** **

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-QSB**

 

| **ý**                                                                                                                                                                                                                                            |   | **Quarterly report under Section 13 or 15(d) of the  Securities Exchange Act of 1934.** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                  |   |                                                                                    |
| **For the quarterly period ended June 30, 2003**                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                  |   |                                                                                    |
| **OR**                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                  |   |                                                                                    |
| **o**                                                                                                                                                                                                                                                 |   | **Transition report under Section 13 or 15(d) of the Exchange  Act.**                   |
|                                                                                                                                                                                                                                                  |   |                                                                                    |
| **For the transition period from                   to                   .** |
|                                                                                                                                                                                                                                                  |   |                                                                                    |
| **COMMISSION FILE NUMBER 0001229899**                                                                                                                                                                                                                 |

 

| **LITTLE SIOUX CORN  PROCESSORS, L.L.C.**                           |
|---------------------------------------------------------------------|
| (Exact name 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 50135**                               |
| (Address of principal executive offices)                            |
|                                                                |   |   |
| **(712) 376-2800**                                                  |
| (Issuer’s telephone number)                                    |

** **

Check whetherthe issuer:  (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 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 June 30, 2003,there were 10,941units outstanding.

 

Transitional Small Business Disclosure Format (Checkone):      o  Yes      ý  No

 

 

----

 

**INDEX**

** **
|                                                                              |   | **Page No.** |
|-----------------------------------------------------------------------------------|--------|--------------|
|                                                                              |   |         |
| **PART I.  FINANCIAL INFORMATION**                                           |   | **3**        |
|                                                                              |   |         |
| **Item 1.  Financial Statements**                                            |   | **3**        |
| **Item 2.   Management’s Discussion and Analysis or Plan of Operation** |   | **24**       |
| **Item 3.   Controls and Procedures**                                        |   | **28**       |
|                                                                              |   |         |
| **PART II.  OTHER INFORMATION**                                              |   | **28**       |
|                                                                              |   |         |
| **Item 1.   Legal Proceedings**                                              |   | **28**       |
| **Item 2.   Changes in Securities**                                          |   | **28**       |
| **Item 3.   Defaults Upon Senior Securities**                                |   | **28**       |
| **Item 4.   Submission of Matters to a Vote of Security Holders**            |   | **29**       |
| **Item 5.   Other Information**                                              |   | **29**       |
| **Item 6.  Exhibits and Reports  on Form 8-K**                               |   | **29**       |
|                                                                              |   |         |
| **SIGNATURES**                                                                    |   | **30**       |
|                                                                              |   |         |
| **EXHIBITS**                                                                      |   |         |

 

2

----

 

**PARTI. FINANCIAL INFORMATION**

 

**Item1.    Financial Statements**

** **

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

** **

Table of Contents

 
| **FINANCIAL STATEMENTS** |
|--------------------------|
|                     | Balance Sheet (Unaudited) |
|                     | Statements of Operations (Unaudited) |
|                     | Statements of Cash Flows (Unaudited) |
|                     | Notes to Unaudited Financial Statements |

 

3

----

 

**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Consolidated Balance Sheet

 
| **ASSETS**                     |   | **June 30  2003** |           | **December 31  2002** |   |
|--------------------------------|--------|-------------------|----------------|-----------------------|--------|
|                           |   | **(Unaudited)**   |           | **(Audited)**         |   |
| **Current  Assets**            |   |              |           |                  |   |
| Cash                           |   | **$**             | **1,359,254**  |                  | $      | 269,162 |   |
| Restricted cash                |   | **461,048**       |           | 268,195               |   |
| Accounts  receivable           |   | **4,430,233**     |           | 8,454                 |   |
| Inventory                      |   | **1,954,747**     |           |                  |   |
| Prepaid expenses               |   | **236,064**       |           | 17,487                |   |
| Total current  assets          |   | **8,441,346**     |           | 563,298               |   |
|                           |   |              |           |                  |   |
| **Property  and Equipment**    |   |              |           |                  |   |
| Land and  improvements         |   | **1,588,145**     |           | 1,575,584             |   |
| Buildings                      |   | **15,219,426**    |           | —                |   |
| Processing  equipment          |   | **27,270,945**    |           | —                |   |
| Grain handling  equipment      |   | **5,053,884**     |           | —                |   |
| Rail and other  equipment      |   | **988,459**       |           | —                |   |
| Furniture and  fixtures        |   | **148,243**       |           | 33,606                |   |
| Construction in  progress      |   |              |           | 41,800,320            |   |
|                           |   | **50,269,102**    |           | 43,409,510            |   |
| Less accumulated  depreciation |   | **969,389**       |           | 4,607                 |   |
| Net property and  equipment    |   | **49,299,713**    |           | 43,404,903            |   |
|                           |   |              |           |                  |   |
| **Other  Assets**              |   |              |           |                  |   |
| Loan costs                     |   | **487,060**       |           | 477,874               |   |
|                           |   |              |           |                  |   |
| **Total  Assets**              |   | **$**             | **58,228,119** |                  | $      | 44,446,075 |   |

 

Notes toConsolidated Financial Statements are an integral part of this Statement.

 

4

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Consolidated BalanceSheet

 
| **LIABILITIES AND MEMBERS’ EQUITY**                                                                  |   | **June 30  2003** |           | **December 31  2002** |    |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------|----------------|-----------------------|---------|
|                                                                                                      |   | **(Unaudited)**   |           | **(Audited****)**     |    |
| **Current  Liabilities**                                                                                  |   |              |           |                  |    |
| Bank overdraft                                                                                            |   |              |           | $                     | 220,354 |   |
| Revolving  promissory note                                                                                |   | **$**             | **2,157,035**  |                  |    |   |
| Current maturities  of long-term debt                                                                     |   | **3,022,098**     |           | 1,743,201             |    |
| Accounts payable                                                                                          |   |              |           |                  |    |
| Trade                                                                                                     |   | **697,461**       |           | 12,269                |    |
| Construction                                                                                              |   | **369,024**       |           | —                |    |
| Derivative  instruments                                                                                   |   | **524,773**       |           | 529,561               |    |
| Accrued  liabilities                                                                                      |   | **197,667**       |           | 50,916                |    |
| Total current  liabilitiies                                                                               |   | **6,968,058**     |           | 2,556,301             |    |
|                                                                                                      |   |              |           |                  |    |
| **Long-Term  Debt,**net  of current maturities                                                            |   | **31,061,127**    |           | 25,059,217            |    |
|                                                                                                      |   |              |           |                  |    |
| **Commitments  and Contingencies**                                                                        |   |              |           |                  |    |
|                                                                                                      |   |              |           |                  |    |
| **Members’  Equity**                                                                                 |   |              |           |                  |    |
| Member  contributions, net of costs related to capital contributions,10,941 units  issued and outstanding |   | **10,842,237**    |           | 10,842,237            |    |
| Accumulated other  comprehensive loss; net unrealized loss on derivative instruments                      |   | **(384,205**      | **)**          | (438,257              | )       |
| Retained earnings                                                                                         |   | **1,354,912**     |           | (549,175              | )       |
|                                                                                                      |   | **11,812,944**    |           | 9,854,805             |    |
| Minority interest                                                                                         |   | **8,385,990**     |           | 6,975,752             |    |
| Total members’  equity                                                                               |   | **20,198,934**    |           | 16,830,557            |    |
|                                                                                                      |   |              |           |                  |    |
| **Total  Liabilities and Members’ Equity**                                                           |   | **$**             | **58,228,119** |                  | $       | 44,446,075 |   |
|                                                                                                           |        |                   |                |                       |         |  |  |  |

 

Notes toConsolidated Financial Statements are an integral part of this Statement.

 

5

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

** **

Consolidated Statement of Operations

 
|                                               |   | **Six Months Ended  June 30  2003** |       | **Six Months Ended  June 30  2002** |    |
|----------------------------------------------------|--------|-------------------------------------|------------|-------------------------------------|---------|
|                                               |   | **(Unaudited)**                     |       | **(Unaudited)**                     |    |
|                                               |   |                                |       |                                |    |
| **Revenues**                                       |   | $                                   | 11,764,929 |                                | $       | — |   |
|                                               |   |                                |       |                                |    |
| **Cost  of Goods Sold**                            |   | 10,053,197                          |       | —                              |    |
|                                               |   |                                |       |                                |    |
| **Gross  Profit**                                  |   | 1,711,732                           |       | —                              |    |
|                                               |   |                                |       |                                |    |
| **Operating  Expenses**                            |   | 1,440,039                           |       | 379,500                             |    |
|                                               |   |                                |       |                                |    |
| **Operating  Income (Loss)**                       |   | 271,693                             |       | (379,500                            | )       |
|                                               |   |                                |       |                                |    |
| **Other  Income/Expense**                          |   |                                |       |                                |    |
| Interest income                                    |   | —                              |       | 23,817                              |    |
| Interest expense                                   |   | (454,029                            | )          | —                              |    |
| Grants and other  income                           |   | 3,458,317                           |       | 80,000                              |    |
| Total other income                                 |   | 3,004,288                           |       | 103,817                             |    |
|                                               |   |                                |       |                                |    |
| **Net  Income (Loss) Before Minority Interest**    |   | 3,275,981                           |       | (275,683                            | )       |
|                                               |   |                                |       |                                |    |
| **Minority  Interest in Sudsidiary Income (Loss)** |   | (1,371,894                          | )          | 115,597                             |    |
|                                               |   |                                |       |                                |    |
| **Net  Income (Loss)**                             |   | $                                   | 1,904,087  |                                | $       | (160,086 | ) |
|                                               |   |                                |       |                                |    |
| **Weighted  Average Units Outstanding**            |   | 10,941                              |       | 1,239                               |    |
|                                               |   |                                |       |                                |    |
| **Net  Income (Loss) Per Unit**                    |   | $                                   | 174.03     |                                | (129.21 | ) |

 

Notes to Consolidated Financial Statementsare an integral part of this Statement.

 

6

----

 
|                                               |   | **Quarter Ended  June 30  2003** |       | **Quarter Ended  June 30  2002** |   |
|----------------------------------------------------|--------|----------------------------------|------------|----------------------------------|--------|
|                                               |   | **(Unaudited)**                  |       | **(Unaudited)**                  |   |
|                                               |   |                             |       |                             |   |
| **Revenues**                                       |   | $                                | 11,764,929 |                             | $      | — |   |
|                                               |   |                             |       |                             |   |
| **Cost of Goods Sold**                             |   | 10,053,197                       |       | —                           |   |
|                                               |   |                             |       |                             |   |
| **Gross Profit**                                   |   | 1,711,732                        |       | —                           |   |
|                                               |   |                             |       |                             |   |
| **Operating Expenses**                             |   | 1,078,490                        |       | 81,417                           |   |
|                                               |   |                             |       |                             |   |
| **Operating Loss**                                 |   | 633,242                          |       | (81,417                          | )      |
|                                               |   |                             |       |                             |   |
| **Other Income**                                   |   |                             |       |                             |   |
| Interest expense                                   |   | (454,029                         | )          | —                           |   |
| Grants and other income                            |   | 3,006,566                        |       | —                           |   |
| Total other income                                 |   | 2,552,537                        |       | —                           |   |
|                                               |   |                             |       |                             |   |
| **Net Income (Loss) Before  Minority Interest**    |   | 3,185,779                        |       | (81,417                          | )      |
|                                               |   |                             |       |                             |   |
| **Minority Interest in  Sudsidiary Income (Loss)** |   | (1,334,501                       | )          | 34,977                           |   |
|                                               |   |                             |       |                             |   |
| **Net Income (Loss)**                              |   | $                                | 1,851,278  |                             | $      | (46,440 | ) |
|                                               |   |                             |       |                             |   |
| **Weighted Average Units  Outstanding**            |   | 10,941                           |       | 1,636                            |   |
|                                               |   |                             |       |                             |   |
| **Net Income (Loss) Per Unit**                     |   | $                                | 169.21     |                             | (28.39 | ) |

 

Notes toConsolidated Financial Statements are an integral part of this Statement.

 

7

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

** **

Consolidated Statement of Cash Flows

 
|                                                                     |   | **Six Months Ended  June 30  2003** |       | **Six Months Ended  June 30  2002** |       |
|--------------------------------------------------------------------------|--------|-------------------------------------|------------|-------------------------------------|------------|
|                                                                     |   | **(Unaudited)**                     |       | **(Unaudited)**                     |       |
|                                                                     |   |                                |       |                                |       |
| **Cash  Flows from Operating Activities**                                |   |                                | ** ** |                                | ** ** |
| Net income (loss)                                                        |   | $                                   | 1,904,087  |                                | $          | (160,086 | ) |
| Depreciation                                                             |   | 964,782                             |       |                                |       |
| Minority interest  in subsidiary’s income (loss)                    |   | 1,371,894                           |       | (115,597                            | )          |
| Adjustments to  reconcile net income (loss) to net cash from operations: |   |                                |       |                                |       |
| Accounts  receivable                                                     |   | (4,421,779                          | )          | (918                                | )          |
| Restricted cash                                                          |   | (105,245                            | )          | —                              |       |
| Inventory                                                                |   | (1,954,747                          | )          | —                              |       |
| Prepaid expenses                                                         |   | (218,577                            | )          | (4,153                              | )          |
| Accounts payable                                                         |   | 685,192                             |       | (64,246                             | )          |
| Accrued  liabilities                                                     |   | 146,751                             |       | (13,427                             | )          |
| Net cash used in  operating activities                                   |   | (1,627,642                          | )          | (358,427                            | )          |
|                                                                     |   |                                |       |                                |       |
| **Cash  Flows from Investing Activities**                                |   |                                |       |                                |       |
| Capital  expenditures                                                    |   |                                |       | (18,417,357                         | )          |
| Net cash used in  investing activities                                   |   |                                |       | (18,417,357                         | )          |
|                                                                     |   |                                |       |                                |       |
| **Cash  Flows from Financing Activities**                                |   |                                |       |                                |       |
| Bank overdraft                                                           |   | (220,354                            | )          | —                              |       |
| Proceeds from  revolving promissory note, net                            |   | 2,157,035                           |       | —                              |       |
| Proceeds from  issuance of long-term debt                                |   | 1,383,924                           |       | 1,678,610                           |       |
| Payments of  long-term debt                                              |   | (593,685                            | )          | (385,725                            | )          |
| Member  contributions                                                    |   |                                |       | 10,226,000                          |       |
| Minority  investment                                                     |   |                                |       | 7,750,000                           |       |
| Payments for costs  of raising capital                                   |   |                                |       | (26,496                             | )          |
| Loan costs                                                               |   | (9,186                              | )          |                                |       |
| Net cash from  financing activities                                      |   | 2,717,734                           |       | 19,242,389                          |       |
|                                                                     |   |                                |       |                                |       |
| **Net  Increase in Cash**                                                |   | 1,090,092                           |       | 466,605                             |       |
|                                                                     |   |                                |       |                                |       |
| **Cash**–  Beginning of Period                                      |   | 269,162                             |       | 349                                 |       |
|                                                                     |   |                                |       |                                |       |
| **Cash**–  End of Period                                            |   | $                                   | 1,359,254  |                                | $          | 466,954 |   |

** **

Notes to Consolidated Financial Statementsare an integral part of this Statement.

 

8

----

** **
|                                                                       |   | **Six Months Ended  June 30  2003** |       | **Six Months Ended  June 30  2002** |       |
|----------------------------------------------------------------------------|--------|-------------------------------------|------------|-------------------------------------|------------|
|                                                                       |   | **(Unaudited)**                     |       | **(Unaudited)**                     |       |
|                                                                       |   |                                |       |                                |       |
| **Supplemental  Cash Flow Information**                                    |   |                                | ** ** |                                | ** ** |
| Cash paid during  the year for:                                            |   |                                | ** ** |                                | ** ** |
| Interest                                                                   |   | $                                   | 711,542    |                                | $          | 16,270 |   |
|                                                                       |   |                                | ** ** |                                | ** ** |
| **Supplemental  Disclosure of Noncash Investing and Financing Activities** |   |                                |       |                                |       |
| Construction in  progress included in accounts payable                     |   | $                                   | 369,024    |                                |       |   |
| Property, plant  and equipment financed with note payable                  |   | $                                   | 6,490,568  |                                | $          | 5,572,943 |   |
| Reallocation of  capital                                                   |   |                                |       | $                                   | 309,613    |   |
| Costs of raising  capital reclassified from deferred offering costs        |   |                                |       | $                                   | 156,624    |   |
| Net premiums  received on derivative instruments                           |   | $                                   | 14,100     |                                |       |   |
| Net loss on exited  derivative instruments                                 |   | (145,512                            | )          |                                |       |
| Unrealized loss on  derivative instruments outstanding                     |   | (524,773                            | )          |                                |       |
| Accumulated other  comprehensive loss on derivative instruments            |   | $                                   | (656,185   | )                                   |       |   |

 

Notes to Consolidated Financial Statementsare an integral part of this Statement.

 

9

----

 

**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Notes to Consolidated Financial Statements

 

June 30, 2003

 

The statementsincluded herein have been prepared by Little Sioux Corn Processors, LLC andSubsidiary, without audit, pursuant to the rules and regulations of theSecurities and Exchange Commission, and reflect all adjustments which are, inthe opinion of management, necessary to a fair presentation of the financialstatements for the interim period, on a basis consistent with the annualaudited financial statements.  The adjustmentsmade to these financial statements consist only of normal recurringadjustments.  The financial statementsshould be read in conjunction with the financial statements and the summary ofsignificant accounting policies and notes thereto included in the Company’sRegistration Statement on Form 10-SB, as amended (SEC Registration No.0001229899).  The results of operationsfor three months and six months ended June 30, 2003 and 2002 are notnecessarily indicative of the results to be expected for the full year.

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

*Basis of FinancialStatements*

 

The consolidated financial statements include the accounts of LittleSioux Corn Processors, LLC (the “LLC”) and its 58.5% owned subsidiary, LSCP,LLLP (the “LSCP”), collectively, the “Company”.  All significant intercompany balances and transactions areeliminated in consolidation.

 

*Minority Interest*

 

Amounts recorded as minorityinterest on the balance sheet relate to the net investment by limited partnersin LSCP plus or minus any allocation of income or loss of LSCP.  After giving effect to certain specialallocations, income and losses of LSCP will be allocated to the partners basedupon their respective percentage of partnership units held.

 

*Nature of Business*

 

The Company was organized to pool investors, some of whom intend toprovide a corn supply, for a 40 million gallon ethanol plant, located nearMarcus, Iowa, with distribution to upper Midwest states. In addition, theCompany intends to produce and sell distillers dried grains (DDGS) as a by-productof ethanol production. 

 

On October 16, 2001, the LLC formed LSCP, LP, a limited partnership ofwhich the LLC is the general partner. LSCP, LP owns the plant on which construction began in 2001 and all ofthe LLC’s operations are conducted through LSCP.  Prior to commencing operations in April 2003, the Company was adevelopment stage company.  On June 26,2003, the members of the LLC approved an election by LSCP, LP to convert to anIowa limited liability limited partnership, LSCP, LLLP.    

 

10

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*Fiscal ReportingPeriod*

 

On June 26, 2003, the Company adopted a fiscal year ending September 30for reporting financial operations. Prior to that, the Company had a fiscal year ending December 31 forreporting financial operations. 

 

*Accounting Estimates*

* *

Management uses estimates andassumptions in preparing these consolidated financial statements in accordancewith generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assetsand liabilities, the disclosure of contingent assets and liabilities, and thereported revenues and expenses.  Actualresults could differ from those estimates.

 

*Cash*

 

The Company maintains its accounts primarily at two financial institutions.  At times throughout the year, the Company’scash balances may exceed amounts insured by the Federal Deposit InsuranceCorporation.

* *

*Restricted Cash*

 

The Company is required to maintain cash balances at its broker relatedto derivative instruments outstanding.  

 

*Accounts Receivable*

 

Credit terms are extended tocustomers in the normal course of business. The Company performs ongoing credit evaluations of its customers’financial condition and, generally, requires no collateral. 

 

Accounts receivable are recorded at their estimated net realizablevalue.  The Company follows a policy ofproviding an allowance for doubtful accounts; however, based on historicalexperience, and its evaluation of the current status of receivables, theCompany is of the belief that such accounts will be collectible in all materialrespects and thus an allowance is not necessary. Accounts are considered pastdue if payment is not made on a timely basis in accordance with the Company’scredit terms. Accounts considered uncollectible are written off.

 

11

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*Inventory*

 

Inventory consists of raw materials, work in process, and finishedgoods.  Corn is the primary raw materialand, along with raw materials, is stated at the lower of average cost ormarket.  Finished goods consist ofethanol produced and a by-product from ethanol production, DDGS, and are statedat the lower of first-in, first-out, (FIFO method) cost or market.

 

*Property andEquipment*

 

Property and equipment arestated at the lower of cost or estimated fair value. Depreciation is computedover estimated useful lives by use of the straight-line method.  Maintenance and repairs are expensed asincurred; major improvements and betterments are capitalized.  The present value of capital leaseobligations are classified as long-term debt and the related assets areincluded in equipment.  Amortization ofequipment under capital lease is included in depreciation expense.  Interest was capitalized during theconstruction period.  

 

*Loan costs*

 

Costs associated with theissuance of the construction loan discussed in Note 5 are reported as otherassets, net of accumulated amortization. Loan costs will be amortized to operations over the life of the loan usingthe effective interest method.  Theconstruction loan was converted to term notes on June 23, 2003, at which pointthe Company began amortizing the related loan costs using the effectiveinterest method.  

 

12

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*Derivative Instruments*

* *

The Company enters into derivative instruments to offset thevariability of expected future cash flows related to changes in interest ratesand to purchases of inventory.  In June2003, the Company entered into derivative instruments, an interest rate swapand an interest rate cap, which are classified as cash flow hedges, to hedgethe variability of cash flows related to changes in interest rates.  The interest rate swap limits the adverseaffects of an increase in interest rates upon the future payments of long termdebt which contain variable interest rates. The interest rate swap entered into hedges term note #2, as it isreferred to in Note 5, with identical terms and the same notional amount.  

 

The interest rate cap limitsthe adverse effects of an increase in interest rates upon the future paymentsof long term debt which contain variable interest rates.  The interest rate cap entered into hedgesterm note #3, as it is referred to in Note 5, with similar terms and notionalamount.  

 

Gains and losses from theinterest rate swap and the interest rate cap will be reclassified into earningsquarterly when the loan payments are made. Although the Company expects the interest rate swap and interest ratecap to be highly effective, any applicable ineffectiveness will be recorded inearnings.  Any gain or loss as a resultof discontinuance of the interest rate swap or interest rate cap will bereclassified into earnings.  There havebeen no amounts reclassified into earnings related to the interest rate swap orthe interest rate cap during the six months ended June 30, 2003.

 

The Company enters option contracts as derivative instruments, whichare designed as hedges of specific volumes of corn expected to be used in themanufacturing process once the plant is completed. The Company uses optioncontracts, which are traded over the counter, to manage the exposure to pricerisk related to corn purchases which began in March 2003 and monthly thereafteruntil December 2003.  The Company doesnot typically enter into option contracts other than for hedging purposes. Theoptions are recognized on the June 30, 2003 balance sheet date at their fairvalue.  On the date that the contract isentered into, the Company designates the option as a hedge of variable cash flowsof certain forecasted purchases of corn used in the manufacturing process (a“cash flow hedge”). The Company formally documents all relationships betweenthe options which serve as the hedging instruments and the hedged items, aswell as its risk-management objective and strategy for undertaking varioushedge transactions.  This processincludes linking all options that are designated as hedges to the specifictransaction or item being hedged.  TheCompany also formally assesses, both at the hedge’s inception and on an ongoingbasis, whether the options that are used in hedging transactions are highlyeffective in offsetting changes in the hedged items.  When it is determined that an option is not highly effective as ahedge or that it has ceased to be a highly effective hedge, the Companydiscontinues hedge accounting prospectively. When hedge accounting is discontinued, the Company continues to carrythe derivative at its fair value on the balance sheet, and recognizes anychanges in its fair value in earnings.   

 

Changes in the fair value of options that are highly effective and thatare designated and qualify as cash flow hedges are recorded in othercomprehensive income and are not recognized in the statement of 

 

13

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operations until the finished goods produced using the hedged item aresold.  

 

The Company has recorded a liability for its options positionsoutstanding at June 30, 2003 of $524,773, which represents amounts due if theCompany were to settle all contracts at June 30, 2003.  The two option positions at June 30, 2003consist of a group of short put options and a group of long put options thatcoincide with purchases in July 2003 and continuing until December 2003.  At June 30, 2003, the short put options havean unrealized loss of $493,587 and the long put options have an unrealized lossof $17,086 net of premiums received of $14,100.  Realized losses from option contracts exited, but for which theinventory had not yet been sold, totaled $145,512 at June 30, 2003, and areincluded in other comprehensive income. As the inventory related to these option contracts is sold, the realizedlosses will be reclassified into operations. During the six months ending June 30, 2003, realized gains from optioncontracts exited and recognized in operations totaled $29,817 as the inventoryrelated to these options contracts was sold. At June 30, 2003, a total unrealized loss of $384,205 has been includedin accumulated other comprehensive loss, net of minority interest share of$271,980, for a total of $656,185.

 

*Income Taxes*

 

Little Sioux Corn Processors, LLC and LSCP, LP are treated aspartnerships for federal and state income tax purposes and generally do notincur income taxes.  Instead, their earningsand losses are included in the income tax returns of the members/partners.Therefore, no provision or liability for federal or state income taxes has beenincluded in these financial statements. Differences between consolidated financial statement basis of assets andtax basis of assets is related to capitalization and amortization oforganization and start-up costs for tax purposes, whereas these costs areexpensed for financial statement purposes. In addition, the Company uses the modified accelerated cost recoverysystem method (MACRS) for tax deprecation instead of the straight line methodthat is used for book depreciation, which causes temporary differences.

* *

*Grants*

* *

The Company recognizes grant income as other income for reimbursementof expenses incurred upon complying with the conditions of the grant.  For reimbursements of capital expenditures,the grants are recognized as a reduction of the basis of the asset uponcomplying with the conditions of the grant.

 

14

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*Commodity CreditCorporation Bioenergy Program*

 

During 2003, the Company enrolled in the Commodity Credit CorporationBioenergy Program (CCC), a department of the United States Department ofAgriculture.  This program enables theCompany to receive payments based on increases in production of ethanol overthe previous year of up to $7,500,000 per year.  New production is eligible and is considered increasedproduction.  Payments under the programare subject to pro rata reduction if aggregate payments to all producers in anyfiscal year exceed the maximum annual funding of the program.  During the six months ended June 30, 2003,the Company recorded $2,846,301 as other income from the CCC.

 

*Fair Value ofFinancial Instruments*

* *

The carrying value of cash and restricted cash approximate its fairvalue.

 

The Company believes the carrying amount of option contractsapproximate fair value based on current market prices.

 

It is not currently practicable to estimate fair value of the line ofcredit and notes payable to the bank. Because these agreements contain certainunique terms, conditions, covenants, and restrictions, as discussed in Note 4and 5, there is no readily determinable similar instrument on which to base anestimate of fair value.

 

15

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**2.  INVENTORY**

 

Inventories consist of the following:

 
|            |   | **June 30  2003** |      |
|-----------------|--------|-------------------|-----------|
|            |   |              |      |
| Raw materials   |   | $                 | 809,221   |   |
| Work in process |   | 401,893           |      |
| Finished goods  |   | 743,633           |      |
|            |   |              |      |
| Totals          |   | $                 | 1,954,747 |   |

 

There were no inventories at June 30, 2002.

** **

**3. CONSTRUCTION IN PROGRESS**

 

Amounts included in construction in progress as of December 31, 2002are as follows:

 
| Construction costs        |   | $       | 41,349,796 |   |
|---------------------------|--------|---------|------------|--------|
| Capitalized interest      |   | 391,695 |       |
| Insurance and other costs |   | 58,829  |       |
|                      |   |    |       |
|                      |   | $       | 41,800,320 |   |

 

The Company capitalized interest during the construction period of$747,766 and all interest incurred prior to completion was capitalized.  All amounts included in construction inprogress have been placed in service during the second quarter ended June 30,2003.

 

**4. REVOLVING PROMISSORY NOTE**

 

Under the terms of thefinancing agreement, the Company has a revolving promissory note of up to$3,500,000 maturing in July 2003, renewable annually thereafter.  Upon conversion of the construction loan toterm notes as described in Note 5, the revolving promissory note was amendedwhere by interest is due monthly at the one month London Interbank Offered Rate(LIBOR) plus 380 basis points which totaled 4.92% at June 30, 2003.  Prior to this amendment, interest was duemonthly at 1.0% plus the prime rate. The Company pays a commitment fee of .125% on the unused portion of therevolving promissory note.  The outstandingbalance at June 30, 2003 was $2,157,035. The revolving promissory note as well as the term notes described inNote 5 are subject to protective covenants requiring the Company to maintainvarious financial ratios, are secured by all business assets, and

 

16

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require additional loanpayments based on excess cash flow. Subsequent to June 30, 2003, the revolving promissory note was reneweduntil July 2004.

 

**5. LONG–TERM DEBT**

 

Long-term debt consists of the following:
|                                                                                                                                                                                                                                                                                                                                                                  |   | **June 30  2003** |        | **December 31  2002** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|-----------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                  |   | **(Unaudited)**   |        | **(Audited)**         |   |
| Note payable to bank, principal and  interest are due and payable on demand or July 30, 2003, interest is charged  at 7.00%, secured by real estate, subordinate to the term notes                                                                                                                                                                                    |   | **$**             | **50,000**  |                  | $      | 600,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                  |   |              |        |                  |   |
| Note payable to bank, principal and  interest are due and payable on demand or March 4, 2004, interest is charged  at 7.00%, secured by real estate, subordinate to the term notes                                                                                                                                                                                    |   | **150,000**       |        | 150,000               |   |
|                                                                                                                                                                                                                                                                                                                                                                  |   |              |        |                  |   |
| Note payable to agricultural development  agency, principal and interest are due and payable on July 30, 2004, no  interest rate is charged as long as the note is repaid by June 30, 2004,  thereafter, interest will retroactively accrue at the prime rate, secured by  a general security agreement covering substantially all assets, subordinate  to term notes |   | **50,000**        |        | 50,000                |   |
|                                                                                                                                                                                                                                                                                                                                                                  |   |              |        |                  |   |
| Totals carried forward                                                                                                                                                                                                                                                                                                                                                |   | **$**             | **250,000** |                  | $      | 800,000 |   |

 

17

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|                                                                                                                                                                                                               |   | **June 30  2003** |           | **December 31  2002** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|----------------|-----------------------|--------|
|                                                                                                                                                                                                               |   | **(Unaudited)**   |           | **(Audited)**         |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Totals brought forward                                                                                                                                                                                             |   | **$**             | **250,000**    |                  | $      | 800,000 |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Note payable to related party, principal  and interest are due and payable on July 25, 2007, interest is charged at  7.00%, secured by real estate, subordinate to term notes                                      |   | **1,250,000**     |           | 1,250,000             |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Construction note payable to bank, converted  to term notes as described below                                                                                                                                     |   |              |           | 19,777,003            |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Term note #2 payable to lending  institution, see terms below                                                                                                                                                      |   | **15,732,500**    |           |                  |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Term note #3 payable to lending  institution, see terms below                                                                                                                                                      |   | **10,732,500**    |           |                  |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Term note #4 payable to lending  institution, see terms below                                                                                                                                                      |   | **5,000,000**     |           |                  |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Construction payable periodically paid by  draws from the construction note payable                                                                                                                                |   |              |           | 4,613,505             |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| 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 |   | **350,341**       |           | 361,910               |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Note payable to governmental unit, due in  monthly payments of $3,472 without interest, maturing on January 28, 2009,  secured by real estate, subordinated to term notes                                          |   | **232,639**       |           |                  |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Note payable to bank due in monthly  payments of $5,921 including interest at 6% maturing on March 2, 2004,  secured by real estate, subordinated to term notes                                                    |   | **235,245**       |           |                  |   |
|                                                                                                                                                                                                               |   |              |           |                  |   |
| Totals carried forward                                                                                                                                                                                             |   | **$**             | **33,783,225** |                  | $      | 26,802,418 |   |

 

18

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|                                                                                                                                                                                                                             |   | **June 30  2003** |           | **December 31  2002** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|----------------|-----------------------|--------|
|                                                                                                                                                                                                                             |   | **(Unaudited)**   |           | **(Audited)**         |   |
|                                                                                                                                                                                                                             |   |              |           |                  |   |
| Totals brought forward                                                                                                                                                                                                           |   | **$**             | **33,783,225** |                  | $      | 26,802,418 |   |
|                                                                                                                                                                                                                             |   |              |           |                  |   |
| Note payable to state development agency  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**       |           |                  |   |
|                                                                                                                                                                                                                             |   |              |           |                  |   |
| Note payable to state development agency,  forgivable upon completion of the ethanol plant and the sale of 40 million  gallons of ethanol, otherwise due with interest from July 1, 2006 through  2009, secured by all equipment |   | **90,000**        |           |                  |   |
|                                                                                                                                                                                                                             |   |              |           |                  |   |
| Totals                                                                                                                                                                                                                           |   | **34,083,225**    |           | 26,802,418            |   |
|                                                                                                                                                                                                                             |   |              |           |                  |   |
| Less amounts due within one year                                                                                                                                                                                                 |   | **3,022,098**     |           | 1,743,201             |   |
|                                                                                                                                                                                                                             |   |              |           |                  |   |
| Totals carried forward                                                                                                                                                                                                           |   | **$**             | **31,061,127** |                  | $      | 25,059,217 |   |

 

The Company obtained debt financing from a lending institution in theform of a construction and term loan and a revolving promissory note.  The construction loan provided the lesser of60% of the total cost of the project or $31,465,000 with a variable rate duringthe construction period of 1.0% plus the prime rate, which at December 31, 2002totaled 5.25%.  The construction periodis deemed to be the earlier of the first 12 months following the closing date,July 25, 2002, or the completion of construction.  The construction loan was converted to three term notes on June23, 2003, referred to by the lending institution as term notes #2, #3, and#4.  Term note #2 totals $15,732,500with fixed principal payments of varying amounts due quarterly beginningSeptember 1, 2003 with interest at the three month LIBOR plus 280 basis points,which totaled 3.91% at June 30, 2003, payable in full on June 1, 2008.  As part of the financing agreement and asdescribed in Note 1, the Company accepted a fixed rate option on term note #2by entering into an interest rate swap which effectively fixes the interest rateon this term note at 5.79% until this term note is repaid on June 1, 2008.

 

Term notes #3 and #4 total $10,732,500 and $5,000,000, respectively,with term note #3 bearing interest at the three month LIBOR plus 380 basispoints and term note #4 bearing interest at the one month LIBOR plus 380 basispoints, which totaled 4.91% and 4.92%, respectively, at June 30, 2003, bothpayable in full on June 1, 2008.  TheCompany is required to make quarterly payments of $506,588 beginning September1, 2003.  The quarterly payments areapplied first to accrued interest on term note #4.  The remaining amount is applied to accrued interest on the termnote #3 and then to principal until this note is repaid in full or untilmaturity.  After term note #3 is repaid,payments are

 

19

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applied first to accrued interest and then to principal on the termnote #4 until paid in full or until maturity. Term note #4 allows subsequent borrowings up to the original $5,000,000to the extent principal payments have been made until maturity.

 

As part of the financing agreement, the premium above the LIBOR on theterm notes may be reduced based on a financial ratio.  The financing agreement requires an annual servicing fee of$50,000 for five years.  As described inNote 1, the Company entered into an interest rate cap agreement to reduce therisk of increases in interest rates. 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 subordinated notes payable to the bank and related party requireadditional cash flow anticipated to be received from the Commodity CreditCorporation Bioenergy Program to be split pro rata between the subordinateddebtors as additional payments on the notes.

 

The estimated maturities of long-term debt atJune 30, 2003 are as follows:

** **
| 2004                 |   | $          | 3,022,098  |   |
|----------------------|--------|------------|------------|--------|
| 2005                 |   | 2,861,488  |       |
| 2006                 |   | 3,079,952  |       |
| 2007                 |   | 3,124,481  |       |
| 2008                 |   | 21,788,616 |       |
| After 2008           |   | 206,590    |       |
|                 |   |       |       |
| Total long-term debt |   | $          | 34,083,225 |   |

 

20

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Equipment includes the following equipment under capital leases:

 
|                               |   | **June 30  2003** |        | **December 31  2002** |   |
|------------------------------------|--------|-------------------|-------------|-----------------------|--------|
|                               |   |              |        |                  |   |
| Equipment                          |   | **$**             | **455,937** |                  | $      | 363,416 |   |
| Accumulated amortization           |   | **11,857**        |        | 750                   |   |
|                               |   |              |        |                  |   |
| Net equipment under capital leases |   | **$**             | **444,080** |                  | $      | 362,666 |   |

** **

The Company has leased equipment under operating and capital leasesthrough 2008.  At June 30, 2003, theCompany had the following minimum commitments, which at inception hadnon-cancelable terms of more than one year:

 
|                                                                                  |   | **Operating  Lease** |      | **Capital  Leases** |    |
|---------------------------------------------------------------------------------------|--------|----------------------|-----------|---------------------|---------|
|                                                                                  |   |                 |      |                |    |
| 2004                                                                                  |   | $                    | 326,108   |                | $       | 81,210 |   |
| 2005                                                                                  |   | 326,108              |      | 81,210              |    |
| 2006                                                                                  |   | 326,108              |      | 80,440              |    |
| 2007                                                                                  |   | 326,108              |      | 79,893              |    |
| 2008                                                                                  |   | 121,808              |      | 59,919              |    |
| Total minimum lease commitments                                                       |   | $                    | 1,426,240 |                | 382,670 |   |
| Less amount representing interest                                                     |   |                 |      | 32,329              |    |
|                                                                                  |   |                 |      |                |    |
| Present value of minimum lease commitments;  included in the preceding long-term debt |   |                 |      | $                   | 350,341 |   |

 

21

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**6.  MEMBERS’ EQUITY**

 

As specified in the LLC’s operating agreement, the LLC has one class ofmembership units. The LLC is authorized to issue 28,000 membership units. OnMarch 6, 2001, the LLC prepared a Registration Statement with the State of Iowafor 27,000 units, which were available for sale at $1,000 per unit. The initialRegistration Statement was amended during 2001 whereby the minimum offering wasreduced from $18 million to $8 million in anticipation of the LLC becoming thegeneral partner in LSCP, an entity formed on October 16, 2001 that would ownand operate the plant.  Additionally,through amendment of the Registration Statement, the offering price wasincreased, for units purchased after August 14, 2001 from $1,000 to $1,100 toencourage investors to purchase units before August 14, 2001 and offering wasextended from closing date of December 31, 2001 to March 6, 2002. The LLCraised $10,226,000 by issuing 10,002 units of the LLC through thisoffering.  Furthermore, the LLC receiveda $309,613 contribution of equity from the limited partners in LSCP viaallocation of units in excess of net assets contributed by the LLC.  The limited partners agreed to thisallocation in recognition of efforts and funds previously expended for thedevelopment of the plant held by LSCP.

** **

**7. COMPREHENSIVE INCOME**

 

Total comprehensive income (loss) for the six months ended June 30,2003 and 2002 was comprised of the following:

 

|                                                 |   | **June 30** |          | **June 30** |   |
|------------------------------------------------------|--------|-------------|---------------|-------------|--------|
|                                                 |   | **2003**    |          | **2002**    |   |
|                                                 |   |        |          |        |   |
| Net income (loss)                                    |   | **$**       | **1,904,087** | ** **  | $      | (160,086 | ) |
| Net gain on derivative instruments                   |   | **92,396**  | ** **    |        |   |
| Minority interest in gain on derivative  instruments |   | **(38,344** | **)**         |        |   |
|                                                 |   |        | ** **    |        |   |
| Total comprehensive income (loss)                    |   | **$**       | **1,958,139** | ** **  | $      | (160,086 | ) |

 

Total comprehensive income (loss) for the three months ended June 30,2003 and 2002 was comprised of the following:

 

|                                                 |   | **June 30**    |       | **June 30** |   |
|------------------------------------------------------|--------|----------------|------------|-------------|--------|
|                                                 |   | **2003**       |       | **2002**    |   |
|                                                 |   |           |       |        |   |
| Net income (loss)                                    |   | **$1,851,278** | ** ** | $(46,440    | )      |
| Net loss on derivative instruments                   |   | **(103,495**   | **)**      |        |   |
| Minority interest in loss on derivative  instruments |   | **42,862**     | ** ** |        |   |
|                                                 |   |           | ** ** |        |   |
| Total comprehensive income (loss)                    |   | **$1,790,645** | ** ** | $(46,440    | )      |

 

Net gain or loss on derivative instruments for the three months and sixmonths ended June 30, 2003 was impacted primarily by changes in the fair valueof the outstanding option contracts, related to the price of corn.  Fluctuations in the value of the optioncontracts are generally offset by changes in the fair value or cash flows ofthe underlying exposures being hedged.

 

**8. RELATED PARTY TRANSACTIONS**

** **

The engineer and general contractor became limited partners in LSCPduring 2002 by investing $500,000 and $1,750,000, respectively.  At June 30, 2003, the Company hadconstruction payable to the general contractor of $369,024.  As described in Note 9, an investor in LSCPwill market the ethanol produced by the Company.

 

**9. COMMITMENTS AND CONTINGENCIES**

 

The Company has entered into amarketing agreement whereas the Company agrees to sell certain grains andsolubles.  In return, the buyer agreesto pay the Company a percentage of the selling price for grains and a fixeddollar amount per ton of solubles.  Theagreement commences when the Company begins selling certain grains and solublesand continues for a year initially and terminable thereafter by either party.

 

The Company has entered into anethanol marketing agreement with a related party.  The Company agrees to pay the related party a fixed dollar amountper gallon for every gallon of ethanol produced by the Company and sold by therelated party.  The initial term is fouryears once the Company commences selling ethanol with renewal optionsthereafter in one year increments.

 

22

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The Company has entered into arisk management agreement for its derivative activity with a consultingfirm.  The consulting firm agrees toprovide the Company advice, assistance and risk management services.  As part of the agreement, the Company agreesto pay the consulting firm a fee of $.002 per gallon of ethanol produced duringthe term beginning the day of the month after production begins.  The initial estimated monthly payment is$6,667.  The agreement began in 2002 andcontinues until July 15, 2003 and is terminable thereafter by eitherparty.  During the second quarter endingJune 30, 2003, the Company incurred costs of approximately $20,000 under thisagreement.  Subsequent to June 30, 2003,the risk management agreement has been extended and is month to month untilterminated by either party.

 

23

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**Item 2.    Management’s Discussion and Analysis and Planof Operations**

 

This reportcontains forward-looking statements that involve future events, our futureperformance and our expected future operations and actions.  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, levelsof activity, 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 thedocuments that we reference in this report and have filed as exhibits,completely and with the understanding that our actual future results may bematerially different from what we currently expect.  We qualify all of our forward-looking statements by thesecautionary statements.

 

**Overview**

 

Little SiouxCorn Processors, L.L.C. was formed as an Iowa limited liability company onSeptember 28, 2000, for the purpose of constructing and operating a 40 milliongallon per year ethanol plant in northwest Iowa.  We raised equity by registering our Class A membership units withthe State of Iowa.  The offeringcommenced on March 6, 2001 and ended on March 6, 2002.  During the offering period, we sold 10,002of our Class A membership units and received aggregate sales proceeds of$10,226,000.

 

As of December31, 2002, we had 10,941 Class A membership units issued and outstanding and atotal of 720 unit-holders.  As ofDecember 31, 2002, we had assets exceeding $10 million.  Because we had assets exceeding $10 millionand 720 unit-holders as of the end of our last fiscal year (December 31, 2002)we registered our Class A membership units with the U.S. Securities andExchange Commission on April 30, 2003, pursuant to Section 12(g) of theSecurities Exchange Act of 1934.

 

We contributedour unit sales proceeds to LSCP, LP, an Iowa limited partnership, in exchangefor the sole general partnership interest. In 2002, our project engineer and general contractor invested $500,000and $1,750,000, respectively in LSCP, LP. LSCP, LP, has constructed and currently operates the ethanol plant.  We control the business and day-to-dayoperations of the ethanol plant through our sole general partnership interestin LSCP, LP.  On June 26, 2003, ourmembers voted to elect limited liability status for LSCP, LP.  As of July 31, 2003, LSCP, LP, converted toLSCP, LLLP, an Iowa limited liability limited partnership.  We currently own a 58.5% ownership interestin LSCP, LLLP.  Little Sioux CornProcessors, L.L.C. and its subsidiary, LSCP, LLLP, are collectively referred toin this report as the “Company”, “we”, or “us”.

 

In April 2003, wesubstantially completed construction of a 40 million-gallon per year ethanolplant near Marcus, Iowa and commenced plant operations.  During the months of May and June, we wereengaged in preliminary testing of plant operations and start-upproduction.  The plant satisfied all preliminarytesting.  We are currently engaged inthe production of ethanol and distillers grains at our plant.  Since commencement of plant operations, theplant’s production capacity has consistently exceeded the 40 million gallonproduction guarantee provided by the general contractor.  We sell and distribute our ethanol anddistillers grains throughout the upper Midwest.

 

**Plan ofOperations for the Next 12 Months**

 

We expect tospend the next 12 months continuing to operate the ethanol plant.  Landscaping, drainage systems and accessroads still need to be completed. Certain design improvements will be installed as they aredeveloped.  The plant may be shut downfrom time to time over the next 12 months to incorporate these designimprovements.

 

24

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We have anoutstanding balance of $369,024 on our design-build contract.  Of the outstanding balance of $369,024, weexpect to pay $119,024 within the next 3 months and anticipate paying theremaining balance of $250,000 pending satisfactory completion of certainperformance guarantees provided under our design-build contract.  As of June 30, 2003, final constructioncosts, including the outstanding balance of $369,024, total $45,254,271.  Final construction costs only includeamounts due to our general contractor and do not include other costs incurredin connection with construction of the plant such as the cost of land, expensesfor landscaping, drainage systems, access roads and rail switches.

 

We expect toconstruct an additional 500,000 bushels of grain storage within the next 12months to allow the plant to buy corn at cheaper levels when grain is availablefor sale.  We also expect to pave thedriveways within the boundaries of the plant to reduce dust emissions.  The plant’s emissions standards must betested within six months of start-up production.  We expect emissions testing to take place in September 2003.  We expect the plant to satisfy theprescribed emission standards allowing the plant to continue operating at acapacity in excess of 40 million gallons of ethanol per year.

 

We expect tohave sufficient cash available to cover our costs over the next 12 months,including completion of construction, corn and natural gas supplies, staffing,office, audit, legal, compliance and working capital costs.  The following is our estimate of our costsand expenditures for the next 12 months:

 
| Operating Costs:                 |   |      |       |
|----------------------------------|--------|-----------|------------|
| Corn Costs                       |   | $         | 36,161,000 |   |
| General and administrative costs |   | 3,930,000 |       |
| Natural Gas Costs                |   | 8,100,000 |       |
| Chemical Costs                   |   | 4,306,000 |       |
| Other Production Costs           |   | 3,204,000 |       |
|                             |   |      |       |
| Total operating costs            |   | $         | 55,701,000 |   |

 

The estimatesin the table set forth above are based upon our limited operational experienceand that of our general contractor with other ethanol plants similar toours.  These are only estimates and ouractual expenses and costs could be much higher due to a variety of factorsoutside our control, such as:

 

•                  Changes in theavailability and price of corn;

•                  Changes infederal ethanol tax incentives;

•                  Changes in theenvironmental regulations that apply to our plant operations;

•                  Increasedcompetition in the ethanol industry;

•                  Changes ininterest rates or the availability of credit;

•                  Changes in ourbusiness strategy, capital improvements or development plans;

•                  Changes in plantproduction capacity or technical difficulties in operating the plant;

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

•                  Changes in theavailability and price of natural gas and the market for wet and modified wetdistillers grains.

 

Natural gas is an important input to out manufacturing process.  We use natural gas to dry our distillersgrains products to moisture contents at which they can be stored for longperiods, transported greater distances, and desired by broader livestockmarkets, including poultry and swine. Natural gas has recently been available only at prices exceedinghistorical averages.  These prices areincreasing our costs of production.  Weexpect natural gas prices to remain high or increase at least through the2003-2004 winter months.  We intend topurchase options to purchase natural gas at affordable rates in order toprotect a sustainable level of operating revenues.  Lower prices than expected for other inputs, increased operatingefficiencies, and sales of our wet distillers grains products also help protectour operating profits.  Nonetheless, wemay not recover high costs of production resulting from high natural gas prices.

 

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We anticipatespending approximately $55.7 million over the next twelve months.  We have projected to spend approximately$51.8 million on direct cost of goods sold and production costs.  We also expect to incur approximately $3.9million for general and administrative costs. Our production costs could rise, however, if the cost of natural gasincreases.  According to the EnergyInformation Administration, the cost of natural gas could double this winter,resulting in higher costs of production that may not be recovered.

 

We expect tofund our costs and expenditures for the next 12 months using cash flow fromcontinuing operations, lines of credit, USDA grant proceeds and cashreserves.  Based upon our expectedsources of funds, we do not anticipate a need to raise additional funds withinthe next 12 months.

 

We usecommodity option contracts, which are purchased and sold through regulatedcommodity exchanges, such as the Chicago Board of Trade, and over-the-counterexchanges to manage our price risk exposure relating to the corn supplynecessary for plant operations.  Weenter into option contracts for hedging purposes only.  We purchase our option contracts based uponthe specific volumes of corn and natural gas we expect to use in our manufacturingprocess.  Quotes listed on regulatedcommodity exchanges primarily determine the fair value of the optioncontracts.  When we purchase an optioncontract, we designate the option contract as a hedge of variable cash flows ofcertain forecasted purchases of corn and natural gas used in the manufacturingprocess.  We record all of our optioncontracts at fair market value with changes in the value of the contractsrecorded in accumulated other comprehensive income, until the inventory towhich the option contract relates is sold, at which time it is recorded incurrent period earnings.  In order toprotect our cost of corn, we expect that we will hedge approximately 50% of ourcorn supply needs for the next 12 months through option contracts.  Similarly, due to volatility in the marketfor natural gas, we expect that we will hedge a portion of our natural gassupply needs for the next 12 months through option contracts.  We have entered into a risk management agreementwith a consulting firm that provides assistance to us with our risk managementstrategies, including price protection of our corn and natural gassupplies.  During the next 12 months, weexpect to continue using the services of the consulting firm with respect toour risk management strategies.

 

We have hiredapproximately 30 full-time employees to operate the ethanol facility.  We have 20 full-time employees in ethanolproduction operations and 10 full-time employees in general management andadministration.   We do not expect tohire a significant number of additional employees during the next 12 months.

 

We expect to continue using Archer Daniels Midland Company to marketand distribute our ethanol for at least the next 12 months.  We expect to continue using CommoditySpecialist Company to market and sell our distillers grains for at least thenext 12 months.

** **

**Liquidityand Capital Resources**

 

As of June 30,2003, we had the following consolidated assets: cash of $1,359,254, currentassets of $8,441,346 and total assets of $58,228,119.  As of June 30, 2003, we had consolidatedcurrent liabilities of $6,968,058.  Ourmembers’ contributions, net of costs related to capital contributions, was$10,842,237.  Our members’ equity was$11,812,944 and consisted of an accumulated other comprehensive loss of$384,205 and retained earnings of $1,354,912. The equity of the minority interest held by the limited partners was$8,385,990, for a total members’ equity of $20,198,934.

 

In April 2003we substantially completed construction of our ethanol plant and beganoperations.   For the 6 months endedJune 30, 2003, cash used in operating activities was $1,627,642.  Our operating activities were financedthrough an increase of $2,157,035 in our revolving promissory note and anincrease of $1,383,924 in our long-term debt financing.

 

On June 23, 2003, we converted the construction note to three termnotes.   First National Bank of Omahaholds the term notes and refers to the notes as Term Notes #2, #3 and #4.  Term Note #2 is in the principal amount of$15,732,500 and is payable in quarterly installments beginning September 1,2003.  Interest on Term Note #2 is atthe three month LIBOR plus 2.8%, which totaled 3.91% as of June 30, 2003.  Term Note #2 is payable in full on June 1,2008.  In order to achieve a fixedinterest rate option on Term Note #2, we have entered into an interest rateswap which helps protect our exposure to increases in interest rates.  Our interest rate swap effectively fixes theinterest rate on Term Note #2 at 5.79% until June 1, 2008.

 

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Term Note #3is in the principal amount of $10,732,500 and is payable in quarterlyinstallments beginning September 1, 2003. Interest on Term Note #3 is at the three month LIBOR plus 3.8%, whichtotaled 4.91% as of June 30, 2003.  TermNote #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.  Our interest rate iscapped at 6.8% for Term Note #3 until June 1, 2006.

 

Term note #4is in the principal amount of $5,000,000 and is payable in quarterlyinstallments beginning September 1, 2003. Interest on Term Note #4 is at the one month LIBOR plus 3.8%, whichtotaled 4.92% as of June 30, 2003.  TermNote #4 is payable in full on June 1, 2008. The aggregate indebtedness represented by the Term Notes #2, #3 and #4is $31,465,500.

 

We expect our interest rate swap and cap agreement to adequatelyprotect us in the event of changes in interest rates.  However, we may not be fully protected in the event of largemovements in interest rates.  Any losswe experience as a result of discontinuance of our interest rate swap or capwill be reclassified into earnings.  Wehave not experienced any loss in connection with our interest rate swap or capduring the six months ended June 30, 2003.

 

We have a note payable to Farmers State Bank of Marcus, Iowa, in theamount of $50,000, with principal and interest due and payable on demand or onJuly 30, 2003.  Interest is charged atthe rate of 7% per annum and the note is secured by real estate subordinated tothe Term Notes.  We have another notepayable to Farmers State Bank of Marcus, Iowa, in the amount of $150,000, withprincipal and interest due and payable on demand or on March 4, 2004.  Interest is charged at the rate of 7% perannum and the note is secured by real estate subordinated to the TermNotes.  We have a note payable to theIowa Department of Economic Development in the amount of $50,000, withprincipal and interest due and payable on July 3, 2004.  No interest is charged as long as the noteis repaid by June 30, 2004 and interest will retroactively accrue at theprime rate.

 

We have a notepayable to Fagen, Inc., in the amount of $1,250,000, with principal andinterest due and payable on July 25, 2007. Interest is charged at the rate of 7% per annum and the note is securedby real estate subordinated to the Term Notes.

 

We havecapital lease obligations in the amount of $350,341, due in monthlyinstallments initially totaling $6,768 commencing April 1, 2003, and includingimplicit interest between 7.4% and 17.4% through March 1, 2008.  The capital lease obligations are secured byleased equipment.

 

We have a notein the amount of $232,639 payable to an Iowa Department of Economic Developmentloan program due in monthly installments of $3,472 without interest, maturingon January 28, 2009.  The note issecured by real estate subordinated to the Term Notes.  We have a note with Farmers State Bank ofMarcus, Iowa, in the amount of $235,245 payable in monthly payments of $5,921,including interest at 6%, maturing on March 2, 2004.  The note is secured by real estate subordinated to the TermNotes.  We have a note in the amount of$300,000 payable to governmental units due in 60 monthly installments beginningAugust 1, 2004 in the amount of $1,667 without interest.  The note matures on July 1, 2009.  The note has a $90,000 portion subject toforgiveness if we meet certain qualifications. The note is secured by all equipment.

 

We have arevolving promissory note of up to $3,500,000 with First National Bank of Omahamaturing in July, 2003 and renewable annually thereafter, with interest duemonthly at the one month LIBOR plus 3.8%, which totaled 4.92% as ofJune 30, 2003.  The revolvingpromissory note is our operating line of credit.  We pay a commitment fee of 0.125% on the unused portion of the line.  The outstanding balance as of June 30, 2003,was $2,157,035.  The revolving promissorynote is subject to protective covenants requiring us to maintain variousfinancial ratios.  The revolvingpromissory note is secured by all business assets. After June 30, 2003, werenewed the revolving promissory note until July 2004.

 

Term Notes #2,#3 and #4 are subject to protective covenants requiring us to maintain variousfinancial ratios, are secured by all business assets, and require additionalloan payments based on excess cash flow. The notes payable to Farmers State Bank of Marcus, Iowa and Fagen, Inc.,require additional loan payments based on excess cash flow which includespayments received from the USDA’s Commodity Credit Corporation, as discussedbelow.

 

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We haveenrolled in the USDA’s Commodity Credit Corporation Bioenergy Program. During the six months ended June 30, 2003, the Company recorded $2,846,301 asother income from the Commodity Credit Corporation.   Under the grant program, the Commodity Credit Corporation willreimburse eligible ethanol producers of less than 65 million gallons ofbioenergy one bushel of corn for every two and one-half bushels of corn usedfor the increased production of ethanol.  No eligible producer may receivemore than $7.5 million under the program.   Because we are aneligible producer and expect to annually utilize 15 million bushels of corn inthe increased production of ethanol, we expect to potentially receive themaximum award of $7.5 million.  However, the Commodity Credit Corporationmay award only $150 million annually fiscal years 2003 through 2006, and anyaward we received may be reduced based upon the volume of applications fromother eligible producers.  The estimated maximum award of $7.5 million isbased upon an increase in national ethanol production capacity of 426 milliongallons per year.  We anticipate aslight reduction in the Commodity Credit Corporation grant (in the range of 5%to 10%) if national ethanol production capacity exceeds 468 million gallons peryear (based upon $2.00/bushel corn). We do not anticipate a significantreduction in the grant until the increase in national ethanol productioncapacity exceeds 900 million gallons per year. We expect to be eligible toreceive an award under the program only once during the life of our project;however, due to timing differences between our fiscal year and the fiscal yearof the federal government, or, if we increase our production capacity at somepoint in the future and during the life of the grant program, we may become eligibleto receive more than $7.5 million or we may become eligible more than once forthis award.

 

**Item3.  Controls and Procedures**

 

Our President(the principal executive officer), Daryl Haack, and our Treasurer (theprincipal financial officer), Doug Lansink, have reviewed our disclosurecontrols and procedures as of the end of the period covered by the periodcovered by this report.  Based upon thisreview, these officers believe that our disclosure controls and procedures areeffective in ensuring that material information related to us is made known tothem by others within the Company.  Ourprincipal executive officer and principal financial officer have evaluated anychanges in our internal control over financial reporting that occurred as ofthe end of the period covered by this report and there has been no change thathas materially affected or is reasonably likely to materially affect ourinternal control over financial reporting.

 

**PART II. OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

None.

 

**Item2.  Changes in Securities**.

 

In 2000 and2001, we sold 939 Class A membership units to our seed capital investors at aprice of $500 per unit and received aggregate proceeds of $469,500.  In 2002, we sold a total of 10,002 Class Amembership units, which were registered and offered in the State of Iowa, toresidents of the State of Iowa.  We sold7,812 Class A membership units at a price of $1,000 per unit and we sold 2,190Class A membership units for a price of $1,100 per unit.  From our 2002 Class A membership unit saleswe received total aggregate proceeds of approximately $10,226,000.  We claimed exemption from federalregistration with respect to our Class A membership unit sales due to theapplication of Section 3(a)(11) of the Securities Act of 1933 (regardingintra-state offerings), and state registration due to application of Iowa CodeSection 502.203(9) regarding small issuers. The recipients of securities in each such transaction represented theirintention to acquire the securities for investment only and not with a view to,or for sale in connection with, any distribution thereof, and appropriatelegends were affixed to unit certificates and instruments issued in suchtransactions.  All recipients had adequateaccess through their relationships with us, to information about us.  We have no Class B membership unitsoutstanding.

 

**Item3.  Defaults Upon Senior Securities**

 

None.

 

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**Item4.  Submission of Matters to a Vote of Security Holders**

 

Our membersheld their annual meeting on June 26, 2003. There were 2,445 Class A membership units represented in person and3,396 Class A membership units represented by proxy, for a total of 5,841 ClassA membership units represented at our annual members’ meeting.  Two matters were discussed and voted on atthe annual meeting.  First, our membersvoted to approve a change in our fiscal year from January 1 through December 31to October 1 through September 30, effective as of June 26, 2003.  5,841 Class A membership units were voted infavor of the change in fiscal year and no membership units voted against thechange.  There were no abstentions.  Second, our members voted to approve anelection by LSCP, LP, to convert to an Iowa limited liability limited partnership.  5,783 Class A membership units were voted infavor of the LLLP election and 18 Class A membership units voted against theelection.  There were no abstentions.  Members did not elect directors at theannual members’ meeting held June 26, 2003.

 

**Item 5.  Other Information**

 

None.

** **

**Item 6****.  Exhibits and Reports on Form 8-K**

 

(a)                                  Thefollowing exhibits are included herein:

 
| 31.1 |   | Certificate  Pursuant to 17 CFR 240.15d-14(a)  |
|------|--------|------------------------------------------------|
| 31.2 |   | Certificate  Pursuant to 17 CFR 240.15d-14(a)  |
| 32.1 |   | Certificate  Pursuant to 18 U.S.C. § 1350 |
| 32.2 |   | Certificate  Pursuant to 18 U.S.C. § 1350 |

 

(b)                                 Reportson Form 8-K.

 

On July 11,2003, we filed Form 8-K reporting the change in our fiscal year from January 1through December 31 to October 1 through September 30, effective as of June 26,2003.  We will file Form 10-KSB for theperiod January 1 through September 30, 2003, to cover the transition period.

 

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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:  |  August  19, 2003                                  |   | /s/ Daryl  Haack |   |
|   | Daryl Haack                                             |
|   | President  (Principal Executive Officer)                |
|   |                                                    |
| Date:  |  August  19, 2003                                  |   | /s/ Doug  Lansink |   |
|   | Doug Lansink                                            |
|   | Treasurer  (Principal Financial and Accounting Officer) |
|        |                                                         |  |  |  |  |

 

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