Imperial Ethanol, Inc. (IE)
A US Farms, Inc. wholly-owned subsidiary dedicated to building a state-of-the-art ethanol processing facility in Imperial County, CA. US Farms management has initiated the due diligence process on the Ethanol industry as a whole and how it connects and correlates with its existing agriculture business. Management plans to utilize its resources and contacts in the agriculture sector to begin building its energy sector holdings. The company plans to initially construct a 35-50 million gallon (MGY) per year ethanol facility with capabilities of expanding production to 100 MGY.

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The project would be the closest large scale plant to the major markets of Southern California. There are over 10 million people within the plant's local market - Los Angeles and Phoenix are just outside of the local market. The proposed plant's regional market includes all of Arizona, at least half of California and Nevada. Very small portions of New Mexico and Utah are also within the regional market (See Below).

Regional Ethanol Markets

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Population in Regional Market

Projected Regional Ethanol Market

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BBI International
A Salida, Colorado-based independent Biofuels consulting firm with no stake in the proposed project has conducted a Feasibility Study for Ethanol Production in the Imperial Valley. BBI International is committed to providing the most thorough feasibility studies in the business. Their objective team of engineers and market specialists have an intimate understanding of Bioenergy and AG Processing Research and Analysis, through decades of hands on experience. Ethanol and Biodiesel projects are at the core of their workload and expertise.

The information detailed in this report reflects the proposed facility in the Imperial Valley located in Southern California provides an excellent marketing opportunity, combines the advantages of a large local ethanol market with an ethanol selling price above the national average with the opportunity to sell distiller's grains into a local cattle feed market. Distiller's grains is a coproduct of the ethanol production process.

BBI used their Site Evaluation Matrix to evaluate the potential project site identified by U.S. Farms. The Site Evaluation Matrix assigns weighted scores for desirable site attributes including:

• Feedstock availability
• Road and rail transportation infrastructure at the site
• Utilities including electricity, natural gas, water supply, and wastewater disposal
• Ethanol and co-product market proximity
• Labor availability
• Community services such as welding, electrical shop, plumbing, schools, fire protection, hospital, and airport
• Zoning and proximity to communities

Ethanol Market
The national demand for ethanol is growing at a very rapid rate and the market is expected to nearly double in size in the next few years. The strong market growth is being driven by the phase out of the oxygenate MTBE and the price of ethanol relative to gasoline.

World ethanol markets are comprised of three distinct segments: fuel, industrial, and beverage (in order of production and use). At present, world economics as well as environmental and oil dependency concerns are providing enormous opportunities for world fuel ethanol growth while population growth will offer modest growth opportunities for the much smaller industrial and beverage segments.

Worldwide ethanol production reached approximately 12 billion gallons (~45 billion liters) in 2005 (Figure below), compared to 9.25 billion gallons (~35 billion liters) in 2002.

Worldwide Ethanol Production (million liters)

Approximately 75% of the world's ethanol production is now fuel ethanol. Even though the bulk of the world's fuel ethanol production still comes from Brazil and the U.S., there are significant developments in other countries as well. Some of these could result in new production centers being established in addition to the traditional ones in the western hemisphere.

Worldwide Ethanol Production by Continent

North and South America are the world's leading ethanol production regions, with no indication of change in the foreseeable future. Total production in the Americas in 2005 reached nearly 9 billion gallons - about 75% of the world ethanol output. Brazil was the world leader for the past 30 years until U.S. production exceeded Brazilian production in 2005. Total U.S. ethanol production in 2005 was 4.2 billion gallons.

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Renewable Fuel Standard
On July 29, 2005, the U.S. Senate passed the comprehensive energy bill conference report, H.R. 6, by a strong, bipartisan vote of 74 to 26. The bill passed the House the day before on a vote of 275 to 156. Creation of a 7.5 billion gallon renewable fuels standard (RFS) headlines severalimportant provisions for biofuels. In addition to a 7.5 billion gallon RFS, the bill increases the limit for the small ethanol producer definition to 60-mmgy, extends the biodiesel tax credit through 2008, and establishes a 30% tax credit up to $30,000 for the cost of installing clean fuel refueling equipment, such as an E85 fuel pump. President Bush signed the measure into law on August 8, 2005.

In the U.S., ethanol's primary purpose is to serve as an octane extender for gasoline, a clean air additive in the form of an oxygenate, and as an aid in the reduction of America's dependence on imported oil, thereby reducing our balance of trade. In order to accomplish these tasks in the face of resistance from the oil industry, Congress established an incentive in the form of a tax credit during the mid-1970s to encourage the oil industry to blend ethanol. The tax incentive continues today and was recently extended to 2010.

New restrictions on automobile emissions, reductions in carbon monoxide, smog mitigation programs in major cities, and a general trend toward the reduction of greenhouse gas emissions, continue to drive the demand for ethanol. Discoveries of ground water contamination by methyl tertiary butyl ether (MTBE), ethanol's primary competitor, have spurred even greater interest in ethanol blends. Until recently, MTBE had the majority of the oxygenate market in the U.S. Since incidences of ground water contamination have occurred in thousands of wells in California and in the Northeast, where MTBE is the predominant oxygenate, there have been demands for the discontinuation of its use. In March 2000, the EPA issued an Advance Notice of Proposed Rulemaking that could result in a total ban of the use of MTBE. Ethanol, a fully biodegradable product, stands ready to fill the void left in California and other parts of the country where the use of MTBE is banned.

The petroleum refining capacity in the United States continues to decline while gasoline consumption continues to increase. The slightest upset in refining capacity (fire, shutdown, closure) sends gasoline prices soaring. U.S. refining capacity is not keeping pace with increasing demand. Ethanol plays a key role in helping refiners extend their product by as much as 10%. Approximately 95% of U.S. fuel ethanol is manufactured from corn and it follows that the majority of production capacity and subsequent use of fuel ethanol is in the Midwest Corn Belt. Ethanol is used in nearly every state in the country (Map Below). While corn has been the primary feedstock for fuel ethanol in the U.S., other feedstocks including wheat, milo and various waste starch and sugar streams are also used. Grain-based ethanol will likely continue to be the major contributor to ethanol production in the years ahead.

U.S. Ethanol Production (2006) and Use (2004)

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Fuel Ethanol Plants in the U.S.

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