Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **x**                                                                                                                                                                                                                       | **Quarterly  report under Section 13 or 15(d) of the Securities Exchange Act of  1934.** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                        |                                                                                               |
| **For the  fiscal quarter ended June 30, 2008**                                                                                                                                                                        |
|                                                                                                                                                                                                                        |
| **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 registrant as specified in itscharter)

 

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

 

**4808 FAvenue, Marcus, Iowa 51035**

(Address of principal executive offices)

 

**(712)376-2800**

(Issuer’s telephone number)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

x Yes          o  No

 

 Indicate by check markwhether the registrant is a large accelerated filer, a non-accelerated filer,or a smaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):

 
| Large  Accelerated Filer   o |   | Accelerated  Filer   o |   | Non-Accelerated  Filer   x |   | Smaller  Reporting Company   o |
|---------------------------------------------|--------|---------------------------------------|--------|-------------------------------------------|--------|-----------------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

o  Yes          x  No

 

Indicatethe number of shares outstanding for each of the issuer’s classes of commonequity as of the latest practicable date:

 

Asof August 19, 2008, there were 164,115 units outstanding.

 

 

 

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Table of Contents

 

**INDEX**

 
| ** **                                                                                              | **Page No.** |
|---------------------------------------------------------------------------------------------------------|-------------------|
|                                                                                                    |              |
| **PART I. FINANCIAL INFORMATION**                                                                  | **3**             |
| ** **                                                                                              | ** **        |
| **ITEM 1. FINANCIAL STATEMENTS**                                                                        | **3**             |
| **ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS** | **16**            |
| **ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK**                                 | **25**            |
| **ITEM 4T.  CONTROLS AND PROCEDURES**                                                              | **26**            |
| ** **                                                                                              | ** **        |
| **PART II.  OTHER INFORMATION**                                                                    | **27**            |
| ** **                                                                                              | ** **        |
| **ITEM 1. LEGAL PROCEEDINGS**                                                                           | **27**            |
| **ITEM 1A. RISK FACTORS**                                                                               | **27**            |
| **ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS**                                | **28**            |
| **ITEM 3. DEFAULTS UPON SENIOR SECURITIES**                                                             | **28**            |
| **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS**                                        | **28**            |
| **ITEM 5. OTHER INFORMATION**                                                                           | **28**            |
| **ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**                                                       | **28**            |
| ** **                                                                                              | ** **        |
| **SIGNATURES**                                                                                          | **29**            |

 

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Table of Contents

 

**PART I.  FINANCIALINFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS.**

 

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

CondensedConsolidated Balance Sheet

 
| ** **                                            | ** ** | **June 30,** | ** **  | **September 30,** | ** ** |
|-------------------------------------------------------|------------|-------------------|-------------|------------------------|------------|
| ** **                                            | ** ** | **2008**          | ** **  | **2007**               | ** ** |
| ** **                                            | ** ** | **(Unaudited)**   | ** **  | ** **             | ** ** |
| **ASSETS**                                            |       |              |        |                   |       |
| **Current Assets**                                    |       |              |        |                   |       |
| Cash and equivalents                                  |       | $                 | 55,545,661  |                   | $          | 17,503,176 |   |
| Restricted cash                                       |       | 2,904,237         |        | 576,446                |       |
| Accounts receivable                                   |       | 1,217,040         |        | 691,615                |       |
| Accounts receivable - related party                   |       | 5,376,132         |        | 2,584,017              |       |
| Inventory                                             |       | 9,742,652         |        | 3,309,333              |       |
| Derivatives                                           |       | 13,900,535        |        | —                 |       |
| Prepaid expenses                                      |       | 2,633,589         |        | 1,833,173              |       |
| Total current assets                                  |       | 91,319,846        |        | 26,497,760             |       |
|                                                  |       |              |        |                   |       |
| **Property and Equipment**                            |       |              |        |                   |       |
| Land and improvements                                 |       | 6,522,312         |        | 2,929,516              |       |
| Plant buildings and equipment                         |       | 118,245,775       |        | 58,196,355             |       |
| Office buildings and equipment                        |       | 396,722           |        | 358,450                |       |
|                                                  |       | 125,164,809       |        | 61,484,321             |       |
| Less accumulated depreciation                         |       | 24,403,323        |        | 18,544,654             |       |
|                                                  |       | 100,761,486       |        | 42,939,667             |       |
| Construction in progress                              |       | 6,932,008         |        | 60,938,622             |       |
| Net property and equipment                            |       | 107,693,494       |        | 103,878,289            |       |
|                                                  |       |              |        |                   |       |
| **Other Assets**                                      |       |              |        |                   |       |
| Marketable securities                                 |       | 253,629           |        | 157,717                |       |
| Investment                                            |       | 1,132,253         |        | —                 |       |
| Land costs and other                                  |       | 4,646,636         |        | 4,646,636              |       |
| Deferred offering costs                               |       | —            |        | 184,267                |       |
| Construction commitment cost                          |       | 500,000           |        | 500,000                |       |
| Deferred loan costs, net of accumulated  amortization |       | 382,371           |        | 547,374                |       |
| Total other assets                                    |       | 6,914,889         |        | 6,035,994              |       |
|                                                  |       |              |        |                   |       |
| **Total Assets**                                      |       | $                 | 205,928,229 |                   | $          | 136,412,043 |   |

 

See Notes to Condensed ConsolidatedFinancial Statements

 

3

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

CondensedConsolidated Balance Sheet

 
| ** **                                                      | ** ** | **June 30,** | ** **  | **September 30,** | ** ** |
|-----------------------------------------------------------------|------------|-------------------|-------------|------------------------|------------|
| ** **                                                      | ** ** | **2008**          | ** **  | **2007**               | ** ** |
| ** **                                                      | ** ** | **(Unaudited)**   | ** **  | ** **             | ** ** |
| **LIABILITIES  AND MEMBERS’ EQUITY**                       |       |              |        |                   |       |
| **Current Liabilities**                                         |       |              |        |                   |       |
| Current maturities of long-term debt                            |       | $                 | 8,056,931   |                   | $          | 13,259,228 |   |
| Accounts payable                                                |       | 5,388,267         |        | 7,967,325              |       |
| Accounts payable - related party                                |       | 1,104,009         |        | 1,414,774              |       |
| Accrued expenses                                                |       | 1,566,149         |        | 1,126,516              |       |
| Derivative instruments                                          |       | —            |        | 220,584                |       |
| Total current liabilities                                       |       | 16,115,356        |        | 23,988,427             |       |
|                                                            |       |              |        |                   |       |
| **Long-Term Debt,**net  of current maturities                   |       | 65,144,847        |        | 25,743,072             |       |
|                                                            |       |              |        |                   |       |
| **Minority Interest**                                           |       | 49,873,465        |        | 34,697,010             |       |
|                                                            |       |              |        |                   |       |
| **Members’ Equity, 164,115 units issued and  outstanding** |       | 74,794,561        |        | 51,983,534             |       |
|                                                            |       |              |        |                   |       |
| **Total Liabilities and Members’ Equity**                  |       | $                 | 205,928,229 |                   | $          | 136,412,043 |   |

 

See Notes to Condensed ConsolidatedFinancial Statements

 

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

CondensedConsolidated Statements of Operations

 
| ** **                                                  | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                  | ** ** | **June 30**                 | ** ** | **June 30**                 | ** ** |
| ** **                                                  | ** ** | **2008**                         | ** ** | **2007**                         | ** ** |
| ** **                                                  | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                  | ** ** |
|                                                        |       |                             |       |                             |       |
| **Revenues -**primarily  related party                      |       | $                                | 73,027,140 |                             | $          | 33,213,669 |   |
|                                                        |       |                             |       |                             |       |
| **Cost of Goods Sold**                                      |       | 43,405,745                       |       | 32,341,266                       |       |
|                                                        |       |                             |       |                             |       |
| **Gross Margin**                                            |       | 29,621,395                       |       | 872,403                          |       |
|                                                        |       |                             |       |                             |       |
| **Selling, General, and Administrative  Expenses**          |       | 2,359,368                        |       | 1,200,206                        |       |
|                                                        |       |                             |       |                             |       |
| **Operating Income (Loss)**                                 |       | 27,262,027                       |       | (327,803                         | )          |
|                                                        |       |                             |       |                             |       |
| **Other Income (Expense)**                                  |       |                             |       |                             |       |
| Interest income                                             |       | 256,847                          |       | 157,864                          |       |
| Interest expense                                            |       | (960,730                         | )          | —                           |       |
| Other income                                                |       | 1,403,448                        |       | 517,895                          |       |
| Total other income, net                                     |       | 699,565                          |       | 675,759                          |       |
|                                                        |       |                             |       |                             |       |
| **Net Income Before Minority Interest**                     |       | 27,961,592                       |       | 347,956                          |       |
|                                                        |       |                             |       |                             |       |
| **Minority Interest in Subsidiary Income**                  |       | 11,168,315                       |       | 167,068                          |       |
|                                                        |       |                             |       |                             |       |
| **Net Income**                                              |       | $                                | 16,793,277 |                             | $          | 180,888 |   |
|                                                        |       |                             |       |                             |       |
| **Net Income Per Unit - Basic and Diluted**                 |       | $                                | 102.33     |                             | $          | 1.10 |   |
|                                                        |       |                             |       |                             |       |
| **Weighted Average Units Outstanding - Basic  and Diluted** |       | 164,115                          |       | 164,115                          |       |

 

See Notes to Condensed ConsolidatedFinancial Statements

 

5

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| ** **                                                  | ** ** | **Nine Months Ended** | ** **  | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| ** **                                                  | ** ** | **June 30**                | ** **  | **June 30**                | ** ** |
| ** **                                                  | ** ** | **2008**                        | ** **  | **2007**                        | ** ** |
| ** **                                                  | ** ** | **(Unaudited)**                 | ** **  | **(Unaudited)**                 | ** ** |
|                                                        |       |                            |        |                            |       |
| **Revenues -**primarily  related party                      |       | $                               | 156,367,719 |                            | $          | 99,893,709 |   |
|                                                        |       |                            |        |                            |       |
| **Cost of Goods Sold**                                      |       | 94,633,733                      |        | 65,077,754                      |       |
|                                                        |       |                            |        |                            |       |
| **Gross Margin**                                            |       | 61,733,986                      |        | 34,815,955                      |       |
|                                                        |       |                            |        |                            |       |
| **Selling, General, and Administrative  Expenses**          |       | 6,731,039                       |        | 3,728,931                       |       |
|                                                        |       |                            |        |                            |       |
| **Operating Income**                                        |       | 55,002,947                      |        | 31,087,024                      |       |
|                                                        |       |                            |        |                            |       |
| **Other Income (Expense)**                                  |       |                            |        |                            |       |
| Interest income                                             |       | 511,555                         |        | 804,383                         |       |
| Interest expense                                            |       | (1,381,271                      | )           | (317,368                        | )          |
| Other income                                                |       | (764,962                        | )           | 390,886                         |       |
| Total other income (expense)                                |       | (1,634,678                      | )           | 877,901                         |       |
|                                                        |       |                            |        |                            |       |
| **Net Income Before Minority Interest**                     |       | 53,368,269                      |        | 31,964,925                      |       |
|                                                        |       |                            |        |                            |       |
| **Minority Interest in Subsidiary Income**                  |       | 21,350,391                      |        | 12,800,320                      |       |
|                                                        |       |                            |        |                            |       |
| **Net Income**                                              |       | $                               | 32,017,878  |                            | $          | 19,164,605 |   |
|                                                        |       |                            |        |                            |       |
| **Net Income Per Unit - Basic and Diluted**                 |       | $                               | 195.09      |                            | $          | 116.78 |   |
|                                                        |       |                            |        |                            |       |
| **Distributions Per Unit - Basic and Diluted**              |       | $                               | 56.10       |                            | $          | 53.33 |   |
|                                                        |       |                            |        |                            |       |
| **Weighted Average Units Outstanding - Basic  and Diluted** |       | 164,115                         |        | 164,115                         |       |

 

See Notes to Condensed ConsolidatedFinancial Statements

 

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

CondensedConsolidated Statements of Cash Flows

 
| ** **                                                                         | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **June 30**                | ** ** | **June 30**                | ** ** |
| ** **                                                                         | ** ** | **2008**                        | ** ** | **2007**                        | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**                 | ** ** | **(Unaudited)**                 | ** ** |
| **Operating Activities**                                                           |       |                            |       |                            |       |
| Net income                                                                         |       | $                               | 32,017,878 |                            | $          | 19,164,605 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                            |       |                            |       |
| Depreciation and amortization                                                      |       | 5,941,547                       |       | 3,841,189                       |       |
| Minority interest in subsidiary's income                                           |       | 21,350,391                      |       | 12,800,320                      |       |
| Change in fair value of derivative  instruments                                    |       | (4,912,697                      | )          | (108,389                        | )          |
| Write-off of deferred offering costs                                               |       | 184,267                         |       | —                          |       |
| Loss from investment under equity method                                           |       | 5,825                           |       | —                          |       |
| Other                                                                              |       | (95,912                         | )          | 165,581                         |       |
| Change in operating assets and liabilities:                                        |       |                            |       |                            |       |
| Restricted cash                                                                    |       | (2,327,791                      | )          | (1,848,246                      | )          |
| Accounts receivable                                                                |       | (3,317,540                      | )          | (2,188,939                      | )          |
| Inventory                                                                          |       | (6,433,319                      | )          | (3,806,052                      | )          |
| Derivative instruments                                                             |       | (9,208,422                      | )          | 5,285,501                       |       |
| Prepaid expenses                                                                   |       | (800,416                        | )          | (966,310                        | )          |
| Accounts payable                                                                   |       | 826,276                         |       | 3,095,494                       |       |
| Accrued expenses                                                                   |       | 439,633                         |       | 161,419                         |       |
| Net cash provided by operating activities                                          |       | 33,669,720                      |       | 35,596,173                      |       |
|                                                                               |       |                            |       |                            |       |
| **Investing Activities**                                                           |       |                            |       |                            |       |
| Proceeds from marketable securities                                                |       | —                          |       | 18,726,834                      |       |
| Payments for marketable securities                                                 |       | —                          |       | (46,928                         | )          |
| Capital expenditures                                                               |       | (13,307,848                     | )          | (40,817,200                     | )          |
| Payments for equity method investment                                              |       | (1,138,078                      | )          | —                          |       |
| Payments for land options and other                                                |       | —                          |       | (55,965                         | )          |
| Builder commitment fee                                                             |       | —                          |       | (500,000                        | )          |
| Net cash used in investing activities                                              |       | (14,445,926                     | )          | (22,693,259                     | )          |
|                                                                               |       |                            |       |                            |       |
| **Financing Activities**                                                           |       |                            |       |                            |       |
| Payments of long-term debt                                                         |       | (1,762,295                      | )          | (2,469,594                      | )          |
| Proceeds from issuance of long-term debt                                           |       | 35,961,773                      |       | 10,242,146                      |       |
| Payments of deferred loan costs                                                    |       | —                          |       | (547,500                        | )          |
| Deferred offering costs                                                            |       | —                          |       | (154,909                        | )          |
| Distribution to minority interest                                                  |       | (6,173,936                      | )          | (5,864,557                      | )          |
| Distribution to members                                                            |       | (9,206,851                      | )          | (8,752,861                      | )          |
| Net cash provided by (used in) financing  activities                               |       | 18,818,691                      |       | (7,547,275                      | )          |
|                                                                               |       |                            |       |                            |       |
| **Net Increase in Cash and Equivalents**                                           |       | 38,042,485                      |       | 5,355,639                       |       |
| ** **                                                                         |       |                            |       |                            |       |
| **Cash and Equivalents**–  Beginning of Period                                |       | 17,503,176                      |       | 10,133,691                      |       |
|                                                                               |       |                            |       |                            |       |
| **Cash and Equivalents**–  End of Period                                      |       | $                               | 55,545,661 |                            | $          | 15,489,330 |   |
| ** **                                                                         |       |                            |       |                            |       |
| **Supplemental Cash Flow Information**                                             |       |                            |       |                            |       |
| Interest expense paid                                                              |       | $                               | 722,525    |                            | $          | 405,578 |   |
| Interest capitalized                                                               |       | 1,735,399                       |       | 438,443                         |       |
| Total interest paid                                                                |       | $                               | 2,457,924  |                            | $          | 844,021 |   |
|                                                                               |       |                            |       |                            |       |
| **Supplemental Disclosure of Noncash  Investing and Financing Activities**         |       |                            |       |                            |       |
| Capital expenditures in accounts payable                                           |       | $                               | 772,585    |                            | $          | 1,851,199 |   |

 

See Notes to Condensed ConsolidatedFinancial Statements

 

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to Condensed Consolidated FinancialStatements (Unaudited)

 

June 30, 2008

 

**Note 1:  Nature ofOperations**

 

TheCompany represents Little Sioux Corn Processors, LLC (LLC) and its subsidiaryLSCP, LLLP (LLLP). The Company completed the expansion of the plant from a 52million gallons per year (MGY) plant to a 92 MGY plant in January 2008 andcommenced production in February 2008 after initial tests.  TheCompany sells its production of ethanol, distiller’s grains and solubles,modified wet distillers grains with solubles, and corn oil in the ContinentalUnited States.

 

**Note 2:  Summary of Significant Accounting Policies**

 

**Basis of Presentation**

 

Thesecondensed consolidated financial statements and related notes should be read inconjunction with the consolidated financial statements and notes included inthe Company’s audited consolidated financial statements for the year ended September 30,2007, contained in the Company’s annual report of Form 10-K for 2007.

 

Thecondensed consolidated interim financial statements are unaudited.  Thesestatements include all adjustments (consisting of normal recurring accruals)that we consider necessary to present a fair statement of the results ofoperations, financial position, and cash flows.  The results reported inthese condensed consolidated financial statements should not be regarded asnecessarily indicative of results that may be expected for the entire year.

 

**Principles of Consolidation**

 

Thecondensed consolidated financial statements include the accounts of the LLC,its 60.15% owned subsidiary, LLLP and its wholly owned subsidiaries AkronRiverview Corn Processors, LLC and Twin Rivers Management Co., LLC.  All significant inter-company transactionsand balances have been eliminated in consolidation.

 

**Investment**

 

The equity method of accounting is used forinvestment sin affiliated entities with are not controlled by the Company andin which are our interest is generally between 20% and 50% and the Company hassignificant influence over the entity. Our share of earnings or losses ofaffiliated entities, in which the Company holds at least 20% of the votingsecurities and has significant influence, but not control over the entity, isincluded in consolidated operating results. Management analyzes the investmentfor impairment.

 

**Use of Estimates**

 

Thepreparation of these consolidated financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period.  Actual results could differfrom those estimates.

 

**Revenue Recognition**

 

TheCompany generally sells ethanol and related products pursuant to marketingagreements.  Revenues are recognized when the marketing company (the “customer”)has taken title and assumed the risks and rewards of ownership, prices arefixed or determinable and collectability is reasonably assured.  Themarketing agreement with ADM provides that an initial price per gallon ofethanol is established upon shipment.  ADM knows the final price ofethanol purchased by the end of each day, and the Company can obtain directlyfrom ADM, the final price on a daily basis.  However, the Company settlesthe final price with ADM on a monthly basis as this is administratively easier,even though the daily sales amounts have been determined.  The Companytypically receives the related paperwork from ADM within five days of monthend.  Therefore, the Company believes that all sales of ethanol during amonth are recorded at a price that is both fixed and determinable and thatthere are no ethanol sales, during 

 

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to Condensed Consolidated FinancialStatements (Unaudited)

 

June 30, 2008

 

anygiven month that should be considered contingent and recorded as deferredrevenue.  The Company’s products are generally shipped FOB shipping point.

 

In accordance with the Company’s agreements for the marketing and saleof ethanol and related products, marketing fees and commissions due to themarketers are deducted from the gross sales price at the time payment isremitted to the Company.  However,because the Company is the primary obligor in the sales arrangement with thecustomer, these marketing fees and commissions are recorded in selling,general and administrative expenses in the accompanying statements ofoperations.

 

The Company records incentives received from federal and state programsrelated to the production of ethanol, as other income, when the Company hassold the ethanol and completed all the requirements of the applicable incentiveprogram.

 

**Research and Development**

 

The Company incurs researchand development costs related to the development of new products. The Companyincurred approximately $872,000 and $2,079,000 in research and developmentcosts for three and nine months ended June 30, 2008, respectively. TheCompany did not incur any research and development costs for the three or ninemonths ended June 30, 2007.

 

**New Accounting Pronouncements**

 

InMarch 2008, the FASB issued SFAS No. 161, *Disclosuresabout Derivative Instruments and Hedging Activities*, an amendment ofFASB Statement No. 133. SFAS 161 applies to all derivative instruments andnonderivative instruments that are designated and qualify as hedginginstruments pursuant to paragraphs 37 and 42 of SFAS 133 and related hedgeditems accounted for under SFAS 133. SFAS 161 requires entities to providegreater transparency through additional disclosures about how and why an entityuses derivative instruments, how derivative instruments and related hedgeditems are accounted for under SFAS 133 and its related interpretations, and howderivative instruments and related hedged items affect an entity’s financialposition, results of operations, and cash flows. SFAS 161 is effective as ofthe beginning of an entity’s first fiscal year that begins after November 15,2008. The Company currently plans to adopt SFAS 161 during its 2010 fiscalyear.

 

InMay 2008, the FASB issued SFAS No. 162, “The Hierarchy of GenerallyAccepted Accounting Principles.”  ThisStatement identifies the sources of accounting principles and the framework forselecting the principles to be used in the preparation of financial statementsof nongovernmental entities that are presented in conformity with generallyaccepted accounting principles in the United States.  This Statement is effective 60 days followingthe SEC’s approval of the Public Company Accounting Oversight Board amendmentsto AU Section 411,*The Meaning ofPresent Fairly in Conformity With Generally Accepted Accounting Principles*.The Company does not believe that implementation of this standard will have amaterial impact on its financial position, results of operations or cash flows.

 

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to Condensed Consolidated FinancialStatements (Unaudited)

 

June 30, 2008

 

**Note 3:  Inventory**

 

Inventoryis comprised of the following at:

 
| ** **      | ** ** | **June 30, 2008** | ** ** | **September 30, 2007*** | ** ** |
|-----------------|------------|-----------------------------|------------|-----------------------------------|------------|
| Raw materials   |       | $                           | 5,006,362  |                              | $          | 1,487,691 |   |
| Supplies        |       | 1,508,381                   |       | 867,896                           |       |
| Work in process |       | 1,451,143                   |       | 344,601                           |       |
| Finished goods  |       | 1,776,766                   |       | 609,145                           |       |
| Totals          |       | $                           | 9,742,652  |                              | $          | 3,309,333 |   |

 

----

*Derived from audited consolidated financial statements.

 

**Note 4: Derivative Instruments**

 

At June 30, 2008, theCompany recorded an asset for the fair value of derivative instruments ofapproximately $13,901,000. None of the positions open at June 30, 2008 aredesignated as cash flow or fair value hedges. The asset of approximately$13,901,000 in derivative instruments at June 30, 2008 includes aliability for the interest rate swap of approximately $1,393,000 describedbelow and an asset for corn, natural gas, and ethanol options and futurespositions of approximately $15,294,000.

 

The Company offset revenueswith losses of approximately $3,949,000 and $830,000 in its ethanol relatedderivative instruments for the three months ended June 30, 2008 and 2007,respectively. The Company offset revenues with losses of approximately$9,220,000 and $2,109,000 in its ethanol related derivative instruments for thenine months ended June 30, 2008 and 2007, respectively.  The Company has recorded a gain ofapproximately $31,129,000 and a loss of approximately $4,919,000 in cost ofgoods sold related to corn and natural gas derivative instruments for the threemonths ended June 30, 2008 and 2007, respectively.  The Company has recorded a gain ofapproximately $58,743,000 and $10,108,000 in cost of goods sold related to cornand natural gas derivative instruments for the nine months ended June 30,2008 and 2007, respectively.

 

In April 2007, theCompany entered into an interest rate swap to limit increased interest expenseon a portion of the construction loans upon conversion into term notes. Theinterest rate swap fixes the interest rate on $36,500,000 of debt at 7.68%,which began in March 2008 and extends until March 2013. The Companyhas included the liability for the interest rate swap of approximately$1,390,000 with the derivative instruments above at June 30, 2008 andrecognized a gain of approximately $1,386,000 and a loss of approximately$955,000 as other expense for the three months ended and nine months ended June 30,2008, respectively.  The Company recordeda loss related to the interest rate swap in the three and nine months ended June 30,2007 of approximately $397,000.

 

**Note 5:  Constructionin Progress**

 

TheCompany continues to make payments for the expansion to a 92 MGY plant. The Company anticipates the expansion will cost approximately $75,000,000 withapproximately $5,246,000 remaining to be incurred at June 30, 2008. The Company capitalized interest of approximately $114,000 and $1,338,000,including accrued amounts, in the three and nine months ended June 30,2008, respectively.

 

**Note 6:  RevolvingPromissory Note**

 

Under the terms of thefinancing agreement with the lending institution, the Company has a revolvingpromissory note for up to $5,000,000, subject to borrowing base limitationsbased on the amended and restated debt agreement in April 2007. In July 2008the revolving note was increased to $10,000,000. The revolving promissory noteincurs interest monthly at the one-month LIBOR plus 2.80% and is payable in March 2009.The Company pays a commitment fee of 0.25% on the unused portion of therevolving promissory note. There was no balance 

 

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to Condensed Consolidated FinancialStatements (Unaudited)

 

June 30, 2008

 

outstanding on the revolvingpromissory note at June 30, 2008. The revolving promissory note as well asthe term notes and construction loan are subject to protective covenants undera common financing agreement requiring the Company to maintain variousfinancial ratios, including debt service coverage, minimum net worth andworking capital requirements, and excess cash flow payments and secured by allbusiness assets.

 

**Note 7: Long-Term Debt**

 

Long-termdebt consists of the following:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | **June 30, 2008** | ** ** | **September 30, 2007*** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Term note 2 has fixed principal payments  due quarterly with interest at the three month LIBOR plus 2.80%, which  totaled 5.48% and 8.17% at June 30, 2008 and September 30, 2007,  respectively, payable in July 2008. In July 2008, the lending  institution amended term note 2 and extended the maturity date until  July 20, 2013 with fixed principal payments of approximately $453,000  due quarterly with interest at the three month LIBOR plus 2.80%. The Company  had an interest rate swap that fixed the interest on term note 2 which  expired in June 2008. |       | $                           | 9,058,774  |                              | $          | 9,824,449 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Term note 3 bears interest at the three  month LIBOR plus 2.80%, which totaled 5.48% and 8.17% at June 30, 2008  and September 30, 2007, respectively.  Term note 3 was payable in  full on June 1, 2008, but was extended until July 2008, at which  point it converted into the Variable Rate Note as described below.                                                                                                                                                                                                                                                         |       | 2,554,560                   |       | 3,434,778                         |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Term note 4 incurred interest at the one  month LIBOR plus 2.80%.  Term note 4 expired in July 2008. Term  note 4 allowed subsequent borrowings up to the original $5,000,000 to the extent  of principal payments made until maturity and required a commitment fee of  .25% on any used portion.                                                                                                                                                                                                                                                                                              |       | —                      |       | —                            |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Construction loan (see below)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | 61,381,558                  |       | 25,419,785                        |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Note payable to Iowa Energy Center, due in  monthly payments of $3,472 without interest, maturing on January 29,  2009, secured by real estate, subordinated to term notes.                                                                                                                                                                                                                                                                                                                                                                                                                          |       | 24,305                      |       | 55,555                            |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Note payable to bank, due in monthly  payments of $5,921 including interest at 6% maturing on January 29,  2009, secured by real estate, subordinated to term notes.                                                                                                                                                                                                                                                                                                                                                                                                                                 |       | 28,581                      |       | 63,709                            |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Note payable to Iowa Department of Economic  Development, due in monthly installments of $1,167 without interest, payable  in full on July 1, 2009, secured by all equipment.                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 154,000                     |       | 164,500                           |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Capital lease obligation, due in monthly  installments initially totaling $6,658 including implicit interest at 3.67%  paid in full in March 2008, secured by leased equipment.                                                                                                                                                                                                                                                                                                                                                                                                                      |       | —                      |       | 39,524                            |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | $                           | 73,201,778 |                              | $          | 39,002,300 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Less amounts due within one year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | 8,056,931                   |       | 13,259,228                        |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                        |       |                              |       |
| Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | $                           | 65,144,847 |                              | $          | 25,743,072 |   |

 

----

*Derived from audited consolidated financial statements.

 

In April 2007, theCompany obtained construction loan financing for approximately $73,000,000 forthe partial funding of the 40 MGY expansion to the Marcus, Iowa ethanol plant.  The construction loan bears interest at theone-month LIBOR plus 3.10%, which totaled 5.56% at June 30, 2008.Subsequent to June 30, 2008, the construction loan converted into threeseparate notes, the Swap Note, the Variable Rate Note, and the Long TermRevolving Note.

 

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to Condensed Consolidated FinancialStatements (Unaudited)

 

June 30, 2008

 

**Swap Note**

 

The Swap Note of $36,500,000will be due in quarterly principal payments initially totaling approximately$612,000, increasing to approximately $876,000, with a final balloon payment ofapproximately $21,848,000 in July 2013. Interest accrues at thethree-month LIBOR plus 2.60%, due quarterly. The Company entered into aninterest rate swap to limit increased interest expense on the Swap Note asdescribed in Note 4. The interest rate swap fixes the interest rate at 7.68%until March 2013.

 

**Variable Rate Note**

 

The Variable Rate Note ofapproximately $34,055,000 includes the balance remaining on term note 3 ofapproximately $2,555,000 and an additional loan draw of approximately$11,618,000 received after June 30, 2008. The Variable Rate Note accrues interest at the three-month LIBOR plus3.00%.

 

**Long Term Revolving Note**

 

The Long Term Revolving Noteis for up to $10,000,000. Upon conversion of the construction loan, the LongTerm Revolving Note had a balance of $5,000,000.  The Long Term Revolving Note accrues interestat the three month LIBOR plus 3.00%. The Variable Rate Note and the Long TermRevolving Note require quarterly payments of approximately $1,362,000, which isapplied first to accrued interest on the Long Term Revolving Note, then toaccrued interest and principal on the Variable Rate Note. Once the VariableRate Note has been repaid, these payments will be applied to accrued interestand principal on the Long Term Revolving Note. Both the Variable Rate Note andthe Long Term Revolving Note mature in July 2013.  The Long Term Revolving Note allowssubsequent borrowings up to the original $10,000,000 until maturity. The LongTerm Revolving Note requires a commitment fee of 0.25% on any unused portion.

 

Theestimated maturities of long-term liabilities at June 30, 2008 are asfollows:

 
| 2009                        |   | $          | 8,056,931  |   |
|-----------------------------|--------|------------|------------|--------|
| 2010                        |   | 8,467,466  |       |
| 2011                        |   | 8,879,954  |       |
| 2012                        |   | 9,463,277  |       |
| 2013                        |   | 10,086,166 |       |
| After 2013                  |   | 28,247,984 |       |
| Total long-term liabilities |   | $          | 73,201,778 |   |

 

**Note 8: Members’ Equity**

 

In January 2008, theBoard of Directors declared a distribution of approximately $15,494,000 fromLLLP to the partners, which was paid in February 2008. The LLC receivedapproximately $9,321,000 of this distribution. In February 2008, the LLCpaid $56.10 per unit to the LLC unit holders on record as of January 14,2008.

 

OnMay 21, 2008, the Board of Directors of Little Sioux Corn Processors, LLCannounced its intent to engage in a reclassification and reorganization of theCompany’s membership units.  The proposed transaction will provide for thereclassification of the Company’s units into three separate and distinctclasses.

 

Ifthe proposed reclassification is approved, we expect that each member of recordholding 250 or more units will receive one Class A unit for each commonequity unit held by such unit holders prior to the reclassification; eachmember of record holding as many as 249 units and as few as 125 units willreceive one Class B unit for each common equity unit held by such unitholders immediately prior to the reclassification; and unit holders of recordwho hold 124 or fewer units will receive one Class C unit for each commonequity unit held by such unit holders immediately prior to thereclassification.

 

Ifthe Company’s members approve the proposed amendments to the Company’soperating agreement and the reclassification is implemented, the Companyanticipates having fewer than 300 unit holders of record of its common equityunits with the remaining approximately 600 unit holders split into twoadditional classes, which 

 

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to Condensed Consolidated FinancialStatements (Unaudited)

 

June 30, 2008

 

wouldenable the Company to voluntarily terminate the registration of its units underthe Securities and Exchange Act of 1934.

 

TheBoard intends to call a special meeting of members to present the proposedtransaction to the members of Little Sioux Corn Processors, LLC. This proposedreclassification is subject to the affirmative vote of a majority of the unitspresent at the meeting of the members. The ability to transact business at aspecial or annual meeting of the members requires the presence, in person or byproxy, of at least 25% of the total outstanding units. Members may vote theirunits in person by attending the special meeting, or by mailing their completedproxy if they are unable or do not wish to attend. The Company filed apreliminary proxy statement regarding the proposed reclassification describedabove for SEC review on July 21, 2008, and will file a definitive proxystatement upon completion of SEC review. A definitive proxy statementcontaining detailed information about the proposed reclassification will besent to the members prior to the special meeting of members.

 

**Note 9:  Related Party Transactions**

 

The Company has balances andtransactions in the normal course of business with various related parties.Revenues from related parties, including ADM, are approximately $68,021,000 and$30,481,000 for the three months ended June 30, 2008 and 2007,respectively. Revenues from related parties are approximately $145,077,000 and$90,602,000 for the nine months ended June 30, 2008 and 2007,respectively. The Company has incurred expenses from related parties for cornpurchases, distribution costs, and marketing fees of approximately $9,816,000and $6,183,000 for the three months ended June 30, 2008 and 2007,respectively. The Company has incurred expenses from related parties ofapproximately $27,380,000 and $13,654,000 for the nine months ended June 30,2008 and 2007, respectively.

 

The Company incurredapproximately $1,463,000 during the three months ended June 30, 2008 and$3,953,000 during the nine months ended June 30, 2008 related toconstruction in progress performed by investors in LSCP.

 

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to Condensed Consolidated FinancialStatements (Unaudited)

 

June 30, 2008

 

**Note 10: Investment**

 

InMay 2008 LSCP, LLLP committed to investing $2,000,000 in Vision ProcessingTechnologies, Inc. (Vision Processing) resulting in a 40% ownership interestthrough 3,400,000 preferred stock shares. The investment agreement with Vision Processing includes anti-dilutionprovisions.  Vision Processing is a particleprocessing manufacturer. Since the Company has significant influence overVision Processing but not control, this investment is accounted for under theequity method of accounting.

 

Summarizedfinancial information of the Vision Processing is as follows as of and for theperiod ending June 30, 2008:

 
| Current assets                      |   | $         | 224,320   |   |
|-------------------------------------|--------|-----------|-----------|--------|
| Non-current assets                  |   | 3,320,633 |      |
| Total assets                        |   | $         | 3,544,953 |   |
|                                |   |      |      |
| Current liabilities                 |   | $         | 504,991   |   |
| Long-term debt                      |   | 2,921,364 |      |
| Total liabilities                   |   | $         | 3,426,355 |   |
|                                |   |      |      |
| Net assets                          |   | $         | 118,598   |   |
|                                |   |      |      |
| Net revenue                         |   | $         | 137,017   |   |
|                                |   |      |      |
| Gross profit                        |   | $         | 108,923   |   |
|                                |   |      |      |
| Net loss                            |   | $         | (14,562   | )      |
|                                |   |      |      |
| Equity in loss of Vision Processing |   | $         | (5,825    | )      |

 

Thedifference between the investment carrying value and the Company’sproportionate share of the underlying net assets of Vision Processing isallocated as goodwill in the amount of approximately $1,085,000 at June 30,2008.  This goodwill is evaluated forimpairment as part of the total investment. The Company has evaluated this investment for impairment based ondiscounted cash flows valuation methodologies and financial projections anddoes not believe any impairment exists as of June 30, 2008.

 

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to Condensed Consolidated FinancialStatements (Unaudited)

 

June 30, 2008

 

**Note 11:**  **Commitments, and Contingencies**

 

**Contractual Obligations**

 

Thefollowing table provides information regarding the consolidated contractualobligations of the Company as of June 30, 2008:

 
| ** **                     | ** ** | **Total**  | ** **  | **Less than  One Year** | ** ** | **One to Three  Years** | ** ** | **Three to  Five Years** | ** ** | **Greater Than  Five Years** |   |
|--------------------------------|------------|------------|-------------|-----------------------------------|------------|-----------------------------------|------------|------------------------------------|------------|----------------------------------------|--------|
| Long-Term Debt Obligations (1) |       | $          | 91,056,049  |                              | $          | 12,324,394                        |       | $                                  | 25,150,040 |                                   | $      | 25,057,542 |   | $ | 28,524,073 |   |
| Operating Lease Obligations    |       | 2,682,816  |        | 337,846                           |       | 675,120                           |       | 658,520                            |       | 1,011,330                              |   |
| Purchase Obligations (2)       |       | 45,802,697 |        | 45,528,276                        |       | 274,421                           |       | —                             |       | —                                 |   |
| Total Contractual Obligations  |       | $          | 139,541,562 |                              | $          | 58,190,516                        |       | $                                  | 26,099,581 |                                   | $      | 25,716,062 |   | $ | 29,535,403 |   |

 

----

(1)         Long-Term Debt Obligations include estimatedinterest and interest on unused debt

(2)         Purchase obligations primarily includeforward contracts for corn, natural gas, and denaturant as well as remainingamounts for construction in progress.

 

**Crude Corn Oil Purchase Agreement**

 

OnJune 24, 2008, LSCP entered into an agreement with Soy Energy, LLC, anIowa limited liability company (“Soy Energy”), in which Soy Energy willpurchase 820,000 pounds of corn oil produced by LSCP per month, with aconditional option to purchase additional corn oil.

 

TheAgreement will have an initial term of three years, commencing on the date ofthe first delivery of corn oil under the Agreement, with automatic renewalperiods of one year. The Agreement may be terminated upon written noticefrom either party within ninety days of the expiration of a term, for uncuredbreach or cause, if LSCP ceases the production/separation of corn oil, or ifSoy Energy fails to provide a date of first delivery for corn oil prior to June 30,2010.

 

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**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

We prepared the following discussion andanalysis to help you better understand our financial condition, changes in ourfinancial condition, and results of operations for the three-month period andnine-month period ended June 30,2008, compared to the same period of the prior fiscal year.  This discussion should be read in conjunctionwith the consolidated financial statements and notes and the Management’sDiscussion and Analysis section for the fiscal year ended September 30,2007, included in the Company’s Annual Report on Form 10-K.

 

**Disclosure Regarding Forward-Looking Statements**

 

Thisreport contains historical information, as well as forward-lookingstatements.  These forward-lookingstatements include any statements that involve known and unknown risks andrelate to future events and our expectations regarding future performance orconditions.  Words such as “may,” “will,”“should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,”“intend,” “could,” “hope,” “predict,”“target,” “potential,” or “continue” or the negative of these terms or othersimilar expressions are intended to identify forward-looking statements, butare not the exclusive means of identifying such statements.  These forward-looking statements, and otherswe make from time to time, are subject to a number of risks and uncertainties.Many factors could cause actual results to differ materially from thoseprojected in forward-looking statements. While it is impossible to identify allsuch factors, factors that could cause actual results to differ materially fromthose estimated by us include, but are not limited to:

 

·      Changesin the availability and price of corn;

·      Projectedgrowth, overcapacity or increased competition in the ethanol market in which weoperate;

·      Fluctuationsin the price and market for ethanol and distillers grains;

·      Changesin plant production capacity, variations in actual ethanol and distillersgrains production from expectations or technical difficulties in operating theplant;

·      Changesin our development plans for expanding, maintaining or contracting our presencein the market in which we operate;

·      Changesin interest rates and the availability of credit to support capitalimprovements, development, expansion and operations;

·      Changesin or elimination of governmental laws, tariffs, trade or other controls orenforcement practices;

·      Fluctuationsin US oil consumption and petroleum prices;

·      Theavailability and adequacy of our cash flow to meet our requirements;

·      Competitionfrom alternative fuels and alternative fuel additives; and

·      Changesin general economic conditions or the occurrence of certain events causing aneconomic impact in the agriculture, oil or automobile industries.

 

The cautionary statements referred to in this section also should beconsidered in connection with any subsequent written or oral forward-lookingstatements that may be issued by us or persons acting on our behalf.  We do not undertake any duty to updateforward-looking statements after the date they are made or to conform them toactual results or to changes in circumstances or expectations. Furthermore, wecannot guarantee future results, events, levels of activity, performance, orachievements.  We caution you not to putundue reliance on any forward-looking statements, which speak only as of thedate of this report.  You should read this report and the documents thatwe reference in this report and have filed as exhibits, completely and with theunderstanding that our actual future results may be materially different fromwhat we currently expect.  We qualify all of our forward-lookingstatements by these cautionary statements.

 

**Overview**

 

Little Sioux Corn Processors, L.L.C. (the “Company”) is an Iowa limitedliability company that owns the sole general partnership interest of LSCP,LLLP, (the “Partnership”) an Iowa limited liability limited partnership. As general partner, we currently manage the business and day-to-day operationsof the Partnership’s 92 million gallon per year (MGY) ethanol plant locatednear Marcus, Iowa in northwest Iowa.  Wecurrently own a 60.15% ownership interest in the Partnership.  The Partnership has two wholly ownedsubsidiaries, Akron Riverview Corn

 

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Processors,LLC (“Akron”) and Twin Rivers Management Co., LLC (“Twin Rivers”).  Akron is an Iowa limited liability companythat is developing a 100 MGY ethanol plant in Plymouth County, near Akron,Iowa, however, further development of this project is currently suspended.  Twin Rivers is an Iowa limited liabilitycompany that anticipates managing Akron’s ethanol plant once constructed.  The Company, its Partnership, and thePartnership’s subsidiaries are collectively referred to in this report as “LSCP,”“we,” or “us.”  The Company invested inVision Processing Technologies, Inc. (“Vision”), a Minnesota corporationand particle processing manufacturer.

 

In January 2008, we completed the operational and processingcomponents of a 40 million gallon expansion project, which increased our plant’sproduction capacity from 52 million gallons per year to 92 million gallons peryear.  Some additional work for theexpansion, such as increased rail siding, is expected to be completed by earlyfall 2008.

 

Ourrevenues are derived from the sale and distribution of our ethanol, distillersgrains and corn oil throughout the continental United States.  In fiscal year 2008, we anticipate producingapproximately 86.3 million gallons of ethanol, 418,500 tons of distillers grains,and 12.2 million pounds of corn oil from approximately 30.8 million bushels ofcorn.  We currently are on target forthis production goal.  However, there is no guarantee that we will be ableto continue to operate at these production levels.

 

Cornis supplied to us primarily from local agricultural producers and frompurchases of corn on the open market. After processing the corn, our ethanol issold to Archer Daniels Midland Co. (“ADM”), which subsequently markets andsells the ethanol to gasoline blenders and refineries located throughout thecontinental United States.  The revenue we receive from the sale ofethanol to ADM is based upon the price that ADM receives from the sale to itscustomers, minus a marketing fee and commission.  While we can obtain thefinal price for our ethanol from ADM on a daily basis, for administrativereasons, we settle the final price with ADM on a monthly basis.

 

Wesell some of our distillers grains directly to local farmers. The remainder issold through our marketing agreement with CHS, Inc., a Minnesotacooperative corporation (“CHS”), that markets and sells our distillers grainsto livestock feeders.  For our distillers grains sold by CHS, we receive apercentage of the selling price actually received by CHS from its customers.

 

Wedirectly market and sell our corn oil to regional wholesalers and endusers.  Presently, the end use of our corn oil is in the livestock andbiodiesel industries.  We recentlyentered into an agreement with Soy Energy, LLC, an anticipated biodiesel plantalso in Marcus, Iowa, for the sale of a large portion of our corn oil supply,when the biodiesel plant commences operation.

 

Weare subject to industry-wide factors that affect our operating income and costof production.  Our operating results are largely driven by the prices atwhich we sell ethanol, distillers grain and corn oil and the costs related totheir production.  Historically, the price of ethanol tends to fluctuatein the same direction as the price of unleaded gasoline and other petroleumproducts.  However, surplus ethanol supplies tend to put downward pricepressure on ethanol.  In addition, the price of ethanol is generallyinfluenced by factors such as general economic conditions, the weather, andgovernment policies and programs.  The price of distillers grains isgenerally influenced by supply and demand, the price of substitute livestockfeed, such as corn and soybean meal, and other animal feed proteins. Surplus grain supplies tend to put downward price pressure on distillersgrains.  In addition, our revenues are also impacted by such factors asour dependence on one or a few major customers who market and distribute ourproducts; the intensely competitive nature of our industry; possiblelegislation at the federal, state, and/or local level; and changes in federalethanol tax incentives.

 

Our two largest costs of production are corn and natural gas.  Thecost of corn is affected primarily by factors over which we lack any controlsuch as crop production, carryout, exports, government policies and programs, riskmanagement and weather.  Natural gas prices fluctuate with the energycomplex in general.  Over the last few years, natural gas prices havetrended higher than average and it appears prices will continue to trend higherdue to the high price of alternative fuels such as fuel oil.  Our costs ofproduction are also affected by the cost of complying with the extensiveenvironmental laws that regulate our industry.

 

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**Results ofOperations for the Nine Months Ended June 30, 2008 and 2007**

 

The following table shows the results of ouroperations and the percentage of revenues, cost of goods sold, operatingexpenses and other items to total revenues in our consolidated statements ofoperations for the nine months ended June 30, 2008 and 2007:

 
| ** **                             | ** ** | **June 30, 2008** | ** **  | **June 30, 2007** | ** ** |
|----------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| **Income Statement Data**    | ** ** | **Amount**                  | ** **  | **%**                       | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                               |       | $                           | 156,367,719 |                        | 100.0      |   | $ | 99,893,709 |   | 100.0 |   |
|                                   |       |                        |        |                        |       |   |   |   |   |
| Cost of Goods Sold                     |       | 94,633,733                  |        | 60.52                       |       | 65,077,754 |   | 65.15 |   |
|                                   |       |                        |        |                        |       |   |   |   |   |
| Gross Profit                           |       | 61,733,986                  |        | 39.48                       |       | 34,815,955 |   | 34.85 |   |
|                                   |       |                        |        |                        |       |   |   |   |   |
| Operating Expenses                     |       | 6,731,039                   |        | 4.30                        |       | 3,728,931 |   | 3.73 |   |
|                                   |       |                        |        |                        |       |   |   |   |   |
| Operating Income (Loss)                |       | 55,002,947                  |        | 35.18                       |       | 31,087,024 |   | 31.12 |   |
|                                   |       |                        |        |                        |       |   |   |   |   |
| Total Other Income (Expense)           |       | (1,634,678                  | )           | (1.05                       | )          | 877,901 |   | 0.88 |   |
|                                   |       |                        |        |                        |       |   |   |   |   |
| Net Income Before Minority Interest    |       | 53,368,269                  |        | 34.13                       |       | 31,964,925 |   | 32.00 |   |
|                                   |       |                        |        |                        |       |   |   |   |   |
| Minority Interest in Subsidiary Income |       | 21,350,391                  |        | 13.65                       |       | 12,800,320 |   | 12.81 |   |
|                                   |       |                        |        |                        |       |   |   |   |   |
| Net Income                             |       | $                           | 32,017,878  |                        | 20.48      |   | $ | 19,164,605 |   | 19.18 |   |

 

*Revenues**.*The increase in revenues from the nine monthsended June 30, 2008 compared to the nine months ended June 30, 2007is due primarily to an increase in the number of gallons of ethanol we sold dueto completion of our plant expansion.  The average price received for ourethanol for the nine months ended June 30, 2008 increased only moderatelycompared to the average price received for ethanol during the nine months endedJune 30, 2007.  The increase in revenues was partially offset by ourlosses from derivative instruments related to ethanol hedging which increasedby approximately $7,111,000 from the nine moths ended June 30, 2007 to thenine months ended June 30, 2008. These losses from derivative instrumentsare recorded as a reduction of revenue. Revenue from sales of our co-productsincreased by approximately 92% in the nine months ended June 30, 2008compared to the nine months ended June 30, 2007 due to increasedproduction of the co-products resulting from our plant expansion and anincrease in the average price received for our co-products.

 

Growthin ethanol usage has been supported by regulatory requirements dictating theuse of renewable fuels, including ethanol. The Energy Independence and SecurityAct of 2007 signed into law on December 19, 2007, increased the mandatedminimum use of renewable fuels to 9 billion gallons in 2008 (up from a 5.4 billiongallon mandated for 2008 under the Energy Policy Act of 2005). The mandatedusage of renewable fuels increases to 36 billion gallons in 2022. In April 2008,Governor Perry of Texas requested the Environmental Protection Agency (EPA) towaive or restructure these renewable fuels mandates.  However, on August 7,2008 the EPA refused the request and left the renewable fuels standard inplace.  If the EPA had decided to waiveor restructure the renewable fuels mandates, such changes would have likely hada significant negative impact on our business and we cannot be certain thatchanges in economics or other conditions will not warrant changes to therenewable fuels mandates in the future.

 

It is expected that annual ethanol production capacity in the U.S. willtotal in excess of 12 billion gallons annually by the end of 2008. Thisadditional capacity may cause supply to exceed demand, even with renewablefuels mandates. If additional demand for ethanol is not created, through eitheradditions to discretionary blending (through increased penetration rates inareas that blend ethanol today or through the establishment of new markets

 

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wherelittle to no ethanol is blended today), or through increased governmentalmandates at either the federal or state level, the excess supply may causeethanol prices to decrease, perhaps substantially.

 

We expect ethanol prices to remain steady through2008 because of strong energy pricing. We expect the sale price of distillers grain to remain strong during theremainder of fiscal year 2008 and to fluctuate in tandem with the price of corn.  As a result, we conservatively expect thepercentage of revenues from the sale of fuel ethanol and the percentage ofrevenue from the sale of distillers grains to remain steady during the fiscalyear 2008.

 

With respect to co-products, we are exploring new ways to market andutilize our corn oil and we believe this will result in the continued increaseof our sales for our co-products. To that end, we have contracted to sell ourcorn oil directly to an anticipated nearby biodiesel plant, Soy Energy,LLC.  Currently, we are running our cornoil separation unit to the extent we can sell our corn oil to other sources.

 

*Cost of Goods Sold**.*Our cost of goods sold as a percentage ofrevenues were 60.52% and 65.15% for the nine months ended June 30, 2008and 2007, respectively. The decrease in our cost of goods sold from period toperiod is primarily due to our increased gains from hedging.

 

Gains from hedging increasedby approximately $48,635,000 from the nine months ended June 30, 2007compared to the nine months ended June 30, 2008.  Increased gains from hedging for the ninemonths ended June 30, 2008 offset all of our increase in costs of goodssold.  We are marking to market our hedgepositions, which means as the current market price of our hedge positionschanges, the gain and losses are immediately recognized in our cost of goodssold.  Therefore, gains or lossesincluded in the results for this period may also be for anticipated cornpurchases in future periods.

 

Corncosts significantly impact our cost of goods sold.  As of July 15,2008, the United States Department of Agriculture (USDA) estimated that theprice for corn in the 2007/2008 marketing year would average $4.25 to $4.45 perbushel and for the 2008/2009 marketing year the average $4.90 to $5.90 perbushel.  The USDA expected increasedcompetition from soybeans for the 2009 acres would lead to increased cornprices.  In addition, the flooding in theMidwest has led to uncertainty about this year’s corn yields.  The shorter growing season could effect thequality or quantity of the corn crop. Therefore, the delay in planting will make estimating prices difficultuntil the harvest season actually begins. If predicted corn yields are largely accurate, then we anticipate pricesmay remain steady or decrease, but if actual corn yields are lower thanestimated, corn prices will likely increase further.

 

Naturalgas prices have fluctuated significantly during 2007 and 2008, and could againincrease significantly as a result of actual or perceived shortages insupply.  We expect continued volatility in the natural gas market. Global demand for natural gas is expected to continue to increase, which maydrive up prices.  Any ongoing increases in the price of natural gas willincrease our cost of production and may negatively impact our profit margins. Natural gas prices are a large component of our cost of goods sold and weanticipate the price we pay for natural gas will continue to be volatile fromperiod to period.

 

*Operating Expenses**.*Our operating expenses as a percentage ofrevenues increased for the nine months ended June 30, 2008 and June 30,2007, which were 4.30% and 3.73% respectively, due largely to increasedresearch and development expenditures.

 

*Operating Income**.*Our income from operations for the ninemonths ended June 30, 2008 totaled approximately $55,003,000 compared toincome of approximately $31,087,000 for the nine months ended June 30,2007. This increase was largely a result of increased hedging gains, which waspartially offset by higher corn prices and our increased production due toexpansion of our plant.

 

*Other Income (Expense)*.  Our other income (expense) totaled aloss of approximately $1,635,000 for the nine months ended June 30, 2008compared to income of approximately $878,000 for the same period in2007. The net increase in expense is primarily due to interest now beingexpensed since the plant expansion is substantially complete, whereas in 2007the majority of interest was capitalized. For more information see ***“Indebtedness”***below.

 

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**Results of Operations for the Three Months Ended June 30,2008 and 2007**

 

Thefollowing table shows the results of our operations and the percentage ofrevenues, cost of goods sold, operating expenses and other items to totalrevenues in our consolidated statements of operations for the three monthsended June 30, 2008 and 2007:

 
| ** **                             | ** ** | **June 30, 2008** | ** ** | **June 30, 2007** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Income Statement Data**    | ** ** | **Amount**                  | ** ** | **%**                       | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                               |       | $                           | 73,027,140 |                        | 100.0      |   | $ | 33,213,669 |   | 100.0 |   |
|                                   |       |                        |       |                        |       |   |   |   |   |
| Cost of Goods Sold                     |       | 43,405,745                  |       | 59.44                       |       | 32,341,266 |   | 97.37 |   |
|                                   |       |                        |       |                        |       |   |   |   |   |
| Gross Profit                           |       | 29,621,395                  |       | 40.56                       |       | 872,403 |   | 2.63 |   |
|                                   |       |                        |       |                        |       |   |   |   |   |
| Operating Expenses                     |       | 2,359,368                   |       | 3.23                        |       | 1,200,206 |   | 3.61 |   |
|                                   |       |                        |       |                        |       |   |   |   |   |
| Operating Income (Loss)                |       | 27,262,027                  |       | 37.33                       |       | (327,803 | ) | (0.99 | ) |
|                                   |       |                        |       |                        |       |   |   |   |   |
| Total Other Income                     |       | 699,565                     |       | 0.96                        |       | 675,759 |   | 2.03 |   |
|                                   |       |                        |       |                        |       |   |   |   |   |
| Net Income Before Minority Interest    |       | 27,961,592                  |       | 38.29                       |       | 347,956 |   | 1.05 |   |
|                                   |       |                        |       |                        |       |   |   |   |   |
| Minority Interest in Subsidiary Income |       | 11,168,315                  |       | 15.29                       |       | 167,068 |   | 0.50 |   |
|                                   |       |                        |       |                        |       |   |   |   |   |
| Net Income                             |       | $                           | 16,793,277 |                        | 23.00      |   | $ | 180,888 |   | 0.54 |   |

 

*Revenues**.*The increase in revenues from the threemonths ended June 30, 2008 compared to the three months ended June 30,2007 is due primarily to an increase in the number of gallons of ethanol wesold due to completion of our plant expansion. The average price received for our ethanol for the three months ended June 30,2008 increased approximately 7% compared to the average price received forethanol during the three months ended June 30, 2007.  The increase in revenues was partially offsetby our losses from derivative instruments related to ethanol hedging whichincreased by approximately $3,119,000 from the three months ended June 30,2007 to the three months ended June 30, 2008.  These loss amounts are recorded as areduction of revenue. Revenue from sales of our co-products increased byapproximately 138% in the three months ended June 30, 2008 compared to thethree months ended June 30, 2007 due to increased production of theco-products resulting from our plant expansion and an increase in the averageprice received for our co-products.

 

*Cost of Goods Sold**.*Our cost of goods sold as a percentage ofrevenues were 59.44% and 97.37% for the three months ended June 30, 2008and 2007, respectively. The decrease in our cost of goods sold from period toperiod is primarily due to increased hedging gains. Gains from hedging increasedby approximately $36,048,000 from the three months ended June 30, 2007 tothe three months ended June 30, 2008. Increased gains from hedging for the three months ended June 30,2008 offset all of our increase in costs of goods sold.  Weare marking to market our hedge positions, which means as the current marketprice of our hedge positions changes, the gain and losses are immediatelyrecognized in our cost of goods sold. Therefore, gains or losses included in the results for this period mayalso be for anticipated corn purchases in future periods.

 

Corncosts significantly impact our cost of goods sold. For the three months ended June 30,2008, we paid an average of $5.62 per bushel of corn.  For the threemonths ended June 30, 2007, we paid an average of $4.36 per bushel ofcorn.  The per bushel cost of corn purchased increased approximately 29%in the three months ended June 30, 2008 as compared to the three monthsended June 30, 2007, without taking our corn hedges into account.  When our corn hedges are factored in, the perbushel cost of corn purchased decreased approximately 30% for the three monthsended June 30, 2008 as compared to the three months ended June 30,2007.

 

Forthe three months ended June 30, 2008, we paid a weighted average of $10.85per mmbtu of natural gas.  For the threemonths ended June 30, 2007, we paid a weighted average of $7.51 permmbtu.  The price we paid for the threemonths ended June 30, 2008 is up from the price paid for the three monthsended June 30, 2007 and was

 

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partiallyoffset from gains from natural gas hedges. Natural gas prices are a large component of our cost of goods sold andwe anticipate the price we pay for natural gas will continue to be volatilefrom period to period.

 

*Operating Expenses**.*Our operating expenses as a percentage ofrevenues were 3.23% and 3.61% for the three months ended June 30, 2008 and2007, respectively.  This slight decrease resulted from increasedefficiencies from operating the expanded plant at the new higher ethanolproduction rate.

 

*Operating Income (Loss)**.*Our income from operations for the threemonths ended June 30, 2008 totaled approximately $27,262,000 compared to aloss of approximately $328,000 for the three months ended June 30, 2007.This increase was a result of the substantial increase in revenue and grossprofit, which resulted largely from our increased operating capacity aftercompletion of our plant expansion and our increased hedging gains.  We had less expense associated with thedevelopment of Akron for the three months ended June 30, 2008, which wasoffset by increased research and development expenditures.

 

*Other Income (Expense)*.  Our other income remained relativelyconstant for the three months ended June 30, 2008 and June 30, 20007,which totaled approximately $700,000 and $676,000 respectively.  In 2007, we were capitalizing interest costsincurred, but expensed most of these costs in 2008 as the plant wassubstantially complete.  In addition, ourinterest rate swap increased approximately $1,386,000 in value during the threemonths ended June 30, 2008 compared with an increase of approximately$397,000 during the same period in 2007.

 

**Changes in Financial Condition for the Nine Months Ended June 30,2008**

 

Total assets were approximately $205,928,000 at June 30,2008 compared to approximately $136,412,000 at September 30, 2007. Currentassets totaled approximately $91,320,000 at June 30, 2008, up fromapproximately $26,498,000 at September 30, 2007. The change in totalassets is due to an increase of all our categories of assets, as a result ofour plant expansion which increased our plant buildings and equipment with anincrease in our inventory and accounts receivable due to our increasedproduction capacity.  In addition, wehave substantially more raw materials on hand at June 30, 2008 then we didat September 30, 2007, because of our plant expansion to 92 MGY productionand expanded storage facilities.

 

Totalcurrent liabilities totaled approximately $16,115,000 at June 30, 2008compared to approximately $23,988,000 at September 30, 2007.  This decrease resulted primarily fromrefinancing our debt on a long-term basis. Accrued expenses increased primarily as a result of higher accruedinterest related to additional debt at June 30, 2008 compared to September 30,2007. Additionally, long-term debt, net of current maturities, totaledapproximately $65,145,000 at June 30, 2008 up from approximately$25,743,000 at September 30, 2007. This increase occurred as a result ofadditional debt resulting from the expansion of our plant.

 

**Strategies**

 

***Marcus Plant Operations***

 

During fiscal year 2006, we commenced a plant expansionto increase the ethanol production capacity of our plant by 40 million gallonsto 92 million gallons annually. We currently expect that the total cost of theexpansion project will be approximately $75,000,000, approximately $2,200,000more than originally estimated.  Theincrease was due to our purchase of an oil separation unit.  We did not, however, increase the amount ofour construction loan to include this additional $2,200,000 cost as we havepaid approximately $1,800,000 for the oil separation unit with our cash fromoperations and will repay the remaining balance on the oil separation unit fromour cash as well.  The oil separationunit is currently operating at our plant, but not yet at full capacity.  We received our certificate of substantialcompletion on the expansion on January 15, 2008 and commenced operating atthe 92 million gallon capacity on January 19, 2008. Final land grading andrail siding work is expected to be complete by early fall 2008.

 

On April 5, 2007, we entered into an Amendedand Restated Construction Loan Agreement (the “Amended Agreement”) with FirstNational Bank of Omaha, N.A. (“FNBO”) to finance the 40 million gallonexpansion.  In July 2008 we enteredinto the fifth amendmentto the Amended Agreement, which converted the construction loan

 

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andTerm Note 3 into term debt consisting of a swap loan for $36,500,000, avariable rate loan of $34,054,560 and a long term revolving loan of$10,000,000.  For additionalinformation regarding our expansion debt financing commitment, see “**Item 2 — Management’s Discussion and Analysis of Financial Conditionand Results of Operations — Indebtedness, *ExpansionDebt Financing***.”

 

Management anticipates that the plant will continueto operate at or above our expanded name-plate capacity of 92 MGY. Although tangential work on our plant expansion project, such as rail siding,road work and landscaping, will continue until early fall 2008, we do notanticipate that this work will substantially interfere with our productioncapabilities.

 

We expect to have sufficient cash from cash flowgenerated by continuing operations, additional debt financing secured to fundplant expansion, current lines of credit through our revolving promissory note,and cash reserves to cover the costs of expansion as well as our usualoperating costs over the next 12 months, which consist primarily of cornsupply, natural gas supply, staffing, office, audit, legal, compliance, workingcapital costs and debt service obligations.

 

We expect our total operating costs to increasebecause of the increase in our production capacity for our completed plantexpansion.  We expect to offset the increase in operating costs byincreased ethanol revenues, however, a variety of market factors can affectboth operating costs and revenues and many of these factors are beyond ourcontrol.

 

***Akron Ethanol Plant Development***

 

As of the date of this report, furtherdevelopment of Akron’s ethanol plant remains suspended.  We continue to monitor the market conditionsto determine if and when this project will be feasible.  We entered into a Third Amendment and Extensionto the Letter of Intent between Akron and Fagen, Inc. (“Fagen”), effectiveas of May 30, 2008 (the “Third LOI Amendment”).  The Third LOI Amendment gives the partiesuntil December 31, 2008 to execute definitive documents for theconstruction of the plant.  If thedefinitive documents are not entered into by such time, then the agreement maybe terminated.  The Third LOI Amendmentalso sets the contract price at approximately $149,912,000 or Fagen’s thencurrent price.  This contract price willbe effective through November 30, 2008.  If Akron has not given Fagen a notice toproceed by this time, then the contract price shall adjust on December 1,2008, and on the first day of each month thereafter that a notice to proceed isnot given, to Fagen’s then current price for the construction project.

 

There is no assurance that our involvementwith the Akron plant, or the project, will be successful.  We will continually evaluate marketconditions to determine the feasibility of resuming the Akron project.  There is no assurance that the Akron projectwill be further developed or completed.

 

***Vision***

 

OnMay 20, 2008, we purchased 3,400,000 shares of the preferred stock ofVision representing a 40% ownership interest in Vision for $2,000,000.  Vision is a Minnesota corporation and aparticle processing manufacturer.  Underthe terms of the stock purchase transaction, we are entitled to appoint two ofthe five directors to Vision’s Board of Directors and are given veto power overcertain actions of the Vision’s Board of Directors and Members.  We anticipate conducting research anddevelopment projects with Vision.

 

***Deregistration***

 

On May 21, 2008, we announced our intent to engage in areclassification and reorganization of our membership units.  The proposedtransaction will provide for the reclassification of our units into threeseparate and distinct classes.

 

If the proposed reclassification is approved, we expect that eachmember of record holding 250 or more units will receive one Class A unitfor each common equity unit held by such unit holders prior to the

 

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reclassification; eachmember of record holding as many as 249 units and as few as 125 units willreceive one Class B unit for each common equity unit held by such unitholders immediately prior to the reclassification; and our unit holders ofrecord who hold 124 or fewer units will receive one Class C unit for eachcommon equity unit held by such unit holders immediately prior to thereclassification.

 

If the Company’smembers approve the proposed amendments to our operating agreement and thereclassification is implemented, we anticipate having fewer than 300 unitholders of record of our common equity units with the remaining approximately600 unit holders split into two additional classes, which would allow us tovoluntarily terminate the registration of our units under the Securities andExchange Act of 1934.

 

**Distribution**

 

The board of directorshave not approved, nor have any distributions been paid, during the threemonths ended June 30, 2008.

 

**Liquidityand Capital Resources**

 

The followingtable shows cash flows for the nine months ended June 30, 2008 and 2007:

 
| ** **                                          | ** ** | **2008** | ** **     | **2007**   | ** ** |
|-----------------------------------------------------|------------|----------|----------------|------------|------------|
| Net cash provided by operating activities           |       | $        | 33,669,720     |       | $          | 35,596,173 |   |
| Net cash used in investing activities               |       | $        | (14,445,926    | )          | $          | (22,693,259 | ) |
| Net cash provided by (used in) financing activities |       | $        | 18,818,691     |       | $          | (7,547,275 | ) |
| **Net increase in cash and equivalents**            | ** ** | **$**    | **38,042,485** | ** ** | **$**      | **5,355,639** | ** ** |

 

*OperatingCash Flows**.*Cash provided by operating activities was approximately $33,670,000 forthe nine months ended June 30, 2008, which was a decrease from the approximately$35,596,000 provided by operating activities for the nine months ended June 30,2007. This decrease was the result of higher current asset balances with theexpanded plant in operations and increased derivatives activity.  Our capital needs are being adequately metthrough cash from our operating activities and our current credit facilities.

 

*InvestingCash Flows**.*Cash used in investing activities was approximately $14,446,000 for thenine months ended June 30, 2008, compared to approximately $22,693,000 forthe nine months ended June 30, 2007. This decrease in cash used resultedfrom the expansion of our plant being completed in January 2008 and withthe majority of the costs spent on the expansion during the nine months ended June 30,2007.

 

*FinancingCash Flows*.Cash provided by financing activities was approximately $18,819,000 for thenine months ended June 30, 2008, compared to approximately $7,547,000 incash used for financing activities for the nine months ended June 30,2007.  This change was a result ofreceiving proceeds from our construction note during the nine months ended June 30,2008, which served to replenish capital expenditures previously paid with cashon hand.  We also used cash to pay down our debt by approximately$1,762,000 for the nine months ended June 30, 2008 compared toapproximately $2,470,000 for the nine months ended June 30, 2007.

 

**Indebtedness**

 

### ***Short-Term Debt Sources***. We maintain a line of credit withFirst National Bank of Omaha to finance short-term working capitalrequirements.  This line of credit wasinitially set to expire in March 2008, however, we executed severalamendments with First National Bank of Omaha to extend this line of credit,which most recently was extended through March 31, 2009.  Under the amendment in June 2008, theamount we could borrow under the line of credit was increased from $5,000,000to $10,000,000.  The interest payable onthe line of credit is due monthly at the one-month LIBOR plus 2.80%. We pay acommitment fee of 0.25% on the unused portion of the line. The maximumavailable credit under this line of credit is based on receivable and inventorybalances. Our current receivable and inventory balances are not sufficient toallow us to use the maximum amount of the operating line of credit. Theoperating line of credit is subject to protective covenants requiring us tomaintain various 

### ** **

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### ** **

### **financialratios, which ratios we are currently in compliance with, and is secured by allof our business assets. There was no outstanding balance as of June 30,2008.**

### ** **

We had short-term debtfinancing consisting of a construction note for up to $73,000,000 for thepartial funding of the 40 MGY expansion to the Marcus facility.  Theprincipal balance on this note was approximately $61,382,000 as of July 30,2008 when it converted into term notes.  See “Expansion Debt Financing”below for a description of the converted term notes.

 

*Long-TermDebt Sources*.We have long-term debt financing consisting of three term notes held by FirstNational Bank of Omaha and referred to as Term Notes 2, 3, and 4. At June 30,2008, the principal balance on Term Note 2 was $9,058,774. Term Note 2 ispayable in quarterly installments. Interest on Term Note 2 is at thethree-month LIBOR plus 2.80%, which totaled 5.48% as of June 30, 2008.Term Note 2 was extended until July 20, 2008 and then renewed and rolledin with our construction loan and is now payable in full on July 20, 2013(referred to after conversion as the “Amended and Restated Existing Swap Note”).  We will begin making payments under theAmended and Restated Existing Swap Note on September 1, 2008.  The Amended and Restated Existing Swap Notewill be payable in quarterly installments and interest will be at the threemonth LIBOR plus 3.0%.

 

Term Note 3 wasconverted with the construction loan into a variable rate term loan in theamount of approximately $34,055,000, which includes additional amounts after June 30,2008 available for the completion of the expansion construction.

 

At June 30,2008, there was no principal balance on Term Note 4 and it expired on July 20,2008 without a balance.

 

We have a note inthe amount of $24,305 payable to the Iowa Energy Center on which we pay monthlyinstallments of $3,472 without interest. This note is secured by real estate,but is subordinated to the term notes. It matures on January 29, 2009.

 

Wehave a note with Farmers State Bank of Marcus, Iowa in the amount of $28,581 onwhich we pay monthly installments of $5,921, including interest at 6%. Thisnote is secured by real estate, but is subordinated to the term notes. Itmatures on January 29, 2009.

 

Wehave a note totaling $154,000 payable to the Iowa Department of EconomicDevelopment on which we pay monthly installments of $1,167 without interest.This note is secured by all equipment and matures on July 1, 2009.

 

*Expansion Debt Financing**.*We have entered into an Amended andRestated Construction Loan Agreement with First National Bank of Omaha, N.A. (“FNBO”)to finance the 40 million gallon expansion of our plant.  Under theAmended and Restated Construction Loan Agreement, FNBO has agreed to loan us upto $73,000,000 (the “Construction Loan”) for the purpose of partially fundingthe construction of the 40 million gallon per year expansion of our facilityand the subsequent replacement of the Construction Loan with an amount of up to$82,278,227 (the “Term Loan”), together with a $10,000,000 operating line ofcredit and letter of credit facility (the “Operating Loan”) and swap contracts.

 

Subsequently,we entered into five amendments to the Amended and Restated Construction LoanAgreement (the Amended and Restated Construction Loan Agreement together withthe amendments are collectively referred to as the Amended Agreement).  These amendments made only minor changes toour loan agreement.  The first amendmentincreased the total expansion costs, but not our borrowings, to$75,000,000.  This $2,000,000 increasewas to accommodate our purchase of a corn oil separation unit.  Our borrowings under the Amended Agreementdid not increase because we are paying for the corn oil separation unit out ofour cash funds, of which approximately $1,800,000 has already been paid.  The second amendment extended our OperatingLoan to April 30, 2008, originally set to expire in March 2008. The third amendment further extend our Operating Loan to June 1,2008.  The fourth amendment extended ourTerm Notes 2, 3 and 4 to July 20, 2008 and at the same time we extendedour Operating Loan to March 31, 2009. The fifth amendment converted the Construction Loan and Term Note 3 intoterm debt consisting of a swap loan for $36,500,000, a variable rate loan ofapproximately $34,055,000 and a long term revolving loan of $10,000,000.

 

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**CriticalAccounting Policies and Estimates**

 

This discussion andanalysis of financial condition and results of operations are based on ourfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States.  Note 2 to ourcondensed consolidated financial statements contain summaries of our accountingpolicies, many of which require management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  On an on-going basis, management evaluates itsestimates and judgments, including those related to accrued expenses, financingoperations, and contingencies and litigation.  Management bases itsestimates and judgments on historical experience and on various other factorsthat it believes to be reasonable under the circumstances, the results of whichform the basis for making judgments about the carrying value of assets andliabilities that are not readily apparent from other sources.  Actualresults may differ from these estimates under different assumptions or conditions. We do not currently deem any of our accounting estimates described in the notesto our consolidated financial statements to be critical.

 

**Off-BalanceSheet Arrangements**

 

We currently have no off-balance sheet arrangements.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK.**

 

We are exposed to the impactof market fluctuations associated with interest rates and commodity prices asdiscussed below. We have no exposure to foreign currency risk as all of ourbusiness is conducted in U.S. Dollars. We use derivative financial instrumentsas part of an overall strategy to manage market risk. We use cash, futures andoption contracts to hedge changes to the commodity prices of corn and naturalgas. We do not enter into these derivative financial instruments for trading orspeculative purposes, nor do we designate these contracts as hedges foraccounting purposes pursuant to the requirements of SFAS 133, *Accounting for Derivative Instruments and HedgingActivities*.

 

**Interest Rate Risk**

 

We are exposed to market risk from changes ininterest rates. Exposure to interest rate risk results primarily from holding arevolving promissory note and term notes which have variable interestrates.  Specifically, we have approximately $36,495,000 outstandingin variable rate debt as of June 30, 2008. The specifics of each note arediscussed in greater detail in “**Item 7 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Indebtedness**.”

 

Inorder to achieve a fixed interest rate on portions of our debt, we entered intoan interest rate swap, which help protect our exposure to increases in interestrates and the swap fixes the interest rate on the $36,500,000 of debt under theswap note, that resulted from conversion of our construction loan, at 7.68% forthe period of March 1, 2008 to March 1, 2013.  When thethree-month LIBOR plus the applicable premium exceeds the fixed rate of 7.68%,we receive payments for the difference between the market rate and the swaprate.  Conversely, when the three-month LIBOR plus the applicable premiumis below 7.68%, we make payments for the difference between the market rate andthe swap rate.  While our exposure is now greatly reduced, there can be noassurance that the interest rate swap agreement will provide us with protectionin all scenarios.  For example, if interest rates were to fall below7.68%, we would still be obligated pay interest at the fixed rate.

 

**Commodity Price Risk**

 

We are also exposed to market risk from changes incommodity prices. Exposure to commodity price risk results from our dependenceon corn and natural gas in the ethanol production process. We seek to minimizethe risks from fluctuations in the prices of corn and natural gas through theuse of derivative instruments. In practice, as markets move, we actively manageour risk and adjust hedging strategies as appropriate. Although we believe ourhedge positions accomplish an economic hedge against our future purchases, theyare not designated as such for hedge accounting purposes, which would match thegain or loss on our hedge positions to the specific commodity 

 

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purchase being hedged. We are marking to market our hedge positions,which means as the current market price of our hedge positions changes, thegains and losses are immediately recognized in our cost of goods sold.

 

Theimmediate recognition of hedging gains and losses can cause net income to bevolatile from quarter to quarter due to the timing of the change in value ofthe derivative instruments relative to the cost and use of the commodity beinghedged. At June 30,2008 and September 30, 2007, the gross value of our derivative instrumentsfor corn, natural gas, and ethanol was an asset of approximately $13,901,000and an asset in the amount of approximately $9,426,000, respectively. There are several variables that couldaffect the extent to which our derivative instruments are impacted by pricefluctuations in the cost of corn or natural gas. However, it is likely thatcommodity cash prices will have the greatest impact on the derivativesinstruments with delivery dates nearest the current cash price.

 

Tomanage our corn price risk, our hedging strategy is designed to establish aprice ceiling and floor for our corn purchases. We have taken a net longposition on our exchange traded futures and options contracts, which allows usto offset increases or decreases in the market price of corn. The upper limitof loss on our futures contracts is the difference between the contract priceand the cash market price of corn at the time of the execution of the contract.The upper limit of loss on our exchange traded and over-the-counter optioncontracts is limited to the amount of the premium we paid for the option.

 

Weestimate that our expected corn usage will be approximately 31 million bushelsper year for the production of 92 million gallons of ethanol. We have price protectionin place for all of our expected corn usage for fiscal year 2008 using forwardcontracts, CBOT futures and options and Over-the-Counter option contracts. Ascorn prices move in reaction to market trends and information, our incomestatement will be affected, depending on the impact such market movements haveon the value of our derivative instruments. As we move forward, additionalprice protection may be required to solidify our margins in future fiscalyears. Depending on market movements, crop prospects and weather, these priceprotection positions may cause immediate adverse effects, but are expected toproduce long-term positive growth for us.

 

Tomanage our natural gas price risk, we entered into a natural gas purchaseagreement with our supplier to supply us with natural gas. This purchaseagreement fixes the price at which we purchase natural gas. We have purchased aportion of our fiscal year 2008 natural gas requirements utilizing both cash,futures and options contracts. We may also purchase additional natural gasrequirements for our fiscal year 2008 as we attempt to further reduce oursusceptibility to price increases. We have entered into ethanol derivativeinstruments to hedge the variability of ethanol prices.

 

Asensitivity analysis has been prepared to estimate our exposure to corn,ethanol and natural gas price risk. The table presents the net fair value ofour derivative instruments as of June 30, 2008 and September 30, 2007and the potential loss in fair value resulting from a hypothetical 10% adversechange in such prices. The fair value of the positions is a summation of thefair values calculated by valuing each net position at quoted market prices asof the applicable date. The results of this analysis, which may differ from actualresults, are as follows:

 
| ** **              | ** ** | **Fair Value** | ** ** | **Effect of Hypothetical  Adverse Change —  Market Risk** | ** ** |
|-------------------------|------------|---------------------|------------|-----------------------------------------------------------------------------------------|------------|
| June 30, 2008      |       | $                   | 13,901,000 |                                                                                    | $          | (1,390,100 | ) |
| September 30, 2007 |       | $                   | 9,426,000  |                                                                                    | $          | (942,600 | ) |

 

**ITEM 4T.  CONTROLS AND PROCEDURES.**

 

Our management,including our President and Chief Executive Officer (the principal executiveofficer), Stephen Roe, along with our Chief Financial Officer (the principalfinancial officer), Gary Grotjohn, have reviewed and evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) underthe Securities Exchange Act of 1934, as amended) as of June 30,2008.  Based upon this review and evaluation, these officers haveconcluded that our disclosure controls and procedures are effective to ensurethat information required to be disclosed in the reports that we file or submitunder the Exchange Act is recorded, processed, summarized and 

 

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reported within the timeperiods required by the forms and rules of the Securities and ExchangeCommission; and to ensure that the information required to be disclosed by anissuer in the reports that it files or submits under the Exchange Act isaccumulated and communicated to our management including our principalexecutive and principal financial officers, or persons performing similarfunctions, as appropriate to allow timely decisions regarding requireddisclosure.

 

**CHANGES IN INTERNAL CONTROLS OVER FINANCIALREPORTING**

 

We are in the process of upgrading our systems, implementing additionalfinancial and management controls, and reporting systems and procedures.  We are currently undergoing a comprehensiveeffort in preparation for compliance with Section 404 of theSarbanes-Oxley Act of 2002. This effort, under the direction of seniormanagement, includes documentation, and testing of our general computercontrols and business processes. We are currently in the process of formalizingan internal audit plan that includes performing a risk assessment, establishinga reporting methodology and testing internal controls and procedures overfinancial reporting.

 

Except as described above, there has been no change in our internal controlover financial reporting (as defined in Rule 13a-15(f) under the ExchangeAct) that occurred in the fiscal quarter ended June 30, 2008 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

**PART II.  OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS.**

 

From time to time in theordinary course of business, we or the Partnership may be named as a defendantin legal proceedings related to various issues, including without limitation,workers’ compensation claims, tort claims, or contractual disputes.  We are not currently involved in any materiallegal proceedings, directly or indirectly, and we are not aware of any claimspending or threatened against us or any of the directors that could result inthe commencement of legal proceedings.

 

**ITEM 1A. RISK FACTORS**

 

Risk factors arediscussed in our annual report on Form 10-K.  The risks described in our annual report on Form 10-Kare not the only risks facing us.  Thefollowing risk factors are provided to supplement and update the risk factorspreviously disclosed in our Form 10-K. The risk factors set forth below should be read in conjunction with theconsiderations set forth above in “MANAGEMENT’S DISCUSSION AND ANALYSIS” andthe risk factors set forth in our annual report on Form 10-K.

 

***Recentflooding in the Midwest may have a negative impact on our ability to obtainfeedstock.***** **The Midwest experienced significant flooding in June 2008.  This resulted in some acres not being able tobe planted for the season and other acres being planted late.  A shorter planting season may effect thequality or quantity of the corn crop.  Ifthis results in less corn being produced, we may have difficulty obtainingadequate amounts of corn to operate our plant or may not be able to obtain cornat profitable prices, which would have a negative impact on our business.

 

****Recentthreats to tariffs imposed on ethanol imported into the United States mayresult in the expiration of these tariffs, which would likely increasecompetition for our product********. ****Brazil is expected make a complaint withthe World Trade Organization (WTO) about the United States ethanoltariffs.  Brazil plans to ask the WTO toestablish a panel on the matter and conduct a two month consultation on theissue.  We could face increasedcompetition for sales of our ethanol and domestic demand for our productcould decrease if these tariffs were removed, which could have a negativeimpact on our profitability.

 

***Weare proposing to our members that we reclassify and reorganize our membershipunits so that we may voluntarily terminate the registration of our units underthe Securities and Exchange Act of 1934,******and this proposal may havenegative effects to our business.***  If our members do not approve the reclassificationand reorganization of our membership units, we will incur costs associated withmaking such a proposal to our members 

 

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and will incur costsassociated with continuing to have our units registered under the Securitiesand Exchange Act of 1934.  If our membersdo approve the reclassification and reorganization of our membership units, ourmembers will lose the benefits of access to the information concerning ourcompany that is required to be disclosed in periodic reports to the Securitiesand Exchange Commission and the benefits of statutory safeguards imposed by therequirements of the Sarbanes Oxley Act. In addition, if we proceed with deregistration, the value and liquidityof our units may be reduced and potential future needs for equity capital maybe more difficult to achieve, due to stricter trading and selling rules forprivate companies.  For these reasons,proceeding with the reclassification, reorganization and deregistration of ourunits may have a negative impact on our business.

 

**ITEM 2.  UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

 

None.

 

**ITEM 3.  DEFAULTS UPONSENIOR SECURITIES.**

 

None.

 

**ITEM 4.  SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS.**

 

None.

 

**ITEM 5.**  **OTHER INFORMATION.**

 

None.

 

**ITEM 6.  EXHIBITS ANDREPORTS ON FORM 8-K.**

 

The following exhibitsare filed as part of this report.

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                        | ** ** | **Method of  Filing** |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|
| 10.1             |       | Third Amendment  and Extension to Letter of Intent between Fagen, Inc. and Akron  Riverview Corn Processors, LLC* |       | *                     |
|             |       |                                                                                                                   |       |                  |
| 10.2             |       | Amendments 1-5  to Construction Loan*                                                                                  |       | *                     |
|             |       |                                                                                                                   |       |                  |
| 31.1             |       | Certificate  pursuant to 17 CFR 240.13a-14(a)*                                                                         |       | *                     |
|             |       |                                                                                                                   |       |                  |
| 31.2             |       | Certificate  pursuant to 17 CFR 240.13a-14(a).*                                                                        |       | *                     |
|             |       |                                                                                                                   |       |                  |
| 32.1             |       | Certificate pursuant to 18 U.S.C. § 1350.*                                                                        |       | *                     |
|             |       |                                                                                                                   |       |                  |
| 32.2             |       | Certificate  pursuant to 18 U.S.C. § 1350.*                                                                       |       | *                     |

 

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(*)           Filed herewith.

 

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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, 2008                       |   |  /s/ Stephen Roe |
|   | Stephen Roe                            |
|   | President and Chief  Executive Officer |
|   |                                   |
| Date:  | August  19, 2008                       |   |  /s/ Gary Grotjohn |
|   | Gary Grotjohn                          |
|   | Chief Financial Officer                |

 

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