** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**x        Quarterly report under Section 13 or 15(d) of the SecuritiesExchange Act of 1934.**

** **

**Forthe fiscal quarter ended December 31, 2006**

**OR**

**o        Transition report under Section 13 or 15(d) of the ExchangeAct.**

** **

**For the transition periodfrom                    to                    ..**

** **

**COMMISSION FILE NUMBER0001229899**

** **

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

(Exact name of registrantas specified in its charter)

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

 

**4808 FAvenue, Marcus, Iowa 51035**

(Address ofprincipal executive offices)

**(712)376-2800**

(Issuer’stelephone 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 the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

x Yes    o No

Indicate by check mark whether the registrant is alarge accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):

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

 

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

o Yes    x No

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

As of February 14, 2007,there were 10,941 units outstanding.

 

 

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**INDEX**
|                                                                                                     | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------|
| PART I. FINANCIAL INFORMATION                                                                       |       |       |
|                                                                                                |       |       |
| ITEM 1. FINANCIAL STATEMENTS                                                                        |       |       |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |       |       |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK                                 |       |       |
| ITEM 4. CONTROLS AND PROCEDURES                                                                     |       |       |
|                                                                                                |       |       |
| PART  II. OTHER INFORMATION                                                                         |       |       |
|                                                                                                |       |       |
| ITEM  1. LEGAL PROCEEDINGS                                                                          |       |       |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                |       |       |
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                             |       |       |
| ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                        |       |       |
| ITEM  5. OTHER INFORMATION                                                                          |       |       |
| ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                            |       |       |
|                                                                                                |       |       |
| SIGNATURES                                                                                          |       |       |

 

 

----

**PART I. FINANCIAL INFORMATION**

**ITEM 1.FINANCIAL STATEMENTS.**

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

CondensedConsolidated Balance Sheet
| ** **                                            | ** ** | **December 31  2006** | ** **  | **September 30  2006** | ** ** |
|-------------------------------------------------------|------------|----------------------------|-------------|-----------------------------|------------|
| ** **                                            | ** ** | **(Unaudited)**            | ** **  | **(Audited)**               | ** ** |
| **ASSETS**                                            |       |                       |        |                        |       |
| ** **                                            |       |                       |        |                        |       |
| **Current Assets**                                    |       |                       |        |                        |       |
| Cash and  equivalents                                 |       | $                          | 23,027,366  |                        | $          | 10,133,691 |   |
| Short-term  investments                               |       | 11,089,306                 |        | 18,726,834                  |       |
| Accounts  receivable                                  |       | 4,382,269                  |        | 2,655,454                   |       |
| Inventory                                             |       | 1,759,156                  |        | 1,666,395                   |       |
| Derivative  instruments                               |       | 6,860,907                  |        | 4,356,698                   |       |
| Prepaid expenses                                      |       | 2,484,673                  |        | 1,835,214                   |       |
| Total current  assets                                 |       | 49,603,677                 |        | 39,374,286                  |       |
|                                                  |       |                       |        |                        |       |
| **Property and Equipment**                            |       |                       |        |                        |       |
| Land and  improvements                                |       | 2,826,839                  |        | 2,826,839                   |       |
| Plant buildings  and equipment                        |       | 57,934,081                 |        | 57,971,654                  |       |
| Office buildings  and equipment                       |       | 220,588                    |        | 213,928                     |       |
|                                                  |       | 60,981,508                 |        | 61,012,421                  |       |
| Less accumulated  depreciation                        |       | 14,908,901                 |        | 13,649,392                  |       |
|                                                  |       | 46,072,607                 |        | 47,363,029                  |       |
| Construction in  progress                             |       | 16,814,602                 |        | 4,384,830                   |       |
| Net property and  equipment                           |       | 62,887,209                 |        | 51,747,859                  |       |
|                                                  |       |                       |        |                        |       |
| **Other Assets**                                      |       |                       |        |                        |       |
| Long-term  investments                                |       | 103,742                    |        | 103,742                     |       |
| Land option and  other                                |       | 245,581                    |        | 189,616                     |       |
| Deferred loan  costs, net of accumulated amortization |       | 119,839                    |        | 141,112                     |       |
| Total other  assets                                   |       | 469,162                    |        | 434,470                     |       |
|                                                  |       |                       |        |                        |       |
| **Total Assets**                                      |       | $                          | 112,960,048 |                        | $          | 91,556,615 |   |

 

See Notes to Condensed Consolidated FinancialStatements

3

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

CondensedConsolidated Balance Sheet
| ** **                                                     | ** ** | **December 31  2006** | ** **  | **September 30  2006** | ** ** |
|----------------------------------------------------------------|------------|----------------------------|-------------|-----------------------------|------------|
| ** **                                                     | ** ** | **(Unaudited)**            | ** **  | **(Audited)**               | ** ** |
| **LIABILITIES  AND MEMBERS’ EQUITY**                      |       |                       |        |                        |       |
| ** **                                                     |       |                       |        |                        |       |
| **Current Liabilities**                                        |       |                       |        |                        |       |
| Current  maturities of long-term liabilities                   |       | 3,439,780                  |        | 3,394,196                   |       |
| Accounts payable                                               |       | 3,468,535                  |        | 2,053,554                   |       |
| Accrued expenses                                               |       | 605,399                    |        | 575,646                     |       |
| Total current  liabilities                                     |       | 7,513,714                  |        | 6,023,396                   |       |
|                                                           |       |                       |        |                        |       |
| **Long-Term  Liabilities,****net of current  maturities**      |       | 12,648,618                 |        | 13,504,582                  |       |
| ** **                                                     |       |                       |        |                        |       |
| **Minority Interest**                                          |       | 37,143,182                 |        | 28,864,721                  |       |
| ** **                                                     |       |                       |        |                        |       |
| **Members’ Equity, 10,941 units  issued and outstanding** |       | 55,654,534                 |        | 43,163,916                  |       |
| ** **                                                     |       |                       |        |                        |       |
| **Total Liabilities and Members’  Equity**                |       | $                          | 112,960,048 |                        | $          | 91,556,615 |   |
|                                                                |            |                            |             |                             |            |  |  |

 

See Notes to Condensed Consolidated Financial Statements

4

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

CondensedConsolidated Statements of Operations
| ** **                                                  | ** ** | **Three Months Ended  December 31 2006** | ** ** | **Three Months Ended  December 31 2005** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **(Unaudited)**                                              | ** ** | **(Unaudited)**                                              | ** ** |
| **Revenues**                                                |       | $                                                            | 33,605,049 |                                                         | $          | 23,141,931 |   |
| ** **                                                  |       |                                                         |       |                                                         |       |
| **Cost of Goods Sold**                                      |       | 12,043,691                                                   |       | 15,371,454                                                   |       |
| ** **                                                  |       |                                                         |       |                                                         |       |
| **Gross Margin**                                            |       | 21,561,358                                                   |       | 7,770,477                                                    |       |
| ** **                                                  |       |                                                         |       |                                                         |       |
| **Selling, General, and  Administrative Expenses**          |       | 781,823                                                      |       | 674,764                                                      |       |
| ** **                                                  |       |                                                         |       |                                                         |       |
| **Operating Income**                                        |       | 20,779,535                                                   |       | 7,095,713                                                    |       |
| ** **                                                  |       |                                                         |       |                                                         |       |
| **Other Income (Expense)**                                  |       |                                                         |       |                                                         |       |
| Interest income                                             |       | 372,209                                                      |       | 144,782                                                      |       |
| Interest expense                                            |       | (312,369                                                     | )          | (300,887                                                     | )          |
| Other income  (expense)                                     |       | (70,296                                                      | )          | 53,884                                                       |       |
| Total other  expense, net                                   |       | (10,456                                                      | )          | (102,221                                                     | )          |
|                                                        |       |                                                         |       |                                                         |       |
| **Net Income Before Minority  Interest**                    |       | 20,769,079                                                   |       | 6,993,492                                                    |       |
| ** **                                                  |       |                                                         |       |                                                         |       |
| **Minority Interest in Sudsidiary  Income**                 |       | 8,278,461                                                    |       | 2,787,012                                                    |       |
| ** **                                                  |       |                                                         |       |                                                         |       |
| **Net Income**                                              |       | $                                                            | 12,490,618 |                                                         | $          | 4,206,480 |   |
| ** **                                                  |       |                                                         |       |                                                         |       |
| **Net Income Per Unit - Basic and  Diluted**                |       | $                                                            | 1,141.63   |                                                         | $          | 384.47 |   |
| ** **                                                  |       |                                                         |       |                                                         |       |
| **Weighted Average Units Outstanding - Basic and  Diluted** |       | 10,941                                                       |       | 10,941                                                       |       |

 

See Notes to Condensed Consolidated FinancialStatements

5

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

Condensed Consolidated Statements of Cash Flows
| ** **                                              | ** ** | **Three Months Ended  December 31 2006** | ** ** | **Three Months Ended  December 31 2005** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                              | ** ** | **(Unaudited)**                                              | ** ** | **(Unaudited)**                                              | ** ** |
| **Operating Activities**                                |       |                                                         |       |                                                         |       |
| Net income                                              |       | $                                                            | 12,490,618 |                                                         | $          | 4,206,480 |   |
| Adjustments to  reconcile net income to net             |       |                                                         |       |                                                         |       |
| cash provided by  operating activities:                 |       |                                                         |       |                                                         |       |
| Depreciation and  amortization                          |       | 1,280,782                                                    |       | 1,202,106                                                    |       |
| Minority  interest in subsidiary’s income          |       | 8,278,461                                                    |       | 2,787,012                                                    |       |
| Change in  operating assets and liabilities:            |       |                                                         |       |                                                         |       |
| Accounts  recievable                                    |       | (1,726,815                                                   | )          | 1,101,165                                                    |       |
| Inventory                                               |       | (92,761                                                      | )          | (623,045                                                     | )          |
| Derivative  instruments                                 |       | (2,504,209                                                   | )          | (1,399,367                                                   | )          |
| Prepaid expenses                                        |       | (649,459                                                     | )          | (562,046                                                     | )          |
| Accounts payable                                        |       | 1,403,953                                                    |       | 714,223                                                      |       |
| Accrued expenses                                        |       | 40,781                                                       |       | (21,429                                                      | )          |
| Net cash  provided by operating activities              |       | 18,521,351                                                   |       | 7,405,099                                                    |       |
|                                                    |       |                                                         |       |                                                         |       |
| **Investing Activities**                                |       |                                                         |       |                                                         |       |
| Proceeds from  investments                              |       | 18,633,192                                                   |       | 1,987,420                                                    |       |
| Payments for  investments                               |       | (10,995,664                                                  | )          | —                                                       |       |
| Capital  expenditures                                   |       | (12,398,859                                                  | )          | (546,636                                                     | )          |
| Payments for  land options and other                    |       | (55,965                                                      | )          |                                                         |       |
| Net cash  provided by (used in) investing activities    |       | (4,817,296                                                   | )          | 1,440,784                                                    |       |
|                                                    |       |                                                         |       |                                                         |       |
| **Financing Activities**                                |       |                                                         |       |                                                         |       |
| Payments of  long-term debt                             |       | (810,380                                                     | )          | (817,044                                                     | )          |
| Net cash used in  financing activities                  |       | (810,380                                                     | )          | (817,044                                                     | )          |
|                                                    |       |                                                         |       |                                                         |       |
| **Net increase in cash and  equivalents**               |       | 12,893,675                                                   |       | 8,028,839                                                    |       |
| ** **                                              |       |                                                         |       |                                                         |       |
| **Cash  and Equivalents****— Beginning of Period** |       | 10,133,691                                                   |       | 14,135,954                                                   |       |
| ** **                                              |       |                                                         |       |                                                         |       |
| **Cash and Equivalents — End of  Period**          |       | $                                                            | 23,027,366 |                                                         | $          | 22,164,793 |   |
|                                                    |       |                                                         |       |                                                         |       |
| **Supplemental Cash Flow  Information**                 |       |                                                         |       |                                                         |       |
| Cash paid for interest                                  |       | $                                                            | 301,167    |                                                         | $          | 289,210 |   |

 

See Notes to CondensedConsolidated Financial Statements

6

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**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

Notes to CondensedConsolidated Financial Statements (Unaudited)

December 31, 2006

**Note 1:Nature of Operations**

The Company representsLittle Sioux Corn Processors, LLC (LLC) and its subsidiary LSCP, LLLP (LLLP).The Company operates a 52 million gallon per year ethanol plant, located nearMarcus, Iowa. The plant commenced operations in April 2003. The Company iscurrently in the process of expanding the plant from a 52 million gallons peryear (MMGY) plant to a 92 MMGY plant. The Company sells its production ofethanol, distillers grains and solubles, and modified wet distillers grainswith solubles in the Continental United States.

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

**Basis ofPresentation**

These condensedconsolidated financial statements and related notes should be used inconjunction with the consolidated financial statements and notes included inthe Company’s audited consolidated financial statements for the year endedSeptember 30, 2006, contained in the Company’s annual report of Form 10-K for2006.

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

**Principlesof Consolidation**

The condensedconsolidated financial statements include the accounts of the LLC and its60.15% owned subsidiary, LLLP. All significant inter-company transactions andbalances have been eliminated in consolidation.

**Use ofEstimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

**RevenueRecognition**

Revenue from the sale ofthe Company’s products is recognized at the time title of the goods and allrisks of ownership transfer to the customers. This generally occurs uponshipment to the customer or when the customer picks up the goods.

The Company recordsrevenue from federal and state incentive programs related to the production ofethanol when the Company has sold the ethanol and completed all therequirements of the applicable incentive program.

The Company has anethanol marketing agreement with ADM, a related party, whereby ADM purchasesall of the Company’s ethanol. The Company agrees to pay ADM a fixed price pergallon for every gallon of ethanol produced by the Company and sold by ADM. Theinitial term is until April 2007 with renewal options thereafter in one-year increments.

**Reclassifications**

The presentation ofcertain items in the consolidated balance sheet, statements of operations andcash flows has been changed to conform to the classifications used at December31, 2006. These reclassifications had no effect on members’ equity, net income,or cash flows previously reported.

7

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**Note 3:Inventory**

Inventory is comprised ofthe following at:

|                 | ** ** | **December 31, 2006** | ** ** | **September 30, 2006*** | ** ** |
|-----------------|------------|---------------------------------|------------|-----------------------------------|------------|
| Raw materials   |       | $                               | 1,051,800  |                              | $          | 1,001,783 |   |
| Work in process |       | 357,702                         |       | 364,036                           |       |
| Finished goods  |       | 349,654                         |       | 300,576                           |       |
| Totals          |       | $                               | 1,759,156  |                              | $          | 1,666,395 |   |

----

*                    Derivedfrom audited consolidated financial statements.

**Note 4:Derivative Instruments**

At December 31, 2006 andSeptember 30, 2006, the Company had recorded an asset for derivativeinstruments related to corn and natural gas and gasoline options and futurespositions of approximately $6,861,000 and $4,357,000, respectively. None of thepositions open at December 31, 2006 are designated as cash flow or fair value hedges.The Company has recorded a gain of approximately $10,179,000 and $645,000 incost of goods sold related to its derivative instruments for the three monthsended December 31, 2006 and 2005, respectively. The Company has offset revenueswith a loss of approximately of $299,000 related to its derivative instrumentsfor the three months ended December 31, 2006. There were no corresponding gainsand losses related to revenue for the three months ended December 31, 2005.

During fiscal 2006, theCompany had an interest rate cap, which expired on June 1, 2006. The interestrate cap was not designated as a cash flow or fair value hedge. The Companyoffset interest expense with a loss of approximately $10,000, on the interestrate cap, for the three months ending December 31, 2005.

**Note 5:Construction in Progress**

The Company continues tomake payments for the expansion to a 92 million gallon plant. During fiscal2007, the Company has not incurred any interest nor has the Company capitalizedany interest related to the construction in progress. The Company anticipatesthe expansion will cost approximately $73,000,000.

**Note 6:Revolving Promissory Note**

Under the terms of thefinancing agreement with the lending institution, the Company has a revolvingpromissory note of up to $3,500,000, subject to borrowing base limitations. InApril 2006, the lending institution renewed the revolving promissory note untilMarch 2007. The revolving promissory note incurs interest monthly at the onemonth LIBOR plus 280 basis points. The Company pays a commitment fee of .125%on the unused portion of the revolving promissory note. There were no balancesoutstanding on the revolving promissory note at December 31, 2006. Therevolving promissory note as well as the term notes described in Note 7 aresubject to protective covenants under a common financing agreement requiringthe Company to maintain various financial ratios, including debt servicecoverage and minimum net worth and working capital requirements and secured byall business assets.

 

8

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**Note 7:Long-Term Liabilities**

Long-term debt consistsof the following:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **December 31,  2006** | ** ** | **September 30,  2006*** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** |                        |       |                          |       |
| Term note 2 has fixed  principal payments due quarterly with interest at the three month LIBOR plus  280 basis points, which totaled 8.17% at December 31, 2006, payable in full  on June 1, 2008. As part of the financing agreement, the Company accepted a  fixed rate option on term note 2 by entering into an interest rate swap which  effectively fixes the interest rate on this term note at 5.79% until this  term note is repaid on June 1, 2008. The Company did not designate the  interest rate swap as a fair value or cash flow hedge. The value of the  interest rate swap is not significant. | ** ** | $                           | 10,942,804 |                          | $          | 11,308,363 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                          |       |
| Term note 3 bears  interest at the three month LIBOR plus 280 basis points, which totaled 8.17%  at December 31, 2006. Term note 3 is payable in full on June 1, 2008. The  Company is required to make quarterly payments of $506,588 applied to accrued  interest on term note 3 and then to principal until this note is paid in full  or until maturity.                                                                                                                                                                                                                                                     |       | 4,689,049                   |       | 5,090,129                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                          |       |
| Term note 4 bears  interest at the one month LIBOR plus 280 basis points. Term note 4 is payable  in full on June 1, 2008. Term note 4 allows subsequent borrowings up to the  original $5,000,000 to the extent of principal payments made until maturity  and requires a commitment fee of .25% on any used portion.                                                                                                                                                                                                                                                                                           |       |                        |       |                          |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                          |       |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 86,805                      |       | 97,222                        |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                          |       |
| Note payable to Farmers  State 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.                                                                                                                                                                                                                                                                                                                                                                                                                               |       | 97,276                      |       | 108,136                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                          |       |
| Note payable to Iowa  Department of Economic Development, due in 60 monthly installments beginning  August 1, 2004 of $1,167 without interest, payable in full on July 1, 2009,  secured by all equipment.                                                                                                                                                                                                                                                                                                                                                                                                       |       | 175,000                     |       | 178,500                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                          |       |
| Capital lease  obligation, due in monthly installments initially totaling $6,658 commencing  April 1, 2003 including implicit interest at 3.67% through March 1, 2008,  secured by leased equipment.                                                                                                                                                                                                                                                                                                                                                                                                             |       | 97,464                      |       | 116,428                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                          |       |
| Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | $                           | 16,088,398 |                          | $          | 16,898,778 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                          |       |
| Less amounts due within  one year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | 3,439,780                   |       | 3,394,196                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |                        |       |                          |       |
| Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | $                           | 12,648,618 |                          | $          | 13,504,582 |   |

----

*                    Derivedfrom audited consolidated financial statements.

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 servicing fee of$50,000 for five years.

The estimated maturitiesof long-term liabilities at December 31, 2006 are as follows:

| 2007                         |   | $          | 3,439,780  |   |
|------------------------------|--------|------------|------------|--------|
| 2008                         |   | 12,493,857 |       |
| 2009                         |   | 154,761    |       |
| Total long-term  liabilities |   | $          | 16,088,398 |   |

 

9

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**Note 8:Members’ Equity**

On January 16, 2007, theBoard of Directors declared a distribution of $14,718,019 from LLLP to thepartners, which was paid in February 2007. The LLC received approximately$8,854,000 of this distribution. In February 2007, the LLC paid $800.00 perunit to the LLC unit holders.

**Note 9:Related Party Transactions**

The Company has balancesand transactions in the normal course of business with various related parties.Significant related party transactions affecting financial statements as of andfor the periods ended as follows:

|                      | ** ** | **December 31,  2006** | ** ** | **September 30,  2006*** | ** ** |
|----------------------|------------|-----------------------------|------------|-------------------------------|------------|
| **Balance Sheet**    | ** ** | ** **                  | ** ** | ** **                    | ** ** |
| Accounts  receivable |       | $                           | 3,805,000  |                          | $          | 2,236,000 |   |
| Accounts payable     |       | 505,000                     |       | 137,000                       |       |
|                      |            |                             |            |                               |            |  |  |

 

|                              | ** ** | **Three Months Ended  December 31, 2006** | ** ** | **Three Months Ended  December 31, 2005** | ** ** |
|------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| **Statements of Operations** | ** ** | ** **                                                    | ** ** | ** **                                                    | ** ** |
| Revenues                     |       | $                                                             | 30,207,000 |                                                          | $          | 20,307,000 |   |
| Expenses                     |       | 3,903,000                                                     |       | 4,099,000                                                     |       |
|                              |            |                                                               |            |                                                               |            |  |  |

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*                    Derivedfrom audited consolidated financial statements

The Company incurredapproximately $10,226,000 related to construction in progress performed by arelated party during the three months ended December 31, 2006.

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

**ContractualObligations**

The following tableprovides information regarding the consolidated contractual obligations of theCompany as of December 31, 2006:

|                               | ** ** | **Total** | ** ** | **Less than One Year** | ** ** | **One to Three Years** | ** ** |
|-------------------------------|------------|-----------|------------|---------------------------------------|------------|---------------------------------------|------------|
| Long-Term Debt  Obligations   |       | $         | 17,317,934 |                                  | $          | 4,312,129                             |       | $ | 13,005,805 |   |
| Operating Lease  Obligations  |       | $         | 363,063    |                                  | $          | 187,371                               |       | $ | 175,692 |   |
| Purchase Obligations          |       | $         | 63,669,578 |                                  | $          | 61,804,363                            |       | $ | 1,865,215 |   |
| Total Contractual Obligations |       | $         | 81,350,575 |                                  | $          | 66,303,863                            |       | $ | 15,046,712 |   |

 

Long-Term Debtobligations include estimated interest.

**LandOptions**

On December 13, 2006, theCompany paid an additional $20,000 to extend the land options.

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**ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.**

Weprepared the following discussion and analysis to help you better understandour financial condition, changes in our financial condition, and results ofoperations for the three-month period ended December 31, 2006, comparedto the same period of the prior fiscal year. This discussion should beread in conjunction with the consolidated financial statements and notes andthe Management’s Discussion and Analysis section for the fiscal year endedSeptember 30, 2006, included in the Company’s Annual Report on Form 10-K.

**Disclosure RegardingForward-Looking Statements**

This reportcontains historical information, as well as forward-looking statements. Theseforward-looking statements include any statements that involve known andunknown risks and relate to future events and our expectations regarding futureperformance or conditions. Words such as “may,” “will,” “should,” “expect,” “plan,”“anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,”“target,” “potential,” or “continue” or the negative of these terms or othersimilar expressions are intended to identify forward-looking statements, butare not the exclusive means of identifying such statements. Theseforward-looking statements, and others we make from time to time, are subjectto a number of risks and uncertainties. Many factors could cause actual resultsto differ materially from those projected in forward-looking statements. Whileit is impossible to identify all such factors, factors that could cause actualresults to differ materially from those estimated by us include, but are notlimited to:

·                  Projected growth, overcapacity orincreased competition in the ethanol market in which we operate;

·                  Fluctuations in the price and marketfor ethanol and distillers grains;

·                  Changes in plant production capacity,variations in actual ethanol and distillers grains production from expectationsor technical difficulties in operating the plant;

·                  Availability and costs of productsand raw materials, particularly corn and natural gas;

·                  Changes in our development plans forexpanding, maintaining or contracting our presence in the market in which weoperate;

·                  Costs of construction and equipment;

·                  Changes in interest rates and theavailability of credit to support capital improvements, development, expansionand operations;

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

·                  Fluctuations in US oil consumptionand petroleum prices;

·                  Anticipated trends in our financialcondition and results of operations;

·                  The availability and adequacy of ourcash flow to meet our requirements; and

·                  Competitionfrom alternative fuels and alternative fuel additives.

The cautionarystatements referred to in this section also should be considered in connectionwith any subsequent written or oral forward-looking statements that may beissued by us or persons acting on our behalf. We do not undertake any duty toupdate forward-looking statements after the date they are made or to conformthem to actual results or to changes in circumstances or expectations.Furthermore, we cannot guarantee future results, events, levels of activity,performance, or achievements. We caution you not to put undue reliance on anyforward-looking statements, which speak only as of the date of this report. Youshould read this report and the documents that we reference in this report andhave filed as exhibits, completely and with the understanding that our actualfuture results may be materially different from what we currently expect. Wequalify all of our forward-looking statements by these cautionary statements.

**Overview**

Little Sioux CornProcessors, L.L.C. (the “Company”) is an Iowa limited liability company thatowns the sole general partnership interest of LSCP, LLLP, (the “Partnership”)an Iowa limited liability limited partnership. As general partner, we managethe business and day-to-day operations of the Partnership’s 52 million gallonper year (MMGY) ethanol plant located near Marcus, Iowa in northwest Iowa. Wecurrently own a 60.15% ownership 

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interest in thePartnership. The Company and its Partnership, are collectively referred to inthis report as “LSCP,” “we,” or “us.”

Our revenues arederived from the sale and distribution of our ethanol, distillers grains andcorn oil throughout the continental United States. Corn is supplied to usprimarily from local agricultural producers and from purchases of corn on theopen market. After processing the corn, ethanol is sold to Archer DanielMidland Co. (“ADM”), which subsequently markets and sells the ethanol togasoline blenders and refineries located throughout the continental UnitedStates. The price that we receive from the sale of ethanol to ADM is based uponthe price that ADM receives from the sale to its customers, minus a marketingfee. Except distillers grains we sell directly to local farmers, our distillersgrains are sold through Commodity Specialist Company (“CSC”) which markets andsells the product to livestock feeders. For our distillers grains, we receive apercentage of the selling price actually received by CSC in marketing thedistillers grains to its customers. We market and sell our corn oil to regionalwholesalers. Presently, the end use of our corn oil is in the livestockindustry. In the long term, our corn oil could be marketed for humanconsumption; however, the feasibility of market penetration as human food isunknown at this time as corn oil extraction in dry milling is relatively newand suitability for human consumption has not yet been determined.

We are subject toindustry-wide factors that affect our operating income and cost of production.Our operating results are largely driven by the prices at which we sellethanol, distillers grain and corn oil and the costs related to theirproduction. Historically, the price of ethanol tends to fluctuate in the samedirection as the price of unleaded gasoline and other petroleum products.Surplus ethanol supplies also tend to put downward price pressure on ethanol.In addition, the price of ethanol is generally influenced by factors such asgeneral economic conditions, the weather, and government policies and programs.The price of distillers grains is generally influenced by supply and demand,the price of substitute livestock feed, such as corn and soybean meal, andother animal feed proteins. Surplus grain supplies also tend to put downwardprice pressure on distillers grains. In addition, our revenues are alsoimpacted by such factors as our dependence on one or a few major customers whomarket and distribute our products; the intensely competitive nature of ourindustry; possible legislation at the federal, state, and/or local level; andchanges in federal ethanol tax incentives.

Our two largestcosts of production are corn and natural gas. The cost of corn is affectedprimarily by supply and demand factors such as crop production, carryout,exports, government policies and programs, risk management and weather, overmuch of which we have no control. Natural gas prices fluctuate with the energycomplex in general. Over the last few years, natural gas prices have trendedhigher than average and it appears prices will continue to trend higher due tothe high price of alternative fuels such as fuel oil. Our costs of productionare affected by the cost of complying with the extensive environmental lawsthat regulate our industry.

**Resultsof Operations for the Three Months Ended December 31, 2006 and 2005**

The followingtable shows the results of our operations and the percentage of revenues, costof goods sold, operating expenses and other items to total revenues in ourconsolidated statements of operations for the three months ended December 31,2006 and 2005:

|                                         | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| **Income Statement Data**     | ** ** | **Amount**                      | ** ** | **%**                           | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                                |       | $                               | 33,605,049 |                            | 100.0      |   | $ | 23,141,931 |   | 100.0 |   |
|                                    |       |                            |       |                            |       |   |   |   |   |
| Cost of Goods  Sold                     |       | $                               | 12,043,691 |                            | 35.8       |   | $ | 15,371,454 |   | 66.4 |   |
|                                    |       |                            |       |                            |       |   |   |   |   |
| Gross Profit                            |       | $                               | 21,561,358 |                            | 64.2       |   | $ | 7,770,477 |   | 33.6 |   |
|                                    |       |                            |       |                            |       |   |   |   |   |
| Operating  Expenses                     |       | $                               | 781,823    |                            | 2.3        |   | $ | 674,764 |   | 2.9 |   |
|                                    |       |                            |       |                            |       |   |   |   |   |
| Operating Income                        |       | $                               | 20,779,535 |                            | 61.8       |   | $ | 7,095,713 |   | 30.7 |   |
|                                    |       |                            |       |                            |       |   |   |   |   |
| Other Income  (Expense)                 |       | $                               | (10,456    | )                               | 0.0        |   | $ | (102,221 | ) | (0.5 | ) |
|                                    |       |                            |       |                            |       |   |   |   |   |
| Net Income  Before Minority Interest    |       | $                               | 20,769,079 |                            | 61.8       |   | $ | 6,993,492 |   | 30.2 |   |
|                                    |       |                            |       |                            |       |   |   |   |   |
| Minority  Interest in Subsidiary Income |       | $                               | 8,278,461  |                            | 24.6       |   | $ | 2,787,012 |   | 12.0 |   |
|                                    |       |                            |       |                            |       |   |   |   |   |
| Net Income                              |       | $                               | 12,490,618 |                            | 37.2       |   | $ | 4,206,480 |   | 18.2 |   |

 

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*Revenues.*The increase in revenues from the three months ended December 31, 2006compared to the three months ended December 31, 2005 is due primarily to anincrease in the price per gallon we received for the ethanol sold and anincrease in the number of gallons of ethanol sold. The price per gallon wereceived for the three months ended December 31, 2006 was approximately 26%higher than the price per gallon received for the three months ended December31, 2005 due to the strong ethanol market. The gallons of ethanol sold in thethree months ended December 31, 2006 increased approximately 18% over thegallons we sold in the three months ended December 31, 2005. This increase insales gallons was due to scheduling of our regular maintenance plant shut-down.Each spring and fall, the plant is routinely shut down for several days so thatmaintenance and repairs can be made. The fall shut-downs occurred in October2005 and September 2006. Because of this timing difference, no maintenanceshut-down occurred in the first quarter of fiscal year 2007. Revenue from salesof our co-products also increased by approximately 30% in the three monthsended December 31, 2006 compared to the three months ended December 31, 2005due to increases in the sales prices for these co-products.

Due to a number offactors, including the higher price of petroleum gasoline and seasonal demand,ethanol prices remained high during the last three months of calendar 2006. Webelieve the favorable prices are primarily due to high demand for ethanol,created by a number of factors, including the declining use of MTBE as anoxygenate, the high price of gasoline, which encourages voluntary blending, andthe growing recognition of ethanol as an alternative energy source. However,ethanol prices began to trend lower during January 2007 due to a number offactors, including the lower price of petroleum and a drop in seasonal demand.We believe this trend will continue until peak driving season begins in thesummer of 2007. Ethanol prices are still higher than the 10-year average.However, we cannot guarantee that the price of ethanol will not significantlydecrease due to factors beyond our control.

A greater supplyof ethanol on the market from additional plants and plant expansions couldreduce the price we are able to charge for our ethanol, especially if supplyoutpaces demand. As of February 8, 2007, the Renewable Fuels Associationreports that there were 113 ethanol plants in operation nationwide with thecapacity to produce 5.5 billion gallons annually, with approximately 77additional plants under construction and 7 planned expansions, expanding totalethanol production capacity by an additional 6.1 billion gallons. Accordingly,the price of ethanol may trend downward if supply exceeds demand, which wouldnegatively impact our earnings.

With respect todistillers grains, we believe that prices will follow the same trend as cornprices. We expect revenues from the sale of distillers grains should remainhigher than fiscal 2006.

*Costof Goods Sold.*Our cost of goods sold as a percentage ofrevenues were 35.8% and 66.4% for the three months ended December 31, 2006 and2005, respectively. The 30.6% decrease in our cost of goods sold from period toperiod is primarily due to the increased values of our corn derivatives whichare used to offset corn costs. The cost reduction resulting from our cornderivatives was approximately 20 times greater for the three months endedDecember 31, 2006, than the cost reductions recorded for the three months endedDecember 31, 2005. These cost reductions were a result of higher corn priceswhich increased the values of our derivatives. As corn and natural gas pricesfluctuate, the value of our derivative instruments are impacted, which affectsour financial performance. 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 costssignificantly impact our cost of goods sold. The United States Department ofAgriculture’s National Agricultural Statistics Service reported the final 2006national corn production at approximately 10.5 billion bushels, which was thethird largest corn crop on record. The National Agricultural Statistics Service

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measured Iowa’sproduction at slightly over 2 billion bushels. However, despite the large 2006corn crop, corn prices have increased sharply since August 2006. Additionally,due to increased exposure of ethanol, corn is now being viewed as an “energycommodity” as opposed to strictly a “grain commodity,” contributing to theupward pressure on corn prices. A recent USDA report entitled “WorldAgricultural Supply and Demand Estimates” (February 9, 2007), projects the U.S.corn 2007 season-average farm prices at $3.00-3.40 per bushel. We expect cornprices to remain at historically high price levels well into 2007, which couldsignificantly impact our cost of goods sold.

Additionally, ournatural gas costs decreased by approximately 11% for the three months endedDecember 31, 2006 compared to the same period in 2005. This resulted from anapproximate 25% reduction in the price per MMBTU that we paid for natural gasfor the three months ended December 31, 2006 compared to the same period in2005. This was partially offset by an increase in the number of MMBTUs weconsumed. For the three months ended December 31, 2006, the number of MMBTUs weconsumed was approximately 19% higher than the MMBTUs we consumed in the sameperiod in 2005. This increase in usage was a result of the timing of ourmaintenance shut-down that did not occur in our first quarter of fiscal year2007, but occurred in September 2006 instead.

*OperatingExpenses.*Our operating expenses as a percentage ofrevenues remained relatively consistent from period to period. Thesepercentages were 2.4% and 2.9% for the three months ended December 31, 2006 and2005, respectively.

*OperatingIncome.*Our income from operations for the three monthsended December 31, 2006 totaled $20,779,535 compared to $7,095,713 for thethree months ended December 31, 2005 before minority interest. This was aresult of the substantial increase in gross profit for the three months endedDecember 31, 2006, although it was partially offset by higher operatingexpenses for the same period.

*OtherIncome (Expense).*We had other expense totaling $10,456for the three months ended December 31, 2006 compared to other expensestotaling $102,221 for the three months ended December 31, 2005. This change wasprimarily a result of an increase in interest income. Our interest income *increased* to $372,209 for the threemonths ended December 31, 2006 from $144,782 for the three months endedDecember 31, 2005. This increase resulted from the interest income fromshort-term investments. Our interest expense increased to $312,369 for thethree months ended December 31, 2006 from $300,887 for the three months endedDecember 31, 2005.

We may experienceincreased interest expenses on Term Note 3 until it is paid in full or untilmaturity. We had an interest rate cap on Term Note 3 that limited increases ininterest. The interest rate cap agreement expired on June 1, 2006, but ourobligations under Term Note 3 continue until June 1, 2008. Accordingly, we arevulnerable to rising interest rates.

**Changesin Financial Condition for the Three Months Ended December 31, 2006**

Consolidatedassets totaled $112,960,048 at December 31, 2006 compared to $91,556,615 atSeptember 30, 2006. Current assets totaled $49,603,677 at December 31, 2006 upfrom $39,374,286 at September 30, 2006. The change resulted from (i) anincrease in cash and short-term investments which totaled $34,116,672 atDecember 31, 2006 compared to $28,860,525 at September 30, 2006; (ii) anincrease in the value of inventories which totaled $1,759,156 at December 31,2006 compared to $1,666,395 at September 30, 2006; (iii) an increase in thefair market value of our derivatives which totaled $6,860,907 at December 31,2006 compared to $4,356,698 at September 30, 2006; (iii) and an increase inprepaid expenses which totaled $2,484,673 at December 31, 2006 compared to$1,835,214 at September 30, 2006.

Consolidatedcurrent liabilities totaled $7,513,714 at December 31, 2006 compared to the$6,023,396 at September 30, 2006. The change resulted from the increase of accountspayable which totaled $3,468,535 at December 31, 2006 compared to $2,053,554 atSeptember 30, 2006. This increase relates primarily to the rise in corn costs.

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Long-term debt,net of current maturities, totaled $12,648,618 at December 31, 2006 down from$13,504,582 at September 30, 2006. This reduction occurred as a result of ourregularly scheduled loan payments.

**Strategies:Expansion**

***Marcus Plant Expansion***

During fiscal year2006, we commenced a plant expansion which when completed, will increase theethanol production capacity of our plant by 40 million gallons to 92 milliongallons annually. We expect the expansion to be substantially complete early inthe 2008 calendar year and that the total cost of the expansion project will beapproximately $73,000,000. The completion date and cost of the expansionproject is a preliminary estimate and we expect it will change as we continueto gather information relating to the expansion.

On May 1, 2006,McCormick Construction Company, Inc. (“McC Inc.”) commenced construction of anexpansion of the grain handling facilities and modification of existing grainsilos in exchange for $5,673,025. We anticipate that the expansion of the grainhandling facilities will be substantially complete by May 1, 2007 and the remodelingof the existing grain silos will be substantially complete by September 1,2007. On July 17, 2006, we engaged McC Inc. to expand our dried distillersgrains storage building for a lump sum of $936,000. We anticipate that theexpansion of the dried distillers grains storage building will be substantiallycomplete on September 1, 2007.

On July 10, 2006,we entered into an agreement with Fagen Engineering, LLC, an affiliate ofFagen, Inc., to perform the electrical design services for our expansion inexchange for $265,079 plus certain reimbursable expenses. On September 26,2006, we entered into a design-build agreement with Fagen, Inc., for theconstruction of the expansion, using ICM, Inc., technology. Under the terms ofthe design-build agreement, we will pay Fagen, Inc. $47,860,000 for the designand construction of the Plant’s expansion, subject to any mutually agreed-uponadjustments made in accordance with the general conditions of the agreement andsubject to a credit for any amounts previously paid to Fagen Engineering, LLCfor engineering performed pursuant to the Phase I and Phase II EngineeringServices Agreement. We have since entered into a change order to increase thisprice to a total of $48,600,000. Fagen, Inc. commenced construction of thisexpansion in October 2006 and we currently expect the expansion will becompleted in December 2007 or January 2008. As of the date of this report,construction is progressing on schedule. However, there is no assurance orguarantee that construction will stay on schedule or that we will be able tooperate at expanded production by our anticipated completion date.

On August 1, 2006,we purchased approximately eight acres of land west of our plant (the “Plant”)along the north side of the railroad tracks to accommodate the Plant expansion.The purchase price of the land was approximately $58,000.

We expect tofinance the 40 million per year expansion using both a portion of our cash andadditional debt to finance the required capital expenditure. We do not expectto seek additional equity from our members to fund this expansion. On April 10,2006, we entered into a Eleventh Amendment to Construction Loan Agreement withFirst National Bank of Omaha to obtain interim financing to finance theexpansion of the grain handling facilities and modification of existing grainsilos. The Eleventh Amendment expired in October 2006 and we never took a drawfrom it. We are in the process of negotiating the terms for debt financing forour second Plant expansion with ourcurrent lender, First National Bank of Omaha. While the loan agreementshave not been executed, we have signed a commitment letter that provides for aexpansion construction loan of $73,000,000 and increases our existing operatingline of credit/letters of credit facility from $3,500,000 to $5,000,000. Weexpect to finalize our debt financing for the expansion in March 2007, however,if we are unable to completenegotiation and execute definitive loan document with First National Bank ofOmaha for any reason, we may be forced to abandon our expansion plans.For additional information regarding our expansion debt financing commitment,see “**Item 2 — Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Indebtedness, *Expansion Debt Financing***.”

Managementanticipates that the Plant will continue to operate at or above name-platecapacity of 52 million gallons per year for nearly all of the next twelvemonths, with an increase to name-plate capacity of 92 million gallons per yeartoward the end of that period. This current expansion will be completed whilethe current 

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facility remains inproduction. However, the Plant may be shut down from time to time over the next12 months to incorporate expansion improvements.

We expect to havesufficient cash from cash flow generated by continuing operations, anticipatedadditional debt financing secured to fund plant expansion, current lines ofcredit through our revolving promissory note, and cash reserves to cover thecosts of expansion as well as our usual operating costs over the next 12months, which consist primarily of corn supply, natural gas supply, staffing,office, audit, legal, compliance, working capital costs and debt serviceobligations.

After completionof the second expansion, our total operating costs are expected to increasebecause of the increase in our production capacity. We expect to offset theincrease in operating costs by increased ethanol revenues, however, a varietyof market factors can affect both operating costs and revenues. These factorsinclude:

·                  Changes in the availability and priceof corn;

·                  Changes in the environmentalregulations that apply to our plant operations;

·                  Increased competition in the ethanoland oil industries;

·                  Changes in interest rates or theavailability of credit;

·                  Changes in our business strategy,capital improvements or development plans;

·                  Changes in plant production capacityor technical difficulties in operating the plant;

·                  Changes in general economicconditions or the occurrence of certain events causing an economic impact inthe agriculture, oil or automobile industries;

·                  Changes in the availability and priceof natural gas and the market for distillers grains; and

·                  Changesin federal and/or state laws (including the elimination of any federal and/orstate ethanol tax incentives).

***Developmentof Akron Ethanol Plant***

In addition to expansion of the Plant, we are continuing to study thefeasibility of developing and constructing a new 110 million gallon per year ethanol plant near Akron, Iowa inPlymouth County, or participating in some capacity. However, we have not yet determined how or if we willcontinue to pursue the opportunities presented by the Akron plant and thereis no assurance that if we determine to pursue the Akron plant that we will besuccessful.

In connection withour study of the opportunities in Akron, we have obtained two options for thereal estate which we expect will make up the primary Akron plant site. On June19, 2006, we entered into a real estate option agreement with the Mary FrancesWohlenberg Trust, an unrelated party, granting us an option to purchaseapproximately 156 acres of land (the “Wohlenberg Site”). The price of theoption was $15,000. Under the terms of the option agreement, we have the optionto purchase the land for $15,000 per surveyed acre. This option was set toexpire on December 19, 2006, however we extended the option to June 19, 2007for an additional payment of $10,000. In the event we exercise this option, theoption agreement allows us to apply the amounts paid for the option andextensions of the option towards the total purchase price for the land. If theoption is not exercised after the specified date, the option agreement becomesnull and void. This option must be exercised together with our option on theadjacent Lias site (described below).

On June 19, 2006,we entered into a real estate option agreement with Robert E. and MargaretLias, who are unrelated to us, granting us an option to purchase approximately140 acres of land adjacent to the Wohenberg site (the “Lias Site”). The priceof the option was $15,000. Under the terms of the option agreement, we have theoption to purchase the land for $15,000 per surveyed acre. This option was setto expire on December 19, 2006, however we extended the option to June 19, 2007for an additional payment of $10,000. In the event we exercise this option, theoption agreement allows us to apply the amounts paid for the option andextensions of the option towards the total purchase price for the land. If theoption is not exercised after the specified date, the option agreement becomesnull and void. This option must be exercised together with our option on theadjacent property (described above).

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**Liquidityand Capital Resources**

The followingtable shows cash flows for the three months ended December 31, 2006 and 2005:

|                                                       | ** ** | **2006** | ** **     | **2005**   | ** ** |
|-------------------------------------------------------|------------|----------|----------------|------------|------------|
| Net cash from operating  activities                   |       | $        | 18,521,351     |       | $          | 7,405,099 |   |
| Net cash (used for)  provided by investing activities |       | $        | (4,817,296     | )          | $          | 1,440,784 |   |
| Net cash used for  financing activities               |       | $        | (810,380       | )          | $          | (817,044 | ) |
| **Net increase in cash and equivalents**              | ** ** | **$**    | **12,893,675** | ** ** | **$**      | **8,028,839** | ** ** |

 

*CashFlow From Operations.*Cash provided by operatingactivities was $18,521,351 for the first three months of fiscal 2007, which wasup from $7,405,099 for the first three months of fiscal 2006. This increaseresulted primarily from the increase in net income in fiscal 2007. Our capitalneeds are being adequately met through cash from our operating activities andour current credit facilities.

*CashFlow From Investing Activities.*Cash used in investingactivities was $4,817,296 for the first three months of fiscal 2007, comparedto cash provided of $1,440,784 for the first three months of fiscal 2006. Thisincrease in cash used resulted from an increase in funds needed to be expendedfor our current expansion construction.

*CashFlow From Financing Activities*. We used cash to pay downour debt by $810,380 in the first three months of fiscal 2007 compared to$817,044 in the first three months of fiscal 2006.

**Indebtedness**

### *Short-Term Debt Sources*. We maintain aline of credit with First National Bank of Omaha through March 2007 to financeshort-term working capital requirements. Under the line of credit, we mayborrow up to $3,500,000 under a revolving promissory note. The interest payableon the revolving promissory note is due monthly at the one month LIBOR plus2.80%. We pay a commitment fee of 0.125% on the unused portion of the line.There was no outstanding balance as of December 31, 2006. The maximum availablecredit under this note is based on receivable and inventory balances. Ourcurrent receivable and inventory balances are not sufficient to allow us to usethe maximum amount of the operating line of credit. As of December 31, 2006,the maximum amount available from the operating line of credit wasapproximately $2,938,000. As the balances in these accounts fluctuate, theamount of available credit on this note may be reduced or increased subject tothe maximum of $3,500,000. The operating line of credit is subject toprotective covenants requiring us to maintain various financial ratios and issecured by all of our business assets.

On April 10, 2006,we entered into an Eleventh Amendment to Construction Loan Agreement with FirstNational Bank of Omaha. Under this amendment, First National Bank of Omaha hasagreed to loan us up to $5,673,025 of interim financing pursuant to a BridgeNote to finance the expansion of our grain handling facilities and modificationof existing grain silos. The Bridge Note terminated on October 1, 2006. Nofunds were advanced against this loan agreement, and there was no outstandingbalance related to this note as of December 31, 2006.

#### *Long-Term Debt Sources*. We havelong-term debt financing consisting of three term notes held by First NationalBank of Omaha and referred to as Term Notes 2, 3, and 4. At December 31, 2006,the principal balance on Term Note 2 was $10,942,804. Term Note 2 is payable inquarterly installments. Interest on Term Note 2 is at the three month LIBORplus 2.80%, which totaled 8.17% as of December 31, 2006. Term Note 2 is payablein full on June 1, 2008. In order to achieve a fixed interest rate on Term Note2, we entered into an interest rate swap which helps protect our exposure toincreases in interest rates and the swap effectively fixes the interest rate onTerm Note 2 at 5.79% until June 1, 2008.

At December 31,2006, the principal balance on Term Note 3 was $4,689,049. Term Note 3 ispayable in quarterly installments. Interest on Term Note 3 is at the threemonth LIBOR plus 2.80%, which totaled 8.17% 

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as of December 31, 2006.Term Note 3 is payable in full on June 1, 2008. As part of the financingagreement, we have agreed to pay an annual servicing fee of $50,000 for fiveyears.

At December 31,2006, there was no principal balance on Term Note 4. Term Note 4 is payable inquarterly installments. Interest on Term Note 4 is at the one month LIBOR plus2.80%. Term Note 4 is payable in full on June 1, 2008. Term Note 4 allowsborrowings up to the original principal of $5,000,000 to the extent ofprincipal payments made until maturity.

We have a capitallease obligation in the amount of $97,464 on which we pay monthly installmentstotaling $6,658, with an implicit interest rate of 3.67%. This obligation issecured by the leased equipment and runs through March 1, 2008.

We have a note inthe amount of $86,805 payable to the Iowa Energy Center on which we pay monthlyinstallments of $3,472 without interest. This note is secured by real estate,but is subordinated to the term notes. It matures on January 29, 2009.

We have a notewith Farmers State Bank of Marcus, Iowa in the amount of $97,276 on which wepay monthly installments of $5,921, including interest at 6%. This note issecured by real estate, but is subordinated to the term notes. It matures onJanuary 29, 2009.

We have a notetotaling $175,000 payable to the Iowa Department of Economic Development onwhich we pay monthly installments of $1,167 without interest. This note issecured by all equipment and matures on July 1, 2009.

*ExpansionDebt Financing.*****We are inthe process of negotiating the terms for debt financing for our second Plantexpansion with our current lender,First National Bank of Omaha. While the loan agreements have not beenexecuted, we have signed a commitment letter that provides for a constructionloan of $73,000,000 and increases our existing operating line of credit andletters of credit facility from $3,500,000 to $5,000,000. As provided in thecommitment letter, during the construction period interest on the constructionloan will be payable on a quarterly basis on the outstanding principal amountat a rate equal to the one-month LIBOR rate plus 3.10%. Following completion ofthe construction period, the construction note will be converted to a 5-yearterm note with quarterly payments of principal and interest on the outstandingprincipal amount at a rate equal to the three-month LIBOR rate plus 3%. Theinterest payable on the revolving operating line of credit and letters ofcredit facility will be due monthly at the one month LIBOR plus 2.80% and willbe subject to a commitment fee of 1.75% per year assessed against the letter ofcredit commitments.

Under thecommitment letter, the terms and conditions of the expansion debt financingloans are similar to our existing credit facility with First National Bank,including the specific provisions regarding distributions to members,maintenance of deposit accounts, annual capital expenditures, certain financialloan covenants, pre-payment penalties, events of default and the granting ofliens to secure our performance. We may also be limited in making distributionsto our members. If our total liabilities to net worth ratio is equal to orgreater than 1.0 to 1.0, the Partnership will be allowed to distribute up to40% of its net income to the partners after our lender has received auditedfinancial statements for the fiscal year. Ratios at less than 1.0 to 1.0 willallow the Partnership to distribute up to 65% of its net income to thepartners.

*ContractualObligations and Commercial Commitments*. Except asdisclosed in this report, there were no material changes in the Company’scontractual obligations and commercial commitments during the three monthsended December 31, 2006.

**CriticalAccounting Estimates**

There were nomaterial changes in the Company’s accounting estimates during the three monthsended December 31, 2006.

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**Off-BalanceSheet Arrangements.**

We currently haveno off-balance sheet arrangements.

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

We are exposed to the impact of market fluctuationsassociated with interest rates and commodity prices as discussed below. We haveno exposure to foreign currency risk as all of our business is conducted inU.S. Dollars. We use derivative financial instruments as part of an overallstrategy to manage market risk. We use cash, futures and option contracts tohedge changes to the commodity prices of corn and natural gas. We do not enterinto these derivative financial instruments for trading or speculativepurposes, nor do we designate these contracts as hedges for accounting purposespursuant to the requirements of SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities*.

**InterestRate Risk**

We are exposed to marketrisk from changes in interest rates. Exposure to interest rate risk resultsprimarily from holding a revolving promissory note and three term notes whichbear variable interest rates. Specifically, we have $16,088,398outstanding in variable rate, long-term debt as of December 31, 2006. The specifics of each note are discussed ingreater detail in “**Item 2 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Indebtedness**.”

In order toachieve a fixed interest rate on Term Note 2, we entered into an interest rateswap which helps protect our exposure to increases in interest rates and theswap effectively fixes the interest rate on Term Note 2 at 5.79% until June 1,2008. When the three-month LIBOR plus 2.80% exceeds 5.79%, we receive paymentsfor the difference between the market rate and the swap rate. Conversely, whenthe three-month LIBOR plus 2.80% is below 5.79%, we make payments for thedifference between the market rate and the swap rate. While our exposure is nowgreatly reduced, there can be no assurance that the interest rate swapagreement will provide us with protection in all scenarios. For example, ifinterest rates were to fall below 5.79%, we would still be obligated payinterest at 5.79% under the interest rate swap agreement.

In order toprotect our interest rate exposure on Term Note 3, we entered into an interestrate cap agreement to reduce the risk of increases in interest rates. Theinterest rate cap agreement is based on a notional amount of $10,000,000 andcaps increases in interest rates at 6.8% on this amount. The interest rate capagreement expired on June 1, 2006; however, obligations under Term Note 3continue until June 1, 2008. Accordingly, we are vulnerable to rising interestrates.

**Commodity Price Risk**

We are alsoexposed to market risk from changes in commodity prices. Exposure to commodityprice risk results from our dependence on corn and natural gas in the ethanolproduction process. We seek to minimize the risks from fluctuations in theprices of corn and natural gas through the use of derivative instruments. Inpractice, as markets move, we actively manage our risk and adjust hedgingstrategies as appropriate. Although we believe our hedge positions accomplishan economic hedge against our future purchases, they are not designated as suchfor hedge accounting purposes, which would match the gain or loss on our hedge positionsto the specific commodity purchase being hedged. We are marking to market ourhedge positions, which means as the current market price of our hedge positionschanges, the gains and losses are immediately recognized in our cost of goodssold.

The immediaterecognition of hedging gains and losses can cause net income to be volatilefrom quarter to quarter due to the timing of the change in value of thederivative instruments relative to the cost and use of the commodity beinghedged. At December 31, 2006 and September 30, 2006, the fair value of ourderivative instruments for corn, natural gas, and gasoline is an asset in theamount of $6,860,907 and $4,356,698 respectively. There are several variablesthat could affect the extent to which our derivative instruments are impactedby price fluctuations 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.

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To manage our cornprice risk, our hedging strategy is designed to establish a price ceiling andfloor for our corn purchases. We have taken a net long position on our exchangetraded futures and options contracts, which allows us to offset increases ordecreases in the market price of corn. The upper limit of loss on our futurescontracts is the difference between the contract price and the cash marketprice of corn at the time of the execution of the contract. The upper limit ofloss on our exchange traded and over-the-counter option contracts is limited tothe amount of the premium we paid for the option.

We estimate thatour expected corn usage is approximately 19 million bushels per year for theproduction of 52 million gallons of ethanol. We have price protection in placefor a portion of our expected corn usage for fiscal year 2007 and fiscal year2008 using forward contracts, CBOT futures and options and Over-the-Counteroption contracts. As we move forward, additional protection may be necessary.As corn prices move in reaction to market trends and information, our incomestatement will be affected depending on the impact such market movements haveon the value of our derivative instruments. As we move forward, additionalprice protection may be required to solidify our margins into fiscal year 2007.Depending on market movements, crop prospects and weather, these priceprotection positions may cause immediate adverse effects, but are expected toproduce long-term positive growth for us.

To manage ournatural gas price risk, we entered into a natural gas purchase agreement withour supplier to supply us with natural gas. This purchase agreement fixes theprice at which we purchase natural gas. We have purchased a portion of ourfiscal year 2007 and fiscal year 2008 natural gas requirements utilizing bothcash, futures and options contracts. We may also purchase additional naturalgas requirements for the 2007 calendar year as we attempt to further reduce oursusceptibility to price increases.

At the time we purchasedprice protection for natural gas, the market was experiencing a great deal ofprice uncertainty. Due to this uncertainty, we purchased amounts for most ofthe plant’s needs and implemented derivative instruments to allow us to benefitin the event natural gas prices declined. Energy sector prices have increasedand natural gas, as a portion of the total energy market, has responded withhigher prices to be cost competitive with its alternatives. In the future, wemay not be able to secure natural gas for prices less than current market priceand we may not recover high costs of production resulting from high natural gasprices, which may raise our costs of production.

The Company hasrecently entered into gasoline derivative instruments to hedge the variabilityof ethanol prices. While not perfectly correlated, we have found that ethanoland gasoline prices tend to move in tandem. Therefore, the gasoline contractsthe company has entered into are intended to offset cash decreases in the priceof ethanol we receive.

A sensitivity analysis has been prepared to estimateour exposure to corn and natural gas price risk. The table presents the fairvalue of our derivative instruments as of December 31, 2006 and September 30,2006 and the potential loss in fair value resulting from a hypothetical 10%adverse change in such prices. The fair value of the positions is a summationof the fair values calculated by valuing each net position at quoted marketprices as of the applicable date. The results of this analysis, which maydiffer from actual results, are as follows:

|                    | ** ** | **Fair Value** | ** ** | **Effect of Hypothetical  Adverse Change —  Market Risk** | ** ** |
|--------------------|------------|---------------------|------------|-----------------------------------------------------------------------------------------|------------|
| December 31,  2006 |       | $                   | 6,860,907  |                                                                                    | $          | 686,090 |   |
| September 30, 2006 |       | $                   | 4,356,698  |                                                                                    | $          | 435,669 |   |

 

**ITEM4. CONTROLS AND PROCEDURES.**

Our management, including our President and ChiefExecutive Officer (the principal executive officer), Stephen Roe, along withour Chief Financial Officer (the principal financial officer), Gary Grotjohn,have reviewed and evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of1934, as amended) as of December 31, 2006. Based upon this review andevaluation, these officers have concluded that our disclosure controls andprocedures are effective to ensure that information required to be disclosed inthe reports that we file or submit under the Exchange Act is recorded,processed, 

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summarized and reportedwithin the time periods required by the forms and rules of the Securities andExchange Commission; and to ensure that the information required to bedisclosed by an issuer in the reports that it files or submits under theExchange Act is accumulated and communicated to our management including ourprincipal executive and principal financial officers, or persons performingsimilar functions, as appropriate to allow timely decisions regarding requireddisclosure.

Our management,including our principal executive officer and principal financial officer, havereviewed and evaluated any changes in our internal control over financialreporting that occurred as of December 31, 2006 and there has been no changethat has materially affected or is reasonably likely to materially affect ourinternal control over financial reporting.

**PART II. OTHER INFORMATION**

**ITEM1. LEGAL PROCEEDINGS.**

None.

**ITEM2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

None.

**ITEM3. DEFAULTS UPON SENIOR SECURITIES.**

None.

**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**

None.

**ITEM5.****OTHER INFORMATION.**

None.

**ITEM6. EXHIBITS AND REPORTS ON FORM 8-K.**

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

31.1                                 Certificatepursuant to 17 CFR 240.13a-14(a).

31.2                                 Certificatepursuant to 17 CFR 240.13a-14(a).

32.1                                 Certificatepursuant to 18 U.S.C. § 1350.

32.2                                 Certificatepursuant to 18 U.S.C. § 1350.

(b)                                 Reportson Form 8-K: None.

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**SIGNATURES**

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
|        |              |   | LITTLE SIOUX CORN PROCESSORS, L.L.C.  |
|--------|-------------------|--------|---------------------------------------|
|   |              |   |                                  |
| Date:  | February 14, 2007 |   | /s/ Stephen Roe                       |
|   |              |   | Stephen Roe                           |
|   |              |   | President and Chief Executive Officer |
|   |              |   |                                  |
| Date:  | February 14, 2007 |   | /s/ Gary Grotjohn                     |
|   |              |   | Gary Grotjohn                         |
|   |              |   | Chief Financial Officer               |

 

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