,595 we obtained from OSM under the loan agreement, or the $375,000 paid to New Equity under the Settlement and Termination Agreement.


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Item 3. Defaults Upon Senior Securities

None.

Item 4. (REMOVED AND RESERVED)

Item 5. Other Information

None.


Item 6. Exhibits.

(a)
The following exhibits are filed as part of this report.
Exhibit No.
 
Exhibit
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 Soy Energy, LLC's Quarterly Report on Form 10-Q for the quarter ended July 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of July 31, 2011 and October 31, 2010, (ii) Condensed Statements of Operations for the three and nine months ended July 31, 2011 and 2010, (iii) Condensed Statements of Cash Flows for the nine months ended July 31, 2011 and 2010, and (iv) the Notes to Financial Statements.**

*    Filed herewith.
**    Furnished herewith.


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.
 
 
 
SOY ENERGY, LLC
 
 
 
 
Date:
September 14, 2011
 
/s/ Charles Sand
 
 
 
Charles Sand
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
September 14, 2011
 
/s/ Dallas Thompson
 
 
 
Dallas Thompson
 
 
 
Treasurer and Chief Financial Officer
 
 
 
 
    

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