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

|                                                                                           |                     | 
|------------------------------------------------------------------------------------------ | ------------------- | 
|                                                                                          
|                                                                                          
|                                                                                           | AMENDMENT
 NO. 2 TO | 
|                                                                                           | FORM 10-K           | 
|                                                                                          
|                                                                                          
|                                                                                          
|xAnnual Report Pursuant to Section 13 or
 15(d) of the Securities Exchange Act of 1934    
|                                                                                          
|For
 the fiscal year ended AUGUST 31, 2010                                                
|                                                                                          
|or                                                                                        
|oTransition 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 if
the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act  o YES  x NO

Indicate by check mark if
the Registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Act.  o YES  x NO

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.  x YES  o NO

Indicate by check mark
whether the Registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months.  o YES  o 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.  x

Indicate by check mark if
the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o  Accelerated filer o  Non-accelerated filer x  Smaller Reporting Company o

Indicate by check mark
whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  YES o  NO x

Minn-Dak Farmers Cooperative
is a cooperative. Its voting and non-voting common equity can only be held by
its members. No public market for voting and non-voting common equity of
Minn-Dak Farmers Cooperative is established and it is unlikely, in the
foreseeable future that a public market for its voting and non-voting common
equity will develop.

As of November 24, 2010, 477
shares of the Companys Common Stock and 72,200 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.

1







Description of Amendment No. 2 to Annual Report on Form 10-K
for the Year Ended August 31, 2010:

On November 24, 2010,
Minn-Dak Farmers Cooperative (the Company) filed its Annual Report on Form
10-K for the year ended August 31, 2010 (the 2010 Form 10-K). Amendment No.
1, Filed on December 9, 2010 included the revised Balance Sheet information
only. Amendment No. 2 to Form 10-K for the year ended August 31, 2010 is being
filed to now include the following financial information in the exhibits and
financial statement schedules:

| |    |                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------
| | 1. | Report of Independent
 Registered Public Accounting Firm                                                       
| | 2. | Consolidated Balance Sheets
 as of August 31, 2010, 2009 and 2008                                              
| | 3. | Consolidated Statements of
 Operations for the Years Ended August 31, 2010, 2009 and 2008                      
| | 4. | Consolidated Statements of
 Changes in Members Investments for the years ended August 31, 2010, 2009 and
 2008
| | 5. | Consolidated Statements of
 Cash flows for the Years Ended August 31, 2010, 2009 and 2008                      
| | 6. | -Notes to the Consolidated
 Financial Statements                                                               

Other than the changes
described in Amendment No. 1 to the Balance Sheets, there were no other changes
to the original 10-K and related financial statements that were filed on
November 24, 2010 for the year ended August 31, 2010.

PART IV.

|         |                                                                                 |                                                                                                                 
|-------- | ------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------
|ITEM 15. | EXHIBITS
 AND FINANCIAL STATEMENT SCHEDULES                                    
|         |                                                                                
|         | Documents filed as part of
 this Amendment No. 2 to Annual Report on Form 10-K:
|         |                                                                                 |                                                                                                                 
|         | a.                                                                              | Consolidated Financial
 Statements                                                                              
|         |                                                                                 | - Report of Independent
 Registered Public Accounting Firm                                                      
|         |                                                                                 | -Consolidated Balance
 Sheets as of August 31, 2010, 2009 and 2008                                              
|         |                                                                                 | -Consolidated Statements
 of Operations for the Years Ended August 31, 2010, 2009 and 2008                      
|         |                                                                                 | -Consolidated Statements
 of Changes in Members Investments for the years ended August 31, 2010, 2009
 and 2008
|         |                                                                                 | -Consolidated Statements
 of Cash flows for the Years Ended August 31, 2010, 2009 and 2008                      
|         |                                                                                 | -Notes to the Consolidated
 Financial Statements                                                                
|         |                                                                                 |                                                                                                                 
|         | b.                                                                              | The exhibits to this
 Amendment No. 2 to Annual Report on Form 10-K are as follows:                             

|            |  |                                                                                                                                                                     
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                         
|            |  |                                                                                                                                                                     
|31.1        |  | Certification of the
 President/Chief Executive Officer (principal executive officer) pursuant to
 Rules 13a-14(a) and 15d-14(a) of the Exchange Act.               
|            |  |                                                                                                                                                                     
|31.2        |  | Certification of the
 Executive Vice President/Chief Financial Officer (principal financial
 officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.
|            |  |                                                                                                                                                                     
|31.3        |  | Certification of the
 Controller/Chief Accounting Officer (principal accounting officer) pursuant
 to Rules 13a-14(a) and 15d-14(a) of the Exchange Act.            
|            |  |                                                                                                                                                                     
|32          |  | Certification pursuant to
 18 U.S.C. §1350                                                                                                                          

2

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|          |                                                         
|--------- | --------------------------------------------------------
|Item 15a. | Report of
 Independent Registered Public Accounting Firm

The Audit Committee Minn-Dak Farmers CooperativeWahpeton, North Dakota

We have audited the
accompanying consolidated balance sheets of Minn-Dak
Farmers Cooperative (a North Dakota cooperative association) as of
August 31, 2010, 2009, and 2008, and the related consolidated statements of
operations, change in members investments and comprehensive income and cash
flows for the years then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we do not express such an opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by Management, as well as evaluating the
overall 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, 2010, 2009, and 2008, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States
of America.

/S/ Eide Bailly LLP

Fargo, North Dakota 
November 24, 2010

3

---



|                                
|--------------------------------
|MINN-DAK
 FARMERS COOPERATIVE   
|CONSOLIDATED
 BALANCE SHEETS    
|AUGUST 31,
 2010, 2009, AND 2008
|                                

|                                                                                     |  |      |             |      |   |             |  |   |             | 
|------------------------------------------------------------------------------------ |  | ---- | ----------- | ---- | - | ----------- |  | - | ----------- | 
|                                                                                     |  | 2010 |             | 2009 |   | 2008        | 
|ASSETS                                                                               |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|CURRENT ASSETS                                                                       |  |      |             |      |   |             |  |   |             | 
|Cash                                                                                 |  | $    | 128,611     |      | $ | 93,949      |  | $ | 159,175     | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Current bond trust                                                                   |  |      | 4,731,005   |      |   |            |  |   |            | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Receivables                                                                          |  |      |             |      |   |             |  |   |             | 
|Trade accounts                                                                       |  |      | 12,730,660  |      |   | 14,299,830  |  |   | 16,376,068  | 
|Growers                                                                              |  |      | 13,763,089  |      |   | 10,196,312  |  |   | 7,313,090   | 
|Income tax                                                                           |  |      |            |      |   |            |  |   | 234,461     | 
|Other                                                                                |  |      | 2,551       |      |   | 2,551       |  |   | 2,551       | 
|                                                                                     |  |      | 26,496,300  |      |   | 24,498,693  |  |   | 23,926,170  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Advances to affiliates - Midwest Agri-Commodities Co. and United
 Sugars Corporation |  |      |            |      |   | 1,105,797   |  |   | 1,492,451   | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Inventories                                                                          |  |      |             |      |   |             |  |   |             | 
|Refined sugar, pulp, molasses and thick juice to be sold on a pooled
 basis          |  |      | 29,770,313  |      |   | 27,046,374  |  |   | 28,452,755  | 
|Sugarbeets                                                                           |  |      | 3,121,298   |      |   |            |  |   |            | 
|Nonmember refined sugar                                                              |  |      | 1,717,395   |      |   | 1,451,972   |  |   | 1,357,893   | 
|Yeast                                                                                |  |      | 237,105     |      |   | 200,317     |  |   | 167,799     | 
|Materials and supplies                                                               |  |      | 13,403,175  |      |   | 11,296,034  |  |   | 10,159,944  | 
|                                                                                     |  |      | 48,249,286  |      |   | 39,994,697  |  |   | 40,138,391  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Deferred charges                                                                     |  |      |            |      |   | 1,324,353   |  |   | 1,436,316   | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Prepaid expenses and other assets                                                    |  |      | 2,047,411   |      |   | 3,109,313   |  |   | 2,149,816   | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Current deferred income tax asset                                                    |  |      |            |      |   | 25,600      |  |   | 145,000     | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|Total current assets                                                                 |  |      | 81,652,613  |      |   | 70,152,402  |  |   | 69,447,319  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|PROPERTY, PLANT AND EQUIPMENT                                                        |  |      |             |      |   |             |  |   |             | 
|Land and land improvements                                                           |  |      | 28,164,267  |      |   | 27,130,273  |  |   | 26,476,273  | 
|Buildings                                                                            |  |      | 37,882,719  |      |   | 37,757,659  |  |   | 37,592,109  | 
|Factory equipment                                                                    |  |      | 152,493,105 |      |   | 147,419,262 |  |   | 141,263,455 | 
|Other equipment                                                                      |  |      | 5,300,600   |      |   | 4,675,425   |  |   | 3,766,400   | 
|Capitalized leases                                                                   |  |      | 3,352,917   |      |   | 2,960,658   |  |   | 746,210     | 
|Construction in progress                                                             |  |      | 5,213,973   |      |   | 4,690,526   |  |   | 4,500,912   | 
|                                                                                     |  |      | 232,407,581 |      |   | 224,633,803 |  |   | 214,345,359 | 
|Less accumulated depreciation and amortization                                       |  |      | 135,638,384 |      |   | 127,336,389 |  |   | 119,566,871 | 
|                                                                                     |  |      | 96,769,197  |      |   | 97,297,414  |  |   | 94,778,488  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|OTHER ASSETS                                                                         |  |      |             |      |   |             |  |   |             | 
|Investment in other cooperatives and unconsolidated marketing cooperatives           |  |      | 11,115,672  |      |   | 11,343,602  |  |   | 11,523,024  | 
|Bond trust and financing costs                                                       |  |      | 2,492,735   |      |   | 98,302      |  |   | 126,663     | 
|Other                                                                                |  |      | 5,034,845   |      |   | 992,175     |  |   | 1,187,408   | 
|                                                                                     |  |      | 18,643,252  |      |   | 12,434,079  |  |   | 12,837,095  | 
|                                                                                     |  |      |             |      |   |             |  |   |             | 
|                                                                                     |  | $    | 197,065,062 |      | $ | 179,883,895 |  | $ | 177,062,902 | 

See Notes to Consolidated
Financial Statements.

4

---



|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|--------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | - | - | ----------- | -
|                                                                                                    |  | 2010 |             | 2009 |   | 2008        |  
|LIABILITIES AND MEMBERS INVESTMENT                                                                 |  |      |             |      |   |             |   |   |             |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|CURRENT LIABILITIES                                                                                 |  |      |             |      |   |             |   |   |             |  
|Short-term notes payable                                                                            |  | $    | 27,557,680  |      | $ | 18,977,978  |   | $ | 24,440,000  |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|Current portion of long-term debt and capital leases                                                |  |      | 2,977,034   |      |   | 2,905,841   |   |   | 2,594,188   |  
|Current portion of bonds payable                                                                    |  |      |            |      |   | 2,120,000   |   |   | 2,010,000   |  
|                                                                                                    |  |      | 2,977,034   |      |   | 5,025,841   |   |   | 4,604,188   |  
|Accounts payable                                                                                    |  |      |             |      |   |             |   |   |             |  
|Trade                                                                                               |  |      | 10,143,993  |      |   | 11,566,445  |   |   | 9,511,224   |  
|Checks Outstanding                                                                                  |  |      | 1,007,863   |      |   | 545,766     |   |   |            |  
|Deferred liabilities                                                                                |  |      | 8,825,180   |      |   |            |   |   |            |  
|Growers                                                                                             |  |      | 13,874,124  |      |   | 17,704,288  |   |   | 17,429,879  |  
|Income tax                                                                                          |  |      | 194,745     |      |   |            |   |   |            |  
|                                                                                                    |  |      | 34,045,905  |      |   | 29,816,499  |   |   | 26,941,103  |  
|Payable to affiliates - Midwest Agri-Commodities Co. and United Sugars
 Corporation                 |  |      | 283,460     |      |   |            |   |   |            |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|Accrued liabilities                                                                                 |  |      | 3,100,968   |      |   | 2,945,383   |   |   | 3,299,010   |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|Total
 current liabilities                                                                          |  |      | 67,965,047  |      |   | 56,765,701  |   |   | 59,284,301  |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|LONG-TERM DEBT AND CAPITAL LEASES, NET OF CURRENT PORTION                                           |  |      | 18,690,023  |      |   | 22,148,959  |   |   | 13,778,143  |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|BONDS PAYABLE                                                                                       |  |      | 19,240,000  |      |   | 11,370,000  |   |   | 13,490,000  |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|LONG-TERM DEFERRED INCOME TAX LIABILITY                                                             |  |      | 265,800     |      |   | 354,400     |   |   | 443,000     |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|LONG-TERM UNRECOGNIZED TAX BENEFITS LIABILITY                                                       |  |      |            |      |   | 274,075     |   |   | 256,075     |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|LONG-TERM PENSION LIABILITY                                                                         |  |      | 19,629,704  |      |   | 12,827,360  |   |   | 5,795,189   |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|COMMITMENTS AND CONTINGENCIES (NOTE 10)                                                             |  |      |             |      |   |             |   |   |             |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|Total
 liabilities                                                                                  |  |      | 125,790,574 |      |   | 103,740,495 |   |   | 93,046,708  |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|MEMBERS INVESTMENT                                                                                 |  |      |             |      |   |             |   |   |             |  
|Preferred stock                                                                                     |  |      |             |      |   |             |   |   |             |  
|Class A - 100,000 shares authorized, $105 par value;
 72,200 shares issued and outstanding          |  |      | 7,581,000   |      |   | 7,581,000   |   |   | 7,581,000   |  
|Class B - 100,000 shares authorized $75 par value;
 72,200 shares issued and outstanding            |  |      | 5,415,000   |      |   | 5,415,000   |   |   | 5,415,000   |  
|Class C - 100,000 shares authorized, $76 par value;
 72,200 shares issued and outstanding           |  |      | 5,487,200   |      |   | 5,487,200   |   |   | 5,487,200   |  
|                                                                                                    |  |      | 18,483,200  |      |   | 18,483,200  |   |   | 18,483,200  |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|Common stock, 600 shares authorized, $250 par value;
 477 shares issued and outstanding on 8-31-10, |  |      | 119,250     |      |   | 118,500     |   |   | 120,750     |  
|474 shares outstanding on 8-31-09 and                                                               |  |      |             |      |   |             |   |   |             |  
|483 shares outstanding on 8-31-08 and                                                               |  |      |             |      |   |             |   |   |             |  
|Paid
 in capital in excess of par value                                                             |  |      | 32,094,407  |      |   | 32,094,407  |   |   | 32,094,407  |  
|Nonqualified allocated patronage                                                                    |  |      | 28,298,571  |      |   | 28,298,718  |   |   | 28,298,508  |  
|Accumulated other comprehensive loss                                                                |  |      | (18,837,157 | )    |   | (12,811,235 | ) |   | (4,890,516  | )
|Retained earnings                                                                                   |  |      | 11,116,217  |      |   | 9,959,810   |   |   | 9,909,845   |  
|                                                                                                    |  |      | 71,274,488  |      |   | 76,143,400  |   |   | 84,016,194  |  
|                                                                                                    |  |      |             |      |   |             |   |   |             |  
|                                                                                                    |  | $    | 197,065,062 |      | $ | 179,883,895 |   | $ | 177,062,902 |  

5

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|                                           
|-------------------------------------------
|MINN-DAK FARMERS COOPERATIVE               
|CONSOLIDATED STATEMENTS OF OPERATIONS      
|YEARS ENDED AUGUST 31, 2010, 2009, AND 2008
|                                           

|                                                                                |  |      |             |      |   |             |   |   |             | 
|------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | - | - | ----------- | 
|                                                                                |  | 2010 |             | 2009 |   | 2008        |  
|                                                                                |  |      |             |      |   |             |   |   |             | 
|REVENUE                                                                         |  |      |             |      |   |             |   |   |             | 
|From sales of sugar, sugar co-products, and yeast, net of discounts             |  | $    | 214,311,789 |      | $ | 225,034,020 |   | $ | 243,573,467 | 
|                                                                                |  |      |             |      |   |             |   |   |             | 
|EXPENSES                                                                        |  |      |             |      |   |             |   |   |             | 
|Production costs of sugar, co-products, and yeast sold                          |  |      | 72,008,374  |      |   | 79,586,897  |   |   | 73,592,738  | 
|Sales and distribution costs                                                    |  |      | 40,451,329  |      |   | 43,308,982  |   |   | 48,667,319  | 
|General and administrative                                                      |  |      | 7,079,301   |      |   | 7,065,675   |   |   | 7,275,736   | 
|Interest                                                                        |  |      | 1,974,363   |      |   | 2,017,946   |   |   | 3,230,496   | 
|                                                                                |  |      | 121,513,367 |      |   | 131,979,500 |   |   | 132,766,289 | 
|                                                                                |  |      |             |      |   |             |   |   |             | 
|OTHER INCOME                                                                    |  |      | 7,777,785   |      |   | 2,493,245   |   |   | 1,299,870   | 
|                                                                                |  |      |             |      |   |             |   |   |             | 
|NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS BEFORE
 INCOME TAXES |  |      | 100,576,207 |      |   | 95,547,765  |   |   | 112,107,049 | 
|                                                                                |  |      |             |      |   |             |   |   |             | 
|INCOME TAXES EXPENSE (BENEFIT)                                                  |  |      | 343,580     |      |   | (505,145    | ) |   | 1,243,679   | 
|                                                                                |  |      |             |      |   |             |   |   |             | 
|NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS                      |  | $    | 100,232,627 |      | $ | 96,052,910  |   | $ | 110,863,370 | 
|                                                                                |  |      |             |      |   |             |   |   |             | 
|DISTRIBUTION OF NET PROCEEDS                                                    |  |      |             |      |   |             |   |   |             | 
|Credited to members investment                                                 |  |      |             |      |   |             |   |   |             | 
|Components of net income                                                        |  |      |             |      |   |             |   |   |             | 
|Income from non-member business                                                 |  | $    | 1,156,407   |      | $ | 334,861     |   | $ | 2,721,265   | 
|Patronage income                                                                |  |      | 4,020,142   |      |   | 3,727,840   |   |   | 5,117,244   | 
|                                                                                |  |      |             |      |   |             |   |   |             | 
|Net
 income credited to members investment                                     |  |      | 5,176,549   |      |   | 4,062,701   |   |   | 7,838,509   | 
|                                                                                |  |      |             |      |   |             |   |   |             | 
|Payments to members for sugarbeets, net of unit retention capital               |  |      | 95,056,078  |      |   | 91,990,209  |   |   | 103,024,861 | 
|                                                                                |  |      |             |      |   |             |   |   |             | 
|NET PROCEEDS RESULTING FROM MEMBER AND NONMEMBER BUSINESS                       |  | $    | 100,232,627 |      | $ | 96,052,910  |   | $ | 110,863,370 | 

See Notes to Consolidated
Financial Statements.

6

---



|                                                          
|----------------------------------------------------------
|MINN-DAK
 FARMERS COOPERATIVE                             
|CONSOLIDATED
 STATEMENTS OF CHANGES IN MEMBERS INVESTMENT
|YEARS
 ENDED AUGUST 31, 2010, 2009, AND 2008              
|                                                          

|                                                |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   |            |   |   |            |  
|----------------------------------------------- |  | ---------------- | ---------- | ------------- | - | ---------------------------------------- | - | --------------------------------- | ---------- | ------------------------------------------------ | - | ------------------ | - | ----- | ----------- | ------------------------------ | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                |  | Preferred
 Stock |            | Common
 Stock |   | Paid in Capital
 In Excess of
 Par Value |   | Non-Qualified
Allocated
Patronage |            | Accumulated
 Other
 Comprehensive
 Income (Loss) |   | Retained
 Earnings |   | Total |             | Comprehensive
 Income/
 (Loss) |  
|                                                |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   |            |   |   |            |  
|BALANCE, AUGUST 31, 2007                        |  | $                | 18,483,200 |               | $ | 121,000                                  |   | $                                 | 32,094,407 |                                                  | $ | 27,598,667         |   | $     | (2,368,458  | )                              | $ | 7,444,091  |   | $ | 83,372,907 |   |   |            |  
|Stock - Sales - common (8 shares)               |  |                  |            |               |   | 2,000                                    |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   | 2,000      |   |   |            |  
|Repurchases - common (9 shares)                 |  |                  |            |               |   | (2,250                                   | ) |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   | (2,250     | ) |   |            |  
|Revolvement of unit retention capital           |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   |           |   |   |            |  
|Revolvement of prior years allocated patronage |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   | (4,417,403         | ) |       |             |                                |   |            |   |   | (4,417,403 | ) |   |            |  
|Adoption of FIN 48                              |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   | (255,511   | ) |   | (255,511   | ) |   |            |  
|Net income for the year ended August 31, 2008   |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   | 5,117,244          |   |       |             |                                |   | 2,721,265  |   |   | 7,838,509  |   | $ | 7,838,509  |  
|Pension liability adjustment                    |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       | (2,522,058  | )                              |   |            |   |   | (2,522,058 | ) |   | (2,522,058 | )
|Comprehensive Income (Loss)                     |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   |            |   | $ | 5,316,451  |  
|BALANCE, AUGUST 31, 2008                        |  |                  | 18,483,200 |               |   | 120,750                                  |   |                                   | 32,094,407 |                                                  |   | 28,298,508         |   |       | (4,890,516  | )                              |   | 9,909,845  |   |   | 84,016,194 |   |   |            |  
|Stock - Sales - common (6 shares)               |  |                  |            |               |   | 1,500                                    |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   | 1,500      |   |   |            |  
|Repurchases - common (15 shares)                |  |                  |            |               |   | (3,750                                   | ) |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   | (3,750     | ) |   |            |  
|Revolvement of patronage-Estate                 |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   | (101,701           | ) |       |             |                                |   |            |   |   | (101,701   | ) |   |            |  
|Revolvement of prior years allocated patronage |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   | (3,625,929         | ) |       |             |                                |   |            |   |   | (3,625,929 | ) |   |            |  
|Effects of FAS 158 Adjustments                  |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   | (284,896   | ) |   | (284,896   | ) |   |            |  
|Net income for the year ended August 31, 2009   |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   | 3,727,840          |   |       |             |                                |   | 334,861    |   |   | 4,062,701  |   | $ | 4,062,701  |  
|Pension liability adjustment                    |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       | (7,920,719  | )                              |   |            |   |   | (7,920,719 | ) |   | (7,920,719 | )
|Comprehensive Income (Loss)                     |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   |            |   | $ | (3,858,018 | )
|BALANCE, AUGUST 31, 2009                        |  |                  | 18,483,200 |               |   | 118,500                                  |   |                                   | 32,094,407 |                                                  |   | 28,298,718         |   |       | (12,811,235 | )                              |   | 9,959,810  |   |   | 76,143,400 |   |   |            |  
|Stock - Sales - common (10 shares)              |  |                  |            |               |   | 2,500                                    |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   | 2,500      |   |   |            |  
|Repurchases - common (7 shares)                 |  |                  |            |               |   | (1,750                                   | ) |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   | (1,750     | ) |   |            |  
|Revolvement of patronage-Estate                 |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   |           |   |   |            |  
|Revolvement of prior years allocated patronage |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   | (4,020,289         | ) |       |             |                                |   |            |   |   | (4,020,289 | ) |   |            |  
|Effects of FAS 158 Adjustments                  |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   |           |   |   |            |  
|Net income for the year ended August 31, 2010   |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   | 4,020,142          |   |       |             |                                |   | 1,156,407  |   |   | 5,176,549  |   | $ | 5,176,549  |  
|Pension liability adjustment                    |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       | (6,025,922  | )                              |   |            |   |   | (6,025,922 | ) |   | (6,025,922 | )
|Comprehensive Income (Loss)                     |  |                  |            |               |   |                                          |   |                                   |            |                                                  |   |                    |   |       |             |                                |   |            |   |   |            |   | $ | (849,374   | )
|BALANCE, AUGUST 31, 2010                        |  | $                | 18,483,200 |               | $ | 119,250                                  |   | $                                 | 32,094,407 |                                                  | $ | 28,298,571         |   | $     | (18,837,157 | )                              | $ | 11,116,217 |   | $ | 71,274,488 |   |   |            |  

See Notes to Consolidated
Financial Statements.

7

---



|                                           
|-------------------------------------------
|MINN-DAK
 FARMERS COOPERATIVE              
|CONSOLIDATED STATEMENTS OF CASH FLOWS      
|YEARS ENDED AUGUST 31, 2010, 2009, AND 2008
|                                           

|                                                                           |  |      |            |      |   |            |   |   |            |  
|-------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                           |  | 2010 |            | 2009 |   | 2008       |  
|OPERATING ACTIVITIES                                                       |  |      |            |      |   |            |   |   |            |  
|Income allocated to members investment                                    |  | $    | 5,176,549  |      | $ | 4,062,701  |   | $ | 7,838,509  |  
|Accumulated other comprehensive loss                                       |  |      | (6,025,922 | )    |   | (7,920,718 | ) |   | (2,522,058 | )
|Add (deduct) noncash items                                                 |  |      |            |      |   |            |   |   |            |  
|Depreciation                                                               |  |      | 8,808,312  |      |   | 8,440,002  |   |   | 8,115,079  |  
|Amortization                                                               |  |      | 752,461    |      |   | 359,548    |   |   | 436,512    |  
|(Gain) Loss on disposal of equipment                                       |  |      | (25,553    | )    |   | (108,602   | ) |   | 112,747    |  
|(Gain)Loss allocated from unconsolidated marketing cooperatives            |  |      | 84,761     |      |   | (115,543   | ) |   | 43,419     |  
|Noncash portion of patronage capital credits                               |  |      | 32,396     |      |   | (974,925   | ) |   | (644,842   | )
|Deferred income taxes                                                      |  |      | (63,000    | )    |   | 30,800     |   |   | 1,136,000  |  
|(Increase)/Decrease in cash surrender of retired executive life
 insurance |  |      | 11,651     |      |   | 49,555     |   |   | 20,224     |  
|Changes in assets and liabilities:                                         |  |      |            |      |   |            |   |   |            |  
|Accounts receivable and advances                                           |  |      | (608,351   | )    |   | (420,329   | ) |   | (2,408,377 | )
|Inventory and prepaid expenses                                             |  |      | (7,192,687 | )    |   | (815,803   | ) |   | 1,299,903  |  
|Deferred charges and other                                                 |  |      | (2,873,808 | )    |   | 114,473    |   |   | 629,083    |  
|Accounts payable, accrued liabilities, and other liabilities               |  |      | 10,158,503 |      |   | 9,665,509  |   |   | (662,766   | )
|                                                                          
|NET CASH FROM OPERATING ACTIVITIES                                         |  |      | 8,235,312  |      |   | 12,366,668 |   |   | 13,393,433 |  
|                                                                          
|INVESTING ACTIVITIES                                                       |  |      |            |      |   |            |   |   |            |  
|Proceeds from disposition of property, plant and equipment                 |  |      | 125,666    |      |   | 332,455    |   |   | 11,170     |  
|Capital expenditures                                                       |  |      | (7,987,929 | )    |   | (8,817,485 | ) |   | (7,975,759 | )
|Capital adjustment of unconsolidated marketing cooperatives                |  |      | (237,248   | )    |   | 871,094    |   |   | 325,357    |  
|Proceeds from patronage refunds and equity revolvements                    |  |      | 367,407    |      |   | 418,184    |   |   | 272,726    |  
|                                                                          
|NET CASH USED FOR INVESTING ACTIVITIES                                     |  |      | (7,732,104 | )    |   | (7,195,752 | ) |   | (7,366,506 | )
|                                                                          
|FINANCING ACTIVITIES                                                       |  |      |            |      |   |            |   |   |            |  
|Sale (repurchase) of common stock, net                                     |  |      | 750        |      |   | (2,250     | ) |   | (250       | )
|Net proceeds (repayments) of short-term debt                               |  |      | 8,579,703  |      |   | (5,462,022 | ) |   | 5,440,000  |  
|Checks outstanding                                                         |  |      | 462,098    |      |   | 545,766    |   |   |           |  
|Proceeds from long term debt                                               |  |      |           |      |   | 10,000,000 |   |   |           |  
|Payment of financing fees                                                  |  |      | (753,447   | )    |   | (207,405   | ) |   | (284,410   | )
|Payment of long-term debt/lease                                            |  |      | (5,030,020 | )    |   | (5,692,828 | ) |   | (5,239,138 | )
|Payment of unit retains and allocated patronage                            |  |      | (3,727,630 | )    |   | (4,417,403 | ) |   | (6,038,860 | )
|                                                                          
|NET CASH USED FOR FINANCING ACTIVITIES                                     |  |      | (468,546   | )    |   | (5,236,142 | ) |   | (6,122,658 | )
|                                                                          
|NET CHANGE IN CASH                                                         |  |      | 34,662     |      |   | (65,226    | ) |   | (95,731    | )
|                                                                          
|CASH, BEGINNING OF YEAR                                                    |  |      | 93,949     |      |   | 159,175    |   |   | 254,906    |  
|                                                                           |  |      |            |      |   |            |   |   |            |  
|CASH, END OF YEAR                                                          |  | $    | 128,611    |      | $ | 93,949     |   | $ | 159,175    |  

8

---



|                                           
|-------------------------------------------
|MINN-DAK FARMERS COOPERATIVE               
|CONSOLIDATED STATEMENTS OF CASH FLOWS      
|YEARS ENDED AUGUST 31, 2010, 2009, AND 2008
|                                           

|                                                                         |  |      |           |      |   |           |   |   |           | 
|------------------------------------------------------------------------ |  | ---- | --------- | ---- | - | --------- | - | - | --------- | 
|                                                                         |  | 2010 |           | 2009 |   | 2008      |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                        |  |      |           |      |   |           |   |   |           | 
|Cash payments for                                                        |  |      |           |      |   |           |   |   |           | 
|Interest                                                                 |  | $    | 1,861,232 |      | $ | 2,067,437 |   | $ | 3,438,931 | 
|                                                                        
|Income tax net payments (refunds)                                        |  | $    | 485,910   |      | $ | (790,406  | ) | $ | 1,930,729 | 
|                                                                         |  |      |           |      |   |           |   |   |           | 
|SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
 ACTIVITIES |  |      |           |      |   |           |   |   |           | 
|                                                                         |  |      |           |      |   |           |   |   |           | 
|Proceeds for bond issuance transferred to restricted investment          |  | $    | 7,000,000 |      |   |          |   |   |          | 
|                                                                         |  |      |           |      |   |           |   |   |           | 
|Equipment purchased by issuance of capital lease                         |  | $    | 392,259   |      | $ | 2,365,296 |   | $ | 746,210   | 

See Notes to Consolidated Financial
Statements.

9

---



NOTE 1 - PRINCIPAL ACTIVITY AND SIGNIFICANT
ACCOUNTING POLICIES

Minn-Dak Farmers Cooperative
(the Company) is a North Dakota cooperative association owned by its
member-growers for the purpose of processing sugarbeets and marketing sugar and
co-products. Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast) is a North Dakota
corporation engaged primarily in the production and marketing of bakers yeast.
Link Acquisition Company LLC (Link) was formed to advance possible strategic
business activities by the Company. Approximately 93% of net sales are related
to sugarbeet operations and 7% are related to yeast operations.

The majority of the net
proceeds from the Company are from member patronage business.

Principles of Consolidation

The financial statements
include the accounts of the Company and its wholly owned subsidiaries, Minn-Dak
Yeast and Link. Significant intercompany activity has been eliminated from the
Balance Sheet, Statement of Operations, Statement of Members Investment and
Statements of Cash Flows.

Cash and Cash Equivalents

Cash Equivalents are assets which are readily
convertible into cash within three months. The Company does not consider Bond
Trust assets as Cash Equivalents.

Receivable and Credit Policy

Trade receivables are
uncollateralized customer obligations due under normal trade terms requiring
payment within 15 to 90 days from the invoice date. Trade receivables are
stated at the amount billed to the customer. Customer account balances with
invoices dated over 90 days old are considered delinquent. Payments of trade
receivables are allocated to the specific invoices identified on the customers
remittance advice or, if unspecified, are applied to the earliest unpaid
invoices. The carrying amount of trade receivables is reduced by a valuation
allowance that reflects Managements best estimate of the amounts that will not
be collected. Management reviews all trade receivable balances that exceed 90
days from the invoice date and based on an assessment of current
creditworthiness, estimates the portion, if any, of the balance that will not
be collected. Additionally, Management estimates an allowance to apply to the
aggregate trade receivables to create a general allowance covering those
amounts. The allowance is based on an evaluation of the receivables account
with particular attention paid to the largest customer balances and the risk
profile of the entire portfolio.

Credit Risk

The Company via United
Sugars and Midwest Agri-Commodities and Minn-Dak Yeast grant credit to food processors
located throughout the United States. In addition, the Company grants credit to
member-growers located in North Dakota and Minnesota, for sugarbeet seed,
technology fees, and co-products.

Inventories

Inventories of refined
sugar, thick juice, 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 the cost or market. Inventory of
yeast is valued at the lower of average cost or market. Materials and supplies
are valued at most recent purchase price that approximates weighted average
cost. During the periods when sugarbeets are purchased from growers, but not
yet converted into bin sugar or thick juice, that
inventory is valued at grower payment cost. In valuing inventories at net
realizable value, the Company, in effect sells the remaining inventory to the
subsequent periods sugar and co-product pool.

10

---



Reclassifications

Certain accounts in the
prior-year financial statements have been reclassified for comparative purposes
to conform to the presentation in the current-year financial statements.

Prepaid Expense and Other Assets

Purchased sugar allocation
and prepaid insurance costs related to subsequent fiscals year are recorded as
assets and subsequently expensed to those years.

Deferred Costs and Product Values

All costs incurred prior to
the beginning of the Companys fiscal year that relate to agricultural
development and labor procurement costs, receiving and processing the
subsequent years sugarbeet crop are deferred. Similarly, the net realizable
values of products produced prior to the beginning of the Companys fiscal year
that relate to the subsequent years sugarbeet crop are deferred. The net
result of these deferred costs and grower sugar beet payables as of August 31,
2010 of $8,825,181 has been recorded in the Companys balance sheet in
Deferred liabilities. Deferred costs as of August 31, 2009 and August 31,
2008 of $1,324,343 and $1,436,316 respectively were recorded in the Companys
balance sheet as current assets under the heading Deferred charges. There
were no deferred products produced prior to the fiscal years ending August 31,
2009 and August 31, 2008.

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
Company 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 3 to 40
years. Statutory lives and methods are used for income tax reporting purposes.
Capital lease equipment is depreciated in accordance with FASB ASC 840, Accounting for Leases.

Capitalized assets include
indirect costs such as fringe benefits, interest and engineering when
appropriate. The indirect costs capitalized for the years ended August 31,
2010, 2009 and 2008 were $257,391, $205,240, and $133,775, respectively. There
was no construction-period interest capitalized for the years ended August 31,
2010, 2009 and 2008.

Goodwill and Other Intangible Assets

In accordance with Statement
of Financial Accounting Standards FASB ASC 350 (Accounting Standards
Codification), Intangibles  Goodwill and
Other, the Company does not amortize goodwill. The Company has
annually evaluated goodwill and other intangible assets for impairment and
concluded that no impairment charge was necessary.

11

---



Costs associated with the
acquisition of permanent allocation rights will be amortized over the remaining
life of the farm program, currently estimated at four crop years.

Investments in Other Cooperatives and Unconsolidated
Marketing Cooperatives

Equity Value Investments in
Unconsolidated Marketing Cooperatives Investments - The investments in United
Sugars Corporation and Midwest -Commodities 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 Companys share of the undistributed earnings or losses.
Transactions with these companies are considered to be related party
transactions.

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

Income Taxes

A consolidated federal
income tax return is filed for the Company and its wholly owned subsidiaries.
Deferred income taxes are provided for in the timing of certain temporary
deductions/increases for financial and income tax reporting purposes.

Revenue Recognition

The Company generally
recognizes revenue at the point of customer receipt of product.

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.

Bond Origination Costs

Bond financing costs
incurred in connection with the financing of the construction projects related
to the processing facility have been capitalized. The Company is amortizing the
bond financing costs over the terms of the financing obtained using a straight
line method.

Amortization of bond
financing cost for the years ended August 31, 2010, 2009, and 2008 totaled
$21,650, $28,362 and $28,362, respectively.

Self-Funded Insurance

The Contract year for the
Companys employee health plan starts January 1 and ends December 31. In fiscal
year 2008, the Company operated with a fully insured employee health plan
through December 2007. In fiscal years ending August 31, 2009 and 2010, the
Company operated with a self-funded employee health plan administered by Blue
Cross Blue Shield of North Dakota (BCBS) for the entire fiscal year. In
addition to administering claims, BCBS insures individual health claims in
excess of $100,000 and aggregate annual claims in excess of 120% of expected
claims for the plan year. The Company has exposure for claims incurred but not
paid at the end of each reporting period. Historical information supplied by
BCBS, based on employee enrollment and factors that are established at each contract renewal, is used to
estimate its liability for these claims. This liability is estimated, actual
claims experience may differ from Company estimates.

12

---



Uninsured Cash Balance

The Company maintains cash
balances at various financial institutions. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to certain limits. At
times during the year, the Companys balances exceeded these limits. The
Company does not consider this a material risk.

Impairment and Disposal of Long-Lived Assets

The Company accounts for
impairment or disposal of long-lived assets in accordance with the provisions
of FASB ASC 144, Impairment or Disposal of
Long-Lived Assets.

Shipping and Handling Costs

Shipping and handling costs
are included in cost of product sold upon receipt of the Companys product by
its customers as well as the net realizable value calculations of the inventory
through allocations from the Companys marketing cooperatives.

Advertising

The Companys advertising
costs are expensed as incurred. Advertising expense for the years ended August
31, 2010, 2009 and 2008 totaled $19,875, $19,955 and $21,568, respectively.

Pension Liability

In accordance with FASB ASC
715, Accounting for Defined Benefit Pension
and Other Postretirement Plans, the Company records the liability
for its defined benefit retirement plan as the benefit obligation in the
financial statements. The Company has determined that the future tax benefits
associated with FASB ASC 715 are patronage sourced and, therefore, will flow
directly to the shareholder/growers. As a result, no future tax benefit to the
Company is recorded.

Fair Value

Fair value is defined under
FASB ASC 820, Accounting for Fair Value
Measurements as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Valuation techniques used
to measure fair value under FASB ASC 820 must maximize the use of observable
inputs and minimize the use of unobservable inputs. FASB ASC 820 established a
fair value hierarchy that prioritizes the assumptions, or inputs, used in
applying valuation techniques. The three levels of inputs within fair value
hierarchy include:

| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | Level 1 inputs were quoted
 prices (unadjusted) in active markets for identical assets or liabilities.                                                                                                                                                                                                           
| | o | Level 2 inputs include
 quoted prices for similar assets or liabilities in active markets, quoted
 prices for identical or similar assets or liabilities in markets that were
 not active, and inputs (other than quoted prices) that were observable for
 the asset or liability, either directly or indirectly.

13

---



| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | Level 3 inputs are
 unobservable inputs for the asset or liability. Categorization within the
 valuation hierarchy is based upon the lowest level of input that is
 significant to the fair value measurement.

Recently Issued Accounting Pronouncements

In January 2010, the FASB
issued new standards in the ASC 820, Fair
Value Measurements. These standards require new disclosures on the
amount and reason for transfers in and out of Level 1 and 2 fair value
measurements. The standards also require disclosure of activities, including
purchases, sales, issuances, and settlements within the Level 3 fair value
measurements. The standard also clarifies existing disclosure requirements on
levels of disaggregation and disclosures about inputs and valuation techniques.
The new disclosures regarding Level 1 and 2 fair value measurements and clarification
of existing disclosures are effective for the Company beginning with its
interim filing for February 2010. The disclosures about the roll forward of
information in Level 3 are required for the Company with its interim filing in
February 2011. This update will not have a material effect on the Companys
results of operations, financial position or cash flows.

Recently Adopted Accounting Pronouncements

In February 2010, the FASB
amended its guidance on subsequent events to remove the requirement to disclose
the date through which an entity has evaluated subsequent events, alleviating
conflicts with current SEC guidance. This amendment was effective upon
issuance.

In June 2009, the FASB
issued Accounting Standards Update 2009-01 Generally Accepted Accounting
Principles. The Company adopted this ASU on September 1, 2009. This standard
did not have an impact on the Companys results of operations or financial
condition. However, throughout the notes to the financial statements references
that were previously made to various former US GAAP pronouncements have been
changed to coincide with the appropriate section of the ASC.

In September of 2006, the
FASB issued FASB ASC 715, Accounting for
Defined Benefit Pension and Other Postretirement Plans. This pronouncement
was adopted by the Company with the notation that the Company would continue to
measure its plans liabilities as of May 31. However, with full adoption of
FASB ASC 715, the new measurement date for the plans liabilities is August 31.
In 2009, this resulted in a one-time addition to liability and reduction of
retained earnings of $284,896 for the August 31, 2009 financial statements.

Concentration and Sources of Labor

The Companys total factory
campaign and full time workforce consists of 457 employees, of which 61% are
covered by a collective bargaining agreement. The agreement expires on May 31,
2011.

Risks and Uncertainties

Interest costs - The Company
is at risk for interest rate changes in both seasonal and long-term debt. The
Company has variable rates on a substantial majority of its seasonal and
long-term debt. Interest rate risk is not expected to have a material impact on
the Companys annual return to its growers. During the first quarter of the
Companys fiscal year ending August 31, 2011, the Company adopted a policy to
manage future risks associated with interest rate variability.

14

---



Accumulated Other Comprehensive Income (Loss)

FASB ASC 220,
Reporting Comprehensive Income (Loss), establishes rules for reporting
comprehensive income and loss and its components. Accumulated other
comprehensive loss consists of the FASB ASC 715, Accounting for Defined Benefit
Pension and Other Postretirement Plans adjustment and is presented in the
Statement of Members Investment. See Note 12.

NOTE 2 - INTANGIBLE ASSETS

Intangible
assets derived from the purchase of the non-controlling interest in Minn-Dak
Yeast include $110,152 of Goodwill, which is not being amortized; $514,000 for
Customer Relations and $62,000 for a Non-Compete Agreement, which are being
amortized on a straight-line basis over 5 years. The amortization of these
intangible assets for the years ended August 31, 2010, 2009 and 2008 was
$143,127, $143,127 and $143,127, respectively. The cumulative amortization of
these intangible assets as of August 31, 2010, 2009 and 2008 is $480,582,
$337,455 and $194,327 respectively.

NOTE 3 - INVESTMENTS

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

|                                    |  |      |            |      |   |            |  |   |            | 
|----------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                                    |  | 2010 |            | 2009 |   | 2008       | 
|                                    |  |      |            |      |   |            |  |   |            | 
|Dakota
 Valley Electric Cooperative |  | $    | 6,166,685  |      | $ | 5,978,829  |  | $ | 5,632,704  | 
|CoBank                              |  |      | 4,379,995  |      |   | 4,964,489  |  |   | 4,801,609  | 
|United
 Sugars Corporation          |  |      | 369,509    |      |   | 216,396    |  |   | 971,797    | 
|Midwest
 Agri-Commodities           |  |      | 10,091     |      |   | 10,717     |  |   | 10,867     | 
|Other                               |  |      | 189,392    |      |   | 173,171    |  |   | 106,047    | 
|                                    |  |      |            |      |   |            |  |   |            | 
|                                    |  | $    | 11,115,672 |      | $ | 11,343,602 |  | $ | 11,523,024 | 

NOTE 4 - SHORT-TERM DEBT, LONG-TERM DEBT,
CAPITAL LEASE PAYABLE, AND BONDS PAYABLE

Short-Term
Debt

Information
regarding short-term debt for the years ended August 31, is as follows:

|                                                                           |  |      |            |      |   |            |  |   |            | 
|-------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                                                                           |  | 2010 |            | 2009 |   | 2008       | 
|                                                                           |  |      |            |      |   |            |  |   |            | 
|Seasonal loan with CoBank,                                                 |  |      |            |      |   |            |  |   |            | 
|                                                                           |  |      |            |      |   |            |  |   |            | 
|due December
 31, 2010, the interest rate was 2.76% as of August 31, 2010. |  | $    | 27,557,680 |      | $ | 18,977,978 |  | $ | 24,440,000 | 

15

---



The Company
had a $45,000,000 seasonal line of credit with CoBank, with $17,442,320
available on August 31, 2010. On November 15, 2010, the Company obtained a
seasonal line of Credit renewal for $85,000,000 through May 31, 2011; with a
step down to $45,000,000 from June 1, 2011 through December 31,
2011. The lines are secured with a first lien on substantially all property and
equipment and current assets of the Company. The Company utilizes the USDAs
CCC Sugar Loan Program to provide an additional source of seasonal financing.
Un-advanced funds remaining from the $85,000,000 and $45,000,000 seasonal debt
lines are subject to a 0.375% commitment fee.

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

|                          |  |      |            |      |   |            |   |   |            |  
|------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                          |  | 2010 |            | 2009 |   | 2008       |  
|                          |  |      |            |      |   |            |  
|Maximum
 borrowings       |  | $    | 50,390,927 |      | $ | 45,551,000 |   | $ | 57,767,930 |  
|                          |  |      |            |      |   |            |   |   |            |  
|Average
 borrowing levels |  | $    | 31,524,428 |      | $ | 28,410,018 |   | $ | 36,003,083 |  
|                          |  |      |            |      |   |            |   |   |            |  
|Average
 interest rates   |  |      | 2.37       | %    |   | 2.23       | % |   | 4.23       | %

Long-Term Debt

Information regarding
long-term debt at August 31 is as follows:

|                                                                                                                                                                                                                                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                      |  | 2010 |            | 2009 |   | 2008       |  
|                                                                                                                                                                                                                                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|CoBank term
 loan, with fixed and variable rates, due in varying principal repayments
 through August 20, 2016 as of August
 31, 2010, fixed interest rate currently at 5.60% and the variable interest
 rate was 1.66% as of August 31, 2010 with a first lien on substantially all
 property, equipment, and current assets of the Company located in Wahpeton,
 ND |  | $    | 19,134,260 |      | $ | 22,461,958 |   | $ | 15,789,655 |  
|                                                                                                                                                                                                                                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|Less current portion                                                                                                                                                                                                                                                                                                                                                  |  |      | (2,495,773 | )    |   | (2,495,773 | ) |   | (2,493,103 | )
|                                                                                                                                                                                                                                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|Long term portion                                                                                                                                                                                                                                                                                                                                                     |  | $    | 16,638,487 |      | $ | 19,966,185 |   | $ | 13,296,552 |  

In addition,
the Company may make special advance payments on its term loans with CoBank
after its seasonal loans have been paid in full, with the understanding that
the special advance payments will be re-advanced 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 0.375% of the daily un-advanced
commitment.

Interest
expense for the years ended August 31, 2010, 2009 and 2008 totaled $1,974,363,
$2,017,946 and $3,230,496, respectively.

16

---



Minimum
principal amounts due on the Companys long-term debt are as follows:

|                             |  |   |            | 
|---------------------------- |  | - | ---------- | 
|Years ending August 31,      |  |   |            | 
|                             |  |   |            | 
|2011                         |  | $ | 2,495,773  | 
|2012                         |  |   | 3,327,697  | 
|2013                         |  |   | 3,327,697  | 
|2014                         |  |   | 3,327,697  | 
|2015                         |  |   | 3,327,697  | 
|Thereafter                   |  |   | 3,327,699  | 
|                             |  |   |            | 
|Total
 Principal amounts due |  | $ | 19,134,260 | 

As of August
31, 2010, the Company was in compliance with all loan covenants with the Bank.

Capital Leases

The Company is
the lessee of equipment under capital leases with varying expiration dates. The
assets and liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the asset. For
the years ended August 31, 2010, 2009 and 2008 the capitalized costs of the
leased assets were $3,352,917, $2,960,658 and $821,950 respectively and
accumulated amortization was $853,734, $365,403 and $468,472 respectively. This
equipment is being depreciated in accordance with FASB ASC 840, Accounting for
Leases. Depreciation of assets under these capital leases is included in
depreciation expense.

Minimum future
lease payments under capital leases are as follows:

|                                           |  |   |           |  | 
|------------------------------------------ |  | - | --------- |  | 
|Years ending August 31,                    |  |   |           |  | 
|                                           |  |   |           | 
|2011                                       |  | $ | 600,729   | 
|2012                                       |  |   | 609,416   | 
|2013                                       |  |   | 960,621   | 
|2014                                       |  |   | 212,886   | 
|2015                                       |  |   | 463,711   | 
|                                           |  |   |           | 
|Total minimum lease payments               |  | $ | 2,847,363 | 
|                                           |  |   |           | 
|Less: Amount representing interest         |  |   | 314,566   | 
|                                           |  |   |           | 
|Present value of net minimum lease payment |  | $ | 2,532,797 | 
|                                           |  |   |           | 
|Less: Current Portion                      |  |   | 481,262   | 
|                                           |  |   |           | 
|Long Term Portion                          |  | $ | 2,051,535 | 

17

---



Bonds Payable

The Company
financed capital expenditures related to the processing facility through the
sale of Industrial Development Revenue Bonds, Series 2002, by Richland County
North Dakota. On December 7, 2009, the Company applied for and received
approval from Richland County to re-finance its tax-exempt long-term bonds. All
variable rate bonds outstanding as of January 15, 2010 were called and new
variable rate bonds were issued with a single maturity date of February 1, 2023
with no associated gains or losses. In addition, $7.0 million in new tax-exempt
bonds, which are exempt from alternative minimum taxes, were approved by
Richland County to finance future capital expenditures. These variable rate
bonds were issued on February 18, 2010 with a single maturity date of February
1, 2025. The letters of credit from the Bank associated with these bonds were
also renewed as of the date of the issuance of the bonds. The new tax-exempt
bond proceeds, initially $7.0 million, are held as a restricted investment in a
bond trust until qualified expenditures related to the bonds have been expended
by the Company. The Company guarantees the bonds. The Company has letter of
credit arrangements expiring February 28, 2011 with a bank that provides
security for obligations under the bonds payable totaling approximately
$19,814,564 at August 31, 2010. There were no outstanding advances under these
letter of credit arrangements as of August 31, 2010.

The Company
also has the right, but not the obligation to sell an additional $8.8 million
of tax-exempt bonds prior to December 31, 2010.

|                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|Information
 regarding tax exempt bonds payable at
 August 31 is as follows:                                                                          |  |      |            |      |   |            |   |   |            |  
|                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|                                                                                                                                                      |  | 2010 |            | 2009 |   | 2008       |  
|Richland
 County North Dakota                                                                                                                         |  |      |            |      |   |            |   |   |            |  
|                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|Bonds, with
 variable rates, due in varying principal repayments through January
 2011 Refinanced January 28, 2010.                                   |  | $    |           |      | $ | 2,570,000  |   | $ | 3,755,000  |  
|                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|Bonds with
 repayments through April 2019. Refinanced January 28, 2010.                                                                               |  |      |           |      |   | 10,920,000 |   |   | 11,745,000 |  
|                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|Richland
 County North Dakota bonds, with variable interest rates due February 1, 2023, the effective interest rate was
 3.10% as of August 31, 2010. |  |      | 12,240,000 |      |   |            |   |   |            |  
|                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|Richland
 County North Dakota bonds with variable interest rate due February 1, 2025;
 the effective interest rate was 2.81% as of August 31, 2010.   |  |      | 7,000,000  |      |   |           |   |   |           |  
|                                                                                                                                                      |  | $    | 19,240,000 |      | $ | 13,490,000 |   | $ | 15,500,000 |  
|                                                                                                                                                      |  |      |            |      |   |            |   |   |            |  
|Less Current Portion                                                                                                                                  |  |      |           |      |   | (2,120,000 | ) |   | (2,010,000 | )
|Long Term Portion                                                                                                                                     |  | $    | 19,240,000 |      | $ | 11,370,000 |   | $ | 13,490,000 |  

18

---



Minimum future
principal payments required on the obligations under bonds payable are as
follows:

|                        |  |   |            |  | 
|----------------------- |  | - | ---------- |  | 
|Years ending August 31, |  |   |            |  | 
|                        |  |   |            |  | 
|2011                    |  | $ |           | 
|2012                    |  |   |           | 
|2013                    |  |   |           | 
|2014                    |  |   |           | 
|2015                    |  |   |           | 
|Thereafter              |  |   | 19,240,000 | 
|                        |  |   |            | 
|                        |  | $ | 19,240,000 | 

|                                                         |  |   |           | 
|-------------------------------------------------------- |  | - | --------- | 
|Funds Held
 In Trust as of August 31, 2010               |  | $ | 7,000,000 | 
|Funds
 Eligible for Draw-Current as of August 31, 2010   |  |   | 4,731,005 | 
|Funds
 Eligible for Draw-Long Term as of August 31, 2010 |  | $ | 2,268,995 | 

NOTE 5 - MEMBERS INVESTMENT AND GROWER
PAYMENTS

The ownership
of non-dividend bearing common stock is restricted to a member-producer, as
defined in the by-laws of the Company. 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 also required to purchase units of preferred
stock and is entitled to grow the maximum acres per unit of preferred stock as
is authorized by the Board of Directors each farming year. The Companys Board
of Directors authorized the members to plant for the fiscal years 2010, 2009
and 2008, respectively 1.60, 1.60 and 1.50 acres per unit of preferred stock.A unit consists of one share each of
Class A, Class B and Class C preferred stock. The preferred shares are
non-voting and non-dividend bearing. The Companys Board of Directors must
approve all transfers and sales of stock.

The Companys
net income, determined in accordance with generally accepted accounting
principles consistently applied, shall be distributed annually on the basis of
delivered pounds of sugar, in cash or in the form of credits to each member-producers
patronage credit account as established on the books of the Company. In the
event of a loss in any one-year, the Company 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 the Company sugarbeet growing contracts with each of its
member-producers, the Company is obligated to pay the member-producers for
sugarbeets delivered at a price per pound of extractable and bonus sugar.
However, if, in the opinion of the Companys Board of Directors, the working
capital position of the Company is insufficient, the Company shall withhold
and/or retain from the price to be paid per pound of extractable sugar such
amounts as are deemed by the Board of Directors to be necessary for operations,
the deductions to be made at such time and in a manner as the Board of
Directors shall decide. The amount so withheld and or retained shall be evidenced in the
records of the Company by allocated patronage and/or per unit retains in favor
of the member-producers. The
Board of Directors has the power to determine whether such allocated patronage
and/or per unit retains shall be qualified or nonqualified for income tax
purposes.

19

---



The Company
allocated non-qualified patronage to the members for the years ended August 31,
2010, 2009 and 2008 of $4,020,142, $3,727,840, and $5,117,244, respectively.

During the
year ended August 31, 2010, the Company revolved the remaining 66% of the
allocated patronage for the fiscal year ended August 31, 2004 totaling
$2,876,660 and 31% of the allocated patronage for the fiscal year ended August
31, 2005, totaling $1,143,629. In addition, for the fiscal period ending August
31, 2010, 2009 and 2008 the Company revolved $-0-, $101,701, and $-0- of
allocated patronage to certain deceased members estates.

During the
year ended August 31, 2009, the Company revolved the remaining 46% of the
allocated patronage for the fiscal year ended August 31, 2003 totaling
$2,199,418 and 33% of the allocated patronage for the fiscal year ended August
31, 2004, totaling $1,426,511.

During the
year ended August 31, 2008, the Company revolved the remaining 52% of the
allocated patronage for the fiscal year ended August 31, 2002 totaling
$1,868,412 and 54% of the allocated patronage for the fiscal year ended August
31, 2003, totaling $2,548,991.

NOTE 6 - INVESTMENT IN MARKETING COOPERATIVES

The Company
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 the Company and other member
processors.

The Company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. The Company provided United
Sugars with cash advances on an ongoing basis for its share of operating and
marketing expenses incurred. During the years ended August 31, 2010, 2009 and
2008, the Company had advanced $26,299,502, $30,087,285 and $34,383,138, for operating
and marketing expenses incurred respectively. The Company had outstanding
advances due to/(from) United Sugars as of August 31, 2010, 2009 and 2008 of
$(1,424,545), $(1,740,649) and $(2,064,475), respectively. The Company accounts
for United Sugars FASB ASC 715, Accounting for Defined Benefit Pension and
Other Postretirement Plans adjustment as an additional change in accumulated
other comprehensive income (loss).

The Company
has a one-fourth ownership interest in Midwest. The amount of the investment is
accounted for using the equity method. All sugarbeet pulp and a portion of the
molasses produced are sold by Midwest as an agent for the Company. 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 Company provided Midwest
with cash advances on an ongoing basis for its share of operating and marketing
expenses incurred by Midwest. The Company advanced Midwest during the years
ended August 31, 2010, 2009 and 2008, $9,235,346, $8,440,062 and $9,026,985,
respectively. The Company had outstanding advances due to Midwest as of August
31, 2010, 2009 and 2008 of $1,708,006, $634,852 and $572,020, respectively. The
owners of Midwest guarantee, on a pro-rata basis, the $9,000,000 short-term
line of credit that Midwest has with its primary lender. The Company accounts
for Midwests FASB ASC 715, Accounting for
Defined Benefit Pension and Other Postretirement Plans adjustment as an
additional change in accumulated other comprehensive income (loss).

20

---



NOTE 7 - INCOME TAXES

The Company 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 distributed as prescribed in Section 1382 of
the Code, will be taxable to the members and not to the Company. To the extent
that net margins are not allocated and paid as stated above or arise from
non-patronage business, the Company 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 are as follows:

|                                                                   |  |      |            |      |   |            |   |   |            |  
|------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                   |  | 2010 |            | 2009 |   | 2008       |  
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Deferred tax
 assets                                               |  |      |            |      |   |            |   |   |            |  
|Non-qualified unit retains and allocated
 patronage due to members |  | $    | 11,319,500 |      | $ | 11,319,000 |   | $ | 11,319,000 |  
|Net operating loss carry-forwards                                  |  |      | 7,241,900  |      |   | 6,121,600  |   |   | 5,706,455  |  
|Other                                                              |  |      | 2,443,123  |      |   | 1,113,741  |   |   | 2,427,545  |  
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Total deferred tax assets                                          |  |      | 21,004,523 |      |   | 18,554,341 |   |   | 19,453,000 |  
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Deferred tax
 liabilities                                          |  |      |            |      |   |            |   |   |            |  
|Depreciation                                                       |  |      | 18,503,239 |      |   | 18,528,741 |   |   | 16,325,000 |  
|Other                                                              |  |      | 2,767,083  |      |   | 354,400    |   |   | 3,426,000  |  
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Total deferred tax liabilities                                     |  |      | 21,270,323 |      |   | 18,883,141 |   |   | 19,751,000 |  
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Net deferred tax asset (liability)                                 |  | $    | (265,800   | )    | $ | (328,800   | ) | $ | (298,000   | )
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Classified
 as follows                                             |  |      |            |      |   |            |   |   |            |  
|Current asset                                                      |  | $    |           |      | $ | 25,600     |   | $ | 145,000    |  
|Long-term asset (liability)                                        |  |      | (265,800   | )    |   | (354,400   | ) |   | (443,000   | )
|                                                                   |  |      |            |      |   |            |   |   |            |  
|Net deferred tax asset (liability)                                 |  | $    | (265,800   | )    | $ | (328,800   | ) | $ | (298,000   | )

The state and
federal operating loss carry forwards totaling approximately $18,100,000 will
expire in 2015 through 2029.

The provision
for income taxes is as follows:

|                                     |  |      |         |      |   |          |   |   |           | 
|------------------------------------ |  | ---- | ------- | ---- | - | -------- | - | - | --------- | 
|                                     |  | 2010 |         | 2009 |   | 2008     |  
|                                     |  |      |         |      |   |          |   |   |           | 
|Current
 expense (benefit)           |  | $    | 406,579 |      |   | (535,945 | ) |   | 107,679   | 
|Net change
 in temporary differences |  |      | (62,999 | )    |   | 30,800   |   |   | 1,136,000 | 
|                                     |  |      |         |      |   |          |   |   |           | 
|Provision for income taxes           |  | $    | 343,580 |      | $ | (505,145 | ) | $ | 1,243,679 | 

21

---



Deferred tax
assets are reduced by a valuation allowance to the extent Management concludes it
is more likely than not that the assets will not be realized. For the years
ended August 31, 2010, 2009, and 2008 the Company had a valuation allowance of
$705,400, $335,300 and $-0- respectively.

The items
accounting for the difference between expected tax (benefit) computed at the
federal statutory rate of 35% and the provision of income taxes were as
follows:

|                                                           |  |      |       |      |  |       |   |  |       |  
|---------------------------------------------------------- |  | ---- | ----- | ---- |  | ----- | - |  | ----- | -
|                                                           |  | 2010 |       | 2009 |  | 2008  |  
|Expected
 federal income tax expense at the statutory rate |  |      | 35.0  | %    |  | 35.0  | % |  | 35.0  | %
|State tax
 expense at statutory rate                       |  |      | 5.0   | %    |  | 5.0   | % |  | 5.0   | %
|Payments to
 members                                       |  |      | -39.4 | %    |  | -40.0 | % |  | -38.3 | %
|Other, net                                                 |  |      | -0.3  | %    |  | -0.5  | % |  | -0.6  | %
|                                                           |  |      |       |      |  |       |   |  |       |  
|Effective
 tax rate                                        |  |      | 0.3   | %    |  | -0.5  | % |  | 1.1   | %

The Company
allocates the patronage related benefits of the Domestic Production Activities
Deduction directly to its patrons. During the years ended August 31, 2010, 2009
and 2008 the Company passed through $5,944,573, $5,742,508 and $-0-
respectively to its patrons.

Significant
temporary timing differences between financial and income tax reporting are as
follows:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | When
 non-qualified allocated patronage is elected by the Board of Directors, the
 Company is not allowed an income tax deduction until they are paid in cash to
 the member-producers, where as qualified allocated patronage is deducted when
 declared.                                                                                                                                                                                                                                                                                                                                                                                                
| | 2. | Depreciation
 - For financial reporting purposes, the Company uses straight-line and
 accelerated methods of depreciation with lives of 3 to 40 years, while, for
 income tax purposes, the Company uses required statutory depreciable lives
 and methods.                                                                                                                                                                                                                                                                                                                                                                                               
| | 3. | Non-qualified
 patronage credits from investments in other cooperatives - For financial
 statement purposes, the Company recognizes 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. | 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 to the extent paid within 2 1⁄2 months of year end.                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 6. | On August
 31, 2006, the Company had a net $915,560 in non-patronage long-term tax
 liability resulting from a combination of non-patronage tax issues that will
 reverse over the life of certain assets now considered to be member business
 related. The Company will amortize the $915,560 long-term liability over the
 approximate remaining
 book life of those assets generating the liability. The amortization of the
 long-term tax liability for the years ended August 31, 2010, 2009 and 2008
 was $88,600, $88,600 and $236,280, respectively leaving a remaining balance
 on August 31, 2010 of $265,800 to be amortized in future years.
| | 7. | Non-qualified
 deferred compensation is deducted for book purposes as incurred and deducted
 for tax purposes as paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

22

---



Adoption of FASB ASC 740-10, Accounting for Uncertainty in Income Taxes

On September
1, 2007 The Company adopted the provisions of FASB ASC 740-10, Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109. FASB ASC 740-10
prescribes a threshold for the financial statement recognition and measurement
of a tax position taken or expected to be taken in an income tax return. FASB ASC
740-10 requires that the company determine whether the benefits of tax
positions are more likely than not of being sustained upon audit based upon the
technical merits of the tax position. For tax positions that are more likely
than not of being sustained upon audit, the Company recognizes the largest
amount of the benefit that is more likely than not of being sustained in our
financial statements. For tax positions that are not more likely than not of
being sustained upon audit, the Company does not recognize any portion of the
benefit in its financial statements.

As of August
31, 2010, the companys financial statements reflect the final settlement
pertaining to its only income tax activity qualifying for FASB ASC 740-10
treatment. For
purposes of FASB ASC Topic 740-10, the Company recognizes any interest and
penalties accrued related to unrecognized tax benefits in tax expense.

The total
amount of unrecognized tax benefits as of August 31, 2010 is $-0-.

The aggregate
changes in the balance of the Companys gross unrecognized tax benefits were as
follows for the periods indicated:

|                                                        |  |      |          |      |   |         |  |   |         | 
|------------------------------------------------------- |  | ---- | -------- | ---- | - | ------- |  | - | ------- | 
|Year Ended
 August 31,                                  |  | 2010 |          | 2009 |   | 2008    | 
|                                                        |  |      |          |      |   |         |  |   |         | 
|Balance of
 unrecognized tax benefits beginning balance |  | $    | 274,075  |      | $ | 256,075 |  | $ |        | 
|Increases for tax positions related to
 current year    |  |      | 13,500   |      |   | 18,000  |  |   |        | 
|Increases for tax positions related to
 prior year      |  |      |         |      |   |         |  |   | 256,075 | 
|Reductions for tax positions of prior years             |  |      |         |      |   |        |  |   |        | 
|Decreases related to settlements                        |  |      | (287,575 | )    |   |        |  |   |        | 
|Reductions due to lapsed statute of
 limitations        |  |      |         |      |   |        |  |   |        | 
|                                                        |  |      |          |      |   |         |  |   |         | 
|Balance of
 unrecognized tax benefits at August 31      |  | $    |         |      | $ | 274,075 |  | $ | 256,075 | 

Tax returns
filed as of August 31, 2004 through current filings are open for examination.

NOTE 8 - DEPRECIATION

The Companys
depreciation expense for the years ended August 31, 2010, 2009 and 2008 was
$8,808,312, $8,440,002 and $8,115,079, respectively.

23

---



NOTE 9 - ENVIRONMENTAL MATTERS

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. While the Company will
continue to have ongoing environmental compliance requirements, currently there
are no pending regulatory enforcement actions and the Company believes that it
is in substantial compliance with applicable environmental laws and regulations.

The Company
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 financial consequences for the Company
and its members.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

During fiscal
year 1997, the Company entered into a long-term lease agreement on a property,
which included providing a guarantee for the notes to finance the leased
property. The Companys contingent liability related to these notes totaled
$555,286 as of August 31, 2010.

During fiscal
year 2000, the Company sold certain notes receivable with recourse. The
Companys contingent liability related to these notes totaled $23,585 as of
August 31, 2010.

During the
fiscal year 2010, the Company entered into a coal purchase agreement requiring
a minimum annual purchase of coal in the amount of $1.6 million for each of the
fiscal years ending August 31, 2011, 2012 and 2013 respectively.

NOTE 11 - OPERATING LEASES

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

|                         |   |         |   |        | 
|------------------------ | - | ------- | - | ------ | 
|Years
 ending August 31, |   |         |   |       
|                         |   |         |   |        | 
|2011                     |   |         | $ | 74,540 | 
|2012                     |   |         |   | 67,258 | 
|2013                     |   |         |   | 38,222 | 
|                         | $ | 180,020 |  

Operating
lease and contract expenses for the years ended August 31, 2010, 2009 and 2008,
totaled $960,068, $1,145,998 and $1,535,475, respectively.

24

---



NOTE 12 - EMPLOYEE BENEFIT PLANS

401(k) Plan

The Company
has a qualified 401(k) employee benefit plan that covers all employees meeting
eligibility requirements. The Companys matching contribution to the plan is at
a level of 100% of employee contributions, with a maximum of 4% of compensation.
Employer contributions to the plan for the years ended August 31, 2010, 2009
and 2008 totaled $660,677, $637,822 and $631,063, respectively.

Effective
September 1, 2007, individual participating employees who have met the
non-elective eligibility requirements of the plan received a contribution of 4%
of their compensation each pay period as provided by the plan. Individuals
participating in this benefit are excluded from the non-contributory defined
benefit plan. Employer contributions to the plan for the years ended August 31,
2010, 2009, and 2008 totaled $79,385, $65,657 and $53,907, respectively.

Pension plan

The Company
has a non-contributory defined benefit plan, which covers substantially all
employees who meet certain requirements of age, hours worked per year, years of
service, and age at retirement or termination. The pension funding policy is to
deposit amounts allowable by law with independent trustees. Funds deposited
with independent trustees maintained to provide pension benefits to plan
participants and their beneficiaries. The Companys measurement date was
changed in 2009 which resulted in measurement dates of August 31, 2010 and
2009, and for the prior year the measurement date was May 31, 2008.

In August
2006, the Pension Protection Act (PPA) was signed into law. The PPA modified
the funding requirements for defined benefit pension plans by subjecting
defined benefit plans to 100% of the current liability-funding target. Defined
benefit plans with a funding status of less than 80% of the current liability
are defined as being at risk. These provisions do not apply to plans with
less than 500 participants. As of the last plan filing, the Companys plan had
477 participants.

In September
2006, the FASB issued FASB ASC 715, Accounting
for Defined Benefit Pension and Other Postretirement Plans. This
standard requires employers to recognize the underfunded or overfunded status
of defined benefit pension and Post-retirement plans as an asset or liability
in its statement of financial position, and recognize changes in the funded
status in the year in which the changes occur through accumulated other
comprehensive loss, which is a component of stockholders equity. As a result
of the application of FASB ASC 715, Accounting
for Defined Benefit Pension and Other Postretirement Plans as of
August 31, 2010, 2009 and 2008 the Company increased liabilities by $6,802,344,
$7,547,180 and $639,310. These liabilities were offset to accumulated other
comprehensive income (loss). As a result of FASB ASC 715, in the year ended
August 31, 2010, 2009 and 2008 the Company recognized an increase in
accumulated other comprehensive income/(loss) of ($6,274,921), ($7,080,155) and
($2,218,282), respectively. In accordance with FASB ASC 715, the measurement
date was moved from May 31, 2008 to August 31, 2009 creating a fifteen-month
period vs. twelve-month period the preceding year.

25

---



The following
table sets forth the plans funded status at August 31:

|                                                   |  |      |             |      |   |             |   |   |            |  
|-------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | - | - | ---------- | -
|                                                   |  | 2010 |             | 2009 |   | 2008        |  
|                                                   |  |      |             |      |   |             |   |   |            |  
|Change in pension benefit obligation               |  |      |             |      |   |             |   |   |            |  
|Benefit obligation at beginning of year            |  | $    | 31,076,170  |      | $ | 26,101,309  |   | $ | 25,712,339 |  
|Service cost                                       |  |      | 1,003,895   |      |   | 1,284,966   |   |   | 940,135    |  
|Interest cost                                      |  |      | 1,843,576   |      |   | 2,175,966   |   |   | 1,558,671  |  
|Experience (gain)/loss due to participant
 changes |  |      | 7,260,190   |      |   | 2,774,339   |   |   | (1,351,129 | )
|Benefits paid                                      |  |      | (1,051,850  | )    |   | (1,260,410  | ) |   | (758,707   | )
|                                                   |  |      |             |      |   |             |   |   |            |  
|Benefit obligation at end of year                  |  |      | 40,131,981  |      |   | 31,076,170  |   |   | 26,101,309 |  
|                                                   |  |      |             |      |   |             |   |   |            |  
|Change in plan assets                              |  |      |             |      |   |             |   |   |            |  
|Fair value of plan assets at beginning of
 year    |  |      | 18,480,578  |      |   | 20,158,363  |   |   | 20,277,824 |  
|Actual return on plan assets                       |  |      | 1,882,201   |      |   | (2,494,214  | ) |   | (360,683   | )
|Employer contribution                              |  |      | 1,512,580   |      |   | 2,097,024   |   |   | 1,060,000  |  
|Benefits and expenses paid                         |  |      | (1,068,267  | )    |   | (1,280,595  | ) |   | (818,778   | )
|                                                   |  |      |             |      |   |             |   |   |            |  
|Fair value of plan assets at end of year           |  |      | 20,807,092  |      |   | 18,480,578  |   |   | 20,158,363 |  
|                                                   |  |      |             |      |   |             |   |   |            |  
|Accrued pension benefit cost liability             |  | $    | (19,324,889 | )    | $ | (12,595,592 | ) | $ | (5,942,946 | )

|                     |  |                  |             |      |   |             |   |   |            |  
|-------------------- |  | ---------------- | ----------- | ---- | - | ----------- | - | - | ---------- | -
|                     |  | Pension Benefits |            
|                     |  | 2010             |             | 2009 |   | 2008        |  
|                     |  |                  |             |      |   |             |   |   |            |  
|Non-current
 assets  |  | $                |            |      | $ |            |   | $ |           |  
|Current
 liabilities |  |                  |            |      |   |            |   |   |           |  
|Noncurrent           |  |                  |             |      |   |             |   |   |            |  
|liabilities          |  |                  | (19,324,889 | )    |   | (12,595,592 | ) |   | (5,942,946 | )
|                     |  | $                | (19,324,889 | )    | $ | (12,595,592 | ) | $ | (5,942,946 | )

The estimated
amounts that will be amortized from Accumulated Other Comprehensive Income to
future fiscal years are as follows:

|                    |  |      |            |      |   |            |  |   |           | 
|------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | --------- | 
|                    |  | 2010 |            | 2009 |   | 2008       | 
|                    |  |      |            |      |   |            |  |   |           | 
|Accumulated
 loss   |  | $    | 17,802,784 |      | $ | 11,525,420 |  | $ | 4,436,275 | 
|Prior
 service cost |  |      | 104,828    |      |   | 136,860    |  |   | 169,107   | 
|                    |  | $    | 17,907,612 |      | $ | 11,662,280 |  | $ | 4,605,382 | 

The
accumulated benefit obligations for all defined benefit pension plans for the
years ended August 31, 2010, 2009 and 2008 were $29,641,358, $22,858,793 and
$19,721,092, respectively.

|                                             |  |      |     |      |  |      |   |  |     |  
|-------------------------------------------- |  | ---- | --- | ---- |  | ---- | - |  | --- | -
|                                             |  | 2010 |     | 2009 |  | 2008 |  
|                                             |  |      |     |      |  |      |   |  |     |  
|Weighted-average assumptions as of August 31 |  |      |     |      |  |      |   |  |     |  
|Discount rate                                |  |      | 5.2 | %    |  | 6.2  | % |  | 6.5 | %
|Expected return on plan assets               |  |      | 8.0 | %    |  | 8.0  | % |  | 8.0 | %
|Rate of total compensation increase          |  |      | 4.5 | %    |  | 4.3  | % |  | 4.3 | %

26

---



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

|                                                |  |      |            |      |   |            |   |   |            |  
|----------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                |  | 2010 |            | 2009 |   | 2008       |  
|                                                |  |      |            |      |   |            |   |   |            |  
|Components on net periodic pension benefit cost |  |      |            |      |   |            |   |   |            |  
|Service cost                                    |  | $    | 1,003,895  |      | $ | 1,284,966  |   | $ | 940,135    |  
|Interest cost                                   |  |      | 1,843,576  |      |   | 2,175,966  |   |   | 1,558,671  |  
|Expected return on plan assets                  |  |      | (1,492,426 | )    |   | (2,036,453 | ) |   | (1,621,109 | )
|Amortization of prior service cost              |  |      | 32,032     |      |   | 32,247     |   |   | 32,782     |  
|Amortization of transition amount               |  |      |           |      |   |           |   |   |           |  
|Amortization of net (gain) or loss              |  |      | 609,468    |      |   | 236,046    |   |   |           |  
|                                                |  |      |            |      |   |            |   |   |            |  
|Net periodic pension benefit cost               |  | $    | 1,996,545  |      | $ | 1,692,772  |   | $ | 910,479    |  

The 2009 data
includes a fifteen-month period. The net periodic cost was allocated as follows:

|                                 |  |   |           | 
|-------------------------------- |  | - | --------- | 
|Current
 Period                  |  | $ | 1,407,876 | 
|Adjustment
 to Retained Earnings |  |   | 284,896   | 
|Total                            |  | $ | 1,692,772 | 

The Companys
pension plan weighted-average asset allocation at August 31, by asset category
is as follows:

|                   |  |      |     |      |  |      |   |  |     |  
|------------------ |  | ---- | --- | ---- |  | ---- | - |  | --- | -
|                   |  | 2010 |     | 2009 |  | 2008 |  
|Asset category     |  |      |     |      |  |      |   |  |     |  
|Equity
 securities |  |      | 59  | %    |  | 61   | % |  | 66  | %
|Debt
 securities   |  |      | 35  | %    |  | 37   | % |  | 31  | %
|Real estate        |  |      | 4   | %    |  | 0    | % |  | 0   | %
|Other              |  |      | 2   | %    |  | 2    | % |  | 3   | %
|                   |  |      |     |      |  |      |   |  |     |  
|Total              |  |      | 100 | %    |  | 100  | % |  | 100 | %

27

---



The fair values of the
companys pension plan assets at August 31, 2010, by asset category are as
follows:

|                                                                
|----------------------------------------------------------------
|Pension Plan Assets
 Fair Value Measurements at
 August 31, 2010

|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|----------------------------- |  | ----- | ---------- | ------------------------------------------- | - | ----------------------------------------- |  | ------------------------------------------- | - |  | - | - | 
|                              |  | Total |            | Quoted Prices in
 Active Markets
 (Level 1) |   | Significant
 Observable
 Inputs (Level 2) |  | Significant
 Unobservable
 Inputs (Level 3) |  
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Cash and
 Cash Equivalents    |  | $     | 544,983    |                                             | $ | 544,983                                   |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Domestic
 Common Stocks       |  | $     | 2,708,722  |                                             | $ | 2,708,722                                 |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Foreign
 Stocks               |  | $     | 85,377     |                                             | $ | 85,377                                    |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Mutual
 Funds-Equity          |  | $     | 8,018,686  |                                             | $ | 8,018,686                                 |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Mutual
 Funds-Fixed Income    |  | $     | 6,978,002  |                                             | $ | 6,978,002                                 |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Core Equity
 Account          |  | $     | 296,753    |                                             | $ | 296,753                                   |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|International
 Equity Account |  | $     | 2,174,569  |                                             | $ | 2,174,569                                 |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|                              |  | $     | 20,807,092 |                                             | $ | 20,807,092                                |  | $                                           |  |  | $ |  | 

28

---



The fair
values of the companys pension plan assets at August 31, 2009, by asset
category are as follows:

|                                                                
|----------------------------------------------------------------
|Pension Plan Assets
 Fair Value Measurements at
 August 31, 2009

|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|----------------------------- |  | ----- | ---------- | ------------------------------------------- | - | ----------------------------------------- |  | ------------------------------------------- | - |  | - | - | 
|                              |  | Total |            | Quoted Prices in
 Active Markets
 (Level 1) |   | Significant
 Observable
 Inputs (Level 2) |  | Significant
 Unobservable
 Inputs (Level 3) |  
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Cash and
 Cash Equivalents    |  | $     | 924,841    |                                             | $ | 924,841                                   |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Domestic
 Common Stocks       |  | $     | 2,400,669  |                                             | $ | 2,400,669                                 |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Foreign
 Stocks               |  | $     | 131,010    |                                             | $ | 131,010                                   |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Mutual
 Funds-Equity          |  | $     | 6,482,750  |                                             | $ | 6,482,750                                 |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Mutual
 Funds-Fixed Income    |  | $     | 6,460,184  |                                             | $ | 6,460,184                                 |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Core Equity
 Account          |  | $     | 440,639    |                                             | $ | 440,639                                   |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|International
 Equity Account |  | $     | 1,640,485  |                                             | $ | 1,640,485                                 |  | $                                           |  |  | $ |  | 
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|                              |  | $     | 18,480,578 |                                             | $ | 18,480,578                                |  | $                                           |  |  | $ |  | 

The fair
values of the companys pension plan assets at August 31, 2008, by asset
category are as follows:

|                                                                
|----------------------------------------------------------------
|Pension Plan Assets
 Fair Value Measurements at
 August 31, 2008

|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|----------------------------- |  | ----- | ---------- | ------------------------------------------- | - | ----------------------------------------- |  | ------------------------------------------- | - |  | - | - | 
|                              |  | Total |            | Quoted Prices in
 Active Markets
 (Level 1) |   | Significant
 Observable
 Inputs (Level 2) |  | Significant
 Unobservable
 Inputs (Level 3) |  
|                              |  |       |            |                                             |   |                                           |  |                                             |   |  |   |   | 
|Cash and
 Cash Equivalents    |  | $     | 943,634    |                                             | $ | 943,634                                   |  | $                                           |  |  | $ |  | 
|Domestic
 Common Stocks       |  | $     | 2,580,263  |                                             | $ | 2,580,263                                 |  | $                                           |  |  | $ |  | 
|Foreign
 Stocks               |  | $     | 151,351    |                                             | $ | 151,351                                   |  | $                                           |  |  | $ |  | 
|Mutual
 Funds-Equity          |  | $     | 8,737,566  |                                             | $ | 8,737,566                                 |  | $                                           |  |  | $ |  | 
|Mutual
 Funds-Fixed Income    |  | $     | 5,893,353  |                                             | $ | 5,893,353                                 |  | $                                           |  |  | $ |  | 
|Core Equity
 Account          |  | $     | 568,645    |                                             | $ | 568,645                                   |  | $                                           |  |  | $ |  | 
|International
 Equity Account |  | $     | 1,283,551  |                                             | $ | 1,283,551                                 |  | $                                           |  |  | $ |  | 
|                              |  | $     | 20,158,363 |                                             | $ | 20,158,363                                |  | $                                           |  |  | $ |  | 

29

---



Discount Rate

The Companys
methodology for selecting the discount rate for the Companys plan was to seek
guidance from outside pension experts for determination of the appropriate
discount rate through August 31, 2008 and use the Mercer Index for dates
beginning September 1, 2008. The decision to use the Mercer index rate was
intended to provide an outside unbiased benchmark for this key accounting
assumption.

Investment Philosophy

The Companys
Board of Directors appoints individuals to serve as Trustees of the Companys
Pension Plans. The Trustees approve the Investment Policy Statement for the
Companys Pension Plans. The Pension Operating committee is responsible for
administering and following the Investment Policy Statement. The independent
Investment Consultant provides investment advice and assistance regarding the
investments of the Trust, analyzes investment expenses, and negotiates fees of
Investment Managers and Custodians. The Investment Policy Statement is designed
to diversify against the risk of large losses while still achieving long-term
return goals on a historical basis. The Investment Policy is reviewed at least
annually by the Operating Committee who recommends changes to the Trustees.
Diversification of investment risk is consistent with other pension plans of
similar size and demographics as reviewed by the Companys independent
Investment Consultant. The asset allocation targets for the plan consist of
five primary areas: Domestic Equity, International Equity, Real Estate,
Marketable Alternatives and Fixed Income. Cash allocations are allowed only as
necessary for impending benefit payments. The stated goal for each allocation
target is to exceed the return of its corresponding benchmark without exposure
to excessive risk.

Percentage of Pension Plan Assets by Asset
Class as of August 31, 2010

|                                   |  |              |  |                    | 
|---------------------------------- |  | ------------ |  | ------------------ | 
|Asset
 Class                       |  | Target Range |  | Actual Allocations
|                                   |  |              |  |                    | 
|Large Cap Us
 Common Stocks        |  | 25% - 30%    |  | 30.8%              | 
|                                   |  |              |  |                    | 
|Mid and
 Small Cap US Common Stock |  | 10% - 20%    |  | 14.7%              | 
|                                   |  |              |  |                    | 
|Total
 Domestic Equity             |  | 40% - 50%    |  | 45.5%              | 
|                                   |  |              |  |                    | 
|International
 (Non US) Equity     |  | 15% - 21%    |  | 15.8%              | 
|                                   |  |              |  |                    | 
|Total Equity                       |  | 58% - 68%    |  | 61.3%              | 
|                                   |  |              |  |                    | 
|Real Estate                        |  | 2.5% - 5.5%  |  | 4.4%               | 
|                                   |  |              |  |                    | 
|Marketable
 Alternatives           |  | 1.5% - 4.5%  |  | 3.3%               | 
|                                   |  |              |  |                    | 
|Total Fixed
 Income                |  | 25% - 40%    |  | 31.0%              | 
|                                   |  |              |  |                    | 
|Cash                               |  | 0% - 5%      |  | 0.0%               | 

30

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Prohibited InvestmentsNon-Marketable Securities
Short Sales or Purchases on Margin

There have
been no changes in the valuation methodologies used at August 31, 2010, 2009
and 2008. The Plans investment in any category over 10% is diversified through
the use of multiple investment alternatives to reduce risk.

Expected Return on Plan Assets

The expected
long-term rate of return on plan assets should, over time, approximate the
historical long-term returns on pension plan assets. The Companys methodology
for selecting the Expected Return on Plan Assets is to seek guidance from
outside pension experts for an appropriate rate.

The expected
return on total Plan assets is developed by combining the Plans long-term
asset class allocation targets with the long-term return expectations for each
of these asset classes. Expected asset class returns are developed by the
Plans investment consultant. The final assumption is chosen by the company as
their best estimate among a range of possible alternatives, and reviewed for
reasonableness by the Plan actuary.

Contributions

The Company
expects to contribute $1,790,000 to its pension plan in 2011.

Distributions (Expected Future)

The following
benefit payments, which reflect expected future service, as appropriate, are expected
to be paid:

|                         |  |   |            | 
|------------------------ |  | - | ---------- | 
|2011                     |  | $ | 929,000    | 
|2012                     |  |   | 884,000    | 
|2013                     |  |   | 968,000    | 
|2014                     |  |   | 899,000    | 
|2015                     |  |   | 1,038,000  | 
|Thereafter, through 2020 |  |   | 8,426,000  | 
|                         |  | $ | 13,144,000 | 

31

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As a result of
FASB ASC 715, Accounting for Defined Benefit
Pension and Other Postretirement Plans, the Company has recognized a
charge to accumulated other comprehensive loss as follows:

|                              |  |      |            |      |   |            |  |   |           | 
|----------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | --------- | 
|Fiscal
 Year Ended August 31: |  | 2010 |            | 2009 |   | 2008       | 
|                              |  |      |            |      |   |            |  |   |           | 
|Beginning Balance             |  | $    | 12,811,235 |      | $ | 4,890,516  |  |   | 2,368,458 | 
|Minn Dak Farmers Cooperative  |  |      | 6,274,921  |      |   | 7,080,155  |  |   | 2,218,280 | 
|United Sugars                 |  |      | (315,151   | )    |   | 771,949    |  |   | 209,017   | 
|Midwest Agri                  |  |      | 66,152     |      |   | 68,615     |  |   | 94,761    | 
|                              |  |      |            |      |   |            |  |   |           | 
|Ending Balance                |  | $    | 18,837,157 |      | $ | 12,811,235 |  | $ | 4,890,516 | 

Non-qualified benefit plans

The Company
has various non-qualified plans for those employees who meet certain
requirements.

The
Supplemental Executive Retirement Plan (SERP) is designed to provide an
employee who exceeds the annual compensation limit of the Companys defined
benefit plan with a benefit as if the annual compensation limit didnt apply.
This plan is unfunded; therefore there are no assets associated with this plan.
The cumulative liability for this plan for the years ended August 31, 2010,
2009, and 2008 was $304,815, $231,768 and $276,562, respectively.

The
Non-Qualified Deferred Compensation plan allows an employee to defer wages to a
future date. The deferment becomes part of the company assets. To receive
payments under this plan, the participant must meet the requirements of the
plan or separate from the Company. The cumulative assets and liabilities for
this plan for the years ended August 31, 2010, 2009, and 2008 were $411,507,
$365,015 and $385,745, respectively.

Non-Qualified
key-life insurance - The Company has life insurance policies on a former
executive sufficient to cover a $500,000 obligation to the former executives
estate. The policies are self sufficient, and requiring no additional funding
for the term of the policies.

NOTE 13 - FAIR VALUE MEASUREMENTS

Fair value is
defined as the price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. Quoted market prices are generally not available for the
Companys financial instruments. Fair values are based on judgments regarding anticipated
cash flows, future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates involve uncertainties and matters of judgment, and therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | Long-Term Debt, Inclusive of Current Maturities
 - Based upon discounted cash flows and current borrowing rates with similar
 maturities, the book value of the Bank debt of approximately $19.1 million,
 $22.5 million and $15.8 million compares to fair values of $19.2 million,
 $22.8 million and $16.1 million respectively as of August 31, 2010, 2009 and
 2008. Also included in the Companys long-term debt was $19.2 million, $13.5,
 million and $15.5 million in tax exempt bonds, in comparison to the fair
 value of $19.2 million, $13.5 million and $15.5 million respectively for the
 periods ending August 31, 2010, 2009 and 2008.

32

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | o | Proceeds for Bond Issuance Transferred to Restricted Investment included
 in the Companys current bond trust and restricted long-term other assets was
 $7.0 million in comparison to the fair value of $7.0 million as of August 31,
 2010.                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | o | Investments in CoBank, and Investments in Marketing Cooperatives
 - The Company believes it is not practical to estimate the fair value of
 these investments without incurring excessive costs because there is no
 established market for these securities and equity interests, and it is
 inappropriate to estimate future cash flows which are largely dependent on
 future earnings of these organizations.

NOTE 14  SUBSEQUENT EVENTS

The Company
has considered subsequent events through the date the financial statements were
issued.

33

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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/ David H.
 Roche          | 
| |                              | DAVID H.
 ROCHE, PRESIDENT   | 
| |                              | AND CHIEF
 EXECUTIVE OFFICER | 

PURSUANT
TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS
BEEN SIGNED ON BEHALF OF THE REGISTRANT BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON FEBRUARY 22, 2011.

|                       |           |                              |  |         |       |  |  |  |       | 
|---------------------- | --------- | ---------------------------- |  | ------- | ----- |  |  |  | ----- | 
|                       | SIGNATURE |                              |  |         | TITLE |  |  |  | DATED | 
|                      
|/s/ David H.
 Roche    |           | President and                |  | 2-22-11
|David H.
 Roche        |           | Chief Executive Officer      |  |        
|                       |           |                              |  |        
|/s/ Steven
 M. Caspers |           | Executive Vice President and |  | 2-22-11
|Steven M.
 Caspers     |           | Chief Financial Officer      |  |        
|                       |           |                              |  |        
|/s/ Allen E.
 Larson   |           | Controller and               |  | 2-22-11
|Allen E.
 Larson       |           | Chief Accounting Officer     |  |        
|                       |           |                              |  |        
|/s/ Dale
 Blume        |           |                              |  | 2-22-11
|Dale Blume             |           | Director                     |  |        
|                       |           |                              |  |        
|/s/ Dennis
 Butenhoff  |           |                              |  | 2-22-11
|Dennis
 Butenhoff      |           | Director                     |  |        
|                       |           |                              |  |        
|/s/ Brent
 Davison     |           |                              |  | 2-22-11
|Brent
 Davison         |           | Director                     |  |        
|                       |           |                              |  |        
|/s/ Doug
 Etten        |           |                              |  | 2-22-11
|Doug Etten             |           | Director                     |  |        
|                       |           |                              |  |        
|/s/ Patrick Freese     |           |                              |  | 2-22-11
|Patrick Freese         |           | Director                     |  |        
|                       |           |                              |  |        
|/s/ Dennis Klosterman  |           |                              |  | 2-22-11
|Dennis Klosterman      |           | Director                     |  |        
|                       |           |                              |  |        
|/s/ Russell Mauch      |           |                              |  | 2-22-11
|Russell Mauch          |           | Director                     |  |        
|                       |           |                              |  |        
|/s/ C Kevin Kutzer     |           |                              |  | 2-22-11
|C Kevin Kutzer         |           | Director                     |  |        
|                       |           |                              |  |        
|/s/ Charles Steiner    |           |                              |  | 2-22-11
|Charles Steiner        |           | Director                     |  |        

34

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