UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
              [X] Annual Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934
                            For the fiscal year ended
                                 AUGUST 31, 1997
                                       Or
            [ ] Transition Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

                            -------------------------
                                 Commission File
                                  No. 33-94644
                            -------------------------

                          MINN-DAK FARMERS COOPERATIVE
             (Exact name of registrant as specified in its charter)

            North Dakota                               23-7222188
      (State of incorporation)           (I.R.S. Employer Identification Number)

        7525 Red River Road
     Wahpeton, North Dakota 58075                      (701) 642-8411
(Address of principal executive offices)      (Registrant's telephone number)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE


         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO ___

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         As of November 21, 1997, 483 shares of the Registrant's Common Stock
and 66,967 "units" of the Registrant's Preferred Stock, each consisting of 1
share of Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share
of Class C Preferred Stock, were outstanding. There is only a limited, private
market for shares of the Company's Common or Preferred Stock, as such shares may
be held only by farmer-producers who are eligible for membership in the Company.
The Company's shares are not listed for trading on any exchange or quotation


<PAGE>


system. Although transfers of the Company's shares may occur only with the
consent of the Company's Board of Directors, the Company does not verify
information regarding the transfer price in connection with such transfers. A
number of stock transfers, representing approximately 2% of available stock,
were not arms length (estate settlements, estate planning from one generation to
the next, etc.) and an accurate value for that stock was not available.
Management believes less than 1% of the Company's available stock was traded at
arms length during the fiscal year ended 8-31-97. Of the stock transferred at
arms length, the transfers were made during the first, second and third quarters
of the Company's fiscal year and range in price from $2,300 to $2,550 per unit.


                       DOCUMENTS INCORPORATED BY REFERENCE

                  Certain exhibits to this Report are incorporated by reference
         from the Company's Registration Statement on Form S-1 (File number
         33-94644), declared effective on September 11, 1995 and from the
         Company's Annual Report on Form 10-K for the fiscal year ended August
         31, 1996.


ITEM 1.  BUSINESS

         Minn-Dak Farmers Cooperative ("Minn-Dak" or the "Company") is a North
Dakota agricultural cooperative that was formed in 1972 and has 483 members.
Membership in the Company is limited to sugar beet growers located in those
areas of North Dakota and Minnesota within an approximate fifty (50) mile radius
of the Company's offices and sugar beet processing facilities in Wahpeton, North
Dakota. The Company's facilities allow the members to process their sugar beets
into sugar and other products. The products are pooled and then marketed through
the services of a marketing agent under contract with the Company. The sugar
marketing agent, United Sugars Corporation, is a cooperative association owned
by its members, the Company, American Crystal Sugar Company, and Southern
Minnesota Beet Sugar Cooperative. The Company's beet molasses and beet pulp are
also marketed through a marketing agent, Midwest Agri-Commodities Company.
Midwest Agri-Commodities Company is a cooperative owned by its members, the
Company, American Crystal Sugar Company and Southern Minnesota Beet Sugar
Cooperative.

         Minn-Dak's corporate headquarters are located at 7525 Red River Road,
Wahpeton, North Dakota 58075 (telephone number (701) 642-8411). Its fiscal year
ends August 31.


PRODUCTS AND PRODUCTION

         Minn-Dak is engaged primarily in the production and marketing of sugar
from sugar beets. Minn-Dak also markets certain by-products of the sugar it
produces, such as beet molasses and beet pulp. The Company also owns an 80%
interest in Minn-Dak Yeast Company, Inc., which has facilities located near the
Company's sugar production location. Minn-Dak


<PAGE>


Yeast Company, Inc. produces fresh baker's yeast and provided revenues totaling
approximately 4% of the Company's gross revenues for the fiscal year ended
August 31, 1997.

         The Company processes sugar beets grown by its members at its sugar
mill located in Wahpeton, North Dakota. The period during which the Company's
plant is in operation to process sugar beets into sugar and by-products is
referred to as the "campaign." The campaign is expected to begin in September of
each year and continues until the available supply of beets has been depleted,
which generally occurs in March or April of the following year, depending on the
size of the crop. Based on current processing capacity, an average campaign
lasts approximately 210-225 days, assuming normal crop yields.

         Once the sugar beets are harvested, rapid processing is important to
maximize sugar extraction and minimize spoilage. Members transport their crop by
truck to receiving stations designated by the Company. Beets are then stored in
the Company's factory yard and at outlying piling stations until processed.
Under the Company's "growers agreement" with its members, the Company furnishes
all loading equipment at loading stations and, after delivery of the beets to
the Company, pays all freight and mileage charges for hauling the sugar beets
from the piling stations to the factory for processing.

         Minn-Dak's total sugar production is presently influenced by the amount
and quality of sugar beets grown by its members, by the processing capacity of
the Company's plant and by the ability to store harvested beets. Most of the
beet harvest is stored in piles. Although piled sugar beets that have been
frozen by the winter temperatures may be stored for extended periods; beets
stored in unprotected piles at temperatures above freezing must be processed
within approximately 160 days.

         Sugar beets deteriorate in storage due to the organic nature of their
existence. Beets harvested prior to obtaining a root temperature of fifty
degrees or less must be processed within seven days or sugar loss will occur and
they will deteriorate. The plant start up in the fall is timed to the
anticipated end processing in the spring. The plan of the Company is, after
completion of the expenditures for plant expansion described herein (see
MINN-DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION PLAN, in part I Item 1 of
this section), to finish processing unprotected beets prior to March 10,
ventilated beets prior to March 31, and storage shed beets as soon thereafter as
is possible.

         Unprotected beets are "split" by processing the center of the piles
first. This method allows the processing of the center beets, which do not
freeze and therefore deteriorate more rapidly, at the earliest possible date.

         Ventilated beets have culverts with air holes running every eleven feet
into the pile. Prior to freezing of the beets, air is blown into the piles to
bring the pile temperature to an average temperature of approximately
thirty-five degrees. When a week or more of sub zero temperatures are forecast,
the fans are turned on when the temperature


<PAGE>


reaches zero degrees and continues to ventilate until the pile temperature
reaches zero to five degrees.

         After completing expenditures on storage sheds as part of an expansion
(see MINN DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION PLAN, in Part 1 Item
1 of this section), storage shed beets will be handled in the same manner as the
ventilated beets. The difference between the processes is the building itself,
which insulates the beets from sun, wind, and warmer spring temperatures. With
the buildings, storage of the beets can run as late as mid to late May of each
year.

         In addition, unprotected and ventilated beets will, in long campaigns,
have extra steps taken to extend their life. Beets are sprayed with lime to
create a reflectant and reduce the harmful impact from the sun's rays in the
spring. Straw is also applied to the sides of some later processed piles to
further insulate the beets from sun, wind, and temperature.

         Once the sugar beets arrive in the factory, the basic steps in
producing sugar from them include: washing; slicing into thin strips called
"cossettes"; extracting the sugar from the cossettes in a diffuser; purifying
the resulting "raw juice" and boiling it, first in an evaporator to thicken it
and then in vacuum pans to crystallize the sugar; separating the sugar crystals
in a centrifuge; drying the sugar; and storing sugar in bulk form for bulk and
bag shipping.

         The Company's sugar beet by-products include beet molasses and beet
pulp. After the extraction of raw juice from the cossettes, the remaining pulp
is dried and processed into and sold as animal feeds. The beet molasses is the
sugar juice left after all economical means have been taken to extract the sugar
from the sugar juice. The beet molasses is sold primarily to yeast and
pharmaceutical manufacturers and for use in animal feeds. The beet molasses and
beet pulp are marketed through Midwest Agri-Commodities Company.


RECENT CROPS

         The Company's members harvested 1,721,240 tons of sugar beets from
91,374 acres for the 1997 crop. The crop yield of 18.84 tons per acre for the
1997 crop was slightly above average versus the Company's five year average tons
per acre. Sugar content of the 1997 crop at harvest was 17.94%, as compared to
an average of 17.67% for the five most recent years. The Company's projected
production is 4.65 million hundredweight's of sugar from the 1997 crop sugar
beets, well above the five year average of 3.8 million hundredweight. (A
"hundredweight" is equal to one hundred pounds and is hereinafter abbreviated as
cwt.) This forward-looking material is based on the Company's expectations
regarding the processing of the 1997 sugar beet crop; the actual production
results obtained by processing those sugar beets could differ materially from
the Company's current estimate as a result of factors such as changes in
production efficiencies and storage conditions for the Company's sugar beets.


<PAGE>


         For a discussion of the 1996, 1995 and 1994 crops and results of
operations for fiscal years 1997, 1996 and 1995, see "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."


MARKET AND COMPETITION

         According to United States government estimates, the United States
market for sugar during the year beginning on October 1, 1996 and ending on
September 30, 1997 will total approximately 183 million cwt. of sugar. That
estimate for 1997 suggests the continuation of a trend of growth in the market
in recent years at a compounded rate of approximately 2% per year. For example,
from a market of approximately 165 million cwt. in 1992, the total domestic
market grew to a total of approximately 183 million cwt. in 1997. Latest
government estimates indicate a projected domestic market for sugar of 185
million cwt in 1998, a 1.4% increase from 1997. Historical information indicates
that the domestic market growth from year to year has, at times, been above and
below the average growth rate of 2%. The Company continues to believe that
domestic market growth will average approximately the 2% long-term growth rate
trend because nothing in the marketplace dynamics currently would indicate a
change in domestic market usage long-term. Given the size of the domestic
market, the Company's sugar production and sales represented slightly more than
2.0% of the total domestic market for refined sugar in fiscal 1997.

         The growth in the market for refined sugar in the late 1980's and into
the 1990's is a reversal of trends in the 1970's and early 1980's, which
resulted in a reduced market for refined sugar. During the 1970's and early
1980's, high fructose corn syrup was increasingly used as a replacement for
refined sugar in certain food products. (The prime example of this trend was the
use of high fructose corn syrup in beverages such as soft drinks.) In addition,
non-nutritive sweeteners such as aspartame were developed for use in food
products.

         While high fructose corn syrup and non-nutritive sweeteners constitute
a large portion of the overall sweetener market, the Company believes that the
market for sugar will continue to grow at a rate similar to recent trends
because of increased use of refined sugar and population growth.

         The Company's main competitors in the domestic market are beet sugar
processors including Holly Sugar Corporation (a division of Imperial Holly
Corporation), Western Sugar Company (a subsidiary of Tate & Lyle, Inc.), The
Amalgamated Sugar Company, Michigan Sugar Company (wholly-owned by Savannah
Foods and Industries, Inc.) and Monitor Sugar Company, Inc. The Company's
products also compete with cane sugar refined by Savannah Foods and Industries,
Inc., California and Hawaiian Sugar Company, Imperial Holly Corporation and
Domino Sugar (a subsidiary of Tate & Lyle, Inc.). Because sugar is a fungible
commodity, competition for sales volume is based primarily upon price, customer
service and reliability.


<PAGE>


         According to United States Department of Agriculture (USDA) statistics,
the Red River Valley is generally one of the most cost efficient sugar beet
producing areas in the nation. As a result, the Company's management believes
that it possesses the ability to compete successfully with other American
producers of sugar. In spite of this competitive advantage, substitute sweetener
products and sugar imports could have an adverse effect on the Company's
operations in the future.


GOVERNMENT PROGRAMS AND REGULATION

         Domestic sugar prices are supported under a program administered by the
USDA. The program is called the Federal Agriculture Improvement and Reform Act
of 1996 (the "FAIR Act"). The USDA maintains sugar prices without cost to the
U.S. Treasury by regulating the quantity of sugar imports. The FAIR Act
maintains the basic 18 cent per pound loan rate for raw sugar and puts in place
a 22.90 cent per pound loan rate for refined beet sugar. Both loan rates are
effective for crop years 1996 through 2002. Price support loans are made on a
non-recourse basis provided that United States sugar imports for domestic usage
exceed 1.5 million short tons raw value in a given fiscal (October through
September) year. Loans made on a non-recourse basis enable the sugar processor
to forfeit sugar to Commodity Credit Corporation ("CCC") if sugar prices are
below the loan rate.

         If imports during a given year fall below the 1.5 million short tons
raw value, loans must be made on a recourse basis, meaning that processors will
not be able to forfeit sugar to CCC at its full loan value. In order to recover
the full value of a recourse loan, the CCC could require that cash or other
assets be provided in addition to the sugar used as collateral when the loan is
made.

         Another new provision of the FAIR Act is a one cent per pound penalty
paid by processors if the processor defaults on sugar price support loans. Such
support prices for sugar are in effect as long as the "Tariff Rate Quota" for
imports of sugar is 1.5 million short tons, raw value or more.

         Under the tariff rate quota implemented October 1, 1990, certain sugar
producing countries are assigned a fixed quantity of imports duty-free or
subject to minimal duties. Unlimited additional quantities may be imported upon
payment of a tariff of 16 cents per pound prior to shipment (to date, very
little sugar has been imported under this higher tariff level). (Note: the
tariff schedule was established at 17 cents on July 1, 1995, 16 cents July 1,
1996 and will reduce by .31 cents each year for years 1997 through 2001, until
it reaches 14.45 cents per pound of sugar). Further, imports of sugar under the
tariff rate quota are based upon the difference between domestic sugar
consumption and domestic sugar production, with one exception. Under the terms
of the General Agreement on Tariffs and Trade (GATT) the minimum imports of
sugar are established at 1,257,000 short tons, raw value. Therefore, even if the
difference between domestic sugar consumption and production are less


<PAGE>


than 1,257,000 short tons, raw value, GATT will require that 1,257,000 short
tons be imported into the United States from the quota holding foreign
countries.

         The current sugar program will expire after the 2002 crop and the
nature and scope of future legislation and United States trade policy affecting
the sugar market cannot be accurately predicted and there can be no assurance
that price supports will continue in their present form beyond the 2002 crop
year, or that there will even be enacted a sugar program beyond the existing
program. As a result of uncertainty regarding the impact of the absence of price
supports if no sugar program existed, the Company cannot accurately predict if
any changes in legislation or trade policy would have an impact on the Company
and its members, if that impact would be adverse, or the magnitude of such
impact.

         Revenue Canada (the Canadian Department of Revenue) initiated an
investigation in March 1995 regarding the trade "dumping" of sugar by foreign
exporters of sugar to Canada. This investigation included inquiries of United
Sugars Corporation and the Company and involved an examination of potential
"unfair" foreign subsidies and the injury that they may have caused to the
Canadian sugar industry. After a lengthy investigation the Department made a
determination that "dumping" did occur by foreign exporters. In November 1995
the Canadian International Trade Tribunal found that there was no injury to the
Canadian sugar industry caused by U.S.-based exporters. But they did determine
that "future" damages could result to members of the Canadian sugar industry,
and that remedial action was appropriate. The outcome of the action was the
imposition of duties on imports of foreign sugar into Canada. Such an outcome
ended the Company's ability to market sugar into Canada. During fiscal year 1997
& 1996, the Company, through United Sugars Corporation, exported no sugar into
Canada, compared to a total of approximately 108,000 cwt. (the Company's share)
of sugar in fiscal year 1995. That 108,000 cwt. quantity of sugar represented
approximately 2.5% of the total 1994 crop sugar produced by the Company. The
Company does not expect to sell sugar into Canada again in the foreseeable
future.


MARKETING, CUSTOMERS AND PRICES

         Until December 31, 1993 the Company marketed most of its sugar through
the efforts of North Central Sugar Marketing, a sugar marketing cooperative
jointly owned by the Company and Southern Minnesota Beet Sugar Cooperative.
Since January 1, 1994 United Sugars Corporation, a cooperative owned by the
Company, Southern Minnesota Beet Sugar Cooperative and American Crystal Sugar
Company to market sugar produced by the three cooperatives, have marketed the
Company's sugar.

         United Sugars Corporation was formed in late 1993, at which time the
Company contributed certain assets for the capitalization of it. That
contributed capital, along with an obligation to further contribute capital over
time, provided the Company with an initial ownership interest in United Sugars
Corporation of 13.5%. At August 31, 1997 the Company had an ownership interest
in United Sugars Corporation (initial


<PAGE>


contributed capital plus additional fixed assets) totaling $1,042,000, which
represented 12.8% of the total.

         Upon completion of the incorporation and capitalization of United
Sugars Corporation, the Company entered into a "Uniform Member Marketing
Agreement" with United Sugars Corporation. Under that agreement, the sugar
produced by the Company is pooled with sugar produced by American Crystal Sugar
Company and Southern Minnesota Beet Sugar Cooperative and is then sold through
the efforts of United Sugars Corporation. The Company receives payment for its
sugar by receiving its pro rata share of the net proceeds from the sale of the
pooled sugar. The net proceeds of such sales represent the gross proceeds of the
sale of the sugar, adjusted for the various costs and expenses of marketing the
pooled sugar, including the Company's pro rata share of the marketing and sales
expenses incurred by United Sugars Corporation. Any net proceeds from the
operation of United Sugars Corporation are distributed to the various members on
a patronage basis.

         United Sugars Corporation sells industrial bulk sugar, industrial
bagged sugar, retail bagged sugar, and specialty sugars. The Company's sugar is
marketed by United Sugars Corporation primarily to industrial users such as
confectioners, breakfast cereal manufacturers and bakeries. The customer base of
United Sugars Corporation includes most of the large industrial sugar users. The
customer base also includes retail grocery and wholesalers. The Company has no
single customer, which accounts for more than ten percent (10%) of its
consolidated revenues. For the fiscal year ended August 31, 1997, 94% of the
Company's sugar was shipped in bulk form, mostly to industrial users, and 6% in
bagged powdered sugar. Fiscal year 1996 was the first year that the Company has
shipped other than bulk sugar for United Sugars Corporation, and represents a
consolidated effort by the members of United Sugars Corporation to create the
most efficient method for the production of the different sugar products needed.

         The prices at which United Sugars Corporation sells the Company's sugar
fluctuate periodically based on changes in domestic sugar supply and demand. The
largest portion of the Company's sales are contracted one or more quarters in
advance, with the effect of stabilizing fluctuations in revenue from quarter to
quarter. Retail (grocery) products are sold on a spot basis. Current sugar
prices are less than last fiscal year because (1) the domestic market was
oversupplied with foreign sugar (through USDA's incorrect estimate of domestic
production and consumption) and (2) this year's domestic crop is estimated to be
7% higher than last year's, thus creating even more supply.

         On September 15, 1997 United Sugars Corporation entered into a
Transaction Agreement with United States Sugar Corporation ("USSC"), a grower of
sugar cane and other agricultural products, providing for the admission of USSC
as a member of United Sugars Corporation. At the date of this Report, all
documents necessary for closing on the Transaction Agreement have been delivered
into escrow, and a final closing is expected to occur on December 1, 1997. At
such time as USSC formally becomes a member of United Sugars Corporation, United
Sugars Corporation


<PAGE>


and USSC will enter into a Uniform Cane Sugar Marketing Agreement, which will
provide that USSC will market all of its refined sugar through United Sugars
Corporation. At such time, existing members of United Sugars Corporation,
including the Company, will be required to enter into amended marketing
agreements reflecting the admission of USSC. With the admission of USSC, United
Sugars Corporation will be able to distribute both cane sugar and beet sugar,
and distribute sugar to customers over a larger geographical area.

         A recently executed licensing agreement with Pillsbury Company will
allow United Sugars Corporation to sell sugar nationwide under the "Pillsbury"
name. United Sugars Corporation has indicated that it believes that the
opportunity to distribute sugar nationwide under the Pillsbury name will allow
the expansion of its presence in the consumer portion of the sugar market, with
the goal of expanding the portion of its members' sugar sold in that higher
margin segment of the sugar market. During fiscal year 1997, United Sugars
Corporation initiated the sales plan for Pillsbury brand sugar to select
geographical locations.

         The Company markets dried beet pulp and beet molasses through Midwest
Agri-Commodities Company, a cooperative whose members are the Company, American
Crystal Sugar Company and Southern Minnesota Beet Sugar Cooperative. Beet pulp
is marketed to livestock feed mixers and livestock feeders in the United States
and foreign markets. For the year ended August 31, 1997, approximately 43% of
the Company's pulp production was exported to Japan, approximately 30% was
exported to Europe and the remaining 27% was sold domestically. The market for
beet pulp is affected by the availability and quality of competitive feedstuffs.
Beet molasses is marketed primarily to yeast manufacturers, pharmaceutical
houses, livestock feed mixers and livestock feeders. By-product sales accounted
for approximately 10% of the Company's total consolidated net sales revenues
during fiscal 1997. This relationship is primarily a function of the average
market prices for sugar, beet pulp, beet molasses and fresh yeast and is not
necessarily indicative of future relationships between by-product, fresh yeast
and sugar revenues, because prices of these products fluctuate independently of
each other.

         The Company is an eighty percent equity owner of Minn-Dak Yeast
Company, Inc. Minn-Dak Yeast Company, Inc. manufactures fresh baker's yeast in a
plant located adjacent to the Company's sugar plant in Wahpeton, North Dakota.
The Company started the yeast business in 1989 in order to add value to its
by-product beet molasses. Beet molasses is the main ingredient (growth medium)
in the fermentation process used to grow baker's yeast to commercial volumes. A
portion of the Company's beet molasses production is used in the Minn-Dak Yeast
Company, Inc.'s process and is sold through a supply agreement between the two
companies. Universal Foods Corporation, Milwaukee, Wisconsin, hold the remaining
twenty percent equity stake. Minn-Dak Yeast Company, Inc. also has a long-term
marketing agreement whereby Universal Foods Corporation will buy production of
baker's yeast produced by Minn-Dak Yeast Company, Inc. in return for certain
guaranteed sales volumes.


<PAGE>


MINN-DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION PLANS

         The strategic plan of the Company calls for an expansion of its
processing capacity as well as its length of operating season. This strategic
plan was undertaken in order to increase its chances of continuing to be a
long-term viable, profitable business for its shareholders. Expansion of the
processing capabilities of the plant will bring about certain economies of
scale. The Company currently believes that the expansion program will provide
the Company with certain processing efficiencies and resulting financial
benefits. However, the Company cannot say with certainty that the Company's
financial performance following the expansion will exceed the Company's
historical performance. The Company's beliefs with regard to the benefits of the
expansion plan are based on the Company's expectations regarding the increased
processing efficiencies which the Company hopes to obtain; the actual production
results, processing efficiencies and resulting financial performance obtained as
a result of the expansion program may differ materially from the Company's
current estimates as a result of factors such as changes in the costs of
production, differences in the price obtained upon sales of the Company's
products, changes in the regulatory and market environment in which the Company
operates and a variety of other factors beyond the Company's control.

         The Company's original plans were to expend approximately $87 million
over a three year period beginning with the fiscal year ended August 31, 1996
for improvements and additions to its facilities. Estimated capital expenditures
for factory improvements were $32 million, beet receiving and beet storage
capital expenditures were $40 million and environmental improvement capital
expenditures were $15 million. At August 31, 1997, two years after the start of
the Company's strategic expansion plan, $56 million of capital has been expended
toward the completion of the expanded facilities.

         $37.4 million will be raised through the sale of the Units subscribed
and sold via the Company's 1995 stock offering. The funds generated from the
stock offering have been and will continue to be used to assist in paying for
the costs associated with expansion. The units of stock sold by the Company will
be paid for by shareholder subscribers over a three year period beginning in
January 1996. The stock offering provides for payment of 32 percent of the value
of the stock purchased, or $12.1 million in January 1996; 43 percent, or $15.6
million in January 1997; and the balance of 26 percent, or $9.7 million in
January 1998. The Company has received all of the 1996 and 1997 annual
installments from its shareholder subscribers.

         Those costs not covered through the stock offering will be primarily
funded through a long term debt agreement with the St. Paul Bank for
Cooperatives (a cooperative lending institution who is the Company's traditional
long term debt lender) who is providing the construction financing and is the
principal lender.

         In addition to the funding provided by the St. Paul Bank for
Cooperatives, in fiscal year 1996 the Company was able to secure


<PAGE>


additional funding for the expansion project through a lease from Richland
County. Funding was through low interest, fifteen year tax exempt solid waste
disposal bonds in the amount of $12.0 million. The bonds were structured with
zero principle amortization for the first three years and $1.0 million per year
of principle amortization for the next 12 years. These bonds were required to be
secured by a Letter of Credit from a non-government agency bank (Norwest Bank
North Dakota) who in turn was secured by a Letter of Credit from the St. Paul
Bank for Cooperatives, the Company's primary lender. Solid waste disposal bonds
are available under certain conditions where a by-product of manufacturing must
be further manufactured or refined to produce a salable product and/or reduce
the amount of solid waste produced by a manufacturing plant. In the Company's
primary case, the funds were used to fund further manufacturing of a by-product
to produce a salable product.

         The long-term debt created by this expansion will be repaid with funds
generated through depreciation, income tax savings, and reduced costs per cwt of
production. (Depreciation expense is a non-cash expense that under the Company's
accounting procedures reduces the amounts available for payments to the
Company's members. The resources represented by such non-cash expenses are
available as a source of working capital for the Company, which may be used for
payment of long-term debt.)

         As of August 31, 1997 $56 million of the projected $87 million had been
spent to expand the Company's facilities. Major capital jobs that have been
completed include, for the agricultural side of the business, three beet storage
buildings and two beet pilers for the factory yards location; expansion of three
additional remote beet piling sites including additional beet pilers; new
roadways and weigh scales for the factory yards location; and a new beet quality
and tare analysis lab. Major capital jobs that have been completed for the
factory side of the business include a new beet slicer station, new beet
cossette mixer, new continuous high raw pan, additional pulp presses, new beet
wash house system, new diffusion tower, new heaters, new pulp dryer
environmental control system, additional thick juice storage tanks, new standard
liquor filters, new finished product storage tanks for beet molasses and beet
pulp, new evaporators, new granulator, additional waste water treatment systems
and a new water storage pond.

         For fiscal year 1998, the final year of the three year plan to expand
the facilities, additional capital jobs to be completed are located in the
factory and include a new mud filter system, a new sugar juice pre-treatment
system, changes to the sugar juice carbonation station, modification of
granulated sugar pans and the purchase of a number of large juice pumps and pump
drives. While actual individual capital expenditures within the plan can and
have cost more or less than the budgeted individual components of the original
plan, that is not unusual for a large undertaking of this magnitude. The
expansion plan as of August 31, 1997 was on schedule, still within budget and
processing capacity goals are being achieved.


<PAGE>


JOINT VENTURE WITH PROGOLD LIMITED LIABILITY COMPANY

         Minn-Dak is a five percent (5%) equity owner in ProGold Limited
Liability Company ("ProGold"). ProGold was formed in 1994 by three entities for
the purpose of building a plant to produce from corn and market high fructose
corn syrup; and to produce and market corn gluten feed, corn gluten meal and
corn germ, all co-products produced by the plant. The other two equity owners
are American Crystal Sugar Company, Moorhead, Minnesota (46% ownership share)
and Golden Growers Cooperative, Fargo, North Dakota (49% ownership share).
American Crystal Sugar Company is a cooperative that produces sugar from sugar
beets and has approximately 2,300 stockholder-growers that grow sugar beets on
approximately 460,000 acres of land. Golden Growers Cooperative is a cooperative
of corn growers that was formed in 1994 by approximately 2,000
shareholder-farmers (located in the three state area of North and South Dakota
and Minnesota). The Company has contributed approximately $5.2 million in
exchange for its 5% ownership position, American Crystal Sugar Company has
contributed approximately $48.0 million for its 46% ownership share and Golden
Growers Cooperative $51.0 million for its 49% ownership share.

         ProGold's plant became fully operational in late 1996 and has obtained
certification to ship finished product from its significant customers. The
products produced through operation of the corn wet-milling facility are being
sold through the efforts of United Sugars Corporation and Midwest
Agri-Commodities Company.

         Because of unexpected market conditions, ProGold the business, as it
was structured as of August 31, 1997, is expected to suffer significant losses
for several years. To the extent that ProGold's operations would not result in a
profit, the Company would receive distributions from ProGold in an amount less
than the Company's cost to acquire corn delivered to ProGold for processing (the
Company, as part owner of ProGold, has a contractual obligation to deliver its
proportionate share of corn to ProGold's plant). To the extent that the
Company's reserves and working capital would not be able to satisfy the
Company's proportionate share of ProGold's expected losses, the Company would be
required to withhold appropriate amounts from member beet payments or borrow
long-term debt.

         However, because of the continued expectation of significant losses for
several years for ProGold, on September 30, 1997 ProGold entered into a letter
of intent with Cargill, Inc. ("Cargill") for Cargill to lease ProGold's corn
wet-milling plant. On November 1, 1997 ProGold signed a 10 year lease agreement
with Cargill, which expires on October 31, 2007, to lease ProGold's corn
wet-milling plant. Under the lease arrangement, the Company and the other
ProGold members would retain ownership of the plant, while Cargill will operate
the plant and sell the finished products. ProGold will receive rental payments
in a base amount fixed for each year during the term of the lease. ProGold would
also receive supplemental rent equal to fifty percent (50%) of the amount by
which earnings before taxes from operations of the facility exceeds a specified


<PAGE>


base. Cargill will also enter into a corn supply agreement with ProGold,
pursuant to which ProGold will be obligated to deliver approximately 15 million
bushels of corn per fiscal year. The Company's obligation to deliver corn to
ProGold will be terminated as part of the transactions. Cargill will pay ProGold
a market price for any corn delivered to Cargill under the corn supply
agreement.

         The arrangement between ProGold and Cargill also specifies a variety of
alternatives that may take effect upon expiration of the initial lease. These
alternatives include agreeing to enter into another long term lease upon
mutually agreeable terms and conditions, or ProGold could offer to sell to
Cargill, at fair market value, a fifty percent (50%) or one hundred percent 100%
ownership interest in ProGold.

         As the terms of the lease with Cargill are to provide ProGold, as an
entity, with (i) rental payments of a fixed amount, with the opportunity to
receive supplemental rental payments in the event that the ProGold facility is
operated profitably and (ii) payment for corn delivered by ProGold for
processing at the facility at market prices, the lease arrangement is expected
to provide protection from the exposure of risks of participation in the corn
sweetener market, including the risk of future, material financial losses by
ProGold and the necessity of additional capital investment from the Company to
cover such future losses.


GROWERS' AGREEMENTS

         The Company purchases virtually all of its sugar beets from members
under contract with the Company. All members have three-year contracts with the
Company covering the growing seasons of 1997 through 1999 (the "Growers'
Agreements"). At the end of each year, the Growers Agreement automatically
extends for an additional year, so that such agreements always have a remaining
term of three years, unless notice of termination has been given by the Company
prior to the automatic renewal. In that situation, the agreement will not renew,
but will continue in effect for the two year period then remaining under the
agreement. Each Unit of Preferred Stock currently entitles a member to grow 1.35
acres of sugar beets for sale to the Company. The Company's Board of Directors
has the discretion to adjust the acreage, which may be planted for each Unit of
Preferred Stock held by the members. For the 1997 crop year the Company's Board
of Directors authorized members to plant 1.35 acres per unit.

         Under the terms of the Growers Agreement, each member receives payment
for his or her sugar beets based on a price per pound of extractable sugar. The
price per pound of extractable sugar is determined by dividing the total grower
distribution of net proceeds (less the amount credited to members investment
from member patronage and credited to retained earnings from non-member
patronage) by the total of members' pounds of extractable sugar. Extractable
pounds of sugar are obtained by the processing of beet samples taken from
members' sugar beets during harvest. Each member's grower payment is obtained by
multiplying that 


<PAGE>


member's total pounds of extractable sugar times the price per pound of
extractable sugar as determined above.

         Under the Growers Agreement, each member receives an initial
installment of the payment for his or her sugar beets on or about November 15,
soon after delivery of his or her crop to the Company. That initial installment
is subject to adjustment by the Cooperative's Board of Directors and management,
but will not exceed 65% of the estimated price per pound of extractable sugar. A
second installment is paid in early February; that installment, in combination
with the first installment, will not exceed 70% of the estimated price per pound
of extractable sugar. A third installment is paid in early April, with the
aggregate of all installments paid to that date not to exceed 80% of the
estimated price per pound of extractable sugar. A fourth installment payment is
paid in early July, with the total of installment payments to that date not to
exceed 95% of the estimated price per pound of extractable sugar. The final
payment is determined after the end of the Company's fiscal year, ending on
August 31, and is in an amount necessary to bring the total of all payments to
the price to be paid per pound of extractable sugar to all growers during the
applicable fiscal year. In addition, the Company's annual patronage net income,
which is equal to the Company's sales less all expenditures and member beet
payments, is distributed to the members on the basis of the pounds of
extractable sugar obtained from each of the members' sugar beets; such amounts
are distributed in either cash payments or in the form of patronage credits to
the member's patronage credit account on the books of the Company.


COMPANY DISTRICTS

         The Company's by-laws provide that the Company's members are to be
divided into districts for the purposes of voting and the election of members of
the Board of Directors. Those districts do not have specific geographic
boundaries but, instead, contain a loosely defined area representing the area
served by a particular piling station to which members deliver their sugar beets
for storage until the sugar beets are to be processed. When a member joins the
Company, he or she is assigned to a particular district based upon criteria
including (i) the physical location of the shareholder's sugar beet growing
acres relative to a piling site and (ii) if the previous criteria do not clearly
indicate the district to which the shareholder should be assigned, the physical
location of the shareholder's base of farming operations relative to a piling
site. (Some members deliver sugar beets to more than one piling site due to the
locations of their various fields, even though they are assigned to membership
in only one district.)

         Given that shareholders are assigned to districts based upon ease of
delivery of harvested sugar beets and because shareholders own different numbers
of Units of Preferred Stock, each district includes a different number of acres
of sugar beet production and, therefore, a different quantity of sugar beets
delivered to the Company. However, none of the districts provides the Company
with a materially disproportionate quantity of the sugar beets produced by the
Company's members. While the 


<PAGE>


allocation of members to the various districts has a significant impact on the
election of directors, the Company does not believe that the districts represent
a significant factor in the day-to-day business operations of the Company.


RESEARCH AND DEVELOPMENT

         The Company is not involved in its own research and development
activities, but does participate in some sugar industry research and development
activities. Any research findings are then shared by the entire sugar industry.
Participatory research and development is accomplished through such
organizations as Beet Sugar Development Foundation, Sugar Association, and North
Dakota/Minnesota Research and Education Board. The Company participates in the
organizations listed above through the efforts of its representatives to the
boards of directors of those entities. The Company's representatives, either a
member of the Company's Board of Directors or a management employee of the
Company, allow the Company to participate in and help direct agricultural and
factory operations research and development activities carried out by the listed
organizations. Those organizations also have established various committees on
which the Company has placed certain of its employees. That practice is designed
to provide the company with direct access to any research and development
information available from the applicable committees. (Through its employees,
the Beet Sugar Development Foundation also provides some legislative and
lobbying efforts on a national level. Those efforts are directed at maintaining
funding for the various federal sugarbeet research facilities.) None of the
Company's employees or directors devotes a significant portion of their time and
energies to the activities described in this section; instead, such efforts are
a minor portion of their continuing duties on behalf of the Company.

         During the fiscal year ended on August 31, 1997, the Company
contributed approximately $53,000 to the North Dakota/Minnesota Research and
Education Board to fund that entity's research and development activities.
$11,000 was given to the Beet Sugar Development Foundation in connection with
their research activities, and $40,000 to the Sugar Association for their
research activities and membership dues.

         The Company also has established a sugar beet seed committee, which
reviews the performance of new and existing sugar beet seed varieties. The
committee then advises the Board of Directors with regard to those sugar beet
seed varieties that should be approved for use by the Company's shareholders.


ENVIRONMENTAL MATTERS

         The Company is subject to many federal, state and local regulations
that govern air and water emissions, and solid and hazardous waste storage and
disposal. Currently, the Company is


<PAGE>


meeting all its obligations in water, solid waste and hazardous waste. On March
31, 1997 the Company received a NOTICE OF VIOLATION (NOV) Administrative No.
97-677 APC N.D.C.C 23-25 from William J. Delmore, Assistant Attorney General for
the State of North Dakota. The NOV outlined permit violations from three
emission sources: the pulp dryer, the main boilers and the sugar dryer-cooler.
To resolve the violations, the North Dakota Department of Health and the Company
entered into a consent agreement in which the Company agreed to pay a $125,000
civil penalty for the violations. However, the agreement also specified that if
the Company took certain actions before specified dates up to $125,000 of the
penalty would be dismissed.

         There are six separate actions outlined in the consent agreement that
the Company must undertake in order to resolve the violations outlined in the
NOV. As of this writing, the Company has met its obligation in four of the
actions, which should result in a reduction in the civil penalty of $85,000.

         Because the Company is not in compliance with the consent agreement
with respect to its dryer emissions, it will have to pay the civil penalty
specified in the consent agreement with the State of North Dakota, plus it faces
the possibility of further penalties of up to $25,000 per day for every day the
dryer is operated out of compliance. The Company will conduct tests and study
the pulp-dryer equipment to determine what changes are necessary to operate
within compliance of the permit. The present strategy for dryer operations is to
operate the pulp dryer at a reduced total throughput until further testing. If
the recently installed diffusion and pulp-pressing equipment performs up to
design specifications, the pulp presses will remove additional water from the
pulp. This, in turn, will result in fewer tons of water to the pulp dryer so the
Company will be able to operate it at a reduced rate, but still dry all of the
pulp. If the equipment does not perform up to specifications, the Company will
have to sell or dispose of a portion of its pulp.

         To maintain compliance with the boiler, the Company must obtain a
supply of low-sodium coal. At this time there is insufficient data to project
the cost to the Company to make that switch. The Company may face further
noncompliance fines for burning higher-sodium coal until a low-sodium-coal
source can be located.

         The Company cannot accurately predict the extent to which future
changes in environmental laws or regulations will affect the cost of operating
its facilities and conducting its business. However, any changes could have
adverse financial consequences for the Company and its members.


EMPLOYEES

         As of August 31, 1997, the Company had 234 full-time employees, of whom
206 were hourly and 28 were salaried. It also employs approximately 295
additional hourly seasonal workers during the sugar beet harvest and


<PAGE>


processing campaign. In January 1995 the Company concluded the negotiations for
a collective bargaining agreement with the American Federation of Grain Millers
(AFL/CIO) union for its factory employee group. The written contract is in
effect from January 23, 1995 through May of the year 2000. Office, clerical,
management and harvest employees are not unionized. Full time employees are
provided with health and dental insurance, a defined benefit pension or
retirement plan, a 401(k) retirement savings plan, a short and long-term
disability plan, term life insurance, and vacation and holiday pay plans.
Seasonal workers are provided some of the above employee benefits. The Company
considers its employee relations to be excellent.


ITEM 2.  PROPERTIES

         The Company operates a single sugarbeet processing factory at Wahpeton,
North Dakota that is located in the Red River Valley. The Company owns the
factory, receiving sites, and the land on which they are located. The 1994 crop
set new records for average daily slice rate (6,967 of beets tons per day),
total tons sliced (1,535,961 tons), and sugar production (4,400,000 cwt.). With
the planned expansion (as more fully explained in Item 1 under the heading
entitled MINN-DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION PLANS, the plant
is projected to have the minimum capacity to slice 7,500 tons per day and the
$15,200,000 spent on special ventilated storage and beet storage buildings
should extend the number of days the factory is able to process beets.

Minn-Dak Yeast Company, Inc. of which Minn-Dak is an 80% owner, operates a
single yeast processing factory at Wahpeton, North Dakota which is located in
the Red River Valley. Minn-Dak Yeast Company, Inc. owns the factory and the land
on which it is located. During fiscal 1997, 23.1 million pounds of yeast were
produced.


ITEM 3.  LEGAL PROCEEDINGS

         From time to time and in the ordinary course of its business, the
Company is named as a defendant in legal proceedings related to various issues,
including worker's compensation claims, tort claims and contractual disputes.
Other than as provided herein, the Company is not currently involved in legal
proceedings which have arisen in the ordinary course of its business and the
Company is also unaware of certain other potential claims which could result in
the commencement of legal proceedings. The Company carries insurance that
provides protection against certain types of claims.

         The Company is subject to extensive federal and state environmental
laws and regulations with respect to water and air quality, solid waste disposal
and odor and noise control. The Company conducts an ongoing and expanding
control program designed to meet these environmental laws and regulations.
Except as disclosed under "ENVIRONMENTAL MATTERS" above, there currently are no
pending regulatory enforcement actions and the 


<PAGE>


Company believes that it is in substantial compliance with applicable
environmental laws and regulations.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to a vote of the Company's shareholders
during the quarter ended August 31, 1997.


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         There is only a limited, private market for shares of the Company's
Common or Preferred Stock, as such shares may be held only by farmer-producers
who are eligible for membership in the Company. The Company's shares are not
listed for trading on any exchange or quotation system. Although transfers of
the Company's shares may occur only with the consent of the Company's Board of
Directors, the Company does not verify information regarding the transfer price
in connection with such transfers. A number of stock transfers, representing
approximately 2% of available stock, were not arms length (estate settlements,
estate planning from one generation to the next, etc.) and an accurate value for
that stock was not available. Management believes less than 1% of the Company's
available stock was traded at arms length during the fiscal year ended August
31, 1997. Of the stock transferred at arms length, the transfers were made
during the first, second and third quarters of the Company's fiscal year and
range in price from $2,300 to $2,550 per unit.


ITEM 6.  SELECTED FINANCIAL DATA

         The following table summarizes selected financial data for each of the
last five completed fiscal years. The selected financial data of the Company
should be read in conjunction with the financial statements and related notes
included elsewhere in this Report.

<TABLE>
<CAPTION>
                                                                     Fiscal Year Ended August 31,(1)

FINANCIAL DATA
(Numbers in Thousands)                              1997           1996            1995           1994           1993
<S>                                                  <C>            <C>             <C>             <C>           <C>     
Revenues                                             $139,730       $114,335        $133,302        $81,422       $119,416
Net Proceeds Before Accounting Change                  74,239         56,872          75,422         33,643         70,609
Cumulative Effect of Accounting Change(1)                   0              0               0          1,350              0
Net Proceeds(2)                                        74,239         56,872          75,422         34,993         70,609
Total Assets                                          174,386        138,270          99,991         74,771         82,954
Long-term Debt, including current maturities,
Net of bond investments, 1997 & 1996                   58,252         55,809          28,269         17,096         17,911


<PAGE>


Members' Investment(3)                                 73,646         57,324          43,992         44,153         41,804
Property and Equipment Additions, net of
   Retirements                                         24,547         34,457           9,202          2,041          5,811
Working Capital                                        10,163         11,845           9,295          8,034          7,362
Ratio of Long-Term Debt to Members'
   Investment(4)                                          .76            .93             .59           0.33           0.40
Ratio of Net Proceeds to Fixed Charges(5)               14.92          16.76           26.38          22.62          45.48

PRODUCTION DATA(6)

Acres harvested                                        82,575         74,915          75,878         67,086         65,888
Tons purchased                                      1,506,646      1,458,918       1,636,094        834,545      1,350,659
Tons purchased per acre harvested                       18.25          19.47           21.56          12.44          20.50
Net beet payment paid to member per ton of
 sugar beets delivered, plus allocated
patronage and unit retains(7)                           49.97          38.34           46.41          40.17          52.00

Sugar hundredweight
         Produced                                   4,168,620      3,363,250       4,384,485      2,499,307      4,000,566
         Sold, including purchased sugar            3,794,313      3,841,443       3,988,284      3,027,614      3,351,156

Pulp tons
         Produced                                      76,307         77,352          92,139         50,536         80,884
         Sold                                          82,705         74,743          93,284         49,212         78,709

Molasses tons
         Produced                                      64,377         61,194          62,516         37,170         51,153
         Sold                                          45,182         43,882          46,768         14,821         31,956

Yeast pounds (in thousands)
         Produced                                      23,127         25,556          17,511         21,853         22,064
         Sold                                          23,193         25,495          17,436         21,853         22,064

</TABLE>

(1)  On September 1, 1993, the Company adopted Statement of Financial Accounting
     Standards Statement #109 (SFAS 109), "Accounting for Income Taxes". The
     cumulative effect of application of the new standard resulted in a benefit
     from income taxes. See Note 6 to the financial statements for a more
     detailed description of the accounting change.

(2)  Net Proceeds are the Company's gross revenues, less the costs and expenses
     of producing, purchasing and marketing sugar, sugar by-products, yeast,
     dietary fiber and resale commodities, but before payments to members for
     sugar beets. (For a more complete description of the calculation of Net
     Proceeds, see "Description of Business-Growers' Contracts".)

(3)  Members' investment includes preferred and common stock, unit retention
     capital, allocated patronage and retained earnings (deficit).

(4)  Calculated by dividing the Company's long-term debt, exclusive of the
     current maturities of such debt, by members' investments.


<PAGE>


(5)  Computed by dividing (i) the sum of Net Proceeds plus fixed charges, plus
     amortization of capitalized interest by (ii) the sum of interest expense
     and interest capitalized. The Company does lease certain items, such as
     some office equipment. Due to the proportionately small amounts involved,
     an interest factor on lease payments has not been included in the total of
     the Company's fixed charges or the calculation of this ratio.

(6)  Information for a fiscal year relates to the crop planted and harvested in
     the preceding calendar year (e.g., information for the fiscal year ended
     August 31, 1996, relates to the 1995 crop).

(7)  Reflects the total amount paid in cash and allocated to individual grower
     equity accounts for each ton of beets delivered.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS:

         The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
financial statements and notes included elsewhere in this Report. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual future results may differ materially from
those anticipated in the forward-looking statements contained in this section;
such differences could arise as a result of a variety of factors including, but
not limited to, the market and regulatory factors described elsewhere in this
Report.

LIQUIDITY AND CAPITAL RESOURCES

         Because the Company operates as a cooperative, payments for
member-delivered sugar beets, the principal raw material used in producing the
sugar and agri-products it sells, are subordinated to all member business
expenses. In addition, actual cash payments to members are spread over a period
of approximately one year following delivery of sugar beet crops to the Company
and are net of unit retains and patronage allocated to them, all three of which
remain available to meet the Company's capital requirements. This member
financing arrangement may result in an additional source of liquidity and
reduced outside financing requirements in comparison to a similar business
operated on a non-cooperative basis. However, because sugar is sold throughout
the year (while sugar beets are processed primarily between September and April)
and because substantial amounts of equipment are required for its operations,
the Company has utilized substantial outside financing on both a seasonal and
long-term basis to fund such operations. The majority of such financing has been
provided by the St. Paul Bank for Cooperatives (the "Bank"). The Company has a
short-term line of credit with the Bank in 1997 of $50,000,000.

         The various loan agreements between the Bank and the Company obligate
the Company to the following significant loan conditions; invest in Class C or
other stock of the bank, as may be designated, in such amounts as may be
prescribed by the board of directors of the bank; maintain working capital of
not less than $6.75 million; maintain a current ratio of not less than 1.2:1.0;


<PAGE>


obtain prior consent from the bank to pay cash patronage dividends in excess of
35% of qualified patronage income as required by the Internal Revenue Service to
qualify the entire patronage dividend as an income tax deduction. As of August
31, 1997, the Company was in compliance with its loan agreements.

         Working capital decreased $1.7 million for fiscal year 1997. This
decrease was the result of the difference between the 1996 excess working
capital, amount of estimated long term debt borrowing anticipated to be needed
to cover projected year end capital project demands on working capital and the
amount that was actually needed. The targeted working capital position was
approximately $7.0 million. Management's estimated working capital target for
August 31, 1998 will again approximate $7.0 million.

         Capital expenditures for fiscal year 1995 were $12.1 million, fiscal
year 1996 was $34.6 million, and fiscal year 1997 was $26.0 million. Capital
expenditures for fiscal year 1998 are currently estimated at $15.2 million,
$13.2 million resulting from the Company's strategy of expanding capacity and
improving operating efficiencies.

         The Company anticipates that the funds necessary for compliance with
the Bank's working capital requirements and future capital expenditures will be
derived from the net proceeds of a stock offering that was completed in 1996,
Company depreciation, unit retains, non-patronage income, and long-term
borrowing. Those costs not covered through the stock offering will be funded
through a long-term debt agreement, with the Bank who is the principal lender.
The long-term debt created by this expansion will be repaid with funds generated
through depreciation, income tax savings, and reduced costs per cwt of
production. (Depreciation expense is a non-cash expense that under the Company's
accounting procedures reduces the amounts available for payments to the
Company's members. The resources represented by such non-cash expenses are
available as a source of working capital for the Company, which may be used for
payment of long-term debt.) The strategic plan of the Company calls for the
economies of scale generated by the expansion project to first be applied to the
long-term debt associated with the project. The initial operational savings and
working capital considerations will be used to pay off the incremental debt for
the project. After the incremental long-term debt has been satisfied, the
Company believes that the shareholders will see the savings through operations
and other working capital considerations being reflected in higher per ton beet
payments, all other factors affecting the per ton payments being equal. As
discussed elsewhere in this report, the Company currently believes that the
expansion program will provide the Company with certain processing efficiencies
and resulting financial benefits. However, the Company cannot say with certainty
that the Company's financial performance following the expansion will exceed the
Company's historical performance. The Company's beliefs with regard to the
benefits of the expansion plan are based on the Company's expectations regarding
the increased processing efficiencies which the Company hopes to obtain; the
actual production results, processing efficiencies and resulting financial
performance obtained as a result of factors such as changes in the costs of
production, differences in the price obtained upon sales of the Company's
products, changes in the regulatory and market environment in which the Company
operates and a variety of other factors beyond the Company's control.


<PAGE>


         In fiscal 1996, the Company was able to secure a lease from Richland
County, North Dakota funded by low interest, fifteen year tax exempt solid waste
disposal bonds in the amount of $12.0 million with zero principal amortization
for the first three years and $1.0 million per year of principal amortization
for the next 12 years. These bonds were required to be secured by a Letter of
Credit from a non-government agency bank (Norwest Bank North Dakota) who in turn
was secured by a Letter of Credit from the St. Paul Bank for Cooperatives, the
Company's primary lender. Solid waste disposal bonds are available under certain
conditions where a by-product of manufacturing must be further manufactured or
refined to produce a salable product and/or reduce the amount of solid waste
produced by a manufacturing plant. In the Company's primary case, the funds were
used to fund further manufacturing of a by-product to produce a salable product.
(See Part 1, Item 1 "MINN-DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION
PLANS".)


COMPARISON OF THE YEARS ENDED AUGUST 31, 1997, AND 1996

         Revenue for the year ended August 31, 1997 increased 22% or $25.4
million from 1996. Revenue from total sugar sales increased 4.2% reflecting a
5.8% increase in the average selling price per cwt and a 1.6% decrease in cwt.
sold. Revenue from pulp sales decreased 2.8% reflecting an increase of 10.7% in
volume and 12.2% decrease in the average selling price per ton. Revenue from
molasses sales increased 4.3% reflecting a 3.0% increase in volume and an
increase of 1.3% in the average selling price per ton.

         Revenues from yeast sales decreased 7.6% reflecting a decrease in
volume of 9.0% and an increase of 1.6% in the average selling price per pound.
Finished product inventories increased $13.8 million in 1997 primarily due
higher volumes of ending sugar inventory.

         Cost of product sold, exclusive of payments for sugar beets, increased
$2.6 million. The increase is primarily due to the increased non-allocated costs
such as plant depreciation, taxes and insurance. Sales and Distribution costs
increased $1.9 million. General and Administrative expenses increased $0.4
million. Interest expense increased $1.4 million.

         Non-member business income decreased $2.0 million in fiscal year 1997.
This decrease was primarily due to the recording of losses generated from the
Company's investment in ProGold, and to decreased net income from the Minn-Dak
Yeast Company, Inc. subsidiary operations.

         Net payments to members for sugar beets increased by $17.0 million in
1997. This increase was primarily due to a higher volume and higher quality of
the beets delivered by members in 1997 versus 1996, and because of higher
selling prices for sugar.


COMPARISON OF THE YEARS ENDED AUGUST 31, 1996, AND 1995

         Revenue for the year ended August 31, 1996 decreased $18.9 million from
1995. Revenue from total sugar sales decreased 0.8% reflecting a 2.5% increase
in the average selling price per cwt and a 3.3% decrease in cwt. sold. Revenue


<PAGE>


from pulp sales decreased 10.5% reflecting a reduction of 19.9% in volume and
11.7% increase in the average selling price per ton. Revenue from molasses sales
decreased 3.9% reflecting a 6.2% decrease in volume and an increase of 2.4% in
the average selling price per pound. The decrease in volumes for sugar, pulp and
molasses was primarily due to the lower quality (sugar and purity) of the beets
delivered and quantity (tons) delivered for 1996.

         Revenues from yeast sales increased 26.2% reflecting an increase in
volume of 46.2% and a decrease of 4.8% in the average selling price per pound.
Finished product inventories decreased $7.9 million in 1996 primarily due to the
1995 fiscal year crop having domestic marketing quota's imposed on it and having
that excess quota sugar sold during the 1996 fiscal year.

         Cost of product sold, exclusive of payments for sugar beets, increased
$.6 million. Sales and Distribution costs increased $.7 million. General and
Administrative expenses decreased $.2 million. Interest expense increased $.1
million.

         Non-member business income increased $1.4 million in fiscal year 1996.
This increase was primarily due to increased net income from the Minn-Dak Yeast
Company subsidiary operations. Minn-Dak Yeast Company, Inc. had encountered
difficult operating conditions in fiscal year 1995 due to sterilization problems
that plagued plant operations for most of the year. That resulted in reduced
throughput, higher operating costs and reduced income. By fiscal year end 1995
the problem had been solved and production volumes were back to normal and unit
costs were down.
This resulted in more normal net income levels for fiscal year 1996.

         During the fiscal year ended August 31, 1995, the Company recognized a
loss on disposition of fiber assets of $.9 million. The Company had been
involved in a value-added project where dietary fiber for human consumption
under the trade name of Fibrex would be produced from its beet pulp by-product.
After building a production facility and marketing the product for a number of
years, sufficient sales volume at reasonable prices did not appear obtainable.
One of the major marketing considerations was the inability to get GRAS status
from the FDA. In fiscal year 1995 the Company elected to discontinue with its
attempts to obtain GRAS status and took the necessary steps to discontinue
operations and redirect the use of the assets.

         Net payments to members for sugar beets decreased by $20.0 million in
1996. This decrease was primarily due to the lower quality (sugar and purity) of
the beets delivered and quantity (tons) delivered for 1996.

ESTIMATED FISCAL YEAR 1998 INFORMATION

         The agreements between the Company and its members regarding the
delivery of sugar beets to the Company require payment for members' sugar beets
in several installments throughout the year. As only the final payment is made
after the close of the fiscal year in question, the first payments to members
for their sugar beets are based upon the Company's then-current estimates of the
financial results to be obtained from processing the crop in question and the
subsequent sale of the products obtained from processing those sugar beets. This
discussion contains a summary of the Company's current estimates


<PAGE>


of the financial results to be obtained from the Company's processing of the
1997 sugar beet crop. Given the nature of the estimates required in connection
with the payments to members for their sugar beets, this discussion includes
forward-looking statements regarding the quantity of sugar to be produced from
the 1997 sugar beet crop, the net selling price for the sugar and by-products
produced by the Company and the Company's operating costs. These forward-looking
statements are based largely upon the Company's expectations and estimates of
future events; as a result, they are subject to a variety of risks and
uncertainties. Some of those estimates, such as the selling price for the
Company's products and the quantity of sugar produced from the sugar beet crop,
are beyond the Company's control. The actual results experienced by the Company
could differ materially from the forward-looking statements contained herein.

         The recently completed harvest of the sugar beet crop grown during 1997
produced a total of 1,721,240 tons of sugar beets. The sugar content on the 1997
crop is 17.94%. The Company expects to produce a total of approximately
4,651,500 hundredweight of sugar from the 1997 sugar beet crop.

         Based on marketing information developed by United Sugars Corporation,
the Company's current estimate is that the average net selling price of the
Company's sugar will be approximately $23.50 per hundredweight.

         From the revenues generated from the sale of products produced from
each ton of sugar beets must be deducted the Company's operating and fixed
costs, which are currently estimated to be $26.61 per ton. The deduction of
those operating costs results in an estimated gross beet payment of $41.68 per
ton of sugar beets.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEPENDENT AUDITOR'S REPORT


The Board of Directors
Minn-Dak Farmers Cooperative
Wahpeton, North Dakota


We have audited the accompanying consolidated balance sheets of Minn-Dak Farmers
Cooperative (a North Dakota cooperative) as of August 31, 1997, 1996, and 1995,
and the related consolidated statements of operations, changes in members'
investments and cash flows for the years then ended. These financial statements
are the responsibility of the cooperative's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and 


<PAGE>


disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Minn-Dak Farmers
Cooperative as of August 31, 1997, 1996, and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.


<PAGE>


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1997, 1996, AND 1995


<TABLE>
<CAPTION>
                                                                        1997           1996           1995
                                                                    ------------   ------------   ------------
<S>                                                                 <C>            <C>            <C>         
ASSETS

CURRENT ASSETS:
        Cash                                                        $  1,234,541   $    853,102   $    287,007
                                                                    ------------   ------------   ------------

        Current portion of long-term note receivable                     216,475
                                                                    ------------

        Receivables:
                Trade accounts                                        12,648,938     10,293,751     11,164,406
                Growers                                                2,818,976      2,840,447      2,250,380
                Income tax receivable                                    244,614
                                                                    ------------   ------------   ------------
                                                                      15,712,528     13,134,198     13,414,786
                                                                    ------------   ------------   ------------

        Advances to affiliate                                          1,909,616        780,442        731,196
                                                                    ------------   ------------   ------------

        Inventories:
                Refined sugar, pulp and molasses to be sold
                   on a pooled basis                                  21,576,181      7,748,715     15,660,336
                Nonmember refined sugar                                  112,301        468,322        109,613
                Yeast                                                     88,711        108,704         91,297
                Materials and supplies                                 4,698,784      4,026,951      4,108,359
                Other                                                     81,630         97,626        108,014
                                                                    ------------   ------------   ------------
                                                                      26,557,607     12,450,318     20,077,619
                                                                    ------------   ------------   ------------

        Deferred charges                                               1,249,154      1,119,274        939,868
                                                                    ------------   ------------   ------------

        Prepaid expenses                                               2,402,424      1,789,078      2,220,282
                                                                    ------------   ------------   ------------

        Property and equipment available for sale                        616,050        789,350        819,150
                                                                    ------------   ------------   ------------

                       Total current assets                           49,898,395     30,915,762     38,489,908
                                                                    ------------   ------------   ------------

PROPERTY, PLANT AND EQUIPMENT:
        Land and land improvements                                    16,545,767     11,956,354     10,167,650
        Buildings                                                     30,258,910     22,254,129     19,244,883
        Factory equipment                                             82,001,703     72,462,793     59,457,833
        Other equipment                                                2,810,128      2,200,809      1,851,931
        Construction in progress                                      24,156,551     22,352,000      6,047,195
                                                                    ------------   ------------   ------------
                                                                     155,773,059    131,226,085     96,769,492
                Less accumulated depreciation                         51,523,574     48,551,028     45,686,542
                                                                    ------------   ------------   ------------
                                                                     104,249,485     82,675,057     51,082,950
                                                                    ------------   ------------   ------------

LONG-TERM NOTES RECEIVABLE, NET OF
   CURRENT PORTION                                                     2,381,228
                                                                    ------------

OTHER ASSETS:
        Investments restricted for capital lease projects              4,058,048      7,514,242
        Investment in stock of other corporations, unconsolidated
           marketing subsidiaries and other cooperatives               9,425,112     12,663,265      6,239,135
        Deferred income taxes                                          3,450,000      3,450,000      3,450,000
        Other                                                            923,383      1,051,761        728,760
                                                                    ------------   ------------   ------------
                                                                      17,856,543     24,679,268     10,417,895
                                                                    ------------   ------------   ------------

                                                                    $174,385,651   $138,270,087   $ 99,990,753
                                                                    ============   ============   ============

</TABLE>

See Notes to Consolidated Financial Statements.


<PAGE>


<TABLE>
<CAPTION>
                                                                                        1997             1996            1995
                                                                                   -------------    -------------   -------------
<S>                                                                                <C>              <C>             <C>          
LIABILITIES AND MEMBERS' INVESTMENT

CURRENT LIABILITIES:
        Short-term notes payable                                                   $  19,890,000    $               $  13,877,000
                                                                                   -------------    -------------   -------------

        Current portion of long-term debt                                              2,512,500        2,512,500       2,428,523
                                                                                   -------------    -------------   -------------

        Accounts payable:
                Trade                                                                  4,229,434        6,622,505       3,112,788
                Growers                                                                8,334,605        6,063,827       6,506,163
                                                                                   -------------    -------------   -------------
                                                                                      12,564,039       12,686,332       9,618,951
                                                                                   -------------    -------------   -------------

        Advances from affiliate                                                        1,792,889        1,202,466       1,064,005
                                                                                   -------------    -------------   -------------

        Salaries and Wages                                                               828,542          788,095         667,282
        Unmatured Interest Payable                                                       875,029          581,445         424,969
        Other Accrued Liabilities                                                      1,271,987        1,299,479       1,113,915
                                                                                   -------------    -------------   -------------
                Total Accrued Liabilities                                              2,975,558        2,669,019       2,206,166
                                                                                   -------------    -------------   -------------

                       Total current liabilities                                      39,734,986       19,070,317      29,194,645

LONG-TERM DEBT, NET OF CURRENT PORTION                                                47,797,917       48,810,417      25,840,308

OBLIGATION UNDER CAPITAL LEASE                                                        12,000,000       12,000,000

OTHER                                                                                    688,608          728,296         881,837

COMMITMENTS AND CONTINGENCIES (NOTE 12)                                                     --               --              --
                                                                                   -------------    -------------   -------------

                       Total liabilities                                             100,221,511       80,609,030      55,916,790
                                                                                   -------------    -------------   -------------


MINORITY INTEREST IN EQUITY OF SUBSIDIARY                                                517,727          337,439          81,529
                                                                                   -------------    -------------   -------------


MEMBERS' INVESTMENT:
        Preferred stock:
                Class A - 100,000 shares authorized in 1997 and 1996, and 75,000
                   shares authorized in 1995, $105 par value; 66,967 58,525, and
                   52,000 shares issued and outstanding in 1997, 1996, and 1995,
                   respectively                                                        7,031,535        6,145,125       5,460,000
                Class B - 100,000 shares authorized in 1997 and 1996, and
                   75,000 shares authorized in 1995, $75 par value; 66,967
                   58,525, and 52,000 shares issued and outstanding in 1997,
                   1996, and 1995, respectively                                        5,022,525        4,389,375       3,900,000
                Class C - 100,000 shares authorized in 1997 and 1996, and
                   75,000 shares authorized in 1995, $76 par value; 66,967
                   58,525, and 52,000 shares issued and outstanding in 1997,
                   1996, and 1995, respectively                                        5,089,492        4,447,900       3,952,000
                                                                                   -------------    -------------   -------------
                                                                                      17,143,552       14,982,400      13,312,000
        Common stock, 600 shares authorized in 1997 and 1996, and 440 shares
           authorized in 1995; $250 par value; issued and outstanding, 481, 481,
           and 346, shares in 1997, 1996, and 1995, respectively                         120,250          120,250          86,500
        Paid in capital in excess of par                                              23,753,005       10,296,457
        Unit retention capital                                                         6,739,547        6,262,469       5,421,441
        Qualified allocated patronage                                                  3,731,381        3,370,385       4,296,400
        Nonqualified allocated patronage                                              22,847,263       21,925,006      21,507,010
        Retained earnings (deficit)                                                     (688,585)         366,651        (630,917)
                                                                                   -------------    -------------   -------------
                                                                                      73,646,413       57,323,618      43,992,434
                                                                                   -------------    -------------   -------------

                                                                                   $ 174,385,651    $ 138,270,087   $  99,990,753
                                                                                   =============    =============   =============

</TABLE>


<PAGE>


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996, AND 1995


<TABLE>
<CAPTION>

                                                                               1997             1996            1995
                                                                           -------------    -------------   -------------
<S>                                                                        <C>              <C>             <C>          
REVENUE:
        From sales of sugar, sugar by-products, Fibrex, yeast and resale
           commodities, net of discounts,                                  $ 139,729,701    $ 114,334,522   $ 133,301,561
                                                                           -------------    -------------   -------------

EXPENSES:
        Production costs of sugar, by-products, Fibrex, yeast and
           resale commodities sold                                            33,446,952       30,872,535      30,318,782
        Sales and distribution costs                                          21,822,495       19,955,374      19,302,651
        General and administrative                                             4,567,869        4,213,379       4,412,248
        Interest                                                               4,315,823        2,898,338       2,972,574
        Loss on disposition of fiber assets                                                                       897,742
                                                                           -------------    -------------   -------------
                                                                              64,153,139       57,939,626      57,903,997
                                                                           -------------    -------------   -------------

OTHER INCOME (EXPENSE)                                                        (1,337,294)         476,775          23,982
                                                                           -------------    -------------   -------------

NET PROCEEDS RESULTING FROM MEMBER AND
   NON-MEMBER BUSINESS                                                     $  74,239,268    $  56,871,671   $  75,421,546
                                                                           =============    =============   =============

DISTRIBUTION OF NET PROCEEDS:
        Credited to members' investment:
                Components of net income:
                       Income (loss) from non-member business              $  (1,055,236)   $     929,738   $    (558,608)
                       Patronage income                                        4,382,934        1,620,262       1,493,359
                                                                           -------------    -------------   -------------
                               Net income                                      3,327,698        2,550,000         934,751

                Unit retention capital                                           948,246        1,389,899       1,636,105
                                                                           -------------    -------------   -------------
                       Net credit to members' investment                       4,275,944        3,939,899       2,570,856

        Payments to members for sugarbeets, net of unit
           retention capital                                                  69,963,324       52,931,772      72,850,690
                                                                           -------------    -------------   -------------

NET PROCEEDS RESULTING FROM MEMBER AND
   NONMEMBER BUSINESS                                                      $  74,239,268    $  56,871,671   $  75,421,546
                                                                           =============    =============   =============

</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' INVESTMENT
FOR THE YEARS ENDED AUGUST 31, 1997, 1996, AND 1995


<TABLE>
<CAPTION>

                                                                    PAID IN CAPITAL
                                                                       PREFERRED        COMMON        IN EXCESS OF
                                                                         STOCK           STOCK         PAR VALUE
                                                                      ------------    ------------    ------------
<S>                                                                     <C>                <C>          <C>       
BALANCE, AUGUST 31, 1994                                              $ 13,312,000    $     86,250

COMMON STOCK:
          Sales (4 shares)                                                                   1,000
          Repurchases (3 shares)                                                              (750)

UNIT RETENTION CAPITAL:
          Revolvement
          Proceeds

REVOLVEMENT OF PRIOR YEARS' ALLOCATED
   PATRONAGE

ECONOMIC DEVELOPMENT GRANT RECEIVED
   BY INVESTEE

NET INCOME FOR THE YEAR ENDED
   AUGUST 31, 1995

ACCRUED PAYMENT OF CURRENT YEAR'S QUALIFIED
   ALLOCATED PATRONAGE
                                                                      ------------    ------------

BALANCE, AUGUST 31, 1995                                                13,312,000          86,500

STOCK:
          Sales - common (10 shares)                                                         2,500
          Repurchases - common (12 shares)                                                  (3,000)
          Stock offering (137 common shares, 6525 preferred shares)      1,670,400          34,250      10,400,850
          Stock issue costs                                                                               (104,393)

UNIT RETENTION CAPITAL:
          Revolvement
          Proceeds

REVOLVEMENT OF PRIOR YEARS' ALLOCATED PATRONAGE

ECONOMIC DEVELOPMENT GRANT RECEIVED BY INVESTEE

NET INCOME FOR THE YEAR ENDED AUGUST 31, 1996

ACCRUED PAYMENT OF CURRENT YEAR'S QUALIFIED
   ALLOCATED PATRONAGE
                                                                      ------------    ------------    ------------

BALANCE, AUGUST 31, 1996                                                14,982,400         120,250      10,296,457

STOCK:
          Sales - common (8 shares)                                                          2,000
          Repurchases - common (8 shares)                                                   (2,000)
          Sales - preferred (8,442 shares)                               2,161,152                      13,456,548

UNIT RETENTION CAPITAL:
          Revolvement
          Proceeds

REVOLVEMENT OF PRIOR YEARS' ALLOCATED PATRONAGE

NET INCOME FOR THE YEAR ENDED AUGUST 31, 1997

ACCRUED PAYMENT OF CURRENT YEAR'S QUALIFIED
   ALLOCATED PATRONAGE
                                                                      ------------    ------------    ------------

BALANCE, AUGUST 31, 1997                                              $ 17,143,552    $    120,250    $ 23,753,005
                                                                      ============    ============    ============

</TABLE>

<PAGE>


<TABLE>
<CAPTION>

        UNIT        QUALIFIED      NON-QUALIFIED     RETAINED
      RETENTION     ALLOCATED        ALLOCATED       EARNINGS
       CAPITAL      PATRONAGE        PATRONAGE       (DEFICIT)        TOTAL
     -----------   ------------    ------------    ------------    ------------
<S>  <C>           <C>             <C>             <C>             <C>         
     $ 4,513,590   $  5,751,400    $ 20,611,593    $   (122,309)   $ 44,152,524


                                                                          1,000
                                                                           (750)


        (728,254)                                                      (728,254)
       1,636,105                                                      1,636,105


                     (1,617,000)       (147,942)                     (1,764,942)


                                                         50,000          50,000


                        450,000       1,043,359        (558,608)        934,751


                       (288,000)                                       (288,000)
----------------   ------------    ------------    ------------    ------------
       5,421,441      4,296,400      21,507,010        (630,917)     43,992,434


                                                                          2,500
                                                                         (3,000)
                                                                     12,105,500
                                                                       (104,393)


        (548,871)                                                      (548,871)
       1,389,899                                                      1,389,899

                     (1,239,315)       (720,266)                     (1,959,581)

                                                         67,830          67,830

                        482,000       1,138,262         929,738       2,550,000


                       (168,700)                                       (168,700)
----------------   ------------    ------------    ------------    ------------
       6,262,469      3,370,385      21,925,006         366,651      57,323,618


                                                                          2,000
                                                                         (2,000)
                                                                     15,617,700


        (471,168)                                                      (471,168)
         948,246                                                        948,246

                     (1,027,404)     (1,324,677)                     (2,352,081)

                      2,136,000       2,246,934      (1,055,236)      3,327,698


                       (747,600)                                       (747,600)
----------------   ------------    ------------    ------------    ------------

$      6,739,547   $  3,731,381    $ 22,847,263    $   (688,585)   $ 73,646,413
================   ============    ============    ============    ============

</TABLE>

<PAGE>


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996, AND 1995

<TABLE>
<CAPTION>

                                                                                        1997           1996             1995
                                                                                    ------------    ------------    ------------
<S>                                                                                 <C>             <C>             <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
        Income allocated to members' investment                                     $  3,327,698    $  2,550,000    $    934,751
        Add (deduct) noncash items:
                Depreciation and amortization                                          4,458,900       3,061,758       2,874,476
                Equipment disposals - loss                                               301,851          51,765         893,990
                Discount on redemption of estate payout                                  (55,407)
                Noncash investment in Progold                                           (186,977)
                Net loss allocated from unconsolidated marketing
                   subsidiaries                                                        1,630,249          91,083          95,558
                Noncash portion of patronage capital credits                            (652,922)       (562,047)       (373,096)
                Retention of nonqualified unit retains                                   948,246       1,389,899       1,636,105
                Deferred income taxes                                                                                    550,000
                Decrease (increase) in cash surrender of officer life insurance          (36,170)          9,904           1,394
                Changes in operating assets and liabilities:
                      Accounts receivable and advances                                (3,449,354)        231,342      (4,801,087)
                      Inventory and prepaid expenses                                 (14,720,635)      8,058,505     (10,668,452)
                      Deferred charges                                                  (129,880)       (212,795)         76,796
                      Other assets                                                                       (20,719)        (15,022)
                      Accounts payable, advances, and accrued liabilities                 33,634       3,331,198         544,826
                                                                                    ------------    ------------    ------------
                              NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     (8,530,767)     17,979,893      (8,249,761)
                                                                                    ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Proceeds from disposition of property, plant and equipment                         5,474           4,055          35,541
        Capital expenditures                                                         (22,249,794)    (30,066,812)    (12,057,422)
        Proceeds from sale of investments                                                 31,160
        Investment in stock of other corporations, unconsolidated
           marketing subsidiaries and other cooperatives                                (583,117)     (5,915,938)     (1,714,408)
        Net proceeds from patronage refunds and equity revolvements                       32,762          30,601          45,859
        Minority interest in equity of subsidiaries                                      180,289         255,910         (84,057)
                                                                                    ------------    ------------    ------------
                              NET CASH USED BY INVESTING ACTIVITIES                  (22,583,226)    (35,692,184)    (13,774,487)
                                                                                    ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Sale and repurchase of common stock, net                                                            (500)            250
        Net proceeds from issuance of short-term debt                                 19,890,000     (13,877,000)     12,615,000
        Proceeds from issuance of long-term debt                                                      29,000,000      13,500,000
        Proceeds from sale of stock                                                   15,617,700      12,001,107
        Payment of financing fees                                                       (185,671)       (406,111)
        Payment of long-term debt                                                     (1,012,500)     (5,945,914)     (2,326,615)
        Payment of unit retains and allocated patronage                               (2,814,097)     (2,493,196)     (2,272,332)
                                                                                    ------------    ------------    ------------
                              NET CASH PROVIDED BY FINANCING ACTIVITIES               31,495,432      18,278,386      21,516,303
                                                                                    ------------    ------------    ------------

NET INCREASE (DECREASE) IN CASH                                                          381,439         566,095        (507,945)

CASH, BEGINNING OF YEAR                                                                  853,102         287,007         794,952
                                                                                    ------------    ------------    ------------

CASH, END OF YEAR                                                                   $  1,234,541    $    853,102    $    287,007
                                                                                    ============    ============    ============

</TABLE>

(continued on next page)

<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS - PAGE 2

<TABLE>
<CAPTION>

                                                                                1997           1996          1995
                                                                            ------------   ------------   -----------
<S>                                                                         <C>            <C>            <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
        Cash payments for:
                Interest                                                    $ 3,683,034    $  2,472,853   $ 2,335,411
                                                                            ===========    ============   ===========

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
   AND FINANCING ACTIVITIES:
        Board approval of unit retention capital and allocated patronage
           revolvement                                                      $ 2,658,897    $  2,508,452   $ 2,493,196
                                                                            ===========    ============   ===========

        Transfer of property and equipment available for sale to property
           and equipment                                                    $    22,850
                                                                            ===========

        Acquisition of property                                             $   267,000
        Issuance of notes receivable                                          2,597,703
        Issuance of long-term advances                                          102,295
                                                                            -----------
        Reduction of investment                                             $ 2,966,998
                                                                            ===========

        Board approval of distribution of cash portion of qualified
           allocated patronage                                              $   719,600    $    168,700   $   288,000
                                                                            ===========    ============   ===========

        Increase in investment in unconsolidated marketing subsidiary by
           increasing accounts payable                                      $      --      $       --     $   593,819
                                                                            ===========    ============   ===========

        Increase in investment from receipt of Economic Development Grant   $      --      $     67,830   $    50,000
                                                                            ===========    ============   ===========

        Transfer of property and equipment to property and equipment
           available for sale                                               $      --      $       --     $   819,150
                                                                            ===========    ============   ===========

        Acquisition of equipment under capital lease                        $ 3,456,194                   $ 4,485,758
        Acquisition of investment restricted for capital lease projects       7,514,242
        Reduction in investment restricted for capital lease projects        (3,456,194)
                                                                            -----------    ------------
        Proceeds from issuance of obligation under capital lease            $      --      $ 12,000,000   $      --
                                                                            ===========    ============   ===========

</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1997, 1996, AND 1995


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
         CONCENTRATIONS OF RISK

Principles of Consolidation - The financial statements include the accounts of
Minn-Dak and its subsidiary, Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast) which
is 80% owned by the cooperative.

Inventories - Inventories of refined sugar, pulp and molasses to be sold on a
pooled basis are valued at net realizable value, while third-party purchased
refined sugar to be sold on a pooled basis is valued at the lower of cost or
market. Inventories of dietary pulp fiber, yeast, and materials and supplies are
valued at the lower of average cost or market.

In valuing inventories at net realizable value, the cooperative, in effect sells
the remaining inventory to the subsequent years sugar and by-product pool.

Deferred Charges - Agricultural development and labor procurement costs incurred
in connection with the beet crop to be harvested in September and October are
deferred and subsequently charged to expense during the ensuing processing
period.

Property, Plant, Equipment and Depreciation - Property, plant and equipment are
stated at cost. Additions, renewals and betterments are capitalized, whereas
expenditures for maintenance and repairs are charged to expense. The cost and
related accumulated depreciation of assets retired or sold are removed from the
appropriate asset and depreciation accounts and the resulting gain or loss is
reflected in income.

It is the policy of the cooperative to provide depreciation based on methods
designed to amortize the cost of the properties over their estimated useful
lives. Property, plant and equipment are depreciated for financial reporting
purposes, principally using declining balance methods, with estimated useful
lives ranging from 8 to 40 years. Statutory lives and methods are used for
income tax reporting purposes.

Indirect costs capitalized were $449,149, $435,686, and $133,550 for the years
ended August 31, 1997, 1996, and 1995. Construction-period-interest capitalized
for the years ended August 31, 1997, 1996, and 1995, were $953,944, $669,347,
and $8,217, respectively.

Equity Value Investments - The investments in United Sugars Corporation, Midwest
Agri-Commodities Company and ProGold Limited Liability Company are accounted for
using the equity method, wherein the investment is recorded at the amount of the
underlying equity in 


<PAGE>


the net assets of the investments and adjusted to recognize the cooperative's
share of the undistributed earnings or losses.

Investments in Other Cooperatives - The investments in stocks and capital
credits of other cooperatives are stated at cost, plus the cooperative's share
of allocated patronage and capital credits.

Income Taxes - A consolidated federal income tax return is filed for the
cooperative and its subsidiary. Deferred income taxes are provided for in the
timing of certain temporary deductions/increases for financial and income tax
reporting purposes. Significant temporary differences are as follows:

1.   When nonqualified unit retention capital and allocated patronage are
     elected by the board of directors, the cooperative is not allowed an income
     tax deduction until they are distributed in cash to the member-producers,
     whereas qualified unit retention capital and allocated patronage are
     deducted when declared.


2.   Depreciation - For financial reporting purposes, the companies use
     straight-line and accelerated methods of depreciation with lives of 8 to 40
     years, while, for income tax purposes, the companies use required statutory
     depreciable lives and methods.

3.   Non-qualified patronage credits from investments in other cooperatives -
     For financial statement purposes, the companies recognize income when the
     patronage credit notification is received while, for income tax purposes,
     the companies recognize income when the patronage is received in cash.

4.   Inventory capitalization - For income tax reporting purposes, certain
     overhead costs are included as a part of inventory costs in accordance with
     inventory capitalization rules. These costs are charged to expense as
     incurred for financial reporting purposes.

5.   Deferred compensation - For financial reporting purposes, deferred
     compensation is charged to expense as amounts are accrued. For income tax
     purposes, deferred compensation is deductible when paid.

6.   Recognition of vacation pay - For financial reporting purposes, vacation
     pay is charged to expense as accrued, whereas, for income tax purposes,
     vacation pay is deducted when paid.

Accounting estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Uninsured Cash Balance - The company maintains cash balances at various
financial institutions throughout the United States. Accounts at each


<PAGE>


institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. At times during the year, the company's balances exceeded this limit.

Reclassifications - Certain amounts have been reclassified in the 1995 and 1996
financial statements. The reclassifications have no effect on the results of
operations.


NOTE 2 - NATURE OF OPERATIONS AND CONCENTRATION OF CREDIT RISK

Nature of Operations - Minn-Dak is a North Dakota Cooperative Corporation owned
by its member-growers for the purpose of processing sugarbeets and marketing
sugar and by-products. Minn-Dak Yeast is a North Dakota corporation engaged
primarily in the production and marketing of bakers yeast.

The majority of the net proceeds from Minn-Dak are from member business, whereas
Minn-Dak Yeast is considered non-member business.

Credit risk - The cooperative and subsidiary grant credit to food processors
located throughout the United States. In addition, the cooperative grants credit
to members for sugarbeet seed, located in North Dakota and Minnesota.


NOTE 3 - NOTES RECEIVABLE

The cooperative's note receivable is due from Southern Minnesota Beet Sugar
Cooperative. The note receivable is unsecured, with a variable interest rate,
currently 8.25%, due August 31, 2010. The notes are subordinated to St. Paul
Bank for Cooperatives. The note represents the equalization of the distribution
of certain property and equipment from United Sugars to its members (Minn-Dak,
American Crystal and Southern Minnesota) on August 31, 1997.


NOTE 4 - INVESTMENTS

The investment in stock of other corporations, unconsolidated marketing
subsidiaries and other cooperatives consists of the following:

                                      1997          1996          1995

United Sugars Corporation         $  820,641    $ 3,292,816    $1,293,969
Midwest Agri-Commodities              11,748         40,835        71,212
ProGold, LLC                       3,920,776      5,246,666     1,331,158
St. Paul Bank for Coops            2,505,512      2,151,143     1,802,422
R.S.R. Electric Cooperative        2,134,431      1,870,859     1,689,940
Other                                 32,004         60,946        50,434
                                  ----------    -----------    ----------
Total                             $9,425,112    $12,663,265    $6,239,135

<PAGE>


On September 30, 1997, Cargill, Inc. signed a letter of intent to lease the
ProGold facility. Upon finalizing the agreement, Cargill will take over
operations and marketing of products produced by ProGold.


NOTE 5 - SHORT-TERM DEBT

Information regarding short-term debt at August 31, 1997, 1996, and 1995, is as
follows:

                                            1997           1996         1995

Seasonal loan with St. Paul Bank for
Cooperatives, due December 31, 1997,
interest variable, currently at 8.0%     $19,890,000    $       -    $13,877,000

The cooperative has a $50,000,000 seasonal line of credit with the St. Paul Bank
for Cooperatives, of which there were advances against it of $19,890,000 and
$13,877,000 at August 31, 1997, and 1995, respectively. The seasonal line of
credit is secured with a first lien on substantially all property and equipment
and current assets of Minn-Dak.

Maximum borrowings, average borrowing levels and average interest rates for
short-term debt for the years ended August 31, 1997, 1996, and 1995, are as
follows:

                                               AUGUST 31
                                    1997          1996            1995

Maximum borrowings              $82,580,000    $59,566,800     $30,769,850

Average borrowing levels        $70,785,538    $50,578,800     $21,798,100

Average interest rates                 6.43%          6.25%           7.00%


NOTE 6 - LONG-TERM DEBT

Information regarding long-term debt at August 31, 1997, 1996, and 1995, is as
follows:

                                              1997         1996       1995

Term loan with the St. Paul Bank for
Cooperatives, due in varying principal
repayments through September 30, 2008,
interest variable, currently at 7.21% to
8.34%, with a first lien on substantially
all property and equipment and current
assets of Minn-Dak                        $50,250,000  $51,250,000  $28,150,000

<PAGE>


Term loan with Norwest Bank of North
Dakota, N.A., due August 31, 1997,
interest free, secured by equipment                                      33,415

Term loan with R.S.R. Electric
Cooperative, Inc., due October 12,
2002, interest free, unsecured                 60,417       72,917       85,416
                                          -----------  -----------  -----------
                                           50,310,417   51,322,917   28,268,831
Less current maturities                    (2,512,500)  (2,512,500)  (2,428,523)
                                          -----------  -----------  -----------
                                          $47,797,917  $48,810,417  $25,840,308
                                          ===========  ===========  ===========

As to the loan with the St. Paul Bank for Cooperatives, the cooperative has
agreed to the following significant loan conditions:

1. Invest in Class C or other stock of the bank, as may be designated, in such
amounts as may be prescribed by the board of directors of the bank.

2. Maintain working capital of not less than $6.75 million, maintain a current
ratio of not less than 1.2:1.0, and maintain a long-term debt to equity ratio of
no greater than 1:1.

3. Obtain prior consent from the bank to pay cash patronage dividends in excess
of 35% of qualified patronage income as required by the Internal Revenue Service
to qualify the entire patronage dividend as an income tax deduction.

Minn-Dak has complied with the terms of its loan agreement for the years ended
August 31, 1997, 1996, and 1995.

In addition, Minn-Dak can make special advance payments on its term loans with
the St. Paul Bank for Cooperatives after its seasonal loans have been paid in
full, with the understanding that the special advance payments will be
readvanced subject to the reinstatement provisions, prior to the granting of any
new seasonal loans. Any such advance payments are subject to a commitment fee of
 .25% of the daily unadvanced commitment.

Interest expense, net of amount capitalized, totaled $4,317,175, $2,898,338, and
$2,972,574 for 1997, 1996, and 1995, respectively. Interest capitalized totaled
$953,944, $669,347 and $8,217 for 1997, 1996, and 1995, respectively.


<PAGE>


Principal amounts due on all the cooperative's long-term debt are as follows:

   Years Ending August 31:

         1998                              $ 2,512,500
         1999                                4,787,500
         2000                                4,787,500
         2001                                4,787,500
         2002                                4,785,417
         Thereafter                         28,650,000
                                           -----------
                                           $50,310,417
                                           ===========

NOTE 7 - OBLIGATIONS UNDER CAPITAL LEASES

During the current year, the cooperative entered into a capital lease with
Richland County, North Dakota for equipment relating to solid waste disposal.
The county has financed the leased assets with a bond issue and accordingly have
structured the cooperative's lease payments to correspond with the bond issue's
interest and principal requirements. Details relative to the cooperative's
obligations under the lease agreement are as follows:

                                  1997
                                  Final     Current                     1996
         Payee        Interest   Maturity   Portion       Total         Total

Richland County, ND     4.85%      1/11   $  582,000   $16,927,935   $17,509,844

Less amount representing
  interest                                   582,000     4,927,935     5,509,844
                                          ----------   -----------   -----------

                                          $        -   $12,000,000   $12,000,000
                                          ==========   ===========   ===========

Minimum future principal payments required on the obligations under capital
leases are as follows:

Years Ending August 31:

         2000                       $   730,000
         2001                           775,000
         2002                           815,000
         Thereafter                   9,680,000
                                    -----------
                                    $12,000,000
                                    ===========

Currently, the assets subject to the lease agreement are being constructed and
accordingly are recorded as construction in progress and investments restricted
for capital projects.


<PAGE>


NOTE  8 - MEMBERS' INVESTMENT AND GROWER PAYMENTS

The ownership of nondividend bearing common stock is restricted to a
"member-producer," as defined in the bylaws of Minn-Dak. Each member-producer
shall own only one share of common stock and is entitled to one vote at any
meeting of the members. Each member-producer is required to purchase one unit of
preferred stock for each base acre of sugar beet crops grown under a grower's
contract with Minn-Dak. A unit consists of one share each of Class A, Class B
and Class C preferred stock. The preferred shares are nonvoting and nondividend
bearing. All transfers and sales of stock must be approved by the board of
directors. During the fiscal year 1995, the board of directors voted and
approved to offer additional common stock at $250 per share and 20,200 units of
its preferred stock at $1,850 per unit. 137 common shares were sold in January
1996. The cooperative called for the payment on 6,525 and 8,442 preferred stock
units in January 1996, and 1997, respectively. The cooperative plans to call for
payment of the remaining 5,233 preferred stock units in January 1998.

Minn-Dak's net income, determined in accordance with generally accepted
accounting principles consistently applied, shall be distributed annually on the
basis of dollar volume of patronage, in cash or in the form of credits to each
member-producer's patronage credit account as established on the books of the
cooperative. In the event of a loss in any one year, the cooperative shall act
in such a manner as to first recoup the loss from those patrons who were patrons
in the year in which the loss occurred.

Under the terms of Minn-Dak's beet growing contracts with each of its
member-producers, Minn-Dak is obligated to pay the member-producers for beets
delivered at a price per pound of extractable sugar. However, if, in the opinion
of the St. Paul Bank for Cooperatives, the working capital position of the
cooperative is insufficient, Minn-Dak shall retain from the price to be paid per
ton for beets such amounts as are deemed by the bank to be necessary for
operations, the deductions to be made at such time as the bank shall require.
The amount so retained shall be evidenced in the records of Minn-Dak by equity
credits in favor of the growers. The board of directors has the power to
determine whether such retains shall be "qualified" or "nonqualified" for income
tax purposes.

For the year ended August 31, 1997, Minn-Dak had retained $753,329 and $194,917,
respectively for sugar silo storage and frozen beet storage. For the year ended
August 31, 1996, Minn-Dak had retained $1,389,899 for sugar silo storage and
frozen beet storage. For 1997, and 1996, the retainage is based on $.50 per ton
of beets delivered for sugar silo storage, and the lesser of the maximum
obligation required or $.50 per ton of beets delivered for frozen beet storage.
For the year ended August 31, 1995, Minn-Dak retained $1,636,105 for sugar silo
storage and frozen beet storage. The 1995 retainage is based on $1.00 per ton of
beets delivered


<PAGE>


During the year ended August 31, 1995, Minn-Dak revolved 70% of the unit retains
and allocated patronage for the fiscal year ended August 31, 1989, totaling
$2,493,196.

During the year ended August 31, 1996, Minn-Dak revolved the remaining 30% of
the unit retains and allocated patronage for the fiscal year ended August 31,
1989, and 35% for the fiscal year ended August 31, 1990, totaling $2,508,452.

During the year ended August 31, 1997, Minn-Dak revolved the remaining 65% of
the unit retains and allocated patronage for the fiscal year ended August 31,
1990, totaling $2,658,897. In addition, unit retains and allocated patronage
owned by an estate were redeemed at a discount. The discount represented the
difference between the book value of these items, totaling $164,352, and the
present value of the estimated future redemptions.

NOTE  9 - INCOME TAXES

Minn-Dak Farmers Cooperative is a nonexempt cooperative as described under
Section 1381(a)(2) of the Internal Revenue Code of 1986. Accordingly, net
margins from business done with member patrons, which are allocated and paid as
prescribed in Section 1382 of the Code, will be taxable to the members and not
to the cooperative. To the extent that net margins are not allocated and paid as
stated above or arise from business done with non-members, the cooperative shall
have taxable income subject to corporate income tax rates.

The significant components of deferred tax assets and liabilities included on
the balance sheet at August 31, 1997, 1996, and 1995, are as follows:

                                            1997         1996        1995
Deferred tax assets:
--------------------
Non-qualified unit retains and allocated
  patronage due to members              $11,700,000  $10,600,000  $10,300,000
Other                                     1,000,000    1,300,000      880,000
                                        -----------  -----------  -----------
Gross deferred tax assets                12,700,000   11,900,000   11,180,000
Less valuation allowance                 (1,120,000)  (1,200,000)  (1,440,000)
                                        -----------  -----------  -----------
   Total deferred tax assets             11,580,000   10,700,000    9,740,000
                                        -----------  -----------  -----------

Deferred tax liabilities:
-------------------------
Depreciation                              6,860,000    6,200,000    5,320,000
Non-qualified patronage credits from
  investment in cooperatives                920,000      750,000      665,000
Other                                        50,000                     5,000
                                        -----------  -----------  -----------
   Total deferred tax liabilities         7,830,000    6,950,000    5,990,000
                                        -----------  -----------  -----------
                                        $ 3,750,000  $ 3,750,000  $ 3,750,000
                                        ===========  ===========  ===========

Classified as follows:
Current asset                           $   300,000  $   300,000  $   300,000
Long-term asset                           3,450,000    3,450,000    3,450,000
                                        -----------  -----------  -----------
     Net deferred tax asset             $ 3,750,000  $ 3,750,000  $ 3,750,000
                                        ===========  ===========  ===========


<PAGE>


The cooperative has had non-member income tax losses. These losses have been
used to offset member income. Accordingly, there is no provision for (benefit
from) income taxes recorded for the years ended August 31, 1997, 1996, and 1995.

NOTE 10 - EMPLOYEES' PENSION PLAN

The cooperative has a non-contributory defined benefit plan which covers
substantially all employees who meet certain requirements of age, length of
service and hours worked per year. The benefits provided are based upon the
employee's average monthly compensation during the previous three highest
consecutive years multiplied by a formula and the participant's service ratio.
It is the cooperative's funding policy to contribute to the plan at least the
minimum amount required by ERISA as determined by the actuarial firm.

The 1997, 1996, and 1995, assumed discount rate was 8%. The expected long-term
rate of return on plan assets was estimated to be 8% per year and future salary
increases were estimated to be 5.5% per year.

The assets of the cooperative plan are maintained via insurance contracts with
Lincoln National Life Insurance Company of Fort Wayne, Indiana, and mutual funds
with Strong Funds of Milwaukee, Wisconsin.

The following table sets forth the plan's funded status at August 31, 1997,
1996, and 1995:

                                          1997           1996          1995

Actuarial present value of benefit obligations:
Vested benefit obligation             $(5,177,415)   $(4,130,135)   $(3,472,526)
                                      ===========    ===========    ===========

Accumulated benefit obligation        $(5,219,255)   $(4,314,938)   $(3,556,608)
                                      ===========    ===========    ===========

Projected benefit obligation          $(8,638,721)   $(7,096,231)   $(5,531,507)
Plan assets at fair value               6,414,126      5,514,202      4,589,336
                                      -----------    -----------    -----------
Projected benefit obligation
  in excess of plan assets             (2,224,595)    (1,582,029)      (942,171)
Unrecognized net (gain)/loss            1,179,157        523,555        (87,710)
Unrecognized prior service cost           519,689        574,562        629,435
Unrecognized net asset at adoption date
  (September 1, 1987)                    (118,013)      (136,279)      (154,509)
                                      -----------    -----------    -----------
Pension liability                        (643,762)      (620,191)      (554,955)
  Less current portion                    194,929        144,213        158,407
                                      -----------    -----------    -----------
Long-term pension liability           $  (448,833)   $  (475,978)   $  (396,548)
                                      ===========    ===========    ===========


<PAGE>


The net periodic pension cost for the years ended August 31, 1997, 1996, and
1995, includes the following components:


                                             1997        1996        1995
Service cost-benefits earned during
   the period                             $ 394,073   $ 313,069   $ 321,773
Interest cost on projected benefit
   obligation                               549,957     442,520     377,445
Actual return on plan assets               (645,048)   (753,673)    103,874
Net amortization and deferral               225,476     421,406    (314,313)
                                          ---------   ---------   ---------

       Net periodic pension cost          $ 524,458   $ 423,322   $ 488,779
                                          =========   =========   =========


NOTE 11 - ENVIRONMENTAL MATTERS

Minn-Dak is subject to extensive federal and state environmental laws and
regulations with respect to water and air quality, solid waste disposal and odor
and noise control. Minn-Dak conducts an ongoing and expanding control program
designed to meet these environmental laws and regulations. While Minn-Dak will
continue to have ongoing environmental compliance issues, currently there are no
pending regulatory enforcement actions and Minn-Dak believes that it is in
substantial compliance with applicable environmental laws and regulations.

Minn-Dak cannot predict whether future changes in environmental laws or
regulations might increase the cost of operating its facilities and conducting
its business. Any such changes could have adverse financial consequences for
Minn-Dak and its members.


NOTE 12 - COMMITMENTS AND CONTINGENCIES

Minn-Dak is expanding its plant facilities as part of a three-year plan, and has
contracted for approximately $70,000,000. As of August 31, 1997, Minn-Dak has
incurred approximately $65,000,000 and was committed to an additional
$5,000,000.

Minn-Dak is subject to various lawsuits and claims which arise in the ordinary
course of its business. While the results of such litigation and claims cannot
be predicted with certainty, management believes the disposition of all such
proceedings, individually or in aggregate, should not have a material adverse
effect on the company's financial position, results of operations or cash flows.

Minn-Dak participates in a multi-employer, self-funded employee medical
insurance plan with Minn-Dak Yeast Company and Midwest Agri-Commodities Company.
The terms of the plan call for the reimbursements to the plan administrator for
all claims paid, up to a maximum amount of $30,000 per employee per year and an
aggregate maximum of $1,600,000 per year.


<PAGE>


NOTE 13 - INVESTMENT IN MARKETING COOPERATIVES

Minn-Dak has formed common marketing agency agreements with United Sugars
Corporation (United Sugars) and Midwest Agri-Commodities (Midwest) to be the
exclusive marketing agents for all products produced by them and other member
processors.

Minn-Dak's ownership requirement in United Sugars is calculated periodically and
is based on the average volume of sugar produced during the five previous fiscal
years. The investment is accounted for on the equity method and the amount of
sales and related costs recognized by each member processor is allocated based
on their pro-rata share of production for the year. Minn-Dak provided United
Sugars with cash advances on an ongoing basis for operating and marketing
expenses incurred. During the years ended August 31, 1997, 1996, and 1995,
Minn-Dak had advanced $16,327,321, $14,948,115, and $16,334,843, respectively.
Minn-Dak had outstanding advances due to United of $1,792,889, $1,202,466, and
$1,064,005 for the years ended August 31, 1997, 1996, and 1995, respectively.

In September, 1997, United Sugars and United States Sugar Corporation (USSC)
entered into an agreement pursuant to which USSC will become an equity member of
United Sugars. The actual equity investment will be adjusted based upon relative
annual sugar volume marketed by United Sugars.

Under the arrangement, United Sugars will market all sugar produced by USSC
under approximately the same terms as now done for other members. USSC is
presently constructing a cane sugar refining production facility at Clewiston,
Florida that is expected to be in operation in June 1998 and have annual
capacity of approximately 10 million hundredweight.

In the interim period before closing on the agreement takes place, United Sugars
and USSC have entered into a stand-by output agreement pursuant to which United
Sugars purchases refined sugar from USSC and resells such sugar at a similar
price to that paid to the present members on a net basis.

Minn-Dak has a one-third ownership interest in Midwest. The amount of the
investment is accounted for using the equity method. All beet pulp and a portion
of the molasses produced is sold by Midwest as an agent for Minn-Dak. The amount
of sales and related costs to be recognized by each owner is allocated based on
their pro-rata share of production for the year. The owners provide Midwest with
cash advances on an ongoing basis for operating and marketing expenses incurred
by Midwest. Minn-Dak advanced Midwest $1,627,978, $2,157,891, and $1,777,508,
respectively, during the years ended August 31, 1997, 1996, and 1995. Minn-Dak
had outstanding advances due from Midwest of $1,907,333, $780,442, and $731,196
as of August 31, 1997, 1996, and 1995, respectively. The owners are guarantors
of the short-term line of credit Midwest has with the St. Paul Bank for
Cooperatives (bank).


<PAGE>


NOTE 14 - OPERATING LEASES

The cooperative is a party to various operating leases for vehicles and
equipment. Future minimum payments for the years ending August 31 under these
obligations are approximately as follows:

         1998                                     $1,016,000
         1999                                        502,000
         2000                                        495,000
         2001                                        484,000
         2002                                        483,000
         Thereafter                                  854,000


Operating lease and contract expenses for the years ended August 31, 1997, 1996,
and 1995, totaled approximately $662,000, $713,000, and $710,000, respectively.


NOTE 15 - STOCK TRANSFER RESTRICTION

The cooperative has entered into an agreement with Minn-Dak Yeast's minority
shareholder, whereby neither party shall sell, option or transfer its interest
in Minn-Dak Yeast to any person, firm or corporation (third party) without first
offering, in writing, the other party the right to acquire such interest on the
same terms. If the offer is not accepted by the offeree within 30 days, the
offeror may sell, option or transfer its interest to the third party within 120
days after expiration of the 30-day period.


NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is generally defined as the amount at
which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced liquidation sale. Quoted market prices are
generally not available for the company's financial instruments. Accordingly,
fair values are based on judgments regarding anticipated cash flows, future
expected loss experience, and current economic conditions, risk characteristics
of various financial instruments and other factors. Changes in the assumptions
could significantly affect the estimates.

The following methods and assumptions were used by the company to estimate fair
value of the financial instruments, and the estimated fair values of the
company's financial instruments as of August 31, 1997, 1996, and 1995, are as
follows:

Investments - The investment in St. Paul Bank for Cooperatives, R.S.R. Electric
Cooperative, Inc. and all other cooperatives are stated at cost, plus the
cooperative's share of allocated patronage and capital


<PAGE>


credits. The investment in United Sugars Corporation, Midwest Agri-Commodities
and ProGold Limited Liability Company are accounted for using the equity method,
wherein the investment is recorded at the amount of the underlying equity in the
net assets of the investments and adjusted to recognize the cooperative's share
of the undistributed earnings or losses. Minn-Dak Farmers Cooperative believes
it is not practicable to estimate the fair value without incurring excessive
costs because there is no established market for this stock and it is
inappropriate to estimate future cash flows which are largely dependent on
future patronage earnings of the investment.

Long-term debt - The fair value of obligations under long-term debt are
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered for debt of similar maturities.

Obligations under capital leases - The fair value of obligations under capital
leases, was based on present value models using current financing rates
available to the cooperative. At August 31, 1997, and 1996, the carrying value
of obligations under capital leases was $12,000,000 and the estimated fair value
was $9,800,000.


<PAGE>



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

         None


                                    PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Identification of Directors

         The table below lists the current directors of Minn-Dak Farmers
Cooperative. The Board of Directors consists of one director from each district.
Directors must be common shareholders or representatives of common shareholders
belonging to the district they represent and are elected by the members of that
district. In the case of a common shareholder who is other than a natural
person, a duly appointed or elected representative of such common shareholder
may serve as a director. The directors have been elected to serve three-year
terms expiring in December of the years indicated in the table below. One
director is elected each year from three selected districts. Brief biographies
for each of the directors and directors-elected are included after the table.
<TABLE>
<CAPTION>
                                                                                       Term Expires
Name and Address                  Age     District                 Director Since      in December
----------------                  ---     --------                 --------------      -----------
<S>                              <C>      <C>                      <C>                 <C> 
Robert Breuer                     65      District #2 - Factory         1984                1998
  302 Mooreton Ave. North                 West
  Mooreton, ND  58061

Lawrence Deal                     60      District #8 - Lyngaas         1982                1997(1)
  Box 124AA
  Erhard, MN  56534

Michael Hasbargen                 52      District #4 - Factory         1993                1999   
  RR #2, Box 71                           East
  Breckenridge, MN  56520

John Hought                       56      District #6 - Yaggie          1985                1997(2)
  RR #2, Box 9
  Foxhome, MN  56543

Victor Krabbenhoft                48      District #9 - Peet            1989                1998   
  RR #2, Box 45
  Glyndon, MN 56547

Jack Lacey                        56      District #5 - Hawes           1993                1999   
  RR #1, Box 66
  Wendell, MN  56590


<PAGE>


Jerry Meyer                       59      District #1 - Tyler           1994                1997(3)
  1433 15th Street North
  Wahpeton, ND  58075

Edward Moen                       71      District #3 - Gorder          1989                1998
  17060 County Road 8
  Colfax, ND 58018

Paul Summer                       55      District #7 - Lehman          1993                1999
  RR #2, Box 84
  Herman, MN  56248
</TABLE>

------------

1)       Mr. Deal's term as a director of the Company from District #8-Lyngaas
         expires on December 9, 1997.

2)       Mr. Hought's term as a director of the Company from District #6-Yaggie
         expires on December 9, 1997.

3)       Mr. Meyer's term as director of the Company from District #1-Tyler
         expires on December 9, 1997.


         ROBERT BREUER has been a director since 1984 and is a former chairman.
Mr. Breuer has been farming since 1958 near Mooreton, ND. He serves on the board
of directors for Minn-Dak Yeast Company, Inc. and on the Mooreton City Council,
Mooreton, ND.

         LAWRENCE DEAL has been a director since 1982 and is a former chairman
and secretary. Mr. Deal has been farming near Doran, MN, since 1959. He is
president of the American Sugarbeet Growers Association, Washington, DC.

         MICHAEL HASBARGEN has been a director since 1992 and is currently
serving as board vice chairman. Mr. Hasbargen has been farming near
Breckenridge, MN since graduating from NDSU in Ag Economics in 1967. Mr.
Hasbargen also serves on the board of directors of United Sugars Corporation and
Midwest Agri-Commodities Company.

         JOHN HOUGHT has been a director since 1985. Mr. Hought has been farming
near Foxhome, MN since 1959. He also serves on the board of directors for
Minn-Dak Yeast Company, Inc.

         VICTOR KRABBENHOFT has been a director since 1989, currently serves as
board chairman, and is a former vice chairman. Mr. Krabbenhoft has been farming
near Glyndon, MN since 1971. He also serves on the board of directors for
Midwest Agri-Commodities Company, United Sugars Corporation, and Minn-Dak Yeast
Company, Inc.

         JACK LACEY has been a director since 1993. Mr. Lacey has been farming
with his wife, Sharon, near Wendell, MN since 1963. He serves as one of
Minn-Dak's representatives to the American Sugarbeet Growers Association in
Washington, DC.


<PAGE>


         JERRY MEYER has been a director since 1994. Mr. Meyer has been farming
near Fairmount, ND since 1958. He also services on the board of directors for
Minn-Dak Yeast Company.

         ED MOEN has been a director since 1989 and is currently serving as
board treasurer. Mr. Moen has been farming near Galchutt, ND since 1945. He also
serves on the board of directors for Midwest Agri-Commodities Company and United
Sugars Corporation.

         PAUL SUMMER has been a director since 1993 and is currently serving as
board secretary. Mr. Summer has been farming near Herman, MN since 1963. He also
serves on the board for Midwest Agri-Commodities Company and United Sugars
Corporation.

         The Board of Directors meets monthly. The Company provides its
directors with minimal compensation, consisting of (i) a payment of $225.00 per
meeting for regular and special board meetings, (ii) the greater of (a) $112.50
for any day in which directors partake in activities on the Company's behalf for
under five hours or (b) $225.00 for any day in which directors partake in
activities on the Company's behalf for five hours or more.
The Chairman of the Board of Directors also receives a flat $200.00 per month.



EXECUTIVE OFFICERS

         The table below lists the principal officers of the Company, none of
whom owns any common or preferred shares. The president and chief executive
officer, executive vice president and chief financial officer, vice president
agriculture, vice president engineering, and vice president operations are
elected annually by the Board of Directors to serve on the board. Brief
biographies for each of the officers are included after the table.


Name                         Age          Position
----                         ---          --------

Larry D. Steward             59           President and Chief Executive Officer

Steven M. Caspers            47           Executive Vice President and Chief
                                          Financial Officer

Thomas D. Knudsen            43           Vice President, Agriculture

John E. Groneman             61           Vice President, Engineering

Richard K. Richter           57           Vice President, Operations

Jerald W. Pierson            58           Personnel Director

Jeffrey L. Carlson           42           Director of Technical Services

John S. Nyquist              42           Purchasing Manager

Patricia J. Estes            57           Director of Communications

Kevin R. Shannon             43           Safety and Special Projects Director


<PAGE>


         LARRY D. STEWARD joined Minn-Dak Farmers Cooperative in December 1990
as president and chief executive officer. Mr. Steward serves on the boards of
United Sugars Corporation, and Midwest Agri-Commodities Company. He is chairman
of the board of Minn-Dak Yeast Company, Inc. Mr. Steward is a trustee of United
States Beet Sugar Association and a director on the board of the National
Council of Farmer Cooperatives based in Washington, DC. Prior to joining
Minn-Dak, Mr. Steward was Midwest sales manager for Harborlite Corporation. From
1963 to 1988 Mr. Steward was employed by Great Western Sugar Company, Denver,
Colorado and from 1984 to 1988 he served as its vice president. Mr. Steward
holds a degree in chemistry and math from the University of Nebraska, Kearney,
Nebraska.

         STEVEN M. CASPERS is a graduate of the University of North Dakota with
a Bachelor of Science in business administration and a major in accounting. He
has been employed at Minn-Dak Farmers Cooperative since May 6, 1974 and is
active in local and national civic and industry related boards and committees.
He is president of Minn-Dak Yeast Company, Inc. and serves on the boards of
directors of Midwest Agri-Commodities Company, United Sugars Corporation and
ProGold.

         JOHN E. GRONEMAN is a graduate of Colorado State University with a
Bachelor of Science in engineering. He began his experience in the sugar
industry in 1960, this includes five years as a factory manager. Mr. Groneman
began his employment with Minn-Dak Farmers Cooperative on March 1, 1974.

         THOMAS D. KNUDSEN is a graduate of North Dakota State University with a
Bachelor of Science in horticulture and has attended the Beet Sugar Institute at
Fort Collins, Colorado. He began employment with the Company on May 24, 1977.

         RICHARD R. RICHTER has completed both the beet and sugar end coursework
of the Beet Sugar Institute of Fort Collins, Colorado. He began his sugar
industry experience in 1958 with employment at Minn-Dak Farmers Cooperative
beginning in August of 1976.

         JERALD W. PIERSON is a graduate of Black Hills State University with 29
years human resources experience beginning in 1968. He is active in numerous
local civic and fraternal organizations including the Greater North Dakota
Association, North Dakota Workers Compensation, and the North Dakota Job Service
Employer Committee. He began his employment with the Company on March 15, 1982.

         JEFFREY L. CARLSON is a graduate of the University of Minnesota-Morris
with a Bachelor of Arts in chemistry and the University of North Dakota with a
Ph.D. in physical chemistry. He began his career as a research chemist and an
assistant professor in 1986. Mr. Carlson began his employment with Minn-Dak
Farmers Cooperative on June 4, 1990.

         JOHN S. NYQUIST attended the North Dakota State College of Science,
majoring in accounting and computer programs. Mr. Nyquist began his purchasing
and inventory control experience in 1975 in the Company storeroom. Mr. Nyquist
is active in local civic and fraternal organizations and the National
Association of Purchasing Managers. Mr. Nyquist began employment with Minn-Dak
Farmers Cooperative on September 15, 1975.


<PAGE>


         PATRICIA J. ESTES is a graduate of Moorhead State University with a
Bachelor of Science in mass communications and Master of Arts in liberal arts.
Ms. Estes is active in local civic organizations and began her
publication-communications experience in 1973. Ms. Estes began full-time
employment with the Company on December 26, 1989.

         KEVIN R. SHANNON attended Taylor Institute and Vanguard Vo-Tech,
majoring in instrumentation. He is active in local civic organizations. Mr.
Shannon began his technical and supervisory career in 1974. His employment with
the Company began on June 1, 1983. Prior to becoming the safety and special
projects director in September of 1992, Mr. Shannon was Minn-Dak's beet tare and
quality lab supervisor.


ITEM 11. EXECUTIVE COMPENSATION

         The following table summarizes the amount of compensation paid for
services rendered to the Company during the fiscal year ended August 31, 1997
and the two prior fiscal years to those persons serving as the Company's Chief
Executive Officer and to the other most highly compensated executive officers of
the Company whose cash compensation exceeded $100,000 per annum.


                           SUMMARY COMPENSATION TABLE

     Name and                                 Other Annual     Total
Principal Position  Year    Salary     Bonus  Compensation  Compensation
------------------  ----    ------     -----  ------------  ------------
                                        (1)

Larry Steward       1997   $192,562   $ 50,500   $17,304      $260,366
President & CEO     1996   $178,017   $ 48,900   $15,111      $242,028
                    1995   $169,802   $ 30,000   $37,741      $237,543

Steven Caspers      1997   $116,276   $ 25,500   $19,582      $161,358
EVP & CFO           1996   $111,365   $ 24,000   $19,562      $154,927
                    1995   $104,406   $ 22,000   $22,570      $148,976

-----------------------------

1)       In addition to the salary and bonus described above, Mr. Steward and
         Mr. Caspers are provided with "Other Annual Compensation," which
         includes the value of the excess life insurance cost, individual LTD
         plan, sold vacation, and Company match of the 401(k) plan. In fiscal
         1996, the company adopted a new policy where Supervisory, Professional
         and Management employees are required on or before their anniversary
         date in 1999, to attain and maintain their vacation and floating
         holiday hour combined balance at two hundred and forty (240) hours or
         less. While not encouraged, the cash optioning of vacation and floating
         holiday accrued hours is allowable. Employees with account balances in
         excess of 240 hours may elect to cash option up to fifty percent (50%)
         of the number of hours exceeding 240. Employees at or below the 240
         hour


<PAGE>


         limit may elect to cash option fifty percent (50%) of their combined
         vacation and floating holiday annually accrued hours.


         Management employees are eligible for performance bonuses, which are
partially based upon on the performance of the Company and partially on
achievement of certain management performance objectives. The President and CEO
determine those performance objectives for officers and significant other
management employees of the Company and by the Board of Directors for the
President and CEO.

         The Company has entered into an employment agreement with Mr. Steward,
which establishes his salary and benefits as an employee of the Company. The
agreement may terminate on sixty days written notice by either party for any
reason. Mr. Steward has been employed by the Company for seven years and,
therefore, would be affected by the table limits on the qualified benefits table
below.

         In 1992, the Company undertook a compensation review study to determine
that its employees' compensation was commensurate with responsibilities of the
various Company positions, and that the compensation was equitable between jobs
within the Company and externally competitive with other comparable jobs and
responsibilities within the Company's geographic region. A national compensation
consultant called Hay Management Consultants performed the compensation review
study. This study was made of all management employees, including Mr. Steward,
and non-union employees. As of August 31, 1997 all employees' wages had been
adjusted to levels consistent with the Hay Management Consultants findings and
recommendations. The Company continues to consult with Hay Management
Consultants in order to maintain fair and equitable compensation for its
employees.

RETIREMENT PLANS

         Management employees are also eligible to participate in the Company's
defined benefit retirement plan as well as its 401(k) retirement savings plan,
each of which are described below.

         The Company has established a noncontributory, defined benefit
retirement plan, which is available to all eligible employees of the Company.
The benefits of the plan are funded by periodic contributions by the Company to
a retirement trust that invests the contributions and earnings from such
contributions to pay benefits to employees. The plan provides for the payment of
a monthly retirement benefit determined under a formula based on years of
service and each employee's compensation level. See "Executive
Compensation--Qualified Benefits Table." Benefits are paid to the employees upon
reaching early (age 55 or older) or normal (age 65) retirement age. The plan
also provides for the payment of certain disability and death benefits.

         The Company maintains a Section 401(k) retirement savings plan that
permits employees to elect to set aside, on a pre-tax basis, a portion of


<PAGE>


their gross compensation in trust to pay future retirement benefits. Effective
on April 1, 1995, the Company began providing a matching contribution of 25% of
each employee's first 4% of compensation that is set aside under the plan. The
match increases over time until it reaches 75% of the first 4% in the year 1999.
The amounts set aside by each employee and the Company vests immediately and are
paid to each employee upon the happening of certain events, all as more fully
described in the master plan document. During 1997, Federal law limited employee
pre-tax income contributions to $9,500 for each participating employee. Benefits
under the 401(k) plan begin to be paid to the employee: (i) upon the attainment
of normal retirement age (65), or if the employee chooses, any time after
attaining early retirement date (age 55); (ii) the date the employee terminates
employment with the Company; or (iii) a pre-retirement distribution equal to the
value of the employees 401(k) account, provided the employee has attained age 59
1/2 and provided a written consent of the spouse (if married).

         Effective September 1, 1996 certain executive employees of the Company
became eligible to participate in a "Supplemental Executive Retirement Plan."
That plan was adopted by the Company's Board of Directors on January 21, 1997.
Subject to the discretion of the Board of Directors, the plan provides for the
Company to credit to the account of each executive eligible to participate in
the Supplemental Plan amounts equal to the difference between the benefits
actually payable to the executive under the provisions of the defined benefit
retirement plan and the amounts which would have been payable under the defined
benefit retirement plan if certain provisions of the Internal Revenue Code did
not prohibit the payment of such benefits.


QUALIFIED BENEFITS TABLE

         The following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Cooperative under the defined benefit
retirement plan upon retirement at age 65, after 15, 20, 25, 30, and 35 years of
annual service at the compensation levels set forth hereon:

                          Years of Service
------------------------------------------------------------------
  Pension        15         20         25         30          35
Compensation     --         --         --         --          --
------------
 $125,000    $ 27,802    $ 37,070   $ 46,337   $ 55,604    $ 64,872
 $150,000    $ 33,802    $ 45,070   $ 56,337   $ 67,604    $ 78,872
 $175,000    $ 36,202    $ 48,270   $ 60,337   $ 72,404    $ 84,472
 $200,000    $ 36,202    $ 48,270   $ 60,337   $ 72,404    $ 84,472
 $225,000    $ 36,202    $ 48,270   $ 60,337   $ 72,404    $ 84,472
 $250,000    $ 36,202    $ 48,270   $ 60,337   $ 72,404    $ 84,472
 $275,000    $ 36,202    $ 48,270   $ 60,337   $ 72,404    $ 84,472
 $300,000    $ 36,202    $ 48,270   $ 60,337   $ 72,404    $ 84,472
 $325,000    $ 36,202    $ 48,270   $ 60,337   $ 72,404    $ 84,472
 $350,000    $ 36,202    $ 48,270   $ 60,337   $ 72,404    $ 84,472
 $375,000    $ 36,202    $ 48,270   $ 60,337   $ 72,404    $ 84,472


<PAGE>


         The two executive officers named in the Summary Compensation Table have
years of service under the plan as follows: Mr. Steward has served for 7 years;
Mr. Caspers has served for 23 years.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table presents certain information with respect to the
ownership of shares of preferred stock as of November 21, 1997, by each
director. Each shareholder has direct ownership with respect to the share shown
as beneficially owned, except as otherwise indicated in a footnote. To the
Company's knowledge, as of November 21, 1997, no person owned beneficially more
than 5% of the Company's outstanding shares and none of the principal officers
listed above owned any such shares.


    Name               Position with Company     No. of Shares     %of Shares
    ----               ---------------------     -------------     ----------

Robert Breuer                Director                160          less than 1%

Lawrence Deal                Director                175          less than 1%

Michael Hasbargen            Director                375          less than 1%

John Hought                  Director                270          less than 1%

Victor Krabbenhoft           Director                228          less than 1%

Jack Lacey (1)               Director                250          less than 1%

Jerry Meyer                  Director                451          less than 1%

Ed Moen                      Director                180          less than 1%

Paul Summer (2)              Director                207          less than 1%

All Directors                                        2296         3.43%

(1) Mr. Lacey's shares are held and grown under the name of Jack Lacey Company.

(2) Mr. Summer's shares are grown under the name of P V Unlimited Corp.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Each of the Company's directors is also a sugar beet grower or a
shareholder member or representative of a shareholder member. By virtue of their
status as such members of the Company, each director or the member he represents
sells sugar beets to the Company and receives


<PAGE>


payments for those sugar beets. Such payments for sugar beets often exceed
$60,000. However, such payments are received by the directors or the entities
they represent on exactly the same basis as payments are received by other
members of the Company for the delivery of their sugar beets. Except for the
sugar beet sales described in the preceding sentences, none of the directors or
executive officers of the Company have engaged in any other transactions with
the Company involving amounts in excess of $60,000.


                                    PART IV.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENT SCHEDULES

         None

REPORTS ON FORM 8-K

         The Company was not required to and did not file any reports on Form
8-K during the three months ended August 31, 1997.

EXHIBITS

Index
-----

**3(i)   Articles of Amendment to the Articles of Incorporation of Minn-Dak
         Farmers Cooperative

 *3(ii)  Articles of Incorporation of Minn-Dak Farmers Cooperative

  3(iii) Amended Bylaws of Minn-Dak Farmers Cooperative

**10(a)  Growers' Agreement (three-year Agreement) (example of agreement which
         each Shareholder is required to sign)

 *10(b)   Uniform Member Marketing Agreement by and between United Sugars
         Corporation and Minn-Dak Farmers Cooperative

 *10(c)  Supplement to Uniform Member Marketing Agreement by and between United
         Sugars Corporation and Minn-Dak Farmers Cooperative

 *10(d)  Capitalization Agreement by and among Southern Minnesota Beet Sugar
         Cooperative, Minn-Dak Farmers Cooperative, American Crystal Sugar
         Company, and United Sugars Corporation

 *10(e)  Memorandum of Understanding and Uniform Member Agreement by and between
         Midwest Agri-Commodities Company and Minn-Dak Farmers Cooperative

 *10(f)  Molasses Purchase Contract by and between Minn-Dak Farmers Cooperative
         and Universal Foods Corporation (Confidential Treatment for certain
         sections)

 *10(g)  Yeast Purchase Contract by and between Universal Foods Corporation and
         Minn-Dak Yeast Company, Inc. (Confidential Treatment for certain
         sections)

 *10(i)  Operating Agreement of ProGold Limited Liability Company


<PAGE>


 *10(j)  ProGold Limited Liability Company Member Control Agreement

 *10(k)  Agreement for Electrical Service

**10(l)  Agreements for Coal Supply, Transportation, and Oiling Service
         (Confidential Treatment Requested as to certain provisions)

 *10(m)  Minn-Dak Farmers Cooperative Pension Plan

 *10(n)  Larry D. Steward Employment Agreement

 *10(o)  Management Consulting Agreement between Minn-Dak Yeast Company and
         Universal Foods Corporation, (Confidential Treatment for certain
         sections)

  10(p)  Amendment to Minn-Dak Farmers Cooperative Pension Plan

  12     Statement re Computation of Ratio of Net Proceeds to Fixed Charges

 *21     Subsidiaries of the Registrant

  23     Consent of Independent Auditors

  27     Financial Data Schedule

---------------------------

*        Incorporated by reference from the Company's Registration Statement on
         Form S-1 (File No. 33-94644), declared effective September 11, 1995.

**       Incorporated by reference from the Company's Annual Report on Form 10-K
         for the fiscal year ended August 31, 1996 as filed on November 21,
         1996.


<PAGE>


                                   SIGNATURES

         PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                       MINN-DAK FARMERS COOPERATIVE

                                       BY /S/ Larry D. Steward
                                          LARRY D. STEWARD, PRESIDENT AND
                                          CHIEF EXECUTIVE OFFICER

         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DUTIES INDICATED.

SIGNATURE                     TITLE                          REPORT DATE
----------------------        ------------------------       -----------------

/s/ Larry D. Steward          President and                  November 25, 1997
Larry D. Steward              Chief Executive Officer

/s/ Steven M. Caspers         Vice President - Finance       November 25, 1997
Steven M. Caspers

/s/ Allen E. Larson           Controller                     November 25, 1997
Allen E. Larson

/s/ Robert Breuer             Director                       November 25, 1997
Robert Breuer

/s/ Victor Krabbenhoft        Director                       November 25, 1997
Victor Krabbenhoft

/s/ Lawrence Deal             Director                       November 25, 1997
Lawrence Deal

/s/ Edward Moen, Jr.          Director                       November 25, 1997
Edward Moen, Jr.

/s/ Mike Hasbargen            Director                       November 25, 1997
Mike Hasbargen

/s/ John Hought               Director                       November 25, 1997
John Hought

/s/ Jack Lacey                Director                       November 25, 1997
Jack Lacey

/s/ Jerry Meyer               Director                       November 25, 1997
Jerry Meyer

/s/ Paul Summer               Director                       November 25, 1997
Paul Summer