The ethanol industry has grown significantly over the last few years, expanding production capacity at a compound annual growth rate of approximately 20% from 2000 to 2005, according to the RFA. It is believed the ethanol market will continue to grow as a result of its favorable production economics relative to gasoline, a shortage of domestic petroleum refining capacity, federally-mandated renewable fuel usage, favorable tax treatment, ethanol\'s clean-burning characteristics and geopolitical and environmental concerns with petroleum-based fuels.

The primary feedstock for ethanol production in the United States is corn. Proximity to corn supplies is a crucial factor in the economics of ethanol plants, as transporting corn is much more expensive than transporting finished ethanol product. As such, the ethanol industry is geographically concentrated in the Midwest based on the proximity to the highest concentration of corn supply. Over 75% of the ethanol produced in the United States comes from five Midwestern states, with the corn-rich state of Iowa alone possessing nearly 27% of the total United States ethanol capacity. In addition to corn, the ethanol production process requires natural gas, or in some cases, coal to power the facility and dry distillers grains.

Despite the geographic concentration, production in the ethanol industry remains fragmented. While domestic ethanol production increased from 1.7 billion gallons in 1997 to 4.0 billion gallons in 2005 according to the RFA, the top four producers accounted for approximately 41% of the industry\'s total estimated production capacity as of February 2005, according to the National Farmers Union. More than 50 smaller producers and farmer-owned cooperatives, most with production of 50 MMGPY or less, generate the remaining production. Since a typical ethanol facility can be constructed in approximately 18 months from groundbreaking to operation, the industry is able to forecast capacity additions for up to 18 months in the future. As of May 2006, the RFA estimates 41 new or existing ethanol facilities with capacity of an aggregate of an additional 2.0 billion gallons per year were under construction.

The Company’s ethanol production facilities produce distillers grains as a co-product that is generated after the grains have been fermented by yeast. In the fermentation process, nearly all of the starch in the grain is converted to ethanol and carbon dioxide, while the remaining nutrients (proteins, fats, minerals and vitamins) undergo a three-fold concentration to yield modified distillers grains, or MDG, or, after further drying, dried distillers grains, or DDG. Addition of soluble syrup creates modified distillers grains with solubles, or MDGS. Each bushel of corn yields approximately 17 pounds of distillers grains in a dry mill process. Distillers grains are an economical partial replacement for corn, soybean and dicalcium phosphate in livestock and poultry feeds.

Distillers grains are derived from corn and contain a nutrient profile that has been proven to have beneficial properties for the diets of dairy and beef cattle, poultry and swine. The high digestibility and net energy content of DDGS and MDGS, compared to other feed ingredients such as soybean meal, canola meal and brewers spent grains, as well as their high fat content, results in greater milk production by dairy cattle. For beef cattle, the improved rumen health, energy effect of the fiber and palatability has been shown in feedlot studies to result in faster and more efficient weight gains.

MDGS are similar to DDGS but with a 50% moisture content rather than a 12% moisture content for DDGS. DDGS have a prolonged shelf life and reduce transportation expense, while MDGS are cheaper to produce as they spend less time in the drying process. The Company sells MDGS to local farmers, while DDGS are shipped longer distances by truck or rail. Most of the Company’s distillers grains sales are in the DDGS form.

Carbon dioxide, or CO2, is also a by-product of the Company’s dry-mill ethanol production process. While CO2 produced is typically of sufficient quality to be collected and sold, the Company does not currently market its CO2. Currently, the Company scrubs the CO2 during the production process and release it to the atmosphere.

Corn costs for the three months ended March 31, 2006 increased $1.7 million, or 24.8%, to $8.5 million from $6.8 million for the three months ended March 31, 2005.

Natural gas costs for the three months ended March 31, 2006 increased $1.9 million, or 92.0%, to $4.0 million from $2.1 million for the three months ended March 31, 2005.

Gross profit for the three months ended March 31, 2006 increased $3.8 million, or 73.2%, to $9.1 million from $5.2 million for the three months ended March 31, 2005.

Interest expense for the three months ended March 31, 2006 increased $0.3 million, or 14.1%, to $2.4 million from $2.1 million for the three months ended March 31, 2005.

Interest income increased $0.5 million to $0.8 million for the three months ended March 31, 2006 from $0.3 million for the three months ended March 31, 2005.