Western Dubuque Biodiesel 10-Q 2009 Q1 Quarterly report

NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2009

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarter ended March 31, 2009

OR

o Transition report under Section 13 or 15(d) of the Exchange Act.

For the transition period from                    to                    

Commission file number 000-52617

WESTERN DUBUQUE BIODIESEL, LLC

(Exact name of small business issuer as specified in its charter)

Iowa
(State or other jurisdiction of organization) 20-3857933
(I.R.S. Employer Identification No.)

904 Jamesmeier Rd.
P.O. Box 82
Farley, IA 52046
(Address of principal executive offices)

(563) 744-3554
(Issuer’s telephone number)

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. Yesþ Noo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 1, 2009, there were 29,779 membership units outstanding.

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).Yeso Noo

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. (Check one):

Large Accelerated Filero Accelerated Filero Non-Accelerated Filero Smaller Reporting Companyþ

INDEX

	Page No.
PART I. FINANCIAL INFORMATION		2
Item 1. Financial Statements		2
Item 2. Management’s Discussion and Analysis or Plan of Operations		17
Item 3. Quantitative and Qualitative Disclosures about Market Risks		23
Item 4. Controls and Procedures		24
PART II. OTHER INFORMATION		25
Item 1. Legal Proceedings		25
Item 1A. Risk Factors		25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3. Defaults Upon Senior Securities		26
Item 4. Submission of Matters to Security Holders		26
Item 5. Other Information		26
Item 6. Exhibits		27
SIGNATURES		27
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WESTERN DUBUQUE BIODIESEL, LLC
BALANCE SHEET

	March 31,			December 31,
	2009			2008
	UNAUDITED
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	6,713,820		$	7,553,554
Margin deposits		48,850			5,000
Accounts receivable — related party		57,327			1,525,310
Other receivables		4,000			—
Inventory		781,224			542,401
Derivative instruments		10,886			—
Prepaid expenses		269,217			84,444
Total current assets		7,885,324			9,710,709
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements		3,091,093			3,091,093
Office building and equipment		407,203			407,203
Plant and process equipment		37,758,600			37,758,600
Vehicles		42,537			42,537
Construction in progress		7,391			—
Total, at cost		41,306,824			41,299,433
Less accumulated depreciation		3,651,891			3,104,761
Total property, plant and equipment		37,654,933			38,194,672
OTHER ASSETS
Restricted cash		406,784			337,337
Loan origination fees, net of amortization		356,847			380,637
Total other assets		763,631			717,974
TOTAL ASSETS	$	46,303,888		$	48,623,355
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Accounts payable:
Trade	$	344,754		$	506,615
Related party		75,404			241,545
Current portion of long-term debt		27,263,040			28,097,365
Accrued interest		13,823			16,346
Accrued liabilities		88,348			141,348
Deferred rent		9,350			—
Total current liabilities		27,794,719			29,003,219
LONG-TERM LIABILITIES
Long-term debt, less current portion above		—			—
Total liabilities		27,794,719			29,003,219
MEMBERS’ EQUITY
Contributed capital		26,230,096			26,230,096
Accumulated deficit		(7,720,927	)		(6,609,960	)
Total members’ equity		18,509,169			19,620,136
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	46,303,888		$	48,623,355

See accompanying notes to financial statements.

2

WESTERN DUBUQUE BIODIESEL, LLC
STATEMENTS OF OPERATIONS(UNAUDITED)

	Three Months Ended			Three Months Ended
	March 31, 2009			March 31, 2008
REVENUES
Biodiesel and by product sales — related party	$	45,534		$	4,535,877
Tolling services — related party		1,030,385			24,843
Incentive funds		—			1,523,084
Total revenues		1,075,919			6,083,804
COST OF SALES
Materials, labor and overhead		1,835,352			6,278,277
Net losses (gains) on derivative instruments		(10,736	)		292,118
Total cost of sales		1,824,616			6,570,395
Gross loss		(748,697	)		(486,591	)
OPERATING EXPENSES
Consulting and professional fees		70,202			81,430
Office and administrative expenses		63,002			134,784
Total operating expenses		133,204			216,214
OTHER INCOME (EXPENSE)
Other income		650			—
Interest income		32,139			27,029
Interest expense		(261,855	)		(537,548	)
Total other income (expense)		(229,066	)		(510,519	)
NET LOSS	$	(1,110,967	)	$	(1,213,324	)
BASIC AND DILUTED LOSS PER UNIT	$	(37.31	)	$	(40.86	)
WEIGHTED AVERAGE UNITS OUTSTANDING, BASIC AND DILUTED		29,779			29,697

See accompanying notes to financial statements.

3

WESTERN DUBUQUE BIODIESEL, LLC
STATEMENTS OF CASH FLOWS(UNAUDITED)

	Three Months Ended			Three Months Ended
	March 31, 2009			March 31, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,110,967	)	$	(1,213,324	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation		547,130			548,160
Amortization		23,790			23,790
Effects of changes in operating assets and liabilities
Margin deposits		(43,850	)		1,559,853
Accounts receivable — related party		1,467,983			1,015,336
Other receivables		(4,000	)		148,826
Incentive receivables		—			672,807
Inventory		(238,823	)		1,471,505
Prepaid expenses		(184,773	)		(314,585	)
Derivative instruments		(10,886	)		(1,292,736	)
Accounts payable		(328,002	)		(664,183	)
Accrued liabilities		(53,000	)		(169,957	)
Deferred rent		9,350			—
Net cash provided by operating activities		73,952			1,785,492
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment, including construction in progress		(7,391	)		(16,039	)
Increase in restricted cash		(69,447	)		—
Net cash used in investing activities		(76,838	)		(16,039	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt		—			939,540
Payments on long-term debt		(836,848	)		(380,348	)
Net cash provided by financing activities		(836,848	)		559,192
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(839,734	)		2,328,645
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		7,553,554			2,011,841
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	6,713,820		$	4,340,486

See accompanying notes to financial statements.

4

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Western Dubuque Biodiesel, LLC located in Farley, Iowa was organized on November 14, 2005 to own and operate a 30 million gallon annual production biodiesel plant for the production of fuel grade biodiesel. The Company’s fiscal year ends on December 31. Significant accounting policies followed by the Company are presented below. The Company began its principal operations in August 2007. Prior to that date, the Company was considered to be in the development stage.

Use of Estimates in Preparing Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Basis of Accounting

The Company uses the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. This method recognizes revenues as earned and expenses as incurred.

In the opinion of management, all adjustments have been made that are necessary to fairly present the financial position, results of operations and cash flows of the Company.

These financial statements should be read in conjunction with the financial statements and notes included in the Company’s financial statements for the year ended December 31, 2008.

Revenue Recognition

Revenue from the production of biodiesel and related products is recognized upon delivery to customers or under the terms of a tolling service agreement. Revenue is recorded upon the transfer of the risks and rewards of ownership and delivery to customers. Interest income is recognized as earned.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

The Company maintains its accounts primarily at one financial institution. At times during the year, the Company’s cash and cash equivalents balances exceed amounts insured by the Federal Deposit Insurance Corporation.

5

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

Restricted Cash

The Company is required to maintain cash balances to be held at a bank as a part of their financing agreement as described in Note 4.

Accounts Receivable

Accounts receivable are presented at face value, net of the allowance for doubtful accounts. The allowance for doubtful accounts is established through provisions charged against income and is maintained at a level believed adequate by management to absorb estimated bad debts based on historical experience and current economic conditions. Management believes all receivables will be collected and therefore the allowance has been established to be $-0- at March 31, 2009 and December 31, 2008.

Account balances with invoices past stated terms are considered delinquent. No interest is charged on trade receivables with past due balances. Payments of accounts receivable are applied to the specific invoices identified on the customer’s remittance advice or, if unspecified, to the customer’s total balances.

Derivative Instruments and Hedging Activities

SFAS No. 133 requires a company to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted from SFAS No. 133 as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal sales are documented as such, and exempted from the accounting and reporting requirements of SFAS No. 133. The Company has entered into agreements to purchase soybean oil for anticipated production needs. These contracts are considered normal purchase contracts and exempted from SFAS No. 133.

Inventories

Inventory is stated at the lower of cost, determined on a first in, first out basis, or market value.

Property and Equipment

Property and equipment are stated at cost. Significant additions are capitalized, while expenditures for maintenance, repairs and minor renewals are charged to operations when incurred.

6

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

Property and Equipment(Continued)

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets determined as follows:

	Years
Land improvements	20 – 40
Office equipment	5 – 10
Office building	30
Plant and process equipment	10 – 40
Vehicles	5 – 7

The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset. The amount of the loss is determined by comparing the fair market values of the asset to the carrying amount of the asset.

Loan Origination Fees

Loan origination fees are stated at cost and will be amortized on the straight-line method over the life of the loan agreements. Amortization commenced as the Company borrowed funds on the loans. Amortization for the three months ended March 31, 2009 and 2008 was $23,790.

Income Taxes

The Company is organized as a limited liability company under state law and is treated as a partnership for income tax purposes. Under this type of organization, the Company’s earnings pass through to the partners and are taxed at the partner level. Accordingly, no income tax provision has been calculated. Differences between financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes.

Loss Per Unit

Losses per unit are calculated based on the period of time units have been issued and outstanding. Units issued under the directors’ option plan have not been included in the calculation because their inclusion would have been antidilutive.

Cost of Sales

The primary components of cost of sales from the production of biodiesel products under the tolling services agreement are raw materials (hydrochloric acid, methanol, and other catalysts), energy (natural gas and electricity), labor and depreciation on process equipment.

7

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and are included in the cost of sales.

Environmental Liabilities

The Company’s operations are subject to federal, state and local environmental laws and regulations. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material, environmental or other damage; and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated.

Fair Value of Financial Instruments

The Company believes the carrying amounts of cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to the short maturity of these instruments. The carrying amount of long-term obligations approximates fair value based on estimated interest rates for comparable debt.

New Accounting Standards

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities— an amendment of SFAS No. 133.” The Statement requires enhanced disclosures about an entity’s derivative and hedging activities. The Statement was effective for fiscal years and interim periods beginning after November 15, 2008, which was January 1, 2009 for the Company. The Company’s enhanced disclosures are included in Note 10.

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, EffectiveDate of FASB Statement No. 157, which delayed the effective date of SFAS No. 157,Fair Value Measurements, for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. On January 1, 2009, the Company adopted SFAS No. 157 for these assets and liabilities. Since the Company’s existing fair value measurements for nonfinancial assets and nonfinancial liabilities are consistent with the guidance of the Statement, the adoption of the Statement did not have a material impact on the Company’s financial statements.

8

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)

New Accounting Standards(Continued)

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments. This FSP requires entities to provide disclosure of the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the balance sheet, in interim reporting periods. Prior to the issuance of this FSP, such disclosures were required only in annual reporting periods. FSP FAS 107-1 and APB 28-1 is effective for interim and annual reporting periods ending after June 15, 2009, with earlier application permitted. We do not believe the adoption of this standard will have a material impact on our financial position, results of operations and cash flows.

In April 2009, the FASB issued FSP No. FAS 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. The FSP provides additional guidance for estimating fair value when the market activity for an asset or liability has declined significantly. The FSP is effective for interim and annual periods ending after June 15, 2009, which is June 30, 2009 for the Company. The FSP is not anticipated to have a material impact on the Company’s financial statements.

NOTE 2 — INCENTIVE PAYMENTS AND RECEIVABLE

Revenue from federal incentive programs is recorded when the Company has sold blended biodiesel and satisfied the reporting requirements under the applicable program. When it is uncertain that the Company will receive full allocation and payment due under the federal incentive program, it derives an estimate of the incentive revenue for the relevant period based on various factors including the most recently used payment factor applied to the program. The estimate is subject to change as management becomes aware of increases or decreases in the amount of funding available under the incentive programs or other factors that affect funding or allocation of funds under such programs. There were no incentives receivable at March 31, 2009 and December 31, 2008.

NOTE 3 — INVENTORY

Inventory consists of:

	March 31,		December 31,
	2009		2008
	(UNAUDITED)
Raw material	$	427,763	$	186,306
Work in progress		219,108		146,334
Finished goods		134,353		209,761
Total	$	781,224	$	542,401

9

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 4 — LONG-TERM DEBT AND FINANCING

Long-term obligations of the Company are summarized as follows:

	March 31,		December 31,
	2009		2008
	(UNAUDITED)
Note payable to Marshall BankFirst for construction loan — see details below	$	26,965,287	$	27,782,677
Note payable to the Iowa Department of Economic Development — see details below		285,000		300,000
Note payable to Hodge Material Handling — see details below		12,753		14,688
Total		27,263,040		28,097,365
Less current portion		27,263,040		28,097,365
Long-term portion	$	—	$	—

Due to going concern issues addressed in Note 11, the debt has been classified as current.

On July 5, 2006, the Company entered into a $35,500,000 loan agreement with Marshall BankFirst. The loan commitment was the lesser of $35,500,000 or sixty one percent of total project costs. The loan term is seventy-four months which consists of the construction phase and a term phase. The construction phase ended March 1, 2008 and the term phase commenced thereafter. Monthly interest payments were required during construction phase with monthly interest and principal required during the term phase to be based on a ten year principal amortization. Monthly payments of $339,484 including interest at a variable rate commenced March 1, 2008 under the term phase with the remaining principal and interest due at maturity, January 1, 2013. The loan commitment also includes a provision for additional payments during the term phase, based on one-third of all monthly earnings before interest, taxes, depreciation and amortization (EBITDA) remaining after the regularly scheduled principal and interest payments have been paid in full. The agreement also includes provisions for reserve funds for capital improvements, working capital, and debt service. As of March 31, 2009, balances of $354,582 and $52,202 remain in the debt service reserve and capital reserve funds as restricted cash. During the term phase, the Company has the option of selecting an interest rate at 25 basis points over the prime rate as published in the Wall Street Journal or 300 basis points over the five-year LIBOR/Swap Curve rate. On March 1, 2008, upon commencement of the term phase the Company selected the variable rate option of 25 basis points over the prime rate (3.50% and 3.25% at March 31, 2009 and December 31, 2008, respectively). The notes are secured by essentially all of the Company’s assets. Under the terms of the agreements with Marshall BankFirst, the Company is to adhere to certain financial covenants. The Company is to adhere to minimum debt service coverage, fixed charge coverage, and current ratio requirements, as well as a maximum debt as a percentage of earnings before interest, taxes, depreciation and amortization (EBITDA) ratio. The Company was not in compliance with certain covenants as of March 31, 2009 and December 31, 2008.

10

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 4 — LONG-TERM DEBT AND FINANCING(CONTINUED)

The Company has been awarded $400,000 from the Iowa Department of Economic Development consisting of a $300,000 zero interest deferred loan and a $100,000 forgivable loan. The zero interest deferred loan requires sixty monthly installments of $5,000 beginning December 2006. In January 2007, the zero interest deferred loan was amended, and deferred monthly installments until August 2007, with remaining principal due at maturity, May 2012. The Company must satisfy the terms of the agreement, which include producing 30,000,000 gallons of biodiesel and wage and job totals, to receive a permanent waiver of the forgivable loan. The loan is secured by a security agreement including essentially all of the Company’s assets.

The Company has an installment sales contract with Hodge Material Handling dated October 16, 2007. The Company purchased a fork truck for $23,625, and must make 36 monthly installments of $770, beginning 30 days after taking possession of the fork truck. Interest is implied at a rate of 10.69% per annum.

The Company has issued a $116,132 letter of credit through American Trust Bank in favor of Aquila, Inc. The letter of credit is effective for the period February 6, 2007 through February 6, 2010. The Company has available $116,132 to be borrowed at March 31, 2009.

NOTE 5 — MEMBERS’ EQUITY

In December 2006, the Company entered into a written agreement to issue 2,500 units with the Renewable Energy Group, Inc. (REG, Inc.) who was contracted to build the facility and provide management and operational services for the Company (see Note 8). REG, Inc., is a related entity formed by the Company’s original general contractor (Renewable Energy Group, LLC) (See Note 7). The agreement provided for the issuance of 2,500 membership units to the contractor upon completion of construction. The $2,500,000 consideration for the units were to be deducted from the final payments made by the Company relating to the construction agreement of the biodiesel facility. The 2,500 units were issued on January 4, 2008. This reduced the construction payable by $2,500,000 and increased contributed capital by the same amount.

The Company’s operating agreement provides that the net profits or losses of the Company will be allocated to the members in proportion to the membership units held. Members will not have any right to take part in the management or control of the Company. Each membership unit entitles the member to one vote on any matter which the member is entitled to vote. Transfers of membership units are prohibited except as provided for under the operating agreement and require approval of the board of directors.

NOTE 6 — CASH FLOW DISCLOSURES

Supplemental disclosure for interest paid:

	Three Months Ended		Three Months Ended
	March 31, 2009		March 31, 2008
Cash paid for interest	$	240,588	$	513,758

11

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 6 — CASH FLOW DISCLOSURES(CONTINUED)

The Company had the following noncash investing and financing transactions:

	Three Months Ended		Three Months Ended
	March 31, 2009		March 31, 2008
Units issued in exchange for reduction in construction payable	$	—	$	2,500,000
Loan proceeds transferred to debt reserve fund (restricted cash)	$	—	$	75,344

NOTE 7 — RELATED PARTY TRANSACTIONS

The Company’s general contractor (Renewable Energy Group, LLC) entered into an agreement to construct the plant. On July 31, 2006 the general contractor formed a new related entity called Renewable Energy Group, Inc. (REG, Inc.). The new entity, REG, Inc. is contracted to provide the management and operational services for the Company. On August 9, 2006, REG, LLC assigned its construction agreement to the newly formed entity REG, Inc., which will be the general contractor.

The Company entered into an agreement with REG, Inc. to provide certain management and operational services. The agreement provides for REG, Inc. to place a general manager and operations manager, acquire substantially all feed stocks and basic chemicals necessary for production, and perform substantially all the sales and marketing functions for the Company. The agreement with REG, Inc. requires a per gallon fee, paid monthly, based on the number of gallons of biodiesel produced or sold. In addition, an annual bonus based on a percentage of the plant’s profitability with such bonus not to exceed $1,000,000 per year.

Payments shall be due the tenth of the month following the month for which such fees are computed or payable. The agreement shall remain in force for three years after the end of the first month in which product is produced for sale. The agreement shall continue until one party gives written notice of termination to the other of a proposed termination date at least twelve months in advance of a proposed termination date.

The Company incurred management and operational service fees, feed stock procurement fees, and sales fees with REG, Inc. For the three months ending March 31, 2009 and 2008, the Company incurred fees of $74,404 and $131,728, respectively. The amount payable to REG, Inc. as of March 31, 2009 and December 31, 2008 was $75,404 and $241,545, respectively.

A member of the board of directors is also a member of the board of directors of the Company’s depository bank.

In August 2008, the Company entered into a tolling service agreement with REG, Inc. to process a specified number of gallons of biodiesel from September to February 2009. Under the terms of the agreement, REG, Inc. was to provide the raw material feedstock and pay a specified price per gallon for processing.

12

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 7 — RELATED PARTY TRANSACTIONS(CONTINUED)

The Company has given notice to REG, Inc. that they intend to proceed with arbitration in order to resolve disputes related to the management and operational services agreement.

NOTE 8 — COMMITMENTS AND CONTINGENCIES

During the three months ended March 31, 2008, the Company received a refund of $142,946 from an industrial new jobs training program. The Company funds the program through diverting their state payroll tax withholdings. In the event these withholdings aren’t enough to cover the bond payments, the Company will need to advance the funds to cover the program costs.

NOTE 9 — FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, the Company adopted FASB Statement No. 157 (FAS 157),Fair Value Measurements, which provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, FAS 157 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. The adoption of this statement had an immaterial impact on the Company’s financial statements. FAS 157 defines levels within the hierarchy as follows:

• Level 1—Unadjusted quoted prices for identical assets and liabilities in active markets;

• Level 2—Quoted prices for similar assets and liabilities in active markets (other than those included in Level 1) which are observable for the asset or liability, either directly or indirectly; and

• Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The following table sets forth financial assets and liabilities measured at fair value in the statement of financial position and the respective levels to which the fair value measurements are classified within the fair value hierarchy as of March 31, 2009:

					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	March 31, 2009		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash equivalents	$	6,473,958	$	6,473,958	$	—	$	—
Commodity derivatives	$	—	$	—	$	10,886	$	—

13

WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 9 — FAIR VALUE OF FINANCIAL INSTRUMENTS(CONTINUED)

The Company enters into various commodity derivative instruments, including forward contracts, futures, options and swaps. The fair value of the Company’s derivatives are determined using unadjusted quoted prices for identical instruments on the applicable exchange in which the Company transacts. When quoted prices for identical instruments are not available, the Company uses forward price curves derived from market price quotations. Market price quotations are obtained from independent brokers, exchanges, direct communication with market participants and actual transactions executed by the Company. The fair value of the money market funds is based on quoted market prices in an active market.

NOTE 10 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Effective January 1, 2009, the company prospectively implemented the provisions of SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 enhances the disclosure requirements of SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities(SFAS 133) to provide users of financial statements with a better understanding of the objectives of a company’s derivative use and the risks managed.

Objectives and Strategies for Holding Derivative Instruments

In the ordinary course of business, the company enters into contractual arrangements (derivatives) as a means of managing exposure to changes in biodiesel prices and feedstock costs under established procedures and controls. The company has established a variety of approved derivative instruments to be utilized in each risk management program, as well as varying levels of exposure coverage and time horizons based on an assessment of risk factors related to each hedging program. As part of its trading activity, the Company uses option and swap contracts offered through regulated commodity exchanges to reduce risk and is exposed to risk of loss in the market value of biodiesel inventories and input costs.

Commodity Risk Management

Commodity price risk management programs serve to reduce exposure to price fluctuations on purchases of feedstocks and biodiesel prices. The company enters into over-the-counter and exchange-traded derivative commodity instruments to hedge the commodity price risk associated with feedstocks and commodity exposures. These agreements had expiration dates in 2009.

Accounting for Derivative Instruments and Hedging Activities

All derivatives are designated as non-hedge derivatives. Although the contracts may be effective economic hedges of specified risks, they do not meet the hedge accounting criteria of SFAS 133. At March 31, 2009, the Company had net derivative assets of $10,886 related to these instruments, with the related mark-to-market effects included in “Cost of sales” in the statements operations. At December 31, 2008, the Company had no derivative instruments.

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WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 10 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES(CONTINUED)

Accounting for Derivative Instruments and Hedging Activities(Continued)

The following tables provide information on the location and amounts of derivative fair values in the consolidated balance sheet and derivative gains and losses in the statement of operations:

Fair Value of Derivative Instruments:

	Balance Sheet	Asset Derivatives		Liability Derivatives
	Classification	March 31, 2009		March 31, 2009
Derivatives not designated as hedging under SFAS 133:
Commodity contracts - - Heat oil swaps	Current Assets	$	10,886	$	—

During the three months ended March 31, 2009, net realized and unrealized losses on derivative transactions were recognized in the statement of income as follows:

	Location of net loss	Net income
	recognized in	recognized in income
Derivatives not designated as	earnings on	on derivative
hedging instruments under SFAS 133	derivative activities	activities
Commodity contracts — Heat oil swaps	Cost of sales	$	10,736

The Company recorded an increase to cost of sales of $292,118, related to derivative contracts for the three months ending March 31, 2008.

NOTE 11 — UNCERTAINTY

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three months ended March 31, 2009, the Company generated significant net losses of $1,110,967 and experienced significant increases in the input costs for its products. In an effort to increase profit margins and reduce losses, the Company anticipates producing biodiesel from refined animal fat, as animal fats are currently less costly than soybean oil. The Company also plans to seek to produce biodiesel on a toll basis where biodiesel would be produced using raw materials provided by someone else. Finally, the Company plans to scale back on its production or temporarily shut down the biodiesel plant depending on the Company’s cash situation and its ability to purchase raw materials to operate the plant.

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WESTERN DUBUQUE BIODIESEL, LLC
NOTES TO FINANCIAL STATEMENTS
March 31, 2009

NOTE 11 — UNCERTAINTY(CONTINUED)

The Company has also undertaken significant borrowings to finance the construction of its biodiesel plant. The loan agreements with the Company’s lender contain restrictive covenants, which require the Company to maintain minimum levels of working capital, and minimum financial ratios including; debt service coverage, fixed charge coverage and debt as a percentage of earnings before interest, taxes, depreciation, and amortization (EBITDA). The Company was not in compliance with certain restrictive covenants at March 31, 2009 and December 31, 2008, and it is projected the Company will fail to comply with one or more loan covenants, including the working capital covenant throughout the Company’s 2009 fiscal year. This raises doubt about whether the Company will continue as a going concern. These loan covenant violations constitute an event of default under the Company’s loan agreements which, at the election of the lender, could result in the acceleration of the unpaid principal loan balance and accrued interest under the loan agreements or the loss of the assets securing the loan in the event the lender elected to foreclose its lien or security interest in such assets. The Company’s ability to continue as a going concern is dependent on the Company’s ability to comply with the loan covenants and the lender’s willingness to waive any non-compliance with such covenants.

Management anticipates that if additional capital is necessary to comply with its loan covenants or to otherwise fund operations, the Company may issue additional membership units through one or more private placements. However, there is no assurance that the Company would be able to raise the desired capital.

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Item 2. Management’s Discussion and Analysis or Plan 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-month period ended March 31, 2009. 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 December 31, 2008.

Cautionary Statements Regarding Forward-Looking Statements

This report contains forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance and our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based upon current information and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, without limitation:

• The availability and terms and conditions of credit or equity financing needed to continue our operations in the event that income from operations is insufficient for us to continue biodiesel production;

• Our ability to generate free cash flow to invest in our business and service our debt;

• Our ability to comply with our loan covenants and the response of our lender to our failure to comply with such covenants;

• Continued higher than average prices of vegetable oils, particularly soybean oil, and/or increases in the prices of other feedstock;

• Our ability to enter into toll manufacturing agreements or other arrangements that shift responsibility for feedstock procurement and costs to other parties;

• The imposition of tariffs or other duties on biodiesel imported into Europe;

• Overcapacity within the biodiesel industry resulting in increased competition and costs for feedstock and/or decreased prices for our biodiesel and glycerin;

• Changes in soy-based biodiesel’s qualification under the Renewable Fuels Standard as a result of the Environmental Protection Agency’s testing on reduction to greenhouse gas emissions from soy-based biodiesel;

• Decreased availability of soybean oil or other feedstock for any reason, including reduction in soybean production due to increased corn production to service the ethanol industry;

• Our ability to locate alternative feedstock to replace soybean oil (such as refined animal fats) if desirable or necessary, particularly since we lack pretreatment capabilities to enable us to process raw animal fats or other crude vegetable oils at our plant;

• Our ability to market our products and our reliance on our marketer to market our products;

• 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 our plant operations and their enforcement; and the ability of the biodiesel industry to successfully lobby for mandates or other legislation beneficial to the biodiesel industry;

• Fuel prices, U.S. consumption of diesel and biodiesel and consumer attitudes regarding the use of biodiesel;

• Changes in plant production capacity or technical difficulties in operating the plant for any reason, including changes due to events beyond our control or as a result of intentional reductions in production or plant shutdowns;

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• Changes and advances in biodiesel production technology, including the ability of our competitors to process raw animal fats or other feedstock which we are unable to process;

• Competition from 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

Western Dubuque Biodiesel, LLC (the “Company,” “we” or “us”) was formed on November 14, 2005 as an Iowa limited liability company. We own and operate a 30 million gallon per year biodiesel production plant near Farley, Dubuque County, Iowa and engage in the production and sale of biodiesel and its primary co-product, glycerin. Under our Management and Operational Services Agreement (MOSA) with Renewable Energy Group, Inc. (REG), REG is required to provide for the management of our plant, acquire feedstock and chemicals necessary for the plant’s operation and to perform administrative, sales and marketing functions. As described in Part II, Item 1A of this report, we intend to proceed with arbitration in order to resolve disputes that we have with REG under the MOSA.

We are subject to industry-wide factors that affect our operating and financial performance. Our operating results are largely driven by the prices at which we sell our biodiesel and glycerin and the cost of soybean oil and other operating costs. In addition, our revenues are also impacted by such factors as our dependence on one or a few major customers who market and distribute our products; the intensely competitive nature of our industry; the extensive environmental laws that regulate our industry; possible legislation at the federal, state and/or local level; and changes in federal biodiesel supports and incentives. Increasing feedstock costs, combined with falling biodiesel prices and demand, have made profit margins small or nonexistent.

As of the date of this report, we have no outstanding sales contracts or tolling services agreements for our biodiesel. We are currently testing our ability to process additional alternative feedstocks. Our future operations will depend upon the results of our testing and the ability of REG to procure feedstock contracts and sales contracts for us that allow us to maintain positive cash flow. We anticipate that we will continue to operate substantially below our capacity primarily due to a combination of the high price of soybean oil and other feedstocks and decreased biodiesel demand and price, which are described throughout this report.

For the three months covered by this report, we produced approximately 1,305,325 gallons of biodiesel at our plant. Based upon our nameplate production capacity of 30,000,000 gallons of biodiesel per year (2,500,000 gallons per month), we operated at approximately 17% of our capacity in the quarter ended March 31, 2009. For the three months covered by this report, we generated net losses of $1,110,967. These net losses, combined with our failure to satisfy the covenants of our loan agreements, have raised doubts as to our ability to continue as a going concern.

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Results of Operations for the Three Months Ended March 31, 2009

The following table shows the results of our operations and the percentage of revenues, costs of goods sold, operating expenses and other items in relation to total revenues in our statements of operations for the fiscal quarters ended March 31, 2009 and 2008:

	Three Months Ended March 31, 2009						Three Months Ended March 31, 2008
	(Unaudited)						(Unaudited)
Income Statement Data	Amount			Percent			Amount			Percent
Revenues	$	1,075,919			100.00	%	$	6,083,804			100.00	%
Cost of Sales		1,824,614			169.59	%		6,570,395			108.00	%
Gross Profit (Loss)		(748,695	)		(69.59	%)		(486,591	)		(8.00	%)
Operating Expenses		133,204			12.38	%		216,214			3.60	%
Other Income (Expense)		(229,066	)		(21.29	%)		(510,519	)		(8.40	%)
Net Loss		(1,110,966	)		(103.26	%)		(1,213,324	)		(19.90	%)

Revenues

The following table shows the sources of our revenues for the fiscal quarters ended March 31, 2009 and 2008:

	Three Months Ended March 31, 2009					Three Months Ended March 31, 2008
Revenue Source	Amount		% of Revenues			Amount		% of Revenues
Biodiesel/Glycerin Sales	$	45,534		4.2	%	$	4,535,877		74.6	%
Tolling Services	$	1,030,385		95.8	%	$	24,843		0.4	%
Incentive funds		—		0	%		1,523,084		25.0	%
	$	1,075,919		100	%	$	6,083,804		100.00	%

Our revenues from operations for the quarter ended March 31, 2009 came from sales of biodiesel and crude glycerin and from our tolling services agreement. Under tolling services agreements, we produce biodiesel using feedstock provided by the other party. The other party is required to pay for the feedstock, and we pay all of the other production costs and receive a flat fee per gallon of biodiesel produced. Our revenues are lower in the three months ended March 31, 2009 than the same period in 2008, primarily due to reduced production, operation under a tolling services agreement, and much lower prices for our biodiesel in 2009. According to the USDA’s Weekly Ag Energy Round-Up report, the price of B100 biodiesel in Iowa for the week of May 1, 2009 was approximately $2.65 to $3.25 per gallon, as compared to approximately $4.90 to $5.25 per gallon for the week of May 2, 2008. We did not receive incentive funds this quarter because biodiesel was primarily produced under a tolling agreement, which entitles the other party to the agreement to such incentives.

Because biodiesel is primarily used as an additive to petroleum-based diesel, biodiesel prices have generally correlated to diesel fuel prices. Although the price of diesel fuel has increased over the last several years, reaching record highs, diesel fuel prices per gallon remain at levels below or equal to the price of biodiesel. According to the Energy Information Administration, the average diesel price for the Midwest was $2.12 on May 4, 2009, which is lower than the price per gallon for biodiesel. Demand for biodiesel has been reduced as a result. Combined with the lack of demand for biodiesel is an increased supply of biodiesel and increased competition for and costs of our inputs, which has also led to difficulty in marketing our biodiesel at profitable prices. Moreover, the EPA recently issued preliminary findings that soy-based biodiesel fails to meet targets for reducing greenhouse emissions, as required under the Renewable Fuel Standard (RFS). If these findings are implemented such that soy based biodiesel is not counted toward the RFS, demand for our biodiesel could be reduced as a result. Additionally, we expect even lower demand in the winter months because blenders decrease their blend percentages due to cold flow concerns. We expect these trends to continue for the remainder of our fiscal year.

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Cost of Sales

The primary components of cost of sales from the production of biodiesel products are raw materials (soybean oil, hydrochloric acid, methanol, and sodium methylate), energy (natural gas and electricity), labor and depreciation on process equipment.

Our costs of sales for the first quarter of 2009 are substantially less than our costs of sales for the same period in 2008 due to a reduction in the price of our feedstock. The Jacobsen Publishing Company reported that the central Illinois average April 2009 soybean oil price was $ 0.3293 per pound, which is much lower than the April 2008 soybean oil price was which $0.5695 per pound. According to the USDA’s National Weekly Ag Energy Round-Up report, the price for crude soybean oil in Iowa for the week of May 1, 2009 ranged from $0.3322 to $0.3472 per pound, which remains above historical average prices. Volatility in the markets makes future trends extremely difficult to predict. If the price of soybean oil or natural gas increases in the future, we expect that costs of sales on a per-gallon sold basis may increase during our 2009 fiscal year with regard to any biodiesel that is not produced under a toll manufacturing agreement.

Although our plant is able to process certain feedstocks other than soybean oil, our ability to utilize different types of feedstock depends on the ability to gain access to a consistent supply of feedstock at competitive prices and our ability to obtain feedstock that has been pretreated for use at our plant if necessary. We expect to purchase feedstock based only upon scheduled sales and available working capital. In the event we cannot obtain adequate supplies of feedstock at affordable costs for sustained periods of time, we expect to continue to experience brief temporary shutdowns, and we may be forced to permanently shut down the plant.

Operating Expenses

Our operating expenses are primarily due to expenses for consulting and professional fees and office and administrative expenses. We expect that going forward our operating expenses will remain fairly consistent if plant production levels remain consistent or as projected.

Other Income (Expenses)

Our other income and expenses for the three months ended March 31, 2009 resulted primarily from interest expense of $261,855, partially offset by our other income and interest income. We expect our other expenses to remain steady if plant production levels remain consistent or as projected.

Cash Flows

Cash Flow from Operating Activities.Net cash provided by operating activities for the three months ended March 31, 2009 totaled $73,950. This was primarily the result of the net loss of $1,110,966 and an increase in accounts receivable, offset by a decrease in inventory.

Cash Flow from Investing Activities.Net cash used in investing activities for the three months ended March 31, 2009 totaled $76,837, which was due to an increase in restricted cash.

Cash Flow from Financing Activities.Net cash used in financing activities for the three months ended March 31, 2009 totaled $836,848 due to payments on our long-term borrowings.

Changes in Financial Condition for the Three Months Ended March 31, 2009

The following table sets forth our sources of liquidity for the three months ended March 31, 2009:

	March 31, 2009		December 31, 2008
Current Assets	$	7,885,324	$	9,710,709
Current Liabilities	$	27,794,719	$	29,003,219
Total Members Equity	$	18,509,169	$	19,620,136

Current Assets.The decrease in current assets is a primarily due to a decrease in accounts receivable and cash.

Current Liabilities.Our long-term debt has been classified as a current liability, due to the violation of our financial covenants under our term loan. The change to our current liabilities is due to payments on our debt financing, offset by accrued interest.

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Members’ Equity.The change in the members’ equity was primarily due to an increase in the accumulated deficit from $6,609,960 to $7,720,927 as a result of our net loss.

Plan of Operations for the Next 12 Months

We expect to spend the next twelve months engaging in the production of biodiesel and glycerin at our plant. We intend to rely on cash flow from continuing operations to fund our operations during the next twelve months. However, we anticipate that we will seek debt and/or equity financing in the event that cash flow from our ongoing operations is insufficient to continue operations, and our directors continue to explore possible avenues for such financing. If additional funds are unavailable it may be necessary for us to temporarily suspend production or shut down our plant. Additionally, we may be subject to foreclosure on our assets due to any inability to satisfy our debt obligation.

Plant Operations

As of the date of this report, we have no outstanding sales contracts or tolling services agreements for our biodiesel. We are currently testing our ability to process feedstocks other than soybean oil. Our future operations will depend upon the results of our testing and the ability of REG to procure feedstock contracts and sales contracts for us that allow us to maintain positive cash flow. For the remainder of 2009, therefore, we anticipate that we will continue to operate below our capacity. Management is directing its efforts towards increasing production and operating efficiencies while maintaining or decreasing operating costs. The price of inputs such as soybean oil combined with lower prices for our biodiesel, however, may make it difficult to satisfy these objectives and there is no assurance that we will be able to satisfy these objectives.

Operating Budget and Financing of Plant Operations

Pursuant to the MOSA, REG provides us with overall management, sales and marketing and feedstock procurement services. In exchange, we pay REG a management fee based upon the number of gallons of biodiesel produced. Additionally, we may be obligated to pay a yearly income bonus equal to a certain percentage of our net income if REG meets certain conditions. For the three months ended March 31, 2009, we have incurred management and operational fees, feedstock procurement fees and marketing fees under the MOSA of $74,404. The amount payable as of March 31, 2009 is $75,404.

As of the date of this report, we have no outstanding sales contracts or tolling services agreements for our biodiesel. We anticipate that we will continue to seek tolling services agreements similar to previous arrangements we have had with REG. Under such arrangements, we produce biodiesel using feedstock provided by the other party. The other party is required to pay for the feedstock, and we pay all of the other production costs and receive a flat fee per gallon of biodiesel produced. Such agreements allow us to produce biodiesel for a fixed fee without having to purchase the feedstock necessary to produce biodiesel. In the absence of such agreements, we are required to purchase our own feedstock to operate the biodiesel plant and expect to continue to do so in the future unless we can secure another tolling services agreement or similar arrangement. If we cannot purchase the feedstock required to operate the biodiesel plant at a price which would allow us to operate profitably, or if we cannot secure tolling services agreements that allow us to operate the plant without paying for feedstock, we may have to cease operations at the biodiesel plant. Additionally, we may be subject to foreclosure on our assets due to any inability to satisfy our debt obligation.

We have exhausted the funds available under our debt facilities and do not have further commitments for funds from any lender. We intend to rely on cash flow from continuing operations to fund our operations during the next twelve months. However, we anticipate that we will need to seek debt and/or equity financing in the event that cash flow from our ongoing operations is insufficient to continue operations. If such additional funds are unavailable it may be necessary for us to temporarily suspend production or shut down our plant. Our operating costs include the cost of feedstock, chemical inputs, utilities, other production costs, staffing, office, audit, legal, compliance and working capital costs. We expect that we will continue to operate at less than full capacity.

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Critical Accounting Estimates

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. These policies are described in the notes to the financial statements.

Liquidity and Capital Resources

Sources of Funds

Equity Financing.We have used all of the proceeds from our equity offerings to fund the construction and start-up of our plant and for our ongoing operations. Our board of directors continues to evaluate avenues for additional debt financing and is also exploring and evaluating alternative options for raising capital.

Debt Financing. In October 2006, we closed on our term loan with Marshall Bankfirst (“Bankfirst”). The loan term is seventy-four months, which consists of a construction phase and a term phase. The construction phase ended March 1, 2008, and the term phase commenced thereafter. On March 1, 2008, we selected the variable rate option for the loan of 0.25% over the prime rate (3.50% at March 31, 2009). Monthly payments under the term phase are $339,484 including interest at a variable rate. Payments will be calculated in an amount necessary to amortize the principal amount of this note plus interest thereon over a 10 year period. The remaining unpaid principal balance, together with all accrued but unpaid interest, is due and payable in full on January 1, 2013. As of March 31, 2009, the outstanding balance on our term loan was $26,965,287. We have exhausted the funds available under our debt facilities and do not have further commitments for funds from any lender.

The term loan agreement imposed a number of requirements for the disbursement of the loan proceeds. Additionally, the term loan agreement imposes various covenants upon us which may restrict our operating flexibility. The term loan requires us to: maintain up to $125,000 in a capital improvements reserve fund that must be replenished as we use these funds for capital improvement expenditures; maintain certain financial ratios which may limit our operating flexibility; and obtain Bankfirst’s permission prior to making any significant changes in our material contracts with third-party service providers. The term loan requires us to certify to Bankfirst at intervals designated in the term loan that we are meeting the financial ratios required by the loan agreement. As described below, we are not in compliance with certain of these covenants.

We executed a mortgage in favor of Bankfirst creating a first lien on substantially all of our assets, including our real estate, plant, all personal property located on our property and all revenues and income arising from the land, plant or personal property for the loan and credit agreements discussed above. Due to Bankfirst’s security interest in our assets, we are not free to sell our assets without the permission of Bankfirst, which could limit our operating flexibility. All of the requirements of our term loan are more specifically described in the loan documents we executed with Bankfirst.

We are not in compliance with certain of our restrictive covenants at March 31, 2009, including the debt service ratio, fixed charge coverage ratio and current ratio, and it is projected that we will fail to comply with one or more loan covenants through the remainder of our 2009 fiscal year. We may fail to comply with additional covenants in the future. Failure to comply with such covenants constitutes a default under our loan agreements. For so long as we continue to be in default, our lender is entitled to elect to take any one or more actions, including, without limitation, acceleration of the unpaid principal balance under the loan agreements and all accrued interest thereon, or foreclosure on its mortgage on our real estate and its security interest in our personal property securing our loans. Such actions would have a material adverse impact on our financial condition and results of operations and could result in the loss of the assets securing our loans and a permanent shutdown of our plant. In addition, our loan agreement contains an event of default if our lender reasonably deems itself insecure at any time.

Although our lender has not elected to exercise its remedies as of the date of this report, there can be no assurances that our lender will continue to refrain from accelerating the principal and interest due under our loans or foreclosing on and taking possession of the collateral securing our loans. As described in “Risk Factors,” our default has caused doubts about our ability to continue as a going concern.

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Government Programs and Grants. We have entered into a loan with the Iowa Department of Economic Development (IDED) for $400,000. This loan is part of the IDED’s Value Added Program and $100,000 of the loan is forgivable. As of March 31, 2009 we owe $285,000. The loan requires us to maintain production rates at our nameplate capacity and maintain 30 full time job positions. Our failure to satisfy these requirements constitutes a default, and may result in acceleration of the loan, as well as partial or full repayment of the forgivable portion. Although we anticipate we will operate at full capacity for the remainder of our fiscal year, we operated substantially below our production capacity for much of our 2008 fiscal year and may have to operate at a reduced capacity throughout the current fiscal year. Therefore, it is unlikely we will satisfy the production and job requirements as required by the loan agreement. As a result, we may be required to pay back all or a portion of the forgivable loan, and our obligations under the remaining portion of the loan may be accelerated if IDED exercises remedies available to it.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risks

We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes pursuant to the requirements of SFAS 133,Accounting for Derivative Instruments and Hedging Activities.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding a term loan which bears a variable interest rate. Specifically, we have approximately $27,000,000 outstanding in variable rate debt as of March 31, 2009. Our debt is discussed in greater detail in “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Commodity Price Risk

We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as soybean oil, and finished products, such as biodiesel, through the use of derivative instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases, they do not qualify for hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We treat our hedge positions as non-hedge derivatives, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of goods sold. The immediate recognition of hedging gains and losses under our treatment of our hedge positions can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

At March 31, 2009, the Company had net derivative assets of $10,886 related to heat oil swaps commodity contracts, with the related mark-to-market effects included in “Cost of Sales” in the statements operations. At December 31, 2008, the Company had no derivative instruments. The Company recorded an increase to cost of sales of $292,118 related to derivative contracts.

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There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of soybean oil, natural gas or biodiesel. However, it is likely that commodity cash prices will have the greatest impact on the derivative instruments with delivery dates nearest the current cash price. As we move forward, additional protection may be necessary. As the prices of these hedged commodities move in reaction to market trends and information, our statement of operations will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are intended to produce long-term positive growth for the Company. As of March 31, 2009, there were not any outstanding purchase contracts for soybean oil.

Sensitivity Analysis

A sensitivity analysis has been prepared to estimate our exposure to biodiesel, soybean oil and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the publicly-available soybean oil and natural gas prices and average biodiesel price as of March 31, 2009. Other applicable assumptions are reflected in the footnotes. Please note that the results below could vary significantly depending upon a number of factors, including but not limited to those described throughout this report, such as our actual production rate, type of feedstock used, and whether we produce biodiesel under tolling agreements that shift the risks involved with feedstock and biodiesel prices to the other party. The result of this analysis is as follows:

	Estimated						Hypothetical
	Volume		Unit of	Price Per			Adverse Price			Adverse Change
Commodity	Requirements(a)		Measure	Unit(b)			Change			to Income
Natural Gas		83,193	MMBTU	$	5.50			10	%	$	45,756
Soybean Oil		139,675,000	Pounds	$	0.3385			10	%	$	4,727,999
Methanol		2,029,450	Gallons	$	0.62			10	%	$	125,826
B100 Biodiesel		18,500,000	Gallons	$	2.95	(c)		10	%	$	5,457,500

(a)	Requirements for the next 12 months, based upon production at 60% of nameplate capacity.
(b)	These numbers reflect publicly-available prices as of March 31, 2009.
(c)	For the week of March 27, 2008 the B100 price was $2.45 to 2.95 for Iowa, according to USDA Weekly Ag Energy RoundUp Report.

Item 4. Controls and Procedures

Our management, including our Chief Executive Officer (the principal executive officer), along with our Chief Financial Officer (the principal financial officer), have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2009. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated any changes in our internal control over financial reporting that occurred as of March 31, 2009 and there has been no change that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As described elsewhere in this report, we intend to proceed with arbitration in order to resolve disputes we have with REG under the MOSA. We are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the directors that could result in the commencement of legal proceedings.

Item 1A. Risk Factors

Risk factors are discussed in our annual report on Form 10-K. The risks described in our annual report are not the only risks facing us. The following Risk Factors are provided to supplement and update the Risk Factors previously disclosed in our annual report and should be read in conjunction with the considerations set forth above in “MANAGEMENT’S DISCUSSION AND ANALYSIS” and the risk factors in our annual report.

There are doubts about our ability to continue as a going concern and if we are unable to continue our business, our units may have little or no value.As discussed in Note 11 to the accompanying financial statements, our non-compliance with one or more of the loan covenants contained in our financing agreements with our lender has raised doubts about our ability to continue as a going concern. We are not in compliance with certain of our restrictive covenants at March 31, 2009, including the debt service ratio, fixed charge coverage ratio and current ratio, and it is projected that we will fail to comply with one or more loan covenants through the remainder of our 2009 fiscal year. We may fail to comply with additional covenants in the future. Failure to comply with such covenants constitutes a default under our loan agreements. Additionally, our loan agreement contains an event of default if our lender reasonably deems itself insecure at any time. For so long as we continue to be in default, our lender is entitled to elect to take any one or more actions, including, without limitation, acceleration of the unpaid principal balance under the loan agreements and all accrued interest thereon, or foreclosure on its mortgage on our real estate and its security interest in our personal property securing our loans. If such an event occurs, we may be forced to shut down the plant and our members could lose some or all of their investment.

Doubts about our ability to continue as a going concern may make it difficult to obtain additional funds in the future.As discussed in the accompanying financial statements, our non-compliance with one or more of the loan covenants contained in our financing agreements has raised doubts about our ability to continue as a going concern. To comply with our loan covenants or to otherwise fund our operations, our board of directors may attempt to sell additional units or obtain debt financing. The board of directors also intends to explore and evaluate additional options for raising capital; however, there is no assurance that such alternatives will be available. The doubts relating to our ability to continue as a going concern may make it difficult to raise the necessary capital or obtain additional debt financing. Additionally, the economic crisis has contributed to a generally unfavorable credit environment. If we are unable to raise any additional capital or procure additional funds deemed necessary by our board of directors, our business may fail and members could lose some or all of their investment.

Liquidity issues could require us to cease operations.We are experiencing liquidity issues associated with the cost of our raw materials, lower prices for our products, and the ordinary delay between when we purchase those raw materials and when we receive payments from REG for our finished products. This is most likely to occur at times when we produce biodiesel for sale not subject to a tolling services agreement since we would procure and pay for feedstock. We have exhausted the funds available under our debt facilities and do not have further commitments for funds from any lender. We are already not operating at full capacity. Our lack of funds could cause continued temporary shutdowns at our biodiesel plant, or require us to cease operations altogether. Should we not be able to secure the cash we require to operate the plant and pay our obligations as they become due, we may have to cease operations, either on a permanent or temporary basis, which could decrease or eliminate the value of our units.

Our reliance on REG could damage our profitability.We are highly dependent upon REG to manage our plant, procure our inputs and market our products pursuant to our MOSA. Additionally, we depend on REG’s assessment of the cost and feasibility of operating our plant, REG’s experience in the biodiesel industry and its knowledge regarding the operation of the plant. If our plant does not operate to the level anticipated by us in our business plan, we will also rely on REG to adequately address such deficiency.

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Our reliance on REG may place us at a competitive disadvantage. REG has a number of potential conflicts of interest with us due to its ownership and management of competing biodiesel plants. On March 30, 2009, we gave notice to REG that we intend to proceed with arbitration in order to resolve disputes that we have with REG under the MOSA, including but not limited to, our position that REG has failed to provide required services under the MOSA, violated risk management policies under the MOSA and otherwise breached the MOSA with regard to arrangements associated with our tolling agreements. We are seeking monetary damages for these actions. Should our relationship with REG terminate, significant costs and delays would likely result from the need to find other consultants or marketers or sources of feedstock, for any reason. Any loss of our relationship with REG or failure by REG to perform its obligations may reduce our ability to generate revenue and may significantly damage our competitive position in the biodiesel industry such that our business could fail and members could lose all or substantially all of their investment. Moreover, because of our substantial dependence upon REG, our business could fail if REG is unable to continue its business.

The imposition of duties or tariffs by the European Commission on biodiesel imported into Europe could cause a significant decrease in our revenues.International sales, particularly sales in Europe, make up a portion of REG’s revenues from selling our biodiesel. The European Union (EU) is currently conducting antisubsidy and antidumping investigations on U.S. biodiesel imports into Europe based on complaints from the European Biodiesel Board (EBB). On March 12, 2009 the European Commission applied temporary duties on imports of biodiesel from the United States, while it continues to investigate the evidence of unfair subsidies and dumping of United States biodiesel imports into the EU. This could have the effect of significantly increasing the cost at which REG can sell our biodiesel in European markets, making it difficult or impossible for our biodiesel to compete with biodiesel produced by European biodiesel producers. Accordingly, the continued application of the temporary duties and any future imposition of duties or tariffs on European biodiesel exports could significantly harm our revenues and financial performance.

If made implemented, the EPA’s recent preliminary findings could reduce demand for soy-based biodiesel and reduce our profitability.The EPA recently issued findings that soy-based biodiesel fails to meet targets for reducing greenhouse emissions, as required under the RFS. The RFS requires that biodiesel reduce greenhouse gas emissions by 40 to 50% when compared to conventional biodiesel in order to count towards the RFS mandate. The EPA found soy-based biodiesel to reduce greenhouse gas emissions by only 22%. These findings are currently under review. However, if it is determined that soy based biodiesel does not satisfy the RFS, demand for biodiesel made from soy oil will likely be reduced. The results could significantly harm our revenues.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

For the period covered by this report, we were in default of certain covenants contained in our loan agreement with our lender, Bankfirst. Our failure to comply with these covenants constitutes an event of default under our agreement, entitling our lender to exercise any one or more of its remedies provided under the loan documents and applicable law, including, but not limited to, acceleration of the unpaid principal balance under the loan agreements and all accrued interest thereon, or foreclosing on its mortgage and security interests in the collateral which secures our debt financing. Although our lender has notified us of our default, it has not exercised its remedies as of the date of its report; however, if we continue to be in default, there is no assurance that the lender will continue to forebear from exercising such additional remedies.

Item 4. Submission of Matters to Security Holders

None.

Item 5. Other Information

None.

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Item 6. Exhibits

The following exhibits are filed as part of, or are incorporated by reference into, this report:

Exhibit			Method of
No.		Description	Filing
	31.1	Certificate pursuant to 17 CFR 240 13a-14(a)	*
	31.2	Certificate pursuant to 17 CFR 240 13a-14(a)	*
	32.1	Certificate pursuant to 18 U.S.C. Section 1350	*
	32.2	Certificate pursuant to 18 U.S.C. Section 1350	*

(*) Filed herewith.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	WESTERN DUBUQUE BIODIESEL, LLC
Date: May 15, 2009	/s/ Bruce Klostermann
	Bruce Klostermann
	Vice Chairman and Director (Principal Executive Officer)
Date: May 15, 2009	/s/ George Davis
	George Davis
	Treasurer and Director (Principal Financial and Accounting Officer)

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