UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended August 31, 2006
Commission File Number 333-121321
GREEN PLAINS RENEWABLE ENERGY, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Iowa 84-1652107
-------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4124 Airport Road, Shenandoah, Iowa 51601
-----------------------------------------
(Address of principal executive offices)
(712) 246-2932
-----------------------------------------------
(Issuer's telephone number, including area code)
Indicate by check mark whether the registrant (1) 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 [ ] No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition or
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). [ ] 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.
Class Outstanding as of October 9, 2006
----- ---------------------------------
Common Stock, $.001 par value 6,002,736 Shares
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Consolidated Balance Sheets as of August 31,
2006 (Unaudited) and November 30, 2005 3
Condensed Consolidated Statements of Operations for
the three months ended August 31, 2006 (Unaudited)
and August 31, 2005 (Unaudited), nine months ended
August 31, 2006 (Unaudited) and August 31, 2005
(Unaudited) and the period from Inception on June
29, 2004 through August 31, 2006 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended August 31, 2006 (Unaudited)
and August 31, 2005 (Unaudited) and the period from
Inception on June 29, 2004 through August 31, 2006
(Unaudited) 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3: Quantitative and Qualitative Disclosures About Market Risk 24
Item 4: Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 25
Item 1A: Risk Factors 25
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3: Defaults Upon Senior Securities 26
Item 4: Submission of Matters to a Vote of Security Holders 26
Item 5: Other Information 26
Item 6: Exhibits 26
Signatures 28
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
GREEN PLAINS RENEWABLE ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
August 31, November 30,
2006 2005
----------------- -----------------
(Unaudited)
Current Assets
Cash and cash equivalents $ 54,442,948 $ 5,794,936
Securities - 28,064,700
Interest receivable 190,863 -
Prepaid expenses and deposits 587,827 -
Derivative financial instruments 144,888 -
------------ ------------
Total current assets 55,366,526 33,859,636
Property and Equipment - net 31,437,243 786,846
Other Assets 4,345,869 3,000
------------ ------------
Total assets $ 91,149,638 $ 34,649,482
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 5,688,202 $ 170,701
Current maturities of long term debt 55,000 -
------------ ------------
Total current liabilities 5,743,202 170,701
Long -term debt less current maturities 345,000 -
Commitments and Contingencies
Stockholders' Equity
Common stock; $.001 par value, 25,000,000 shares authorized,
6,002,736 and 4,215,990 shares issued and outstanding, respectively 6,003 4,216
Additional paid-in capital 85,424,806 34,922,314
Accumulated deficit (369,373) (447,749)
------------ ------------
Total stockholders' equity 85,061,436 34,478,781
------------ ------------
Total liabilities and stockholders' equity $ 91,149,638 $ 34,649,482
============ ============
See accompanying notes to condensed consolidated financial statements.
3
GREEN PLAINS RENEWABLE ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Period
From Inception
On June 29,
For the Three Months Ended For the Nine Months Ended 2004
August 31, August 31, Through
---------------------------- ----------------------------- August 31,
2006 2005 2006 2005 2006
-------------- ------------- --------------- ------------- ------------------
Revenues $ - $ - $ - $ - $ -
Operating expenses 598,622 222,433 1,177,522 564,913 1,957,489
----------- ------------ ------------ ------------ ------------
Loss from operations (598,622) (222,433) (1,177,522) (564,913) (1,957,489)
Other income
Unrealized gain on
financial derivative
instruments 77,388 - 77,388 - 77,388
Interest income 477,744 420 1,178,510 1,886 1,510,728
----------- ------------ ------------ ------------ ------------
Income (loss) before provision
for income taxes (43,490) (222,013) 78,376 (563,027) (369,373)
Provision for income taxes - - - - -
----------- ------------ ------------ ------------ ------------
Net income (loss) $ (43,490) $ (222,013) $ 78,376 $ (563,027) $ (369,373)
=========== ============ ============ ============ ============
Net income (loss) per common
share
Basic $ (0.01) $ (0.29) $ 0.02 $ (0.74)
=========== ============ ============ ============
Diluted $ (0.01) $ (0.29) $ 0.02 $ (0.74)
=========== ============ ============ ============
Weighted average common
shares outstanding -
Basic 4,940,821 765,000 4,504,373 765,000
=========== ============ ============ ============
Diluted 4,940,821 765,000 4,576,887 765,000
=========== ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
GREEN PLAINS RENEWABLE ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Period
From Inception
On June 29,2004
For the Nine Months Ended Through
August 31, August 31,
2006 2005 2006
--------------------- -------------------- --------------------
Cash flows from operating activities:
Net income (loss) $ 78,376 $ (563,027) $ (369,373)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Stock based compensation 143,250 - 230,750
Depreciation 8,713 1,631 10,406
Unrealized gains on derivative financial
instruments (77,388) - (77,388)
Changes in operating assets and liabilities:
Interest receivable (190,862) - (190,862)
Prepaid expenses and deposits (587,826) - (587,826)
Accounts payable and accrued expenses 152,075 39,718 322,821
--------------------- -------------------- --------------------
Net cash used by operating activities (473,662) (521,678) (661,472)
--------------------- -------------------- --------------------
Cash flows from investing activities:
Purchase of property and equipment (24,472,186) (10,917) (25,260,770)
Purchase of securities - - (28,064,700)
Payment of recoverable rail line costs (3,500,000) (3,500,000)
Payments related to land option agreements (23,500) - (26,500)
Purchase of derivative financial instruments (67,500) - (67,500)
Cash acquired in acquisition of subsidiary 210,291 - 210,291
Sale of securities 28,064,700 - 28,064,700
--------------------- -------------------- --------------------
Net cash provided (used) by investing
activities 211,805 (10,917) (28,644,479)
--------------------- -------------------- --------------------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 400,000 - 400,000
Proceeds from issuance of stock 48,882,519 - 83,721,549
Payment of loan fees and equity in creditors (372,650) - (372,650)
--------------------- -------------------- --------------------
Net cash provided by financing activities 48,909,869 - 83,748,899
--------------------- -------------------- --------------------
Net change in cash and equivalents 48,648,012 (532,595) 54,442,948
Cash and equivalents at beginning of period 5,794,936 626,093 -
Cash and equivalents at end of period $ 54,442,948 $ 93,498 $ 54,442,948
===================== ==================== ====================
Supplemental disclosures of cash flow:
Cash paid for income taxes $ - $ - $ -
===================== ==================== ====================
Cash paid for interest $ - $ - $ -
===================== ==================== ====================
Non-Cash Investing and Financing Activities:
Common stock issued for acquisition of subsidiary:
Deposits related to option agreement $ 11,100 $ - $ 11,100
Site development costs 778,609 - 778,609
--------------------- -------------------- --------------------
Total non-cash consideration for acquisition $ 789,709 $ - $ 789,709
===================== ==================== ====================
Continued on the following page
5
Continued from the previous page
Land for Superior Ethanol plant:
Common stock issued for purchase of Superior
plant land $ 478,510 $ - $ 478,510
Purchase accounting cost allocated to site
development cost allocated to Superior plant
land 332,990 - 332,990
Purchase accounting cost allocated to land
options allocated to Superior plant land 10,000 - 10,000
--------------------- -------------------- --------------------
Total purchase of Superior plant land $ 821,500 $ - $ 821,500
===================== ==================== ====================
Accrued Construction-in-Progress:
Construction-in-Progress $ 3,405,428 $ - $ 3,405,428
Accrued Retainage 1,959,998 - 1,959,998
--------------------- -------------------- --------------------
Total Accrued Construction-in-Progress $ 5,365,426 $ - $ 5,365,426
===================== ==================== ====================
See accompanying notes to condensed consolidated financial statements.
7
GREEN PLAINS RENEWABLE ENERGY, INC.
(A DEVELOMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Green Plains Renewable Energy, Inc. (hereinafter referred to as the
"Company") is a development stage company incorporated on June 29, 2004 under
the laws of the state of Iowa. Green Plains Renewable Energy, Inc. was organized
to construct and operate a 50 million gallon, dry mill, fuel grade ethanol plant
in Shenandoah, Iowa (the "Plant"). Construction began in April, 2006. In August
2006, construction began on a second plant, similar to the Shenandoah facility,
in Superior, Iowa. The Company also intends to build other dry mill, fuel grade
ethanol plants within the State of Iowa and/or other States within the U.S., and
may also expand to other regions outside of the U.S. in the future. However, in
the immediate future, due to significant changes in the construction and stock
markets, the Company intends to focus primarily on the completion and start-up
of the two plants that we presently have under construction. We still intend to
build other plants at other locations in the future, but believe that at this
time it would be wiser to focus our energy on the two plants we have currently
under construction.
The accompanying unaudited condensed, consolidated financial statements
have been prepared in accordance with Securities and Exchange Commission
requirements for interim financial statements. Therefore, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The financial
statements should be read in conjunction with the consolidated financial
statements included in our Form 10-K (the "Annual Report") as filed with the
Securities and Exchange Commission and notes thereto and the risk factors
contained therein for the fiscal year ended November 30, 2005.
The interim financial statements present the condensed consolidated
balance sheets, statements of operations and cash flows of Green Plains
Renewable Energy, Inc. The financial statements have been prepared in accordance
with accounting principles generally accepted in the United States.
The interim financial information is unaudited. In the opinion of
management, all adjustments necessary to present fairly the financial position
of the Company as of August 31, 2006, and the results of operations and cash
flows presented herein, have been included in the financial statements. Interim
results are not necessarily indicative of results of operations for the full
year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The accompanying financial statements
include the accounts of the Company and its wholly owned subsidiary, Superior
Ethanol, LLC, which was acquired by the Company on February 22, 2006.
Use of estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
7
Cash and cash equivalents - For the purposes of reporting cash and cash
flows, we consider short-term investments with original maturities of three
months or less at acquisition to be cash equivalents. Cash and cash equivalents
as of August 31, 2006 included amounts in short term government funds which are
not federally insured and balances in operating accounts in excess of federally
insured limits. The Company has not experienced any losses in such accounts.
Property and equipment - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets which is
currently 3-7 years. Land improvements and construction in progress will be
depreciated upon the commencement of operations at the property. The money
withheld on work performed for land improvements and construction in progress is
included in these accounts and offset by a current liability for accrued
retainage.
The cost of repairs and maintenance is charged to expense as incurred.
Expenditures for property betterments and renewals are capitalized. Upon sale or
other disposition of a depreciable asset, cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in operating income
or loss.
The Company periodically evaluates whether events and circumstances
have occurred that may warrant revision of the estimated useful life of fixed
assets or whether the remaining balance of fixed assets should be evaluated for
possible impairment. The Company uses an estimate of the related undiscounted
cash flows over the remaining life of the fixed assets in measuring their
recoverability.
Site development costs - Site development costs are business
development expenditures incurred for professional fees for planning, zoning,
permits, designs and other services and are expensed prior to the project
reaching economic feasibility consistent with past practice. Economic
feasibility is determined by the progress of funding the project. When the
project is funded, these costs going forward are capitalized as the cost of the
project.
Recoverable rail line costs - The Company has entered into a contract
with Burlington Northern Santa Fe (BNSF) that requires the Company to pay rail
line renovation costs for the spur track running from Red Oak, Iowa to the
Shenandoah plant. Included in the contract is a provision for reimbursement to
the Company for the renovation costs up to $3,500,000 through rebates ($50 to
$150) issued per rail car load - provided sufficient rail cars are placed on the
rail line. The rebates will be recorded as a reduction to the track renovation
costs until the full amount has been recovered. If the track is sold by BNSF,
the agreement provides for repayment to the Company for any portion of the
unrecovered renovation costs.
Debt issuance costs - Loan fees are debt issuance costs stated at cost.
Debt issuance costs will be amortized as interest expense over the life of the
term loan.
Stock based compensation - The Company applies SFAS No. 123 Accounting
for Stock-Based Compensation for all compensation related to stock, options or
warrants. SFAS 123 requires the recognition of compensation cost using a fair
value based method whereby compensation cost is measured at the grant date based
on the value of the award and is recognized over the service period, which is
usually the vesting period. The Company uses the Black-Scholes pricing model to
calculate the fair value of options and warrants issued to both employees and
non-employees. Stock issued for compensation is valued using the market price of
the stock on the date of the related agreement.
The Company has granted no warrants or options for compensation from
inception through the period ended August 31, 2006.
Earnings per common share ("EPS") - Basic EPS is computed by dividing
net income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that would occur, using the treasury stock method, if securities or
other obligations to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that shared in the Company's
earnings.
8
For the three months and nine month periods ending August 31, 2006, the
warrants issued to shareholders in the IPO and secondary offering were the only
securities having a dilutive effect. There were 3,445,992 warrants issued in the
IPO for one quarter of one share representing 861,498 shares exercisable at $30
per share. The shares began trading on March 15, 2006 and there were 3,172,884
warrants representing 793,221 shares available for exercise at August 31, 2006.
There were 1,600,069 warrants issued in the secondary for one fifth of one share
representing 320,014 shares exercisable at $60 per share. All of these warrants
were outstanding on August 31, 2006. For the three months and nine months
periods ending August 31, 2006, the dilutive effect of the warrants using the
treasury stock method was 40,427 and 72,513, respectively. The Company incurred
a loss for the three months ending August 31, 2006, and therefore the warrants
are not included because they have an anti-dilutive effect.
Fair value of financial instruments - The following methods and
assumptions were used by the Company in estimating the fair value of its
financial instruments:
Cash and cash equivalents - The carrying value of cash and cash
equivalents was their fair values due to the relatively short maturity of these
instruments.
Long-term debt - The carrying value of fixed rate long-term debt was
$400,000 at August 31, 2006. It is not practicable to estimate the fair value of
fixed rate long-term debt at August 31, 2006 since these agreements contain
unique terms, conditions and restrictions, and there is no readily determinable
similar instrument on which to base an estimate of fair value.
Derivative financial instruments - Derivatives such as exchange-traded
futures are currently recognized on the balance sheet at fair value. At the
present time and until operations commence and the company is generating a
revenue stream from the production of ethanol, any and all fair value
adjustments for derivative financial instruments will be recorded in the
statement of operations as gains/(losses) in Other Income. Upon the commencement
of operations for the production of ethanol, derivative financial instruments
found to be highly effective hedges with their underlying commodity will be
designated as cash flow hedges and recorded in "Other Comprehensive Income" net
of tax.
3. PROPERTY AND EQUIPMENT - NET
A summary of property and equipment is as follows.
August 31, November 30,
2006 2005
-------------------- --------------------
Land and improvements $ 3,477,437 $ 684,461
Construction in progress 27,886,081 92,500
Computer equipment and software, net 19,939 7,408
Office furniture and equipment, net 26,822 2,477
Vehicles, net 26,964 -
-------------------- --------------------
$ 31,437,243 $ 786,846
==================== ====================
Accruals for construction-in-progress (CIP) and retainage related to CIP are considered non-cash investing
activities, therefore they are not included as purchases of property and
equipment in the Statements of Cash Flows. These accruals were $5,365,426 as
detailed footnote 5 below and in the Statements of Cash Flows.
9
4. OTHER ASSETS
A summary of other assets are as follows.
August 31, November 30,
2006 2005
-------------------- --------------------
Recoverable rail line costs $ 3,500,000 $ -
Site development costs from acquisition 445,619 -
Debt issuance costs 370,650 -
Land option agreements 27,600 3,000
Equity in creditors 2,000 -
-------------------- --------------------
$ 4,345,869 $ 3,000
==================== ====================
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
A summary of accounts payable and accrued expenses are as follows
August 31, November 30,
2006 2005
-------------------- --------------------
Construction-in-progress $ 3,405,428 $ 50,875
Retainage 1,959,998 -
Other 322,776 119,826
-------------------- --------------------
$ 5,688,202 $ 170,701
==================== ====================
Accruals for construction-in-progress (CIP) and retainage related to CIP are
considered non-cash investing activities, therefore they are not included as
purchases of property and equipment in the Statements of Cash Flows.
6. STOCKHOLDERS' EQUITY
In July 2004, the Company issued 400,000 and 150,000 shares of common
stock to the founders of the Company for cash and services, respectively. The
shares were issued in consideration of cash and services totaling $100,000 and
$37,500, respectively.
In August, October and November 2004, the Company issued 73,000 shares
of common stock to directors for cash totaling $182,500.
In August, September, October and November 2004, the Company issued
142,000 shares of common stock to various non-related individuals and entities
for cash totaling $355,000.
In November 2005, the Company issued 3,445,990 shares of common stock
to various non-related individuals and entities for cash totaling $34,459,900.
The Company incurred $256,658 of costs related to this offering.
In November 2005, the Company issued 5,000 shares of common stock to a
director for services valued at $50,000 or $10 per share.
In January 2006, the Company issued 5,000 shares of common stock to an
engineering firm for services valued at $50,000 or $10 per share.
10
In February 2006, the Company issued 100,000 shares to a director in
exchange for 100% ownership in Superior Ethanol, LLC. Superior Ethanol, LLC had
cash of approximately $210,000 in its accounts, holds options on real estate,
property tax abatements and other assets in an area where the Company intends to
build an additional ethanol plant in Iowa.
In May 2006, the Company issued 10,900 shares to a director in exchange
for land. The shares were valued at market of $43.90 per share. The land
purchase was 68 acres of land near Superior Iowa in Dickinson County where the
Company intends to build a 50 Million Gallon, Fuel Grade Ethanol Plant.
In May 2006, the Company issued 2,500 shares valued at $93,250 to the
Shenandoah Chamber and Industry Association as a gift to enhance the Community
of Shenandoah, Iowa.
On July 31, 2006, the Company closed on a secondary offering and issued
1,600,069 shares of common stock to various non-related individuals and entities
for cash totaling $48,002,069. The Company incurred $1,168,536 of fees and costs
related to this offering.
Purchasers of the Company's IPO that closed in November of 2005 bought
3,445,990 shares of the Company's common stock at $10 per share. Each share
purchased in the offering was accompanied by a warrant. Four warrants are needed
to purchase one share of common stock at $30 per share. Said warrants expire on
December 31, 2007. The Company's common stock was trading above the $30 strike
price in the past. During these times, some of the Company's shareholders
exercised their warrants. As of August 31, 2006, shareholders had exercised
273,108 warrants for which 68,277 shares of the Company's common shares were
issued at $30 per share, plus transfer fees, for total proceeds of $2,048,985.
As of August 31, 2006 there were 3,172,884 warrants outstanding that could be
exercised for a total of 793,221 shares of common stock. If all warrants still
outstanding were to be exercised, the Company would realize an additional
$23,796,630 of capital.
Purchasers of the Company's secondary offering, which closed on July
31, 2006, bought 1,600,069 shares of common stock at $30.00 per share. Each
share purchased in the offering was accompanied by a warrant. Five warrants are
needed to purchase one share of common stock at $60.00 per share. The total
warrants in the offering were 1,600,069 for equivalent shares of 320,014. The
warrants have a call option that can be exercised on twenty days' notice,
subject to the price being above $72 for twenty consecutive trading days;
otherwise the warrants can be exercised at any time through December 31, 2008.
To date, no warrants issued in the secondary offering have been exercised.
As of the date hereof, all of the warrants issued in the IPO and
secondary offering are out of the money and there can be no assurance that any
outstanding warrants will ever be exercised.
7. COMMITMENTS AND CONTINGENCIES
In October 2005, we entered into an agreement with Fagen Engineering
for design services for the Phase I and II Pre Engineering work to be done at
the Plant site by the Company, prior to turning the site over to Fagen, Inc. for
the construction of the Plant itself. The Company agreed to pay Fagen
Engineering a lump sum fee for said engineering. However, said amount is
included as part of the total cost of the Plant itself, as outlined in the
Design Build Contract we have entered into with Fagen, Inc. ("Fagen"), which is
anticipated to be $55,881,454. Therefore, the cost of the pre-engineering will
be deducted from the total cost of Plant once we pay for the pre-engineering
work. All payments are due upon receipt, and the Company is to be billed as work
is completed. This contract was completed during the current quarter ending
August 31, 2006.
On January 13, 2006, we entered into a construction agreement with
Fagen Inc., under which Fagen, Inc. will provide all work and services in
connection with the engineering, design, procurement, construction startup,
performances tests, training for the operation and maintenance of its Plant and
provide all material, equipment, tools and labor necessary to complete the
Plant. As consideration for the services to be performed, Fagen, Inc. will be
paid $55,881,454, subject to adjustments. The Company was required to pay an
11
initial payment of $5,000,000, less retainage, at the time of the notice to
proceed. The Company has made this payment and is required to make payments to
Fagen, Inc. based upon monthly applications for payment. The Company paid $8,9
million in the current quarter ending August 31, 2006 and has paid a total of
$14.4 million. At August 31, 2006, the Company owed Fagen $3,346,247 (net of
retainage) for progress billings. At August 31, 2006, accrued retainage for
Fagen, Inc. is $1,863,283.
On February 6, 2006, we entered into a Master Loan Agreement,
Construction and Term Loan Supplement, Construction and Revolving Term Loan
Supplement, Security Agreement and Real Estate Mortgage with Farm Credit
Services of America, FLCA whereby the lenders will loan up to $47,000,000. The
loan proceeds are to partially finance construction of the Plant and to provide
funding for working capital purposes. The Plant is to be in production by no
later than May 1, 2007 and construction costs are not to exceed an aggregate of
$71,000,000, net of refundable sales taxes. The loan is comprised of a
$30,000,000 amortizing term loan and a $17,000,000 revolving term facility. The
interest rate on the both loans will be LIBOR plus 335 Basis Points. Once
operations at the Plant commence, the rate of interest can then be adjusted
downward if certain performance provisions are achieved under the terms of the
loan agreement.
The amortizing term loan is available for advances until July 1, 2007.
Principal payments are to commence with $1,200,000 due November 20, 2007, and
each quarter thereafter with a final maturity on November 20, 2013 at the
latest. In addition, for fiscal years ending in 2007 and thereafter, we are also
required to make a special payment equal to 65% of the available (if any) free
cash flow from operations, not to exceed $2,000,000 per year, and provided,
however, that if such payments would result in a covenant default under the Loan
Agreements, the amount of the payments shall be reduced to an amount which would
not result in a covenant default. The free cash flow payments are discontinued
when the aggregate total received from such payments exceeds $8,000,000.
..
The revolving term loan is available for advances throughout the life
of the commitment. This loan requires semi-annual $2,400,000 payments or
step-downs of the commitment to commence on the first day of the month beginning
approximately six months after repayment of the term loan, by May 1, 2014 at the
latest with a final maturity no later than November 1, 2017.
In April of 2005, we were awarded a $300,000 zero interest loan, and a
$100,000 forgivable loan (grant) by the State of Iowa. We signed that agreement
in August of 2005. However, we could not receive the funds until the other
funding for the Plant had been secured (equity and debt financing). On March 8,
2006, the $400,000 was received into the accounts of the Company. We have agreed
to pay the $300,000 loan back in installments of $5,000 per month over a 60
month period commencing on October 1, 2006.
In February of 2006, we entered into an agreement with Mathiowetz
Construction to do the grading and dirt work at the site in Shenandoah, Iowa to
prepare the site for Fagen so construction on the Plant could commence. The
original contract was for approximately $1.75 million. There was a change order
for an additional sum of $164,447. We have been billed and paid $1,814,956 (net
of retainage) through August 31, 2006. At August 31, 2006, the accrued retainage
with this contract is $95,029.
In April of 2006, we entered into an agreement with Peterson
Contractors, Inc. to install the geopiers to support certain buildings to be
constructed at the Plant. The contract was for $1,062,000 and as of August 31,
2006 the Company had paid $1,062,000 completing the contract.
In June of 2006, we entered into an agreement with Kelly-Hill Company
to rehabilitate a small portion of the existing rail spur running directly south
of the plant in Shenandoah that is deemed industrial track. We are currently
leasing this track from BNSF, but will eventually purchase it from them for a
nominal amount. As part of said agreement, Kelly-Hill will also construct
additional track at the plant in Shenandoah, Iowa. The contract is for $341,549
and as of August 31, 2006 the Company had paid $4,950 as an initial mobilization
fee net of $550 for retainage.
12
In July of 2006, we entered into an agreement with Sunderman, Inc. to
build the administrative building to support our operations at the Plant. The
contract is for approximately $280,000. At August 31, 2006 the Company has paid
$27,600 as an initial payment on the contract.
In July of 2006, we entered into and agreement with McCormick
Construction Company, Inc for auger cast pilings for the grain silo area at the
site in Shenandoah, Iowa. The contract is for $337,100. At August 31, 2006 the
Company has paid $32,024 as a 10% initial payment net of retainage of $1,686.
In August of 2006, our wholly owned subsidiary, Superior Ethanol, LLC
entered into a construction agreement with Agra Industries, Inc. under which
Agra Industries, Inc. will provide all work and services in connection with the
engineering, design, procurement, construction startup, performances tests,
training for the operation and maintenance of its Plant and provide all
material, equipment, tools and labor necessary to complete the Superior Plant in
Superior, Iowa. As consideration for the services to be performed, Agra
Industries, Inc. will be paid $75,953,276, subject to adjustments. The Company
was required to pay an initial payment of $7,595,328 and has also paid $95,762
for engineering related to the contract.
8. BUSINESS COMBINATION
On February 22, 2006, the Company acquired Superior Ethanol, LLC
(Superior) pursuant to a Share Exchange Agreement. The Company issued 100,000
shares of common stock based on a per share price of $10.00 in exchange for the
shares of Superior. Superior had cash, options for over 159 acres of land in
Dickinson County, Iowa and the management of Superior had spent considerable
time and resources to acquire the options and develop the project of building an
ethanol plant on the land held by the options as well as other properties.
Therefore, the following summary is the purchase price allocation of the
Superior Ethanol, LLC exchange transaction.
Assets Value
-------------------
Cash $ 210,291
Options on land 11,100
Site development costs 778,609
--------------------
$ 1,000,000
====================
The Company has allocated the site development cost to the land based
on acres. The Company exercised its option to purchase 68 acres of land and
allocated $332,990 of the site development costs to this land as a cost to
acquire this property. The remaining $445,619 is recorded as an Other Asset and
the Company does not believe it is impaired at this time. In addition, the
$10,000 of cost associated with the exercised land option was allocated to the
cost of the land.
9. Subsequent Events
On September 29, 2006, the Company retained Mr. Brian L. Larson as its
Chief Financial Officer. Mr. Larson was previously working with the Company as a
consultant. Mr. Dan Christensen, who was previously acting as the Company's
Chief Financial Officer (principal financial officer), will continue serving in
his role as a director, secretary, treasurer and Chief Operating Officer of the
Company, but will no longer be acting as the Company's Chief Financial Officer.
Before joining the Company, Mr. Larson was Chief Financial Officer,
Secretary and Treasurer of Solutionary, Inc., a start-up/early stage IT Security
Company, from November 2003 to February 2006. From September 1994 through
October 2003 he served as Senior Vice President and Chief Financial Officer for
Data Transmission Network Corporation (DTN), an information and communications
services company. DTN was a public company until April of 2000, when it was
13
taken private in a transaction valued at over $470 million dollars. Prior to
DTN, Mr. Larson was the Division Controller for Twin City Testing, an
engineering and environmental testing company with over 20 branch offices in
eight regions throughout the Midwest, from 1992 to 1993. After graduating in
1984, he spent the first eight years of his career with Peter Kiewit Sons', Inc.
working in mining, construction and five years in manufacturing with Continental
Can Company, a division of the company. He is a graduate of the University of
South Dakota where he received a degree in accounting.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of our
condensed financial condition and results of operations. The discussion contains
forward-looking statements that involve risks and uncertainties. Actual events
or results may differ materially from those indicated in such forward-looking
statements. The discussion should be read in conjunction with the financial
statements and accompanying notes included herewith, our Amended Annual Report
for the year ended November 30, 2005, that was previously filed with the SEC,
the financial statements included therewith and notes thereto and the risk
factors contained therein.
Overview
We are a start-up company in the development stage (FASB #7 -
Accounting and Reporting by Development Stage Enterprises) which was formed for
the purpose of building a plant to produce ethanol and animal feed products in
Shenandoah, Iowa (the "Plant"). Construction of the Plant began in April, 2006.
In August 2006, construction began on a second plant, similar to the Shenandoah
facility, in Superior, Iowa. We do not expect to operate at a profit before our
first ethanol Plant is completely constructed and operational.
We have incurred an accumulated loss of $369,373 on a consolidated
basis from inception at June 29, 2004 through August 31, 2006. We believe we
will incur significant losses from this time forward until we complete the
construction of our Plants in Shenandoah and Superior and commence operations at
these locations. We have options to purchase land in other areas in Iowa, where
we are considering constructing additional ethanol plants in the future. We
anticipate that these plants will be 50 million gallon plants similar to the two
under construction. However, we may decide to expand production on at least one
of our two plants under construction if our efforts to build at the other
locations where we have options do not come to fruition or if the sites do not
prove to be feasible for various reasons after our due diligence is completed.
We also recently acquired an option to purchase land in Wadena, MN, where we are
investigating the feasibility of building an ethanol plant. However, at this
time no assurance can be given that we will be able to build at any of the sites
where we have options, or that we will be successful in our efforts to complete
construction or commence operations at the ethanol Plants we are building in
Shenandoah and Superior or at any of these other sites. Even if we successfully
meet all of these objectives and begin operations of an ethanol Plant(s), there
is no assurance that we will be able to operate profitably.
We raised gross proceeds of $34,459,900, in our initial public offering
that closed in November 2005. The net proceeds after fees and costs were
$34,203,242. We expect that the Shenandoah project will cost approximately $84.7
million. We raised approximately $673,300 in seed capital prior to commencing
our public offering. We entered into loan arrangements whereby Farm Credit
Services of America, FLCA and other participating lenders have agreed to loan us
up to $47,000,000 to use for construction costs and working capital. In
addition, we were awarded grants and zero-interest loans of $400,000 from the
Iowa Department of Economic Development, and took in approximately $2,050,000
from the issuance of our common shares to certain shareholders that exercised
their warrants. We have also made approximately $1,289,000 of interest on the
IPO offering funds and warrant proceeds. Therefore, we believe we have the
necessary funding to complete construction of the Shenandoah Plant.
We raised gross proceeds of approximately $48.0 million in a secondary
offering, which closed on July 31, 2006 for the construction of the Superior
plant. We are currently working on securing the debt financing to fund the
completion of the Superior plant. We expect to have this financing completed in
the near future. To build at the other sites, we will need to raise additional
14
capital. However, due to a number of factors; including the current high costs
of construction, a significant drop in oil and ethanol prices, a drop in our
share price, as well as the significant number of new ethanol plants being built
throughout the country, in the immediate future we intend to focus the majority
of our time and efforts on the completion and start-up of the two plants we
presently have under construction. When, and if, market conditions improve, we
intend to raise the needed equity to build additional plants and/or expand the
ones we are presently constructing through public or private offerings of our
securities and/or by borrowing additional funds. There can be no assurance given
that we will be able to acquire the funding necessary for these additional
projects at reasonable terms or at all.
Shenandoah Plant
Representatives from Fagen Inc., our contractor in Shenandoah, have
informed the Company that the 50 million gallon per year Plant we are building
in Shenandoah will consume on an annual basis approximately 18 million bushels
of locally grown corn and annually produce approximately 50 million gallons of
fuel-grade, denatured ethanol, and approximately 160,000 tons of DDGS on a dry
basis. We have hired RPMG of Belle Plaine, MN, an independent broker, to sell
the ethanol produced at the Shenandoah plant and have contracted with Commodity
Specialists of Minneapolis, MN to sell the DDGS produced at the Shenandoah
plant. We believe there are over 200 hundred thousand cattle in feed lots within
a 50 mile radius of the Plant in Shenandoah. We believe we can sell a portion of
our distillers' grains in a wet form because of this, which we anticipate will
save us a significant amount of money because we will not need to dry the grain
before selling it.
Additionally, in discussions with representatives from Fagen, Inc., we
have been informed that the Plant in Shenandoah will produce approximately 148
thousand tons of carbon dioxide (CO(2)) that may be recovered on an annual
basis. While we have considered having discussions with companies regarding
construction of a facility to capture raw carbon dioxide prior to completion of
the Plant, we presently have no agreement with any third party to capture or
market the raw carbon dioxide, and the market may be too saturated in Iowa to
recover the carbon dioxide profitably. We therefore may choose to vent off the
C02 and may have no market for it of any kind.
The Plant in Shenandoah lies adjacent to a spur line of the BNSF
Railway Company (BNSF). The spur (the "SPUR") was closed last year by BNSF, On
January 26, 2006, we entered into an Allowance Contract (the "Allowance
Agreement") with BNSF which included our agreement with BNSF to renovate and
maintain approximately 20 miles of track on the SPUR. Upon signing the Allowance
Agreement, we paid $3.5 million to BNSF for the SPUR renovation and BNSF
commenced the renovation work soon thereafter. On September 27, 2006, we were
informed by BNSF that the renovation work had been completed. Now that the
renovation is completed, BNSF will own, operate and maintain the SPUR, as long
as GPRE meets certain annual volume thresholds (cars placed on the rail) as
outlined in the Allowance Agreement. We are entitled to receive refund payments
from BNSF to reimburse us for this expense, but only to the extent that our
usage of the line meets the annual volume thresholds. There can be no assurance
that our usage will meet the annual volume thresholds or that we will be
reimbursed for all or any part of the renovation costs. If BNSF were to ever
sell the line to a third party (short-line), we would be entitled to repayment
by BNSF. In the future, if there is any additional, major, renovation needed to
be done to the SPUR, it is GPRE's responsibility to pay for any such additional,
major, renovation. The Allowance Agreement is for a term expiring on September
14, 2015.
We entered into an agreement with RPMG of Belle Plaine, MN in February
2006 to sell our ethanol production from the Shenandoah plant. We have also
entered into an agreement with Commodity Specialists of Minneapolis, MN to sell
our animal feed products from the Shenandoah plant. Although we may decide to
use the same marketers at our other proposed plants, we have not yet entered
into any such agreements with anyone concerning the Superior site. We will be
hiring staff for the direct operation of the Plant(s), and currently expect to
employ approximately 35 people at each plant. We do not intend to hire a sales
staff to market our products. It is anticipated that the third-party marketing
agents we have hired will coordinate the sales of our products as well as
coordinate all shipping at the Shenandoah plant, and that the same type of
arrangement will exist at our Superior plant as well as our other proposed
plants, when and if they are built.
15
The following table describes our proposed use of proceeds, based upon
our current cash reserves and loan arrangements. The total projected sources are
estimated to be approximately $84.7 million. We estimate the cost of the
Shenandoah project to be approximately $84.7, which includes $7.5 million in
working capital. The estimated costs to build the plant have risen from our
original estimates by approximately $2.1 million due to the number of geo-piers
we had to install for soil stabilization and the higher costs associated with
the water treatment facilities we are going to have to build to treat and
process the grey water we plan on using for the cooling tower. We believe we
have sufficient funds to complete the project in Shenandoah even if we cannot
realize any further savings, due to the interest earned on the money from our
IPO and the money we have receipted in from the exercise of warrants. Further,
the actual use of funds is based upon contingencies, such as the estimated cost
of the Plant's construction; the regulatory permits required and inventory
costs, which are driven by the market, and an early completion bonus that we may
have to pay to Fagen, Inc. if they complete the construction of the Plant ahead
of schedule. Therefore, the following figures are intended to be estimates only
and the actual use of funds may vary significantly from the descriptions given
below depending on the contingencies described above. However, we anticipate
that any variation in our use of proceeds will occur in the level of proceeds
attributable to a particular use (as set forth below) rather than a change from
one of the uses set forth below to a use not identified in this report.
Projected Sources and Uses of Funds
Estimated Sources of Funds:
Share/Warrant Proceeds (less fees plus interest) $ 36,627,000
Zero Interest Loan and Grant from State of Iowa 400,000
Seed Capital 673,000
Term and Revolving Debt Financing 47,000,000
----------------
Total Estimated Sources of Funds $ 84,700,000
================
Estimated Uses of Funds:
Plant Construction and Estimated Misc. Costs $ 59,875,000
Estimated Site Costs 5,968,000
Estimated Railroad Costs 5,295,000
Estimated Fire Protection/Water Supply Costs 3,546,000
Estimated Rolling Stock Costs 240,000
Estimated Financing Costs and Capitalized Interest 1,476,000
Estimated Pre-Production Period Costs 800,000
Estimated Inventory & Working Capital Costs 7,500,000
----------------
Total Estimated Use of Funds $ 84,700,000
================
The City of Shenandoah awarded us a 15 year property tax abatement that
we would be able to receive if the City annexed the Plant site into its
boundaries. We asked for voluntary annexation into the City limits and were
annexed into the City on February 15, 2006. It is anticipated that it will
result in significant long-term savings.
16
Superior Plant
On February 22, 2006, we acquired all of the outstanding ownership
interest in Superior Ethanol, LLC. Superior had options to acquire at least 159
acres of property in Dickinson County, Iowa, had completed a feasibility study
relating to the construction of an ethanol plant on this site, the site is zoned
as "heavy industrial," the site has been awarded a property tax abatement from
Dickinson County, Iowa, and Superior Ethanol had approximately $210,000 in cash
at closing. In consideration for the acquisition of Superior as a wholly owned
subsidiary of the Company, we issued 100,000 shares of our restricted common
stock to Brian Peterson, a director of the Company. Prior to the acquisition,
substantially all of Superior was owned by Mr. Peterson. The stock was issued
prior to the commencement of trading on the NASDAQ Capital Market. We have since
used the $210,000 that was in the accounts of Superior, LLC to pay for
developmental work done in preparation for building the plant in Superior and
for feasibility work at other sites where we have options to purchase land and
where we may build other plants in the future. As of August 31, 2006, we had
spent approximately $209,000 of those funds leaving the accounts of Superior
Ethanol with an approximate balance of $1,000. As part of these expenditures,
Superior Ethanol, LLC acquired on 4/13/2006 a land option for 125 acres for a
rail loop for the site.
After the acquisition, operational plans have continued to progress on
the Superior ethanol plant project with the builder, the rail engineers, and the
utility consultants. The location of the plant at the site was determined, an
application for an air permit was filed with the Iowa Department of Natural
Resources (IDNR) on April 19, 2006. The application was approved on June 13,
2006.
In August 2006 we entered into a Design-Build contract with Agra
Industries ("Agra") of Merrill, Wisconsin to build the plant. Delta T will be
the technology provider in Superior. The completion date is projected to be 15
months from the start of the plant which was in August 2006. It is anticipated
that this project will require approximately $97.6 million including $7.2
million for inventory and working capital. The projected cost for this plant is
higher than the plant being built in Shenandoah due to sharp increases in the
costs of raw materials such as steel and cement.
The Superior plant will consume on an annual basis approximately 18
million bushels of locally grown corn and annually produce approximately 50
million gallons of ethanol (52.5 million gallons of fuel-grade denatured
ethanol) and approximately 160,000 tons of DDGS on a dry basis. Additionally,
the Plant in Superior will produce approximately 148 thousand tons of carbon
dioxide CO(2).
We will be hiring staff for the direct operation of the Superior plant,
and currently expect to employ approximately 35 people at this plant. We do not
intend to hire a sales staff to market our products. It is anticipated that the
third-party marketing agents we have hired at the Shenandoah Plant will
coordinate the sales of our products as well as coordinate all shipping at the
Shenandoah plant, and that the same type of arrangement will exist at our other
proposed plants, when and if they are built, including the Superior plant.
The following table describes our proposed use of proceeds, based upon
our current cash reserves and proposed loan arrangements. The total sources are
estimated to be $97.6 million. We anticipate that the cost of the Superior
project will be approximately $97.6 million, which includes $7.2 million in
working capital. However, the actual use of funds is based upon contingencies,
such as the estimated cost of the Plant's construction, the regulatory permits
required and inventory costs, which are driven by the market. Therefore, the
following figures are intended to be estimates only and the actual use of funds
may vary significantly from the descriptions given below depending on the
contingencies described above. However, we anticipate that any variation in our
use of proceeds will occur in the level of proceeds attributable to a particular
use (as set forth below) rather than a change from one of the uses set forth
below to a use not identified in this report.
17
Projected Sources and Uses of Funds
Estimated Sources of Funds:
Share Proceeds (less fees plus interest) $ 46,000,000
Term and Revolving Debt Financing 51,600,000
-----------------
Total Estimated Sources of Funds $ 97,600,000
=================
Estimated Uses of Funds:
Plant Construction $ 71,671,186
Estimated Site Costs 4,940,000
Estimated Railroad Costs 3,890,000
Estimated Fire Protection/Water Supply Costs 1,963,000
Estimated Rolling Stock Costs 350,000
Estimated Financing Costs and Capitalized Interest 1,650,500
Estimated Pre-Production Period Costs 800,000
Estimated Inventory, Working Capital, Other Costs 12,335,314
-----------------
Total Estimated Use of Funds $ 97,600,000
=================
Dickinson County awarded us a 15 year property tax abatement; 100% for
the first 12 years and 50% for the remaining three years. It is anticipated that
this award will result in significant long-term savings to the Company.
Plan for the Next 24 Months of Operations
We expect to spend the next 24 months in the design-development and
construction of the plants at Shenandoah and Superior, and thereafter commence
production of ethanol and distillers grains at these plants upon completion. We
expect to have sufficient cash on hand and debt financing to cover all costs
associated with the construction of these projects, including but not limited
to, utilities, construction, equipment acquisition and site development. We are
currently in the process of securing debt financing for the Superior project. On
September 21, 2006, we received a term sheet from Co Bank concerning the needed
debt for the Superior plant. The terms were acceptable to us and we signed the
letter, paid the required processing fees, and are currently awaiting a letter
of commitment and the final loan documents to be forwarded to us for signature,
which we will believe we will receive from our proposed lender in the near
future. However, because we still have not entered into the final loan
agreements, no assurance can be given that we will be able to obtain the needed
debt financing at this time.
In addition, we expect to have enough cash to cover our costs through
this period, including staffing, office costs, audit, legal, compliance and
staff training. We estimate that we will need approximately $84.7 million to
complete the Shenandoah project, which includes $7.5 million in working capital.
At present, we believe we have sufficient funds to complete the Shenandoah
project and hope to be complete the project as per our current projected budget.
However, if Fagen completes that Plant early, we will have to pay Fagen an early
completion bonus. If this were to happen, we could expend any extra cash we may
have on hand by paying the early completion bonus. We also anticipate spending
time and effort in an attempt to secure additional funding to build additional
ethanol plants where we have acquired options to purchase land, if market
conditions were to improve.
The tables in the Overview section above including the estimated
sources of funds and various costs associated with the project in Shenandoah and
Superior also describes the operations at these sites for the next 24 months.
These tables are only estimates and actual expenses could be higher or lower due
to a variety of factors described in the section of our Annual Report entitled
"Risk Factors" and the Risk Factors contained herein.
18
Proposed Ethanol Plants
If current market conditions were to improve, we intend to build a
third and fourth dry mill, fuel grade ethanol plants. We have options to
purchase land in three other areas in Iowa and have an option in Wadena,
Minnesota where we would like to build additional plants in the future if the
sites prove to be suitable locations for ethanol plants, we can obtain the
needed funding and another group or entity does not begin building in the
surrounding areas before we are able to obtain financing and begin construction.
Agra may be the design builder of our third and fourth plants. Agra
signed a letter of intent with Superior Ethanol, LLC, our wholly owned
subsidiary, which stated that Agra was bound to build for us before Agra could
build for anyone else in the coming months, provided that we had sites ready to
build. On September 11, 2006, Agra gave us the required 45 day notice, and we
have chosen not to exercise the option granted to us by the letter of intent,
because we do not presently have the funding to build a third plant, nor do we
want to issue additional shares at prices lower than our recently closed
secondary offering at this time. However, we may choose to do so in the future.
We have since been presented with another letter of intent with Agra that we are
considering. Delta T may be the technology provider for our third and fourth
plants. However, we reserve the right to use any builder and any technology
provider we may choose.
It is anticipated that, like the Superior plant, these other projects
will require approximately $95 to 98 million to fund a 50 million gallon plant.
To date, we have not secured any bank or other funding for our proposed third
and fourth projects and there can be no assurance that we will obtain the
necessary funding or approvals.
Operating Expenses
We currently have operating expenses, such as salaries for our
CEO/President, CFO, General Manager, Controller, and other administrative staff.
We will have additional operating expenses for other staff as they are hired.
Along with such operating expenses, we anticipate that we will have significant
expenses related to financing and interest. We have allocated funds in our
capital structure for these expenses. However, there can be no assurance that
the funds allocated are sufficient to cover the expenses. We may need additional
funding to cover these costs if sufficient funds are not retained up-front or if
costs are higher than expected.
Results of Operations
For the three and nine months ended August 31, 2006, we realized a net
loss of $43,490 and net income of $78,376, respectively, compared to a net
losses of $222,013 and $563,027 during the comparable periods from the prior
year. Our net income/(loss) for the three and nine months ended August 31, 2006
resulted from $555,132 and $1,255,898, respectively, in other income, primarily
interest, earned on the funds raised in our public offering, secondary offering
and money received from warrants that have been exercised by our shareholders,
less $598,622 and $1,177,522, respectively, in operating expenses. During the
three and nine months ended August 31, 2005, our other income, primarily
interest, was $420 and $1,886, respectively, and our operating expenses were
$222,433 and $564,913, respectively. Our increased operating expenses for the
three and nine month periods ended August 31, 2006, related primarily to an
increase in our general and administrative costs, increased consulting costs,
costs associated with various permits needed to build the our new plants,
various costs associated with feasibility work done at other potential plant
sites, and various costs associated with the commencement of construction at the
Shenandoah and the Superior sites.
We expect to hire additional employees as construction proceeds on the
Shenandoah and Superior plants as we will need a fully trained staff to operate
these facilities. We anticipate having to do the same with our other plants if
and when they are built. In 2006, our operating expenses were offset by interest
earned on the funds we have invested until they are used in the construction of
our Plants. We earned $1,178,510 of interest income in the nine month period
ended August 31, 2006, compared to $1,886 for the comparable period in 2005.
This interest income will decrease as we pay for the construction of the plants
19
under construction. We have not had any operating revenues through August 31,
2006 and do not expect to have any revenues until the Shenandoah plant is
constructed and operational, which we anticipate will be sometime in mid-2007.
We have also expended nominal amounts of capital on other potential
sites. We incurred feasibility costs, such as drilling test wells for water
availability, plant layout, track design etc. We have also incurred and paid
consulting costs with and to PlanScape Partners of Minnesota who the Company has
engaged to help us develop the other sites at which we would like to build
additional Plants. We have used the funds from the Superior Ethanol, LLL
acquisition and a nominal amount of additional funds that we have received from
the exercise of warrants to pay for these costs.
Liquidity and Capital Resources
At August 31, 2006 we had $54,442,948 in cash and equivalents. We
anticipate that our working capital requirements for the next twenty-four months
will be as described above. We believe that we have secured sufficient funding
to complete construction and begin operating our Shenandoah ethanol plant. We
recently raised gross proceeds of $48 million for the purpose of building an
ethanol plant in Superior, Iowa. Construction has commenced on the Superior
plant. We are currently working on securing the debt financing to fund the
completion of the Superior plant. We expect to have this financing completed in
the near future. To build at the other sites, we will need to raise additional
capital. However, at present, due to a number of factors, including the high
costs of construction, a significant drop in oil and ethanol prices, and a drop
in our share price, as well as the significant number of new ethanol plants
being built throughout the country, for the next several months, we intend to
focus the majority of our time and efforts on getting the two plants we have
under construction completed and operational. If the high costs of construction
were to come down from current levels, and if our share price were to appreciate
from current levels, we intend to move forward with our expansion plans. When,
and if, market conditions improve, we intend to raise the needed equity to build
additional plants or expand the ones we are presently constructing through
public or private offerings of our securities and/or by borrowing additional
funds. There can be no assurance given that we will be able to acquire the
funding necessary for these additional projects at reasonable terms or at all.
Shenandoah Plant Debt Financing
In furtherance of our business plan, on February 6, 2006, we entered
into a Master Loan Agreement, Construction and Term Loan Supplement,
Construction and Revolving Term Loan Supplement, Security Agreement and Real
Estate Mortgage with Farm Credit Services of America, FLCA (individually and
collectively, the "Loan Agreements"). A participating interest under the Loan
Documents was transferred to CoBank, ACB. Under the Loan Agreements, the lenders
will loan up to $47,000,000. The loan proceeds are to partially finance
construction of the Plant and to provide funding for working capital purposes.
The Plant is to be in production by no later than May 1, 2007 and construction
costs are not to exceed an aggregate of $71,000,000, net of refundable sales
taxes.
Loan Commitments and Repayment Terms
The loan is comprised of a $30,000,000 amortizing term loan and a
$17,000,000 revolving term facility.
o Term Loan - This loan is available for advances until July 1, 2007.
Principal payments are to commence with $1,200,000 due November 20,
2007, and each quarter thereafter with a final maturity on November
20, 2013 at the latest. In addition, for fiscal years ending in 2007
and thereafter, we are also required to make a special payment equal
to 65% of the available (if any) free cash flow from operations, not
to exceed $2,000,000 per year, and provided, however, that if such
payments would result in a covenant default under the Loan
Agreements, the amount of the payments shall be reduced to an amount
which would not result in a covenant default. The free cash flow
payments are discontinued when the aggregate total received from
such payments exceeds $8,000,000.
20
o Revolving Term - This loan is available for advances throughout the
life of the commitment. This loan requires semi-annual $2,400,000
payments on/step-downs of the commitment to commence on the first
day of the month beginning approximately six months after repayment
of the term loan, by May 1, 2014 at the latest with a final maturity
no later than November 1, 2017.
Availability of Advances, Interest Rates and Fees
Advances are subject to satisfaction of specified lending conditions.
Advances correlate to budget and construction timeline projections, with
verification of progress by a third-party engineer. The loans will bear interest
at the rate of LIBOR plus 3.35%. We paid a loan origination fee in the amount of
$352,500, $650 of expenses, $2,000 for equity in creditors Farm Credit and
CoBank). There is an annual administration fee in the amount of $25,000,
beginning November 1, 2007, and an unused commitment fee equal to 1/2% of the
unused revolving term. Appraisal, inspecting engineer, and title company
insurance and disbursing fees are also at the Company's expense.
Security
As security for the loan, the lenders received a first-position lien
on all personal property and real estate owned by us, including an assignment of
all contracts and rights pertinent to construction and on-going operation of the
Plant.
Representations, Warranties and Covenants
The Loan Agreements contain representations, warranties, conditions
precedent, affirmative covenants (including financial covenants) and negative
covenants. One of these covenants requires that dividends or other distributions
to stockholders be limited to 40% of the profit net of income taxes for each
fiscal year and may be paid only where we are expected to remain in compliance
with all loan covenants, terms and conditions. Furthermore, with respect to the
fiscal years ending in 2008 and thereafter, an additional distribution may be
made to stockholders in excess of the 40% limit for such fiscal year if we have
made the required free cash flow payment for/based on such fiscal year, and will
thereafter remain in compliance with all loan covenants, terms and conditions on
a pro forma basis net of said potential additional payment. There can be no
assurance that we can remain in compliance with all loan covenants.
Contractual Obligations
Our contractual obligations as of August 31, 2006 were as follows:
-------------------------------------- ------------------------------------------------------------------------------
Contractual Obligations Payments Due by Period
-------------------------------------- ------------------------------------------------------------------------------
Less Than 1
Total Year 1-3 Years 3-5 Years Thereafter
-------------------------------------- --------------- --------------- ----------------- ------------- --------------
Long-Term Debt Obligations (1) $ 300,000 $ 55,000 $ 120,000 $ 120,000 $ 5,000
-------------------------------------- --------------- --------------- ----------------- ------------- --------------
Capital Lease Obligations
-------------------------------------- --------------- --------------- ----------------- ------------- --------------
Operating Lease Obligations (2) $ 136,247 $ 55,212 $ 81,035
-------------------------------------- --------------- --------------- ----------------- ------------- --------------
Purchase Obligations (3) $110,793,500 $ 97,493,500 $ 13,300,000
-------------------------------------- --------------- --------------- ----------------- ------------- --------------
Other Long-Term Liabilities
-------------------------------------- --------------- --------------- ----------------- ------------- --------------
Total $111,229,747 $ 97,603,712 $ 13,501,035 $ 120,000 $ 5,000
-------------------------------------- --------------- --------------- ----------------- ------------- --------------
(1) The $100,000 from Iowa Department of Economic development is recorded as a
non-refundable grant.
(2) These lease costs are for our office lease in Las Vegas. Our Shenandoah
office rent is on a month to month basis.
(3) Includes the agreements with Mathiowetz Construction of approximately
$99,500 to do the grading and dirt work, Kelly-Hill Company of approximately
$336,600 for industrial track rehabilitation, Sunderman, Inc. of
approximately $252,400 for the administrative building in Shenandoah,
McCormick Construction Company, of approximately $305,000, Fagen, Inc. of
approximately $41,500,000 for construction at the site in Shenandoah, Iowa
and Agra Industries, Inc. of approximately $68,300,000 for the Superior
plant.
21
Critical Accounting Policies
Property and equipment - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets which is
currently 3-7 years. Land improvements and construction in progress will be
depreciated upon the commencement of operations at the property, which is
expected to occur in the late spring of 2007. The money withheld on work
performed for land improvements and construction in progress is included in
these accounts and offset by a current liability for accrued retainage.
The cost of repairs and maintenance is charged to expense as incurred.
Expenditures for property betterments and renewals are capitalized. Upon sale or
other disposition of a depreciable asset, cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in operating income
or loss.
The Company periodically evaluates whether events and circumstances
have occurred that may warrant revision of the estimated useful life of fixed
assets or whether the remaining balance of fixed assets should be evaluated for
possible impairment. The Company uses an estimate of the related undiscounted
cash flows over the remaining life of the fixed assets in measuring their
recoverability.
Recoverable rail line costs - The Company was required by the railroad
to pay the cost to renovate the spur rail line running from Red Oak, Iowa to
Shenandoah, Iowa and then to its plant. The Company's shipping contract with the
railroad provides that the railroad will rebate to the Company the cost of
renovating the spur line on a per rail car load basis. Should the Company place
sufficient cars on the rail line it will be reimbursed $50 to $150 per rail car
up to a maximum of $3,500,000. This rebate will be recorded as a reduction of
the cost of the rail line until the full amount has been recovered. The
agreement also provides that if the rail line is sold by the railroad, the
Company will be repaid the unrecovered portion of the rail line costs.
Stock based compensation - The Company applies SFAS No. 123 Accounting
for Stock-Based Compensation for all compensation related to stock, options or
warrants. SFAS 123 requires the recognition of compensation cost using a fair
value based method whereby compensation costs is measured at the grant date
based on the value of the award and is recognized over the service period, which
is usually the vesting period. The Company uses the Black-Scholes pricing model
to calculate the fair value of options and warrants issued to both employees and
non-employees. Stock issued for compensation is valued using the market price of
the stock on the date of the related agreement.
The Company has granted no warrants or options for compensation from
inception through the period ended August 31,
Derivative financial instruments - Derivatives such as exchange-traded
futures are currently recognized on the balance sheet at fair value. At the
present time and until operations commence and the company is generating a
revenue stream from the production of ethanol, any and all fair value
adjustments for derivative financial instruments will be recorded in the
statement of operations as gains/(losses) in Other Income. Upon the commencement
of operations for the production of ethanol, derivative financial instruments
found to be highly effective hedges with their underlying commodity will be
designated as cash flow hedges and recorded in "Other Comprehensive Income" net
of tax.
22
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on our financial
condition, results of operations or liquidity.
Recent Accounting Pronouncements
The Company has not adopted any new accounting policies that would have
a material impact on the Company's financial condition, changes in financial
conditions or results of operations.
Grant and Government Programs
In April 2005, the Iowa Department of Economic Development (IDED)
awarded the Company a High-Quality Job Creation (HQJC) financing incentive
comprised of a $300,000 zero interest loan and a $100,000 forgivable loan
(grant) for the Shenandoah project. The IDED funds became available for use by
the Company in March, 2006 - upon closing of the senior debt financing
commitment. Associated with this award are job creation covenants. The Company
believes those covenants will be fulfilled.
We had earlier reported that the Superior project had been awarded the
same incentive package, but have since discovered that was not the case. The
Superior project has been awarded a tax incentive package from the Iowa
Department of Economic Development under their High Quality Job Creation (HQJC)
program with, according to the IDED, an estimated value of approximately
$4,684,000.
The Iowa Department of Transportation (IDOT), Modal Division has
offered us an award to assist with the project funding specifically for the
construction of new spur track and the installation of four turnouts to serve
the ethanol facility in Shenandoah, IA. The funding source is a combined
Loan/Grant award consisting of a Railroad Revolving Loan of $154,000 or 7.9% of
the project costs (whichever is less) and $126,000 Grant or 5.9% of the project
costs (whichever is less).
We believe that we may be eligible for and anticipate applying for
other state and federal grant, loan and forgivable loan programs. Most grants
that may be awarded to us are considered paid-in capital for tax purposes and
are not taxable income. Although we may apply under several programs
simultaneously and may be awarded grants or other benefits from more than one
program, it must be noted that some combinations of programs are mutually
exclusive. Under some state and federal programs, awards are not made to
applicants in cases where construction on the project has started prior to the
award date. There is no guarantee that applications will result in awards of
grants or loans. With the exception of the $300,000 zero interest loans and the
$100,000 forgivable loans (grants) described above, we are not depending on the
award of any such grants as part of our funding of the Project. However, we may
be eligible to receive such grants. If we do, the amount of money we will have
to borrow may be reduced by that amount. There can be no assurance that we will
receive any funding under any federal or state funding initiative.
Forward-Looking Statements
Throughout this report, we make "forward-looking statements."
Forward-looking statements include the words "may," "will," "estimate,"
"continue," "believe," "expect" or "anticipate" and other similar words. These
forward-looking statements generally relate to our plans and objectives for
future operations and are based upon management's reasonable estimates of future
results or trends. Although we believe that our plans and objectives reflected
in or suggested by such forward-looking statements are reasonable, we may not
achieve such plans or objectives. Actual results may differ from projected
results due, but not limited, to unforeseen developments, including developments
relating to the following:
o The availability and adequacy of our cash flow to meet our
requirements, including payment of loans;
o Economic, competitive, demographic, business and other conditions in
our local and regional markets;
23
o Changes or developments in laws, regulations or taxes in the
ethanol, agricultural or energy industries;
o Actions taken or omitted to be taken by third parties including our
suppliers and competitors, as well as legislative, regulatory,
judicial and other governmental authorities;
o Competition in the ethanol industry;
o The loss of any license or permit;
o The loss of our plant due to casualty, weather, mechanical failure
or any extended or extraordinary maintenance or inspection that may
be required;
o Changes in our business strategy, capital improvements or
development plans;
o The availability of additional capital to support capital
improvements and development; and,
o Other factors discussed under "Risk Factors" in our annual report on
Form 10-K and as contained herein.
You should read this report completely and with the understanding that
actual future results may be materially different from what we expect. The
forward looking statements specified in this report have been compiled as of the
date of this report and should be evaluated with consideration of any changes
occurring after the date of this report. We will not update forward-looking
statements even though our situation may change in the future and we assume no
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a start-up company in development stage, which was formed for
the purpose of building fuel-grade ethanol Plants to produce ethanol and animal
feed products. Our first plant is currently being constructed in Shenandoah,
Iowa, along with a second plant in Superior, Iowa. We also anticipate building
other plants in other parts of Iowa or other states within the corn-belt. We
also intend to pursue the acquisition of existing ethanol plants that are
already in operation. However, we are not presently conducting operations as an
ethanol producer and are not presently subject to market risks, other than the
risks we are facing on the relatively small amount of corn we have purchased as
a hedge on a portion of the corn we anticipate we will need once the Shenandoah
facility begins production, sometime in mid-2007. This is explained more fully
below. If and when we begin Plant operations, we will be exposed to the impact
of market fluctuations associated with commodity prices and interest rates as
discussed below. We do not expect to have exposure to foreign currency risk as
all of its business is expected to be conducted in U.S. dollars.
24
Commodity Price Risk
We expect to produce ethanol and its co-product, distiller's dried
grains with solubles (DDGS), from corn, and our business will be sensitive to
changes in the price of corn. The price of corn is subject to fluctuations due
to unpredictable factors such as weather, total corn planted and harvested
acreage, changes in national and global supply and demand, and government
programs and policies. We also expect to use natural gas in the ethanol and DDGS
production process, and our business will be sensitive to changes in the price
of natural gas. The price of natural gas is influenced by such weather factors
as extreme heat or cold in the summer and winter, in addition to the threat of
hurricanes in the spring, summer and fall. Other natural gas price factors
include the U.S. domestic onshore and offshore rig count and the amount of U.S.
natural gas in underground storage during both the injection and withdrawal
seasons.
We anticipate that we will attempt to reduce the market risk associated
with fluctuations in the price of corn and natural gas by employing a variety of
risk management and hedging strategies. Strategies include the use of derivative
financial instruments such as futures and options initiated on the Chicago Board
of Trade (CBOT) and/or the New York Mercantile Exchange (NYMEX), as well as the
daily cash management of our total corn and natural gas ownership relative to
monthly demand for each commodity, which may incorporate the use of forward cash
contracts or basis contracts.
As of August 31, 2006, the Company had purchased 150 July 2007 CBOT
Corn Futures contracts ("the Position") to assure corn supply at the initiation
of plant operations in 2007. At August 31, 2006 the Company posted a $77,387
mark-to-market gain on the Position. In addition, the Company was required to
submit $67,500 in Futures Initial Margin for a Derivatives Asset balance of
$144,887. A 10% adverse move in the Position would result in an approximate
pre-tax loss of $210,000.
Item 4. Controls and Procedures
The Company has evaluated, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
August 31, 2006, pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective. There have
been no significant changes in internal controls or in other factors that could
significantly effect internal controls subsequent to the date of our most recent
evaluation.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 1A. Rick Factors
Except for the risk factors set forth in the Company's Registration
Statement on Form S-3/A, filed with the Securities and Exchange Commission on
June 9, 2006, File No. 333-134016, and related risk factors set forth in the
Company's Prospectus Supplement, filed with the Securities and Exchange
Commission on July 7, 2006, which risk factors are hereby incorporated by
reference, there have been no material changes from the risk factors previously
disclosed in our annual report on Form 10-K for the year ended November 30,
2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Use of Proceeds
The Securities and Exchange Commission declared our registration
statement on Form S-1 (SEC Registration No. 333-121321) effective on March 9,
2005. We commenced our initial public offering shortly thereafter. Our initial
public offering was for the sale of up to 3,800,000 shares of our common stock
at $10 per share. Each share purchased included a warrant to purchase 1/4 of an
additional share of common stock from the Company at a purchase price of $30 per
share. The offering ranged from a minimum aggregate offering amount of
$29,667,000 to a maximum aggregate offering amount of $38,000,000. Our
registered offering and escrow agreement required that we raise the $29,667,000
in proceeds by November 29, 2005 and secure a letter of commitment for debt
financing by November 29, 2005, both of which were accomplished in a timely
manner.
On November 15, 2005, we closed the offering prior to the sale of the
maximum number of registered shares. The net proceeds to the Company from our
offering were approximately $34,532,408. This is the amount of money raised in
the offering, $34,459,900) less $11,619 that was paid to the escrow agent for
their services, less $17,476 in federal and state filing fees, less $227,563 in
commissions (7%) paid to Smith Hayes Financial Services for the money raised by
them in the offering, plus $329,166 that was earned as interest while the money
25
was held in escrow. The following is a breakdown of shares registered and shares
sold in the offering:
Number of Shares Aggregate Price of Aggregate Price
Registered for Sale Shares Offered Shares Sold of Shares Sold
------------------- -------------- ----------- ------------------
3,800,000 $38,000,000 3,445,990 $34,459,900
In late November 2005 we began releasing funds from escrow. The
following table describes our use of net offering proceeds through August 31,
2006:
Recoverable rail line costs $ 3,500,000
Real property 684,461
Land improvements 1,842,177
Construction- in-progress 14,925,848
Debt financing fees and equity in creditors 372,650
Other costs 1,162,979
-------------
Total $ 22,488,115
=============
All of the foregoing payments were direct or indirect payments to
persons or entities other than our directors, officers, or unit holders owning
10% or more of our shares. This total does not include operating expenses
incurred in prior periods.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
3(i).1 Amended and Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3(i).1 of the Company's
Registration Statement on Form S-1 filed December 16, 2004,
File No. 333-121321).
3(ii).1 Bylaws of the Company (Incorporated by reference to Exhibit
3(ii).1 of the Company's Registration Statement on Form S-1
filed December 16, 2004, File No. 333-121321).
10.1 Letter Agreement by and between the Company and U.S. Energy,
Inc., dated October 5, 2004 (Incorporated by reference to
Exhibit 10.5 of the Company's Registration Statement on Form
S-1 filed December 16, 2004, File No. 333-121321).
26
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.2 Letter of Intent by and between the Company and the City of
Shenandoah, dated December 16, 2004 (Incorporated by reference
to Exhibit 10.7 of the Company's Registration Statement on
Form S-1/A filed February 4, 2005, File No. 333-121321).
10.3 Master Loan Agreement, dated January 30, 2006, by and between
the Company and Farm Credit Services of America, FLCA
(Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K, dated February 6, 2006).
10.4 Construction and Term Loan Supplement, dated January 30, 2006,
by and between the Company and Farm Credit Services of
America, FLCA (Incorporated by reference to Exhibit 10.2 of
the Company's Current Report on Form 8-K, dated February 6,
2006).
10.5 Construction and Revolving Term Loan Supplement, dated January
30, 2006, by and between the Company and Farm Credit Services
of America, FLCA (Incorporated by reference to Exhibit 10.3 of
the Company's Current Report on Form 8-K, dated February 6,
2006).
10.6 Security Agreement, dated January 30, 2006, by and between the
Company and Farm Credit Services of America, FLCA
(Incorporated by reference to Exhibit 10.4 of the Company's
Current Report on Form 8-K, dated February 6, 2006).
10.7 Administrative Agency Agreement, dated January 30, 2006, by
and between the Company, Farm Credit Services of America, FLCA
and CoBank, ACB (Incorporated by reference to Exhibit 10.5 of
the Company's Current Report on Form 8-K, dated February 6,
2006)
10.8 Real Estate Mortgage and Financing Statement, dated January
30, by and between the Company and Farm Credit Services of
America, FLCA (Incorporated by reference to Exhibit 10.14 of
the Company's Annual Report on Form 10-K, dated November 30,
2005).
10.9 Lump Sum Design Build Agreement, dated January 13, 2006, by
and between the Company and Fagen, Inc. (Incorporated by
reference to Exhibit 10.15 of the Company's Annual Report on
Form 10-K/A, dated November 30, 2005).
10.10 Allowance Contract, by and between the Company and BNSF
Railway Company, dated January 26, 2006 (Incorporated by
reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K, dated November 30, 2005).
10.11 Share Exchange Agreement, dated February 22, 2006, by and
between the Company and the parties identified therein
(Incorporated by reference to Exhibit 10.14 of the Company's
Annual Report on Form 10-K, dated November 30, 2005).
10.12 Design Build Agreement, dated August 1, 2006, by and between
the Company and Agra Industries, Inc.
10.13 Employment Agreement, dated September 29, 2006, by and between
the Company and Brian L. Larson.
20.1 Risk factors as set forth in the Company's Registration
Statement on Form S-3/A, filed with the Securities and
Exchange Commission on June 9, 2006, File No. 333-134016,
which risk factors are hereby incorporated by reference.
20.2 Risk factors set forth in the Company's Prospectus Supplement
filed, with the Securities and Exchange Commission on July 7,
2006, File No. 333-134016, which risk factors are hereby
incorporated by reference.
31.1 Certification by Barry A. Ellsworth under Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification by Brian L. Larson under Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Barry A. Ellsworth pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
27
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
32.2 Certification of Brian L. Larson pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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 hereunto duly authorized.
GREEN PLAINS RENEWABLE ENERGY, INC.
Date: October 9, 2006 By /s/ Barry A. Ellsworth
---------------------------------
Barry A. Ellsworth
President
(Principal Executive Officer)
Date: October 9, 2006 By /s/ Brian L. Larson
---------------------------------
Brian L. Larson
Chief Financial Officer
(Principal Financial Officer)
28