**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 
| **ý**                                          | ** ** | **Quarterly  report under Section 13 or 15(d) of the Securities Exchange Act of 1934.** |
|-----------------------------------------------------|------------|----------------------------------------------------------------------------------------------|
|                                                |       |                                                                                         |
| **For  the fiscal quarter ended December 31, 2004** |
|                                                |       |                                                                                         |
| **OR**                                              |
|                                                |       |                                                                                         |
| **o**                                               | ** ** | **Transition  report under Section 13 or 15(d) of the Exchange Act.**                   |

 

**Forthe transition periodfrom               to               .**

 

# **COMMISSION FILE NUMBER 0001229899**

 

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

(Exact name ofregistrant as specified in its charter)

 
| **Iowa**                                                         |   | **42-1510421**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

**4808F Avenue, Marcus, Iowa 51035**

(Address ofprincipal executive offices)

 

**(712)376-2800**

(Issuer’stelephone number)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.
|   | ý   Yes          o  No |
|--------|-----------------------------------------------------------------------------------------|

 

 Indicate by check mark whether the registrant isan accelerated filer (as defined in Exchange Act Rule 12b-2).
|   | o   Yes          ý  No |
|--------|-----------------------------------------------------------------------------------------|

 

Indicate the number of shares outstanding for each ofthe issuer’s classes of common equity as of the latest practicable date:

 

As of February 11, 2005, there were 10,941 unitsoutstanding.

 

 

 

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**INDEX**

 
| ** **     |                       |                                                                                            |       |
|----------------|----------------------------|-------------------------------------------------------------------------------------------------|------------|
| **PART  I.**   | **FINANCIAL  INFORMATION** | ** **                                                                                      |
| ** **     | **Item 1.**                | **Financial Statements**                                                                        | ** ** |
| ** **     | **Item  2.**               | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations** | ** ** |
| ** **     | **Item  3.**               | **Quantitative  and Qualitative Disclosures About Market Risk**                                 | ** ** |
| ** **     | **Item 4.**                | **Controls and  Procedures**                                                                    | ** ** |
| **PART II.**   | **OTHER INFORMATION**      | ** **                                                                                      |
| ** **     | **Item 1.**                | **Legal Proceedings**                                                                           | ** ** |
| ** **     | **Item  2.**               | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                | ** ** |
| ** **     | **Item 3.**                | **Defaults  Upon Senior Securities**                                                            | ** ** |
| ** **     | **Item  4.**               | **Submission  of Matters to a Vote of Security Holders**                                        | ** ** |
| ** **     | **Item 5.**                | **Other Information**                                                                           | ** ** |
| ** **     | **Item 6.**                | **Exhibits  and Reports on Form 8-K**                                                           | ** ** |
| **SIGNATURES** | ** **                 | ** **                                                                                      |
|                |                            |                                                                                                 |            |  |

 

 

----

 

**PARTI.     FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements.**

 

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

 

CondensedConsolidated Balance Sheet

 

 

| **ASSETS**                    | ** ** | **December 31 2004** | ** ** | **September 30 2004** | ** ** |
|-------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **(Unaudited)**      | ** ** | ** **            | ** ** |
| **Current Assets**            | ** ** | ** **           | ** ** | ** **            | ** ** |
| Cash                          |       | $                    | 6,262,183  |                  | $          | 3,907,380 |   |
| Restricted cash               |       | 2,584,460            |       | 2,730,481             |       |
| Trade accounts receivable     |       | 2,908,701            |       | 2,335,023             |       |
| Other receivables             |       | 105,009              |       | 400,553               |       |
| Inventory                     |       | 1,893,957            |       | 2,084,604             |       |
| Derivative instruments        |       | —               |       | —                |       |
| Prepaid expenses              |       | 784,874              |       | 488,885               |       |
| Total current assets          |       | 14,539,184           |       | 11,946,926            |       |
|                          |       |                 |       |                  |       |
| **Property and Equipment**    |       |                 |       |                  |       |
| Land and improvements         |       | 2,757,709            |       | 2,753,225             |       |
| Buildings                     |       | 15,061,750           |       | 15,061,750            |       |
| Processing equipment          |       | 28,329,233           |       | 28,226,013            |       |
| Grain handling equipment      |       | 5,172,406            |       | 5,172,406             |       |
| Rail and other equipment      |       | 1,214,322            |       | 1,214,322             |       |
| Furniture and fixtures        |       | 166,763              |       | 160,042               |       |
| Construction in progress      |       | 460,000              |       |                  |       |
|                          |       | 53,162,183           |       | 52,587,758            |       |
| Less accumulated depreciation |       | 5,941,180            |       | 5,051,631             |       |
| Net property and equipment    |       | 47,221,003           |       | 47,536,127            |       |
|                          |       |                 |       |                  |       |
| **Other Assets**              |       |                 |       |                  |       |
| Deferred loan costs, net      |       | 318,273              |       | 345,151               |       |
| Total other assets            |       | 318,273              |       | 345,151               |       |
|                          |       |                 |       |                  |       |
| **Total Assets**              |       | $                    | 62,078,460 |                  | $          | 59,828,204 |   |

 

Notes to Condensed ConsolidatedFinancial Statements are an integral part of this Statement.

 

2

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

 

CondensedConsolidated Balance Sheet

 

 

| **LIABILITIES AND MEMBERS’ EQUITY**                                                       | ** ** | **December 31 2004** | ** ** | **September 30 2004** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------|------------|-----------------------|------------|
| ** **                                                                                     | ** ** | **(Unaudited)**      | ** ** | ** **            | ** ** |
| **Current Liabilities**                                                                        | ** ** | ** **           | ** ** | ** **            | ** ** |
| Revolving promissory note                                                                      |       | $                    | 727        |                  | $          | 38,829 |   |
| Current maturities of long-term debt                                                           |       | 3,471,818            |       | 3,109,676             |       |
| Accounts payable                                                                               |       | 1,619,684            |       | 1,337,513             |       |
| Derivative instruments                                                                         |       | 2,038,297            |       | 181,579               |       |
| Accrued liabilities                                                                            |       | 859,099              |       | 298,851               |       |
| Total current liabilities                                                                      |       | 7,989,625            |       | 4,966,448             |       |
|                                                                                           |       |                 |       |                  |       |
| **Long-Term Debt,**net of current maturities                                                   |       | 13,806,504           |       | 19,572,989            |       |
|                                                                                           |       |                 |       |                  |       |
| **Commitments and Contingencies**                                                              |       |                 |       |                  |       |
|                                                                                           |       |                 |       |                  |       |
| **Minority Interest**                                                                          |       | 16,199,351           |       | 14,207,003            |       |
|                                                                                           |       |                 |       |                  |       |
| **Members’ Equity**                                                                       |       |                 |       |                  |       |
| Member contributions, net of costs related to capital contributions,  10,941 units outstanding |       | 10,842,237           |       | 10,842,237            |       |
| Retained earnings                                                                              |       | 13,240,743           |       | 10,239,527            |       |
| Total members’ equity                                                                     |       | 24,082,980           |       | 21,081,764            |       |
|                                                                                           |       |                 |       |                  |       |
| **Total Liabilities and Members’ Equity**                                                 |       | $                    | 62,078,460 |                  | $          | 59,828,204 |   |

 

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

 

3

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

 

CondensedConsolidated Statements of Operations

 

 
| ** **                                 | ** ** | **Three Months Ended December 31 2004** | ** ** | **Three Months Ended December 31 2003** | ** ** |
|--------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                 | ** ** | **(Unaudited)**                              | ** ** | **(Unaudited)**                              | ** ** |
|                                       |       |                                         |       |                                         |       |
| **Revenues**                               |       | $                                            | 22,975,735 |                                         | $          | 19,266,908 |   |
|                                       |       |                                         |       |                                         |       |
| **Cost of Goods Sold**                     |       | 16,300,232                                   |       | 15,402,488                                   |       |
|                                       |       |                                         |       |                                         |       |
| **Gross Profit**                           |       | 6,675,503                                    |       | 3,864,420                                    |       |
|                                       |       |                                         |       |                                         |       |
| **Operating Expenses**                     |       | 1,463,964                                    |       | 1,568,721                                    |       |
|                                       |       |                                         |       |                                         |       |
| **Operating Income**                       |       | 5,211,539                                    |       | 2,295,699                                    |       |
|                                       |       |                                         |       |                                         |       |
| **Other Income (Expense)**                 |       |                                         |       |                                         |       |
| Interest income                            |       | 11,984                                       |       | —                                       |       |
| Interest expense                           |       | (270,575                                     | )          | (402,966                                     | )          |
| CCC Bio-Energy income                      |       | 17,300                                       |       | 2,617,626                                    |       |
| Grants and other income                    |       | 23,316                                       |       | 18,764                                       |       |
| Total other income (expense)               |       | (217,975                                     | )          | 2,233,424                                    |       |
|                                       |       |                                         |       |                                         |       |
| **Net Income Before Minority Interest**    |       | 4,993,564                                    |       | 4,529,123                                    |       |
|                                       |       |                                         |       |                                         |       |
| **Minority Interest in Subsidiary Income** |       | 1,992,348                                    |       | 1,880,548                                    |       |
|                                       |       |                                         |       |                                         |       |
| **Net Income**                             |       | $                                            | 3,001,216  |                                         | $          | 2,648,575 |   |
|                                       |       |                                         |       |                                         |       |
| **Weighted Average Units Outstanding**     |       | 10,941                                       |       | 10,941                                       |       |
|                                       |       |                                         |       |                                         |       |
| **Net Income Per Unit**                    |       | $                                            | 274.31     |                                         | $          | 242.08 |   |

 

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 Cash Flows

 

 
| ** **                                                       | ** ** | **Three Months Ended December 31 2004** | ** ** | **Three Months Ended December 31 2003** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                       | ** ** | **(Unaudited)**                         | ** ** | **(Unaudited)**                         | ** ** |
| **Cash Flows from Operating Activities**                         | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| Net income                                                       |       | $                                       | 3,001,216  |                                    | $          | 2,648,575 |   |
| Adjustments to reconcile net income to net cash from operations: |       |                                    |       |                                    |       |
| Depreciation and amortization                                    |       | 916,427                                 |       | 871,640                                 |       |
| Minority interest in subsidiary’s income                    |       | 1,992,348                               |       | 1,880,548                               |       |
| Loss on hedging activity                                         |       | —                                  |       | 312,777                                 |       |
| Change in assets and liabilities:                                |       |                                    |       |                                    |       |
| Receivables                                                      |       | (278,134                                | )          | 904,597                                 |       |
| Restricted cash                                                  |       | 146,021                                 |       | 12,902                                  |       |
| Inventory                                                        |       | 190,647                                 |       | (249,965                                | )          |
| Derivative instruments                                           |       | 1,856,718                               |       | (140,613                                | )          |
| Prepaid expenses                                                 |       | (295,989                                | )          | (233,330                                | )          |
| Accounts payable                                                 |       | 282,171                                 |       | 536,655                                 |       |
| Accrued liabilities                                              |       | 560,248                                 |       | 485,126                                 |       |
| Net cash provided by operating activities                        |       | 8,371,673                               |       | 7,028,912                               |       |
|                                                             |       |                                    |       |                                    |       |
| **Cash Flows from Investing Activities**                         |       |                                    |       |                                    |       |
| Capital expenditures                                             |       | (574,425                                | )          | (118,539                                | )          |
| Net cash used in investing activities                            |       | (574,425                                | )          | (118,539                                | )          |
|                                                             |       |                                    |       |                                    |       |
| **Cash Flows from Financing Activities**                         |       |                                    |       |                                    |       |
| Payments of short-term debt                                      |       | (38,102                                 | )          | (574,201                                | )          |
| Payments of long-term debt                                       |       | (5,404,343                              | )          | (3,521,519                              | )          |
| Net cash used in financing activities                            |       | (5,442,445                              | )          | (4,095,720                              | )          |
|                                                             |       |                                    |       |                                    |       |
| **Net increase in cash**                                         |       | 2,354,803                               |       | 2,814,653                               |       |
|                                                             |       |                                    |       |                                    |       |
| **Cash****—**Beginning of  Period                           |       | 3,907,380                               |       | 536,483                                 |       |
|                                                             |       |                                    |       |                                    |       |
| **Cash****—**End of Period                                  |       | $                                       | 6,262,183  |                                    | $          | 3,351,136 |   |
| ** **                                                       | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| **Supplemental Cash Flow Information**                           | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| Cash paid during the year for:                                   | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| Interest                                                         |       | $                                       | 288,340    |                                    | $          | 500,485 |   |

 

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

 

5

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notesto Condensed Consolidated Financial Statements (Unaudited)

 

December 31, 2004

 

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

The accompanying condensed quarterly consolidatedfinancial statements represent Little Sioux Corn Processors, LLC andSubsidiary.  See Note 1 to the consolidated financial statements includedin the Form 10-KSB for the fiscal year ended September 30, 2004. That note discusses the consolidation.  As used in this report in Form10-Q, the “Company” represents Little Sioux Corn Processors, LLC (LLC) and itssubsidiary LSCP, LLLP (LSCP).

 

The condensed consolidated quarterly financialstatements are unaudited.  These statements include all adjustments(consisting of normal recurring accruals) that we considered necessary topresent a fair statement of the results of operations, financial position, andcash flows.  The results reported in these condensed, consolidatedfinancial statements should not be regarded as necessarily indicative ofresults that may be expected for the entire year.

 

*Natureof Business*

 

The Company operates a 40 million gallon ethanolplant, located near Marcus, Iowa.  The plant commenced operations inApril 2003.  The Company sells its production of ethanol, distillersgrains with solubles in the Continental United States.

 

*CommodityCredit Corporation Bioenergy Program*

 

During fiscal 2004, theCompany enrolled in the Commodity Credit Corporation Bioenergy Program (CCC), adepartment of the United States Department of Agriculture.  This program enables the Company to receivepayments based on increases in production of ethanol over the previous year ofup to $7,500,000 per year.  Newproduction is eligible and is considered increased production.  Payments under the program are subject to prorata reduction if aggregate payments to all producers in any fiscal year exceedthe maximum annual funding of the program. During the first quarter of fiscal 2005 and 2004, the Company recorded$17,300 and $2,617,626, respectively as other income from the CCC.  At December 31, 2004, the Company had $17,300recorded in other receivables.

 

*DerivativeInstruments*

 

At December 31, 2004, the Company had recorded aliability for derivative instruments related to corn and natural gas optionsand futures positions of $2,077,200 for forecasted purchases during fiscal2005.  At December 31, 2003, the Company recorded an asset for derivativeinstruments related to corn and natural gas options and future positions with afair value of $511,650 for forecasted purchases during fiscal 2004.  None of the positions open at December 31,2004 and 2003 are designated as cash flow hedges.  The Company hasrecorded a loss of $1,358,848 and $317,129 in cost of goods sold related to itsderivative instruments for the three months ended December 31, 2004 and 2003,respectively.

 

At December 31, 2004 and2003, the Company had an interest rate cap as described in Note 4 with a fairvalue of $38,903 and $85,576, respectively recorded as an asset with derivativeinstruments.  The interest rate cap was not designated as a cash flow hedge. The Company offset interest expense with the gain on the interest rate cap of$8,164 and $4,352 for the three months ending December 31, 2004 and 2003,respectively.

 

 

6

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*FairValue of Financial Instruments*

 

Thecarrying value of cash and restricted cash approximates their fair value.

 

TheCompany believes the carrying amount of derivative instruments approximatesfair value based on current market prices.

 

Itis not currently practicable to estimate fair value of the line of credit andnotes payable to the lending institution. Because these agreements containcertain unique terms, conditions, covenants, and restrictions, as discussed inNote 3 and 4, there are no readily determinable similar instruments on which tobase an estimate of fair value.

 

**2. INVENTORY**

 

Inventory consists of the following:

 

 
| ** **      | ** ** | **December 31, 2004** | ** ** | **September 30, 2004** | ** ** |
|-----------------|------------|-----------------------|------------|------------------------|------------|
| ** **      | ** ** | ** **            | ** ** | ** **             | ** ** |
| Raw materials   |       | $                     | 1,061,891  |                   | $          | 1,279,912 |   |
| Work in process |       | 323,516               |       | 346,749                |       |
| Finished goods  |       | 508,550               |       | 457,943                |       |
|            |       |                  |       |                   |       |
| Totals          |       | $                     | 1,893,957  |                   | $          | 2,084,604 |   |

 

 

**3.  REVOLVING PROMISSORY NOTE**

 

Under the terms of the financing agreement with the lendinginstitution, the Company has a revolving promissory note of up to $3,500,000maturing in July 2005; interest is due monthly at the one month London InterbankOffered Rate (LIBOR) plus 280 basis points which totaled 5.08% at December 31,2004.  The Company pays a commitment feeof .125% on the unused portion of the revolving promissory note.  The outstanding balance at December 31, 2004was $727.  The revolving promissory noteas well as the term notes described in Note 4 are subject to protectivecovenants under a common financing agreement requiring the Company to maintainvarious financial ratios, including debt service coverage and minimum net worthand working capital requirements, secured by all business assets, and requireadditional loan payments based on excess cash flow.

 

7

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**4. LONG–TERM DEBT**

 

Long-term debt consists of the following at December31, 2004:

 

 
| ** **                                                                                                                                                                                                         | ** ** | **December 31 2004** | ** **     | **September 30 2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|----------------|-----------------------|------------|
| ** **                                                                                                                                                                                                         | ** ** | ** **           | ** **     | ** **            | ** ** |
| Term note #2 payable to  lending institution, see terms below.                                                                                                                                                     | ** ** | **$**                | **13,762,336** |                  | $          | 14,099,113 |   |
|                                                                                                                                                                                                               |       |                 |           |                  |       |
| Term note #3 payable to  lending institution, see terms below.                                                                                                                                                     | ** ** | **2,717,535**        |           | 3,177,819             |       |
|                                                                                                                                                                                                               |       |                 |           |                  |       |
| Term note #4 payable to  lending institution, see terms below.                                                                                                                                                     |       |                 |           | 4,564,175             |       |
|                                                                                                                                                                                                               |       |                 |           |                  |       |
| 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.                                   | ** ** | **170,139**          |           | 180,555               |       |
|                                                                                                                                                                                                               |       |                 |           |                  |       |
| 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.                                                | ** ** | **179,771**          |           | 189,406               |       |
|                                                                                                                                                                                                               |       |                 |           |                  |       |
| 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.       | ** ** | **203,000**          |           | 206,500               |       |
|                                                                                                                                                                                                               |       |                 |           |                  |       |
| Capital lease obligations, due in monthly installments initially  totaling $6,768 commencing April 1, 2003 including implicit interest between  7.4% and 17.4% through March 1, 2008, secured by leased equipment. | ** ** | **245,541**          |           | 265,097               |       |
|                                                                                                                                                                                                               |       |                 |           |                  |       |
| Totals                                                                                                                                                                                                             | ** ** | **$**                | **17,278,322** |                  | $          | 22,682,665 |   |
|                                                                                                                                                                                                               |       |                 |           |                  |       |
| Less amounts due within one year                                                                                                                                                                                   | ** ** | **3,471,818**        |           | 3,109,676             |       |
|                                                                                                                                                                                                               |       |                 |           |                  |       |
| Totals                                                                                                                                                                                                             | ** ** | **$**                | **13,806,504** |                  | $          | 19,572,989 |   |

 

8

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The Company obtained debt financing from a lendinginstitution in the form of a revolving promissory note and term notes, referredto by the lending institution as term notes #2, #3, and #4.  Term note #2has fixed principal payments due quarterly with interest at the three monthLIBOR plus 280 basis points, which totaled 5.20% at December 31, 2004, payablein full on June 1, 2008.  As part of the financing agreement, theCompany accepted a fixed rate option on term note #2 by entering into aninterest rate swap which effectively fixes the interest rate on this term noteat 5.79% until this term note is repaid on June 1, 2008.

 

Term note #3 bears interest at the three month LIBORplus 280 basis points which totaled 5.20% at December 31, 2004.  Term note#4 bears interest at the one month LIBOR plus 280 basis points which totaled5.08% at December 31, 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 #4had no outstanding balance as of December 31, 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 financing agreement, the premium abovethe LIBOR on the term notes and revolving promissory note has been reducedbased on a financial ratio from the original 380 basis points.  Thefinancing agreement requires an annual servicing fee of $50,000 for fiveyears.  As described in Note 1, the Company entered into an interest ratecap agreement to reduce the risk of increases in interest rates.  Theinterest rate cap agreement is based on a notional amount of $10,000,000 andcaps increases in interest rates at 6.8% on this amount until June 1,2006.

 

In addition to the term notes, the subordinated notespayable to the bank and related party require additional cash flow anticipatedto be received from the CCC to be split pro rata between the subordinateddebtors as additional payments on the notes.

 

At December 31, 2004 and September 30, 2004, LSCP wasin violation of the debt service covenant. The lender has waived compliance with this violation at December 31,2004 and September 30, 2004, and for the following year as it relates to thisviolation at December 31, 2004 and September 30, 2004.

 

The estimated maturities of long-term debt at December31, 2004 are as follows:

 
| 2005                 |   | $         | 3,471,818  |   |
|----------------------|--------|-----------|------------|--------|
| 2006                 |   | 3,664,992 |       |
| 2007                 |   | 3,703,951 |       |
| 2008                 |   | 6,282,802 |       |
| 2009                 |   | 154,759   |       |
|                 |   |      |       |
| Total long-term debt |   | $         | 17,278,322 |   |

 

9

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**5. RELATED PARTY TRANSACTIONS**

 

For the quarter ending December 31, 2004 and 2003,revenues from the sale of ethanol to ADM were approximately $19,592,000 and$13,330,000, respectively, of total revenue. ADM markets all of the ethanol sold by LSCP and receives a marketingfee.  The Company incurred marketingexpenses of approximately $119,000 and $123,000 to ADM for the quarter endedDecember 31, 2004 and 2003, respectively. At December 31, 2004, amounts due from ADM approximated 91% of tradeaccounts receivable.

 

In the three months ended December 31, 2004 and 2003,LSCP purchased approximately $1,281,000 and $553,000, respectively, in cornfrom members of the LLC.

 

**6. COMMITMENTS AND CONTINGENCIES**

 

Natural Gas and CornContracts

 

At December 31, 2004, the Company has forwardcontracts to purchase approximately 330,000 million British thermal units(MMBTU) of natural gas during the January 2005 through March 2005 time periodat an average price of $6.52 per MMBTU. The Company has forward contracts to purchase approximately 630,000MMBTU of natural gas during the April 2005 through October 2005 time period at$5.03.  As of December 31, 2004, theCompany has forward contracts to sell approximately 30,000 MMBTU of natural gasduring the January 2005 through March 2005 time period at an average price of$6.78 per MMBTU.  The unused value ofthese contracts at December 31, 2004, total approximately $5,118,000 less adeposit of $184,000.

 

At September 30, 2004, the Company has forwardcontracts to purchase approximately 1,804,000 bushels of corn at prices rangingfrom $1.77 to $3.18 per bushel through January 2006.

 

Construction in Progress

 

The Company estimates its costs to complete theconstruction of assets not yet placed in service to be approximately $5,140,000as of December 31, 2004.

 

**7.  SUBSEQUENT EVENT**

 

Subsequent to December 31, 2004, LSCP declared a distribution of$4,000,000 payable immediately to its partners. The LLC declared a distribution to its members of $2,406,156 which is$219.92 per unit.

 

10

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

 

This report containsforward-looking statements that involve future events, our future performanceand our expected future operations and actions.  In some cases you canidentify forward-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 of these terms orother similar expressions.  These forward-looking statements are only ourpredictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-lookingstatements for many reasons, including the reasons described in thisreport.  We are not under any duty to update the forward-lookingstatements contained in this report.  We cannot guarantee future results,levels of activity, performance or achievements.  We caution you not toput undue reliance on any forward-looking statements, which speak only as ofthe 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 ourforward-looking statements by these cautionary statements.

 

**Overview**

 

As general partner ofLSCP, LLLP, an Iowa limited liability limited partnership (the “Partnership”),we manage the business and day-to-day operations of the Partnership’s 40million gallon per year ethanol plant in northwest Iowa.  We currently owna 60.15% ownership interest in LSCP, LLLP.  Little Sioux Corn Processors,L.L.C. (the “LLC”) and its subsidiary, LSCP, LLLP, are collectively referred toin this report as the “Company,” “we,” or “us.”

 

Since April 2003, wehave been engaged in the production of ethanol and distillers grains at ourethanol plant near Marcus, Iowa.  Fromthe date of the commencement of plant operations, the plant’s production capacityhas consistently exceeded the 40 million gallon per year production guaranteeprovided by the general contractor as measured on a pro rata basis.  Ourrevenues are derived from the sale and distribution of our ethanol anddistillers grains throughout the continental United States.

 

  OnDecember 16, 2003, the Board of Directors formed a committee to researchthe feasibility of expanding the plant. On August 17, 2004 the board of directors determined that it was in thebest interests of the Company to expand the plant’s ethanol production capacityfrom 40 million gallons per year to 52 million gallons per year.  We have begun construction of the expansionand anticipate completion by May 2005.

 

We are subject toindustry-wide factors that affect the Company’s revenues and profits. These factors include, but are not limited to, the available supply and cost ofcorn from which our ethanol and distillers grains are made; the cost of naturalgas, which we use in the production of ethanol and distillers grains;dependence on one or a few major customers who market and distribute ourproducts; the intensely competitive nature of our industry; possiblelegislation at the federal, state, and/or local level; changes in federalethanol tax incentives; and the cost of complying with the extensiveenvironmental laws that regulate our industry.

 

**Results ofOperations**

 

*FinancialSummary and Analysis*

 

Net income beforeminority interest, which is the Partnership’s income, totaled $4,993,564 forthe first quarter of fiscal 2005, up from $4,529,123 reported for the firstquarter of fiscal 2004.  The increaseresulted from higher ethanol prices, partially offset by lower volume ofethanol sales and a sharp decrease in funds we received through the USDACommodity Credit Corporation Bioenergy Program.

 

11

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Revenues from operationsin the first quarter of fiscal 2005 totaled $22,975,735, up from $19,266,908 inthe first quarter of fiscal 2004.  Net gallons of denatured ethanol soldtotaled 11,887,661 in the first quarter of fiscal 2005 compared to 12,194,292gallons in the first quarter of fiscal 2004.  Increased revenues in thefirst quarter of fiscal 2005 resulted from an increase in the price of ethanolpartially offset by less gallons of ethanol sold in the first quarter of fiscal2005 compared to the first quarter of fiscal 2004.  While we anticipatecontinued strong demand for ethanol, we are uncertain as to the sustainabilityof current ethanol prices given the increasing ethanol supply as new plantsbegin production and existing plants continue to expand.

 

Other income and expenseconsisted of a loss of $217,975 in the first quarter of fiscal 2005 compared toincome of $2,233,424 reported in the first quarter of fiscal 2004.  Reducedpayments under the USDA Commodity Credit Corporation Bioenergy Program make upa majority of this change.  For the first quarter of fiscal 2005, programpayments totaled $17,300 compared to $2,617,626 in the first quarter of fiscal2004.  Since the Bioenergy Program is based on increases in production,the first quarter fiscal 2005 program payments were calculated based upon theseincreases.  The planned plant expansion is expected to earn additionalprogram payments since the program is based upon incremental increases ofproduction relative to previous years. The receipt of these additional programpayments is subject to the continued availability of program funds, which maybe reduced based upon increased participation in the program by new andexpanding plants as well as decreased federal funding.

 

Our cost of goods soldfor the first quarter of fiscal 2005 totaled $16,300,232, up from $15,402,488in the first quarter of fiscal 2004.  Cost of good sold includes losses of$1,358,849 in the first quarter of fiscal 2005 related to our corn and naturalgas derivative instruments, up from a loss of $317,129 in the first quarterof  fiscal 2004.  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 pricesfluctuate, the value of our derivativeinstruments are impacted, which affects our financial performance.  Thisloss was partially offset by the cash price being paid for corn.  Weanticipate continued volatility in our cost of goods sold due to the timing ofthe changes in value of the derivative instruments relative to the cost and useof the commodity being hedged.

 

Operating expenses forthe first quarter of fiscal 2005 totaled $1,463,964, down from $1,568,721reported in first quarter of fiscal 2004. Reduced operating expenses in the first quarter of fiscal 2005 resultedfrom lower insurance and professional fees expenses than those we reported inthe first quarter of fiscal 2004.

 

*ExpansionPlans*

 

During fiscal 2005 wewill be operating and expanding the ethanol plant.  Currently, the plantis operating in excess of design capacity, and is producing more than 40million gallons per year as measured on a pro rata basis.  Certaininefficiencies result from operating the plant at levels in excess of the 40million gallon per year guarantee.  These inefficiencies increase our pergallon cost of production.  In order to produce more ethanol, theproduction process must be shortened.  The effect of a shortened processis that ethanol content per unit is lost.  However, even with theincreased cost per gallon of production, the additional income that we earn onthe sale of additional gallons of ethanol covers the additional costs.

 

In connection with the expansion, we entered into anAgreement Between Owner and Design/Builder on the Basis of a Stipulated Pricewith ICM, Inc. on December 6, 2004.  Theperformance criteria stated in the agreement guarantees that the expansion willincrease the plant’s annual ethanol production capacity to 52 million gallonsper year from its current 40 million gallon annual production.  The agreement anticipates that the expansionwill be completed by early May, 2005.  Wehave agreed to pay ICM, Inc. $4,600,000 under the agreement for the design andconstruction of this expansion.  ICM,Inc. has agreed to provide a one year warranty period for correction ofdefective construction.  The amount ofdamages that we can recover against ICM, Inc. for any breach of its obligationsunder the agreement, including, without limitation, damages related to ICM Inc.’scorrection of defective construction is limited to $1,000,000.  We waive all claims for any consequentialdamages that may arise out of or relate to the agreement or the performance ofthe construction of the expansion of the ethanol plant.

 

Also in connection with financing the expansion of ourplant, we entered into a Sixth Amendment to Construction Loan Agreement withFirst National Bank of Omaha.  Under thisamendment, First National Bank of Omaha agreed to loan us up to $5,400,000 tofinance the construction of the expansion of our existing ethanol plant.  During the 

 

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construction period, we have agreed to pay interest only on a quarterlybasis on the outstanding principal amount at a rate equal to the one monthLIBOR rate plus 330 basis points.  Uponcompletion of the construction, the outstanding balance of this new expansionloan will be added to the principal balance of our Term Note #3 with FirstNational Bank of Omaha relating to the original construction of our ethanolplant.  The maturity date of Term Note #3is currently June 1, 2008.

 

We were required to payFirst National Bank of Omaha an origination fee of $40,500 in connection withthis new loan.  This loan is subject toall terms and conditions of our existing Construction Loan Agreement with FirstNational Bank of Omaha, including the specific provisions regarding events ofdefault and the granting of liens to secure our performance.  In the event of default, First National Bankof Omaha may accelerate the due date of the new loan and declare allobligations immediately due and payable. All loan proceeds will be disbursed pursuant to a ConstructionDisbursement Agreement between us, First National Bank of Omaha, ICM, AgStarFinancial Services ACA (the disbursing agent) and Old Republic National TitleInsurance Company (the title company).

 

We expect the expansionto increase annual operating income by approximately $3,200,000 as a result ofincreasing revenue and operating efficiency.  There is no assurance thatthe expansion will reduce our operating costs or increase our operatingincome.  Our expansion projections are based upon our historical operatingcosts and historical revenues and there is no guarantee or assurance that ourpast financial performance can accurately predict future results especially inconnection with expansion.  In addition, the expansion may cost more andmay present additional challenges and risks that negatively impact our futurefinancial performance.  There is noguarantee that the expansion will be completed on its anticipated completiondate.

 

The following is ourestimate of our costs for the next 12 months for the plant as it currentlyoperates:

 
| Corn Costs                       |   | $      | 43,938,000 |   |
|----------------------------------|--------|--------|------------|--------|
| General and Administrative Costs |   | $      | 6,988,000  |   |
| Natural Gas Costs                |   | $      | 6,912,000  |   |
| Chemical Costs                   |   | $      | 5,029,000  |   |
| Other Production Costs           |   | $      | 4,074,000  |   |
|                             |   |   |       |
| Total Operating Costs:           |   | $      | 66,941,000 |   |
|                                  |        |        |            |        |  |

 

The estimates in thetable set forth above are based on our limited operational experience. These are only estimates and our actual costs could be much higher due to avariety 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).                                         |

 

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*CornSupplies and Market Trends*

 

The 2004 corn crop wasthe largest corn crop on record with national production at approximately 11.8billion bushels and Iowa production at approximately 2.4 billion bushels. The2004 corn supply is expected to outpace demand by approximately 1 billion bushels.As a result, we expect corn prices to remain at relatively low levelsthroughout the next quarter and into the 2005 spring planting season. However,as we near the spring corn planting season, we expect the grain market to beginfocusing on prospects for the 2005 corn crop. Variables such as rainfall,planting dates, and temperatures will likely cause market uncertainty andcreate corn price volatility as the growing season begins.

 

*NaturalGas Supplies and Market Trends*

 

Natural gas is animportant input to our manufacturing process.  We estimate that ournatural gas usage is approximately 110,000 million British thermal units (“MMBTU”)per month. We use natural gas to dry our distillers grains products to moisturecontents at which they can be stored for long periods and transported greaterdistances,so that wecan market them to broader livestock markets, including poultry and swinemarkets in the continental United States.  Natural gas has recently beenavailable only at prices exceeding historical averages.  These prices areincreasing our costs of production.  We expect natural gas prices toremain high or increase at least through the 2005 winter months.

 

**Liquidityand Capital Resources**

 

Consolidated assetstotaled $62,078,460 at December 31, 2004 compared to $59,828,204 at September30, 2004.  Current assets totaled $14,539,184at December 31, 2004 up from $11,946,926 at September 30, 2004.  The change resulted from increasedunrestricted cash, which was $6,262,183 at December 31, 2004 compared to$3,907,380 at September 30, 2004.  Cashwas accumulating in anticipation of a distribution of earnings to the partners,and anticipated expenditures resulting from the plant expansion.

 

Consolidated currentliabilities totaled $7,989,625 at December 31, 2004 up from $4,966,488 atSeptember 30, 2004.  The fair value ofour derivative instruments, which consists primarily of corn futures contracts,has declined due to the reduction in the cash price of corn.  Our current liabilities has increased as aresult. For a further discussion of changes in values of our derivativeinstruments see “Quantative and Qualitative Disclosures About MarketRisk—Commodity Price Risk.”

 

Long-term debt, net ofcurrent maturities, totaled $13,806,504 at December 31, 2004 down from$19,572,989 at September 30, 2004.  Thisreduction resulted from a payment on our revolving Term Note #4 and our regularlyscheduled loan payments on December 1, 2004.

 

Cash provided byoperating activities was $8,371,673 for the first quarter of fiscal 2005 upfrom $7,028,912 for the first quarter of fiscal 2004.  This increase resulted from cash provided byderivative instrument transactions.

 

 The cash provided by operating activities wasused for capital expenditures which totaled $574,425 for the first quarter offiscal 2005 compared to $118,539 for the first quarter of fiscal 2004.  This increase reflects expenditures for thestart of the plant expansion. Additionally cash was used to pay down our debt by $5,442,445 in thefirst quarter of 2005 compared to $4,095,720 in the first quarter of fiscal2004.

 

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

### ** **

We have a revolvingpromissory note of up to $3,500,000 with First National Bank of Omaha throughJuly 2005.  The interest payable on the revolving promissory note isdue monthly at the one month LIBOR plus 2.80%, which totaled 5.08% at December31, 2004.  The revolving promissory note is our operating line ofcredit.  We pay a commitment fee of 0.125% on the unused portion of theline.  The outstanding balance as of December 31, 2004, was $727. The maximum available credit under this note is based on receivable andinventory balances.  Our current receivable and inventory balances are notsufficient to allow us to use the maximum amount of the operating 

 

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line of credit.  As of December 31, 2004, themaximum amount available from the operating line of credit was approximately$2,785,000.  As the balances in these accounts fluctuate, the amount ofavailable credit on this note may be reduced or increased subject to the maximumof $3,500,000.  The operating line of credit is subject to protectivecovenants requiring us to maintain various financial ratios.  Theoperating line of credit is secured by all business assets.

 

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

#### ** **

We have long-term debtfinancing consisting of three term notes held by First National Bank of Omahaand referred to as Term Notes #2, #3 and #4.  At December 31, 2004, theprincipal balance on Term Note #2 is $13,762,336.  Term Note #2 is payablein quarterly installments, which began on September 1, 2003. Interest on Term Note #2 is at the three month LIBOR plus 2.80%, which totaled5.20% as of December 31, 2004.  Term Note #2 is payable in full onJune 1, 2008.  In order to achieve a fixed interest rate on Term Note#2, we entered into an interest rate swap which helps protect our exposure toincreases in interest rates and the swap effectively fixes the interest rate onTerm Note #2 at 5.79% until June 1, 2008.

 

At December 31, 2004, theprincipal balance on Term Note #3 is $2,717,535.  Term Note #3 is payablein quarterly installments which began on September 1, 2003.  Intereston Term Note #3 is at the three month LIBOR plus 2.80%, which totaled 5.20% asof December 31, 2004.  Term Note #3 is payable in full on June 1,2008.  In order to protect our interest rate exposure on Term Note #3, weentered into an interest rate cap agreement based on a principal amount of$10,000,000.  As part of the financing agreement, we have agreed to anannual servicing fee of $50,000 for five years.  The financing agreementcaps our interest rate at 6.80% for Term Note #3 until June 1, 2006.

 

At December 31, 2004,there was no principal balance on Term Note #4.  Term Note #4 is payablein quarterly installments which began on September 1, 2003.  Intereston Term Note #4 is at the one month LIBOR plus 2.80%.  Term Note #4 ispayable in full on June 1, 2008.  Term Note #4 allows borrowings upto the original principal of $5,000,000 to the extent of principal paymentsmade until maturity and requires a commitment fee of 0.375% on any unusedportion.  At December 31, 2004, the aggregate indebtedness represented byTerm Notes #2, #3 and #4 was $16,479,871.

 

We have capital leaseobligations in the amount of $245,541, due in monthly installments initially totaling$6,850, and including implicit interest between 3.7% and 6.6% throughMarch 1, 2008.  The capital lease obligations are secured by leasedequipment.

 

We have a note in theamount of $170,139 payable to the Iowa Energy Center due in monthly installmentsof $3,472 without interest, maturing on January 29, 2009.  The noteis secured by real estate and subordinated to the Term Notes.  We have anote with Farmers State Bank of Marcus, Iowa in the amount of $179,771 payablein monthly payments of $5,921, including interest at 6%, maturing onJanuary 29, 2009.  The note is secured by real estate andsubordinated to the Term Notes.  We have a note totaling $203,000 payableto the Iowa Department of Economic Development due in  monthly installments $1,667 withoutinterest.  The note matures on July 1, 2009.  The note issecured by all equipment.

 

The notes payable toFirst National Bank at Omaha require additional loan payments based on excesscash flow generated by payments received from the USDA’s Commodity CreditCorporation, as discussed below.  This additional loan payment has amaximum annual payment of $3,000,000.

 

**BioenergyProgram Payments**

 

We are continuing toreceive payments under the USDA’s Commodity Credit Corporation BioenergyProgram.  Although our fiscal 2004 program payments significantly impactedour cash flow, we do not expect future program payments to have the sameimpact.  We also do not anticipate receiving unpaid amounts for past prorata reductions.

 

15

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Inthe first quarter of fiscal 2005, accrued income from the Bioenergy Programtotaled $17,300.  This represents a 66%reduction from the maximum program payment for the first quarter.  This reduction resulted from us receivingclose to all of the funds we are currently eligible for under the terms of theprogram. A portion of this reduction may also be attributed to an increase inthe number of eligible participants in the program, which reduces our share ofthe payments.

 

Since we are increasingour production capacity through our plant expansion, we will be eligible toreceive additional Bioenergy payments. Due to the size of the expansion, any program payments we receive in thefuture will be less than our original payments. The receipt of these additional program payments is subject to thecontinued availability of program funds, which may be reduced based uponincreased participation in the program by new and expanding plants as well asdecreased federal funding.

 

**Distributionto Unit Holders**

 

No distributions weremade to members during the fiscal quarter ended December 31, 2004.  On January 18, 2005, our Board ofDirectors, acting on behalf of the Company as general partner of LSCP, LLLP,approved a resolution authorizing the distribution of a maximum of $8,581,000 of earnings topartners.  The resolution provided the authority for the Board ofDirectors to make a distribution, but did not require any suchdistribution.  On the same date, our Board of Directors, acting on behalfof the Company, as general partner of LSCP, LLLP, declared a distribution of$4,000,000 from LSCP, LLLP to the partners.  LSCP, LLLP will make thedistribution on or before March 1, 2005.  Because we own a 60.15%ownership interest of LSCP, LLLP, we will receive a distribution of$2,406,156.  We will distribute $2,406,145 of this to our unitholders.  We expect that this distribution will not affect our ability tomaintain financial covenants and meet operating costs.

 

**Covenants**

 

The revolving promissorynote and Term Notes #2, #3 and #4 are subject to numerous protective covenantsrequiring us to maintain various financial ratios.  Our failure to complywith the protective loan covenants or maintain the required financial ratiosmay cause acceleration of the outstanding principal balances on the revolvingpromissory note and terms notes and/or the imposition of fees, charges orpenalties.  As of December 31, 2004, we were not in compliancewith the debt service covenant resulting from additional payments.  FirstNational Bank of Omaha has waived this violation through December 31,2005.  For Term Notes #3 and #4, the premium above the LIBOR may bereduced based upon our achievement and maintenance of certain financialratios.  The premium above LIBOR was reduced 100 basis points for therevolving promissory note and Term Notes #3 and #4 during the first quarterended December 31, 2004.

 

**Off-Balance Sheet Arrangements.**

 

We currently have nooff-balance sheet arrangements.

 

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk.**

 

*Interest Rate Risk*

 

We are exposed to market risk from changes in interestrates. Exposure to interest rate risk results from holding a revolvingpromissory note and three term notes. The specifics of each note are discussed in greater detail in Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.  We entered into interest rate swap andinterest rate cap agreements for the purpose of reducing our exposure topossible future changes in interest rates. While our exposure is now greatly reduced, it is not eliminated.  A hypothetical 1% increase in interestrates applied to exposed liabilities as of December 31, 2004 would result inadditional interest expense of approximately $20,000 for the remainder offiscal 2005.

 

*Commodity Price Risk*

 

We are also exposed tomarket risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn andnatural gas in the ethanol production process. We seek to minimize the 

 

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risks from fluctuations in the prices of corn andnatural gas through the use of hedging instruments.  In practice, asmarkets move, we actively manage our risk and adjust hedging strategies asappropriate.  Although we believe our hedge positions accomplish aneconomic hedge against our future purchases, they do not qualify for hedgeaccounting, which would match the gain or loss on our hedge positions to thespecific commodity purchase being hedged.  We are using fair valueaccounting for our hedge positions, which means as the current market price ofour hedge positions changes, the gains and losses are immediately recognized inour cost of goods sold.  Forexample, it is likely and we would generally expectthat a 10% increase in the cash price of corn would produce a $203,830 increasein the fair value of our derivative instruments based on our positions atDecember 30, 2004.  Whereas a 10%decrease in the cash price of corn would produce a $203,830 decrease in thefair value of our derivative instruments based on our positions at December 31,2004.

 

The immediate recognitionof hedging gains and losses under fair value accounting can cause net income tobe volatile from quarter to quarter due to the timing of the change in value ofthe derivative instruments relative to the cost and use of the commodity beinghedged.  As of December 31, 2004, the fair value of our derivativeinstruments for corn and natural gas is a liability in the amount of$2,038,297.  There are several variables that could affect the extent towhich our derivative instruments are impacted by price fluctuations in the costof corn or natural gas.  However, it is likely that commodity cash priceswill have the greatest impact on the derivatives instruments with deliverydates nearest the current cash price.

 

To manage our corn pricerisk, our hedging strategy is designed to establish a price ceiling and floorfor our corn purchases.  We have taken a net long position on our exchangetraded futures and options contracts, which allows us to offset increases ordecreases in the market price of corn.  The upper limit of loss on ourfutures contracts is the difference between the contract price and the cashmarket price of corn at the time of the execution of the contract. The upperlimit of loss on our exchange traded and over-the-counter option contracts islimited to the amount of the premium we paid for the option.

 

We estimate that ourexpected corn usage is approximately 17 million bushels per year for theproduction of 48 million gallons of ethanol.  As of December 31, 2004, wehave cash, futures, and option contract price protection in place for 100% ofour expected corn usage through September 2005.  We have 10% of our expected corn usageprotected by cash purchase contracts through January 2006.  As we moveforward, additional protection may be necessary.  As corn prices move inreaction to market trends and information, our income statement will beaffected depending on the impact such market movements have on the value of ourderivative instruments.  As we move forward into spring, additional priceprotection may be required to solidify our margins into fiscal year 2006. Depending on market movements, crop prospects and weather, these priceprotection positions may cause immediate adverse effects but are expected toproduce long-term positive growth for the Company.

 

To manage our natural gasprice risk, we entered into a natural gas purchase agreement with our supplierto supply us with natural gas, fixing the price at which we purchase naturalgas. However, in order to reduce our price-risk exposure and benefit from anydecreases in the price of natural gas, we have taken a net short position on  a portion of our natural gas requirements byusing over-the-counter and New York Mercantile Exchange option contracts. The upper limit of loss on this position is the premium price we paid for theoption.

 

We estimate that we haveforward contracts in place for approximately 100% of our natural gas needsthrough March 2005.  The forward contracts provide for approximately20% higher gas prices for the 2004-2005 winter months than for the 2003-2004winter months.  In addition to procuring natural gas requirements forwinter 2004-2005, we have purchased approximately 90% of our summer and fall2005 natural gas requirements.  We may also purchase natural gasrequirements for the 2006 and 2007 calendar years as we attempt to furtherreduce our susceptibility to price increases.

 

At the time we purchasedprice protection for natural gas, the market was experiencing a great deal ofprice uncertainty.  Due to this uncertainty, we purchased amounts ofnatural gas to fulfill most of the plant’s needs and implemented derivativeinstruments to allow us to benefit in the event natural gas pricesdeclined.  Energy sector prices have increased and natural gas, as aportion of the total energy market, has responded with higher prices to be costcompetitive with its alternatives.  The timing of the contracts iscontingent upon market volatility and our ability to purchase natural gas toprotect processing margins.  In the future, we may not be able to securenatural gas 

 

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for prices less than current market price and we maynot recover high costs of production resulting from high natural gas prices,which may raise our costs of production.

 

**Item4.  Controls and Procedures.**

 

Our President and ChiefExecutive Officer, Stephen Roe, along with our Chief Financial Officer, GaryGrotjohn, have reviewed and evaluated the effectiveness of our disclosurecontrols and procedures as of December 31, 2004.  Based upon this reviewand evaluation, these officers believe that our disclosure controls andprocedures are effective in ensuring that the material information related tous is recorded, processed, summarized, and reported within the time periodsrequired by the forms and rules of the Securities and Exchange Commission.

 

Our management, consisting of our President/ChiefExecutive Officer and Chief Financial Officer have also reviewed and evaluatedany changes in our internal control over financial reporting that occurred asof December 31, 2004 and there has been no change that has materially affectedor is reasonably likely to materially affect our internal control overfinancial reporting.

 

 

**PART II.     OTHERINFORMATION**

 

**Item1.  Legal Proceedings.**

 

                None.

 

**Item 2.  UnregisteredSales of Equity Securities and Use of Proceeds.**

 

                None.

 

**Item 3.  Defaults UponSenior Securities.**

 

                None.

 

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

 

                None.

 

**Item 5.**  **OtherInformation.**

 

                None.

 

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

 

(a)                                  The followingexhibits are filed as part of this report.

 

10.1                           Agreement Between Owner andDesign/Builder on the Basis of a Stipulated Price

 

10.2                           Sixth Amendment to Construction LoanAgreement

 

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. § 1350.

 

32.2         Certificate pursuant to 18 U.S.C. § 1350.

 

(b)                                 Reports on Form8-K.

 

None.

 

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**SIGNATURES**

 

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 

 

|   |               |   |   | LITTLE  SIOUX CORN PROCESSORS, L.L.C.  |
|--------|--------------------|--------|--------|----------------------------------------|
|   |               |   |   |                                   |
|   |               |   |   |                                   |
| Date:  | February  14, 2005 |   |   | /s/ Stephen Roe                        |
|   |               |   |   | Stephen  Roe                           |
|   |               |   |   | President  and Chief Executive Officer |
|   |               |   |   |                                   |
|   |               |   |   |                                   |
|   |               |   |   |                                   |
| Date:  | February  14, 2005 |   |   | /s/ Gary Grotjohn                      |
|   |               |   |   | Gary  Grotjohn                         |
|   |               |   |   | Chief  Financial Officer               |

 

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