SIRE 10-K

No astrix's "***" , secret codes or euphemisms here. In SOUTHWEST IOWA RENEWABLE ENERGY (SIRE) Annual Report - just out - they talk frankly about their corn oil extraction process.

"During Fiscal 2011 we installed an ICM corn oil extraction system and began selling corn oil. This system separates corn oil from the post-fermentation syrup stream as it leaves the evaporators of the ethanol plant. The corn oil is then routed to storage tanks, and the remaining concentrated syrup is routed to the plant’s syrup tank. Corn oil can be marketed as either a feed additive or a biodiesel feedstock. We sold 5,858 tons of corn oil in Fiscal 2011, representing approximately 2% of our revenue." page 3 10-k

Why did they make this decision?  I always hear that question.  So today I nimbly suggest a "possible" answer to the highly refined reader.  (Or should I say I allow SIRE to suggest the reason?) You decide.

First, with a little digging one finds ICM is an owner of SIRE:

"As of September 30, 2011, we had (i) 8,805 Series A Units issued and outstanding held by 811 persons, (ii) 3,334 Series B Units issued and outstanding held by Bunge, and (iii) 1,000 Series C Units issued and outstanding held by ICM."  page  25

ICM is also a large creditor to SIRE:

"On June 17, 2010, ICM, Inc. (“ICM”) issued the a term note to the Company (the “ICM Term Note”) in the amount of $9,970,000, which is convertible at the option of ICM into Series C Units at a conversion price of $3,000 per unit. As of September 30, 2011 and 2010, there was $10,903,000 and $10,061,000 outstanding under the ICM Term Note, respectively, and approximately $146,500 and $139,000 of accrued interest due (including accrued expense, related party) to ICM, respectively." page 48

ICM also has a Director on the Board

"Additionally, ICM, as the sole Series C Unit owner, is afforded the right to elect one Series C Director to the Board so long as ICM remains a Series C Member." page 53

"Gregory P. Krissek, a Director, is Director of Government Affairs, ICM, Inc., an international agribusiness technology company." page 1



ICM has got other "by name" deals before

Additionally, to induce ICM to agree to the ICM Term Note, the Company entered into an equity agreement with ICM (the “ICM Equity Agreement”) on June 17, 2010, whereby ICM (i) retains preemptive rights to purchase new securities in the Company, and (ii) receives 24% of the proceeds received by the Company from the issuance of equity or debt securities.




ICM Tricanter Agreement

"In the Tricanter Agreement, ICM agreed to indemnify and hold us harmless from all claims arising out of the infringement of adversely owned patents, copyrights or any other intellectual property rights in connection with our purchase and/or use of the Tricanter Equipment. As of June 30, 2011, we have paid $2,592,500 to ICM for the Tricanter Agreement." page 65




On page 65 their is a summary of SIRE's relationship with ICM. 

Now that you know about the relationship, lets listen to what SIRE says about their operation on page 17:

"Our directors have other business and management responsibilities that may cause conflicts of interest in their services to the Company.

Since we are managed both by our officers and to some extent by the Board, the devotion of the directors’ time to the project is critical. However, the directors have other management responsibilities and business interests apart from our project. Most particularly, our directors who were nominated by Bunge and ICM have duties and responsibilities to those companies which may conflict with our interests. As a result, our directors may experience conflicts of interest in allocating their time and services between us and their other business responsibilities. No formal procedures have been established to address or resolve these conflicts of interest"

"We may have conflicting financial interests with Bunge and ICM that could cause them to put their financial interests ahead of ours."



"ICM and Bunge advise our directors and have been, and are expected to be, involved in substantially all material aspects of our financing and operations. We have entered into a number of material commercial arrangements with Bunge, as described elsewhere in this report. Consequently, the terms and conditions of our agreements with ICM and Bunge have not been negotiated at arm’s length. Therefore, these arrangements may not be as favorable to us as could have been if obtained from unaffiliated third parties. Most of the cost of our project has been paid to ICM for the design and construction of the Facility. In addition, because of the extensive roles that ICM and Bunge had, it may be difficult or impossible for us to enforce claims that we may have against ICM or Bunge. Such conflicts of interest may reduce our profitability and the value of the Units and could result in reduced distributions to investors.

ICM, Bunge and Holdings and their respective affiliates may also have conflicts of interest because ICM, Bunge and Holdings and their respective employees or agents are involved as owners, creditors and in other capacities."
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SkunK

PS Also note the international flair to the selling of DDGs.  As we talked about before DDGs are now an international feedstock - not limited to the local market. 

"We sell our dried distiller’s grains with soluble in the continental United States, Mexico and the Pacific Rim."

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NOTE: As always, I sometimes add an underline in quotes whenever I feel the urge.