10-Q

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 fiscal quarter ended June 30, 2009

OR

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

For the transition period from                      to                     .

Commission file number 000-53202

HOMELAND ENERGY SOLUTIONS, LLC

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

Iowa	20-3919356
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2779 Highway 24, Lawler, Iowa, 52154
(Address of principal executive offices)

(563) 238-5555
(Issuer’s telephone number)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. þ Yes o No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if smaller reporting company)

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

State the number of shares outstanding for each of the issuer’s classes of common equity as of the latest practicable date: As of August 1, 2009 there were 91,445 units outstanding.

INDEX

	Page No.
PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4T. Controls and Procedures		29
PART II. OTHER INFORMATION		31
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 3. Defaults Upon Senior Securities		31
Item 4. Submission of Matters to a Vote of Security Holders		31
Item 5. Other Information		31
Item 6. Exhibits		31
SIGNATURES		32
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Homeland Energy Solutions, LLC

Balance Sheets
June 30, 2009 and December 31, 2008

	6/30/2009		12/31/2008
	Unaudited		Audited
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	5,849,255	$	44,599
Accounts receivable		6,174,895		—
Inventory		5,928,852		—
Due from broker		613,112		—
Derivative instruments		615,362		—
Prepaid and other		1,658,312		115,867
Total current assets		20,839,788		160,466
PROPERTY AND EQUIPMENT
Land and improvements		22,383,469		3,705,585
Buildings		4,857,318		—
Equipment		129,337,892		58,963
Construction in progress		8,352		136,065,515
		156,587,031		139,830,063
Less accumulated depreciation		2,890,361		7,886
Total property and equipment		153,696,670		139,822,177
OTHER ASSETS
Loan fees, net of amortization 2009 $317,844; 2008 $229,382		855,128		943,590
Restricted cash		10,171,114		10,044,677
Assets held for sale		250,000		—
Utility rights, net of amortization 2009 $60,888; 2008 $0		2,621,712		2,085,708
Total other assets		13,897,954		13,073,975
TOTAL ASSETS	$	188,434,412	$	153,056,618
	6/30/2009		12/31/2008
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,538,992	$	2,877,051
Retainage payable		939,346		6,532,576
Interest payable		297,706		—
Property tax payable		6,420		6,424
Payroll payable		80,998		20,870
Current maturities of long term liabilities		3,700,000		20,000
Total current liabilities		7,563,462		9,456,921
COMMITMENTS AND CONTINGENCIES (NOTE 6)
LONG-TERM DEBT, less current maturities		89,000,705		51,636,807
MEMBERS’ EQUITY
Capital units, less syndication costs		89,572,744		89,572,744
Retained earnings		2,297,501		2,390,146
Total members’ equity		91,870,245		91,962,890
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	188,434,412	$	153,056,618

See Notes to Unaudited Financial Statements.

3

Homeland Energy Solutions, LLC
Statements of Operations (Unaudited)

	Three Months			Three Months			Six Months			Six Months
	Ended 6/30/09			Ended 6/30/08			Ended 6/30/09			Ended 6/30/08
REVENUE	$	39,562,718		$	—		$	39,562,718		$	—
COSTS OF GOODS SOLD		38,133,578			—			38,133,578			—
GROSS PROFIT		1,429,140			—			1,429,140			—
OPERATING EXPENSES		150,199			20,474			1,366,736			200,752
OPERATING INCOME (LOSS)		1,278,941			(20,474	)		62,404			(200,752	)
OTHER INCOME (EXPENSE)
Interest expense		(594,198	)		—			(594,198	)		—
Interest income		61,591			155,349			139,148			514,806
Grant income		300,000			—			300,000			—
		(232,607	)		155,349			(155,050	)		514,806
Net income (loss)	$	1,046,334		$	134,875		$	(92,646	)	$	314,054
Basic & diluted net income (loss) per unit	$	11.44		$	1.47		$	(1.01	)	$	3.43
Weighted average of units outstanding for the calculation of basic & diluted net income per unit		91,445			91,445			91,445			91,445

See Notes to Unaudited Financial Statements.

4

Homeland Energy Solutions, LLC

Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2009 and 2008

	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(92,646	)	$	314,054
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		2,972,052			1,899
Unrealized loss (gain) on risk management activities		(615,362	)		—
Asset impairment		480,875			—
Increase in restricted cash		(126,437	)		—
Change in working capital components:
(Increase) decrease in accounts receivable		(6,174,895	)		—
(Increase) decrease in inventory		(5,928,852	)		—
(Increase) decrease in cash due to (from) broker		(613,112	)		—
(Increase) decrease in prepaid expenses		(1,542,445	)		—
Increase (decrease) in accounts payable		1,863,720			(165,144	)
Increase (decrease) in other current liabilities		357,830			(207,423	)
Net cash (used in) operating activities		(9,419,272	)		(56,614	)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for equipment and construction in progress		(25,419,970	)		(43,616,358	)
Payments for other assets		(400,000	)		—
Purchase of land options		—			(5,000	)
Net cash (used in) investing activities		(25,819,970	)		(44,050,539	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowing		41,223,898			—
Payments on long-term borrowing		(180,000	)		(5,000	)
Payments for rejected subscriptions		—			(7,500,000	)
Net cash provided by (used in) financing activities		41,043,898			(7,505,000	)
Net increase (decrease) in cash	$	5,804,656		$	(51,612,153	)
CASH AND CASH EQUIVALENTS
Beginning		44,599			64,986,226
Ending	$	5,849,255		$	13,374,073
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	1,113,290		$	217,164
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accounts payable related to construction in progress	$	215,780		$	7,081,224
Retainage payable related to construction in progress		939,346			5,835,775
Interest capitalized		817,183			—
Insurance costs capitalized		83,423			141,309
Loan fee amortization capitalized		58,974			88,462

See Notes to Unaudited Financial Statements.

5

HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

1. Nature of Business and Significant Accounting Policies

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, 2008, contained in the Company’s annual report on Form 10-K for 2008.

In the opinion of management, the interim condensed financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments.

Nature of business: Homeland Energy Solutions, LLC (an Iowa Limited Liability Company) is located near Lawler, Iowa and was organized to pool investors for a 100 million gallon ethanol plant with distribution to upper Midwest and Eastern states. The company produces and sells distillers grains as byproducts of ethanol production. Site preparation was completed and construction began in November 2007. Prior to commencing operations on April 4, 2009, the Company was a development stage entity with its efforts being principally devoted to organizational activities and construction activities. The Company sells its production of ethanol and distiller grains primarily in the continental United States.

Significant accounting policies:

Fiscal Reporting Period: The Company has a fiscal year ending on December 31.

Accounting Estimates: Management uses estimates and assumptions in preparing these financial statements in accordance with United States Generally Accepted Accounting Principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Cash and Cash Equivalents: The Company maintains its accounts primarily at one financial institution. At various times, the Company’s cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced losses in such accounts.

For purposes of balance sheet presentation and reporting the statement of cash flows, the Company considers all cash deposits with an original maturity of three months or less to be cash equivalents.

Accounts Receivable: Accounts receivable are recorded at their estimated net realizable value, net of an allowance for doubtful accounts. The Company’s estimate of the allowance for doubtful accounts is based upon historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company’s credit terms. Accounts considered uncollectible are charged against the allowance. Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral.

Revenue Recognition: Revenue from the sale of the Company’s products is recognized at the time title to the goods and all risks of ownership transfer to the customers. This generally occurs upon shipment, loading of the goods or when the customer picks up the goods. Interest income is recognized as earned. Shipping costs incurred by the Company in the sale of ethanol and distiller grains are not specifically identifiable and as a result, revenue from the sale of ethanol and distiller grains is recorded based on the net selling price reported to the Company from the marketer.

6

HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

Inventories: Inventories are generally valued at the lower of cost (first-in, first-out) or market. In the valuation of inventories and purchase and sale commitments, market is based on current replacement values except that it does not exceed net realizable values and is not less than net realizable values reduced by allowances for approximate normal profit margin.

Property and Equipment: The Company incurred site selection and plan development costs on the proposed site that were capitalized. Significant additions, betterments and costs to acquire land options are capitalized, while expenditures for maintenance and repairs are charged to operations when incurred. Property and equipment are stated at cost. The Company uses the straight-line method of computing depreciation. Estimated useful lives range from 5 - 40 years for assets placed in service as of June 30, 2009.

The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the assets 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 will be determined by comparing the fair market values of the asset to the carrying amount of the asset.

Long-Lived Assets: In accordance with Financial Accounting Standard Board (FASB) Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

The Company impaired an asset associated with the coal gasification project by $230,875 due to the long term nature and uncertainty of the project. The remaining $230,875 has been capitalized as part of the plant’s infrastructure as these costs relate partially to the design of the Company’s rail system and engineering expenses and will be amortized over the estimated useful life of the asset.

The Company entered into a change order during the original construction of the plant to change the design from one large thermal oxidizer stack to two smaller thermal oxidizer stacks. The unused larger stack was deemed impaired by approximately $250,000 due to construction materials used to make the stack dropped in value. The estimated fair market value of this asset is $250,000, for which management intends to sell on the open market should another ethanol plant under construction require the same materials, and is listed on the Balance Sheet as “Assets held for sale.”

The total loss on asset impairments for the six months ending June 30, 2009 is $480,875 and is included in operating expense.

Derivative Instruments: FAS 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 purchases or sales are documented as normal and exempted from the accounting and reporting requirements of SFAS No. 133.

The Company enters into short-term cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of ethanol for the plant and managing exposure to changes in commodity and energy prices. All of the Company’s derivatives are designated as non-hedge derivatives, with changes in fair value recognized in net income. Although the contracts are economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

7

HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

As part of its trading activity, the Company uses futures and option contracts through regulated commodity exchanges to manage its risk related to pricing of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts and options.

Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas are included as a component of cost of goods sold and derivative contracts related to ethanol are included as a component of revenues in the accompanying financial statements. The fair values of contracts entered through commodity exchanges are presented on the accompanying balance sheet as derivative instruments.

Intangible Assets: Intangible assets consist of loan fees and utility rights. The loan fees are amortized over the term of the loan and utility rights are amortized over 15 years, the anticipated useful life, utilizing the straight-line method. Amortization for the next five years is estimated as follows:

	Loan Fees		Utility Rights		Total
2009	$	88,461	$	120,174	$	208,635
2010		176,923		240,348		417,271
2011		176,923		240,348		417,271
2012		176,923		182,631		359,554
2013		176,923		163,392		340,315
Thereafter		58,975		1,511,427		1,570,402
Total	$	855,128	$	2,621,712	$	3,476,840

Restricted Cash & Cash Equivalents: The Company has a restriction on a specific account with a bank that is restricted in use for the repayment of long-term debt. The balance in this account has been treated as a non-current asset due to this restriction.

Fair Value: The disclosure requirements of SFAS No 157, “Fair Value Measurements,” which took effect on January 1, 2008 are presented in Note 9. On January 1, 2009, the Company implemented the previously deferred provisions of SFAS No 157 for non-financial assets and liabilities recorded at fair value, which had no impact on the Company’s financial statements.

Grant Income: Revenue for grants awarded to the Company will be recognized upon meeting the requirements set forth in the grant documents.

Income Taxes: The Company is organized as a limited liability company under state law. Accordingly, the Company’s earnings pass through to the members and are taxed at the member level. No income tax provision has been included in these financial statements. Differences between the financial statement basis of assets and the tax basis of assets are related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. All fiscal tax years of the Company are subject to examination by the Internal Revenue Service.

Net Income (loss) per Unit: Basic and diluted net income per unit is computed by dividing net income by the weighted average number of members’ units and members’ unit equivalents outstanding during the period. There were no member unit equivalents outstanding during the periods presented; accordingly, the Company’s basic and diluted net income (loss) per unit are the same.

8

HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

Environmental Liabilities: The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. 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 Company’s liability is probable and the costs can be reasonably estimated. No expense has been recorded for the period from inception to June 30, 2009.

Risks and Uncertainties: The Company has certain risks and uncertainties that it will experience during volatile market conditions, which can have a severe impact on operations. The Company began operations in April 2009. The Company’s revenues will be derived from the sale and distribution of ethanol and distiller grains to customers primarily located in the U.S. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. We anticipate ethanol sales to average approximately 80% of total revenues, while 20% of revenues are expected to be generated from the sale of distiller grains and other by-products. We expect corn costs to average 75% of cost of goods sold.

The Company’s operating and financial performance is largely driven by the prices at which we sell ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets, although since 2005 the prices of ethanol and gasoline began a divergence with ethanol selling for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. Our largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, government policies and programs, and our risk management program used to protect against the price volatility of these commodities.

The current U.S. recession has reduced the nation’s demand for energy. The recent bankruptcy filing of several of the industry’s producers has resulted in great economic uncertainty about the viability of ethanol. The ethanol boom of recent years has spurred overcapacity in the industry and production capacity is currently exceeding the RFS mandates. As such, the Company may need to evaluate whether crush margins will be sufficient to operate the plant and generate enough debt service. In the event crush margins become negative for an extended period of time, the Company may be required to reduce capacity or shut down the plant. The Company will continue to evaluate crush margins on a regular basis. Based on the Company’s operating plan and the borrowing capacity, management believes it has the capital to meet its obligations throughout the next twelve month period.

Reclassification: Certain items have been reclassified within the financial statements for periods before June 30, 2009. The changes do not affect net income or members’ equity but were changed to agree with the classifications used in the June 30, 2009 financial statements.

Recently Issued Accounting Standards: The FASB has issued FASB Staff Position (FSP) FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161. This FSP amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. This FSP also amends FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to require an additional disclosure about the current status of the payment/performance risk of a guarantee. Further, this FSP clarifies the Board’s intent about the effective date of FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. We adopted this pronouncement in the first quarter of fiscal 2009 and the adoption of this pronouncement did not have a material impact on our financial position and results of operations.

In April 2009, the FASB issued Staff Position (“FSP”) No. FAS 157-4, “Determining Fair Value When the Volume or Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased and requires that companies provide interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. FSP 157-4 is effective for the Company beginning April 1, 2009. We adopted this pronouncement in the second quarter of fiscal 2009 and the adoption of this pronouncement did not have a material impact on our financial position and results of operations.

9

HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP 115-2/124-2”). FSP 115-2/124-2 provides additional guidance designed to create greater clarity and consistency in accounting and presenting impairment losses on securities. FSP 115-2/124-2 is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The measure of impairment in comprehensive income remains fair value. FSP 115-2/124-2 also requires increased and timelier disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. FSP 115-2/124-2 is effective beginning for the Company beginning April 1, 2009. The Company is still assessing the impact of FSP 115-2/124-2 on its consolidated financial statements. We adopted this pronouncement in the second quarter of fiscal 2009 and the adoption of this pronouncement did not have a material impact on our financial position and results of operations.

In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1”). FSP 107-1 requires disclosures about fair value of financial instruments in financial statements for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP 107-1 is effective for the Company beginning April 1, 2009. The Company is still assessing the impact of FSP 107-1 on its consolidated financial position and results of operations. We adopted this pronouncement in the second quarter of fiscal 2009 and the adoption of this pronouncement did not have a material impact on our financial position and results of operations.

On June 30, 2009, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 165, “Subsequent Events,” (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of SFAS 165 had no impact on the Company’s Consolidated Financial Statements as the Company already followed a similar approach prior to the adoption of this standard (see Note 10).

Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162,” (SFAS 168). SFAS 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” and establishes the FASB Accounting Standards Codification TM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. The issuance of SFAS 168 and the Codification does not change GAAP. SFAS 168 becomes effective for us for the quarter ending September 30, 2009. We are presently evaluating the impact that the adoption of SFAS 168 will have on the Company’s Consolidated Financial Statements.

New pronouncements issued but not effective until after June 30, 2009, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

10

HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

2. Inventory

Inventory consisted of the following as of June 30, 2009. There was no inventory as of December 31, 2008.

	June 30, 2009
Raw Materials	$	3,054,312
Work in Process		937,062
Finished Goods		1,937,478
Totals	$	5,928,852

3. Debt

Master Loan Agreement with Home Federal Savings Bank

On November 30, 2007, the Company entered into a Master Loan Agreement with Home Federal Savings Bank (“Home Federal”) establishing a senior credit facility with Home Federal for the construction of a 100 million gallon per year natural gas powered dry mill ethanol plant. The Master Loan Agreement provides for (i) a construction loan in an amount not to exceed $94,000,000 (of which up to $20,000,000 may be converted to a term revolving loan upon start-up of operations), and (ii) a revolving line of credit loan in an amount not to exceed $6,000,000 (the foregoing collectively referred to as the “Loans”).

Construction Loan

Under the Master Loan Agreement and its first supplement, Home Federal agreed to lend the Company up to $94,000,000 for project costs. The Company must pay interest on the Construction Loan at an interest rate equal to the LIBOR Rate plus 350 basis points. Interest will be paid on the Construction Loan monthly in arrears on the first day of the month beginning following the date on which the first advance of funds is made on the Construction Loan, and continuing until the date of conversion as set forth below. On the date of conversion, the amount of the unpaid principal balance and any other amounts on the Construction Loan will be due and payable, except for the portion, if any, of the Construction Loan which is converted into a Term Loan and into a Term Revolving Loan. In the event that the amount of disbursements made pursuant to the Construction Loan exceed the amount of the maximum Term Loan to be made, including after conversion of those portions of the Construction Loan which are eligible for conversion into the Term Revolving Loan, the Company must immediately repay the amount of the Construction Loan that is not being converted into a Term Loan.

The Company received the first advance in September 2008 on the Construction Loan. In October 2008, the Company deposited $10,000,000 in a debt service reserve account with Home Federal as a condition of their loan agreement. As of June 30, 2009, the balance on the Construction Loan was $92,700,705.

Conversion to Term Loan and Term Revolving Loan

Home Federal has agreed to convert up to $74,000,000 of the Construction Loan into a Term Loan. The term loan was converted on July 1, 2009. The Company will make monthly payments of accrued interest on the Term Loan from the date of conversion until seven months later. Beginning in the seventh month after conversion, or on February 1, 2010, equal monthly principal payments in the amount of $616,667 plus accrued interest will be made. All unpaid principal and accrued interest on the term loan that was so converted will be due on the fifth anniversary of such conversion. The Company will have the right to convert up to 50% of the term loan into a Fixed Rate Loan with the consent of Home Federal. The Fixed Rate Loan will bear interest at the five year LIBOR swap rate that is in effect on the date of conversion plus 325 basis points, or another rate mutually agreed upon by Homeland Energy and Home Federal. If the Company elects this fixed rate option, the interest rate will not be subject to any adjustments otherwise provided for in the Master Loan Agreement. The remaining converted portion will bear interest at a rate equal to the LIBOR Rate plus 325 basis points. If the Company fails to make a payment of principal or interest within 10 days of the due date, there will be a late charge equal to 5% of the amount of the payment.

11

HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

Under the terms of the Master Loan Agreement and the second supplement thereto, the Company agreed to the terms of a Term Revolving Loan, consisting of a conversion of a maximum amount of $20,000,000 of the Construction Loan into a Term Revolving Loan. Home Federal agreed to make one or more advances under the Term Revolving Loan during the period beginning on the Conversion Date, which was July 1, 2009, and the Maturity Date, which is the fifth anniversary of the Conversion Date. Each advance made under the Revolving Term Loan must be in a minimum amount of $50,000, and advances may be used for project costs and cash and inventory management. Interest on the Revolving Term Loan shall accrue at a rate equal to the LIBOR Rate plus 325 basis points. If the Company fails to make a payment of principal or interest within 10 days of the due date, there will be a late charge equal to 5% of the amount of the payment. The Company will be required to make monthly payments of interest until the Maturity Date, which is the fifth anniversary of the Conversion Date, on which date the unpaid principal amount of the Revolving Term Loan will become due and payable.

Revolving Line of Credit Loan

Under the terms of the Master Loan Agreement and the third supplement thereto, the Company agreed to the terms of a Revolving Line of Credit Loan consisting of a maximum $6,000,000 revolving line of credit. The Revolving Line of Credit Loan will not be available until all conditions precedent to the Revolving Line of Credit Loan are met, including the completion of the Project and either full repayment of the Construction Loan or its conversion into a Term Loan or Revolving Term Loan with Home Federal. The aggregate principal amount of the Revolving Line of Credit Loan may not exceed the lesser of $6,000,000 or the Borrowing Base. The Borrowing Base means, at any time, the lesser of: (a) $6,000,000; or (b) the sum of (i) 75% of the eligible accounts receivable, plus (iii) 75% of the eligible inventory. Interest on the Revolving Line of Credit Loan shall accrue at a rate equal to the LIBOR Rate plus 325 basis points. If the Company fails to make a payment of principal or interest within 10 days of the due date, there will be a late charge equal to 5% of the amount of the payment. Each advance made under the Revolving Line of Credit must be in a minimum amount of $50,000, and advances may be used for general corporate and operating purposes. The Company will be required to make monthly payments of accrued interest until the Revolving Line of Credit Loan expires, on which date the unpaid principal amount will become due and payable. The Revolving Line of Credit Loan expires 364 days after the conversion date which was July 1, 2009.

Security Interests and Mortgages

In connection with the Master Loan Agreement and all supplements thereto, the Company executed a mortgage in favor of Home Federal creating a senior lien on the real estate and plant and a security interest in all personal property located on Company property. In addition, the Company assigned all rents and leases to Company property in favor of Home Federal. As additional security for the performance of the obligations under the Master Loan Agreement and its supplements, a security interest was granted in the government permits for the construction of the project and all reserves, deferred payments, deposits, refunds, cost savings and payments of any kind relating to the construction of the project. If the Company attempts to change any plans and specifications for the project from those that were approved by Home Federal that might adversely affect the value of Home Federal’s security interest and have a cost of $25,000 or greater, the Company must obtain Home Federal’s prior approval.

In addition, during the term of the loans, the Company will be subject to certain financial covenants at various times calculated monthly, quarterly or annually. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the loans and/or the imposition of fees, charges or penalties. Any acceleration of the debt financing or imposition of the significant fees, charges or penalties may restrict or limit the access to the capital resources necessary to continue plant construction or operations. As of June 30, 2009, the Company is in compliance with all covenants.

Upon an occurrence of an event of default or an event which will lead to the default, Home Federal may upon notice terminate its commitment to loan funds and declare the entire unpaid principal balance of the loans, plus accrued interest, immediately due and payable. Events of default include, but are not limited to, the failure to make payments when due, insolvency, any material adverse change in the financial condition or the breach of any of the covenants, representations or warranties the Company has given in connection with the transaction.

The Company also entered into two unsecured loan agreements with the Iowa Department of Economic Development (IDED); one for a $100,000 loan to be repaid over 60 months starting April 2008 at a 0% interest rate and one for a $100,000 forgivable loan. The forgivable loan is subject to meeting terms of the agreement, such as installation of coal gasification and the fulfillment of Job Obligations. The Company repaid the interest free and forgivable loans in full on April 23, 2009 because the Company did not fulfill the coal gasification requirement of the IDED agreement.

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HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

4. Members’ Equity

The Company has raised a total of $89,920,000 in membership units. By a motion of the board on May 10, 2006 the total seed stock issued was capped at $1,325,000. This total consists of the initial $200,000 (600 units at $333.33 per unit) issued on January 11, 2006 to the founding members. It also consists of $1,125,000 (2,250 units at $500 per unit) which was raised from other seed stock investors on May 10, 2006. On October 29, 2007 $88,595,000 (88,595 units at $1,000 per unit) in membership units were issued and $7,500,000 (7,500 units at $1,000 per unit) of the subscription units were rejected. All of the rejected subscription units were paid in 2008. All membership units have equal voting rights.

Each member who holds five thousand or more units, all of which were purchased by such member from the Company during its initial public offering of equity securities filed with the Securities and Exchange Commission, shall be deemed an “Appointing Member” and shall be entitled to appoint one Director for each block of five thousand units; provided, however, that no “Appointing Member” shall be entitled to appoint more than two Directors regardless of the total number of units owned and purchased in the initial public offering.

5. Related Party Transactions

The Company has engaged one of its board members as Vice President of Project Development. The Vice President of Project Development will serve as an independent contractor to provide project development and consulting services through construction and initial start-up of the project. Costs incurred for these services were $0 and $20,000 for the three and six months ended June 30, 2009, respectively and none and $20,000 for the same periods of 2008.

The Company purchased corn and materials from members of its Board of Directors that own or manage elevators or are local producers of corn. Purchases during the three and six months ended June 30, 2009 from these companies and individuals totaled approximately $4,097,000 and $4,510,000, respectively. There were no purchases during the same periods of 2008

On December 15, 2008, the Company entered into an agreement with Golden Grain Energy, LLC, a member of the Company, for management services. Pursuant to the Agreement, Homeland Energy and Golden Grain have agreed to share management services in an effort to reduce the costs of administrative overhead. Homeland Energy and Golden Grain have agreed to split the compensation costs associated with each of the employees covered by the Agreement. For the three and six months ending June 30, 2009 the Company incurred net costs of approximately $103,000 and $225,000 related to this agreement. There were no costs for the same periods of 2008 related to this agreement.

6. Commitments, Contingencies and Agreements

On July 18, 2007, the Company entered into a Lump Sum Design-Build Agreement with Fagen, Inc. for the design and construction of a one hundred (100) million gallon per year dry grind ethanol production facility (the “Design-Build Agreement”) on the Company’s plant site located near Lawler, Iowa. Pursuant to the Lump Sum Design-Build Agreement, the effective date is July 6, 2007. Under the Design-Build Agreement, the Company will pay Fagen, Inc. and subsequent change notices the final contract price was approximately $121,707,000. As of June 30, 2009 the Company has spent approximately $121,414,000 for this commitment.

Ethanol, Distiller’s grain, marketing agreements and major customers

The Company has entered into a marketing agreement to sell the entire ethanol produced at the plant to an unrelated party at a mutually agreed on price, less commission and transportation charges. As of June 30, 2009, the Company has commitments to sell approximately 23,000,000 gallons at various fixed and basis price levels indexed against exchanges for delivery through December 2009. Should the Company not be able to meet delivery on these gallons in the future the Company will be responsible for purchasing gallons in the open market. The Company has not incurred any losses due to non-delivery of product and anticipates that all contracts will be sufficient to cover costs in the future.

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HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

The Company has entered into a marketing agreement to sell the entire distiller grains produced at the plant to a related party who is also a member of the Company. The initial term of the agreement is for one year beginning with the start-up of production in April 2009. The agreement calls for automatic renewal for successive one-year terms unless 120-day prior written notice is given before the current term expires. As of June 30, 2009, the Company had approximately 29,000 tons of distiller grains commitments for delivery during July 2009 at various fixed prices. Should the Company not be able to meet delivery on these gallons in the future the Company will be responsible for purchasing tons in the open market. The Company has not incurred any losses due to non-delivery of product.

Approximate sales and marketing fees related to the agreements in place are the same for the three and six month period ending June 30, 2009. There were no sales or marketing fees during 2008.

	June 30, 2009
Sales ethanol	$	32,814,000
Sales distiller grains		6,993,000
Marketing fees ethanol		261,000
Marketing fees distiller grains		119,000
Amount due from ethanol marketer		4,143,000
Amount due from distiller marketer		1,321,000

On November 29, 2007 the Company was awarded a USDA loan guarantee which is subject to using coal gasification technology. This award will guarantee 60% of a potential $40,000,000 loan through Home Federal Savings Bank. The USDA reserves the right to terminate its commitment if certain conditions set forth in the agreement are not met by November 2009. As of June 30, 2009 the Company had received notification that would allow us to qualify for the guarantee taking into consideration certain efficiencies at the plant without the coal gasification requirement. However, we must meet certain requirements prior to the receipt of the loan guarantee. There is no guarantee we will be able to meet these requirements. This loan is not included in the master loan agreement with Home Federal (see Note 3).

On December 19, 2007, the Iowa Department of Economic Development approved the Company for a package of benefits, provided the Company meets and maintains certain requirements. The package provides for the following benefits: (1) a $100,000 forgivable loan and a $100,000 interest-free loan under the Iowa Value-Added Agricultural Products and Processes Financial Assistance Program which was paid off during 2009 (see Note 3); (2) a grant of $240,000 under the Revitalize Iowa’s Sound Economy program for the construction of a turning lane off of Iowa Highway 24 to the plant; and (3) the following tax incentives under the High Quality Jobs Program from the state of Iowa:

• Refund of sales, service or use taxes paid to contractors and subcontractors during construction work (estimated at $1,000,000). As of June 30, 2009 the Company has not filed for any refund of sales or use taxes. Any refunds received in the future will be accounted for as a reduction of construction costs.

• Investment tax credit (limited to $10,000,000. To be amortized over 5 years). This Iowa tax credit may be claimed for qualifying expenditures, not to exceed $10,000,000, directly related to new jobs created by the start-up, location, expansion or modernization of the company under the program. This credit is to be taken in the year the qualifying asset is placed into service and is amortized over a 5 year period starting with the 2009 tax return. Since the Company is organized as a limited liability company, under state law all earnings and tax credits pass through to the members. The investment tax credit will have no impact on the financial statements.

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HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

• Local Value-added Property Tax Exemption (estimated at $10,350,000). The Community has approved an exemption from taxation on all or a portion of the value added by improvements to real property directly related to new jobs created by location or expansion of the company and used in the operations of the company. No exemptions have been received as of June 30, 2009. Future exemptions will be account for as a reduction of property tax expense.

On July 7, 2008, the Company entered into an agreement with Iowa, Chicago, & Eastern Railroad for the installation of two new mainline switches and the re-alignment of the main line at a cost of $239,764. As of June 30, 2009, the Company has incurred no costs related to this agreement.

At June 30, 2009, the Company had outstanding commitments for purchases of approximately $16,713,000 of corn, of which approximately $469,000 is with related parties.

The Company has commitments for minimum purchases of various utilities such as natural gas and electricity over the next 10 year which are anticipated to approximate the following:

2009	$	1,894,000
2010		3,787,000
2011		3,787,000
2012		3,787,000
2013		3,787,000
Thereafter		19,884,000
Total anticipated commitments	$	37,000,000

7. LEASE OBLIGATIONS

During fiscal year 2009, the Company entered into leases, for rail cars and rail moving equipment with original terms up to 3 years. The Company is obligated to pay costs of insurance, taxes, repairs and maintenance pursuant to terms of the leases. Rent expense incurred for the operating leases during the three and six months ending June 30, 2009, was approximately $459,000 and $459,000.

At June 30, 2009 the Company had the following approximate minimum rental commitments under non-cancelable operating leases.

2009	$	942,750
2010		1,063,500
2011		1,063,500
2012		279,000
2013		279,000
Total lease commitments	$	3,627,750

8. DERIVATIVE INSTRUMENTS

The Company’s activities expose it to a variety of market risks, including the effects of changes in commodity prices. These financial exposures are monitored and managed by the Company as an integral part of its overall risk-management program. The Company’s risk management program focuses on the unpredictability of financial and commodities markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.

To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange traded futures and options contracts to reduce its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts and uses exchange traded futures and options contracts to reduce price risk. Exchange-traded futures contracts are valued at market price. Changes in market price of exchange traded futures and options contracts related to corn and natural gas are recorded in operating expense and changes in market prices of contracts related to sale of ethanol, if applicable, are recorded in revenues.

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HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

The Company uses futures or options contracts to fix the purchase price of anticipated volumes of corn to be purchased and processed in a future month. The Company’s plant will grind approximately 40 million bushels of corn per year. During the previous period and over the next 12 months, the Company has hedged and anticipates hedging between 5% and 40% of its anticipated monthly grind. At June 30, 2009, the Company has hedged portions of its anticipated monthly purchases for corn averaging approximately 5% to 10% of its anticipated monthly grind over the next nine months.

Unrealized gains and losses on non-exchange traded forward contracts are deemed “normal purchases or sales” under FASB Statement No. 133, as amended and, therefore, are not marked to market in the Company’s financial statements. The fair value of the Company’s open derivative positions are summarized in the following table as of June 30, 2009.

	Balance Sheet	Asset Fair		Liability Fair
	Classification	Value		Value
Derivatives not designated as hedging instruments:
Commodity Contracts	Derivative Instruments	$	615,362	$	—

The following table represents the amount of realized gains (losses) and changes in fair value recognized in earnings on commodity contracts for the three and six months ending June 30, 2009:

	Income Statement	Realized		Unrealized		Total Gain
	Classification	Gain (Loss)		Gain (Loss)		(Loss)
Derivatives not designated as hedging instruments:
• Commodity Contracts for the three month period	Cost of Goods Sold	$	941,766		798,424		1,740,190
• Commodity Contracts for the six month period	Cost of Goods Sold	$	1,135,112		615,362		1,750,474

9. FAIR VALUE MEASUREMENTS

During 2008, the Company adopted FASB Statement No. 157, Fair Value Measurements (SFAS No 157), which provides a framework for measuring fair value under generally accepted accounting principles. SFAS No 157 applies to all financial instruments that are being measured and reported on a fair value basis.

As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

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HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value effective January 1, 2009.

Derivative financial instruments : Commodity futures and exchange-traded commodity options contracts are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the CBOT and NYMEX markets.

Asset held for sale : Assets held for sale is comprised of equipment not used during the construction of the plant and is reported at the fair value utilizing Level 3 inputs. The Company obtains fair value measurements from an independent third party.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	Total		Level 1		Level 2		Level 3
Other Assets, assets held for sale	$	250,000	$	—	$	—	$	250,000
Asset, derivative financial instruments		615,362		615,362		—		—

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment.

The following tables present a reconciliation of all assets and liabilities measured at fair value using significant unobservable inputs (Level 3) during the period ended June 30, 2009.

	Assets held
	for Sale
Balance January 1, 2009	$	—
Transfers in and/or out of Level 3		250,000
Ending balance June 30, 2009	$	250,000

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HOMELAND ENERGY SOLUTIONS, LLC
Notes to Condensed Unaudited Financial Statements

June 30, 2009

10. Subsequent Events

During July 2009, the Company entered into an energy management services agreement with US Energy Services, Inc. for assistance with electric energy and natural gas management and procurement. The agreement is on a month to month basis and requirements a monthly fee.

As referenced in Note 3, on July 1, 2009 the construction loan was converted into a $74,000,000 term loan for which interest is due monthly and principal payments of approximately $617,000 will commence in February 2010, a $20,000,000 revolving line of credit for which interest is due monthly and a $6,000,000 seasonal line of credit subject to a borrowing base calculation.

The Company has evaluated subsequent events through August 13, 2009, the date which the financial statements were available to be issued.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases, you can identify forward-looking statements by the use of words such as “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “will,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions.

These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to those listed below and those business risks and factors described elsewhere in this report and our other filings with the Securities and Exchange Commission.

• Our ability to satisfy the financial covenants contained in our credit agreements with our senior lender;

• Changes in our business strategy, capital improvements or development plans;

• Volatility of corn, natural gas, ethanol, unleaded gasoline, distillers grain and other commodities prices;

• Changes in economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;

• Limitations and restrictions contained in the instruments and agreements governing our indebtedness;

• Our ability to generate sufficient liquidity to fund our operations, debt service requirements and capital expenditures;

• The results of our hedging transactions and other risk management strategies;

• Our inelastic demand for corn, as it is the only available feedstock for our plant;

• Changes in the environmental regulations or in our ability to comply with the environmental regulations that apply to our plant site and our operations;

• The effects of mergers, bankruptcies or consolidations in the ethanol industry;

• Changes in the availability of credit to support the level of liquidity necessary for our risk management activities;

• Changes in or elimination of federal and/or state laws having an impact on the ethanol industry (including the elimination of any federal and/or state ethanol tax incentives);

• Overcapacity within the ethanol industry;

• Difficulties or disruptions we may encounter during the initial operating period at our plant;

• Changes and advances in ethanol production technology that may make it more difficult for us to compete with other ethanol plants utilizing such technology;

• Our reliance on key management personnel and maintaining labor relations;

• Our ability to retain adequate administrative and operational personnel;

• The development of infrastructure related to the sale and distribution of ethanol;

• Fluctuation in U.S. petroleum prices and corresponding oil consumption;

• Competition in the ethanol industry and from alternative fuel additives;

• Our ability to profitably operate the ethanol plant and maintain a positive spread between the selling price of our products and our raw material costs; and

• Changes in the availability and price of corn and natural gas.

Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to the reasons described in this report. We are no under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, 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 and the documents that we reference in this report and have filed as exhibits 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.

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Available Information

Information about us is also available at our website at www.homelandenergysolutions.com, under “Investor Relations — SEC Filings,” which includes links to reports we have filed with the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this Quarterly Report on Form 10-Q.

Overview

Homeland Energy Solutions, LLC (referred to herein as “we,” “us,” the “Company,” “Homeland” or “Homeland Energy”) is an Iowa limited liability company. It was formed on December 7, 2005 for the purpose of pooling investors for the development, construction and operation of a 100 million gallon per year natural-gas powered ethanol plant located near Lawler, Iowa. We began producing ethanol and distillers grains at the plant in April 2009. We expect the ethanol plant will process approximately 40 million bushels of corn per year into 100 million gallons of denatured fuel grade ethanol and approximately 320,000 tons of distillers grains.

Over the past 12 months we have installed the infrastructure necessary to support plant operations and have begun operations. We have also obtained the permits required to construct and operate the plant. The total project cost was approximately $176,000,000, which included construction of our ethanol plant and start-up of operations. We financed the construction and start-up of the ethanol plant with a combination of equity and debt. We currently employ 38 employees.

Our revenues are derived from the sale of our ethanol and distillers grains. We entered into an Ethanol Marketing Agreement with VBV, LLC (“VBV”), an ethanol marketing company. Pursuant to the agreement, we sell all of our ethanol produced at our plant to VBV, who markets all of the ethanol produced at our plant and is responsible for all transportation of the ethanol including, without limitation, the scheduling of all shipments of ethanol with us. VBV has now merged with Green Plains Renewable Energy, LLC (“GPRE”). GPRE is based in Omaha, Nebraska and operates two ethanol plants in Iowa, one in Indiana and one in Tennessee, and as a result of their merger with GPRE has begun an ethanol marketing and distribution business.

The ethanol sold must meet or exceed the quality specifications set forth in ASTM 4806 for Fuel Grade ethanol or standards promulgated in the industry. Under the Ethanol Marketing Agreement, we provide VBV/GPRE with annual production forecasts and monthly updates, as well as daily plant inventory balances. We are also responsible for compliance with all federal, state and local rules relating to the shipment of ethanol from our plant.

The price per gallon that we receive for our ethanol is based on the contract selling price less all direct costs (on a per gallon basis) incurred by VBV/GPRE in conjunction with the handling, movement and sale of the ethanol. Homeland Energy and VBV/GPRE determine together the estimated monthly net selling price for each gallon sold (the “netback”) (on a per gallon basis) for each month. This price is indexed against energy exchanges. The establishment of the estimated monthly netback is on the first business day of the month with the intention being to establish the estimated monthly netback to be within $.05 of the final actual netback (on a per gallon basis) for the month. In addition, we pay VBV/GPRE a commission for each gallon of ethanol sold under the Ethanol Marketing Agreement. As of June 30, 2009, we have commitments to sell approximately 23,000,000 gallons at various fixed and basis price levels indexed against energy exchanges, for delivery through December 2009. If we are not able to meet delivery on these gallons in the future, we will be responsible for purchasing gallons in the open market. The Company has not incurred any losses due to non-delivery of product and anticipates that all contracts will be sufficient to cover costs in the future.

We have also entered into a Distiller’s Grains Marketing Agreement with CHS, Inc. (“CHS”), wherein CHS purchases the distillers grains produced at our plant. The initial term of the agreement will be for one year, beginning with start-up of operations and production at the plant. After the initial one-year term, it will be automatically renewed for successive one year terms unless either we or CHS give 120 day prior written notice before the current term expires.

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A Party is considered in default of the agreement with CHS upon any of the following events: (a) failure of either party to make payment to the other when due; (b) default by either party in the performance of the their respective obligations; and (c) upon the insolvency of either CHS or Homeland Energy or upon the assignment to creditors in connection with bankruptcy. If an event of default occurs, the parties will have certain remedies available to them in addition to any remedy at law, such as all amounts owed being immediately payable or immediate termination of the DG Marketing Agreement.

CHS pays us 98% of the actual sale price, which is based on prevailing market conditions, received by CHS from its customers, less all of the customary freight costs incurred by CHS in delivering the distillers grains to the customer. CHS retains the balance of the FOB plant price received by CHS from its customers as its fee for services provided under this agreement.

Under our ethanol and distillers grain marketing agreements, revenue is recognized at the gross price received. Marketing fees and rail fees are included in costs of goods sold.

Since we only recently became operational, we do not have comparable income, production and sales data for the three and six months ended June 30, 2008. Accordingly, we do not provide a comparison of our financial results between reporting periods in this report. If you undertake your own comparison, it is important that you keep this in mind. We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our credit facilities.

Results of Operations for the Three Months Ended June 30, 2009

During our fiscal quarter ended June 30, 2009, we transitioned from a development stage company to an operational company. The following table shows the result of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the three months ended June 30, 2009. Because we did not begin operations of the plant until April 2009, we do not have comparable data for the three months ended June 30, 2008.

	Quarter Ended
	June 30, 2009
	(Unaudited)
Income Statement Data	Amount			Percent
Revenues	$	39,562,718			100.00	%
Cost of Goods Sold	$	38,133,578			96.39	%
Gross Profit (Loss)	$	1,429,140			3.61	%
Operating Expenses	$	150,199			0.38	%
Operating Income (Loss)	$	1,278,941			3.23	%
Other Income (Expense)	$	(232.607	)		(0.59	)%
Net Income (Loss)	$	1,046,334			2.64	%

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Revenues

Our revenues from operations come from two primary sources: sales of fuel ethanol and sales of distillers grains. For the three months ended June 30, 2009, we received approximately 83% of our revenue from the sale of fuel ethanol and approximately 17% of our revenue from the sale of distillers grains. In part due to a small seasonal increase in the demand for gasoline and ethanol during these summer months, the plant operated with a profit during the three months ended June 30, 2009. However, management anticipates that the price of gasoline and ethanol will remain low into the near term, especially as a result of a weakened world economy. In addition, management believes that there is currently a surplus of ethanol production capacity in the United States, which has resulted in several ethanol plants decreasing production or halting operations altogether. According to the Renewable Fuels Association, as of July 14, 2009, there were 180 ethanol plants nationwide with the capacity to produce approximately 12.7 billion gallons of ethanol annually. According to the Renewable Fuels Association, of the total 12.7 billion gallons of total ethanol production capacity, approximately 1.7 billion gallons is not currently operating. An additional 17 plants are currently under construction or expansion, which may add an estimated 1.8 billion gallons of annual ethanol production capacity when they are completed. However, management believes that of the 17 plants under construction, only a few have substantial construction progress being made on them.

The economic downturn impacted our business as we completed construction, as we had to ensure that our construction costs remained within budget due to the tight credit market for additional funding. In addition, now that we have transitioned to operations, we must continually monitor the profit margins for our ethanol to determine whether production at full capacity is feasible given those margins. Due to the overcapacity in the ethanol market and tight operating margins, management cautions that the ethanol plant may not operate profitably in the next fiscal quarter. If the price of ethanol remains low for an extended period of time, management anticipates that this could significantly impact our liquidity, especially if our raw material costs increase. According to the Energy Information Administration, 2008 ethanol demand was 9.5 billion gallons which is significantly less than the current production capacity of the ethanol industry. Pursuant to the National Renewable Fuels Standard, renewable fuels must be blended into 11.1 billion gallons of fuel in 2009, however, corn based ethanol can only account for 10.5 billion gallons of the RFS. Therefore, management anticipates that corn ethanol demand will be capped at approximately 10.5 billion gallons for 2009. In previous years, more ethanol was blended than was required by the RFS as a result of the price of ethanol being more favorable than the price of gasoline. The ethanol industry must increase demand for ethanol in order to support current ethanol prices and maintain profitability in the industry.

Currently, ethanol is blended with conventional gasoline for use in standard (non-flex fuel) vehicles to create a blend which is 10% ethanol and 90% conventional gasoline. Estimates indicate that approximately 135 billion gallons of gasoline are sold in the United States each year. However, gasoline demand may be shrinking in the United States as a result of the global economic slowdown. Assuming that all gasoline in the United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.5 billion gallons. This is commonly referred to as the “blending wall”, which represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit because it is believed that it would not be possible to blend ethanol into every gallon of gasoline that is used in the United States and it discounts additional ethanol used in higher percentage blends such as E85 used in flex fuel vehicles. Many in the ethanol industry believe that we will reach this blending wall in 2009 or 2010. The RFS mandate requires that 36 billion gallons of renewable fuels be used each year by 2022. In order to meet the RFS mandate and expand demand for ethanol, higher percentage blends of ethanol must be utilized in conventional automobiles. Such higher percentage blends of ethanol have recently become a contentious issue. Automobile manufacturers and environmental groups have fought against higher percentage ethanol blends. State and federal regulations prohibit the use of higher percentage ethanol blends in conventional automobiles and vehicle manufacturers have indicated that using higher percentage blends of ethanol in conventional automobiles would void the manufacturer’s warranty. Without increases in the allowable percentage blends of ethanol, demand for ethanol may not continue to increase. Our financial condition may be negatively affected by decreases in the selling price of ethanol resulting from ethanol supply exceeding demand.

Finally, we anticipate that the price of distillers grains will continue to fluctuate in reaction to changes in the price of corn and therefore we expect lower distillers grains prices in the near term. The ethanol industry needs to continue to expand the market of distillers grains in order to maintain current distillers grains prices. Management anticipates stronger ethanol demand and higher ethanol prices during the summer months due to a seasonal increase in the demand for gasoline and ethanol.

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Cost of Goods Sold

Our cost of goods sold as a percentage of revenues was 96.39% for the three months ended June 30, 2009. Our two primary costs of producing ethanol and distillers grains are corn costs and energy costs (natural gas and electricity). The cost of corn is the highest input to the plant and uncertainties regarding the cost and supply of corn dramatically affect our expected input cost. Corn prices reached historical highs in June 2008, but have come down sharply since that time as stronger than expected corn yields materialized and the global financial crisis brought down the prices of most commodities generally. We expect that the global economic slowdown will reduce demand for corn and may lead to larger than expected ending stocks of corn. We anticipate that this may reduce corn prices during the end of the current marketing year. However, a substantial hail storm recently damaged approximately 30,000 acres of corn and soybeans near the plant. Thus, corn availability from the immediate area of the plant may be tight over the next year.

In an attempt to minimize the effects of the volatility of corn costs on operating profits, we have opened two commodities trading accounts with ADM Investor Services, Inc. (“ADMIS”). In addition, we have hired a commodities manager to manage our corn procurement activities. This activity is intended to fix the purchase price of our anticipated requirements of corn in production activities. ADMIS serves as our broker for the purchase and sale of commodity futures contracts for corn, and will enter into transactions and exercise commodity options for our account in accordance with our written or oral instructions. We are required to maintain adequate margins in our accounts, and if we do not maintain adequate margins, ADMIS may close out on any of our positions or transfer funds from other accounts of ours to cover the margin. In addition, if we are unable to deliver any security or commodity bought or sold, ADMIS has authority to borrow or buy any security, commodity or other property to meet the delivery requirement.

The effectiveness of our strategies through our commodities accounts is dependent upon the cost of corn and our ability to sell sufficient products to use all of the corn for which we have futures contracts. There is no assurance that our activities will successfully reduce the risk caused by price fluctuation, which may leave us vulnerable to high corn prices. However, for the period ended June 30, 2009, we experienced an approximate $1,750,000 realized and unrealized gain related to our corn and natural gas derivative instruments which decreased our costs of goods sold. We recognize the gains or losses that result from the changes in the value of our derivative instruments in cost of goods sold as the changes occur. Our plant will grind approximately 40 million bushels of corn per year. During the previous period and over the next 12 months, we have hedged and anticipate hedging between 5% and 40% of our anticipated monthly grind. At June 30, 2009, we had hedged portions of our anticipated monthly purchases for corn averaging approximately 5% to 10% of our anticipated monthly grind over the next nine months. Approximately $500,000 of the forward corn purchases were with a related party. We expect continued volatility in the price of corn, which could significantly impact our cost of goods sold. The growing number of operating ethanol plants nationwide is also expected to increase the demand for corn. This increase will likely drive the price of corn upwards in our market which will impact our ability to operate profitably.

To access sufficient supplies of natural gas to operate the plant, a dedicated lateral pipeline has been constructed to service our plant. We entered into an agreement with Northern Natural Gas in April 2008 for connection to its interstate pipeline and for transportation services for our natural gas supply.

We retained Cornerstone Energy, LLC d/b/a/ Constellation NewEnergy — Gas Division CEI, LLC (“Cornerstone”) for construction of our natural gas pipeline and for procurement of natural gas. The contract price of the natural gas has not been set, but will be based on current market prices for natural gas plus a likely surcharge per MMBtu. We estimate that our cost for natural gas will be approximately $3.50 — $4.00 per MMBtu, but this is an estimate only and our costs will be subject to market fluctuations.

On July 10, 2009, we entered into an Energy Management Services Agreement with U.S. Energy Services, Inc. (U.S. Energy) for assistance with electric energy and natural gas management and procurement. U.S. Energy’s responsibilities will include administration of Homeland’s gas supply contracts, nomination, scheduling and other logistical issues such as storage and transportation, negotiation and delivery. Homeland will work with U.S. Energy to provide estimated usage volumes on a monthly basis. In exchange for these management services, Homeland will pay a monthly service fee, as well as pre-approved expenses in connection with the services. The agreement for these services will continue on a month to month basis.

Homeland and U.S. Energy have also entered into a Base Agreement (Exhibit B to the Energy Management Services Agreement) for any purchase or sale of natural gas from U.S. Energy, should Homeland elect to do so. If Homeland elects to purchase natural gas from U.S. Energy, the terms of the Base Agreement shall apply to any such sales. The terms of the Base Agreement shall also apply to any sales to U.S. Energy of excess natural gas purchased by Homeland from any supplier. Any purchases or sales of natural gas under the Base Agreement will generally be evidenced by separate transaction confirmation documents and the price will be separately negotiated for each purchase and sale. For any sales or purchases under the Base Agreement for which no transaction documents were executed, the purchase price will be based on the market index price commensurate with the transaction term and delivery point or as mutually agreed by Homeland and U.S. Energy. The Base Agreement may be terminated by either party upon sixty (60) days prior written notice.

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For our electricity supply, we entered into an Electrical Services Agreement with Hawkeye Tri-County Electric Cooperative d/b/a Hawkeye REC (“Hawkeye”), on March 6, 2009 for our electricity needs. Pursuant to the agreement, Hawkeye will provide electric power and energy to our plant, and has installed the electrical facilities necessary to deliver all of the electric power and energy required to operate Homeland Energy’s ethanol plant.

The agreement with Hawkeye will remain in effect for ten years from the date Homeland Energy began processing ethanol at the plant, and will terminate on the tenth anniversary of that date. Homeland Energy may continue to receive the service following expiration of the ten-year term for a minimum of two years. Either party will then have the right to terminate the agreement upon giving six (6) months’ written notice of its intention to terminate.

Operating Expense

Our operating expenses as a percentage of revenues were 0.38% for our quarter ended June 30, 2009, which is lower than the expenses as of our quarter ended March 31, 2009, due to the costs associated with impairment of the air stack assets and assets related to coal gasification, which occurred during our quarter ended March 31, 2009. We expect our operating expenses to level out and be more consistent as the plant is operational for a longer period of time. Operating expenses include salaries and benefits of the employees under the Management Services Agreement with Golden Grain Energy, LLC, as well as additional employees not subject to the agreement, insurance, taxes, professional fees and other general administrative costs. We currently have nine employees subject to the Management Services Agreement with Golden Grain, and we estimate that our costs per year related to salaries and benefits for those shared employees are approximately $430,000 per year. The increase in operating expenses for the quarter ended June 30, 2009, compared to the same period for June 30, 2008, was primarily due to the increased number of employees due to start-up of operations, which increased costs in salaries, insurance, professional fees, and other general administrative costs due to the plant being under full-time production. We do not expect that these expenses will vary with the level of production at the plant.

Operating Income (Loss)

Our income from operations for the three months ended June 30, 2009 was approximately 3.23% of our revenues. Our operating income for the three month period ended June 30, 2009 was primarily the result of the price at which we sold our products exceeding our costs of good sold and operating expenses. Our decrease in income from interest for the three months ended June 30, 2009 compared to the three months ended June 30, 2008, was due to the decrease in our equity cash proceeds as we continued to utilize those funds for the construction of the plant. We also experienced grant income of $300,000 for the Value-Added Producer Grant we received from the USDA in June, 2009. See “Liquidity and Capital Resources — Project Capitalization” below for more details on this grant.

Changes in Financial Condition for the Six Months Ended June 30, 2009

We experienced an increase in our current assets at June 30, 2009 compared to our fiscal year ended December 31, 2008. We had approximately $5,800,000 more cash on hand at June 30, 2009 compared to December 31, 2008, and an increase of approximately $5,900,000 in the value of our inventory at June 30, 2009 compared to December 31, 2008, primarily as a result of the commencement of operations at our plant. Additionally, at June 30, 2009 we had a gain on our risk management accounts of approximately $615,000 compared to no gain on the accounts at December 31, 2008. We experienced a decrease in our total current liabilities on June 30, 2009 compared to December 31, 2008 due primarily from a decrease in retainage payable offset but an increase in current maturities of long term debt. Due to the increase in our current assets at June 30, 2009 and the decrease in our current liabilities at June 30, 2009, we expect that we have sufficient working capital to meet our obligations and maintain compliance with our debt covenants as they come due through December 2009.

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Our net property and equipment was higher at June 30, 2009 compared to December 31, 2008 as a result of the net effect of significant increases in the asset due to completion of the plant. The value of our land and land improvements and property and equipment can be offset by our construction in process decreasing from approximately $136,000,000 at December 31, 2008 to approximately $8,000 at June 30, 2009.

We experienced an increase in our long-term liabilities as of June 30, 2009 compared to December 31, 2008. At June 30, 2009, we had approximately $89,000,000 outstanding in the form of long-term loans, compared to approximately $51,600,000 at December 31, 2008. This increase is attributed to cash we utilized from our long-term loans to complete the construction of our facility and commence operations. In addition, compared to our quarter ended March 31, 2009, we had a decrease in our current liabilities, due to the payment of accounts and retainage payable with funds from our long-term debt, which also contributed to the increase in our long-term liabilities as of June 30, 2009.

Liquidity and Capital Resources

We have completed approximately four months of operations as of the filing of this report, and are currently operating at full capacity. Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and from our operations to continue to operate the ethanol plant at full capacity for the next 12 months. The relative price levels of corn, ethanol and distillers grains have resulted in tight operating margins and a small income margin for us in our first quarter of operations. We anticipate that we may continue to endure tight operating margins for the remaining quarters of our 2009 fiscal year. In addition, a substantial hail storm recently damaged approximately 30,000 acres of corn and soybeans near the plant. Thus, corn availability from the immediate area of the plant may be tight over the next year. If the Company suffers substantial losses, or if we are unable to obtain additional working capital, liquidity concerns may require us to curtail operations or pursue other actions that could adversely affect future operations.

The following table shows cash flows for the six months ended June 30, 2009:

	Six Months Ended
	June 30, 2009
Net cash (used in) operating activities	$	(9,419,272	)
Net cash (used in) investing activities	$	(25,819,970	)
Net cash provided by financing activities	$	41,043,898
Net increase in cash	$	5,804,656
Cash and cash equivalents, end of period	$	5,849,255

Operating Cash Flows. Cash used in operating activities was approximately $9,400,000 for the six months ended June 30, 2009. This was primarily from the increase in both accounts receivables and inventory offset by depreciation and amortization expense for the six months ended June 30, 2009.

Investing Cash Flows. Cash used in investing activities was approximately $25,800,000 for the six months ended June 30, 2009. These funds were used for capital expenditures and payments for construction in process.

Financing Cash Flows. Cash provided by financing activities was approximately $41,000,000 from construction loan proceeds for the six months ended June 30, 2009.

Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains remain consistent with the relative price levels as of August 1, 2009; we expect operations to generate adequate cash flows to maintain operations and meet our obligations for the next 12 months following our quarter ended June 30, 2009. This expectation assumes that we will be able to sell all the ethanol that is produced at the plant.

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Project Capitalization

We financed the development and construction of our ethanol plant with both equity and debt financing. We have issued 2,850 membership units in two private placement offerings for a total of $1,325,000 in offering proceeds. We have also issued 88,595 units in our SEC registered offering for an aggregate amount of $88,595,000 in offering proceeds.

On November 30, 2007, we entered into a Master Loan Agreement with Home Federal Savings Bank (“Home Federal”) establishing a senior credit facility for the construction of our plant. The Master Loan Agreement provides for (i) a Construction Loan in an amount not to exceed $94,000,000; and (ii) a Revolving Line of Credit Loan in an amount not to exceed $6,000,000 (the foregoing collectively referred to as the “Loans”). Our loan obligations are secured by all of our real and personal property, and we have also assigned all rents and leases of our property to Home Federal. Interest on the Construction Loan will accrue at a rate equal to the LIBOR rate plus 350 basis points. Interest on the Revolving Line of Credit Loan will accrue at a rate equal to the LIBOR rate plus 325 basis points. As of June 30, 2009, we had approximately $92,700,000 outstanding on our Construction Loan.

Subsequent to our quarter ended June 30, 2009, our Construction Loan was converted into the following three loans:

1. A $74,000,000 term loan, for which interest is currently due each month, and we must begin making principal payments of approximately $617,000 per month in February 2010;

2. A $20,000,000 term revolving loan, for which interest is due monthly; and

3. A $6,000,000 seasonal line of credit, which is subject to a monthly borrowing base.

The Company will make monthly payments of accrued interest on the term loan from the date of conversion until seven months after the date of conversion. Beginning in the seventh month after conversion, or on February 1, 2010, equal monthly principal payments in the amount of approximately $617,000 plus accrued interest will be made. All unpaid principal and accrued interest on the term loan that was so converted will be due on the fifth anniversary of such conversion. We will have the right to convert up to 50% of the term loan into a Fixed Rate Loan with the consent of Home Federal. The Fixed Rate Loan will bear interest at the five year LIBOR swap rate that is in effect on the date of conversion plus 325 basis points, or another rate mutually agreed upon by Homeland Energy and Home Federal. If we elect this fixed rate option, the interest rate will not be subject to any adjustments otherwise provided for in the Master Loan Agreement. The remaining converted portion will bear interest at a rate equal to the LIBOR Rate plus 325 basis points. If we fail to make a payment of principal or interest within 10 days of the due date, there will be a late charge equal to 5% of the amount of the payment.

Under the terms of the Master Loan Agreement and the second supplement thereto, we agreed to the terms of a term revolving loan, consisting of a conversion of a maximum amount of $20,000,000 of the Construction Loan into a term revolving loan. Home Federal agreed to make one or more advances under this loan between the Conversion Date, which was July 1, 2009, and the Maturity Date, which is the fifth anniversary of the Conversion Date. Each advance made under the term revolving loan must be in a minimum amount of $50,000, and advances may be used for project costs and cash and inventory management. Interest on the Revolving Term Loan shall accrue at a rate equal to the LIBOR Rate plus 325 basis points. If we fail to make a payment of principal or interest within 10 days of the due date, there will be a late charge equal to 5% of the amount of the payment. We will be required to make monthly payments of interest until the Maturity Date, which is the fifth anniversary of the Conversion Date (July 1, 2009), on which date the unpaid principal amount of the Revolving Term Loan will become due and payable.

The aggregate principal amount of the seasonal line of credit may not exceed the lesser of $6,000,000 or the Borrowing Base. The Borrowing Base means, at any time, the lesser of: (a) $6,000,000; or (b) the sum of (i) 75% of the eligible accounts receivable, plus (iii) 75% of the eligible inventory. Interest on the seasonal line of credit shall accrue at a rate equal to the LIBOR Rate plus 325 basis points. If we fail to make a payment of principal or interest within 10 days of the due date, there will be a late charge equal to 5% of the amount of the payment. Each advance made under this loan must be in a minimum amount of $50,000, and advances may be used for general corporate and operating purposes. We will be required to make monthly payments of accrued interest until the seasonal line of credit, on which date the unpaid principal amount will become due and payable. The expiration date is 364 days after the Conversion Date, which was July 1, 2009.

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In connection with the Master Loan Agreement and all supplements thereto, we executed a mortgage in favor of Home Federal creating a senior lien on the real estate and plant and a security interest in all personal property located on Company property. We are also required to maintain a debt service reserve account of $10,000,000, for use by Home Federal for repayment of the loans in their sole discretion. Should Home Federal apply any of the funds in this account, we are required to replenish the account to $10,000,000. Once we achieve and maintain tangible net worth of 65% and are in compliance with all other covenants, the debt service fund will be released to us and we will no longer be required to replenish the account. Tangible net worth is calculated as the excess total assets, including the debt reserve account, (with certain exclusions, such as goodwill) over total liabilities (except subordinated debt). It is difficult to predict when and if we will achieve tangible net worth of 65%, given the current market conditions. In addition, we assigned all rents and leases to our property in favor of Home Federal. As additional security for the performance of the obligations under the Master Loan Agreement and its supplements, a security interest was granted in the government permits for the construction of the project and all reserves, deferred payments, deposits, refunds, cost savings and payments of any kind relating to the construction of the project. If we attempt to change any plans and specifications for the project from those that were approved by Home Federal that might adversely affect the value of Home Federal’s security interest and have a cost of $25,000 or greater, we must obtain Home Federal’s prior approval.

In addition, during the term of the loans, we will be subject to certain financial covenants at various times, which are calculated monthly, quarterly or annually. We were not subject to any loan covenants as of or prior to our quarter ended June 30, 2009. However, subsequent to our quarter ended June 30, 2009, our construction loan converted into the loans described above. As a prerequisite to conversion, we were required to certify that we had working capital of at least $10,000,000 as of May 1, 2009. Our certification showed that we had working capital of $20,970,603. We will be required to have working capital of at least $12,000,000 by May 1, 2010 and annually thereafter. In addition, we were required to certify that we had tangible net worth of $87,000,000 as of May 1, 2009. Our certification showed that we had a tangible net worth of $88,539,073 as of May 1, 2009. Our tangible net worth requirement increases to $90,000,000 by December 31, 2009, and increases by $5,000,000 annually until we are required to meet $105,000,000 by December 31, 2012, and annually thereafter. As of the date of this report, we expect that we will meet these financial covenants as well as additional covenants as they become due under the Master Loan Agreement and the supplements thereto. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the loans and/or the imposition of fees, charges or penalties. Any acceleration of the debt financing or imposition of the significant fees, charges or penalties may restrict or limit the access to the capital resources necessary to continue plant construction or operations.

Upon an occurrence of an event of default or an event which will lead to the default, Home Federal may upon notice terminate its commitment to loan funds and declare the entire unpaid principal balance of the loans, plus accrued interest, immediately due and payable. Events of default include, but are not limited to, the failure to make payments when due, insolvency, any material adverse change in the financial condition or the breach of any of the covenants, representations or warranties the Company has given in connection with the transaction.

We were not subject to loan covenants though our quarter ended June 30, 2009. However, the covenants listed above were triggered upon conversion of our loans on July 1, 2009. As of the date of this report, we are in compliance with all of our loan covenants with Home Federal. We anticipate that we will be in compliance with our loan covenants for the remaining quarters of our 2009 fiscal year, and we will work with our lenders to try ensure that the agreements and terms of the loan agreements are met going forward. However, we cannot provide any assurance that our actions will result in sustained profitable operations or that we will not be in violation of our loan covenants or in default on our principal payments. Because it is unclear what the market will do, there is uncertainty about our ability to meet our liquidity needs and comply with our financial covenants and other terms of our loan agreements. If we violate the terms of our loan or fail to obtain a waiver of any such term or covenant, our primary lender could deem us in default of our loans and require us to immediately repay a significant portion or possibly the entire outstanding balance of our loans. Our lender could also elect to proceed with a foreclosure action on our plant.

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In addition to our equity and debt financing we have applied for and received various grants. We applied for a working capital Value-Added Producer Grant (“VAPG”) from the USDA, and proposed a $625,000 working capital total project amount. Under the VAPG program, the USDA can provide up to 50% of the total project amount (in our case, $625,000) in the form of a grant. In June 2009, we were awarded a $300,000 grant under this program. We will be required to utilize the funds, as well as the $325,000 in matching funds, for corn, yeast, enzymes and processing chemical purchases.

On December 19, 2007, the Iowa Department of Economic Development approved us for a package of benefits, including a grant of $240,000 for the construction of a turning lane off of Iowa Highway 24 to the plant as well as a package of tax benefits under the High Quality Jobs Program from the State of Iowa. Such tax benefits include a refund of sales, service and use taxes paid to contractors during the construction phase, an investment tax credit of up to $10,000,000 for qualified expenditures directly related to new jobs created, and a property tax exemption for a portion of the value added by improvements to real property directly related to new jobs created by the plant (estimated at $10,350,000). In order to receive these benefits, we will be required to meet certain requirements by 2012, such as the creation of 40 full-time employee positions meeting certain minimum wage and benefit criteria and these jobs must be maintained for at least two years following their creation. Currently, we have 38 employees and expect to meet the minimum job requirement by 2012. However, in the event that we do not meet the minimum jobs requirement, the IDED may elect to allow the repayment on a pro rata basis, based on the number of jobs attained compared to the number of jobs pledged. In addition, we may be ineligible for some or all of the benefits listed above if our project does not meet a minimum investment amount, which was based on a budget for the plant that included a coal gasification energy center. The minimum investment amount is a measure of the value of Homeland’s investment in land, improvements, buildings and structures, long-term lease costs, and/or depreciable assets. We intend to seek an amendment with IDED prior to this condition becoming due if it becomes apparent that we will not meet this requirement. While we expect that IDED will entertain an amendment, they could reduce or eliminate our benefits, which may require us to repay the local taxing authority and the Iowa Department of Revenue all or a portion of any incentives received, which would have a negative impact on our profitability.

We have also received approval for a $40,000,000 loan guarantee from the United States Department of Agriculture (“USDA”) under the Rural Energy Program based on some unique efficiencies at our plant. If received, the loan guarantee would apply to our current loans with Home Federal. However, we must meet certain conditions prior to receipt of the loan guarantee, and we are currently evaluating whether we will be able to meet those conditions. There is no assurance that we will be able to meet the conditions in order to receive the loan guarantee. The approval for the conditional guarantee will expire on November 29, 2009.

Application of Critical Accounting Estimates and Significant Accounting Policies

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles, such as estimates related to construction in progress. 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.

The Financial Accounting Standards Board (“FASB”) has issued a Statement of Financial Accounting Standard (“SFAS”) No. 133, which 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 purchases or sales are documented as normal and exempted from the accounting and reporting requirements of SFAS No. 133.

We enter into short-term cash, option and futures contracts as a means of securing purchases of corn, natural gas and sales of ethanol for the plant and managing exposure to changes in commodity and energy prices. All of our derivatives are designated as non-hedge derivatives, with changes in fair value recognized in net income. Although the contracts are economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

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As part of our trading activity, we use futures and option contracts through regulated commodity exchanges to manage our risk related to pricing of inventories. To reduce that risk, we generally take positions using cash and futures contracts and options.

Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas are included as a component of cost of goods sold and derivative contracts related to ethanol are included as a component of revenues in the accompanying financial statements. The fair values of contracts entered through commodity exchanges are presented on the accompanying balance sheet as derivative instruments.

Revenue from the sale of our products is recognized at the time title to the goods and all risks of ownership transfer to the customers. This generally occurs upon shipment, loading of the goods or when the customer picks up the goods. Interest income is recognized as earned. Shipping costs incurred in the sale of ethanol and distiller grains are not specifically identifiable and as a result, revenue from the sale of ethanol and distiller grains is recorded based on the net selling price reported to us from the marketer.

In accordance with Financial Accounting Standard Board (FASB) Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

We impaired an asset associated with the coal gasification project by $230,875 due to the long term nature and uncertainty of the project. The estimated fair market value of this asset is $230,875, for which we intend to depreciate over the life of the plant, and is listed on the Balance Sheet as “Equipment”. We entered into a change order during the original construction of the plant to change the design from one large thermal oxidizer stack to two smaller thermal oxidizer stacks. The unused larger stack was deemed impaired by approximately $250,000 due to construction materials used to make the stack dropped in value. The estimated fair market value of this asset is $250,000, for which management intends to sell on the open market, and is listed on the Balance Sheet as “Assets held for sale.” The total loss on asset impairments for the period ending June 30, 2009 is $480,875 and is included in operating expense.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Management of Homeland Energy is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

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As of the end of the period covered by this report, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of our Principal Executive Officer, Walter W. Wendland, and our Principal Financial and Accounting Officer, Christine A. Marchand. Based on their evaluation of our disclosure controls and procedures, they have concluded that such disclosure controls and procedures were not effective to detect the inappropriate application of US GAAP standards. This is because the weaknesses that were identified as of the end of our fiscal year ended December 31, 2008, will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We identified deficiencies as of the end of our fiscal year on December 31, 2008, that existed in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses.” Specifically, the following deficiencies in our internal controls, which adversely affected our disclosure controls, were discovered as of the end of our fiscal year on December 31, 2008:

• Policies and Procedures for the Financial Close and Reporting Process — There were no policies or procedures that clearly define the roles in the financial close and reporting process. The various roles and responsibilities related to this process should be defined, documented, updated and communicated. Failure to have such policies and procedures in place amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

• Representative with Financial Expertise — For the majority of the year ending December 31, 2008, the Company did not have a representative with the requisite knowledge and expertise to review the financial statements and disclosures at a sufficient level to monitor the financial statements and disclosures of the Company. Failure to have a representative with such knowledge and expertise amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

• Adequacy of Accounting Systems at Meeting Company Needs — The accounting system in place at the time of the assessment lacked the ability to provide high quality financial statements from within the system, and there were no procedures in place or built into the system to ensure that all relevant information is secure, identified, captured, processed, and reported within the accounting system. Failure to have an adequate accounting system with procedures to ensure the information is secure and accurately recorded and reported amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

• Segregation of Duties — Management identified a significant general lack of definition and segregation of duties throughout the financial reporting processes. Due to the pervasive nature of this issue, the lack of adequate definition and segregation of duties amounts to a material weakness to the Company’s internal controls over its financial reporting processes.

Since identifying these material weaknesses as of our fiscal year ended December 31, 2008, Homeland Energy continues to create and refine a structure in which critical accounting policies and estimates are identified, and together with other complex areas, are subject to multiple reviews by qualified accounting personnel. In addition, Homeland Energy will enhance and test our year-end financial close process for our fiscal year ended December 31, 2009 and thereafter. Additionally, Homeland Energy’s audit committee will increase its review of our disclosure controls and procedures. Finally, we have designated individuals responsible for identifying reportable developments. We believe these actions, after functioning properly for a sufficient amount of time, will remediate the material weakness by focusing additional attention and resources in our internal accounting functions.

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Changes in Internal Controls

During our quarters ended March 31, 2009 and June 30, 2009, we have enhanced our month and quarter end financial close process. Additionally, our audit committee has enhanced its review of our disclosure controls and procedures. Under the Management Services Agreement with Golden Grain Energy, LLC, we now have a Chief Financial Officer with the requisite knowledge and expertise to oversee the financial reporting process. On January 1, 2009, we implemented new accounting software capable of providing high quality financial statements and capable of providing the appropriate level of security for the information. We have also developed and implemented policies and procedures for the financial close and reporting process, such as identifying the roles, responsibilities, methodologies, and review/approval process.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time in the ordinary course of business, Homeland Energy Solutions, LLC may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently 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.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

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

None.

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

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

Exhibit		Method of
No.	Description	Filing
10.1	U.S. Energy Agreement Dated July 10, 2009.	*+
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.
(+)	Material has been omitted pursuant to a request for confidential treatment and such materials have been filed separately with the Securities and Exchange Commission.

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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.

	HOMELAND ENERGY SOLUTIONS, LLC
Date: August 14, 2009	/s/ Walter Wendland
	Walter Wendland
	Chief Executive Officer and President (Principal Executive Officer)
Date: August 14, 2009	/s/ Christine A. Marchand
	Christine A. Marchand
	Chief Financial Officer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit
No.	Description
10.1	U.S. Energy Agreement Dated July 10, 2009.
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

EX-10.1

Exhibit 10.1

Confidential Treatment Requested. Confidential portions of this document have been redacted and have been separately filed with the Commission.

ENERGY MANAGEMENT SERVICES AGREEMENT

The purpose of this Agreement, dated July 9, 2009 is to set forth the understanding and agreement between U.S. Energy Services, Inc. (“U.S. Energy”) and Homeland Energy Solutions, LLC (“Client”) related to the provision of energy management services. Each may also be referred to as “Party” or collectively as “Parties.”

DESCRIPTION OF CLIENT: Client owns and operates a 100 million gallon per year ethanol facility in Chickasaw County, Iowa. Natural gas is provided by Northern Natural Gas Pipeline. Electricity is provided by Heartland Power Cooperative. Constellation New Energy Gas Division currently provides natural gas supply and pricing.

GENERAL DESCRIPTION OF SERVICES: Client has retained U.S. Energy to assist with natural gas and electric energy management as more fully described in Part I of this Agreement. U.S. Energy will work with Client to develop an energy strategy that will develop energy cost control opportunities, prioritize these opportunities in a work plan, and assist Client in implementing the plan.

Part I. Scope of Services Provided by U.S. Energy

Section 1.01 Supply Management — Natural Gas. The following services are available to Client for the acquisition and management of Client’s natural gas supply for Client’s Facilities subject to this Agreement.

(A) Procurement of Supply: U.S. Energy will assist Client in the procurement of natural gas supplies for Client’s Facilities:

(i) U.S. Energy will work with Client to determine the required daily or monthly supply volumes and corresponding receipt point(s) for gas delivery.

(ii) U.S. Energy will administer a procurement process to create competition among suppliers.

(iii)	U.S. Energy will assess whether gas utility tariff sales supply, Client transported supply, third party-transported supply or U.S. Energy-transported supply will provide the most reliable and economic supply of natural gas to the Facilities.
(iv)	U.S. Energy will administer and monitor Client’s gas supply contracts.

(B) Logistics: U.S. Energy will manage Client’s supply and transportation assets.

(i) U.S. Energy will provide nomination and scheduling of Client’s gas supply with the supplier(s), the pipeline and/or local gas utility.

(ii) Where necessary and where available, U.S. Energy will obtain Client’s metered natural gas consumption data for each Facility.

(iii) Client will provide U.S. Energy with estimated usage volumes for each Facility on request and make a reasonable effort to notify U.S. Energy when Client’s usage will be interrupted or changed.

(iv) U.S. Energy will make reasonable efforts to release any excess firm pipeline capacity held by Client in the capacity release market. Revenue for such released capacity will be the property of Client. U.S. Energy may purchase the release capacity from the Client at prevailing market rates.

(v) U.S. Energy will evaluate gas storage alternatives available to Client. If Client desires, U.S. Energy will facilitate the acquisition of such storage and will manage the use of storage for Client.

(vi) U.S. Energy manages and owns a portfolio of assets (including but not limited to storage, firm transportation entitlement, imbalance pools, etc.). From time to time, it may be in Client’s best interest to have their assets managed as part of U.S. Energy’s larger portfolio of assets resulting in lower natural gas costs to Client than would have otherwise been incurred. Client authorizes U.S. Energy to manage their assets within the larger portfolio to achieve operational optimization by execution of the “Base Agreement” as shown in Exhibit B. The terms of the Base Agreement are made part of this Agreement. Client understands that benefits may accrue to U.S. Energy as a result of U.S. Energy’s management of this portfolio of assets.

(C) Negotiations: U.S. Energy will negotiate natural gas related agreements with third parties on the Client’s behalf.

(i) U.S. Energy will provide negotiation services to establish transportation rates on interstate pipelines and gas utilities, contractual terms with suppliers and transporters, trade credit with suppliers, and new tariffs where applicable with utilities.

(ii) U.S. Energy will strive to create competition among service providers where possible.

(D) Acquisition of Trade Credit: U.S. Energy will advise Client of credit issues for gas facilities, transportation contracts and gas supply.

(i) Client will provide U.S. Energy with the necessary financial information required to obtain trade credit with various vendors.

(ii) U.S. Energy will share Client’s financial documents with third parties as directed and in any manner as restricted by Client in order to establish trade credit.

(iii) U.S. Energy will work to establish trade credit with suppliers on Client’s behalf. Depending on Client’s gas usage, multiple sources of trade credit may be established.

(iv) U.S. Energy makes no guarantee that adequate unsecured trade credit will be obtained from third parties. In the event adequate trade credit cannot be secured, U.S. Energy will discuss various credit instruments with Client, such as letter of credit, parental guarantees, prepayment, etc. It will be the Client’s responsibility to provide the necessary security to obtain adequate trade credit.

(E) Evaluation of Delivery Options: U.S. Energy will evaluate Client’s delivery options for natural gas facilities from the pipeline and gas utility.

(i) When possible and feasible, U.S. Energy will provide an analysis for alternate pipeline or gas facility options, including bypass of the gas utility. U.S. Energy will provide an economic analysis for estimated facility costs, operations and maintenance costs and commodity cost for various transportation options. This analysis will be used for negotiating with existing and potential service providers.

(F) Tariff Review: Each meter or facility will be evaluated to determine the most beneficial rate structure available that best fits Client’s needs. In addition, U.S. Energy will monitor natural gas service tariffs to determine if new or modified tariffs will have an impact on Client.

(G) Budget Preparation: Upon request by Client, U.S. Energy will provide an annual energy budget.

(H) Cost and Usage Analysis: Where the utility or pipeline has provided Client’s metered usage data, U.S. Energy will:

(i) Post Client’s gas usage for each Facility to the U.S. Energy secure website for Client access.

(ii) Upon request by Client, U.S. Energy will provide Client with detailed cost analysis of transportation and commodity costs for each Facility.

(iii) U.S. Energy will negotiate with the pipeline or utility regarding measurement discrepancies, advising Client of options for Client to pursue with assistance from U.S. Energy.

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(I) Energy Tax Exemption: U.S. Energy will evaluate energy tax exemption opportunities and, if evidence proves an audit to be beneficial, with Client’s approval and payment, U.S. Energy will arrange for a third party energy tax exemption audit. U.S. Energy will assist Client with filing for the tax rebate, if applicable, and will further utilize the results for tax exemption filings.

Section 1.02 Supply Management — Electricity. The following services are available to Client for the acquisition and management of Client’s electricity supply for each Facility subject to this Agreement.

(A) Procurement of Supply: U.S. Energy will investigate the market conditions for third party purchase of electricity in Client’s specified Facilities as applicable:

(i) U.S. Energy will work with Client to determine the required daily or monthly electricity supply volumes and corresponding regional transmission organization.

(ii) U.S. Energy will conduct a procurement process that will create competition among suppliers.

(iii) U.S. Energy will assess whether utility-provided electricity or third party supply will provide the most reliable and economic supply of electricity to the facilities.

(iv) U.S. Energy will administer and manage the necessary electricity contracts

(B) Evaluation of Electric Delivery Options: U.S. Energy will evaluate available delivery voltages such as primary, secondary and transmission voltage if applicable. U.S. Energy may also include on-site generation in the analysis, if warranted. As regulatory conditions change in each state, the electric procurement process will be reevaluated to take advantage of the changes.

(C) Negotiations: U.S. Energy will conduct negotiations with third parties on behalf of Client:

(i) U.S. Energy will provide negotiation services to establish electricity costs, contractual terms and trade credit.

(ii) U.S. Energy will assist Client with understanding the structure of electric contracts and comparison to industry norms.

(iii) U.S. Energy will strive to create competition among service providers where possible.

(D) Acquisition of Trade Credit: U.S. Energy will advise Client of trade credit issues for electric facilities, infrastructure and electricity supply contracts:

(i) Client will provide U.S. Energy with the necessary financial information required to obtain trade credit with various vendors.

(ii) U.S. Energy will share Client’s financial documents with third parties as directed and in any manner as restricted by Client in order to establish trade credit.

(iii) U.S. Energy will work to establish trade credit with suppliers on Client’s behalf. Depending on Client’s electric usage, multiple sources of trade credit may be established.

(iv) U.S. Energy makes no guarantee that adequate unsecured trade credit will be obtained from third parties. In the event adequate trade credit cannot be secured, U.S. Energy will discuss various credit instruments with Client, such as letter of credit, parental guarantees, prepayment, etc. It will be the Client’s responsibility to provide the necessary security to obtain adequate trade credit.

(E) Tariff Review: Each Client Facility will be evaluated to determine the most beneficial rate structure available that best fits Client’s needs. U.S. Energy will determine whether firm, interruptible, or a blend of services will provide the lowest cost. In addition, U.S. Energy will continue to monitor electric tariffs to determine if new tariffs or changes to the tariffs will have an impact on Client.

(F) Budget Preparation: Upon request, U.S. Energy will provide an annual electricity budget.

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(G) Cost and Usage Analysis: Where the utility has provided Client’s metered usage data, U.S. Energy will:

(i) Archive the monthly electric billing information in the U.S. Energy secure database.

(ii) Upon request by Client, U.S. Energy will provide Client with detailed cost analysis of electricity usage and costs.

(H) Energy Tax Exemption Analysis: U.S. Energy will evaluate energy tax exemption opportunities and if evidence proves an audit to be beneficial, with Client’s approval and payment, U.S. Energy will arrange for a third party energy tax exemption audit. U.S. Energy will assist Client with filing for the tax rebate, if applicable, and will further utilize the results for tax exemption filings.

Section 1.03 Price Risk Management. The following services are available to Client for the management of price risk related to energy purchases, if so elected by Client.

(A) Energy Plan Development: U.S. Energy will work with Client to develop a plan to mitigate price risk to meet Client’s goals. The plan will include the definition of price risk objectives, methodologies (fixed forward, options, etc.), and triggering methods. U.S. Energy will actively work with Client to update the plan as changes dictate.

(B) Energy Plan Execution: U.S. Energy will execute the energy plan based upon the criteria defined within the plan.

(C) Communication: U.S. Energy will provide price risk management information on a periodic basis via multiple means which presently include the items listed below. U.S. Energy reserves the right to modify the content, frequency and means of communication during the term of the Agreement.

(i) Access to a monthly conference call at which industry experts discuss trends in the energy market.

(ii) Updates are provided to Client on a regular basis containing gas and power market prices, NYMEX, hedge recommendations, and other related energy data.

(iii) Client is invited to attend an annual two-day Energy Conference at which energy industry experts and economists speak on pertinent issues.

(iv) Communication will occur as needed between U.S. Energy and Client to discuss changes in the gas markets and associated recommendations for action.

Section 1.04 Information Management. The following services are available to Client for the processing of Client’s energy invoices, if so elected by Client.

(A) Invoice processing: U.S. Energy will process Client’s energy invoices, which may include invoices from suppliers, utilities and pipelines:

(i) Vendor invoices are imaged into U.S. Energy’s secure data base.

(ii) If Client desires online display of this data, invoices are further processed to extract key data fields and prepare the invoice view for online display.

(iii) Invoices are reviewed for accuracy. Rate, volumetric and service level discrepancies are resolved directly with the vendor.

(B) Payment of energy invoices: Client can elect to pay each of the energy invoices directly or elect to have U.S. Energy pay the energy invoices on behalf of Client.

(i) If Client elects to pay the energy invoices directly, U.S. Energy will advise Client of the appropriate amount to pay and provide the necessary documents for Client to process the payments in a timely and accurate manner.

(ii) If Client elects to have U.S. Energy pay the energy invoices on behalf of Client, U.S. Energy will prepare a monthly consolidated invoice that summarizes the appropriate Client’s energy costs from the prior month. This invoice may include gas supply activity, financial hedging, gas transportation, storage, gas distribution charges and electricity charges. Client agrees to remit funds to U.S. Energy per the payment terms listed in Section 2.05 below. Upon receipt of funds from Client, U.S. Energy will remit the appropriate payments to the various vendors.

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(C) Secure Client Web Site Access: Client will be provided access to U.S. Energy’s secure client web site which includes:

(i) Various reports such as gas nominations, purchased gas packages, actual usage, load profiles, etc.

(ii) Consolidated Energy Report listing usage and cost by individual facility, region, division and corporate level, if applicable.

(iii) Latest guidance from fundamental and technical analysts in regard to energy market pricing movement and events.

Part II. General Terms and Conditions

Section 2.01 Agency Authorization. U.S. Energy shall act as Client’s agent while managing the energy matters for the Facilities. In order for U.S. Energy to fulfill its responsibility under this Agreement, an Agency Authorization must be executed by Client. This Agency Authorization is attached as Exhibit A. The purpose of the Agency Authorization is to provide third parties with the necessary evidence that U.S. Energy has the proper authorization to act on Client’s behalf for energy-related matters for the Facilities. Client remains responsible for the cost of all gas supplies, transportation, distribution, storage charges, balancing services and penalties, and cash-out charges levied by the pipeline or utility for excess or additional gas. Where applicable to the scope of services described in Part I of this Agreement, Client specifically authorizes U.S. Energy to act as its agent for the following actions:

(A) Energy Procurements and Agreements: U.S. Energy may transact with third party energy suppliers, pipelines and utilities on behalf of Client as instructed specifically or generally by Client. Client’s instructions may be communicated in writing, electronically or orally. Client will be responsible for all transactions and agreements executed by U.S. Energy on behalf of Client.

(B) Trade Credit and Financials: U.S. Energy may share Client’s financial information with third party suppliers, pipelines and utilities as necessary to secure trade credit for energy procurements and agreements, subject to any limitations established by Client under Section 1.01Section 1.01(D)(ii) above and Section 1.02(D)(ii).

(C) Natural Gas Scheduling and Imbalances: U.S. Energy may provide gas nominations, obtain pipeline capacity and release pipeline capacity on Client’s behalf as is necessary to manage the gas supply to the Facilities. Additionally, U.S. Energy is authorized to manage the Client’s pipeline supply imbalances as U.S. Energy reasonably deems to be in the best interest of Client.

(D) Energy Consumption and Billing Records: U.S. Energy may obtain from the appropriate vendors all relevant energy billing information for the Client’s Facilities.

(E) Bill Payment: If so elected by the Client, U.S. Energy is authorized to have the Client’s invoices for energy consumption at the Facilities sent to U.S. Energy for payment. As provided in Section 2.05, U.S. Energy is under no obligation to pay any of the Client’s energy invoices until U.S. Energy receives payment from the Client.

(F) Sales Tax Exemptions: If Client’s energy purchases or consumption are eligible for sales tax exemption and the Client has provided U.S. Energy with the proper documentation evidencing this exemption, U.S. Energy is authorized to complete and sign sales tax exemption forms and submit them to third-parties. U.S. Energy is under no obligation to provide sales tax exemption forms absent proper documentation from Client.

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*** Confidential material redacted and filed separately with the Commission.

Section 2.02 U.S. Energy’s Fees. U.S. Energy’s fee for services during the term of this Agreement shall be as follows:

(A) Monthly Service Fee: The Client will pay U.S. Energy a monthly service fee of $*** per month. U.S. Energy shall issue the service fee invoice to the Client on or about the first of the month for fees for the current month.

(B) Pre-approved Travel Expenses: Client will reimburse U.S. Energy for any pre-approved travel expenses incurred by U.S. Energy related to the provision of services under this Agreement. Pre-approved travel expenses may be billed separately or included on Client’s monthly service fee invoice.

Section 2.03 U.S. Energy Transactions: Notwithstanding U.S. Energy’s primary role as Client’s agent, from time to time U.S. Energy may purchase natural gas from or sell natural gas to the Client, release U.S. Energy transportation capacity to the Client, purchase release pipeline capacity from the Client or provide imbalance services to the Client. These transactions are executed at prevailing market rates and are generally considered when they result in a more efficient means to manage the Client’s energy matters instead of conducting these transactions strictly with third party vendors. In these transactions, Client acknowledges that U.S. Energy is deemed a counterparty and that benefits may accrue to U.S. Energy. All transactions under this section are governed by the terms of the “Base Agreement in Exhibit B.

Section 2.04 Term. The initial term of this Agreement shall commence on August 1, 2009 and continue on a month to month basis. Client shall remain responsible for payment and performance associated with any and all transportation, supply, and storage transactions entered into by U.S. Energy and authorized by Client, prior to termination, as well as fees and charges for U.S. Energy’s services occurring up until the termination date.

Section 2.05 Billing and Payment. The following payment terms apply to this Agreement:

(A) U.S. Energy Fees: On the first of the month, U.S. Energy will invoice Client for the service fee for the current month and any applicable hedging fees and pre-approved travel expenses from the prior month as defined in Section 2.02 of this Agreement. Client shall pay U.S. Energy within ten (10) days of receipt of this invoice. If Client has elected to have U.S. Energy process and pay the Facilities’ energy invoices per the terms of Section 2.05 (B), Client acknowledges that the U.S. Energy fees may be combined with the Client’s consolidated energy invoice as one combined invoice.

(B) Client’s Consolidated Energy Invoices: If Client has elected to have U.S. Energy process and pay the Facilities’ energy invoices, the following terms will apply.

(i) After the first of the month U.S. Energy will issue a consolidated invoice to Client for the appropriate energy costs from the previous month. Upon receipt of Client funds, U.S. Energy will pay each of the vendor invoices as they become due and payable.

1) Each month, U.S. Energy will reconcile funds paid by Client and received by U.S. Energy against payments made by U.S. Energy to Client’s vendors. U.S. Energy will use commercially reasonable efforts to reconcile Client’s account to $0. However, if U.S. Energy is unable to reasonably reconcile Client’s account to $0, one of the following remedies will be used:

2) If the reconciliation yields an amount that is within $100 or 1% of the consolidated invoice total, whichever is less (“Threshold Amount”), then Client’s account will be considered as reconciled to $0.

3) If the reconciliation yields an amount that is greater than the Threshold Amount and U.S. Energy is holding excess Client funds, these funds will be refunded to Client with the proper documentation.

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(ii) If the reconciliation yields an amount that is greater than the Threshold Amount and U.S. Energy is short Client funds, Client will be invoiced for these additional funds provided that U.S. Energy provides proper documentation supporting its reconciliation.

(iii) Client acknowledges and agrees that the funds paid by Client to U.S. Energy become the property of U.S. Energy at such time they are deposited in U.S. Energy’s bank account. U.S. Energy agrees that once Client’s funds are deposited in U.S. Energy’s bank account, U.S. Energy has the obligation to pay Client’s invoices associated with Client’s funds. Client further agrees that any interest earned by U.S. Energy for funds held in U.S. Energy’s bank account shall belong to U.S. Energy and become the property of U.S. Energy.

(iv) Prior to paying Client’s energy invoices to vendors (utilities, suppliers and pipelines), U.S. Energy must receive Client’s funds for these invoices. Client will pay U.S. Energy within ten (10) days of receipt of U.S. Energy’s consolidated invoice. Client understands that Client may incur late fees or penalties from Client’s vendors if U.S. Energy does not receive Client’s funds for energy invoice payments that are due and therefore cannot process the payments on time. In order for funds to be available for payment to Client’s vendors, Client will make payment to U.S. Energy by wire transfer or ACH. U.S. Energy’s banking instructions are:

Bank:	M&I Bank
Account Name:	U.S. Energy Services, Inc.
Account Number:	46620167
ABA:	091 001 157

(C) Late Payment Charge: If Client fails to remit the full amount payable for U.S. Energy Fees (paragraph a, above) or Client’s Consolidated Invoice (paragraph b, above) to U.S. Energy when due, Client will pay interest from the due date until the date payment is made at the lesser of (i) 12% per annum or (ii) the maximum rate allowed by law. Client will be responsible for all costs, fees, and expenses (including reasonable attorney’s fees) incurred by U.S. Energy in collecting the amount payable. If U.S. Energy does not receive payment from Client when due, U.S. Energy, at its sole option, may discontinue any further delivery of Services under this Agreement unless Client cures such default within five (5) calendar days.

Section 2.06 Taxes. Client will be responsible for payment of all taxes including, but not limited to, all sales, use, excise, BTU, heating value, carbon, greenhouse reduction and other taxes (“Taxes”) associated with the purchase and/or transport of energy and the provision of services hereunder. In the event Client’s energy purchases or consumption are eligible for an exemption from sales or use tax, it is Client’s responsibility to provide U.S. Energy with the proper documentation for this exemption. U.S. Energy will use reasonable efforts to determine that Taxes for Client’s purchases and consumption are properly assessed by third parties. However, U.S. Energy is not a taxation expert and is not responsible for any errors made by third parties in the assessment of Taxes. In addition, U.S. Energy cannot and does not provide legal advice or legal services for Taxes or other matters.

Section 2.07 Confidentiality. U.S. Energy shall not divulge to any other person or party any of Client’s confidential information revealed to U.S. Energy pursuant to this Agreement, unless such information is (a) already in U.S. Energy’s possession and such information is not known by U.S. Energy to be subject to another confidentiality agreement, or (b) is or becomes generally available to the public other than as a result of an unauthorized disclosure by U.S. Energy, its officers, employees, directors, agents or its advisors, or (c) becomes available to U.S. Energy on a non-confidential basis from a source which is not known to be prohibited from disclosing such information to U.S. Energy by legal, contractual or fiduciary obligation to Client, or (d) is required by U.S. Energy to be disclosed by court order, or (e) is permitted by Client.

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Section 2.08 Indemnification. U.S. Energy shall indemnify, defend and hold harmless Client from and against all claims, costs, charges, penalties and overcharges arising out of or related to the services provided hereunder to the extent the same are caused by U.S. Energy’s gross negligence or willful misconduct. Client shall indemnify, defend and hold harmless U.S. Energy from and against all claims, costs, charges, penalties and overcharges arising out of or related to the services provided hereunder to the extent the same are caused by Client’s gross negligence or willful misconduct.

Section 2.09 No Consequential Damages. In no event shall either party be liable to the other for any consequential damages or lost profits arising from or relating to the performance or non-performance of this Agreement.

Section 2.10 Notices. Any formal notice, request or demand which a Party may desire to give to the other respecting this Agreement shall be in writing and shall be considered as delivered as of the postmark date when mailed by ordinary, registered or certified mail by one Party to the other Party at the addresses listed below. Either Party may, from time-to-time, identify alternate addresses at which they may receive notice during the term of this Agreement by providing written notice to the other Party of such alternate addresses.

Client:	Homeland Energy Solutions, LLC
	2779 IA Hwy 24
	Lawler, IA 52145
U.S. Energy:	U.S. Energy Services, Inc.
	605 North Highway 169
	Suite 1200
	Plymouth, MN 55441
	Attn: Contract Administration

Section 2.11 Assignment and Amendment. The Agreement may not be assigned or amended without the written consent of U.S. Energy and Client. Such consent shall not be unreasonably withheld by either Party.

Section 2.12 Applicable Law and Jurisdiction. The Agreement shall be construed in accordance with the laws of the State of Minnesota. Any claims or disputes arising out of this Agreement shall be adjudicated in the Federal or State courts of Minnesota.

Section 2.13 Independent Contractor. It is not the intent of U.S. Energy or Client to form any partnership or joint venture relationship. Each party shall, in relation to its obligations in this Agreement, act as an independent contractor.

Section 2.14 Authorization. Each Party represents and warrants to the other that it is fully empowered and authorized to execute this Agreement and the individuals signing this Agreement each represent and warrant that they are fully authorized to do so.

Section 2.15 Entire Agreement. This Agreement and Exhibits A and B constitute the entire Agreement between U.S. Energy and Client pertaining to the subject matter of this Agreement and supersedes all prior Agreements between U.S. Energy and Client.

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Agreed to and Accepted by:

Homeland Energy Solutions, LLC

By:	/s/ Walter Wendland
	Name:	Walter Wendland
	Title:	President
Date: July 10, 2009
U.S. Energy Services, Inc.
By:	/s/ Gail McMinn
	Name:	Gail McMinn
	Title:	Executive Vice President
Date: July 10, 2009

9

EXHIBIT A

AGENCY AUTHORIZATION

The purpose of this Agency Authorization (this “Authorization”) dated May 21, 2009 is to set forth the authorization and agreement between U.S. Energy Services, Inc. (“U.S. Energy”) and Homeland Energy Solutions, LLC (“Client”) related to the provision of energy supply management services for Client’s Lawler, Iowa ethanol plant (individually referred to as “Facility” and collectively as “Facilities”). Client and U.S. Energy agree on the following terms and conditions as they pertain to U.S. Energy’s role as Client’s agent to transact with third-parties on Client’s behalf:

1. APPOINTMENT AND SCOPE — Client hereby appoints U.S. Energy as its exclusive agent to deal with third-parties for energy-related matters for the Facility or Facilities. U.S. Energy is authorized, without limitation, by Client to:

• Negotiate and execute contracts for the acquisition of energy supply, transportation services and distribution services (“Energy Contracts”) with any counterparties as U.S. Energy reasonably determines to be acceptable;

• Amend, extend, renew or cancel any Energy Contracts;

• Procure and sell energy supplies, contract for transportation services, and contract for distribution services (“Energy Procurements”) as required for Client’s Facility or Facilities;

• Review and sign energy supply transaction confirmations;

• Place daily and monthly nominations for delivery of energy supplies;

• Sign sales tax exemption certificates as they pertain to energy purchases or consumption for Energy Procurements made under this Authorization;

• Obtain trade credit from energy suppliers as needed for Energy Procurements; and

• Receive, review, approve and pay Client’s energy invoices for Energy Procurements made under this Authorization.

2. RELEASE OF ENERGY CONSUMPTION RECORDS AND BILLS — This Agreement serves as authorization for the release of Client’s energy consumption records and bills from pipelines and suppliers to U.S. Energy.

3. ADOPTION AND RATIFICATION — Client agrees that each and every act performed by U.S. Energy in connection with any of the authorized powers designated in Paragraph 1 will be valid and binding on Client as if the same act had been done by Client. Client ratifies whatever U.S. Energy does pursuant to this Authorization.

4. TERM — The term of this Authorization shall commence as of the date stated above and shall continue until such time as either Client or U.S. Energy provide written notice of termination of the Authorization to applicable third-parties. Client will remain obligated for any actions performed by U.S. Energy prior to the effective date of the notice of termination.

5. AUTHORITY — Each party represents and warrants to the other that it is fully empowered and authorized to execute and deliver this Authorization, and the individuals signing this Authorization each represent and warrant that he or she is fully authorized to do so.

Agreed to and Accepted by:

Homeland Energy Solutions, LLC			U.S. Energy Services, Inc.
By:	/s/ Walter Wendland		By:	/s/ Gail McMinn
	Name:	Walter Wendland		Name:	Gail McMinn
	Title:	President		Title:	Executive Vice President
Date:7/10/09			Date: 7/10/09

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EXHIBIT B

BASE AGREEMENT FOR THE PURCHASE AND SALE OF NATURAL GAS

605 North Highway 169, Suite 1200
Plymouth, MN 55441
763-543-4600

	Date: August 1, 2009
CUSTOMER INFORMATION
Customer: Homeland Energy Solutions, LLC	Billing Contact:
	Becky Williams
Contact Name:	Billing Street Address:
Walter Wendland	2779 IA Hwy 24
Address:	Billing Town, State ZIP:
2779 IA Hwy 24, Lawler, IA 52154	Lawler, IA 52154
Telephone: (563) 238-5555	Telephone: (563) 238-5555
Fax: (563) 238-5557	Fax: (563) 238-5557
Email: wwendland@etoh.us	Email: rwilliams@etoh.us

This Natural Gas Sales Base Agreement ( “Agreement”) is made and entered into between U. S. Energy Services, Inc. (“U.S. Energy”), and the customer named above (“Customer”) (each a “Party” and jointly “Parties”). The primary purpose of this Agreement is to address natural gas sales made by U.S. Energy to Customer. However, this Agreement also addresses those transactions where Customer has purchased excess natural gas, either from U.S. Energy or another supplier, and sells this excess natural gas to U.S. Energy.

1. Purchase and Sale of Gas: The terms of this Agreement shall apply to all purchases and sales (“Transaction” or “Transactions”) of natural gas (“Gas”) between U.S. Energy and Customer. Generally, each Transaction will be documented in an Exhibit or Transaction Confirmation signed by both Parties. In the event a Transaction Confirmation does not exist for a particular Transaction and there is sufficient evidence to show that a Transaction occurred, the Parties acknowledge that the Transaction was completed at a market price commensurate with the term and Delivery Point of the transaction. The Parties further agree that for Transactions based on a market index price and for one month or less do not need a Transaction Confirmation to be valid. All Exhibits and Transaction Confirmations along with the Agreement shall form a single, integrated agreement between the Parties. In the event a conflict arises between the terms of the Agreement and the Transaction Confirmation or an Exhibit, the Transaction Confirmation and Exhibit shall be the controlling documents. The term “Delivery Point” shall mean the physical point or points where title to the Gas transfers from the seller of the Gas to the purchaser of the Gas as identified in the Transaction Confirmation. The actual Delivery Point shall be at the inlet side of the metering station(s) specified in the Transaction Confirmation.

2.

Performance: Customer shall purchase natural gas on an “Interruptible”, a “Firm” or under a single transaction basis. “Firm” means that Customer or U.S. Energy may interrupt its performance without liability only to the extent that such performance is prevented for reasons of Force Majeure. “Interruptible” service means that Customer’s deliveries can be interrupted during periods of curtailment.

If U.S. Energy is required by Customer’s utility company (“Utility”) to curtail or alter deliveries of Gas to Customer, in whole or in part, U.S. Energy will direct Customer to curtail usage of Gas by the same amount. Customer will pay or reimburse U.S. Energy for any penalties assessed due to Customer’s failure to curtail usage as directed, unless the issuance of the curtailment or similar order by the Utility was due to the fault of U.S. Energy.

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3. Term: The Agreement may be terminated by either Party upon 60 (sixty) days’ prior written notice; provided, however, that it will remain in effect with respect to Transaction(s) entered into prior to the effective date of the termination until both parties have fulfilled all of their obligations with respect to the Transaction(s).

4. Creditworthiness: U.S. Energy’s acceptance of the Agreement and any Transaction is conditioned on Customer maintaining its creditworthiness during the term of the Agreement. If U.S. Energy determines in its good faith judgment that Customer’s credit has been materially impaired, U.S. Energy may require additional security (“Credit Assurance”) for the payment of sums due under the Agreement, including collateral deposits, prepayments, letters of credit or other guaranty of payment or performance reasonably acceptable to U.S. Energy.

5. Price: For Transactions where U.S. Energy is selling Gas to Customer, Customer will pay to U.S. Energy the Purchase Price for all Gas purchased by Customer pursuant to the terms of the executed Exhibit(s) and/or Transaction Confirmation(s). For Transactions where U.S. Energy is purchasing excess Gas from Customer, U.S. Energy will pay to Customer the Purchase Price for all Gas purchased by U.S. Energy pursuant to the terms of the executed Transaction Confirmations. For Transactions where no Transaction Confirmation was produced, the price will be based on the market index price commensurate with the Transaction term and Delivery Point or as mutually agreed by the Parties.

6. Billing and Payment: U.S. Energy will invoice Customer for gas delivered according to the Transaction Confirmation for each calendar month. In the event U.S. Energy has purchased excess Gas from Customer during the same calendar month, U.S. Energy will net its obligations to Customer against amounts owed by Customer and invoice Customer for the net amount owed to U.S. Energy. Customer will make payment within ten (10) days of the date of U.S. Energy’s invoice. If the volumes delivered cannot be verified by U.S. Energy at the time of the invoice is issued, the invoice will be based on U.S. Energy’s good faith estimate of the volumes delivered. U.S. Energy will adjust Customer’s account following confirmation of the actual volumes delivered.

If Customer fails to remit the full amount payable by it when due, Customer will pay interest from the due date until the date payment is made at the lesser of (i) 12% per annum or (ii) the maximum rate allowed by law (“Interest Rate”). Customer will be responsible for all costs, fees, and expenses (including reasonable attorney’s fees) incurred by U.S. Energy in collecting the amount payable. If U.S. Energy does not receive payment from Customer when due, U.S. Energy, at its sole option, may discontinue any further delivery of Gas under this Agreement unless Customer cures such default within five (5) calendar days of U.S. Energy’s written notice to Customer of the default. All checks returned for insufficient funds will incur a fee of fifty dollars ($50.00).

7. Force Majeure: The term “Force Majeure,” as used in this Agreement, shall include, without limitation, the following: acts of God or the public enemy; wars; blockades; civil unrest; rebellion; insurrections; riots; lockouts; strikes; interruption of civil or public service; hurricanes; fires; floods; explosions; breakage of pipelines; failure or freezing of wells or pipelines; failure of local distribution company to accept delivery; any laws, orders, rules, regulations, acts or restraints of any governmental authority, whether or not lawfully made; and any other causes, whether of the kind herein enumerated or otherwise; not within the control of the party claiming suspension as a result of the shortage or unavailability. If either Party claims suspension, wholly or in part, by Force Majeure to perform or comply with any obligations or conditions of this Agreement, then upon giving notice in writing and providing reasonably full particulars to the other Party, such obligations or conditions, insofar as they are affected by such Force Majeure, shall be suspended during the continuance of any restriction so caused but in no event for any longer period, and such Party shall be relieved of liability and shall suffer no prejudice for failure to perform the same during the period. The Force Majeure condition shall be remedied so far as practicable with reasonable dispatch.

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8. Title and Ownership: Title to, possession of, and risk of loss in the Gas delivered, shall pass from seller of the Gas to and vest in the buyer at the Delivery Point as identified in the Transaction Confirmation(s).

9. Assignment: This Agreement shall inure to the benefit of and be binding upon the successors of the Parties. Neither Party may assign this Agreement in whole or in part except with the written consent of the other Party, however, such consent shall not be unreasonably withheld or delayed.

10. Notices: All notices, demands, or requests pertaining to the Agreement will be made in writing and may be delivered by hand delivery, first class mail (postage prepaid), overnight courier service, or by facsimile, to the Party’s address listed at the beginning of the Agreement. Notices sent by facsimile will be deemed to have been received upon sending Party’s receipt of its facsimile’s confirmation. Notice by overnight mail or courier will be deemed to have been received on the next business day after it was sent or such earlier time as it is confirmed by the receiving Party. Notice via first class mail will be considered delivered three (3) business days after mailing.

11. Failure to Deliver or Receive Gas/Plant Closure(s): If U.S. Energy fails to deliver all or part of the Gas pursuant to a Transaction Confirmation and the failure is not excused under the terms of the Agreement, then (i) U.S. Energy shall use reasonable efforts to obtain alternate supplies of Gas at the Delivery Point (“Replacement Supply”) and (ii) U.S. Energy will reimburse Customer for the cost of Replacement Supply, provided such cost is commercially reasonable, in excess of the total cost Customer would have otherwise paid for Gas had U.S. Energy fully performed under this Agreement. If Customer fails to receive all or part of the Gas pursuant to a Transaction Confirmation and the failure is not excused under the terms of the Agreement, then Customer will pay U.S. Energy an amount for each dekatherm of Gas not received equal to the positive difference, if any, between: (i) the price U.S. Energy would have received for the Gas under this Agreement, and (ii) the price at which U.S. Energy is, or would be, able to sell comparable quantities of Gas at the Delivery Point, provided such price is commercially reasonable price.

12.

Events of Default: “Event of Default” means (i) the failure of either Party (or its guarantor) to make payment required by the applicable due date and the failure is not remedied with in five (5) days of receipt of written demand for cure; (ii) the failure of Customer to provide satisfactory Credit Assurance, per the terms of Section 4, within five (5) days of U.S. Energy’s demand; (iii) either Party (or its guarantor) is or becomes Bankrupt, and (iv) the failure of either Party to perform any obligation not specifically addressed above and the failure is not cured within ten (10) days of receipt of written demand for cure, except for the failure of a Party to deliver or receive Gas under any Transaction Confirmation, which deficiency is cured by payment of the amount due, if any, under Section 11 of the Agreement.

“Bankrupt” means with respect to either Party, the Party (i) files a petition or otherwise commences, authorizes, or acquiesces in the commencement of a proceeding or cause of action under any bankruptcy, insolvency, reorganization, or similar law, or has any such petition filed or commenced against it, (ii) makes an assignment or any general arrangement for the benefit of creditors, (iii) otherwise becomes bankrupt or insolvent (however evidenced), (iv) has a liquidator, administrator, receiver, trustee, conservator or similar official appointed with respect to it or any substantial portion of its property or assets, or (v) is generally unable to pay its debts as they fall due.

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13. Remedies in the Event of Default: Upon the occurrence and during the continuation of an Event of Default, the non-defaulting Party may (i) withhold any payments or suspend any deliveries due hereunder; (ii) upon written notice at least one (1) day in advance, accelerate any or all amounts owing between the Parties under the Agreement and terminate and liquidate any or all Transactions; (iii) determine a settlement amount for each Transaction by calculating the gains, losses, and costs (including reasonable attorney’s fees and the costs of obtaining, maintaining, and liquidating commercially reasonable hedges) incurred as a result of the liquidation, and (iv) calculate a net settlement amount by aggregating into one amount all settlement amounts and all other amounts owing between the Parties under the Agreement. Any net settlement amount due from the defaulting Party to the non-defaulting Party will be paid within three (3) days of receipt of written notice from the non-defaulting Party. To the extent that a settlement amount would be due to the defaulting Party, the settlement amount will be deemed to be zero. Interest on any unpaid portion of the net settlement amount will accrue daily at the Interest Rate. The gain or loss for each liquidated transaction may be calculated by any commercially reasonable method chosen by the non-defaulting Party, including by determining the difference between the Purchase Price and the Market Price of the Contract Quantities remaining to be delivered during the Purchase period. “Market Price” means the price of similar quantities of Gas at the Delivery Point.

14.	Remedies in the Event of Bankruptcy: In the event either Party is Bankrupt during any term of this Agreement, the Parties agree the following shall apply:
	(a) Each Party acknowledges and agrees that (i) the Agreement and all Transaction(s), both together and separately, constitute “forward contracts” within the meaning of Title 11 of the United States Code (the “Bankruptcy Code”); (ii) each Party is a “forward contract merchant” within the meaning of the Bankruptcy Code with respect to the Agreement and any transactions thereunder; (iii) all payments made or to be made by one Party to the other Party, and/or credits, offsets, liquidation of collateral, drawdowns, or any other similar settlement of the transactions and Credit Assurance pursuant to this Agreement, of whatever nature or character, physical or financial, constitute “settlement payments” within the meaning of the Bankruptcy Code; (iv) all transfers, directly or indirectly, by one Party to the other Party arising under or related to Section 4 of this Agreement constitute “margin payments” within the meaning of the Bankruptcy Code; and (v) each Party’s rights under Sections 13 and 14(c) of this Agreement constitute a “contractual right to liquidate, accelerate, offset and/or terminate” the transactions within the meaning of the Bankruptcy Code.
	(b) Each Party acknowledges and agrees that, for purposes of this Agreement; the other Party is not a “utility” as such term is used in Section 366 of the Bankruptcy Code.
	(c) Each Party acknowledges and agrees that upon an Event of Default, the non-defaulting Party may terminate the Agreement and Transactions, and all obligations arising under or related to the Agreement and Transactions, of whatever nature or character, financial, physical or otherwise, may be liquidated, accelerated and settled at the option of the non-defaulting Party pursuant to the terms of this Agreement and applicable state law and, if a case is initiated under the Bankruptcy Code, such termination shall occur pursuant to the provisions in the Bankruptcy Code applicable to “forward contracts”. In that regard, unless the Parties have entered into a separate master netting agreement covering all Transactions, this Agreement shall constitute a “master netting agreement” under the applicable provisions of the Bankruptcy Code, including Section 561.

15. Warranties: U.S. Energy warrants (i) it has good title to all Gas delivered, (ii) it has the right to sell the Gas, and (iii) the Gas will be free from all royalties, liens, encumbrances, and all applicable Taxes that are imposed upon the production or removal of Gas prior to passage of title. All other warranties, express or implied, including any warranty of merchantability or fitness for any particular purpose, are disclaimed.

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16. Indemnification: Customer will defend and indemnify U.S. Energy against all losses, costs and expenses, including court costs and reasonable attorney’s fees, arising out of claims regarding personal injury, lost profits, or property damage from the Gas or other charges thereon which attach after title passes to Customer. U.S. Energy will defend and indemnify Customer against any losses, costs and expenses, including court costs and reasonable attorney’s fees, arising out of claims of title, personal injury, lost profits, or property damage from the Gas or other charges thereon which attach before title passes to Customer.

17. Limitation of Liability: Neither Party will be liable to the other Party for indirect, special, consequential, or punitive damages or for loss of profit of any kind.

18. Waiver/Cumulative Remedies: All waivers must be in writing. No failure by either Party to insist upon compliance with any term of the Agreement, to exercise any option, enforce any right, or seek any remedy upon any Event of Default of the other Party shall affect, or constitute a waiver of, the first Party’s right to insist upon such strict compliance, exercise that option, enforce that right, or seek that remedy with respect to that Event of Default or any prior, contemporaneous, or subsequent Event of Default. No custom or practice of the Parties at variance with any provision of this Agreement shall affect or constitute a waiver of either Party’s right to demand strict compliance with all provisions of this Agreement. All remedies will be without prejudice and in addition to any right of setoff, recoupment, combination of accounts, lien, or other right to which any Party or any of its affiliates is at any time otherwise entitled (whether by operation of law or in equity, under contract or otherwise).

19. No Third Party Benefit: This Agreement is intended for the exclusive benefit of the Parties and their respective successors and assigns, and nothing contained in this Agreement shall create any rights or benefits in or to any third party.

20. Governing Law: All questions concerning the validity or interpretation of this Agreement or relating to the rights and obligations of the Parties with respect to performance under this Agreement shall be construed and resolved under the laws of the State of Minnesota, except to the extent specifically regulated by federal laws.

21. Venue: All Parties to this Agreement designate the Court of Hennepin County, Minnesota as a court of proper jurisdiction and venue for any actions or proceedings relating to this Agreement and irrevocably consent to such designation, jurisdiction or venue with respect to any action or proceeding initiated in the Court of Hennepin County in any pleas of any County in Minnesota.

22. Captions: The section headings are for convenience only and shall not be interpreted in any way to limit or change the subject matter of this Agreement.

23. Severability: If and to the extent that any Court of competent jurisdiction holds any provision of this Agreement to be invalid or unenforceable, such holding shall in no way affect the validity of the other provisions of this Agreement, which shall remain in full force and effect.

24. Confidentiality: It is mutually agreed by the Parties that the terms and conditions of this Agreement are unique and therefore, shall be considered confidential and shall not be disclosed to any third party except as required by, and then only to the extent necessary in, the normal course of that Party’s business if disclosed in advance to the other Party, except as required by an existing contractual obligation of either Party or by law.

25. Taxes: U.S. Energy shall pay any and all applicable federal, state, and local taxes (Taxes) associated with the Gas sold under this Agreement prior to the Delivery Point. Customer shall pay all Taxes associated with the Gas sold under this Agreement at and after the Delivery Point. The Purchase Price does not include Taxes that are or may be the responsibility of the Customer. Customer will reimburse U.S. Energy for any Taxes that U.S. Energy is required to collect and pay on Customer’s behalf. Any new Tax which may be imposed during the term of this Agreement at or after the Delivery Point shall be the responsibility of the Customer. Customer will furnish U.S. Energy with any necessary documentation showing its exempt or direct payment status for Taxes. Absent such documentation, U.S. Energy will charge and collect from Buyer the full amount of Taxes as required by U.S. Energy.

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26. Entire Agreement: The Agreement, Transaction Confirmations and/or Exhibits constitute the entire agreement between the Parties relating to the purchase and sale of natural gas. The Transactions are “forward contracts” and the Parties are “forward contract merchants”, as those terms are used in the Bankruptcy Code. Except to the extent provided for by this Agreement, no amendment or modification to the Agreement will be enforceable unless reduced to writing and executed by both Parties.

The Agreement is made as of the first day written above, and may be executed in one or more counterparts, each of which will be deemed an original and all of which together will form one agreement.

U.S. Energy Services, Inc.			Homeland Energy Solutions, LLC
By:	/s/ Gail McMinn		By:	/s/ Walter Wendland
	Print:	Gail McMinn		Print:	Walter Wendland
	Title:	Executive Vice President		Title:	President

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO 17 CFR 240.15d-14(a)
(SECTION 302 CERTIFICATION)

I, Walter W. Wendland, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Homeland Energy Solutions, LLC;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2009	/s/ Walter W. Wendland
	Walter W. Wendland,
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO 17 CFR 240.15d-14(a)
(SECTION 302 CERTIFICATION)

I, Christine Marchand, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Homeland Energy Solutions, LLC;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2009	/s/ Christine A. Marchand
	Christine A. Marchand,
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this quarterly report on Form 10-Q of Homeland Energy Solutions, LLC (the “Company”) for the quarter ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Walter Wendland, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Walter Wendland Walter Wendland,
Chief Executive Officer
Dated: August 14, 2009

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this quarterly report on Form 10-Q of Homeland Energy Solutions, LLC (the “Company”) for the quarter ended June 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christine Marchand, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Christine Marchand Christine Marchand,
Chief Financial Officer
Dated: August 14, 2009