**UNITEDSTATES********SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 

| **ý**                                                                                                                                                                                                                 | ** ** | **Quarterly report under  Section 13 or 15(d) of the Securities Exchange Act of 1934.** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                       |       |                                                                                         |
| **For the fiscal quarter ended June 30, 2005**                                                                                                                                                                             |
|                                                                                                                                                                                                                       |       |                                                                                         |
| **OR**                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                       |       |                                                                                         |
| o                                                                                                                                                                                                                          | ** ** | **Transition report under  Section 13 or 15(d) of the Exchange Act.**                   |
|                                                                                                                                                                                                                       |       |                                                                                         |
| **For the transition period  from               to               .** |
|                                                                                                                                                                                                                       |       |                                                                                         |
| **COMMISSION FILE  NUMBER 0001229899**                                                                                                                                                                                     |

 

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

(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 markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.
|   |   | ý   Yes          o  No |
|--------|--------|-----------------------------------------------------------------------------------------|

 

 Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule12b-2).
|   |   | o   Yes          ý  No |
|--------|--------|-----------------------------------------------------------------------------------------|

 

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

 

As of August 15, 2005, therewere 10,941 units outstanding.

 

----

 

**INDEX**

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

 

----

 

**PART I.     FINANCIAL INFORMATION**

 

**Item 1.  FinancialStatements.**

 

**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Condensed Consolidated Balance Sheet

 
| ** **                    | ** ** | **June 30**     | ** ** | **September 30** | ** ** |
|-------------------------------|------------|-----------------|------------|------------------|------------|
| **ASSETS**                    | ** ** | **2005**        | ** ** | **2004**         | ** ** |
| ** **                    | ** ** | **(Unaudited)** | ** ** | **(Audited)**    | ** ** |
| ** **                    | ** ** | ** **      | ** ** | ** **       | ** ** |
| **Current Assets**            | ** ** | ** **      | ** ** | ** **       | ** ** |
| Cash                          |       | $               | 12,658,035 |             | $          | 3,907,380 |   |
| Restricted cash               |       | —          |       | 2,730,481        |       |
| Trade accounts receivable     |       | 2,465,303       |       | 2,335,023        |       |
| Other receivables             |       | 48,999          |       | 400,553          |       |
| Inventory                     |       | 1,857,994       |       | 2,084,604        |       |
| Derivative instruments        |       | 823,900         |       |             |       |
| Prepaid expenses              |       | 1,044,737       |       | 488,885          |       |
| Total current assets          |       | 18,898,968      |       | 11,946,926       |       |
|                          |       |            |       |             |       |
| **Property and Equipment**    |       |            |       |             |       |
| Land and improvements         |       | 2,762,709       |       | 2,753,225        |       |
| Buildings                     |       | 15,061,750      |       | 15,061,750       |       |
| Processing equipment          |       | 28,338,256      |       | 28,226,013       |       |
| Grain handling equipment      |       | 5,174,948       |       | 5,172,406        |       |
| Rail and other equipment      |       | 1,248,520       |       | 1,214,322        |       |
| Furniture and fixtures        |       | 190,143         |       | 160,042          |       |
| Construction in progress      |       | 4,601,618       |       |             |       |
|                          |       | 57,377,944      |       | 52,587,758       |       |
| Less accumulated depreciation |       | 7,700,018       |       | 5,051,631        |       |
| Net property and equipment    |       | 49,677,926      |       | 47,536,127       |       |
|                          |       |            |       |             |       |
| **Other Assets**              |       |            |       |             |       |
| Deferred loan costs, net      |       | 264,518         |       | 345,151          |       |
| Total other assets            |       | 264,518         |       | 345,151          |       |
|                          |       |            |       |             |       |
| **Total Assets**              |       | $               | 68,841,412 |             | $          | 59,828,204 |   |

 

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

 

2

----

 

**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Condensed Consolidated Balance Sheet

 
| ** **                                                                              | ** ** | **June 30**     | ** ** | **September 30** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|
| **LIABILITIES AND MEMBERS’ EQUITY**                                                | ** ** | **2005**        | ** ** | **2004**         | ** ** |
| ** **                                                                              | ** ** | **(Unaudited)** | ** ** | **(Audited)**    | ** ** |
| **Current Liabilities**                                                                 | ** ** | ** **      | ** ** | ** **       | ** ** |
| Revolving promissory note                                                               |       | $               | 909        |             | $          | 38,829 |   |
| Current maturities of long-term debt                                                    |       | 3,641,184       |       | 3,109,676        |       |
| Trade accounts payable                                                                  |       | 1,159,829       |       | 1,337,513        |       |
| Derivative instruments                                                                  |       |            |       | 181,579          |       |
| Accrued liabilities                                                                     |       | 1,141,275       |       | 298,851          |       |
| Total current liabilities                                                               |       | 5,943,197       |       | 4,966,448        |       |
|                                                                                    |       |            |       |             |       |
| **Long-Term Debt,**net  of current maturities                                           |       | 15,039,411      |       | 19,572,989       |       |
|                                                                                    |       |            |       |             |       |
| **Commitments and Contingencies**                                                       |       |            |       |             |       |
|                                                                                    |       |            |       |             |       |
| **Minority Interest**                                                                   |       | 19,234,397      |       | 14,207,003       |       |
|                                                                                    |       |            |       |             |       |
| **Members’ Equity**                                                                |       |            |       |             |       |
| Member contributions, 10,941 units  outstanding at June 30, 2005 and September 30, 2004 |       | 10,842,237      |       | 10,842,237       |       |
| Retained earnings                                                                       |       | 17,782,170      |       | 10,239,527       |       |
| Total members’ equity                                                              |       | 28,624,407      |       | 21,081,764       |       |
|                                                                                    |       |            |       |             |       |
| **Total Liabilities and Members’ Equity**                                          |       | $               | 68,841,412 |             | $          | 59,828,204 |   |

 

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

 

3

----

 

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

 

Condensed Consolidated Statements of Operations

 
| ** **                                                | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                | ** ** | **June 30**            | ** ** | **June 30**            | ** ** |
| ** **                                                | ** ** | **2005**               | ** ** | **2004**               | ** ** |
| ** **                                                | ** ** | **(Unaudited)**        | ** ** | **(Unaudited)**        | ** ** |
|                                                      |       |                   |       |                   |       |
| **Revenues**                                              |       | $                      | 23,101,306 |                   | $          | 21,497,087 |   |
|                                                      |       |                   |       |                   |       |
| **Cost of Goods Sold**                                    |       | 14,434,723             |       | 23,237,225             |       |
|                                                      |       |                   |       |                   |       |
| **Gross Profit**                                          |       | 8,666,583              |       | (1,740,138             | )          |
|                                                      |       |                   |       |                   |       |
| **Operating Expenses**                                    |       | 1,387,129              |       | 1,483,002              |       |
|                                                      |       |                   |       |                   |       |
| **Operating Income (Loss)**                               |       | 7,279,454              |       | (3,223,140             | )          |
|                                                      |       |                   |       |                   |       |
| **Other Income (Expense)**                                |       |                   |       |                   |       |
| Interest income                                           |       | 33,934                 |       | 6,368                  |       |
| Interest expense                                          |       | (287,302               | )          | (281,079               | )          |
| CCC Bio-Energy income                                     |       | 95,485                 |       | (439,450               | )          |
| Grants and other income                                   |       | 25,167                 |       | 37,129                 |       |
| Total other expense                                       |       | (132,716               | )          | (677,032               | )          |
|                                                      |       |                   |       |                   |       |
| **Net Income (Loss) Before Minority Interest**            |       | 7,146,738              |       | (3,900,172             | )          |
|                                                      |       |                   |       |                   |       |
| **Minority Interest in Sudsidiary Income  (Loss)**        |       | 2,858,942              |       | (1,592,236             | )          |
|                                                      |       |                   |       |                   |       |
| **Net Income (Loss)**                                     |       | $                      | 4,287,796  |                   | $          | (2,307,936 | ) |
|                                                      |       |                   |       |                   |       |
| **Basic and Diluted Weighted Average Units  Outstanding** |       | 10,941                 |       | 10,941                 |       |
|                                                      |       |                   |       |                   |       |
| **Basic and Diluted Net Income (Loss) Per  Unit**         |       | $                      | 391.90     |                   | $          | (210.94 | ) |

 

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

 

4

----

 
| ** **                                                | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                | ** ** | **June 30**           | ** ** | **June 30**           | ** ** |
| ** **                                                | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| ** **                                                | ** ** | **(Unaudited)**       | ** ** | **(Unaudited)**       | ** ** |
|                                                      |       |                  |       |                  |       |
| **Revenues**                                              |       | $                     | 69,912,725 |                  | $          | 60,967,291 |   |
|                                                      |       |                  |       |                  |       |
| **Cost of Goods Sold**                                    |       | 45,687,806            |       | 49,951,605            |       |
|                                                      |       |                  |       |                  |       |
| **Gross Profit**                                          |       | 24,224,919            |       | 11,015,686            |       |
|                                                      |       |                  |       |                  |       |
| **Operating Expenses**                                    |       | 4,263,884             |       | 4,555,781             |       |
|                                                      |       |                  |       |                  |       |
| **Operating Income**                                      |       | 19,961,035            |       | 6,459,905             |       |
|                                                      |       |                  |       |                  |       |
| **Other Income (Expense)**                                |       |                  |       |                  |       |
| Interest income                                           |       | 76,211                |       | 6,531                 |       |
| Interest expense                                          |       | (793,021              | )          | (1,099,537            | )          |
| CCC Bio-Energy income                                     |       | 141,402               |       | 6,440,789             |       |
| Grants and other income                                   |       | 129,903               |       | 116,358               |       |
| Total other income (expense)                              |       | (445,505              | )          | 5,464,141             |       |
|                                                      |       |                  |       |                  |       |
| **Net Income Before Minority Interest**                   |       | 19,515,530            |       | 11,924,046            |       |
|                                                      |       |                  |       |                  |       |
| **Minority Interest in Sudsidiary Income**                |       | 7,816,621             |       | 5,003,901             |       |
|                                                      |       |                  |       |                  |       |
| **Net Income**                                            |       | $                     | 11,698,909 |                  | $          | 6,920,145 |   |
|                                                      |       |                  |       |                  |       |
| **Basic and Diluted Weighted Average Units  Outstanding** |       | 10,941                |       | 10,941                |       |
|                                                      |       |                  |       |                  |       |
| **Basic and Diluted Net Income (Loss) Per  Unit**         |       | $                     | 1,069.27   |                  | $          | 632.50 |   |
|                                                      |       |                  |       |                  |       |
| **Distributions Per Unit**                                |       | $                     | 379.88     |                  | $          | 51.29 |   |

 

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

 

5

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**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Condensed Consolidated Statements of Cash Flows

 
| ** **                                    | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **June 30**           | ** ** | **June 30**           | ** ** |
| ** **                                    | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| ** **                                    | ** ** | **(Unaudited)**       | ** ** | **(Unaudited)**       | ** ** |
| **Cash Flows from Operating Activities**      |       |                  |       |                  |       |
| Net income                                    |       | $                     | 11,698,909 |                  | $          | 6,920,145 |   |
| Adjustments to reconcile net income to net    |       |                  |       |                  |       |
| cash from operations:                         |       |                  |       |                  |       |
| Depreciation and amortization                 |       | 2,729,020             |       | 2,599,857             |       |
| Minority interest in subsidiary’s income |       | 7,816,621             |       | 5,003,901             |       |
| Gain on hedging activity                      |       |                  |       | 312,777               |       |
| Change in assets and liabilities:             |       |                  |       |                  |       |
| Restricted cash                               |       | 2,730,481             |       | 12,902                |       |
| Receivables                                   |       | 221,274               |       | 2,063,002             |       |
| Inventory                                     |       | 226,610               |       | (631,556              | )          |
| Derivative instruments                        |       | (1,005,479            | )          | (851,254              | )          |
| Prepaid expenses                              |       | (555,852              | )          | (341,107              | )          |
| Accounts payable                              |       | (177,684              | )          | 1,032,008             |       |
| Accrued liabilities                           |       | 842,424               |       | (122,649              | )          |
| Net cash provided by operating activities     |       | 24,526,324            |       | 15,998,026            |       |
|                                          |       |                  |       |                  |       |
| **Cash Flows from Investing Activities**      |       |                  |       |                  |       |
| Capital expenditures                          |       | (1,674,372            | )          | (760,383              | )          |
| Net cash used in investing activities         |       | (1,674,372            | )          | (760,383              | )          |
|                                          |       |                  |       |                  |       |
| **Cash Flows from Financing Activities**      |       |                  |       |                  |       |
| Payments on short-term debt                   |       | (37,920               | )          | (770,930              | )          |
| Payments of long-term debt                    |       | (7,117,884            | )          | (12,064,533           | )          |
| Distribution to minority interest             |       | (2,789,227            | )          | (435,276              | )          |
| Distribution to members                       |       | (4,156,266            | )          | (561,164              | )          |
| Net cash used in financing activities         |       | (14,101,297           | )          | (13,831,903           | )          |
|                                          |       |                  |       |                  |       |
| **Net increase in cash**                      |       | 8,750,655             |       | 1,405,740             |       |
|                                          |       |                  |       |                  |       |
| **Cash –****Beginning of Period**        |       | 3,907,380             |       | 536,483               |       |
|                                          |       |                  |       |                  |       |
| **Cash –****End of Period**              |       | $                     | 12,658,035 |                  | $          | 1,942,223 |   |

 

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

 

6

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| ** **                                                                 | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                 | ** ** | **June 30**           | ** ** | **June 30**           | ** ** |
| ** **                                                                 | ** ** | **2005**              | ** ** | **2004**              | ** ** |
| ** **                                                                 | ** ** | **(Unaudited)**       | ** ** | **(Audited)**         | ** ** |
| **Supplemental Cash Flow Information**                                     |       |                  |       |                  |       |
| Cash paid during the year for:                                             |       |                  |       |                  |       |
| Interest                                                                   |       | $                     | 847,247    |                  | $          | 1,238,032 |   |
|                                                                       |       |                  |       |                  |       |
| **Supplemental Disclosure of Noncash  Investing and Financing Activities** |       |                  |       |                  |       |
| Reduction in property and equipment due to  debt forgiveness               |       |                  |       | $                     | 90,000     |   |
|                                                                       |       |                  |       |                  |       |
| Equipment acquired through contruction note                                |       | $                     | 3,115,814  |                  |       |   |

 

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

 

7

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

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

June 30, 2005

 

**1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

The accompanying condensedquarterly consolidated financial statements represent Little Sioux CornProcessors, LLC and Subsidiary.  See Note 1 to the consolidated financialstatements included in the Form 10-KSB for the fiscal year endedSeptember 30, 2004.  That note discusses the consolidation.  Asused in this report in Form 10-Q, the “Company” represents Little Sioux CornProcessors, LLC (LLC) and its subsidiary LSCP, LLLP (LSCP).

 

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

 

*Nature of Business*

 

The Company operates a 52million gallon ethanol plant, located near Marcus, Iowa.  The plantcommenced operations in April 2003.  In July 2005, the Company completed its expansion, from a 40 milliongallon plant to 52 million gallon plant. The Company sells its production of ethanol, distiller’s grains andsolubles, and modified wet distillers grains with solubles in the ContinentalUnited States.

 

*Commodity Credit Corporation Bioenergy Program*

 

The Company isenrolled in the Commodity Credit Corporation Bioenergy Program (CCC), a departmentof the United States Department of Agriculture. This program enables the Company to receive payments based on increasesin production of ethanol over the previous year of up to $7,500,000 per year.  New production is eligible and is consideredincreased production.  Payments under theprogram are subject to pro rata reduction if aggregate payments to allproducers in any fiscal year exceed the maximum annual funding of the program.  For the three months and nine months endedJune 30, 2005, the Company recorded $95,485 and $141,402, respectively, asother income from the CCC.  For the threemonths and nine months ended June 30, 2004, the Company had recorded $439,450loss and $6,440,789 gain, respectively, as other income from the CCC. AtJune 30, 2005, $85,000 remained in other receivables.

 

*Derivative Instruments*

 

At June 30, 2005, theCompany had recorded an asset for derivative instruments related to cornoptions and futures positions of $765,907 for forecasted purchases duringfiscal 2005 and 2006.  None of thepositions open at June 30, 2005 are designated as cash flow hedges.  TheCompany has recorded a loss of $477,395 in cost of goods sold related to itsderivative instruments for the three months ended June 30, 2005, and a loss of$1,705,390 in cost of goods sold for the nine months ended June 30, 2005.  The Company had recorded a loss of $6,135,977and $1,324,264, respectively, in cost of goods sold related to its derivativeinstruments for the three months and nine months ended June 30, 2004.

 

AtJune 30, 2005, the Company had an interest rate cap as described in Note 5 witha fair value of $57,993 recorded as an asset with derivative instruments. The interest rate cap was not designated as a cash flow hedge.  TheCompany offset interest expense with a $20,050 loss and $27,253 gain, on theinterest rate cap, respectively, for the three months and nine months endingJune 30, 2005.  The Company chargedinterest

 

8

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expensewith the gain on the interest rate cap of $43,764 and a loss of $5,957,respectively, for the three months and nine months ending June 30, 2004.

 

**2.  INVENTORY**

 

Inventories consist of thefollowing:

 
| ** **      | ** ** | **June 30, 2005** | ** ** | **September 30, 2004 *** | ** ** |
|-----------------|------------|-------------------|------------|--------------------------|------------|
|            |       |              |       |                     |       |
| Raw materials   |       | $                 | 1,008,997  |                     | $          | 1,279,912 |   |
| Work in process |       | 493,516           |       | 346,749                  |       |
| Finished goods  |       | 355,481           |       | 457,943                  |       |
|            |       |              |       |                     |       |
| Totals          |       | $                 | 1,857,994  |                     | $          | 2,084,604 |   |

 

----

* Derived from auditedconsolidated financial statements.

 

**3.****             ****CONSTRUCTION IN PROGRESS**

 

Amountsincluded in construction in progress as of June 30, 2005 are as follows

 
| Construction costs   |   | $      | 4,575,092 |   |
|----------------------|--------|--------|-----------|--------|
| Capitalized interest |   | 26,526 |      |
|                 |   |   |      |
| Total                |   | $      | 4,601,618 |   |

 

TheCompany capitalized interest during the construction period of $26,526 duringthe quarter ended June 30, 2005.

 

**4.  REVOLVINGPROMISSORY NOTE**

 

Under the terms of the financing agreement with the lendinginstitution, the Company has a revolving promissory note of up to $3,500,000,subject to borrowing base limitations. In July 2005, the lending institution renewedthe revolving promissory note until March 2006. The revolving promissory note incurs interest monthly at the one monthLIBOR plus 280 basis points, which totaled 5.91% at June 30, 2005.  The Company pays a commitment fee of .125% onthe unused portion of the revolving promissory note.  The outstanding balance at June 30, 2005 was$909.  The revolving promissory note aswell as the term notes described in Note 5 are subject to protective covenantsunder a common financing agreement requiring the Company to maintain variousfinancial ratios, including debt service coverage and minimum net worth andworking capital requirements and secured by all business assets.

 

9

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**5.  LONG–TERM DEBT**

 

Long-term debt consists ofthe following at June 30, 2005:

 
| ** **                                                                                                                                                                                                           | ** ** | **June 30 2005** | ** **     | **September 30 2004*** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|----------------|------------------------|------------|
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| Term note #2 payable to lending  institution, see terms below.                                                                                                                                                       | ** ** | **$**            | **13,078,270** |                   | $          | 14,099,113 |   |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| Term note #3 payable to lending  institution, see terms below.                                                                                                                                                       | ** ** | **1,772,465**    |           | 3,177,819              |       |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| Term note #4 payable to lending  institution, see terms below.                                                                                                                                                       |       |             |           | 4,564,175              |       |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| Term note #5 payable to lending  institution, see terms below.                                                                                                                                                       | ** ** | **3,115,814**    |           |                   |       |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| 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.                                     | ** ** | **149,305**      |           | 180,555                |       |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| Note payable to bank due in monthly  payments of $5,921 including interest at 6% maturing on January 29, 2009,  secured by real estate, subordinated to term notes.                                                  | ** ** | **160,065**      |           | 189,406                |       |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| Note payable to Iowa Department of Economic  Development, due in sixty monthly installments beginning August 1, 2004 of  $1,167 without interest, payable in full on July 1, 2009, secured by all  equipment.        | ** ** | **196,000**      |           | 206,500                |       |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| RO System capital lease obligation, due in  monthly installments initially totaling $6,658 commencing April 1, 2003  including implicit interest between 3.671% through March 1, 2008, secured by  leased equipment. | ** ** | **208,676**      |           | 265,097                |       |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| Totals                                                                                                                                                                                                               | ** ** | **$**            | **18,680,595** |                   | $          | 22,682,665 |   |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| Less amounts due within one year                                                                                                                                                                                     | ** ** | **3,641,184**    |           | 3,109,676              |       |
|                                                                                                                                                                                                                 |       |             |           |                   |       |
| Totals                                                                                                                                                                                                               | ** ** | **$**            | **15,039,411** |                   | $          | 19,572,989 |   |

 

----

* Derived from auditedconsolidated financial statements.

 

10

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The Company obtained debtfinancing from a lending institution in the form of a revolving promissory noteand term notes, referred to by the lending institution as term notes #2, #3,and #4.  Term note #2 has fixed principal payments due quarterly withinterest at the three month LIBOR plus 280 basis points, which totaled 6.13% atJune 30, 2005, payable in full on June 1, 2008.  As part of thefinancing agreement, the Company accepted a fixed rate option on term note #2by entering into an interest rate swap which effectively fixes the interestrate on this term note at 5.79% until this term note is repaid on June 1,2008.

 

Term note #3 bears interestat the three month LIBOR plus 280 basis points, which totaled 6.13% at June 30,2005.  Term note #4 bears interest at the one month LIBOR plus 280 basispoints, which totaled 5.91% at June 30, 2005.  Term notes #3 and #4 arepayable in full on June 1, 2008.  The Company is required to makequarterly payments of $506,588 applied first to accrued interest on term note#4.  The remaining amount is applied to accrued interest on the term note#3 and then to principal until this note is repaid in full or untilmaturity.  After term note #3 is repaid, payments are applied first toaccrued interest and then to principal on the term note #4 until paid in fullor until maturity.  Term note #4 had no outstanding balance as of June 30,2005.  Term note #4 allows subsequentborrowings up to the original $5,000,000 to the extent of principal paymentsmade until maturity and requires a commitment fee of .375% on any usedportion.

 

Term note #5 bears interestat the one month LIBOR plus 330 basis points, which totaled 6.41% at June 30,2005.  Prior to the constructioncompletion date, September 1, 2005, the Company is required to make interestonly payments quarterly.  On constructioncompletion date, the outstanding balance of term note #5 will be added to theprinciple balance of term note #3, and thus repaid.

 

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

 

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

 

The estimated maturities oflong-term debt at June 30, 2005 are as follows:

 
| 2006                 |   | $         | 3,641,184  |   |
|----------------------|--------|-----------|------------|--------|
| 2007                 |   | 5,551,349 |       |
| 2008                 |   | 9,281,168 |       |
| 2009                 |   | 65,727    |       |
| 2010                 |   | 141,167   |       |
| Total long-term debt |   | $         | 18,680,595 |   |
|                      |        |           |            |        |  |

 

11

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**6. MEMBERS’ EQUITY**

 

On January 18, 2005, the Board of Directors declared a distribution of$4,000,000 from LSCP to the partners which was paid in February 2005.  The LLC received approximately $2,406,000 ofthis distribution which was paid to its members in February 2005.  On March 15, 2005, the Board of Directorsdeclared a distribution of $3,000,000 from LSCP to the partners.  The cashdistribution was made in April 2005.  The LLC received $1,804,617 of thisdistribution.  After paying expenses of approximately $54,500, the LLCdistributed approximately $1,750,000 to its members in April 2005.

 

**7.  RELATED PARTY TRANSACTIONS**

 

For the three months andnine months ending June 30, 2005, revenues from the sale of ethanol to ArcherDaniels Midland (ADM) were approximately $19,927,000 and $59,996,000,respectively.  For the three months andnine months ending June 30, 2004, revenues from the sale of ethanol to ADM wereapproximately $18,484,000 and 51,849,000, respectively.  ADM markets all of the ethanol sold by LSCPand receives a marketing fee.  TheCompany incurred marketing expenses of approximately $104,000 and $348,000,respectively, to ADM for the three months and nine months ended June 30,2005.  The Company incurred marketingexpenses of approximately $117,000 and $360,000, respectively, to ADM for thethree months and nine months ended June 30, 2004.  At June 30, 2005, amounts due from ADMapproximated 87% of trade accounts receivable.

 

In the three months and ninemonths ended June 30, 2005, LSCP purchased approximately $1,391,000 and$3,478,000, respectively, in corn from members of the LLC.  In the three months and nine months endedJune 30, 2004, LSCP purchased approximately $1,486,000 and $3,255,000,respectively, in corn from members of the LLC.

 

**8.  COMMITMENTS AND CONTINGENCIES**

 

NaturalGas and Corn Contracts

 

At June 30, 2005, theCompany has forward contracts to purchase approximately 360,000 million Britishthermo units (MMBTU) of natural gas during the July 2005 through October 2005time period at $5.03.

 

At June 30, 2005, theCompany has forward contracts to purchase approximately 4,471,000 bushels ofcorn, at prices ranging from $1.79 to $2.65 per bushel through April 2006.

 

Constructionin Progress

 

The Company estimates itscosts to complete the construction of assets not yet placed in service to beapproximately $825,000 as of June 30, 2005.

 

12

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**9. DEFERRED COMPENSATION**

 

On May 1, 2005, the Companyestablished a deferred compensation plan for certain employees providingsupplemental benefits.  The board mayannually grant a discretionary deferred bonus under the plan to eachParticipant in an amount between zero and twenty percent of each Participant’sbase salary for the prior calendar year. Costs of the plan are recognized during the employee’s service periodfor the Company so that the benefits are accrued when payments begin.  The Company will transfer the amount of thedeferred compensation to a trust under the LSCP, LLLP Deferred BonusCompensation Plan.  The benefit vests onJanuary 15 of the sixth calendar year following the year of Grant Date,provided the Participant is employed full-time by the Company throughout thesix-year period.

 

The amount provided to thedeferred compensation plan in May amounted to approximately $64,000.

 

13

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**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

**Forward-Looking Statements**

 

Thisreport contains forward-looking statements that involve future events, ourfuture performance and our expected future operations and actions.  Insome cases you can identify forward-looking statements by the use of words suchas “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,”“intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” orthe negative of these terms or other similar expressions.  Theseforward-looking statements are only our predictions and involve numerousassumptions, risks and uncertainties, including, but not limited to thoselisted below and those business risks and factors described elsewhere in thisreport and our other Securities and Exchange Commission filings.

 

•                  Changes in the availability and price ofcorn;

 

•                  Changes in the environmental regulations thatapply to our plant operations;

 

•                  Increased competition in the ethanol and oilindustries;

 

•                  Changes in interest rates or the availabilityof credit;

 

•                  Changes in our business strategy, capitalimprovements or development plans;

 

•                  Changes in plant production capacity ortechnical difficulties in operating the plant;

 

•                  Changes in general economic conditions or theoccurrence of certain events causing an economic impact in the agriculture, oilor automobile industries; and

 

•                  Changes in the availability and price ofnatural gas and the market for distillers grains.

 

•                  Changes in federal and/or state laws(including the elimination of any federal and/or state ethanol tax incentives).

 

Ouractual results or actions could and likely will differ materially from thoseanticipated in the forward-looking statements for many reasons, including thereasons described in this report.  We are not under any duty to update theforward-looking statements contained in this report.  We cannot guaranteefuture results, levels of activity, performance or achievements.  Wecaution you not to put undue reliance on any forward-looking statements, whichspeak only as of the date of this report.  You should read this report andthe documents that we reference in this report and have filed as exhibits,completely and with the understanding that our actual future results may bematerially different from what we currently expect.  We qualify all of ourforward-looking statements by these cautionary statements.

 

**Overview**

 

Asgeneral partner of LSCP, LLLP, an Iowa limited liability limited partnership(the “Partnership”), we manage the business and day-to-day operations of thePartnership’s 52 million gallon per year ethanol plant in northwest Iowa. We currently own a 60.15% ownership interest in LSCP, LLLP.  Little SiouxCorn Processors, L.L.C. (the “LLC”) and its subsidiary, LSCP, LLLP, arecollectively referred to in this report as “LSCP,” the “Company,” “we,” or “us.”

 

14

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SinceApril 2003, we have been engaged in the production of ethanol anddistillers grains at our ethanol plant near Marcus, Iowa.  From the dateof the commencement of plant operations, the plant’s production capacity hasconsistently exceeded the 40 million gallon per year production guaranteeprovided by the general contractor.  Our revenues are derived from thesale and distribution of our ethanol and distillers grains throughout the continentalUnited States.

 

InJuly 2005, we completed the expansion of our plant from an ethanol productioncapacity of 40 million gallons per year to 52 million gallons per year. We expect the increased capacity will increase our revenues and reduce our operatingcosts resulting in an increase in operating income.  However, we can not provide any assurancethat this will occur.

 

OnJuly 19, 2005 the board of directors determined that it is in the bestinterests of the company to explore further expansion of our ethanol productioncapacity.  The board of directorsauthorized studies to determine the financial impact of expanding thepresent plant beyond 52 million gallons per year, and/or building a new plantat a different location, and/or investing in other ethanol plants.  On August 9, 2005, the board of directors approved plans to proceed with a 40 milliongallon per year expansion to our plant using both a portion of our cash anddebt to finance the required capital expenditure.  If we decide to undertake any of theother activities, we may also use cash to finance a portion of any additionalrequired capital expenditures.  The useof cash to finance these expenditures could impact our ability to make futuredistributions to our members.

 

Weare subject to industry-wide factors that directly affect our revenues andprofits.  These factors include, but are not limited to, the availablesupply and cost of corn from which our ethanol and distillers grains are made;the cost of natural gas, which we use in the production of ethanol anddistillers grains; dependence on one or a few major customers who market anddistribute our products; the intensely competitive nature of our industry;possible legislation at the federal, state, and/or local level; changes in federalethanol tax incentives; and the cost of complying with the extensiveenvironmental laws that regulate our industry.

 

**Results of Operations for the Three Months Ended June 30,2005 and 2004**

 

Thefollowing table shows the results of our operations and the percentage ofrevenues, cost of goods sold, operating expenses and other items to totalrevenues in our consolidated statements of operations for the three monthsended June 30, 2005 and June 30, 2004:

 
| ** **                          | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
|-------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                          | ** ** | **Amount**        | ** ** | **%**             | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                            |       | $                 | 23,101,306 |              | 100.0      |   | $ | 21,497,087 |   | 100.0 |   |
| Cost of Goods Sold                  |       | 14,434,723        |       | 62.5              |       | 23,237,225 |   | 108.1 |   |
| Gross Profit                        |       | 8,666,583         |       | 37.5              |       | (1,740,138 | ) | (8.1 | ) |
|                                |       |              |       |              |       |   |   |   |   |
| Operating Expenses                  |       | 1,387,129         |       | 6.0               |       | 1,483,002 |   | 6.9 |   |
|                                |       |              |       |              |       |   |   |   |   |
| Operating Income (Loss)             |       | 7,279,454         |       | 31.5              |       | (3,223,140 | ) | (15.0 | ) |
|                                |       |              |       |              |       |   |   |   |   |
| Other Income (Expense)              |       | (132,716          | )          | (0.6              | )          | (677,032 | ) | (3.1 | ) |
|                                |       |              |       |              |       |   |   |   |   |
| Net Income Before Minority Interest |       | 7,146,738         |       | 30.9              |       | (3,900,172 | ) | (18.1 | ) |
|                                     |            |                   |            |                   |            |  |  |  |  |  |  |

 

***Revenues***

 

Theincrease in revenues from the three months ended June 30, 2005 compared to thethree months ended June 30, 2004 is due primarily to an increase in the pricewe received for our ethanol.  The per gallon price we received for ourethanol sold in the three months ended June 30, 2005 increased approximately 5%over the prices we received in the three months ended June 30, 2004.  The Company sold approximately 3% moreethanol in the three months ended June 30, 2005 than in the three months endedJune 30, 2004 as well.  In addition,revenue from co-products increased by 5% in the three months ended June 30,2005 compared to the three months ended June 30, 2004 due to a better mix ofwet and dry distillers grains sold.

 

15

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Whilewe anticipate continued strong demand for ethanol, we are uncertain as to thesustainability of current ethanol prices given the increasing ethanol supply asnew plants begin production and existing plants continue to expand.  Thetotal production of ethanol is at an all time high.  In 2004, 81 ethanolplants located in 20 states produced 3.41 billion gallons.  According to the Renewable Fuels Association, there are currently 88 ethanolplants nationwide that have the capacity to produce over 3.9 billion gallonsannual.  In addition, there are 16ethanol plants and two major expansions under construction constituting another1 billion gallons of annual capacity.  Agreater supply of ethanol on the market from other plants could reduce theprice we are able to charge for our ethanol.  This would have a negativeimpact on our revenues.

 

TheU.S. Senate passed the Energy Policy Act of 2005 on July 29, 2005 by a vote 74to 26 following a vote of 275 to 156 by the U.S. House of Representatives onJuly 28, 2005.  President George W. Bushsigned the bill into law on August 8, 2005. The bill includes various provisions that are expected to favorablyimpact the ethanol industry by enhancing both the production and use ofethanol.

 

Theprovisions impacting the ethanol industry are highlighted by the creation of a7.5 billion gallon renewable fuels standard (RFS).  The RFS will begin at 4billion gallons in 2006, increasing to 7.5 billion gallons by 2012.  TheRFS is a national flexible program that does not require that any renewablefuels be used in any particular area or state, allowing refiners to userenewable fuel blends in those areas where it is most cost-effective.  According to the Renewable Fuels Association,the bill is expected to lead to about $6 billion in new investment in ethanol plants across thecountry.  An increase in the number ofnew plants will bring an increase in the supply of ethanol.  Thus, while this bill may cause ethanolprices to increase in the short term due to additional demand, future supplycould outweigh the demand for ethanol in the future.  This would have a negative impact on ourearnings.  Alternatively, since the RFSbegins at 4 billion gallons in 2006 and national production is expected toexceed this amount, there could be a short-term oversupply until the RFSrequirements exceed national production. This would have an immediate adverse effect on our earnings.

 

Whilethe RFS creates a baseline for the amount of ethanol that must be used byrefiners, there are other market factors that could increase the actual amountof ethanol used by refiners.  Forinstance, if gasoline prices continue to trend higher, consumers will look forlower priced alternative fuels. The Consumer Federation of America recentlypublished a report that states that consumers could save up to eight cents pergallon at the pump if ethanol were blended at 10 percent.  Since ethanol blended fuel is a cheaperalternative for consumers, the demand for such ethanol blended fuel couldincrease thus increasing the overall demand for ethanol.  This could positively affect our earnings.

 

The bill also expands whoqualifies as a small ethanol producer. Historically, small ethanol producers were allowed a 10-cents per gallonproduction income tax credit on up to 15 million gallons of productionannually. The size of the plant eligible for the tax credit was limited to 30million gallons.  Under the Energy PolicyAct of 2005 the size limitation on the production capacity for small ethanolproducers increases from 30 million to 60 million gallons. The credit can betaken on the first 15 million gallons of production.  The tax credit is capped at $1.5 million peryear per producer.  The credit iseffective for taxable years ending after the date of enactment.  Since we now qualify as a small ethanolproducer under the new legislation, we will be eligible for this credit thistaxable year.

 

The Energy Policy Act of2005 also creates a new credit that permits taxpayers to claim a 30% credit (upto $30,000) for the cost of installing clean-fuel vehicle refueling equipment,such as an E85 fuel pump, to be used in a trade or business of the taxpayer orinstalled at the principal residence of the taxpayer. Under the provision,clean fuels are any fuel of at least 85% of the volume of which consists ofethanol, natural gas, compressed natural gas, liquefied natural gas, liquefiedpetroleum gas, and hydrogen and any mixture of diesel fuel and biodieselcontaining at least 20% biodiesel.  Theprovision is effective for equipment placed in service December 31, 2005 andbefore January 1, 2008.  While it isunclear how this credit will affect the demand for ethanol in the short term,we expect it will help raise consumer awareness of alternative sources of fueland could positively impact future demand for ethanol.

 

OnMarch 15, 2005, the board of directors approved a $1,850,000 capitalexpenditure to install a corn oil segregation unit.  Corn oil is aco-product of the ethanol industry and until recently has been sold as anenergy component of our distillers grains.  Corn oil in its raw form canbe used as livestock feed, as a fuel under certain

 

16

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operating conditions,refined into bio-diesel fuel, or refined for human consumption.  Weproject this investment will increase our revenues by approximately $1,200,000million annually, but the actual impact on our revenues could vary.  Theequipment is not scheduled for installation until fall 2005. We intend to initiallymarket the unrefined corn oil to the animal feed and bio-diesel markets for a 6month period after startup to assure that quality specifications can bemaintained.  In the long term, the corn oil co-product could be marketedfor human consumption.  Specific details regarding market penetration intohuman food are unknown at this time since corn oil extraction in a dry millsituation such as ours has not yet been proven.

 

***Cost of Goods Sold***

 

Ourcost of goods sold as a percentage of revenues were 62.5% and 108.1% for thethree months ended June 30, 2005 and 2004, respectively.  The decrease inour cost of goods sold from period to period is primarily due to changes in thefair value of derivative instruments.  Our cost of goods sold includes aloss of $477,395 in the third quarter of fiscal 2005 related to our corn andnatural gas derivative instruments, compared to a loss of $6,135,977 in thethird quarter of fiscal 2004.  We recognize the gains or losses thatresult from the changes in the value of our derivative instruments in cost ofgoods sold as the changes occur.  As corn and natural gas pricesfluctuate, the value of our derivative instruments are impacted, which affectsour financial performance.  We partially offset these losses with the cashprice we paid for corn.  We anticipate continued volatility in our cost ofgoods sold due to the timing of the changes in value of the derivativeinstruments relative to the cost and use of the commodity being hedged.

 

Corn costs significantlyimpact our cost of goods sold.  The 2004corn crop was the largest corn crop on record with national production atapproximately 11.8 billion bushels and Iowa production at approximately 2.4billion bushels. Corn supplies during the 2004-2005 marketing year are expectedto outpace demand by approximately 2.0 billion bushels. As a result, we expectcorn prices to remain at relatively low levels throughout the next quarter andinto the 2005-2006 marketing year. Variables such as rainfall and temperatureswill likely cause market uncertainty and create corn price volatility as thegrowing season progresses and fall harvest begins.  Corn crops west of the Mississippi generallylook good, except for parts of Missouri, and extreme east central and southeasternIowa.  The trade analyst projections ofU.S. corn yields for the 2005-2006 marketing year range from about 133 to 140bushels per acre.

 

Naturalgas has recently been available only at prices exceeding historicalaverages.  These prices are increasing our costs of production.  Weexpect natural gas prices to remain high or increase at least through the 2005calendar year.

 

***Operating Expenses***

 

Ouroperating expenses as a percentage of revenues were 6.0% and 6.9% for the threemonths ended June 30, 2005 and 2004, respectively.  Our operating expenseshave remained fairly level from period to period.  Although we can give noassurances, the plant expansion may increase our operating efficiency whichwould maintain or lower our operating expenses as a percentage of our revenues.

 

OnMay 1, 2005, we established a deferred compensation plan for certain keyemployees providing supplemental benefits. For the first year of the plan, the board granted a discretionarydeferred bonus of twenty percent of each plan participant’s base salary for theprior calendar year.  Costs of the planwere recognized during the period so that the benefits automatically accruewhen payments begin.  We will transferthe amount of the deferred compensation to a trust established under thedeferred bonus compensation plan.  Thebenefit will vest on January 15th of the sixth calendar year following the yearthe participant is awarded the benefit, provided the participant is employedfull-time by the Company throughout the entire six-year period.

 

***Operating Income***

 

Ourincome from operations for the three months ended June 30, 2005 totaled$7,279,454 compared to a loss of ($3,223,140) for the three months ended June30, 2004 before minority interest.  This was a result of the increase insales revenue for the three months ended June 30, 2005 combined with thedecrease in cost of goods sold for the same period.  We expect theexpansion of our plant from its current 40 million gallon annual productioncapacity to 52 million gallon annual production capacity to increase our annualoperating income by approximately $3,200,000 as a result of an increase inrevenue and operating efficiency.  There is no assurance, however, thatthe

 

17

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expansion will reduce ouroperating costs or increase our operating income.  Our expansionprojections are based upon our historical operating costs and historicalrevenues and there is no guarantee or assurance that our past financialperformance can accurately predict future results especially in connection withexpansion.  In addition, the expansion may present additional challengesand risks that negatively impact our future financial performance.

 

***Other Income (Expense)***

 

Ourother income (expense) as a percentage of revenues was (0.6%) and (3.1%) forthe three months ended June 30, 2005 and 2004, respectively.  We have seena large fluctuation in other income due in large part to a reduction in thepayments from the USDA Commodity Credit Corporation BioenergyProgram.   These payments are based upon increases in ethanolproduction relative to previous years.  Accordingly, we received the bulkof the payments we are eligible to receive in the first years of operation andfuture payments will be much lower.  While we continue to receive paymentsunder the USDA’s Commodity Credit Corporation Bioenergy Program, we do notexpect future program payments to have the same impact on cash flow as theyhave in the past.  We also do not anticipate receiving unpaid amounts forpast pro rata reductions.

 

Inthe third quarter of fiscal 2005, accrued income from the Bioenergy Programtotaled $85,000.  This represents a 66% reduction from the amount we areeligible for in the third quarter based on our production.  This reductionis attributed to an increase in the number of eligible participants in theprogram, which reduces our share of the payments. In addition, we received thesecond quarter Bioenergy Program payment during the third quarter.  This payment was $10,485 more than the secondquarter accrual and was included in the third quarter income.

 

Sincewe are increasing our production capacity through our plant expansion, we willbe eligible to receive additional Bioenergy Program payments.  Due to thesize of the expansion, any program payments we receive in the future will besignificantly less than our original payments.  The receipt of theseadditional program payments is subject to the continued availability of programfunds, which may be reduced as a result of increased participation in theprogram by new and expanding plants as well as decreased federal funding. The Bioenergy Program is scheduled to expire at the end of the federalgovernment’s 2006 fiscal year.

 

**Results of Operations for the Nine Months Ended June 30, 2005and 2004**

 

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 nine months endedJune 30, 2005 and June 30, 2004:

 
| ** **                          | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
|-------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                          | ** ** | **Amount**        | ** ** | **%**             | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                            |       | $                 | 69,912,725 |              | 100.0      |   | $ | 60,967,291 |   | 100.0 |   |
| Cost of Goods Sold                  |       | 45,687,806        |       | 65.3              |       | 49,951,605 |   | 81.9 |   |
| Gross Profit                        |       | 24,224,919        |       | 34.7              |       | 11,015,686 |   | 18.1 |   |
|                                |       |              |       |              |       |   |   |   |   |
| Operating Expenses                  |       | 4,263,884         |       | 6.1               |       | 4,555,781 |   | 7.5 |   |
|                                |       |              |       |              |       |   |   |   |   |
| Operating Income (Loss)             |       | 19,961,035        |       | 28.6              |       | 6,459,905 |   | 10.6 |   |
|                                |       |              |       |              |       |   |   |   |   |
| Other Income (Expense)              |       | (445,505          | )          | (.6               | )          | 5,464,141 |   | 9.0 |   |
|                                |       |              |       |              |       |   |   |   |   |
| Net Income Before Minority Interest |       | 19,515,530        |       | 28.0              |       | 11,924,046 |   | 19.6 |   |
|                                     |            |                   |            |                   |            |  |  |  |  |  |  |

 

***Revenues***

 

Theincrease in revenues from the nine months ended June 30, 2005 compared to thenine months ended June 30, 2004 was primarily due to a 14% increase in thesales price per gallon of our ethanol. In addition, revenue from co-products increased by 8% in the nine monthsended June 30, 2005 compared to the nine months ended June 30, 2004 due to abetter mix of wet and dry distillers grains sold.

 

18

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***Cost of Goods Sold***

 

Ourcost of goods sold as a percentage of revenues were 65.3% and 81.9% for thenine months ended June 30, 2005 and 2004, respectively.  The decrease inour cost of goods sold is primarily due to the change in the average price paidfor corn.  The average per bushel pricepaid for corn was approximately 22% less for the nine months ended June 30,2005 than the average price paid for the nine months ended June 30, 2004.

 

***Operating Expenses***

 

Ouroperating expenses as a percentage of revenues were 6.1% and 7.5% for the ninemonths ended June 30, 2005 and 2004, respectively.  Our operating expenseshave remained fairly level from period to period.  We expect this trend tocontinue or possibly improve now that the plant expansion is complete.

 

***Operating Income***

 

Ourincome from operations increased from period to period due primarily to theincrease in our revenues and reduction in our cost of goods sold.  Asdiscussed, we expect the expansion to positively affect this upward trend,however, we can give no assurance that the expansion will result in an increasein our operating income.

 

***Other Income (Expense)***

 

Ourother income (expense) as a percentage of revenues was (.6%) and 9.0% for thenine months ended June 30, 2005 and 2004, respectively.  As previouslystated, these fluctuations are primarily due to a reduction in the paymentscoming from the USDA Commodity Credit Corporation Bioenergy Program. For thenine months ended June 30, 2004 we received in excess $6,300,000 in programpayments and for the nine months ended June 30, 2005 we recorded approximately$141,000 with $85,000 not yet received.

 

**Changes in Financial Condition for the Nine Months Ended June30, 2005**

 

Consolidatedassets totaled $68,841,412 at June 30, 2005 compared to $59,828,204 atSeptember 30, 2004.  Current assets totaled $18,898,968 at June 30, 2005up from $11,946,926 at September 30, 2004.  The change resulted fromincreased cash, which was $12,658,035 at June 30, 2005 compared to $3,907,380at September 30, 2004.  We were accumulating cash in anticipation of adistribution of earnings to the partners and our members and in anticipation ofan increase in expenditures resulting from the plant expansion.

 

Consolidatedcurrent liabilities totaled $5,943,197 at June 30, 2005 similar to the $4,966,488at September 30, 2004.

 

Long-termdebt, net of current maturities, totaled $15,039,411 at June 30, 2005 down from$19,572,989 at September 30, 2004.  This reduction occurred, despite theincrease in long-term debt related to the plant expansion, as a result of anadditional payment on our revolving Term Note #4 and our regularly scheduledloan payments.

 

**Liquidity and Capital Resources**

 

Cashprovided by operating activities was $24,526,324 from the first nine months offiscal 2005 up from $15,998,026 for the first nine months of fiscal 2004. This increase resulted from continued profitable operations due to a favorablespread between the price of corn and the price of ethanol.  Our capitalneeds are being adequately met through cash from our operating activities andour current credit facilities.

 

Weused cash provided by operating activities as well as cash provided by aconstruction note, Term Note #5, totaling $3,115,814 for capital expenditureswhich totaled $4,790,186 for the first nine months of fiscal 2005 compared to$760,383 for the first nine months of fiscal 2004.  This increaseprimarily reflects expenditures for the plant expansion.  We used cash topay down our debt by $7,117,884 in the first nine months of fiscal 2005compared to $12,064,533 in the first nine months of fiscal 2004. Additionally, the total amount of cash we distributed to

 

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partners and members totaled$6,945,493 in the first nine months of fiscal 2005 compared to $996,440 in thefirst nine months of fiscal 2004.

 

Wehave paid approximately $4,575,000 in connection with our plantexpansion.  In addition to our capital expenditures for the plantexpansion, we also expect to purchase a corn oil segregation unit at aninstalled cost of $1,850,000, automated gas dryer controls for $275,000, andmaintenance software for $75,000.  We anticipate that capital expendituresfor the remainder of fiscal 2005 will be approximately $3,025,000, includingthe items mentioned above.  We will fundthese expenditures with cash from operations.

 

### ***Short-Term DebtSources***

### ** **

Wehave a revolving promissory note of up to $3,500,000 with First National Bankof Omaha which the bank recently renewed through March 2006.  The interestpayable on the revolving promissory note is due monthly at the one month LIBORplus 2.80%, which totaled 5.91% at June 30, 2005.  The revolvingpromissory note is our operating line of credit.  We pay a commitment feeof 0.125% on the unused portion of the line.  The outstanding balance asof June 30, 2005, was $909.  The maximum available credit under this noteis based on receivable and inventory balances.  Our current receivable andinventory balances are not sufficient to allow us to use the maximum amount ofthe operating line of credit.  As of June 30, 2005, the maximum amountavailable from the operating line of credit was approximately $2,673,756. As the balances in these accounts fluctuate, the amount of available credit onthis note may be reduced or increased subject to the maximum of$3,500,000.  The operating line of credit is subject to protectivecovenants requiring us to maintain various financial ratios.  Theoperating line of credit is secured by all business assets.

 

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

#### ** **

Wehave long-term debt financing consisting of four term notes held by FirstNational Bank of Omaha and referred to as Term Notes #2, #3,#4 and #5.  AtJune 30, 2005, the principal balance on Term Note #2 was $13,078,270. Term Note #2 is payable in quarterly installments.  Interest on Term Note#2 is at the three month LIBOR plus 2.80%, which totaled 6.13% as of June 30,2005.  Term Note #2 is payable in full on June 1, 2008.  Inorder to achieve a fixed interest rate on Term Note #2, we entered into aninterest rate swap which helps protect our exposure to increases in interestrates and the swap effectively fixes the interest rate on Term Note #2 at 5.79%until June 1, 2008.

 

AtJune 30, 2005, the principal balance on Term Note #3 was $1,772,465.  TermNote #3 is payable in quarterly installments.  Interest on Term Note #3 isat the three month LIBOR plus 2.80%, which totaled 6.13% as of June 30,2005.  Term Note #3 is payable in full on June 1, 2008.  Inorder to protect our interest rate exposure on Term Note #3, we entered into aninterest rate cap agreement based on a principal amount of $10,000,000. The financing agreement caps our interest rate at 6.80% for Term Note #3 untilJune 1, 2006.  As part of the financing agreement, we have agreed topay an annual servicing fee of $50,000 for five years.

 

AtJune 30, 2005, there was no principal balance on Term Note #4.  Term Note#4 is payable in quarterly installments.  Interest on Term Note #4 is atthe one month LIBOR plus 2.80%.  Term Note #4 is payable in full onJune 1, 2008.  Term Note #4 allows borrowings up to the originalprincipal of $5,000,000 to the extent of principal payments made until maturityand requires a commitment fee of 0.375% on any unused portion.

 

AtJune 30, 2005, the principal balance on Term Note #5 was $3,115,814.  Term Note #5 is the construction note usedfor the plant expansion.  Term Note #5bears interest at the one month LIBOR plus 330 basis points, which totaled6.41% at June 30, 2005.  Prior to theconstruction completion date, September 1, 2005, we are required to makeinterest only payments quarterly.  OnSeptember 1, 2005, the outstanding balance of term note #5 will be added to theprincipal balance of Term Note #3.  AtJune 30, 2005, the aggregate indebtedness represented by Term Notes #2, #3, #4and #5 was $17,966,549.

 

Wehave a capital lease obligation in the amount of $208,676 on which we initiallypay monthly installments totaling $6,658, with an implicit interest ratebetween 3.7% and 17.4%.  This obligationis secured by the leased equipment and runs through March 1, 2008.

 

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Wehave a note in the amount of $149,305 payable to the Iowa Energy Center onwhich we pay monthly installments of $3,472 without interest.  This note is secured by real estate, but issubordinated to the term notes.  Itmatures on January 29, 2009.

 

Wehave a note with Farmers State Bank of Marcus, Iowa in the amount of $160,065on which we pay monthly installments of $5,921, including interest at 6%.  This note is secured by real estate, butis subordinated to the term notes.  Itmatures on January 29, 2009.

 

Wehave a note totaling $196,000 payable to the Iowa Department of EconomicDevelopment on which we pay monthly installments of $1,667 without interest.This note is secured by all equipment and matures on July 1, 2009.

 

*Covenants*

 

Therevolving promissory note and Term Notes #2, #3,#4 and #5 are subject tonumerous protective covenants requiring us to maintain various financialratios.  During the three months ended June 30, 2005, we renegotiated ourcovenants with First National Bank of to reflect our current operatingstructure.  Our failure to comply withthe protective loan covenants or maintain the required financial ratios maycause acceleration of the outstanding principal balances on the revolvingpromissory note and terms notes and/or the imposition of fees, charges orpenalties.

 

**Off-Balance Sheet Arrangements.**

 

Wecurrently have no off-balance sheet arrangements.

 

**Item 3.  Quantitative and Qualitative Disclosures AboutMarket Risk.**

 

**Interest Rate Risk**

 

Weare exposed to market risk from changes in interest rates. Exposure to interestrate risk results from holding a revolving promissory note and four termnotes.  The specifics of each note are discussed in greater detail inManagement’s Discussion and Analysis of Financial Condition and Results ofOperations.  We entered into interest rate swap and interest rate capagreements for the purpose of reducing our exposure to possible future changesin interest rates.  While our exposure is now greatly reduced, it is noteliminated.  A hypothetical 1% increase in interest rates applied toexposed liabilities as of June 30, 2005 would result in additional interestexpense of approximately $12,000 for the remainder of fiscal 2005.

 

**Commodity Price Risk**

 

Weare also exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn andnatural gas in the ethanol production process.  We seek to minimize therisks from fluctuations in the prices of corn and natural gas through the useof hedging instruments.  In practice, as markets move, we actively manageour risk and adjust hedging strategies as appropriate.  Although webelieve our hedge positions accomplish an economic hedge against our futurepurchases, they are not designated as such for hedge accounting purposes, whichwould match the gain or loss on our hedge positions to the specific commoditypurchase being hedged.  We are marking to market our hedge positions,which means as the current market price of our hedge positions changes, thegains and losses are immediately recognized in our cost of goods sold. For example, it is likely and we would generally expect that a 10% increase inthe cash price of corn would produce an increase in the fair value of ourderivative instruments equal to approximately $76,500 based on our positions atJune 30, 2005.  Alternatively, a 10% decrease in the cash price of cornwould produce a corresponding decrease in the fair value of our derivativeinstruments equal to approximately $76,500 based on our positions at June 30,2005.

 

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.  As of June 30, 2005, the fair value of our derivative instrumentsfor corn is an asset in the amount of $765,907.  There are several variablesthat could affect the extent to which our derivative instruments are

 

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impacted by pricefluctuations in the cost of corn or natural gas.  However, it is likelythat commodity cash prices will have the greatest impact on the derivativesinstruments with delivery dates nearest the current cash price.

 

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

 

Weestimate that our expected corn usage is approximately 18 to 19 million bushelsper year for the production of 52 million gallons of ethanol.  As of June30, 2005, we had forward, futures, and option contract price protection inplace for 100% of our expected corn usage through September 2005.  We have price protection for approximately 46% of our expected corn usage forfiscal year ended September 30, 2006 using CBOT futures and options and Overthe Counter option contracts.  As we move forward, additional protectionmay be necessary.  As corn prices move in reaction to market trends andinformation, our income statement will be affected depending on the impact suchmarket movements have on the value of our derivative instruments.  As wemove forward, additional price protection may be required to solidify our marginsinto fiscal year 2006.  Depending on market movements, crop prospects andweather, these price protection positions may cause immediate adverse effects,but are expected to produce long-term positive growth for us.

 

Tomanage our natural gas price risk, we entered into a natural gas purchaseagreement with our supplier to supply us with natural gas.  This purchase agreement fixes the price atwhich we purchase natural gas.  We have purchased approximately 90% of oursummer and fall 2005 natural gas requirements.  We may also purchasenatural gas requirements for the 2006 and 2007 calendar years as we attempt tofurther reduce our susceptibility to price increases.

 

Atthe time we purchased price protection for natural gas, the market wasexperiencing a great deal of price uncertainty.  Due to this uncertainty,we purchased amounts of natural gas to fulfill most of the plant’s needs. Energy sector prices have increased and natural gas, as a portion of the totalenergy market, has responded with higher prices to be cost competitive with itsalternatives.  In the future, we may not be able to secure naturalgas for prices less than current market price and we may not recover high costsof production resulting from high natural gas prices, which may raise our costsof production.

 

**Item 4.  Controls and Procedures.**

 

OurPresident/Chief Executive Officer, Stephen Roe, along with our Chief FinancialOfficer, Gary Grotjohn, have reviewed and evaluated the effectiveness of ourdisclosure controls and procedures as of June 30, 2005.  Based upon thisreview and evaluation, these officers believe that our disclosure controls andprocedures are effective in ensuring that the material information related tous is recorded, processed, summarized, and reported within the time periodsrequired by the forms and rules of the Securities and Exchange Commission.

 

Ourmanagement, consisting of our President/Chief Executive Officer and ChiefFinancial Officer have also reviewed and evaluated any changes in our internalcontrol over financial reporting that occurred as of June 30, 2005 and therehas been no change that has materially affected or is reasonably likely tomaterially affect our internal control over financial reporting.

 

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**PART II.                OTHERINFORMATION**

 

**Item1.  Legal Proceedings.**

 

None.

 

**Item 2.  Unregistered Sales of Equity Securities and Useof Proceeds.**

 

None.

 

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

 

None.

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders.**

 

None.

 

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

 

On August 9, 2005, our boardof directors, acting as general partner of LSCP, LLLP, together with thelimited partners, approved plans to proceed with a 40 million gallon per yearexpansion to our 52 million gallon per year plant.  A copy of the press release announcing theplanned expansion was made available on our website on August 15, 2005 and isattached hereto as Exhibit 99.1.

 

Pursuant to the rules andregulations of the Securities and Exchange Commission, such exhibit and theinformation set forth therein and herein shall not be deemed to be filed forpurposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), and shall not be deemed to be incorporated by reference in any filingunder the Securities Act of 1933, as amended, or the Exchange Act, except asshall be expressly set forth by specific reference in such a filing.

 

**Item6.  Exhibits.**

 

(a)                                  Thefollowing exhibits are filed as part of this report.

 

10.1                           LSCP, LLLP Deferred Bonus Compensation Plan

 

31.1         Certificate pursuant to 17 CFR240.13a-14(a).

 

31.2         Certificate pursuant to 17 CFR240.13a-14(a).

 

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

 

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

 

99.1         Press release regarding plant expansion

 

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**SIGNATURES**

 

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

 

 
|   |                                    |   | LITTLE SIOUX CORN PROCESSORS, L.L.C.  |
|--------|-----------------------------------------|--------|---------------------------------------|
|   |                                    |   |                                  |
| Date:  |     August 12, 2005 |   |                                  |   /s/ Stephen Roe |
|   |                                    |   | Stephen Roe                           |
|   |                                    |   | President and Chief Executive Officer |
|   |                                    |   |                                  |
|   |                                    |   |                                  |
| Date:  |     August 12, 2005 |   |                                  |   /s/ Gary Grotjohn |
|   |                                    |   | Gary Grotjohn                         |
|   |                                    |   | Chief Financial Officer               |

 

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