**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-QSB**

 
| ý                                                                                                                                                                                                                     | **Quarterly report under  Section 13 or 15(d) of the Securities Exchange Act of 1934.** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                       |
| **For the fiscal quarter ended June 30, 2004**                                                                                                                                                                        |
|                                                                                                                                                                                                                       |
| **OR**                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                       |
| o                                                                                                                                                                                                                          | **Transition report under Section 13  or 15(d) of the Exchange Act.**                   |
|                                                                                                                                                                                                                       |
| **For the transition period  from               to               .** |
|                                                                                                                                                                                                                       |
| **COMMISSION  FILE NUMBER 0001229899**                                                                                                                                                                                     |

 

**LITTLESIOUX CORN PROCESSORS, L.L.C.**

(Exactname of small business issuer as specified in its charter)

 
| **Iowa**                                                         | ** ** | **42-1510421**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |       | (I.R.S.  Employer Identification No.) |
|                                                             |       |                                  |
| **4808 F Avenue, Marcus, Iowa 51035**                            |
| (Address  of principal executive offices)                        |
|                                                             |       |                                  |
| **(712) 376-2800**                                               |
| (Issuer’s  telephone number)                                |

 

Check whether theissuer:  (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 
|   | ý  Yes          o  No |
|--------|-----------------------------------------------------------------------------------|

 

State the number of sharesoutstanding for each of the issuer’s classes of common equity as of the latestpracticable date:  As of August 13, 2004, there were 10,941 unitsoutstanding.

 
| Transitional Small  Business Disclosure Format (Check one): | o  Yes          ý  No |
|-------------------------------------------------------------|-----------------------------------------------------------------------------------|

 

 

----

 

**INDEX**

 

**PART I.     FINANCIAL INFORMATION**

 

**Item 1.****          ****Financial Statements**

 

**LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Condensed Consolidated Balance Sheet

 
| ** **                                                                  | ** ** | **June 30  2004** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|
| **ASSETS**                                                                  |       |                   |       |
| **Current Assets**                                                          |       |                   |       |
| Cash                                                                        |       | $                      | 1,942,223  |   |
| Trade accounts receivable, less allowance  for doubtful accounts of $20,000 |       | 2,393,069              |       |
| Other receivables                                                           |       | 660,261                |       |
| Inventory                                                                   |       | 2,018,127              |       |
| Derivative instruments                                                      |       | 1,307,867              |       |
| Prepaid expenses                                                            |       | 939,209                |       |
| Total current assets                                                        |       | 9,260,756              |       |
|                                                                        |       |                   |       |
| **Property and  Equipment**                                                 |       |                   |       |
| Land and improvements                                                       |       | 2,381,920              |       |
| Buildings                                                                   |       | 15,061,750             |       |
| Processing equipment                                                        |       | 26,590,257             |       |
| Grain handling equipment                                                    |       | 5,172,406              |       |
| Rail and other equipment                                                    |       | 1,214,322              |       |
| Furniture and fixtures                                                      |       | 160,042                |       |
| Construction in progress                                                    |       | 537,375                |       |
|                                                                        |       | 51,118,072             |       |
| Less accumulated depreciation                                               |       | 4,177,659              |       |
| Net property and equipment                                                  |       | 46,940,413             |       |
|                                                                        |       |                   |       |
| **Other Assets**                                                            |       |                   |       |
| Deferred loan costs, net                                                    |       | 390,645                |       |
| Total other assets                                                          |       | 390,645                |       |
|                                                                        |       |                   |       |
| **Total Assets**                                                            |       | $                      | 56,591,814 |   |

 

Notes to Condensed Consolidated FinancialStatements are an integral part of this Statement.

 

2

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**LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Condensed Consolidated Balance Sheet

 
| ** **                                                                                                            | ** ** | **June 30  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| **LIABILITIES AND MEMBERS’ EQUITY**                                                                              |       |                   |       |
| **Current Liabilities**                                                                                               |       |                   |       |
| Revolving promissory note                                                                                             |       | $                      | 4,235      |   |
| Current maturities of long-term debt                                                                                  |       | 3,425,675              |       |
| Trade accounts payable                                                                                                |       | 1,791,249              |       |
| Accrued liabilities                                                                                                   |       | 337,530                |       |
| Total current liabilities                                                                                             |       | 5,558,689              |       |
|                                                                                                                  |       |                   |       |
| **Long-Term Debt,**net  of current maturities                                                                         |       | 15,534,502             |       |
|                                                                                                                  |       |                   |       |
| **Commitments and  Contingencies**                                                                                    |       |                   |       |
|                                                                                                                  |       |                   |       |
| **Minority Interest**                                                                                                 |       | 14,775,377             |       |
|                                                                                                                  |       |                   |       |
| **Members’ Equity**                                                                                              |       |                   |       |
| Member contributions, net of costs related  to capital contributions, 10,941 units outstanding at March 31, 2004 |       | 10,842,237             |       |
| Retained earnings                                                                                                     |       | 9,881,009              |       |
| Total members’ equity                                                                                            |       | 20,723,246             |       |
|                                                                                                                  |       |                   |       |
| **Total Liabilities  and Members’ Equity**                                                                       |       | $                      | 56,591,814 |   |

 

Notes to Condensed Consolidated FinancialStatements are an integral part of this Statement.

 

3

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**LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Condensed Consolidated Statements of Operations

 
| ** **                                         | ** ** | **Three Months Ended  June 30  2004** | ** ** | **Three Months Ended  June 30  2003** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
|                                               |       |                                       |       |                                       |       |
| **Revenues**                                       |       | $                                          | 21,497,087 |                                       | $          | 11,764,929 |   |
|                                               |       |                                       |       |                                       |       |
| **Cost of Goods Sold**                             |       | 23,237,225                                 |       | 10,053,197                                 |       |
|                                               |       |                                       |       |                                       |       |
| **Gross Profit**                                   |       | (1,740,138                                 | )          | 1,711,732                                  |       |
|                                               |       |                                       |       |                                       |       |
| **Operating Expenses**                             |       | 1,483,002                                  |       | 1,078,490                                  |       |
|                                               |       |                                       |       |                                       |       |
| **Operating Income  (Loss)**                       |       | (3,223,140                                 | )          | 633,242                                    |       |
|                                               |       |                                       |       |                                       |       |
| **Other Income  (Expense)**                        |       |                                       |       |                                       |       |
| Interest income                                    |       | 6,368                                      |       |                                       |       |
| Interest expense                                   |       | (281,079                                   | )          | (454,029                                   | )          |
| CCC Bio-Energy income (loss)                       |       | (439,450                                   | )          | 2,846,301                                  |       |
| Grants and other income                            |       | 37,129                                     |       | 160,265                                    |       |
| Total other income                                 |       | (677,032                                   | )          | 2,552,537                                  |       |
|                                               |       |                                       |       |                                       |       |
| **Net Income (Loss)  Before Minority Interest**    |       | (3,900,172                                 | )          | 3,185,779                                  |       |
|                                               |       |                                       |       |                                       |       |
| **Minority Interest  in Sudsidiary Income (Loss)** |       | (1,592,236                                 | )          | 1,334,501                                  |       |
|                                               |       |                                       |       |                                       |       |
| **Net Income (Loss)**                              |       | $                                          | (2,307,936 | )                                          | $          | 1,851,278 |   |
|                                               |       |                                       |       |                                       |       |
| **Weighted Average  Units Outstanding**            |       | 10,941                                     |       | 10,941                                     |       |
|                                               |       |                                       |       |                                       |       |
| **Net Income (Loss)  Per Unit**                    |       | $                                          | (210.94    | )                                          | $          | 169.21 |   |

 

Notes to Condensed Consolidated FinancialStatements are an integral part of this Statement.

 

4

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**LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

CondensedConsolidated Statements of Operations

 
| ** **                                  | ** ** | **Nine Months Ended  June 30  2004** | ** ** | **Nine Months Ended  June 30  2003** | ** ** |
|---------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
|                                        |       |                                      |       |                                      |       |
| **Revenues**                                |       | $                                         | 60,967,291 |                                      | $          | 11,764,929 |   |
|                                        |       |                                      |       |                                      |       |
| **Cost of Goods Sold**                      |       | 49,951,605                                |       | 10,053,197                                |       |
|                                        |       |                                      |       |                                      |       |
| **Gross Profit**                            |       | 11,015,686                                |       | 1,711,732                                 |       |
|                                        |       |                                      |       |                                      |       |
| **Operating Expenses**                      |       | 4,555,781                                 |       | 1,471,067                                 |       |
|                                        |       |                                      |       |                                      |       |
| **Operating Income**                        |       | 6,459,905                                 |       | 240,665                                   |       |
|                                        |       |                                      |       |                                      |       |
| **Other Income  (Expense)**                 |       |                                      |       |                                      |       |
| Interest income                             |       | 6,531                                     |       | 442                                       |       |
| Interest expense                            |       | (1,099,537                                | )          | (454,029                                  | )          |
| CCC Bio-Energy income                       |       | 6,440,789                                 |       | 2,846,301                                 |       |
| Grants and other income                     |       | 116,358                                   |       | 612,016                                   |       |
| Total other income                          |       | 5,464,141                                 |       | 3,004,730                                 |       |
|                                        |       |                                      |       |                                      |       |
| **Net Income Before  Minority Interest**    |       | 11,924,046                                |       | 3,245,395                                 |       |
|                                        |       |                                      |       |                                      |       |
| **Minority Interest  in Sudsidiary Income** |       | 5,003,901                                 |       | 1,359,200                                 |       |
|                                        |       |                                      |       |                                      |       |
| **Net Income**                              |       | $                                         | 6,920,145  |                                      | $          | 1,886,195 |   |
|                                        |       |                                      |       |                                      |       |
| **Weighted Average  Units Outstanding**     |       | 10,941                                    |       | 10,941                                    |       |
|                                        |       |                                      |       |                                      |       |
| **Net Income Per Unit**                     |       | $                                         | 632.50     |                                      | $          | 172.40 |   |

 

Notes to Condensed Consolidated FinancialStatements are an integral part of this Statement.

 

5

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**LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Condensed Consolidated Statements of Cash Flows

 
| ** **                                                        | ** ** | **Nine Months Ended  June 30  2004** | ** ** | **Nine Months Ended  June 30  2003** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
|                                                              |       |                                      |       |                                      |       |
| **Cash Flows from  Operating Activities**                         |       |                                      |       |                                      |       |
| Net income                                                        |       | $                                         | 6,920,145  |                                      | $          | 1,886,195 |   |
| Adjustments to reconcile net income to net  cash from operations: |       |                                      |       |                                      |       |
| Depreciation and amortization                                     |       | 2,599,857                                 |       | 966,899                                   |       |
| Minority interest in subsidiary’s income                     |       | 5,003,901                                 |       | 1,359,200                                 |       |
| Loss on hedging activity                                          |       | 312,777                                   |       |                                      |       |
| Change in assets and liabilities:                                 |       |                                      |       |                                      |       |
| Restricted cash                                                   |       | 12,902                                    |       | (279,460                                  | )          |
| Receivables                                                       |       | 2,063,002                                 |       | (4,428,133                                | )          |
| Inventory                                                         |       | (631,556                                  | )          | (1,954,747                                | )          |
| Derivative instruments                                            |       | (851,254                                  | )          | (70,500                                   | )          |
| Prepaid expenses                                                  |       | (341,107                                  | )          | (232,960                                  | )          |
| Accounts payable                                                  |       | 1,032,008                                 |       | 697,461                                   |       |
| Accrued liabilities                                               |       | (122,649                                  | )          | 143,093                                   |       |
| Net cash provided by (used in) operating  activities              |       | 15,998,026                                |       | (1,912,952                                | )          |
|                                                              |       |                                      |       |                                      |       |
| **Cash Flows from  Investing Activities**                         |       |                                      |       |                                      |       |
| Capital expenditures                                              |       | (760,383                                  | )          | —                                    |       |
| Net cash used in investing activities                             |       | (760,383                                  | )          | —                                    |       |
|                                                              |       |                                      |       |                                      |       |
| **Cash Flows from  Financing Activities**                         |       |                                      |       |                                      |       |
| Proceeds (payments) from short-term debt                          |       | (770,930                                  | )          | 2,157,035                                 |       |
| Proceeds from issuance of long-term debt                          |       |                                      |       | 1,453,753                                 |       |
| Payments of long-term debt                                        |       | (12,064,533                               | )          | (593,685                                  | )          |
| Loan costs                                                        |       |                                      |       | (44,848                                   | )          |
| Distribution to minority interest                                 |       | (435,276                                  | )          |                                      |       |
| Distribution to members                                           |       | (561,164                                  | )          |                                      |       |
| Net cash provided by (used in) financing  activities              |       | (13,831,903                               | )          | 2,972,255                                 |       |
|                                                              |       |                                      |       |                                      |       |
| **Net increase in  cash**                                         |       | 1,405,740                                 |       | 1,059,303                                 |       |
| ** **                                                        |       |                                      |       |                                      |       |
| **Cash**–  Beginning of Period                               |       | 536,483                                   |       | 299,951                                   |       |
| ** **                                                        |       |                                      |       |                                      |       |
| **Cash**–  End of Period                                     |       | $                                         | 1,942,223  |                                      | $          | 1,359,254 |   |

 

Notes to Condensed Consolidated FinancialStatements are an integral part of this Statement.

 

6

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**LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Condensed Consolidated Statements of Cash Flows

 
| ** **                                                                 | ** ** | **Nine Months Ended  June 30  2004** | ** ** | **Nine Months Ended  June 30  2003** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
|                                                                       |       |                                      |       |                                      |       |
| **Supplemental Cash  Flow Information**                                    |       |                                      |       |                                      |       |
| Cash paid during the year for:                                             |       |                                      |       |                                      |       |
| Interest                                                                   |       | $                                         | 1,238,032  |                                      | $          | 932,988 |   |
|                                                                       |       |                                      |       |                                      |       |
| **Supplemental  Disclosure of Noncash Investing and Financing Activities** |       |                                      |       |                                      |       |
| Reduction in property and equipment due to  debt forgiveness               |       | $                                         | 90,000     |                                      |       |   |
| Construction in progress included in  accounts payable                     |       |                                      |       | $                                         | 369,024    |   |
| Property and equipment financed with note  payable                         |       |                                      |       | $                                         | 15,118,104 |   |

 

Notes to Condensed Consolidated FinancialStatements are an integral part of this Statement.

 

7

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes to Condensed ConsolidatedFinancial Statements (Unaudited)

 

June 30, 2004

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

The accompanying condensedquarterly consolidated financial statements represent Little Sioux CornProcessors, LLC and Subsidiary.  See Note 1 to the consolidated financialstatements included in the Form 10-KSB for the nine month fiscal year endedSeptember 30, 2003.  That note discusses the consolidation.  Asused in this report in Form 10-QSB, the “Company” represents Little Sioux CornProcessors, LLC (LLC) and its subsidiary LSCP, LLLP (LSCP).

 

The condensed consolidatedquarterly financial statements are unaudited.  These statements includeall adjustments (consisting of normal recurring accruals) that we considerednecessary to present a fair statement of the results of operations, financialposition, and cash flows.  The results reported in these condensed,consolidated financial statements should not be regarded as necessarilyindicative of results that may be expected for the entire year.

 

*Nature ofBusiness*

 

The Company operates a 40million gallon ethanol plant, located near Marcus, Iowa.  The plantcommenced operations in April 2003.  The Company sells its productionof ethanol and distillers grains and solubles in the Continental United States.

 

*CommodityCredit Corporation Bioenergy Program*

 

During 2003, the Companyenrolled in the Commodity Credit Corporation Bioenergy Program (CCC), adepartment of the United States Department of Agriculture.  This programenables the Company to receive payments based on increases in production ofethanol over the previous year of up to $7,500,000 per year.  Newproduction is eligible and is considered increased production.  Paymentsunder the program are subject to pro rata reduction if aggregate payments toall producers in any fiscal year exceed the maximum annual funding of theprogram.  At March 31, 2004, the Company recorded $3,479,619 in otherreceivables related to production in the three months ending March 31,2004.  In the three months endedJune 30, 2004, the Company received $2,512,235 from the CCC as demand forfunds exceeded the funds available and wrote off the remaining $967,384 that itdid not receive.  In addition, theCompany recorded $527,934 as other income for production in the three monthsended June 30, 2004.  The Companyrecorded a $439,450 loss and a $6,440,789 gain as other income from the CCC forthe three months and nine months ended June 30, 2004, respectively.  At June 30, 2004, $527,934 remained inother receivables.

 

*DerivativeInstruments*

 

At June 30, 2004, theCompany had recorded an asset for derivative instruments related to corn andnatural gas options and futures positions with a fair value of $1,232,600 forforecasted purchases during fiscal 2004 and 2005.  None of the positionsopen at June 30, 2004 are designated as cash flowhedges.  The Company has recorded a loss of $6,135,977 in cost of goodssold related to its derivative instruments for the three months endedJune 30, 2004.  The Company hasrecorded a loss of $1,324,264 in cost of goods sold related to its derivativeinstruments for the nine months ended June 30, 2004, which includes thereclassification of $371,440 from accumulated other comprehensive loss.

 

At June 30, 2004, theCompany had an interest rate cap as described in Note 4 with a fair value of$75,267 recorded as an asset with derivative instruments.  The interestrate cap was not designated as a cash flow hedge.  The Company chargedinterest expense with the gain on the interest rate cap of $43,764 and a lossof $5,957 for the three months and nine months ending June 30, 2004, respectively.

 

8

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*RecentAccounting Pronouncement*

 

In December 2003, theFinancial Accounting Standards Board (FASB) issued FASB Interpretation No. 46(R), *Consolidation of Variable InterestEntities*.  The Company has reviewed its consolidation policyunder this interpretation.  It was determined that continued consolidationunder previously issued accounting standards is still applicable.

 

**2. INVENTORY**

 

Inventories consist of thefollowing at June 30, 2004:

 
| Raw materials   |   | $       | 1,045,016 |   |
|-----------------|--------|---------|-----------|--------|
| Work in process |   | 476,232 |      |
| Finished goods  |   | 496,879 |      |
|            |   |    |      |
| Totals          |   | $       | 2,018,127 |   |

 

At June 30, 2004, theCompany wrote down inventory by approximately $298,000 as the cost exceeded themarket value.

 

**3. REVOLVING PROMISSORY NOTE**

 

Under the terms of thefinancing agreement with a lending institution, the Company has a revolvingpromissory note of up to $3,500,000, subject to borrowing baselimitations.  In July 2004, thelending institution renewed the revolving promissory note until July 2005. The revolving promissory note accrues interest monthly at the one month LIBORplus 280 basis points which totaled 4.16% at June 30, 2004.  TheCompany pays a commitment fee of .125% on the unused portion of the revolvingpromissory note.  The outstanding balance at June 30, 2004 was$4,235.  The revolving promissory note as well as the term notes describedin Note 4 are subject to protective covenants under a common financingagreement requiring the Company to maintain various financial ratios, includingdebt service coverage, minimum net worth and working capital requirements,restrictions on distributions, secured by all business assets, and requireadditional loan payments based on excess cash flow.

 

**4. LONG–TERM DEBT**

 

Long-term debt consists ofthe following at June 30, 2004:

 
| Term note #2 payable to lending  institution, see terms below                                                                                                                                                          |   | 14,430,834 |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|
|                                                                                                                                                                                                                   |   |       |       |
| Term note #3 payable to lending  institution, see terms below                                                                                                                                                          |   | 3,646,110  |       |
|                                                                                                                                                                                                                   |   |       |       |
| Note payable to Iowa Energy Center, due in  monthly payments of $3,472 without interest, maturing on January 29,  2009, secured by real estate, subordinated to term notes                                        |   | 198,898    |       |
|                                                                                                                                                                                                                   |   |       |       |
| Note payable to bank due in monthly  payments of $5,921 including interest at 6% maturing on January 29,  2009, secured by real estate, subordinated to term notes                                                |   | 190,972    |       |
|                                                                                                                                                                                                                   |   |       |       |
| Note payable to Iowa Department of Economic  Development, due in sixty monthly installments beginning August 1, 2004  of $1,167 without interest, payable in full on July 1, 2009, secured by  all equipment |   | 210,000    |       |
|                                                                                                                                                                                                                   |   |       |       |
| Capital lease obligations, due in monthly  installments initially totaling $6,768 including implicit interest between  7.4% and 17.4% through March 1, 2008, secured by leased equipment                          |   | 283,363    |       |
| Totals                                                                                                                                                                                                                 |   | 18,960,177 |       |
| Less amounts due within one year                                                                                                                                                                                       |   | 3,425,675  |       |
|                                                                                                                                                                                                                   |   |       |       |
| Totals                                                                                                                                                                                                                 |   | $          | 15,534,502 |   |
|                                                                                                                                                                                                                        |        |            |            |  |

 

9

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The Company obtained debtfinancing from a lending institution in the form of a revolving promissory noteand term notes, referred to by the lending institution as term notes #2, #3,and #4.  Term note #2 has fixed principal payments due quarterly withinterest at the three month LIBOR plus 280 basis points, which totaled 4.11% atJune 30, 2004, payable in full on June 1, 2008.  As part of thefinancing agreement, the Company accepted a fixed rate option on term note #2by entering into an interest rate swap which effectively fixes the interestrate on this term note at 5.79% until this term note is repaid on June 1,2008.

 

Term note #3 bears interestat the three month LIBOR plus 280 basis points which totaled 4.11% atJune 30, 2004.  Term note #4 bears interest at the one month LIBORmeasured at June 1, 2004 plus 280 basis points which totaled 3.91% atJune 30, 2004.  Term notes #3 and #4 are payable in full onJune 1, 2008.  The Company is required to make quarterly payments of$506,588 applied first to accrued interest on term note #4.  The remainingamount is applied to accrued interest on the term note #3 and then to principaluntil this note is repaid in full or until maturity.  After term note #3is repaid, payments are applied first to accrued interest and then to principalon the term note #4 until paid in full or until maturity.  Term note #4was repaid during the nine months ended June 30, 2004.  Term note #4 allows subsequent borrowings upto the original $5,000,000 to the extent of principal payments made untilmaturity and requires a commitment fee of .375% on any used portion.

 

As part of the financingagreement, the premium above the LIBOR on the term notes and revolvingpromissory note has been reduced based on a financial ratio from the original380 basis points.  The financing agreement requires an annual servicingfee of $50,000 for five years.  As described in Note 1, the Company enteredinto an interest rate cap agreement to reduce the risk of increases in interestrates.  The interest rate cap agreement is based on a notional amount of$10,000,000 and caps increases in interest rates at 6.8% on this amount untilJune 1, 2006.

 

The original notes payableto the Iowa Department of Economic Development totaled $300,000 and included a$90,000 note subject to forgiveness if the Company met certainqualifications.  In March 2004,these qualifications were met, and the $90,000 loan was forgiven on March 9,2004.  The Company recorded the debtforgiveness as a grant and reduced the cost of property and equipment.

 

At September 30, 2003,LSCP was in violation of the net worth covenant.  The lender has waivedcompliance with this violation at September 30, 2003 and for the followingyear as it relates to this violation at September 30, 2003.

 

10

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In addition to the termsnotes, the subordinated notes payable to the bank require additional cash flowanticipated to be received from the CCC to be split pro rata between thesubordinated debtors as additional payments on the notes.

 

The estimated maturities oflong-term debt at June 30, 2004 are as follows:

 
| 2005                 |   | $         | 3,425,675  |   |
|----------------------|--------|-----------|------------|--------|
| 2006                 |   | 3,565,423 |       |
| 2007                 |   | 3,670,594 |       |
| 2008                 |   | 8,090,422 |       |
| 2009                 |   | 66,894    |       |
| After 2009           |   | 141,169   |       |
| Total long-term debt |   | $         | 18,960,177 |   |

 

**5. RELATED PARTY TRANSACTIONS**

 

At June 30, 2004,amounts due from Archer Daniels Midland Company (ADM) approximated 85% of tradeaccounts receivable.  For the three months and nine months endedJune 30, 2004, the Company incurred marketing expenses of approximately$117,000 and $360,000 respectively to ADM.  In January 2004, theCompany repaid the $1,250,000 note payable owed to Fagen, Inc. (Fagen).  During the nine months ended June 30,2004, the Company paid interest to Fagen approximating $98,000.

 

In the three months and ninemonths ended June 30, 2004, LSCP purchased approximately $1,486,000 and$3,255,000, respectively, in corn from members of the LLC.

 

**6. COMMITMENTS AND CONTINGENCIES**

 

*NaturalGas and Corn Contracts*

 

At June 30, 2004, theCompany has forward contracts to purchase approximately 481,000 million Britishthermal units (MMBTU) of natural gas during the July 2004 throughOctober 2004 time period at an average price of $5.18.  The Company has forward contracts to purchaseapproximately 200,000 MMBTU of natural gas during the November 2004through March 2005 time period at $6.28 per MMBTU.  The Company has forward contracts to purchaseapproximately 630,000 MMBTU of natural gas during the July 2005 throughOctober 2005 time period at $5.03. These contracts at June 30, 2004 total approximately $6,912,000less a deposit of $184,000.

 

At June 30, 2004, theCompany has forward contracts to purchase approximately 3,850,000 bushels ofcorn at prices ranging from $2.09 to $3.18 per bushel throughOctober 2005.

 

*Constructionin Progress*

 

The Company estimates itscosts to complete the construction of assets not yet placed in service to beapproximately $901,000 as of June 30, 2004.

 

11

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**7.  SUBSEQUENT EVENT**

 

AfterJune 30, 2003, LSCP repurchased 100 units of LSCP, LLLP from a limitedpartner for $750,000.

                                                                                                                                                              

12

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**Item 2.****  Management’s Discussion and Analysis or Plan of Operation.**

 

This report contains forward-looking statements that involve futureevents, our future performance and our expected future operations andactions.  In some cases you can identifyforward-looking statements by the use of words such as “may,” “will,” “should,”“anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,”“estimate,” “predict,” “hope,” “potential,” “continue,” or the negative ofthese terms or other similar expressions. These forward-looking statements are only our predictions and involvenumerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from theseforward-looking statements for many reasons, including the reasons described inthis report.  We are not under any dutyto update the forward-looking statements contained in this report.  We cannot guarantee future results, levels ofactivity, performance or achievements. We caution you not to put undue reliance on any forward-lookingstatements, which speak only as of the date of this report.  You should read this report and the documentsthat we reference in this report and have filed as exhibits, completely andwith the understanding that our actual future results may be materiallydifferent from what we currently expect. We qualify all of our forward-looking statements by these cautionarystatements.

 

**Overview**

 

As general partner of LSCP, LLLP, an Iowa limited liability limitedpartnership (the “Partnership”), we manage thebusiness and day-to-day operations of the Partnership’s 40 million gallon peryear ethanol plant in northwest Iowa.  Wecurrently own a 60.2% ownership interest in LSCP, LLLP.  Our ownership interest in LSCP, LLLPincreased on July 30, 2004 when the Partnership redeemed 100 limitedpartnership units (consisting of 2.67% of the total limited partnership units)from one of its limited partners.  LittleSioux Corn Processors, L.L.C. (the “LLC”) and its subsidiary, LSCP, LLLP, arecollectively referred to in this report as the “Company,” “we,” or “us.”

 

SinceApril 2003, we have been engaged in the production of ethanol anddistillers grains at our ethanol plant near Marcus, Iowa.  Since commencement of plant operations, theplant’s production capacity has consistently exceeded the 40 million gallon peryear (mmgpy) production guarantee provided by the general contractor asmeasured on a pro rata basis.  Ourrevenues are derived from the sale and distribution of our ethanol anddistillers grains throughout the continental United States.

 

We are subject to industry-widefactors that affect the Company’s revenues and profits.  These factors include, but are not limitedto, the available supply and cost of corn from which our ethanol and distillersgrains are made; the cost of natural gas, which we use in the production ofethanol and distillers grains; dependence on one or a few major customers whomarket and distribute our products; the intensely competitive nature of ourindustry; possible legislation at the federal, state, and/or local level;changes in federal ethanol tax incentives; and the cost of complying with theextensive environmental laws that regulate our industry.

 

In the future, there may be anopportunity for us to expand the plant to allow us to increase our productionof ethanol and distillers grains.  OnDecember 16, 2003, the Board of Directors formed a committee to researchthe feasibility of expanding the plant. We are still considering the decision of whether and how much to expandthe plant, pending analysis of an engineering studyand financial estimates for expansion. An expansion of any size would present additional challenges and risks.

 

**Plan of Operation**

 

*Financial Summary and Analysis*

 

Net income before minority interest, which is the Partnership’s income,totaled a loss of $3,900,172 in the third quarter of fiscal year 2004, downfrom income of $11,295,095 reported in the second quarter of fiscal year2004.  This decrease primarily resultedfrom: (i) a $967,384 loss from a reduction in the Bioenergy Program paymentsfor the second quarter; (ii) the reduced amount of available Bioenergy Programpayments in the third quarter ended June 30, 2004; and (iii) a significantincrease in our cost of goods sold, to which a loss of $6,135,977 on ourderivative instruments was attributed. The loss on our derivative instruments resulted from third quarterdecreases in corn prices, which decreased the value of our derivativeinstruments.

 

13

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Revenues from operations in the third quarter of fiscal 2004 totaled$21,497,087, up from $20,203,296 in the second quarter of fiscal 2004.  Net gallons of denatured ethanol sold totaled11,667,032 in the third quarter of fiscal 2004 compared to 11,998,316 gallonsin the second quarter of fiscal 2004. Increased revenues in the third quarter resulted from higher ethanolprices.  While we anticipate continuedstrong demand for ethanol, we are uncertain as to the sustainability of currentethanol prices given the increasing ethanol supply as new plants beginproduction and existing plants continue to expand.

 

Other income and expense consisted of a loss of $677,032 in the thirdquarter of fiscal 2004, compared to income of $3,907,749 reported in the secondquarter of fiscal 2004.  Payments underthe USDA Commodity Credit Corporation Bioenergy Program were reduced on a prorata basis to all participants, which resulted in an adjustment for the secondquarter of fiscal year 2004.  Unless theplant expands production, future program payments will be based on incrementalincreases of production over last year as the plant gains operating efficiencywhich increases production.

 

Our cost of goods sold for the third   quarter of fiscal 2004 totaled $23,237,225, up from$11,311,892 in the second quarter of fiscal 2004.  As corn prices fell, the valueof our derivative instruments were reduced.  Falling corn prices effectively decrease thevalue of our derivative instruments, which we recognize as an increase in ourcost of goods sold.   We recognize thegains or losses that result from the changes in the value of our derivativeinstruments in cost of goods sold as the changes occur.  As corn prices fluctuate, the value of ourderivative instruments may be impacted, which will affect ourfuture financial performance. Last quarter, we recorded a gain of $5,128,799 in cost of goods soldrelated to our derivative instruments. This quarter’s loss from derivatives was $6,135,177.  We anticipate continued volatility in our costof goods sold due to the timing of the changes in value of the derivativeinstruments relative to the cost and use of the commodity being hedged.

 

Operating expenses for the third quarter of fiscal 2004 totaled$1,483,002, which is similar to the $1,504,058 we reported in the secondquarter of fiscal 2004.

 

*Plan of Operations for the Next 12 Months*

 

We plan to continue to operate the ethanol plant for the next 12months.  Currently, the plant is operatingin excess of design capacity, and is producing more than 40 million gallons peryear as measured on a pro rata basis. Certain inefficiencies result from operating the plant at levels inexcess of the 40 million gallon per year guarantee.  These inefficiencies increase our per galloncost of production.  In order to producemore ethanol, the production process must be shortened.  The effect of a shortened process is thatethanol content per unit is lost. However, even with the increased cost per gallon of production, theadditional income that we earn on the sale of additional gallons of ethanolcovers the additional costs.

 

One way that we may be able to operate the plant at a more efficientrate is to expand the plant.  We arecontinuing our discussions about whether to expand to allow for additional gallonsof annual ethanol production.  The Boardof Directors formed a committee on December 16, 2003 to research thefeasibility and economic benefits of any expansion.  The committee is also evaluating availablefinancing alternatives to fund any expansion. In the event that we determine it is both feasible and in the bestinterest of the Company to expand the plant size, we may need to raiseadditional equity and/or incur additional debt financing to fund an expansion.  In addition to having a financial impact, anexpansion of any size would present additional challenges and risks to theCompany.

 

If we do not expand the plant, we expect to have sufficient cash fromcash flow from continuing operations, lines of credit through our revolvingpromissory note, and cash reserves to cover our corn supply, natural gassupply, staffing, office, audit, legal, compliance, and working capital costsfor the next 12 months.  If we do notexpand, we do not anticipate the need to raise additional funds within the next12 months based upon our expected cash flow from operations.

 

The following is our estimate of our costs for the next 12 months forthe plant as it currently operates:

 
| Corn Costs                       |   | $      | 44,910,000 |   |
|----------------------------------|--------|--------|------------|--------|
| General and Administrative Costs |   | $      | 6,990,000  |   |
| Natural Gas Costs                |   | $      | 6,614,000  |   |
| Chemical Costs                   |   | $      | 4,803,000  |   |
| Other Production Costs           |   | $      | 3,900,000  |   |
|                             |   |   |       |
| Total Operating Costs:           |   | $      | 67,217,000 |   |

 

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The increase in general and administrative costs to $6,990,000, fromsecond quarter’s estimate of $4,100,000 is due to this quarter’s inclusion ofboth cash and non-cash expenses, such as depreciation, in this category.

 

An expansion of any size would increase our costs in all of thecategories listed above.  An expansionwould also require significant expenditures for the expansion projectitself.  At this point, we have not yetdetermined the sources of financing any expansion.

 

Theestimates in the table set forth above are based on our limited operationalexperience.  These are only estimates and our actual costs could be muchhigher due to a variety of factors outside our control, such as:

 
| • |   | Changes in the  availability and price of corn;                                                                                                               |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                          |
| • |   | Changes in the  environmental regulations that apply to our plant operations;                                                                                 |
|   |   |                                                                                                                                                          |
| • |   | Increased competition in  the ethanol and oil industries;                                                                                                     |
|   |   |                                                                                                                                                          |
| • |   | Changes in interest rates  or the availability of credit;                                                                                                     |
|   |   |                                                                                                                                                          |
| • |   | Changes in our business  strategy, capital improvements or development plans;                                                                                 |
|   |   |                                                                                                                                                          |
| • |   | Changes in plant production  capacity or technical difficulties in operating the plant;                                                                       |
|   |   |                                                                                                                                                          |
| • |   | Changes in general  economic conditions or the occurrence of certain events causing an economic  impact in the agriculture, oil or automobile industries; and |
|   |   |                                                                                                                                                          |
| • |   | Changes in the availability  and price of natural gas and the market for distillers grains.                                                                   |
|   |   |                                                                                                                                                          |
| • |   | Changes in federal and/or  state laws (including the elimination of any federal and/or state ethanol tax  incentives).                                        |

 

 

*CornSupplies*

 

Iowa’scalendar year 2003 final corn for grain production was estimated inJanuary 2004 at 1.88 billion bushels.  The final 2003 nationalproduction of corn was estimated at 10.1 billion bushels.  Although the crop was estimated at recordlevels, demand for both foreign and domestic corn reduced the projected 2004corn supply stocks.  These estimates ofreduced supply caused the market price to increase in the calendar year fourthquarter of 2003 and the first half of 2004. The high prices for corn spurred increased corn plantingnationwide.  Optimal growing conditionshave caused increased optimism for increased yields, which in turn has resultedin decreased corn prices.  Today, cropprospects appear good, but the price of corn is still volatile.  Any adverse situation affecting supply maycause the market to move higher.

 

Wehave taken steps to defray the impact of possible future corn price increasesby entering into derivative instruments, which include forward contracts andover-the-counter and Chicago Board of Trade futures and option contracts. All of these measures are intended to reduce the variability of cash flowsrelating to our corn purchases.  We periodically adjust our hedgingpositions as the market price for corn rises and declines.  Although webelieve our hedge positions accomplish an economic hedge against our futurepurchases, they do not qualify for hedge accounting, which would match the gainor loss on our hedge position to the specific commodity purchase beinghedged.  We are using fair value accounting for our hedge positions, whichmeans as the current market price of our hedge positions changes, the gains andlosses are immediately recognized in our cost of goods sold.  Theimmediate recognition of hedging gains and losses under fair value accountingcan cause net income to be volatile from quarter to quarter due to the timingof the change in value of the derivative instruments relative to the cost anduse of the commodity being hedged.  The decrease in value of the hedgedpositions from last quarter was $5,129,611 in the quarter ending June 30,2004. We estimate that our expected corn usage is approximately 15 millionbushels per year for the production of 40 million gallons of ethanol.  As of June 30, 2004, we have futures andoption contract price protection in place for 64% of our expected corn usagethrough December 2005 and we have forward contracts for 15% of our cornsupply through October 2005.  As we move forward, additionalprotection may be necessary.

 

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*Natural GasSupplies*

 

Naturalgas is also an important input to our manufacturing process.  We estimate that our natural gas usage isapproximately 110,000 MMBTU per month. We use natural gas to dry our distillers grains products to moisture contents at whichthey can be stored for long periods and transported greater distances,

 

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so that we can market them to broader livestockmarkets, including poultry and swine markets in the continental UnitedStates.  Natural gas has recently been available only at prices exceedinghistorical averages.  These prices are increasing our costs ofproduction.  We expect natural gas prices to remain high or increase atleast through the 2004 calendar year.

 

Inorder to reduce our natural gas price-risk exposure, we have entered intoderivative instruments including forward contracts and over-the-counter and NewYork Mercantile Exchange option contracts. We have contracted for approximately 100% of our natural gasrequirements for the current date through October 2004.  We estimatethat we have forward contracts in place for approximately 30% of our naturalgas needs for November 2004 through March 2005.  The contractsprovide for approximately 20% higher gas prices for the 2004-2005 winter monthsthan for the 2003-2004 winter months.  In the next few months, we maycontract for our remaining natural gas needs for winter 2004-2005.  Inaddition to procuring natural gas requirements for winter 2004-2005, we havepurchased approximately 90% of our summer and fall 2005 natural gasrequirements.  We may also purchase natural gas requirements for the 2006and 2007 calendar years as we attempt to further reduce our susceptibility toprice increases.

 

Atthe time we purchased price protection for natural gas, the market wasexperiencing a great deal of price uncertainty.  Due to this uncertainty,we purchased amounts for most of the plant’s needs and implemented derivativeinstruments to allow us to benefit in the event natural gas prices declined.  Energy sector prices have increased andnatural gas, as a portion of the total energy market, has responded with higherprices to be cost competitive with its alternatives.  The timing of thecontracts is contingent upon market volatility and our ability to purchasenatural gas to protect processing margins. In the future, we may not be able to secure natural gas for prices lessthan current market price and we may not recover high costs of productionresulting from high natural gas prices, which may raise our costs ofproduction.

 

**Risk Related to Price Protection for Corn andNatural Gas**

 

We purchase commodity inputs such as corn andnatural gas to be used in manufacturing ethanol.  These commodities are subject to pricefluctuations that impact our operating costs. To manage our corn price risk, we have implemented a combination ofexchange traded futures contracts, and exchange traded and over-the-counteroption contracts.  The Company haspolicies governing the hedging instrument its business may use.  In practice, as markets move, the Companyactively manages its risk and adjusts hedging strategies as appropriate.  The commodities hedged have a high inversecorrelation to price changes of the derivative commodity instrument.   

 

Our hedging strategy is designed to establisha price ceiling and floor for our corn purchases.  We have taken a net long position on ourexchange traded futures contracts, which allows us to offset increases ordecreases in the market price of corn. The upper limit of loss on our futures contracts is the differencebetween the contract price and the cash market price of corn at the time of theexecution of the contract.  The upperlimit of loss on our exchange traded and over-the-counteroption contracts is limited to the amount of the premium we paid for theoption.  

 

To manage our natural gas price risk, weentered into a natural gas delivery agreement with our supplier to supply uswith natural gas.  The agreement fixesthe price at which we purchase natural gas, however,we have taken a net short position on over-the-counter option contracts fornatural gas in order to benefit from any decreases in the price of naturalgas.  The upper limit of loss on thisposition is the premium price we paid for the option.  

 

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*ExpectedPurchases of Equipment, Environmental Testing Results and Other OperationalIssues*

 

Duringthird quarter fiscal 2004, we installed a regenerative thermal oxidizer, watertreatment equipment, a corn screener, and an additional heat exchanger.  Within the next 12 months, we expect toinstall an additional centrifuge, centrifuge components, and an additional aircompressor, as well as hard surface on the plant roads.  We believe that installing this equipmentwill allow the plant to continue producing in excess of 40 million gallons ofethanol per year while continuing to satisfy certain emission standards andmaintain efficiencies.  We expect that it will cost approximately$1,953,000 to purchase and install the additional equipment, including paymentfor the already installed pieces.  We expect to use available cash flow topurchase the equipment without financing.  We may also implement certaindesign improvements as they are developed.  The plant may be shut downfrom time to time over the next 12 months to incorporate these designimprovements.

 

Weare subject to ongoing environmental regulations and testing.  The plantpassed emissions testing in December 2003, and pursuant to standardenvironmental regulations, we expect to be re-tested within the next sixmonths.  The data from the emissions testing that was conducted inDecember 2003 was submitted to the Iowa Department of Natural Resources inFebruary 2004, and we received renewed operating permits inApril 2004.  The operating permits allow us to operate in excess of40 million gallons per year.  Since the regenerative thermal oxidizer isinstalled and operational, we plan to retest critical emissions points tofurther enhance our ability to operate at peak efficiencies.  We arerequired by federal regulations to conduct a Relative Accuracy Test Audit(RATA) once per 12-month period.  We passed the RATA testing inFebruary 2004.  By installing hardsurfacing on the plant road, we expect to reduce our dust emissions, whichshould aid our continued compliance with environmental standards.

 

Wenow employ 32 full-time employees to operate the ethanol facility, of which 6are in general management and administration. At the current plant size, we do not expect to hire a significant numberof employees in the next 12 months. However, significant expansion of the plant may require us to hireseveral new employees.

 

We benefit from federal ethanol tax incentives.  Changes to these incentives could negativelyimpact demand for our ethanol.

 

**Liquidityand Capital Resources**

 

Asof June 30, 2004, we had the following consolidated assets: cash of$1,942,223, current assets of $9,260,756 and total assets of $56,591,814. As of June 30, 2004, we had consolidated current liabilities of $5,558,689and long-term debt of $15,534,502.

 

TheLLC members’ contributions, net of costs related to capital contributions forthe LLC, is $10,842,237.  The LLC’s members’equity is $20,723,246 including retained earnings of $9,881,009.  Theminority interest in the Limited Partnership held by the limited partners is$14,775,377.

 

Forthe nine-months ending June 30, 2004, cash provided by operatingactivities was $15,998,026.  Cash provided by operating activities wasused for $760,383 of capital expenditures, $561,164 was distributed to LLCmembers, $435,276 was distributed to the minority interest held by our limitedpartners, and a net $12,835,463 was used to pay down our debt.

 

### **Short-Term Debt Sources**

### ** **

Wehave a revolving promissory note of up to $3,500,000 with First National Bankof Omaha renewable annually through July 2004.  On July 23, 2004, we renewed thepromissory note through July 2005. The interest payable on the revolving promissory note is due monthly atthe one month LIBOR plus 2.80%, which totaled 4.11% at June 30, 2004.  The revolving promissory note is ouroperating line of credit.  We pay a commitment fee of 0.125% on the unusedportion of the line.  The outstanding balance as of June 30, 2004,was $4,235.  The maximum available credit under this note is based onreceivable and inventory balances.  Our current receivable and inventorybalances are not sufficient to allow us to use the maximum amount of theoperating line of credit.  As ofJune 30, 2004, the maximum amount available from the operating line ofcredit was approximately $2,400,000.  As the

 

18

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balances in these accounts fluctuate, the amount ofavailable credit on this note may be reduced or increased subject to themaximum of $3,500,000.  The operatingline of credit is subject to protective covenants requiring us to maintainvarious financial ratios.  The operating line of credit is secured by allbusiness assets.

 

#### **Long-Term Debt Sources**

####  

Wehave long-term debt financing consisting of three term notes held by FirstNational Bank of Omaha and referred to as Term Notes #2, #3 and #4.  AtJune 30, 2004, the principal balance on Term Note #2 is $14,430,834. Term Note #2 is payable in quarterly installments, which began onSeptember 1, 2003.  Interest on Term Note #2 is at the three monthLIBOR plus 2.80%, which totaled 4.11% as of June 30, 2004.  Term Note#2 is payable in full on June 1, 2008.  In order to achieve a fixedinterest rate on Term Note #2, we entered into an interest rate swap whichhelps protect our exposure to increases in interest rates and the swapeffectively fixes the interest rate on Term Note #2 at 5.79% until June 1,2008.

 

AtJune 30, 2004, the principal balance on Term Note #3 is $3,646,110. Term Note #3 is payable in quarterly installments which began onSeptember 1, 2003.  Interest on Term Note #3 is at the three monthLIBOR plus 2.80%, which totaled 4.11% as of June 30, 2004.  Term Note#3 is payable in full on June 1, 2008.  In order to protect ourinterest rate exposure on Term Note #3, we entered into an interest rate capagreement based on a principal amount of $10,000,000.  As part of thefinancing agreement, we have agreed to an annual servicing fee of $50,000 forfive years.  The financing agreement capsour interest rate at 6.80% for Term Note #3 until June 1, 2006.

 

AtJune 30, 2004, there was no principal balance on Term Note #4.  TermNote #4 is payable in quarterly installments which began on September 1,2003.  Interest on Term Note #4 is at the one month LIBOR plus 2.80%,which totaled 3.91% as of June 30, 2004.  Term Note #4 is payable infull on June 1, 2008.  Term Note #4 allows borrowings up to theoriginal principal of $5,000,000 to the extent of principal payments made untilmaturity and requires a commitment fee of 0.375% on any unused portion. At June 30, 2004, the aggregate indebtedness represented by Term Notes #2,#3 and #4 was $18,076,944.

 

Weexpect our interest rate swap and cap agreement to adequately protect us in theevent of changes in interest rates.  However, we may not be fullyprotected in the event of large movements in interest rates.

 

Wehave capital lease obligations in the amount of $283,363, due in monthlyinstallments initially totaling $6,768, and including implicit interest between7.4% and 17.4% through March 1, 2008.  The capital lease obligationsare secured by leased equipment.

 

Wehave a note in the amount of $198,898 payable to the Iowa Energy Center due inmonthly installments of $3,472 without interest, maturing on January 29,2009.  The note is secured by real estate and subordinated to the TermNotes.  We have a note with Farmers State Bank of Marcus, Iowa in theamount of $190,972 payable in monthly payments of $5,921, including interest at6%, maturing on January 29, 2009.  The note is secured byreal estate and subordinated to the Term Notes.  We have a notetotaling $210,000 payable to the Iowa Department of Economic Development due in60 monthly installments beginning August 1, 2004 in the amount of $1,667without interest.  The note matures on July 1, 2009.  Thenote is secured by all equipment.

 

Thenotes payable to First National Bank at Omaha require additional loan paymentsbased on excess cash flow generated by payments received from the USDA’sCommodity Credit Corporation, as discussed below.  This additional loan payment has a maximumannual payment of $3,000,000.  Based onthe USDA Commodity Credit Corporation Bioenergy Program payments we havereceived in our fiscal year-to-date operations, the maximum payment would berequired after our fiscal year end.  Inthe third quarter, we paid this $3,000,000 payment early, without penalty, toreduce our interest expense and for the nine-months ended June 30, 2004,we made excess payments totaling $5,560,000.

 

Duringthe quarter ended June 30, 2004, we paid off a note payable to the IowaCorn Promotion Board in the amount of $50,000. Under the terms of the note, no interest was charged because we repaidthe loan prior to June 30, 2004.

 

19

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**BioenergyProgram Payments**

 

Weare continuing to receive payments under the USDA’s Commodity CreditCorporation Bioenergy Program.  If we increase our production capacityduring the life of the grant program, we may become eligible to receiveadditional Bioenergy payments, or we may become eligible more than once forthis award.

 

Asof June 30, 2004, we have received approximately 62% of the eligiblepayments for the second quarter of fiscal year 2004, and 100% of the eligiblepayments for the first quarter of fiscal year 2004.  The reduction in theamount of the second quarter payments received is due to a pro rata reductionin the payments.  As national ethanolproduction increases due to an increase in the number of operational facilitiesand expansion of current facilities, grant payments are spread among morerecipients, which reduces our share of the payments.  During the fiscal quarter ended June 30,2004, the Company recorded a loss of $439,450 in other income from theCommodity Credit Corporation Bioenergy Program.  For fiscal 2004 year todate, we recorded $6,440,789 as other income from the Commodity CreditCorporation Bioenergy Program.  This is 100% of eligible payments underthe program for the first quarter of fiscal 2004, and approximately 62% of theeligible payments for the second and third quarters of fiscal 2004. Although we have recorded the third quarter 2004 payments, we have not yetreceived them.

 

The2003-2004 payments that we have received have significantly impacted our cashflow.  Accordingly, our current cash flow statement is not indicative offuture performance.  We do not anticipate receiving unpaid amounts forpast pro rata reductions.

 

**Distributionto Unit Holders**

 

Nodistributions were made to members during the fiscal quarter endedJune 30, 2004.

 

**Covenants**

 

Therevolving promissory note and Term Notes #2, #3 and #4 are subject to numerousprotective covenants requiring us to maintain various financial ratios. Our failure to comply with the protective loan covenants or maintain therequired financial ratios may cause acceleration of the outstanding principalbalances on the revolving promissory note and terms notes and/or the impositionof fees, charges or penalties.  As of September 30, 2003, we were notin compliance with the net worth covenant.  First National Bank of Omahawaived this violation for one year and on July 20, 2004 we entered intothe Fifth Amendment to Construction Loan Agreement.  Due to the waiver,the violation of the net worth covenant did not result in any fees, charges,penalties, acceleration of principal, or increase in interest rate for thedescribed violation.  We are currently in compliance with the net worthcovenant as set forth in the Fifth Amendment. For term notes #3 and #4, the premium above the LIBOR may be reducedbased upon our achievement and maintenance of certain financial ratios. The premium above LIBOR was reduced 100 basis points for the revolvingpromissory note and term notes #3 and #4 during the three months endedJune 30, 2004.

 

**Off-Balance Sheet Arrangements.**

 

Wedo not have any off-balance sheet arrangements.

 

**Item 3.****  Controls and Procedures.**

 

Our President and Chief Executive Officer, Stephen Roe, along with ourChief Financial Officer, Gary Grotjohn, have reviewed and evaluated theeffectiveness of our disclosure controls and procedures as of June 30,2004.  Based upon this review andevaluation, these officers believe that our disclosure controls and proceduresare effective in ensuring that the material information related to us isrecorded, processed, summarized, and reported within the time periods requiredby the forms and rules of the Securities and Exchange Commission.

 

Our management, consisting of our President/CEO and CFO have alsoreviewed and evaluated any changes in our internal control over financialreporting that occurred as of June 30, 2004 and there has been no changethat has materially affected or is reasonably likely to materially affect ourinternal control over financial reporting.

 

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**PART II.****     OTHERINFORMATION**

 

**Item 1.****  Legal Proceedings.**

 

None.

 

**Item 2.****  Changes in Securities.**

 

None.

 

**Item 3.****  Defaults Upon Senior Securities.**

 

None.

 

**Item 4.****  Submission of Matters to a Vote of Security Holders.**

 

None.

 

**Item 5.**  **Other Information.**

 

There has been no change in our procedures bywhich members may recommend nominees to the Company’s Board of Directors.  The process continues to be as described inour Operating Agreement.

 

**Appointmentof Officers**

 

Our Operating Agreement provides that the President of the Companyshall have the duty of the management of the day-to-day operations of theplant.  Until the appointment of aPresident, the Chairman of our Board held this office.  Effective May 18, 2004, and in accordancewith our Operating Agreement, the Board of Directors appointed our generalmanager, Stephen Roe to the positions of President and Chief Executive Officer.

 

In accordance with our Operating Agreement, the Treasurer of theCompany performed the duties of the Chief Financial Officer until the creationof a separate office for this purpose. Effective May 18, 2004, and also in accordance with our Operating Agreement,we appointed Gary Grotjohn to the position of Chief Financial Officer.

 

**Electionof Chairman, Vice-Chairman, and Secretary**

 

On July 20, 2004, the Board of Directors elected Ron Wetherell tothe position of Chairman of the Board; Myron Pingel to the position ofVice-Chairman of the Board; and reelected Tim Ohlson to the office ofSecretary.

 

**Item 6.****  Exhibits andReports on Form 8-K.**

 

(a)                                  Thefollowing exhibits are included herein.

 

31.1                           Certificatepursuant to 17 CFR 240.13a-14(a).

 

31.2                           Certificatepursuant to 17 CFR 240.13a-14(a).

 

32.1                           Certificatepursuant to 18 U.S.C. § 1350.

 

32.2                           Certificatepursuant to 18 U.S.C. § 1350.

 

(b)                                 Reportson Form 8-K.

 

None.

 

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**SIGNATURES**

 

In accordancewith the requirements of the Exchange Act, the registrant caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 

 
|   | LITTLE SIOUX  CORN PROCESSORS, L.L.C.  |
|--------|----------------------------------------|
|   |                                   |
|   |                                   |
| Date:  | August 16,  2004                  |   | /s/ Stephen  Roe |   |
|   | Stephen Roe                            |   |
|   | President  and Chief Executive Officer |   |
|   |                                   |   |
|   |                                   |   |
| Date:  | August 16,  2004                  |   | /s/ Gary  Grotjohn |   |
|   | Gary  Grotjohn                         |   |
|   | Chief  Financial Officer               |   |

 

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