**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  March 31, 2008**                                              |
|   |       |                                                                                               |
|   |       | **OR**                                                                                             |
|   |       |                                                                                               |
| **o**  | ** ** | **Transition  report under Section 13 or 15(d) of the Exchange Act.**                    |

 

**For the transition periodfrom                to                 .**

# ** **

# **COMMISSION FILE NUMBER0001229899**

 

**LITTLE SIOUX CORN PROCESSORS, L.L.C.**

(Exact name of registrant as specified in its charter)

 

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

 

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

(Address of principal executive offices)

 

**(712) 376-2800**

(Issuer’s telephone number)

 

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

 

 Indicate by check mark whether the registrant isa large accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 
| Large Accelerated  Filer  o |   | Accelerated Filer  o |   | Non-Accelerated Filer  x

(Do not check if a  small  reporting company) |   | Smaller Reporting Company   o |
|----------------------------------|--------|---------------------------|--------|------------------------------------------------------------------------------|--------|------------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

 
|   |   | o   Yes          x  No |
|--------|--------|------------------------------------------------------------------------------------|

 

Indicate the number ofshares outstanding for each of the issuer’s classes of common equity as of thelatest practicable date:

 

As of May 15, 2008,there were 164,115 units outstanding.

 

 

 

----

 

 

 

**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** | ** ** | 14                | ** ** |
| **ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK**                                 | ** ** | 22                | ** ** |
| **ITEM 4.  CONTROLS AND PROCEDURES**                                                               | ** ** | 24                | ** ** |
| ** **                                                                                              | ** ** |              | ** ** |
| **PART II.  OTHER INFORMATION**                                                                    | ** ** | 25                | ** ** |
| ** **                                                                                              | ** ** |              | ** ** |
| **ITEM  1. LEGAL PROCEEDINGS**                                                                          | ** ** | 25                | ** ** |
| **ITEM  1A. RISK FACTORS**                                                                              | ** ** | 25                | ** ** |
| **ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE  OF PROCEEDS**                                | ** ** | 25                | ** ** |
| **ITEM 3. DEFAULTS UPON SENIOR SECURITIES**                                                             | ** ** | 25                | ** ** |
| **ITEM 4T. SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS**                                       | ** ** | 25                | ** ** |
| **ITEM  5. OTHER INFORMATION**                                                                          | ** ** | 25                | ** ** |
| **ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**                                                       | ** ** | 26                | ** ** |
| ** **                                                                                              | ** ** |              | ** ** |
| **SIGNATURES**                                                                                          | ** ** | 26                | ** ** |

** **

 

 

2

----

 

 

**PART I.  FINANCIAL INFORMATION**

 

**ITEM1.  FINANCIAL STATEMENTS.**

 

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

** **

Condensed Consolidated Balance Sheet

 

 
| ** **                                           | ** ** | **March 31,** | ** **  | **September 30,** | ** ** |
|------------------------------------------------------|------------|--------------------|-------------|------------------------|------------|
| **ASSETS**                                           | ** ** | **2008**           | ** **  | **2007**               | ** ** |
| ** **                                           | ** ** | **(Unaudited)**    | ** **  | ** **             | ** ** |
| **Current Assets**                                   | ** ** | ** **         | ** **  | ** **             | ** ** |
| Cash and equivalents                                 |       | $                  | 29,310,247  |                   | $          | 17,503,176 |   |
| Restricted cash                                      |       | 4,186,052          |        | 576,446                |       |
| Accounts receivable                                  |       | 1,054,087          |        | 691,615                |       |
| Accounts receivable - related party                  |       | 6,712,504          |        | 2,584,017              |       |
| Inventory                                            |       | 13,174,400         |        | 3,309,333              |       |
| Derivative instruments                               |       | 5,434,249          |        | —                 |       |
| Prepaid expenses                                     |       | 2,435,790          |        | 1,833,173              |       |
| Total current assets                                 |       | 62,307,329         |        | 26,497,760             |       |
|                                                 |       |               |        |                   |       |
| **Property and Equipment**                           | ** ** | ** **         | ** **  | ** **             | ** ** |
| Land and improvements                                |       | 6,522,312          |        | 2,929,516              |       |
| Plant buildings and equipment                        |       | 115,448,118        |        | 58,196,355             |       |
| Office buildings and equipment                       |       | 358,450            |        | 358,450                |       |
|                                                 |       | 122,328,880        |        | 61,484,321             |       |
| Less accumulated depreciation                        |       | 22,071,550         |        | 18,544,654             |       |
|                                                 |       | 100,257,330        |        | 42,939,667             |       |
| Construction in progress                             |       | 7,519,058          |        | 60,938,622             |       |
| Net property and equipment                           |       | 107,776,388        |        | 103,878,289            |       |
|                                                 |       |               |        |                   |       |
| **Other Assets**                                     | ** ** | ** **         | ** **  | ** **             | ** ** |
| Long-term investments                                |       | 256,098            |        | 157,717                |       |
| 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 |       | 422,704            |        | 547,374                |       |
| Total other assets                                   |       | 5,825,438          |        | 6,035,994              |       |
| ** **                                           | ** ** | ** **         | ** **  | ** **             | ** ** |
| **Total Assets**                                     |       | $                  | 175,909,154 |                   | $          | 136,412,043 |   |

 

 

See Notes to Condensed Consolidated Financial Statements

 

3

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** **

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

 

Condensed Consolidated Balance Sheet

 

 
| ** **                                                      | ** ** | **March 31,** | ** **  | **September 30,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|-------------|------------------------|------------|
| **LIABILITIES  AND MEMBERS’ EQUITY**                       | ** ** | **2008**           | ** **  | **2007**               | ** ** |
| ** **                                                      | ** ** | **(Unaudited)**    | ** **  | ** **             | ** ** |
| **Current Liabilities**                                         | ** ** | ** **         | ** **  | ** **             | ** ** |
| Current maturities of long-term debt                            |       | $                  | 18,398,586  |                   | $          | 13,259,228 |   |
| Accounts payable                                                |       | 4,136,506          |        | 7,967,325              |       |
| Accounts payable - related party                                |       | 340,953            |        | 1,414,774              |       |
| Accrued expenses                                                |       | 1,497,689          |        | 1,126,516              |       |
| Derivative instruments                                          |       | —             |        | 220,584                |       |
| Total current liabilities                                       |       | 24,373,734         |        | 23,988,427             |       |
|                                                            |       |               |        |                   |       |
| **Long-Term  Debt,****net of current maturities**               |       | 54,828,986         |        | 25,743,072             |       |
|                                                            |       |               |        |                   |       |
| **Minority Interest**                                           |       | 38,705,150         |        | 34,697,010             |       |
|                                                            |       |               |        |                   |       |
| **Members’ Equity, 164,115 units  issued and outstanding** |       | 58,001,284         |        | 51,983,534             |       |
|                                                            |       |               |        |                   |       |
| **Total Liabilities and Members’ Equity**                  |       | $                  | 175,909,154 |                   | $          | 136,412,043 |   |

 

 

See Notes to Condensed Consolidated Financial Statements

 

4

----

 

 

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

** **

Condensed Consolidated Statements of Operations

 
| ** **                                                  | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **March 31,**     | ** ** | **March 31,**     | ** ** |
| ** **                                                  | ** ** | **2008**               | ** ** | **2007**               | ** ** |
| ** **                                                  | ** ** | **(Unaudited)**        | ** ** | **(Unaudited)**        | ** ** |
|                                                        |       |                   |       |                   |       |
| **Revenues** - primarily  related party                     |       | $                      | 54,688,163 |                   | $          | 33,074,991 |   |
|                                                        |       |                   |       |                   |       |
| **Cost of Goods Sold**                                      |       | 34,972,940             |       | 20,692,797             |       |
|                                                        |       |                   |       |                   |       |
| **Gross Margin**                                            |       | 19,715,223             |       | 12,382,194             |       |
|                                                        |       |                   |       |                   |       |
| **Selling, General, and  Administrative Expenses**          |       | 2,763,624              |       | 1,746,902              |       |
| ** **                                                  | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Operating Income**                                        |       | 16,951,599             |       | 10,635,292             |       |
|                                                        |       |                   |       |                   |       |
| **Other Income (Expense)**                                  | ** ** | ** **             | ** ** | ** **             | ** ** |
| Interest income                                             |       | 102,636                |       | 274,310                |       |
| Interest expense                                            |       | (420,541               | )          | (4,999                 | )          |
| Other expense                                               |       | (1,241,173             | )          | (56,713                | )          |
| Total other income (expense), net                           |       | (1,559,078             | )          | 212,598                |       |
|                                                        |       |                   |       |                   |       |
| **Net Income Before Minority  Interest**                    |       | 15,392,521             |       | 10,847,890             |       |
| ** **                                                  | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Minority Interest in Subsidiary  Income**                 |       | 6,182,088              |       | 4,354,791              |       |
| ** **                                                  | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Net Income**                                              |       | $                      | 9,210,433  |                   | $          | 6,493,099 |   |
| ** **                                                  | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Net Income Per Unit - Basic and  Diluted**                |       | $                      | 56.12      |                   | $          | 39.56 |   |
|                                                        |       |                   |       |                   |       |
| **Distributions Per Unit**                                  |       | $                      | 56.10      |                   | $          | 53.33 |   |
|                                                        |       |                   |       |                   |       |
| **Weighted Average Units  Outstanding - Basic and Diluted** |       | 164,115                |       | 164,115                |       |

 

See Notes to Condensed Consolidated Financial Statements

 

5

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

 

Condensed Consolidated Statements of Operations

 
| ** **                                                  | ** ** | **Six Months Ended**    | ** ** | **Six Months Ended**    | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                  | ** ** | **March 31, 2008** | ** ** | **March 31, 2007** | ** ** |
|                                                        |       | **(Unaudited)**         |       | **(Unaudited)**         |       |
| **Revenues** - primarily  related party                     |       | $                       | 83,340,579 |                    | $          | 66,680,040 |   |
|                                                        |       |                    |       |                    |       |
| **Cost of Goods Sold**                                      |       | 51,227,988              |       | 32,736,488              |       |
|                                                        |       |                    |       |                    |       |
| **Gross Margin**                                            |       | 32,112,591              |       | 33,943,552              |       |
|                                                        |       |                    |       |                    |       |
| **Selling, General, and  Adminstrative Expenses**           |       | 4,371,671               |       | 2,528,725               |       |
| ** **                                                  | ** ** | ** **              | ** ** | ** **              | ** ** |
| **Operating Income**                                        |       | 27,740,920              |       | 31,414,827              |       |
|                                                        |       |                    |       |                    |       |
| **Other Income (Expense)**                                  | ** ** | ** **              | ** ** | ** **              | ** ** |
| Interest income                                             |       | 254,708                 |       | 646,519                 |       |
| Interest expense                                            |       | (420,541                | )          | (317,368                | )          |
| Other expense                                               |       | (2,168,410              | )          | (127,009                | )          |
| Total other income (expense), net                           |       | (2,334,243              | )          | 202,142                 |       |
|                                                        |       |                    |       |                    |       |
| **Net Income Before Minority  Interest**                    |       | 25,406,677              |       | 31,616,969              |       |
| ** **                                                  | ** ** | ** **              | ** ** | ** **              | ** ** |
| **Minority Interest in Subsidiary  Income**                 |       | 10,182,076              |       | 12,633,252              |       |
| ** **                                                  | ** ** | ** **              | ** ** | ** **              | ** ** |
| **Net Income**                                              |       | $                       | 15,224,601 |                    | $          | 18,983,717 |   |
| ** **                                                  | ** ** | ** **              | ** ** | ** **              | ** ** |
| **Net Income Per Unit - Basic and  Diluted**                |       | $                       | 92.77      |                    | $          | 115.67 |   |
|                                                        |       |                    |       |                    |       |
| **Distributions Per Unit**                                  |       | $                       | 56.10      |                    | $          | 53.33 |   |
|                                                        |       |                    |       |                    |       |
| **Weighted Average Units  Outstanding - Basic and Diluted** |       | 164,115                 |       | 164,115                 |       |

 

See Notes to Condensed Consolidated Financial Statements

 

6

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** **

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

 

Condensed Consolidated Statements of Cash Flows

 
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **March 31,**   | ** ** | **March 31,**   | ** ** |
| ** **                                                                         | ** ** | **2008**             | ** ** | **2007**             | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**      | ** ** | **(Unaudited)**      | ** ** |
| **Operating Activities**                                                           | ** ** | ** **           | ** ** | ** **           | ** ** |
| Net income                                                                         |       | $                    | 15,224,601 |                 | $          | 18,983,717 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                 |       |                 |       |
| Depreciation and amortization                                                      |       | 3,596,817            |       | 2,549,558            |       |
| Minority interest in subsidiary’s income                                      |       | 10,182,076           |       | 12,633,252           |       |
| Change in fair value of derivative instruments                                     |       | (946,411             | )          | (2,086,989           | )          |
| Write-off deferred offering cost                                                   |       | 184,267              |       |                 |       |
| Other                                                                              |       | (98,381              | )          | 195,581              |       |
| Change in operating assets and liabilities:                                        |       |                 |       |                 |       |
| Restricted cash                                                                    |       | (3,609,606           | )          | (1,826,393           | )          |
| Accounts receivable                                                                |       | (4,490,959           | )          | (1,610,544           | )          |
| Inventory                                                                          |       | (9,865,067           | )          | (1,774,305           | )          |
| Derivative instruments                                                             |       | (4,708,422           | )          | 393,375              |       |
| Prepaid expenses                                                                   |       | (602,617             | )          | (397,740             | )          |
| Accounts payable                                                                   |       | (722,432             | )          | (210,477             | )          |
| Accrued expenses                                                                   |       | 371,173              |       | 94,719               |       |
| Net cash provided by operating activities                                          |       | 4,515,039            |       | 26,943,754           |       |
|                                                                               |       |                 |       |                 |       |
| **Investing Activities**                                                           | ** ** | ** **           | ** ** | ** **           | ** ** |
| Proceeds from investments                                                          |       | —               |       | 18,726,834           |       |
| Capital expenditures                                                               |       | (11,552,453          | )          | (25,085,254          | )          |
| Payments for land options and other                                                |       | —               |       | (55,965              | )          |
| Construction commitment costs                                                      |       | —               |       | (500,000             | )          |
| Net cash used in investing activities                                              |       | (11,552,453          | )          | (6,914,385           | )          |
| ** **                                                                         | ** ** | ** **           | ** ** | ** **           | ** ** |
| **Financing Activities**                                                           | ** ** | ** **           | ** ** | ** **           | ** ** |
| Payments of long-term debt                                                         |       | (1,736,502           | )          | (1,635,849           | )          |
| Deferred offering costs                                                            |       | —               |       | (116,909             | )          |
| Proceeds from issuance of long-term debt                                           |       | 35,961,774           |       | —               |       |
| 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                                |       | 18,844,485           |       | (16,370,176          | )          |
| ** **                                                                         | ** ** | ** **           | ** ** | ** **           | ** ** |
| **Net Increase in Cash and  Equivalents**                                          |       | 11,807,071           |       | 3,659,193            |       |
| ** **                                                                         | ** ** | ** **           | ** ** | ** **           | ** ** |
| **Cash and Equivalents**— Beginning  of Period                                |       | 17,503,176           |       | 10,133,691           |       |
| ** **                                                                         | ** ** | ** **           | ** ** | ** **           | ** ** |
| **Cash and Equivalents** — End of  Period                                     |       | $                    | 29,310,247 |                 | $          | 13,792,884 |   |
|                                                                               | ** ** | ** **           | ** ** | ** **           | ** ** |
| **Supplemental Cash Flow  Information**                                            | ** ** | ** **           | ** ** | ** **           | ** ** |
| Interest expense paid                                                              |       | $                    | 420,541    |                 | $          | 323,939 |   |
| Interest capitalized                                                               |       | 1,539,027            |       | 272,535              |       |
| Total interest paid                                                                |       | $                    | 1,959,568  |                 | $          | 596,474 |   |
|                                                                               |       |                 |       |                 |       |
| **Supplemental Disclosure of  Noncash Investing and Financing Activities**         | ** ** | ** **           | ** ** | ** **           | ** ** |
| Capital expenditures in accounts payable                                           |       | $                    | 306,476    |                 | $          | 1,001,516 |   |

 

See Notes to Condensed Consolidated Financial Statements

 

7

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

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

March 31, 2008

 

**Note1:  Nature of Operations**

 

The Company representsLittle Sioux Corn Processors, LLC (LLC) and its subsidiary LSCP, LLLP (LLLP).  The Company completed the expansion of the plant from 52 million gallonsper year (MGY) plant to 92 MGY plant in January 2008 and commencedproduction in February 2008 after initial testing.  The Company sellsits production of ethanol, distiller’s grains and solubles, modified wetdistillers grains with solubles, and corn oil in the Continental United States.

 

**Note2:  Summary of Significant Accounting Policies**

 

**Basis ofPresentation**

 

These condensedconsolidated 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.

 

The condensedconsolidated interim financial statements are unaudited.  These statementsinclude all adjustments (consisting of normal recurring accruals) that weconsider necessary to present a fair statement of the results of operations,financial position, and cash flows.  The results reported in thesecondensed consolidated financial statements should not be regarded asnecessarily indicative of results that may be expected for the entire year.

 

**Principlesof Consolidation**

 

The condensedconsolidated financial statements include the accounts of the LLC, its 60.15%owned subsidiary, LLLP and its wholly owned subsidiaries Akron Riverview CornProcessors, LLC and Twin Rivers Management Co., LLC.  All significant inter-company transactionsand balances have been eliminated in consolidation.

 

**Use ofEstimates**

 

The preparation of theseconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actual results could differ from thoseestimates.

 

**RevenueRecognition**

 

The Company generallysells ethanol and related products pursuant to marketing agreements. Revenues are recognized when the marketing company (the “customer”) has takentitle and assumed the risks and rewards of ownership, prices are fixed ordeterminable and collectability is reasonably assured.  The marketingagreement with ADM provides that an initial price per gallon of ethanol isestablished upon shipment.  ADM knows the final price of ethanol purchasedby the end of each day, and the Company can obtain directly from ADM, the finalprice on a daily basis.  However, the Company settles the final price withADM on a monthly basis as this is administratively easier, even though thedaily sales amounts have been determined.  The Company typically receivesthe related paperwork from ADM within five days of month end.  Therefore,the Company believes that all sales of ethanol during a month are recorded at aprice that is both fixed and determinable and that there are no ethanol sales,during any given month that should be considered contingent and recorded asdeferred revenue.  The Company’s products are generally shipped FOB shippingpoint.

 

Inaccordance with the Company’s agreements for the marketing and sale of ethanoland related products, marketing fees and commissions due to the marketers arededucted from the gross sales price at the time payment is remitted to theCompany.  However, because the Company isthe primary obligor in the sales arrangement with the customer, 

 

8

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

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

March 31, 2008

 

thesemarketing fees and commissions are recorded in selling, general and administrative expenses in theaccompanying statements of operations.

 

TheCompany records incentives received from federal and state programs related to theproduction of ethanol, as other income, when the Company has sold the ethanoland completed all the requirements of the applicable incentive program.

 

**Researchand Development**

 

The Company incurs research and development costsrelated to the development of new products. The Company incurred approximately$830,000 in research and development costs for three months ended March 31,2008 and $1,207,000 for the six months ended March 31, 2008. The Companydid not incur any research and development costs for the three or six monthsended March 31, 2007.

 

**New Accounting Pronouncements**

 

In March 2008, theFASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities*, an amendment of FASBStatement 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.

 

**Note3:  Inventory**

 

Inventory is comprised ofthe following at:

 
| ** **      | ** ** | **March  31, 2008** | ** ** | **September 30, 2007*** | ** ** |
|-----------------|------------|--------------------------|------------|------------------------------|------------|
| Raw materials   |       | $                        | 5,030,211  |                         | $          | 1,487,691 |   |
| Supplies        |       | 1,268,925                |       | 867,896                      |       |
| Work in process |       | 1,490,089                |       | 344,601                      |       |
| Finished goods  |       | 5,385,175                |       | 609,145                      |       |
| Totals          |       | $                        | 13,174,400 |                         | $          | 3,309,333 |   |

----

* Derived from auditedconsolidated financial statements.

 

**Note 4:Derivative Instruments**

 

At March 31, 2008, the Company recorded an assetfor derivative instruments of approximately $5,434,000. None of the positionsopen at March 31, 2008 is designated as cash flow or fair value hedges.The asset of approximately $5,434,000 in derivative instruments at March 31,2008 includes a liability for the interest rate swap of approximately$2,780,000 described below and an asset for corn, natural gas, and ethanoloptions and futures positions of approximately $8,214,000. The gross fair valueof corn, natural gas, and ethanol derivative instrument positions at March 31,2008 is approximately $12,714,000 less cash withdrawn against the equity ofthese positions of approximately $4,500,000 resulting in a net asset for thesepositions of approximately $8,214,000.

 

The Company offset revenues with losses ofapproximately $2,427,000 and $980,000 for the three months ended March 31,2008 and 2007, respectively. The Company offset revenues with losses ofapproximately $5,271,000 and 

 

9

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

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

March 31, 2008

 

$1,279,000 for the six months ended March 31,2008 and 2007, respectively.  The Companyhas recorded a gain of approximately $16,616,000 and $3,935,000 in cost ofgoods sold for the three months ended March 31, 2008 and 2007,respectively.  The Company has recorded again of approximately $27,614,000 and $15,027,000 in cost of goods sold for thesix months ended March 31, 2008 and 2007, respectively.

 

In April 2007, the Company entered into aninterest rate swap to limit increased interest expense on a portion of theconstruction loans upon conversion into term notes. The interest rate swapfixes the interest rate on $36,500,000 of debt at 7.68% beginning March 1, 2008until March 1, 2013. The Company has included the liability for theinterest rate swap of approximately $2,780,000 with the derivative instrumentsabove at March 31, 2008 and recognized a loss of approximately $1,358,000and $2,341,000 as an other expense for the three months ended and six monthsended March 31, 2008, respectively.

 

**Note5:  Construction in Progress**

 

The Company continues tomake payments for the expansion to a 92 MGY plant.  The Companyanticipates the expansion will cost approximately $75,000,000 withapproximately $9,097,000 remaining at March 31, 2008.  The Companycapitalized interest of approximately $420,000 and approximately $1,224,000,including accrued amounts, in the three months and six months ended March 31,2008, respectively.  Final land gradingand rail siding work is expected to be complete by early fall 2008.

 

**Note6:  Revolving Promissory Note**

 

Under the terms of the financing agreement with thelending institution, the Company has a revolving promissory note for up to$5,000,000, subject to borrowing base limitations based on the amended andrestated debt agreement in April 2007. The revolving promissory noteincurs interest monthly at the one-month LIBOR plus 2.80% and is payable in June 2008.The Company pays a commitment fee of 0.25% on the unused portion of therevolving promissory note. There was no balance outstanding on the revolvingpromissory note at March 31, 2008. The revolving promissory note as wellas the term notes and construction loan are subject to protective covenantsunder a 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.

 

10

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to CondensedConsolidated Financial Statements (Unaudited)

 

March 31, 2008

 

**Note 7:Long-Term Debt**

 

Long-term debt consistsof the following:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | **March 31, 2008** | ** ** | **September 31, 2007*** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------------|------------|
| Term note 2 has fixed  principal payments due quarterly with interest at the three month LIBOR plus  2.80%, which totaled 5.88% and 8.17% at March 31, 2008 and 2007,  respectively, payable in full on June 1, 2008.  As part of the  financing agreement, the Company accepted a fixed rate option on term note 2  by entering into an interest rate swap which effectively fixes the interest  rate on this term note at 5.79% until this term note is repaid on  June 1, 2008. The Company did not designate the interest rate swap as a  cash flow or fair value hedge. The value of the interest rate swap is not  significant.                 | ** ** | $                       | 9,058,774  |                         | $          | 9,824,449 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                    |       |                         |       |
| Term note 3 bears interest  at the three month LIBOR plus 2.80%, which totaled 5.88% and 8.17% at  March 31, 2008 and September 30, 2007, respectively.  Term  note 3 is payable in full on June 1, 2008.  The Company is required  to make quarterly payments of $506,588 applied first to accrued interest on  term note 4.  The remaining amount is applied to accrued interest on  term note 3 and then to principal until this note is paid in full or until  maturity.  After term note 3 is repaid, payments are applied first to  accrued interest and then to principal on term note 4 until paid in full or  until maturity. |       | 2,554,560               |       | 3,434,778                    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                    |       |                         |       |
| Term note 4 bears interest  at the one month LIBOR plus 2.80%.  Term note 4 is payable in full on  June 1, 2008. Term note 4 allows subsequent borrowings up to the  original $5,000,000 to the extent of principal payments made until maturity  and requires 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | 34,722                  |       | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 40,458                  |       | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | 157,500                 |       | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | $                       | 73,227,572 |                         | $          | 39,002,300 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                    |       |                         |       |
| Less amounts due within  one year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       | 18,398,586              |       | 13,259,228                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |                    |       |                         |       |
| Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | $                       | 54,828,986 |                         | $          | 25,743,072 |   |

----

* Derived from auditedconsolidated financial statements.

 

In April 2007, the Company obtained aconstruction loan for approximately $73,000,000 for the partial funding of the40 MGY expansion to the Marcus, Iowa ethanol plant. The construction loan bearsinterest at the one-month LIBOR plus 3.10%, which totaled 6.22% at March 31,2008. Upon the earlier of July 20, 2008 or completion of construction, theconstruction loan converts into three separate notes for up to approximately$82,278,000. The first loan, known as the Swap Note, is for a maximum amount of$36,500,000. The Swap Note will be due in quarterly principal paymentsinitially totaling approximately $612,000, increasing to approximately$859,000, with a final balloon payment of approximately $22,725,000 on thefifth anniversary of the construction loan termination date. 

 

 

11

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to CondensedConsolidated Financial Statements (Unaudited)

 

March 31, 2008

 

Interest will accrue at the three-month LIBOR plus2.60% due quarterly. The Company entered into an interest rate swap to limitincreased interest expense on the Swap Note as described in Note 4. Theinterest rate swap fixes the interest rate at 7.68% beginning March 1,2008 until March 1, 2013.

 

The second loan, known as the Variable Rate Note, isfor up to approximately $35,778,000 which includes any remaining amountsoutstanding on term note 3, less any amounts outstanding on term note 2. The VariableRate Note will accrue interest at the three-month LIBOR plus 3.00%. The thirdloan, known as the Long Term Revolving Note, is for up to $10,000,000. The LongTerm Revolving Note will accrue interest at the three month LIBOR plus 3.00%.The Variable Rate Note and the Long Term Revolving Note require quarterlypayments of approximately $1,362,000, which is applied first to accruedinterest on the Long Term Revolving Note, then to accrued interest andprincipal on the Variable Rate Note. Once the Variable Rate Note has beenrepaid, these payments will be applied to accrued interest and principal on theLong Term Revolving Note. Both the Variable Rate Note and the Long TermRevolving Note mature on the fifth anniversary of the construction terminationdate. The Long Term Revolving Note allows subsequent borrowings up to theoriginal $10,000,000 until maturity. The Long Term Revolving Note requires acommitment fee of 0.25% on any unused portion.

 

The estimated maturitiesof long-term debt at March 31, 2008 are as follows:

 

| 2008                 |   | $          | 18,398,586 |   |
|----------------------|--------|------------|------------|--------|
| 2009                 |   | 7,162,468  |       |
| 2010                 |   | 7,508,799  |       |
| 2011                 |   | 8,025,299  |       |
| 2012                 |   | 32,132,420 |       |
| Total long-term debt |   | $          | 73,227,572 |   |

 

**Note 8:  Members’Equity**

 

In January 2008, the Board of Directors declareda distribution of approximately $15,494,000 from LLLP to the partners, whichwas paid in February 2008. The LLC received approximately $9,321,000 ofthis distribution. In February 2008, the LLC paid $56.10 per unit to theLLC unit holders on record as of January 14, 2008.

 

**Note9:  Related Party Transactions**

 

The Company has balances and transactions in thenormal course of business with various related parties. Revenues from relatedparties, including ADM, are approximately $49,750,000 and $29,914,000 for thethree months ended March 31, 2008 and 2007, respectively. Revenues fromrelated parties are approximately $77,049,000 and $60,121,000 for the sixmonths ended March 31, 2008 and 2007, respectively. The Company hasincurred expenses from related parties for corn purchases, distribution costs,and marketing fees of approximately $11,278,000 and $3,568,000 for the threemonths ended March 31, 2008 and 2007, respectively. The Company hasincurred expenses from related parties of approximately $17,564,000 and$7,471,000 for the six months ended March 31, 2008 and 2007, respectively.

 

The Company incurred approximately $803,000 during thethree months ended March 31, 2008 and $2,490,000 during the six monthsended March 31, 2008 related to construction in progress performed byFagen Inc., who is an investor in LSCP.

 

 

12

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

Notes to CondensedConsolidated Financial Statements (Unaudited)

 

March 31, 2008

 

 

**Note 10:**  **Commitments, and Contingencies**

 

**Contractual Obligations**

 

Thefollowing table provides information regarding the consolidated contractualobligations of the Company as of March 31, 2008:

 
| ** **                      | ** ** | **Total**  | ** **  | **Less than  One Year** | ** ** | **One to Three  Years** | ** ** | **Three to  Five Years** | ** ** | **Greater Than  Five Years** | ** ** |
|---------------------------------|------------|------------|-------------|------------------------------|------------|-------------------------|------------|--------------------------|------------|------------------------------|------------|
| Long-Term Debt Obligations  (1) |       | $          | 88,838,093  |                         | $          | 22,320,979              |       | $                        | 21,528,863 |                         | $          | 44,988,251 |   | — |   |
| Operating Lease  Obligations    |       | 2,394,635  |        | 189,435                      |       | 539,480                 |       | 475,920                  |       | $                            | 1,189,800  |   |
| Purchase Obligations (2)        |       | 43,260,519 |        | 38,863,278                   |       | 4,397,241               |       | —                   |       | —                       |       |
| Total Contractual Obligations   |       | $          | 134,493,247 |                         | $          | 61,373,692              |       | $                        | 26,465,584 |                         | $          | 45,464,171 |   | $ | 1,189,800 |   |

----

(1)          Long-Term Debt Obligations include estimated interestand interest on unused debt.

(2)          Purchase obligations primarily include forwardcontracts for corn, natural gas, and denaturant as well as remaining amountsfor construction in progress.

 

**Note 11:Letter of Intent**

 

In January 2008, theCompany signed a Letter of Intent to make a $2,000,000 equity contribution witha company to form a strategic alliance. The terms of the agreement called for a $200,000 deposit, which will beapplied to the equity contribution once the due diligence phase iscompleted.  If the Letter of Intent isterminated without the equity contribution, the deposit will convert to a notepayable bearing interest at a rate of the one-month LIBOR rate plus 3.25% perannum, with a term of 30 days.

 

**Note 12:Subsequent Event**

 

On May 12, 2008, theLLLP amended and restated the loan agreement between the LLLP and FirstNational Bank of Omaha, N.A.  The agreementextends the operating loan termination date until June 1, 2008.

 

 

13

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**ITEM 2.  MANAGEMENT’SDISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.**

 

**               **We prepared the followingdiscussion and analysis to help you better understand our financial condition,changes in our financial condition, and results of operations for thethree-month period and six-month period ended March 31, 2008, compared to the sameperiod of the prior fiscal year.  Thisdiscussion should be read in conjunction with the consolidated financialstatements and notes and the Management’s Discussion and Analysis section forthe fiscal year ended September 30, 2007, included in the Company’s AnnualReport on Form 10-K.

 

**DisclosureRegarding Forward-Looking Statements**

 

This report containshistorical information, as well as forward-looking statements.  These forward-looking statements include anystatements that involve known and unknown risks and relate to future events andour expectations regarding future performance or conditions.  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 other similarexpressions are intended to identify forward-looking statements, but are notthe 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:

 

·                  Changes in the availability and price of corn;

·                  Projected growth, overcapacity or increasedcompetition in the ethanol market in which we operate;

·                  Fluctuations in the price and market for ethanol anddistillers grains;

·                  Changes in plant production capacity, variations inactual ethanol and distillers grains production from expectations or technicaldifficulties in operating the plant;

·                  Changes in our development plans for expanding, maintainingor contracting our presence in the market in which we operate;

·                  Changes in interest rates and the availability ofcredit to support capital improvements, development, expansion and operations;

·                  Changes in or elimination of governmental laws, tariffs,trade or other controls or enforcement practices;

·                  Fluctuations in US oil consumption and petroleumprices;

·                  The availability and adequacy of our cash flow to meetour requirements;

·                  Competition from alternative fuels and alternativefuel additives; and

·                  Changes in general economic conditions or theoccurrence of certain events causing an economic impact in the agriculture, oilor automobile industries.

 

The cautionarystatements referred to in this section also should be considered in connectionwith any subsequent written or oral forward-looking statements that may beissued by us or persons acting on our behalf. We do not undertake any duty to update forward-looking statements afterthe date they are made or to conform them to actual results or to changes incircumstances or expectations. Furthermore, we cannot guarantee future results,events, levels of activity, performance, or achievements.  We caution you not to put undue reliance onany forward-looking statements, which speak only as of the date of thisreport.  You should read this report and the documents that we referencein 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 CornProcessors, L.L.C. (the “Company”) is an Iowa limited liability company thatowns the sole general partnership interest of LSCP, LLLP, (the “Partnership”)an Iowa limited liability limited partnership.  As general partner, wecurrently manage the business and day-to-day operations of the Partnership’s 92million gallon per year (MGY) ethanol plant located near Marcus, Iowa innorthwest Iowa.  We currently own a60.15% ownership interest in the Partnership. The Partnership has two wholly owned subsidiaries, Akron Riverview Corn

 

 

14

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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 the Partnership’s subsidiaries arecollectively referred to in this report as “LSCP,” “we,” or “us.”

 

In January 2008,we completed the operational and processing components of a 40 million gallonexpansion project, which increased our plant’s production capacity from 52million gallons per year to 92 million gallons per year.  Some additional work for the expansion, suchas increased rail siding, is expected to be completed by early fall 2008.

 

Our revenues are derivedfrom the sale and distribution of our ethanol, distillers grains and corn oilthroughout the continental United States. In fiscal year 2008, we anticipate producing approximately 86.3 milliongallons of ethanol, 418,500 tons of distillers grains, and 12.2 million poundsof corn oil from approximately 30.8 million bushels of corn.  We currently are on target for this productiongoal.  However, there is no guarantee that we will be able to continue tooperate at these production levels.

 

Corn is supplied to usprimarily from local agricultural producers and from purchases of corn on theopen market. After processing the corn, ethanol is sold to Archer DanielsMidland Co. (“ADM”), which subsequently markets and sells the ethanol togasoline blenders and refineries located throughout the continental UnitedStates.  The revenue we receive from the sale of ethanol to ADM is basedupon the price that ADM receives from the sale to its customers, minus amarketing fee and commission.  While we can obtain the final price for ourethanol from ADM on a daily basis, for administrative reasons, we settle thefinal price with ADM on a monthly basis.

 

We sell some of ourdistillers grains directly to local farmers. The remainder is sold through ourmarketing agreement with CHS, Inc., a Minnesota cooperative corporation (“CHS”)which markets and sells our distillers grains to livestock feeders.  Forour distillers grains sold by CHS, we receive a percentage of the selling priceactually received by CHS from its customers.

 

We directly market andsell our corn oil to regional wholesalers.  Presently, the end use of ourcorn oil is in the livestock and biodiesel industries.  In the long term,our corn oil could be marketed for human consumption; however, the feasibilityof market penetration as human food is unknown at this time, as corn oilextraction in dry milling is relatively new and suitability for humanconsumption has not yet been determined.

 

We are subject toindustry-wide factors that affect our operating income and cost ofproduction.  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 costsof production are corn and natural gas.  The cost of corn is affectedprimarily by factors over which we lack any control such as crop production,carryout, exports, government policies and programs, risk management andweather.  Natural gas prices fluctuate with the energy complex ingeneral.  Over the last few years, natural gas prices have trended higherthan average and it appears prices will continue to trend higher due to thehigh price of alternative fuels such as fuel oil.  Our costs of productionare affected by the cost of complying with the extensive environmental lawsthat regulate our industry.

 

 

15

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**Results of Operations for the SixMonths Ended March 31, 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 six months ended March 31,2008 and 2007:

 
| ** **                              | ** ** | **March 31, 2008** | ** ** | **March 31, 2007** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| **Income Statement Data**     | ** ** | **Amount**              | ** ** | **%**                   | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                                |       | $                       | 83,340,579 |                    | 100.0      |   | $ | 66,680,040 |   | 100.0 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Cost of Goods Sold                      |       | 51,227,988              |       | 61.5                    |       | 32,736,488 |   | 49.1 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Gross Profit                            |       | 32,112,591              |       | 38.5                    |       | 33,943,552 |   | 50.1 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Operating Expenses                      |       | 4,371,671               |       | 5.2                     |       | 2,528,725 |   | 3.8 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Operating Income                        |       | 27,740,920              |       | 33.3                    |       | 31,414,827 |   | 47.1 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Total Other Income  (Expense)           |       | (2,334,243              | )          | 2.8                     |       | 202,142 |   | 0.3 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Net Income Before Minority  Interest    |       | 25,406,677              |       | 30.5                    |       | 31,616,969 |   | 47.4 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Minority Interest in  Subsidiary Income |       | 10,182,076              |       | 12.2                    |       | 12,633,252 |   | 18.9 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Net Income                              |       | $                       | 15,224,601 |                    | 18.3       |   | $ | 18,983,717 |   | 28.5 |   |

 

*                Revenues.*The increase in revenues from the sixmonths ended March 31, 2008 compared to the six months ended March 31,2007 is due primarily to an increase in the number of gallons of ethanol wesold due to completion of our expansion.  The average price received forour ethanol for the six months ended March 31, 2008 increased slightlycompared to the average price received for ethanol during the six months ended March 31,2007.  The increase in revenues was partially offset by our losses fromderivative instruments related to ethanol hedging which increased fromapproximately $1,279,000 for the six months ended March 31, 2007 toapproximately $5,271,000 for the six months ended March 31, 2008. These loss amounts are recorded as a reduction of revenue. Revenue from salesof our co-products increased by approximately 59% in the six months ended March 31,2008 compared to the six months ended March 31, 2007 due to increasedproduction of the co-products resulting from the expansion.

 

The U.S. fuel ethanolindustry has experienced rapid growth, increasing from 1.3 billion gallonsof production in 1997 to approximately 6.5 billion gallons produced in2007, with year-end 2007 production capacity of 7.5 billion gallonsannually. Ethanol blends accounted for approximately 4.8% of the U.S. gasolinesupply in 2007. The growth in ethanol usage has been supported by regulatoryrequirements dictating the use of renewable fuels, including ethanol. TheEnergy Independence and Security Act of 2007 signed into law on December 19,2007, increased the mandated minimum use of renewable fuels to 9 billiongallons in 2008 (up from a 5.4 billion gallon requirement, which was theprevious mandated 2008 requirement under the Energy Policy Act of 2005). Themandated usage of renewable fuels increases to 36 billion gallons in 2022.The upper mandate for corn based ethanol is 15 billion gallons by 2015.However, on May 2, 2008 twenty-four U.S. senators requested theEnvironmental Protection Agency (EPA) to waive or restructure these renewablefuels mandates.  If the EPA does change or suspend the renewable fuels mandates,then ethanol demand may not increase as anticipated.

 

It is expected thatannual ethanol production capacity in the U.S. will total in excess of12 billion gallons annually by the end of 2008. This additional capacitymay cause supply to exceed demand. If additional demand for ethanol is notcreated, through either additions to discretionary blending (through increasedpenetration rates in areas that blend ethanol today or through theestablishment of new markets where little to no ethanol is blended today), orthrough additional governmental mandates at either the federal or state level,the excess supply may cause ethanol 

 

 

16

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prices to decrease,perhaps substantially.  We anticipate ethanol prices will continue toincrease in the near future, due to increased demand during the busy travelmonths in summer.

 

With respect toco-products, we are exploring new ways to market and utilize our corn oil andwe believe this will result in the continued increase of our sales for ourco-products.

 

*Costof Goods Sold**.*Our cost of goods sold as a percentage of revenues were 61.5% and 49.1%for the six months ended March 31, 2008 and 2007, respectively. Theincrease in our cost of goods sold from period to period is primarily due tothe increased cost of corn and natural gas purchased.

 

                Gainsfrom hedging for the six months ended March 31, 2008 were approximately$27,614,000 compared to approximately $15,027,000 for the six months ended March 31,2007.   Increased gains from hedging forthe six months ended March 31, 2008 offset a portion of our increase incosts of goods sold. We are marking to market our hedge positions, which meansas the current market price of our hedge positions changes, the gain and lossesare immediately recognized in our cost of goods sold. Therefore, gains orlosses included in the results for this period may also be for anticipated cornpurchases in future periods.

 

Corn costs significantlyimpact our cost of goods sold.  As of March 31,2008, United States Department of Agriculture estimated that 2008 cornacres planted will be down 8% from 2007, when corn acreage planted was thehighest since 1944.  The USDA attributes the decrease in expected acreageto favorable prices for other crops, high input costs for corn and croprotations.  With less acreage anticipated, we expect corn to remain athigh price levels. Weather-related delays in planting the U.S. corn crop couldresult in smaller yields and lower-than-expected production this year, and thatcould push record grain prices even higher and exacerbate the current debateover using crops for food or fuel.  This increase will likely drive theprice of corn upwards in our market which will impact our ability to operateprofitably.

 

Natural gas pricesfluctuated significantly during 2007, and could again increase significantly asa result of actual or perceived shortages in supply.  We expect continuedvolatility in the natural gas market.  Global demand for natural gas isexpected to continue to increase, which may drive up prices.  Any ongoingincreases in the price of natural gas will increase our cost of production andmay negatively impact our profit margins.  Natural gas prices are a largecomponent of our cost of goods sold and we anticipate the price we pay fornatural gas will continue to be volatile from period to period.

* *

*OperatingExpenses**.*Our operating expenses as a percentage of revenues were 5.2% and 3.8%for the six months ended March 31, 2008 and 2007, respectively.  Thisincrease resulted from an increase in ethanol marketing fees and research anddevelopment costs associated with exploring new ways to market and utilize ourco-products.

 

*OperatingIncome**.*Our income from operations for the six months ended March 31, 2008totaled $27,740,920 compared to income of $31,414,827 for the six months ended March 31,2007. This decrease was a result of increased corn costs, combined with higheroperating expenses offset by increased derivative gains, as discussed above,for the six months ended March 31, 2008.

 

*OtherIncome (Expense)*. Our other expense totaled a liability of $2,334,243 for the six months ended March 31,2008 compared to other income of $202,142 for the same period in 2007. Thenet increase in expense is primarily due to the decreased value of our interestrate swap of approximately $2,341,000 on a portion of our construction loan.

 

 

17

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**Resultsof Operations for the Three Months Ended March 31, 2008 and 2007**

 

The following table showsthe results of our operations and the percentage of revenues, cost of goodssold, operating expenses and other items to total revenues in our consolidatedstatements of operations for the three months ended March 31, 2008 and2007:

 

| ** **                              | ** ** | **March 31, 2008** | ** ** | **March 31, 2007** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| **Income Statement Data**     | ** ** | **Amount**              | ** ** | **%**                   | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                                |       | $                       | 54,688,163 |                    | 100.0      |   | $ | 33,074,991 |   | 100.0 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Cost of Goods Sold                      |       | 34,972,940              |       | 63.9                    |       | 20,692,797 |   | 62.6 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Gross Profit                            |       | 19,715,223              |       | 36.1                    |       | 12,382,194 |   | 37.4 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Operating Expenses                      |       | 2,763,624               |       | 5.1                     |       | 1,746,902 |   | 5.3 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Operating Income                        |       | 16,951,599              |       | 31.0                    |       | 10,635,292 |   | 32.2 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Total Other Income  (Expense)           |       | (1,559,078              | )          | (2.9                    | )          | 212,598 |   | 0.4 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Net Income Before Minority  Interest    |       | 15,392,521              |       | 28.1                    |       | 10,847,890 |   | 32.8 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Minority Interest in  Subsidiary Income |       | 6,182,088               |       | 11.3                    |       | 4,354,791 |   | 13.2 |   |
|                                    |       |                    |       |                    |       |   |   |   |   |
| Net Income                              |       | $                       | 9,210,433  |                    | 16.8       |   | $ | 6,493,099 |   | 19.6 |   |

 

*                Revenues.*The increase in revenues from the threemonths ended March 31, 2008 compared to the three months ended March 31,2007 is due primarily to an increase in the number of gallons of ethanol wesold due to completion of our expansion. The average price received for our ethanol for the three months ended March 31,2008 increased slightly compared to the average price received for ethanolduring the three months ended March 31, 2007.  The increase in revenues was partially offsetby our losses from derivative instruments related to ethanol hedging whichincreased from $980,000 for the three months ended March 31, 2007 to$2,427,000 for the three months ended March 31, 2008.  These loss amounts are recorded as areduction of revenue. Revenue from sales of our co-products increased byapproximately 90.6% in the three months ended March 31, 2008 compared tothe three months ended March 31, 2007 due to increased production of theco-products resulting from the expansion.

 

*                Cost of Goods Sold.*Our cost of goods sold as a percentage ofrevenues were 63.9% and 62.6% for the three months ended March 31, 2008and 2007, respectively. The slight increase in our cost of goods sold fromperiod to period is primarily due to the increased cost of natural gaspurchased. The per bushel cost of corn purchased increased approximately 31.1%in the three months ended March 31, 2008 as compared to the three monthsended March 31, 2007, without taking our corn hedges into account.  When our corn hedges are factored in, the perbushel cost of corn purchased decreased approximately 5.8% for the three monthsended March 31, 2008 as compared to the three months ended March 31,2007.

 

Corn costs significantlyimpact our cost of goods sold. For the three months ended March 31, 2008,we paid an average of $4.57 per bushel of corn.  For the three months endedMarch 31, 2007, we paid an average of $3.51 per bushel of corn.

 

                For the three months ended March 31, 2008, wepaid a weighted average of $11.29 per mmbtu of natural gas.  For the three months ended March 31,2007, we paid a weighted average of $7.18 per mmbtu.  The price we paid for the three months ended March 31,2008 is up from the price paid for the three months ended March 31, 2007and was further increased by losses from natural gas hedges.  Natural gas prices are a large component ofour cost of goods sold and we anticipate the price we pay for natural gas willcontinue to be volatile from period to period.

 

Gains from hedging forthe three months ended March 31, 2008 were approximately $16,616,000compared to approximately $3,935,000 for the three months ended March 31,2007.  Increased gains from hedging forthe three months ended March 31, 2008 offset all of our increase in costsof goods sold.

 

*                Operating Expenses.*Our operating expenses as a percentage ofrevenues were 5.1% and 5.3% for the three months ended March 31, 2008 and2007, respectively.  This decrease resulted from increased efficienciesfrom operating the expanded plant at the new higher ethanol production rate.

 

*                Operating Income.*Our income from operations for the threemonths ended March 31, 2008 totaled $16,951,599 compared to income of$10,635,292 for the three months ended March 31, 2007. This was a resultof the substantial increase in revenue and gross profit, which resulted largelyfrom our increased operating capacity after completion of the expansion.

 

 

18

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*                Other Income (Expense)*.  Our other expense totaled$1,559,078 for the three months ended March 31, 2008 compared to otherincome of $212,598 for the same period in 2007. The net increase inexpense is primarily due to the decreased value of our interest rate swap ofapproximately $1,358,000 on a portion of our construction loan.

 

**Changes in Financial Condition forthe Six Months Ended March 31, 2008**

 

Totalassets were approximately $175,909,000 at March 31, 2008 compared toapproximately $136,412,000 at September 30, 2007. Current assets totaledapproximately $62,307,000 at March 31, 2008 up from approximately$26,498,000 at September 30, 2007. The change in total assets is due to anincrease of all our categories of assets, as a result of our expansion whichincreased our plant buildings and equipment with an increase in our inventoryand accounts receivable due to our increased production capacity.  In addition, we have substantially more rawmaterials on hand at March 31, 2008 then we did at September 30,2007, because of our expansion to 92 MGY production and expanded storagefacilities.

 

Total current liabilitiestotaled approximately $24,374,000 at March 31, 2008 compared to theapproximate $23,988,000 at September 30, 2007.  This increase resulted from an increase incurrent maturities of long-term debt and accrued expenses.   Accrued expenses increased primarily as aresult of higher accrued interest related to additional debt at March 31,2008 compared to September 30, 2007. Additionally, long-term debt, net ofcurrent maturities, totaled approximately $54,829,000 at March 31, 2008 upfrom approximately $25,743,072 at September 30, 2007. This increaseoccurred as a result of our use of loaned funds to pay for the expansionconstruction.

 

**Strategies**

 

***Marcus PlantOperations***

 

Duringfiscal year 2006, we commenced a plant expansion to increase the ethanolproduction capacity of our plant by 40 million gallons to 92 million gallonsannually. We currently expect that the total cost of the expansion project willbe approximately $75,000,000, approximately $2,000,000 more than originallyestimated.  The increase was due to ourpurchase of an oil separation unit.  Wedid not, however, increase the amount of our construction loan to include thisadditional $2,000,000 cost as we will pay for the oil separation unit with ourcash from operations.  We received ourcertificate of substantial completion on the expansion on January 15, 2008and commenced operating at the 92 million gallon capacity on January 19,2008. Final land grading and rail siding work is expected to be complete byearly fall 2008.

 

OnApril 5, 2007, we entered into an Amended and Restated Construction LoanAgreement (the “Amended Agreement”) with First National Bank of Omaha, N.A. (“FNBO”)to finance the 40 million gallon expansion.  For additional informationregarding our expansion debt financing commitment, see “**Item 2 — Management’s Discussionand Analysis of Financial Condition and Results of Operations — Indebtedness, *Expansion Debt Financing***.”

 

Managementanticipates that the plant will continue to operate at or above our expandedname-plate capacity of 92 MGY.  Although tangential work on the expansionproject, such as rail siding, road work and landscaping, will continue untilearly fall 2008, we do not anticipate that this work will substantiallyinterfere with our production capabilities.

 

Weexpect to have sufficient cash from cash flow generated by continuingoperations, additional debt financing secured to fund plant expansion, current linesof credit through our revolving promissory note, and cash reserves to cover thecosts of expansion as well as our usual operating costs over the next 12months, which consist primarily of corn supply, natural gas supply, staffing,office, audit, legal, compliance, working capital costs and debt serviceobligations.

 

Weexpect our total operating costs to increase because of the increase in ourproduction capacity for the completed expansion.  We expect to offset theincrease in operating costs by increased ethanol revenues, however, a

 

 

19

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varietyof market factors can affect both operating costs and revenues and many ofthese factors are beyond our control.

 

 

***Akron Ethanol PlantDevelopment***

 

As of the date of this report, further development of Akron’s ethanolplant remains suspended.  We continue tomonitor the market conditions to determine if and when this project will befeasible.  For the three months ended March 31,2008, we wrote off some of the organizational costs of Akron for a loss ofapproximately $184,000.  We also leasedthe land Akron acquired as a site for the potential plant to a farmer foragricultural use. There is no assurance that our involvement with the Akronplant, or the project, will be successful. The market conditions will be continually evaluated to determine thefeasibility of restarting the Akron project.

 

**Distribution**

 

During the three monthsended March 31, 2008, the board of directors approved a cash distributionof $15,494,454 to the Partnership’s partners of record as of January 14,2008.  As a holder of 60.15% of the units of the Partnership, the Companywill receive a cash distribution of $9,320,518.  On January 14, 2008,the Company’s board of directors approved a cash distribution of $56.10 permembership unit or a total of $9,206,851 to its unit holders of record as of January 14,2008.  The distribution was paid in February 2008.

 

**Liquidityand Capital Resources**

 

The followingtable shows cash flows for the six months ended March 31, 2008 and 2007:

 

| ** **                                           | ** ** | **2008** | ** **     | **2007**   | ** ** |
|------------------------------------------------------|------------|----------|----------------|------------|------------|
| Net cash provided by  operating activities           |       | $        | 4,515,039      |       | $          | 26,943,754 |   |
| Net cash used in investing  activities               |       | $        | (11,552,453    | )          | $          | (6,914,385 | ) |
| Net cash provided by (used  in) financing activities |       | $        | 18,844,485     |       | $          | (16,370,176 | ) |
| **Net increase in cash and  equivalents**            | ** ** | **$**    | **29,310,247** | ** ** | **$**      | **13,792,884** | ** ** |

 

*                Operating Cash Flows.*Cash provided by operating activities was$4,515,039 for the six months ended March 31, 2008, which was a decreasefrom the $26,943,754 provided by operating activities for the six months ended March 31,2007. This decrease resulted from more cash being required to build inventoriesand the payment of accounts payable as the plant’s raw material needs increaseddue to the expansion.  Our capital needs are being adequately met throughcash from our operating activities and our current credit facilities.

 

*InvestingCash Flows**.*Cash used in investing activities was $11,552,453 for the six monthsended March 31, 2008, compared to $6,914,385 for the six months ended March 31,2007. This increase in cash used resulted from an increase in funds needed tobe expended for our current expansion construction.

 

*                Financing Cash Flows*. Cash provided by financing activitieswas $18,844,485 for the six months ended March 31, 2008, compared tooutflows of $16,370,176 for the six months ended March 31, 2007.  Cash was increased from several draws againstthe construction note for the six months ended March 31, 2008.  Weused cash to pay down our debt by $1,736,502 for the six months ended March 31,2008 compared to $1,635,849 for the six months ended March 31, 2007.

 

**               ****Indebtedness**

 

### ***Short-Term Debt Sources***. We maintain a line of credit withFirst National Bank of Omaha to finance short-term working capital requirements.  This line of credit was initially set toexpire in March 2008, however, we executed an amendment with FirstNational Bank of Omaha to extend the line of credit through April 30,2008.  Another amendment was executed toextend the line of credit further, now through June 1, 2008. Under theline of credit, as extended, we may borrow up to $5,000,000 under a revolvingpromissory note.  The interest payable onthe revolving promissory note is due monthly at the one-month LIBOR plus 2.80%.We pay a commitment fee of 0.25% on the unused portion of the line. The maximumavailable credit under this note is based on receivable and 

### ** **

### ** **

### ** **

### **20**

### ****

### ** **

### **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 financial ratios and is secured by all of our business assets.There was no outstanding balance as of March 31, 2008.**

### ** **

                We have short-term debt financing consisting of aconstruction note for up to $73,000,000 for the partial funding of the 40 MGYexpansion to the Marcus facility.  The principal balance on this note was$61,381,558 as of March 31, 2008 and will convert into term notes at thecompletion of the construction or the earlier of July 20, 2008. Interest on the construction note is at the one-month LIBOR plus 3.10%, whichtotaled 6.22% as of March 31, 2008.

 

*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 March 31,2008, 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 5.88% as of March 31, 2008.Term Note 2 is payable in full on June 1, 2008. In order to achieve afixed interest rate on Term Note 2, we entered into an interest rate swap whichhelps protect our exposure to increases in interest rates and the swapeffectively fixes the interest rate on Term Note 2 at 5.79% until June 1,2008.  This note relates to our originalfinancing and did not change when we entered into our expansion constructionloan.

 

At March 31,2008, the principal balance on Term Note 3 was $2,554,560. Term Note 3 ispayable in quarterly installments. Interest on Term Note 3 is at thethree-month LIBOR plus 2.80%, which totaled 5.88% as of March 31, 2008.Term Note 3 is payable in full on June 1, 2008. As part of the financingagreement, we have agreed to pay an annual servicing fee of $50,000.  However, under our commitment letter withFirst National Bank of Omaha for our expansion debt financing, this annualservicing fee will be reduced to $30,000. This note was refinanced when we entered into our expansion constructionloan and will be converted with the construction loan into a term loan.

 

At March 31,2008, there was no principal balance on Term Note 4.  Interest on TermNote 4 is at the one-month LIBOR plus 2.80%. Term Note 4 is payable in full on June 1,2008. Term Note 4 allows borrowings up to the original principal of $5,000,000to the extent of principal payments made until maturity. This note wasrefinanced when we entered into our expansion construction loan and will beconverted with the construction loan into a term loan.

 

At March 31,2008, the aggregate indebtedness represented by Term Notes #2, #3, #4, and theconstruction loan was $72,994,892.  Formore information on the construction loan see “Expansion Debt Financing” below.

 

We had a capitallease obligation which we paid off on March 1, 2008.  This lease was paid in monthly installmentstotaling $6,658, with an implicit interest rate of 3.67%.

 

We have a note inthe amount of $34,722 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 $40,458 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 $157,500 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 Agreement, FNBO has agreed to loan us up to $73,000,000 (the “ConstructionLoan”) for the purpose of partially funding the construction of the 40 milliongallon per year expansion of our facility and the subsequent 

 

 

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replacement of theConstruction Loan with an amount of up to $82,278,227 (the “Term Loan”),together with a $5,000,000 operating line of credit and letter of creditfacility (the “Operating Loan”) and swap contracts.

 

In January 2008,we entered into a First Amendment to the Amended and Restated Construction LoanAgreement (“First Amendment”), in March 2008, we entered into a SecondAmendment to the Amended and Restated Construction Loan Agreement (“SecondAmendment”) and in April 2008, we entered into a Third Amendment to theAmended and Restated Construction Loan Agreement (“Third Amendment”) (theAmended and Restated Construction Loan, as read with the First Amendment,Second Amendment and Third Amendment is collectively referred to herein as the “AmendedAgreement”).  These amendments made onlyminor changes to our loan agreement.  TheFirst Amendment increased the total expansion costs to $75,000,000.  This $2,000,000 increase was to accommodateour purchase of a corn oil separation unit. The amount of the Construction Loan, however, did not increase becausewe are paying for the corn oil separation unit out of our cash funds.  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.

 

Wemade several draws under the Construction Loan this quarter to pay for theexpansion of the Marcus plant.  Theprincipal balance under the Construction Loan was $61,381,558 as of March 31,2008.

 

Inorder to achieve a fixed interest rate on portions of our expansion debt, weentered into an interest rate swap which helps protect our exposure toincreases in interest rates. The swap fixes the interest rate on $36,500,000 ofdebt related to the expansion financing at 7.68% for the period of March 1,2008 to March 1, 2013. The note will convert into term notes at thecompletion of construction.  Interest on the construction note is at theone-month LIBOR plus 3.10%, which totaled 6.22% as of March 31, 2008.

 

**Critical Accounting 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 orconditions.  We do not currently deem any of our accounting estimatesdescribed in the notes to our consolidated financial statements to be critical.

 

**Off-BalanceSheet Arrangements**

 

We currently have no off-balance sheet arrangements.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK.**

 

We are exposed to the impact of market fluctuations associated withinterest rates and commodity prices as discussed below. We have no exposure toforeign currency risk as all of our business is conducted in U.S. Dollars. Weuse derivative financial instruments as part of an overall strategy to managemarket risk. We use cash, futures and option contracts to hedge changes to thecommodity prices of corn and natural gas. We do not enter into these derivativefinancial instruments for trading or speculative purposes, nor do we designatethese contracts as hedges for accounting purposes pursuant to the requirementsof SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities*.

 

 

22

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**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, a construction note and three term notes which bearvariable interest rates.  Specifically, we have $72,994,892 outstanding in variable rate debt as of March 31, 2008. Thespecifics of each note are discussed in greater detail in “**Item 7 — Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Indebtedness**.”

 

Inorder to achieve a fixed interest rate on portions of our debt, we entered intointerest rate swaps which help protect our exposure to increases in interestrates and the swaps fix the interest rate on Term Note 2 at 5.79% until June 1,2008, and fixes the interest rate on $36,500,000 of debt, related to theexpansion financing, at 7.68% for the period of March 1, 2008 to March 1,2013.  When the three-month LIBOR plus the applicable premium exceeds thefixed rate of 5.79% or 7.68%, we receive payments for the difference betweenthe market rate and the swap rate.  Conversely, when the three-month LIBORplus the applicable premium is below 5.79% or 7.68%, we make payments for thedifference between the market rate and the swap rate.  While our exposureis now greatly reduced, there can be no assurance that the interest rate swapagreements will provide us with protection in all scenarios.  For example,if interest rates were to fall below 5.79% or 7.68%, as applicable, we wouldstill 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 purchase beinghedged. We are marking to market our hedge positions, which means as thecurrent market price of our hedge positions changes, the gains and losses areimmediately 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 March 31,2008 and September 30, 2007, the gross value of our derivative instrumentsfor corn, natural gas, and gasoline was an asset of approximately $12,714,000and 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 price fluctuationsin the cost of corn or natural gas. However, it is likely that commodity cashprices will have the greatest impact on the derivatives instruments withdelivery 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 priceprotection in place for all of our expected corn usage for fiscal year 2008using forward contracts, CBOT futures and options and Over-the-Counter optioncontracts. As corn prices move in reaction to market trends and information,our income statement will be affected, depending on the impact such marketmovements have on the value of our derivative instruments. As we move forward,additional price protection may be required to solidify our margins in futurefiscal years. Depending on market movements, crop prospects and weather, theseprice protection positions may cause immediate adverse effects, but areexpected to produce long-term positive growth for us.

 

 

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Tomanage our natural gas price risk, we entered into a natural gas purchase agreementwith our supplier to supply us with natural gas. This purchase agreement fixesthe price at which we purchase natural gas. We estimate 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 gasoline derivativeinstruments to hedge the variability of ethanol prices. While not perfectlycorrelated, we have found that ethanol and gasoline prices tend to move intandem. Therefore, the gasoline contracts we have entered into are intended tooffset cash decreases in the price of ethanol we receive.

 

A sensitivity analysis has been prepared to estimateour exposure to corn, gasoline and natural gas price risk. The table presentsthe net fair value of our derivative instruments as of March 31, 2008 and September 30,2007 and the potential loss in fair value resulting from a hypothetical 10%adverse change in such prices. The fair value of the positions is a summationof the fair values calculated by valuing each net position at quoted marketprices as of the applicable date. The results of this analysis, which may differfrom actual results, are as follows:

 
| ** **              | ** ** | **Fair Value** | ** ** | **Effect of Hypothetical  Adverse Change —  Market Risk** | ** ** |
|-------------------------|------------|---------------------|------------|-----------------------------------------------------------------------------------------|------------|
| March 31, 2008     |       | $                   | 12,714,000 |                                                                                    | $          | (1,271,400 | ) |
| September 30, 2007 |       | $                   | 9,426,000  |                                                                                    | $          | (942,600 | ) |

 

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

 

                Our management, including our President and ChiefExecutive Officer (the principal executive officer), Stephen Roe, along withour Chief Financial Officer (the principal financial officer), Gary Grotjohn,have reviewed and evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934, as amended) as of March 30, 2008.  Based uponthis review and evaluation, these officers have concluded that our disclosurecontrols and procedures are effective to ensure that information required to bedisclosed in the reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods requiredby the forms and rules of the Securities and Exchange Commission; and toensure that the information required to be disclosed by an issuer in thereports that it files or submits under the Exchange Act is accumulated andcommunicated to our management including our principal executive and principalfinancial officers, or persons performing similar functions, as appropriate toallow timely decisions regarding required disclosure.

 

**CHANGES IN INTERNAL CONTROLS OVER FINANCIALREPORTING**

 

     We are inthe process of upgrading our systems, implementing additional financial andmanagement 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.

 

In our AnnualReport on Form 10-K for the year ended September 30, 2007 and in oursubsequent quarterly report on Form 10-Q for the quarter ended December 31,2007, management concluded that our internal control over financial reportingwas not effective for such period because of the material weakness identifiedin such reports. During the second quarter of 2008, we completed ourremediation efforts with respect to those material weaknesses. During thesecond quarter of 2008 we had a more timely closing process and prepared ourfinancial statements in a timelier manner by refining our structure in whichcritical accounting policies and estimates are identified and enhancing ourperiod-end financial close process. We believe that these changes provided uswith the processes necessary to maintain effective internal control overfinancial reporting as of March 31, 2008.

 

 

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Except as described above, there has been no change in our internalcontrol over financial reporting (as defined in Rule 13a-15(f) underthe Exchange Act) that occurred in the fiscal quarter ended March 31, 2008that has materially affected, or is reasonably likely to materially affect, ourinternal control 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 claims pending or threatened against us or any of thedirectors that could result in the commencement of legal proceedings.

 

**ITEM 1A. RISK FACTORS**

 

The risk factorsas previously disclosed in our Annual Report on Form 10-K for the fiscalyear ended September 30, 2007 and Quarterly Report on Form 10-Q forthe quarter ended December 31, 2007 have not materially changed.  Please refer to the risk factors set forth inour Annual Report on Form 10-K.

 

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

 

None.

 

**ITEM 3.  DEFAULTS UPON SENIORSECURITIES.**

 

                None.

 

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

 

We held our AnnualMember Meeting on March 25, 2008.  The only matter that was submittedto a vote of our members was to elect the three open Class A directorseats available due to the expiration of the terms of office of three incumbentClass A directors.  Dale Arends, Daryl Haack and Ron Wetherell wereelected to serve another three year term as Class A directors.  Thefollowing Class A directors’ terms were not expired at our Annual MemberMeeting and, thus, they did not stand for election:  Verdell Johnson,Timothy Ohlson, Myron Pingel, Vince Davis, Darrell Downs and DougLansink.  Class B directors are appointed and serve at the discretionof the limited partners of the Partnership.  Our Class B directors,therefore, did not stand for election at our Annual Meeting.  The votesfor the nominee directors were as follows:

 
| **Director Nominee** | ** ** | **For** | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|---------------------------|------------|---------|------------|-------------|------------|-------------|------------|
| Dale Arends               |       | 92,023  |       | 1,114       |       | 300         |       |
| Daryl Haack               |       | 92,462  |       | 675         |       | 300         |       |
| Ron Wetherell             |       | 90,017  |       | 3,615       |       | 150         |       |

 

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

 

                None.

 

 

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

 

The following exhibitsare filed as part of this report.

 
| **Exhibit  No.** | ** ** | **Description**                                 | ** ** | **Method of   Filing** |
|------------------|------------|-------------------------------------------------|------------|------------------------|
| 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. |       | *                      |

----

(*)           Filed herewith.

 

**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:  | May 15, 2008 |   |   |   |   |   | /s/ Stephen Roe                        |
|   |              |   |   |   |   |   | Stephen Roe                            |
|   |              |   |   |   |   |   | President and Chief  Executive Officer |
|   |              |   |   |   |   |   |                                   |
| Date:  | May 15, 2008 |   |   |   |   |   | /s/ Gary Grotjohn                      |
|   |              |   |   |   |   |   | Gary Grotjohn                          |
|   |              |   |   |   |   |   | Chief Financial Officer                |

 

 

 

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