**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

**FORM 10-K**

 

| **(Mark  One)**                                                                                                       |
|-----------------------------------------------------------------------------------------------------------------------|
| ý  **Annual Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934** |
|                                                                                                                  |
| **For the  fiscal year ended December 31, 2005**                                                                 |
|                                                                                                                  |
| **or**                                                                                                                |
|                                                                                                                  |
| o  **Transition Report Pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934**  |
|                                                                                                                  |
| **For the  transition period  from          **                      |
|                                                                                                                  |
| **Commission  file number: 0-49779**                                                                                  |

 

**Great Plains Ethanol, LLC**

(Exact name of registrant asspecified in the charter)

 

| **South  Dakota**                                                | ** ** | **46-0459188**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification No.) |

 

**27716 462ndAvenue**

**Chancellor,South Dakota**

**57015**

(Address of PrincipalExecutive Offices) (Zip Code)

 

**(605)647-0040**

(Registrant's TelephoneNumber, Including Area Code)

 

Securities registered under Section 12(b) ofthe Exchange Act:

**None**

 

Securities registered under Section 12(g) ofthe Exchange Act:

**Class ACapital Units**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o  Yes    ý  No

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

o  Yes    ý  No

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.    ý  Yes    o  No

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is notcontained in this form, and no disclosure will be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendmentto this Form 10-K.  ý

 

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

o  Yes    ý  No

 

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

o  Yes    ý  No

 

The aggregate market value of the registrant’scapital units held by non-affiliates at June 30, 2005 was approximately$37,850,000. The aggregate market value was computed by reference to the lastsales price during the registrant’s most recently completed second fiscalquarter.

 

As of March 1, 2006, there were 1,513 Class A,200 Class B and 2,029 Class C capital units of the registrantoutstanding.

 

 

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**DOCUMENTSINCORPORATED BY REFERENCE**

 

Part III of Form 10-K - Portions of theProxy/Information Statement for 2006 Annual Meeting of Members.

 

**CAUTIONARYSTATEMENT REGARDINGFORWARD-LOOKING INFORMATION**

 

This AnnualReport on Form 10-K and other reports issued by Great Plains Ethanol, LLC(“we,” “our,” or “us”) including reports filed with the Securities and ExchangeCommission (the “SEC”), contain “forward-looking statements” that deal withfuture results, expectations, plans and performance. Forward-looking statementsmay include statements which use words such as “believe,” “expect,” “anticipate,”“intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,”“future,” “potential,” or the negatives of these words, and all similarexpressions. Forward-looking statements involve numerous assumptions,risks and uncertainties. Our actual results or actual business or otherconditions may differ materially from those contemplated by any forward-lookingstatements. Factors that could cause actual results to differ materially fromthe forward-looking statements include:

 
| • |   | Changes or  developments in laws, regulations or taxes in the ethanol, agricultural or  energy industries; |
|--------|--------|------------------------------------------------------------------------------------------------------------|

 

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| • |   | Damage to or loss of the plant due to casualty, weather, mechanical  failure or any extended or extraordinary maintenance or inspection that may be  required;                                                                                                                                     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | An increase in environmental regulation and scrutiny from federal and  state governments;                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | The loss of any license or permit, the inability to renew such  license or permit, or the inability to obtain approval of any amendment to  such license or permit;                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | An oversupply of ethanol in the market due to an increase in  production from new plants coming into production but which is not met with a  corresponding increase in demand;                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | The ability to retain Broin Management, LLC and its affiliated  companies—Broin and Associates, Inc., Ethanol Products, LLC and Broin  Enterprises, Inc. d/b/a Dakota Gold Marketing—as its plant manager,  licensor of technology, and marketers of ethanol and distillers grains; |
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | Changes in the weather or general economic  conditions impacting the availability and price of corn and natural gas;                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | The availability and cost of raw materials  for the production process, particularly for corn, steam, natural gas and  water;                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | The results of our risk management or hedging  strategies;                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | Changes in our business strategy,  capital improvements or development plans;                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | The availability of additional  capital to support capital improvements and development; and                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                    |
| • |   | Other factors discussed under the  item below entitled “Risk Factors.”                                                                                                                                                                                                                        |

 

We are not under any duty toupdate the forward-looking statements contained in this report. We cannotguarantee future results or performance or what future business conditions willbe like. We caution you not to put undue reliance on any forward-lookingstatements, which speak only as of the date of this report.

 

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**PART I**

 

**Item 1. Description of Business.**

 

**Overview**

 

Great Plains Ethanol, LLC(also referred to as “we,” “our,” or “us”) is a South Dakota limited liabilitycompany that owns and operates an ethanol plant (the “plant”) near Chancellor,South Dakota. We were organized under South Dakota law in 2000, afterwhich we commenced an equity offering and obtained debt financing to build theplant. Our plant commenced operations in March 2003 and began operating atfull name-plate production capacity in April 2003. Our members areprimarily agricultural producers who primarily reside in South Dakota.

 

We are engaged in thebusiness of producing and selling ethanol and distillers grains from theprocessing of corn. Corn is supplied to us by our members and from purchases ofcorn on the open market. The ethanol produced at our plant is sold exclusivelyto a Broin-affiliated company, which markets and sells the ethanol to an arrayof customers located throughout the continental United States. Distillersgrains, a co-product of the production process, are exclusively marketed andsold through another Broin-affiliated company to local, regional and nationallivestock feeders.

 

We plan tomaintain a competitive position in the marketplace by producing high qualityethanol and distillers grains and operating an efficient plant at the lowestpossible costs. To accomplish this, we continue to work with Broin Managementand other Broin-affiliated entities, in searching for new production methodsand technologies and improving the plant’s operations overall.

 

**The Plant**

 

Our plant, which has a name-plate capacity of40 million gallons of ethanol annually, is located near the city of Chancellor,South Dakota. The plant was designed and built by Broin and Associates, Inc.,a company based in Sioux Falls, South Dakota that specializes in the design andconstruction of ethanol plants and development of new technologies in theethanol industry. The plant is managed by Broin Management, a company based inSioux Falls, South Dakota that manages the day-day operations of ethanolplants.

 

In April 2005, we and Broin and Associatesentered into a technology licensing agreement and construction agreement toupgrade the plant and incorporate a new technology called BPXTM. BPXTM is a rawstarch technology that eliminates an energy-intensive cooking step in theproduction process. Construction associated with the plant upgrade wascompleted in August 2005, and we are currently utilizing the new BPXTM process.

 

In August 2005, we entered into anagreement with Broin and Associates to study the feasibility of expanding theplant from a name-plate production capacity of 40 million gallons annually to aname-plate production capacity of 100 million gallons annually.

 

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Following the preliminary results of the study recently presented toour board of managers, we are considering expanding the plant to this newname-plate capacity. In the event that we proceed with expansion, Broin andAssociates will be the design-builder for purposes of the expansion.

 

**Ethanol**

 

The principal productproduced at our plant is ethanol. Ethanol is ethyl alcohol, a fuel componentmade primarily from corn and various other types of grains. Ethanol is used forthree primary purposes: 1) an oxygenated fuel additive; 2) an octane enhancerin fuels; and 3) a non-petroleum based gas substitute. In its primary form,ethanol is mostly used for blending with unleaded gasoline and other fuelproducts. Although not all scientists agree about the existence or extent ofenvironmental benefits associated with the use of ethanol, the use of ethanolis commonly viewed as a way to improve the quality of automobile emissions.When blended with gasoline, ethanol acts as an oxygenate by increasing thepercentage of oxygen in gasoline. As a result, the gasoline burns more cleanly,and releases less carbon monoxide and other exhaust emissions into theatmosphere.

 

An ethanol plant isessentially a fermentation plant. The ground corn, which contains starch, ismixed with water to form a mash. The mash is heated and enzymes added toconvert the starch intofermentablesugars. Fermentation occurs when yeast is added to convert the sugars intoalcohol and carbon dioxide. The carbon dioxide may be captured and sold,if nearby markets exist, or released into the atmosphere. Fermentation producesa mixture called “beer,” which contains about 10% alcohol and 90% water. The “beer”is then boiled in a distillation column to separate the water, resulting inethyl alcohol that is 90 to 95% pure. The mixture then goes through adehydration process, which increases the alcohol content to 99% orgreater. This product is then mixed with a certified denaturant to makethe product unfit for human consumption and commercially saleable as a fuelcomponent.

 

**Ethanol Marketing and Distribution**

 

We market and sell all ofthe ethanol produced at the plant to Ethanol Products, LLC, a Broin affiliate,pursuant to a marketing and service agreement. Ethanol Products, in turn,markets and sells the ethanol to major, multi-national oil companies withblending and refinery facilities located throughout the continental UnitedStates. The price we receive from the sale is based upon various types ofsupply contracts between us and Ethanol Products and is fixed upon the transferof title to Ethanol Products.

 

The ethanol produced at ourplant is shipped using rail cars operated by Ethanol Products or truckssupplied by companies with which Ethanol Products contracts. Transfer of titleand risk of loss is made to Ethanol Products upon the loading of ethanol ontothe railcars and trucks at the plant. The plant is served by rail facilitiesand connections to the Burlington Northern Santa Fe railroad system, whichfacilitate the transportation of approximately 90% of the ethanol produced atthe plant. It is also served

 

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by multiple South Dakota state highways andInterstate Highways 29 and 90, which provide transportation links in alldirections.

 

The marketing agreementbetween Ethanol Products and us is in effect until October 2013, andautomatically renews for three-year terms unless terminated by either partywith three months advance notice prior to the end of the term. EthanolProducts charges us a marketing and service fee based upon each gallon ofethanol sold. Shipping costs in transporting the ethanol are borne by us andare included in gross revenues and cost of revenues. In the event that ourrelationship with Ethanol Products is interrupted for any reason, we believethat another entity to market the ethanol could be located. Any interruption,however, could temporarily disrupt the sale of ethanol and adversely affect ourbusiness and operations.

 

**Distillers Grains**

 

A principal co-product ofthe ethanol production process is distillers grains. Distillers grains are ahigh protein, high energy feed supplement marketed primarily to the dairy,beef, sheep, swine, and poultry industries. It is a popular animal feedsupplement, with millions of tons produced in North America annually. Mostdistillers grains are sold for use in animal feeds within the United States,and a small percentage is exported primarily to Canada, Europe and Mexico. Thevast majority of it is fed to ruminant animals in the dairy and beef sector. Newtechnologies, which have allowed for the production of a more consistent,quality product, have helped create a market for distillers grains in the swineand poultry industries as well.

 

Dry mill ethanol processinggenerally produces three forms of distillers grains, all of which differ inmoisture content and shelf life: 1) distillers dried grains with solubles,or DDGS; 2) distillers wet grains, or “wet cake”; and 3) modified distillersgrains. Distillers wet grains are processed corn mash that does not go througha drying process and contains approximately 70% moisture content. Distillerswet grains have a short shelf life of approximately three days and can be soldto livestock producers within the immediate vicinity of the plant. Modifieddistillers grains are distillers wet grains that have been dried to anapproximately 45% moisture content. Modified distillers grains have a slightlylonger shelf lifeand areoften sold to nearby livestock producers. DDGS are distillers wet grains driedto an approximately 8% to 10% moisture content. DDGS have an almost indefiniteshelf life and may be sold and shipped to any market regardless of itsvicinity to the plant.

 

**Distillers Grains Marketing andDistribution**

 

We contract with BroinEnterprises, Inc. d/b/a Dakota Gold Marketing, a Broin affiliate, tomarket all of the distillers grains produced at the plant. There are fourvariations of distillers grains produced by us and marketed through Dakota GoldMarketing: 1) Dakota GoldTM; 2) DDGS; 3) modified distillers wet grains; and 4)distillers wet grains. Dakota GoldTM is DDGS, plus a certification from DakotaGold Marketing indicating that DDGS meet certain processing and specificationsstandards.

 

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Sales of Dakota GoldTM make up the majority of ourtotal sales of distillers grains. The production and sale of distillersmodified wet grains and distillers wet grains vary depending upon the generaloperations of the plant and actual market conditions for each product.

 

Dakota Gold Marketingmarkets our distillers grains to local, regional and national markets. Weship Dakota GoldTM and DDGS primarily to markets in the western and southwesternUnited States, while shipments of modified distillers wet grains and distillerswet grains are shipped to local and regional markets. Shipments of Dakota GoldTMand DDGS are primarily done by rail because of a longer shelf life, whileshipments of modified distillers wet grains and distillers wet grains are doneby truck. We also contract with Dakota Gold Marketing for the use ofrailcars in transporting Dakota GoldTM and DDGS, paying Dakota Gold Marketing aflat fee per railcar in addition to a railcar mileage fee, depending upon thedestination, in connection with each shipment. All shipping costsassociated with transporting distillers grains from the plant to customers areborne by us and are included in gross revenues and cost of revenues. Althoughwe rely on Dakota Gold Marketing to market 100% of our distillers grains,Dakota Gold Marketing is not dependent upon one or a limited number of majorcustomers.

 

Our marketing contract withDakota Gold Marketing is in effect until October 2013. It automaticallyrenews for three-year periods unless discontinued by either party upon at leastthree months advanced written notice prior to the end of the term. We payDakota Gold Marketing a marketing fee based on gross monthly sales ofdistillers grains. We are responsible for all accounts receivable losses, whileDakota Gold Marketing is responsible for invoicing all loads and receivingpayments from the customers, the payment of which is remitted to us.

 

**Dependence upon a Single or FewCustomers**

 

We, as discussed above, aresubstantially dependent upon Ethanol Products for the purchase, marketing anddistribution of ethanol. Ethanol Products purchases 100% of the ethanolproduced at the plant, all of which is marketed and distributed to itscustomers.

 

**Sources and Availability of RawMaterials**

 

**Corn**. The major raw material required for theproduction of ethanol and distillers grains is corn. To operate at a name-platecapacity of 40 million gallons annually, our plant requires approximately 14million bushels of corn annually. These bushels are supplied by our Class Amembers on a trimester basis and from local corn producers and elevators.

 

Class A members supplyand deliver approximately 19% of the plant’s corn requirements based on a corndelivery obligation. Class A members receive payment for theirdelivery of corn based on an average of market prices at predeterminedelevators, or

 

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at individually contracted prices, plus afreight allowance. The remaining balance of our corn requirements is suppliedfrom purchases on the open market, namely from local corn producers andelevators, based upon individually contracted prices. Our Class A members may applyon an annual basis to be released from the corn delivery obligation if any ofthe following conditions apply: 1) the member historically has not producedenough corn to meet the requirement; 2) the member does not produce enoughgrain to meet the requirement because the member’s corn is fed to livestock; or3) the member produces and stores the majority of the member’s corn greaterthan 40 miles from our plant. As of December 31, 2005, approximately 22%of our Class A members have been granted an exemption from the corndelivery obligation.

 

The plant’s location inTurner County, South Dakota, the only ethanol plant currently located in TurnerCounty, provides an ample supply of corn to meet and exceed name-plateproduction capacity of the plant. In 2005, approximately 16.8 million bushelsof corn for grain were produced in Turner County and over 101 million bushelsof corn for grain were produced in the nearby counties of Lincoln, Hutchinson,McCook, Hanson, Minnehaha, Yankton, and Union.

 

If we formallydecide to proceed with expansion of the plant from a name-plate capacity of 40million gallons to 100 million gallons annually, we expect that the plant’scorn requirement will increase to approximately 37 million bushels of cornannually. We believe that our plant’s location in Turner County would continueto provide an ample supply of corn to meet this new requirement. However,if a local farmer-based group in Turner County decides to build an ethanolplant in Turner County with a production capacity of 100 million gallons ofethanol annually, it is far less likely that the local corn supply could supporttwo plants.

 

#### **Natural Gas**

####  

The production of ethanol atour plant requires a significant amount of natural gas. Natural gas isnecessary to fuel the boilers that generate steam for the cooking, evaporation,and distillation processes, as well as to fuel the drying of distillers grains.We contract with NorthWestern Corporation of Sioux Falls, South Dakota, tosupply and distribute natural gas to the plant. Our agreement with NorthWesternis in effect until 2018. The agreement requires that we use a minimum amount ofnatural gas on an annual basis to cover NorthWestern’s previously incurredcosts of constructing a pipeline to our plant. In the event that we do not usea minimum amount of natural gas, NorthWestern is entitled to draw on anirrevocable standby letter of credit that we provided in May 2003. Sinceoperations were commenced, however, we have used the minimum amount of naturalgas required by NorthWestern, and we have not experienced any interruption inthe supply of natural gas as all our requirements have been met.

 

**Water**

 

The production of ethanoland distillers grains requires a significant amount of water. Water supply andwater quality are important requirements to produce ethanol.

 

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All of our water requirements are currently suppliedthrough three existing wells located near the plant. Since operations werecommenced, we have not experienced any interruption or shortages in the supplyof water as all our requirements have been met. In January 2006, wepurchased two small parcels of real estate near the plant in order to installback-up ground wells and in the event of expansion of the plant.

 

**Electricity**

 

The production of ethanoland distillers grains requires a significant amount of electricity. Electricityis needed for lighting purposes and to power much of the machinery andequipment. We contract with Southeastern Electric Cooperative of Marion, SouthDakota, to provide all of our electric power and energy requirements for theplant. The agreement is in effect indefinitely unless we breach the agreement,at which time Southeastern may terminate the agreement. Since operationswere commenced, we have not experienced any shortages in the supply ofelectricity as all our requirements have been met.

 

**Research and Development**

 

We do not conduct any research and developmentassociated with the development of new technologies for use in producingethanol and distillers grains. We rely instead on Broin and Associates toresearch and develop new technologies in effort to improve the productionprocess and end products. On April 4, 2005, we entered into a new licensing agreement and addendumwith Broin and Associates. Under the agreement, in exchange for an initial andannual licensing fee, Broin licenses to us the right to use certain technologyand patents owned, developed, or obtained by Broin and Associates and whichrelate to the ethanol and distillers grains production process. The term ofthis agreement is for so long as the term of the management agreement betweenus and Broin Management, or if we decide to no longer use any of thetechnology. Under the addendum, in exchange for an initial technology fee,Broin and Associates licenses to us the right to use a newly developed rawstarch technology called BPXTM.

 

**Competition**

 

We are in direct competitionwith numerous ethanol and distillers grains producers, many of which havesignificantly greater resources than we do. Additional ethanol and distillersgrains producers will continue to enter the market if the demand andgovernmental supports for ethanol continue to increase.

 

The ethanol industry hasgrown to over 96 production facilities in the United States with a totalproduction capacity of approximately 4.4 billion gallons annually.  The largest ethanol producers include AbengoaBioenergy Corp., Archer Daniels Midland, Cargill, New Energy Corp., MGPIngredients, Inc., VeraSun Energy Corporation and Aventine RenewableEnergy, Inc., all of which are capable of producing more ethanol than weproduce. There are also numerous ethanol plants of a similar size to our plantlocated in the Midwest. In addition, at least 34 new ethanol plants, along with

 

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nine existing plants that are undergoing expansion,are set to come into production in the next 18 months, thus adding another 2.1billion gallons of production capacity.

 

In South Dakota, excludingour plant, there are currently ten plants in production with a total annualproduction capacity of approximately 377 million gallons of ethanol, andanother two in the construction phase with a expected production capacity ofapproximately 110 million gallons annually. Moreover, in Turner County, SouthDakota, the county where our plant is located, a local farmer-based group haspublicly discussed tentative plans to build a plant with a production capacityof 100 million gallons of ethanol annually.

 

Despite this concentrationand growth, we believe that we will continue to compete effectively with theseproducers because of the advanced technology incorporated into the areas ofproduction and product development through Broin and Associates and theaggressive marketing strategies pursued by our Broin-affiliated marketers. However,it may not be feasible for us to proceed with an expansion of the plant ifanother ethanol plant is built in Turner County, South Dakota, as it couldincrease the cost of corn to the plant.

 

The following tableidentifies most of the producers in the United States along with their productioncapacities.

 
| **Company**                        | ** ** | **Location**      | ** ** | **Feedstock** | ** ** | **Current  Capacity  (mmgy)** | ** ** | **Under  Construction/  Expansions  (mmgy)** | ** ** |
|------------------------------------|------------|-------------------|------------|---------------|------------|-------------------------------|------------|----------------------------------------------|------------|
| Abengoa  Bioenergy Corp.           |       | York,  NE         |       | Corn/milo     |       | 55                            |       |                                         |       |
|                               |       | Colwich,  KS      |       |          |       | 25                            |       |                                         |       |
|                               |       | Portales, NM      |       |          |       | 30                            |       |                                         |       |
|                               |       | Ravenna, NE       |       |          |       |                          |       | 88                                           |       |
| ACE  Ethanol, LLC                  |       | Stanley,  WI      |       | Corn          |       | 39                            |       |                                         |       |
| Adkins  Energy, LLC*               |       | Lena,  IL         |       | Corn          |       | 40                            |       |                                         |       |
| Advanced  Bioenergy                |       | Fairmont,  NE     |       | Corn          |       |                          |       | 100                                          |       |
| AGP*                               |       | Hastings,  NE     |       | Corn          |       | 52                            |       |                                         |       |
| Agra  Resources Coop. d.b.a. EXOL* |       | Albert  Lea, MN   |       | Corn          |       | 40                            |       | 8                                            |       |
| Agri-Energy,  LLC*                 |       | Luverne,  MN      |       | Corn          |       | 21                            |       |                                         |       |
| Alchem  Ltd. LLLP                  |       | Grafton,  ND      |       | Corn          |       | 10.5                          |       |                                         |       |
| Al-Corn  Clean Fuel*               |       | Claremont,  MN    |       | Corn          |       | 35                            |       |                                         |       |
| Amaizing  Energy, LLC*             |       | Denison,  IA      |       | Corn          |       | 40                            |       |                                         |       |
| Archer  Daniels Midland            |       | Decatur,  IL      |       | Corn          |       | 1,070                         |       |                                         |       |
|                               |       | Cedar  Rapids, IA |       | Corn          |       |                          |       |                                         |       |
|                               |       | Clinton,  IA      |       | Corn          |       |                          |       |                                         |       |
|                               |       | Columbus,  NE     |       | Corn          |       |                          |       |                                         |       |
|                               |       | Marshall,  MN     |       | Corn          |       |                          |       |                                         |       |

 

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|                                  |   | Peoria,  IL          |   | Corn        |   |   |   |   |   |
|---------------------------------------|--------|----------------------|--------|-------------|--------|--------|--------|--------|--------|
|                                  |   | Wallhalla,  ND       |   | Corn/barley |   |   |   |   |   |
| ASAlliances  Biofuels, LLC            |   | Albion,  NE          |   | Corn        |   |   |   | 100    |   |
|                                  |   | Linden,  IN          |   | Corn        |   |   |   | 100    |   |
| Aventine  Renewable Energy, LLC       |   | Pekin,  IL           |   | Corn        |   | 100    |   | 57     |   |
|                                  |   | Aurora,  NE          |   | Corn        |   | 50     |   |   |   |
| Badger  State Ethanol, LLC*           |   | Monroe,  WI          |   | Corn        |   | 48     |   |   |   |
| Big  River Resources, LLC*            |   | West  Burlington, IA |   | Corn        |   | 40     |   |   |   |
| Broin  Enterprises, Inc.         |   | Scotland,  SD        |   | Corn        |   | 9      |   |   |   |
| Bushmills  Ethanol, Inc.*        |   | Atwater,  MN         |   | Corn        |   |   |   | 40     |   |
| Cargill, Inc.                    |   | Blair,  NE           |   | Corn        |   | 85     |   |   |   |
|                                  |   | Eddyville,  IA       |   | Corn        |   | 35     |   |   |   |
| Central  Indiana Ethanol, LLC         |   | Marion,  IN          |   | Corn        |   |   |   | 40     |   |
| Central  MN Ethanol Coop*             |   | Little  Falls, MN    |   | Corn        |   | 21.5   |   |   |   |
| Central  Wisconsin Alcohol            |   | Plover,  WI          |   | Seed corn   |   | 4      |   |   |   |
| Chief  Ethanol                        |   | Hastings,  NE        |   | Corn        |   | 62     |   |   |   |
| Chippewa  Valley Ethanol Co.*         |   | Benson,  MN          |   | Corn        |   | 45     |   |   |   |
| Commonwealth  Agri-Energy, LLC*       |   | Hopkinsville,  KY    |   | Corn        |   | 24     |   | 9      |   |
| Corn,  LP*                            |   | Goldfield,  IA       |   | Corn        |   | 50     |   |   |   |
| Cornhusker  Energy Lexington, LLC     |   | Lexington,  NE       |   | Corn        |   |   |   | 40     |   |
| Corn  Plus, LLP*                      |   | Winnebago,  MN       |   | Corn        |   | 44     |   |   |   |
| Dakota  Ethanol, LLC*                 |   | Wentworth,  SD       |   | Corn        |   | 50     |   |   |   |
| DENCO,  LLC*                          |   | Morris,  MN          |   | Corn        |   | 21.5   |   |   |   |
| E3  Biofuels                          |   | Mead,  NE            |   | Corn        |   |   |   | 24     |   |
| East  Kansas Agri-Energy, LLC*        |   | Garnett,  KS         |   | Corn        |   | 35     |   |   |   |
| ESE  Alcohol Inc.                     |   | Leoti,  KS           |   | Seed corn   |   | 1.5    |   |   |   |
| Ethanol2000,  LLP*                    |   | Bingham  Lake, MN    |   | Corn        |   | 32     |   |   |   |
| Frontier  Ethanol, LLC                |   | Gowrie,  IA          |   | Corn        |   |   |   | 60     |   |
| Front  Range Energy, LLC              |   | Windsor,  CO         |   | Corn        |   |   |   | 40     |   |
| Glacial  Lakes Energy, LLC*           |   | Watertown,  SD       |   | Corn        |   | 50     |   |   |   |
| Golden  Cheese Company of California* |   | Corona,  CA          |   | Cheese whey |   | 5      |   |   |   |
| Golden  Grain Energy, LLC*            |   | Mason  City, IA      |   | Corn        |   | 40     |   |   |   |
| Golden  Triangle Energy, LLC*         |   | Craig,  MO           |   | Corn        |   | 20     |   |   |   |
| Grain  Processing Corp.               |   | Muscatine,  IA       |   | Corn        |   | 20     |   |   |   |
| Granite  Falls Energy, LLC            |   | Granite  Falls, MN   |   | Corn        |   | 45     |   |   |   |
| Great  Plains Ethanol, LLC*           |   | Chancellor,  SD      |   | Corn        |   | 50     |   |   |   |
| Green  Plains Renewable Energy        |   | Shenandoah,  IA      |   | Corn        |   |   |   | 50     |   |
| Hawkeye  Renewables, LLC              |   | Iowa  Falls, IA      |   | Corn        |   | 50     |   | 50     |   |
|                                  |   | Fairbank,  IA        |   | Corn        |   |   |   | 100    |   |

 

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| Heartland  Corn Products*            |   | Winthrop,  MN       |   | Corn               |   | 36     |   |   |   |
|--------------------------------------|--------|---------------------|--------|--------------------|--------|--------|--------|--------|--------|
| Heartland  Grain Fuels, LP*          |   | Aberdeen,  SD       |   | Corn               |   | 9      |   |   |   |
|                                 |   | Huron,  SD          |   | Corn               |   | 12     |   | 18     |   |
| Heron  Lake BioEnergy, LLC           |   | Heron  Lake, MN     |   | Corn               |   |   |   | 50     |   |
| Horizon  Ethanol, LLC                |   | Jewell,  IA         |   | Corn               |   | 60     |   |   |   |
| Husker  Ag, LLC*                     |   | Plainview,  NE      |   | Corn               |   | 26.5   |   |   |   |
| Illinois  River Energy, LLC          |   | Rochelle,  IL       |   | Corn               |   |   |   | 50     |   |
| Iowa  Ethanol, LLC*                  |   | Hanlontown,  IA     |   | Corn               |   | 50     |   |   |   |
| Iroquois  Bio-Energy Company, LLC    |   | Rensselaer,  IN     |   | Corn               |   |   |   | 40     |   |
| James  Valley Ethanol, LLC           |   | Groton,  SD         |   | Corn               |   | 50     |   |   |   |
| KAAPA  Ethanol, LLC*                 |   | Minden,  NE         |   | Corn               |   | 40     |   |   |   |
| Land  O’ Lakes*                 |   | Melrose,  MN        |   | Cheese whey        |   | 2.6    |   |   |   |
| Lincolnland  Agri-Energy, LLC*       |   | Palestine,  IL      |   | Corn               |   | 48     |   |   |   |
| Lincolnway  Energy, LLC*             |   | Nevada,  IA         |   | Corn               |   |   |   | 50     |   |
| Liquid  Resources of Ohio            |   | Medina,  OH         |   | Waste Beverage     |   | 3      |   |   |   |
| Little  Sioux Corn Processors, LP*   |   | Marcus,  IA         |   | Corn               |   | 52     |   |   |   |
| Merrick/Coors                        |   | Golden,  CO         |   | Waste beer         |   | 1.5    |   | 1.5    |   |
| MGP  Ingredients, Inc.          |   | Pekin,  IL          |   | Corn/wheat starch  |   | 78     |   |   |   |
|                                 |   | Atchison,  KS       |   |               |   |   |   |   |   |
| Michigan  Ethanol, LLC               |   | Caro,  MI           |   | Corn               |   | 50     |   |   |   |
| Mid  America Agri Products/Wheatland |   | Madrid,  NE         |   | Corn               |   |   |   | 44     |   |
| Mid-Missouri  Energy, Inc.*     |   | Malta  Bend, MO     |   | Corn               |   | 45     |   |   |   |
| Midwest  Grain Processors*           |   | Lakota,  IA         |   | Corn               |   | 95     |   |   |   |
|                                 |   | Riga,  MI           |   | Corn               |   |   |   | 57     |   |
| Midwest  Renewable Energy, LLC       |   | Sutherland,  NE     |   | Corn               |   | 17.5   |   | 4.5    |   |
| Minnesota  Energy*                   |   | Buffalo  Lake, MN   |   | Corn               |   | 18     |   |   |   |
| Missouri  Ethanol                    |   | Laddonia,  MO       |   | Corn               |   |   |   | 45     |   |
| New  Energy Corp.                    |   | South  Bend, IN     |   | Corn               |   | 102    |   |   |   |
| North  Country Ethanol, LLC*         |   | Rosholt,  SD        |   | Corn               |   | 20     |   |   |   |
| Northeast  Missouri Grain, LLC*      |   | Macon,  MO          |   | Corn               |   | 45     |   |   |   |
| Northern  Lights Ethanol, LLC*       |   | Big  Stone City, SD |   | Corn               |   | 50     |   |   |   |
| Northstar  Ethanol, LLC              |   | Lake  Crystal, MN   |   | Corn               |   | 52     |   |   |   |
| Otter  Creek Ethanol, LLC*           |   | Ashton,  IA         |   | Corn               |   | 55     |   |   |   |
| Pacific  Ethanol                     |   | Madera,  CA         |   | Corn               |   |   |   | 35     |   |
| Panhandle  Energies of Dumas, LP     |   | Dumas,  TX          |   | Corn/Grain Sorghum |   |   |   | 30     |   |
| Parallel  Products                   |   | Louisville,  KY     |   | Beverage waste     |   | 5.4    |   |   |   |

 

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|                                         |   | R.  Cucamonga, CA   |   |                       |   |   |   |   |   |
|----------------------------------------------|--------|---------------------|--------|----------------------------|--------|--------|--------|--------|--------|
| Permeate  Refining                           |   | Hopkinton,  IA      |   | Sugars & starches |   | 1.5    |   |   |   |
| Phoenix  Biofuels                            |   | Goshen,  CA         |   | Corn                       |   | 25     |   |   |   |
| Pinal  Energy, LLC                           |   | Maricopa,  AZ       |   | Corn                       |   |   |   | 55     |   |
| Pine  Lake Corn Processors, LLC*             |   | Steamboat  Rock, IA |   | Corn                       |   | 20     |   |   |   |
| Platte  Valley Fuel Ethanol, LLC             |   | Central  City, NE   |   | Corn                       |   | 40     |   |   |   |
| Prairie  Ethanol, LLC                        |   | Loomis,  SD         |   | Corn                       |   |   |   | 60     |   |
| Prairie  Horizon Agri-Energy, LLC            |   | Phillipsburg,  KS   |   | Corn                       |   |   |   | 40     |   |
| Pro-Corn,  LLC*                              |   | Preston,  MN        |   | Corn                       |   | 42     |   |   |   |
| Quad-County  Corn Processors*                |   | Galva,  IA          |   | Corn                       |   | 27     |   |   |   |
| Red  Trail Energy, LLC                       |   | Richardton,  ND     |   | Corn                       |   |   |   | 50     |   |
| Redfield Energy, LLC                         |   | Redfield,  SD       |   | Corn                       |   |   |   | 50     |   |
| Reeve  Agri-Energy                           |   | Garden  City, KS    |   | Corn/milo                  |   | 12     |   |   |   |
| Siouxland  Energy & Livestock Coop* |   | Sioux  Center, IA   |   | Corn                       |   | 25     |   |   |   |
| Siouxland  Ethanol, LLC                      |   | Jackson,  NE        |   | Corn                       |   |   |   | 50     |   |
| Sioux  River Ethanol, LLC*                   |   | Hudson,  SD         |   | Corn                       |   | 55     |   |   |   |
| Sterling  Ethanol, LLC                       |   | Sterling,  CO       |   | Corn                       |   | 42     |   |   |   |
| Tall  Corn Ethanol, LLC*                     |   | Coon  Rapids, IA    |   | Corn                       |   | 49     |   |   |   |
| Tate &  Lyle                        |   | Loudon,  TN         |   | Corn                       |   | 67     |   |   |   |
| The  Andersons Albion Ethanol LLC            |   | Albion,  MI         |   | Corn                       |   |   |   | 55     |   |
| Trenton  Agri Products, LLC                  |   | Trenton,  NE        |   | Corn                       |   | 35     |   | 10     |   |
| United  WI Grain Producers, LLC*             |   | Friesland,  WI      |   | Corn                       |   | 49     |   |   |   |
| US  BioEnergy Corp.                          |   | Albert  City, IA    |   | Corn                       |   |   |   | 100    |   |
|                                         |   | Lake  Odessa, MI    |   | Corn                       |   |   |   | 45     |   |
| U.S.  Energy Partners, LLC                   |   | Russell,  KS        |   | Milo/wheat starch          |   | 48     |   |   |   |
| Utica  Energy, LLC                           |   | Oshkosh,  WI        |   | Corn                       |   | 48     |   |   |   |
| Val-E  Ethanol, LLC                          |   | Ord,  NE            |   | Corn                       |   |   |   | 45     |   |
| VeraSun  Energy Corporation                  |   | Aurora,  SD         |   | Corn                       |   | 230    |   | 110    |   |
|                                         |   | Ft.  Dodge, IA      |   | Corn                       |   |   |   |   |   |
|                                         |   | Charles City, IA    |   | Corn                       |   |   |   |   |   |
| Voyager  Ethanol, LLC*                       |   | Emmetsburg,  IA     |   | Corn                       |   | 52     |   |   |   |
| Western  Plains Energy, LLC*                 |   | Campus,  KS         |   | Corn                       |   | 45     |   |   |   |
| Western  Wisconsin Renewable Energy, LLC*    |   | Boyceville,  WI     |   | Corn                       |   |   |   | 40     |   |
| Wind  Gap Farms                              |   | Baconton,  GA       |   | Brewery waste              |   | 0.4    |   |   |   |

 

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| Wyoming  Ethanol                            |       | Torrington,  WY |   | Corn   |   | 5          |   |     |       |
|---------------------------------------------|------------|-----------------|--------|--------|--------|------------|--------|----------|------------|
| Xethanol  BioFuels, LLC                     |       | Blairstown,  IA |   | Corn   |   | 5          |   |     |       |
| ****Total Current Capacity****              | ** ** |            |   |   |   | **4441.4** |   |     |       |
| ****Total Under Construction/Expansions**** | ** ** |            |   |   |   |       |   | **2041** | ** ** |
| **Total Capacity**                          | ** ** |            |   |   |   | **6482.4** |   |     |       |

 

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* farmer-owned

 

RenewableFuels Association

Updated: March 3, 2006

 

As the demand for ethanolincreases, we may have to compete with international ethanol producers,which may be able to produce and sell ethanol more inexpensively. Brazilis currently the world’s largest producer and exporter of ethanol. In 2004, forexample, Brazil produced 3.9 billion gallons of ethanol and shippedapproximately 112 million gallons of ethanol into the United States. Dependingon the price of sugar, ethanol is produced more cheaply in Brazil than in theUnited States because of the use of sugarcane, a less expensive alternative tocorn in the production process. Because of various tariffs on the importationof ethanol into the United States, the price of ethanol produced in the UnitedStates is currently more competitive than ethanol imported from Brazil. In theevent that these tariffs are reduced or eliminated, however, the price ofethanol produced in the United States may become less competitive, whichcould adversely impact our ability to sell ethanol.

 

In addition, the CarribeanBasin Initiative allows for ethanol produced in participating Carribean Basincountries to be imported into the United States duty free. Large ethanolproducers, like Cargill, have expressed an interest in building ethanol plantsin these countries, such as El Salvador. While the Carribean Basin Initiativecaps the amount of duty free ethanol imported into the United States at 7% ofthe total United States’ production from the previous year, as total productionin the United States grows, the amount of ethanol produced from the Carribeanarea and sold in the United States will also grow, which could impact ourability to sell ethanol.

 

Like many ethanol producers,we compete with producers of methyl tertiary butyl ether, or MTBE. MTBE isanother oxygenate commonly used in fuels for compliance with the federal CleanAir Act mandates and is a competitor of ethanol in the oxygenate market. Manymajor oil companies produce MTBE and, because it is petroleum-based, its use issupported by these companies. These companies have significantly greaterresources than we do with which to market MTBE, influence legislation, andinfluence public perception of MTBE. These companies also have sufficientresources to begin production of ethanol should they choose to do so. WhileMTBE still remains a competitor, it is increasingly the subject of seriousenvironmental concerns. These concerns have resulted in several states enactinglaws prohibiting the use of MTBE as an oxygenate in fuels. As more statescontinue to ban the use of MTBE, MTBE is expected to become less competitivewith ethanol.

 

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Alternative fuels, gasolineoxygenates, and ethanol production methods are continually under development byethanol and oil companies with far greater resources than we do. New productsor methods of ethanol production developed by larger, better financedcompetitors could provide them with competitive advantages over us and harm ourbusiness.

 

**Federal and State GovernmentSupports**

 

Various federal and statelaws, regulations, and programs have led to an increasing use of ethanol infuel, including subsidies, tax credits, policies and other forms of financialincentives. Some of these laws provide economic incentives to produce and blendethanol and others mandate the use of ethanol.

 

Prior to theEnergy Policy Act of 2005 (EPACT), which was signed into law on August 8,2005, ethanol sales were favorably affected by the federal Clean Air ActAmendments of 1990. These amendments required, among other things, the sale ofreformulated gasoline in certain major urban areas to reduce pollutants, andthat the reformulated gasoline contain at least 2% oxygen by weight. Refinersmet the oxygenated requirement by adding ethers or ethanol, any of whichcontained oxygens and other elements. Until recently, MTBE was the mostcommonly used oxygenate until the use of it declined due to environmentalconcerns and after being banned in several states.

 

EPACT repealedthe Clean Air Act requirement to use oxygenates in reformulated gasoline. Inplace of this requirement, it established a 7.5 billion gallon Renewable FuelsStandard (RFS). The RFS requires 4.0 billion gallons of ethanol or otherrenewable fuel be used in motor vehicles in 2006 and 7.5 billion gallons ofethanol or other renewable fuel be used in motor vehicles by 2012. In addition,EPACT expands who qualifies for the federal small producer tax credit. Producerswith a production capacity of up to 60 million gallons annually now qualify forthe credit of $0.10 per gallon of ethanol produced, not to exceed $1.5 millionper year per producer. The credit is effective for producers with taxable yearsending after August 8, 2005. Because the plant’s production capacity iscurrently less than 60 million gallons annually, the credit will be passedthrough to us and our members for the 2005 tax year.

 

Furthermore, the use ofethanol as an oxygenate to comply with federal mandates has been aided byfederal tax policy. Prior to the enactment of the American Jobs Creation Act of2004, which went effective on January 1, 2005, the Energy Tax Act of 1978exempted ethanol blended gasoline from the full federal excise tax as a meansof stimulating the development of a domestic ethanol industry and mitigatingthe United States’ dependence on foreign oil. The exemption allowed ethanol tobe sold by blenders at prices that were competitive with other less expensiveadditives and gasoline. Equivalent to providing a per gallon “equalization”payment, the exemption allowed blenders to pay more for ethanol than thewholesale price of gasoline and still retain the same profit margins. Theequalization payment consisted of an exemption of $0.052 per gallon from theexcise tax of $0.184 per gallon for a 10% ethanol blend, with lower exemptionamounts available for a 7.7% and 5.7% ethanol blend.

 

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The American Job CreationsAct replaced the federal excise tax exemption with the Volumetric EthanolExcise Tax Credit (“VEETC”). VEETC provides an excise tax credit of $0.51 pergallon of ethanol blended into gasoline. For example, for a 10% and 85% ethanolblend, a blender can claim a credit of $0.051 and $0.4335 per gallon ofgasoline, respectively. Basing the credit on any volume of ethanol blended, asopposed to a more restrictive blend percentage under the prior exemption, theVEETC is expected to allow refineries greater flexibility and incentive toblend as much or as little to meet their octane or volume needs.  The VEETC is scheduled to expire on December 31,2010.

 

In addition to tax policy, theproduction of ethanol has been aided by federal and state government productionincentives. Congress provides an ethanol production incentive to ethanolproducers through the United States Department of Agriculture Commodity CreditCorporation’s Bioenergy Program. Under the program, incentive payments areallocated to ethanol producers based primarily on an increase in gallons ofethanol produced compared to the prior year’s production. Revenue from theprogram, however, is expected to be adversely affected by an increase inparticipation by new and expanding plants in the United States, a decrease infederal funding under the program, and a termination of the program on September 30,2006.

 

In South Dakota, the stateprovides an incentive production payment to ethanol producers operating inSouth Dakota. The production incentive consists of a direct payment to SouthDakota ethanol producers of up to $0.20 per gallon, which is divided amongproducers of fuel ethanol within South Dakota up to a maximum of $1 million peryear per plant (a maximum of $83,333 per month in 2005) and a maximum of $10million over the life of a plant. The program, however, caps the payments thatcan be distributed to all plants based in South Dakota in a program year to nomore than $7 million in payments in 2006 (program year ending June 30,2006) and $7 million in 2007. The payments are distributed to each plant inproportion to the total number of gallons of ethanol produced and marketedannually by all the plants in South Dakota. As more plants commence productionor existing plants increase production, each plant may receive a lowerproportionate share of the maximum payment under the program. Due to anincrease in claims made for payment from new and existing plants during the2005 program year, the funds were depleted in full midway through the 2005program year. It is uncertain whether the funds under the program will bedepleted before the end of the 2006 program year, much of which is dependentupon any new production and participation in South Dakota in 2006.

 

The revocation, amendment,or non-renewal of any one or more of these laws, regulations or programs, or alack of funding under the programs, could adversely affect the future use ofethanol and operations in a material way. Any material reduction of the use ofethanol would have an adverse effect on our profitability and viability.

 

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#### **Other Factors Affecting Demand and Supply**

 

In addition to government supports that encouragethe production and use of ethanol, demand for ethanol may increase as aresult of increased consumption of E85 fuel. E85 fuel is a blend of 70% to 85%ethanol and gasoline. According to the Energy Information Administration, E85consumption is projected to increase from a national total of 11 milliongallons in 2003 to 47 million gallons in 2025. And, according to theNational Ethanol Vehicle Coalition, there are currently about 6.0 millionflexible fuel vehicles capable of operating on E85 in the United States andover 460 retail stations supplying it. Automakers have also indicated plans toproduce an estimated one million more flexible fuel vehicles per year.

 

**Environmental Regulation and Costs**

 

We are subject to extensiveenvironmental regulation at the federal and state levels. The federalenvironmental regulations with which we must comply are promulgated by theUnited States Environmental Protection Agency pursuant to the federal Clean AirAct. The state environmental regulations with which we must comply arepromulgated by the South Dakota Department of Environment and NaturalResources. The Environmental Protection Agency and the Department ofEnvironment and Natural Resources regulate the air quality at the plant, inparticular the emissions into the air. The Department of Environment andNatural Resources also regulates water collection and discharge. In addition toits own enforcement authority under this law, the Environmental ProtectionAgency has delegated permitting and enforcement authority to the Department ofEnvironment and Natural Resources. Our plant requires the following permitsfrom these and other agencies:

 

• We have a Title Five Operating Permit fromthe Department of Environment and Natural Resources. The Title Five OperatingPermit serves as the air quality and operation permit for the plant. We mustconduct ongoing emissions testing to verify compliance with the Title FiveOperating Permit. The permit is due for renewal on May 24, 2007. Anamendment to this permit will be required if we decide to proceed with anexpansion of the plant.

 

• We have an Alcohol and Tobacco Tax and TradeBureau Permit from the Department of Treasury, which is required because of thealcohol content of ethanol. The permit is required to be renewed annually.

 

• We have a Surface Water Discharge Permitfrom the Department of Environment and Natural Resources. The Surface WaterDischarge Permit regulates any storm water discharges associated withindustrial activity. The permit requires us to provide the Department ofEnvironment and Natural Resources with ongoing compliance reports. This permitis due for renewal in 2008.

 

• We have a Storm Water Discharge Permit fromthe Department of Environment and Natural Resources. The Storm Water DischargePermit regulates any surface

 

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waterfrom rain or other precipitation, which we collect and store in a storm waterpond adjacent to the plant. The permit is due for renewal in 2008.

 

While we are currently in compliancewith applicable environmental laws, regulations and permits, we will need tocontinue to comply with all permits and regulatory requirements. To accomplishthis, we maintain an on-going program to ensure compliance with theserequirements. Maintaining compliance may require us to incur expendituresfor such things as new or upgraded equipment or processes, some of which couldbe material and costly. In 2006, we do not anticipate that any significantexpenditures will be made on environmental control or related equipment unlesswe decide to proceed with an expansion of the plant. If we were to proceed withexpansion, we expect that additional capital expenditures would be made onenvironmental control or other related equipment in the next 24 months, most ofwhich would be financed with additional debt.

 

Finally, federal and stategovernment’s regulation of the environment changes constantly. It is possiblethat more stringent federal or state environmental rules or regulationscould be adopted, which could increase our future operating costs and expenses.It also is possible that federal or state environmental rules orregulations could be adopted that could have an adverse effect on the use ofethanol. For example, changes in the environmental regulations regardingethanol’s use due to currently unknown effects on the environment could have anadverse effect on the ethanol industry. Furthermore, the plant operations aregoverned by the Occupational Safety and Health Administration (“OSHA”). OSHAregulations may change such that the future costs of the operation of theplant may increase. Any of these regulatory factors may result inhigher costs or other materially adverse conditions effecting our operations,cash flows and financial performance.

 

##### **Management and Employees**

##### ** **

Broin Management, LLC, aBroin affiliate, manages the day-to-day operations of the plant. We pay BroinManagement a fixed annual fee and an incentive bonus based on our annual netincome. We also pay certain expenses incurred with respect to operation of theplant while other expenses, including but not limited to, the provisions of afull time plant manager and technical manager are included as part ofBroin Management’s fees. Broin Management employs Mr. Rick Serie as theplant’s general manager. Mr. Serie oversees and is responsible for theoperation and production on a day-to-day basis. Mr. Serie also serves asour designated Chief Executive Officer and Chief Financial Officer forreporting purposes.

 

As of March 1, 2006, weemployed 42 employees, all but one being full time. Our employees include anoperations manager, a maintenance manager, a commodities manager, amicrobiologist, a controller, a membership coordinator, a chief mechanicaloperator, plant operators, plant maintenance personnel, accounting assistantsand administrative assistants. This list does not include Mr. Serie andthe technical manager, both of whom are employed by Broin Management.

 

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**Item 1A. Risk Factors.**

 

**Risk Related to Operations**

 

***Our financial condition is dependent on corn prices and market pricesfor ethanol and distillers dried grains, and our financial condition andresults of operation are directly affected by changes in these market prices*****.**Our results of operations and financialcondition are significantly affected by the cost and supply of corn and by theselling price for ethanol and distillers grains. Changes in the price andsupply of commodities are subject to and determined by market forces over whichwe have no control. The availability and price of corn significantly influencesour financial condition as it is our highest production expense. We purchasecorn in the cash market and hedge corn price risk through forward and futurescontracts and options to reduce short-term exposure to price fluctuations.

 

Generally, higher cornprices produce lower profit margins for us. This is especially true if marketconditions do not allow us to pass through to our customers any increased corncosts. In the event of higher prices, there is no assurance that we will beable to pass through to our customers these costs. If a period of high cornprices were sustained for some time, such pricing may reduce our abilityto generate revenues because of the higher cost of operating the plant.

 

Our revenues are exclusivelydependent on the market prices for ethanol and distillers grains. These pricescan be volatile as a result of a number of factors. These factors include theoverall supply and demand, the price of gasoline, level of government support,and the availability and price of competing products. For instance, the priceof ethanol generally tends to increase as the price of gasoline increases, andthe price of ethanol generally tends to decrease as the price of gasolinedecreases. Any lowering of gasoline prices will likely lead to lower prices forethanol, which may decrease our ethanol sales and reduce revenues.Similarly, the price of distillers grains generally tends to fluctuate in thesame direction as the price of corn and soybean meal. Thus, any lowering ofcorn or soybean meal prices will likely lead to lower prices of distillersgrains.

 

***Hedging transactions involve risks that could harm our profitability.***In an attempt to minimize the effects of thevolatility of corn and natural gas costs on operating profits, we engage inhedging activities in the corn and natural gas futures markets. Theeffectiveness of such hedging activities is dependent, among other things, uponthe cost of corn and natural gas and our ability to sell sufficient products toutilize all of the corn and natural gas subject to the futures contracts. Thereare no assurances that our hedging activities will reduce the risk caused byprice fluctuation which may leave us vulnerable to high corn and naturalgas prices. In addition, we may choose not to take hedging positions inthe future, which may adversely affect our financial condition if corn andnatural gas prices increase. Our hedging activities can themselves result inincreased

 

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costs because price movements in corn and naturalgas are highly volatile and are influenced by many factors which are beyond itscontrol.

 

***Our business is not diversified because it is limited to the fuel gradeethanol industry, which may limit our ability to adapt to changingbusiness and market conditions.***  Our sole business is the production and sale of fuel gradeethanol and distillers grain produced from corn. Our plant does not have thecapability of producing industrial or food and beverage grade ethanol, which isused in such products as cosmetics, perfume, paint thinner and vinegar. Ourplant also is not equipped to capture carbon dioxide, another co-product of theethanol production process. The lack of diversification of our business may limitour ability to adapt to changing business and market conditions.

 

***We are heavily dependent upon several Broin-affiliated companies andany termination of or disagreement regarding the services of these affiliates may materiallyharm our business.*** Wehave material agreements in place with four companies over which Jeff Broin, amember of our board of managers, has substantial or some control. We have anagreement with Broin Management to manage and operate the plant and anagreement with Broin and Associates to license technology for the ethanolproduction process. We also have an agreement with Ethanol Products, LLC, forthe marketing and sale of fuel grade ethanol and with Broin Enterprises, Inc.d/b/a Dakota Gold Marketing, for the marketing and sale of distillers grains.If any of these Broin affiliates were to terminate their relationships with us,we might not be able to secure suitable and timely replacements for thoseservices at a reasonable cost or at all, which would materially harm ourbusiness.

 

***We are dependent upon Ethanol Products, LLC to purchase and market allof the ethanol produced at the plant*****.** Ethanol Products is the exclusive purchaser ofall of the ethanol produced at the plant which, in turn, markets and transportsthe ethanol to refineries located throughout the United States. If EthanolProducts breaches our ethanol marketing agreement or is not in the financialposition to purchase all of the ethanol produced, we may not have anyreadily available means to sell the ethanol and our financial condition will beadversely and materially affected. If the ethanol marketing agreement withEthanol Products were to terminate, we would be forced to seek otherarrangements to sell the ethanol produced, but there are no assurances thatthese arrangements would achieve results comparable to those achieved byEthanol Products.

 

***Interruptions in energy supplies could delay or halt our production,which will reduce our profitability.***Ethanol production requires a constant andconsistent supply of energy, including electricity and natural gas. If there isany interruption in our supply of energy for whatever reason, such as supply,delivery or mechanical problems, we may be required to halt production. Ifproduction is halted for any extended period of time, it will reduce ourprofitability. We have agreements with various companies to provide our neededenergy, but we cannot assure you that these companies will continue to be ableto supply reliably the necessary energy that we need. If we were to sufferinterruptions in our energy supply, our business would be harmed.

 

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***To produce ethanol, we need a significant supply of water*****.** Watersupply and water quality are important requirements to produce ethanol. Ourrequirements are supplied by three operating ground wells located near theplant, which currently provide a sufficient supply of water. There is noassurance, however, that these ground wells will always have the capacity tomeet our water requirements, particularly during times of drought. We may chooseor be forced to find other sources and this could require us to spendadditional capital. If we find other sources, there is no assurance that thosesources would provide a consistent quantity and quality of water and atcommercially reasonable prices.

 

***Debt service and restrictive loan covenants limit our ability to makecash distributions to our members and could have other important consequences.***  Our debt service requirementsmake us more vulnerable to economic or market downturns. If we are unable toservice our debt, we may be forced to reduce or delay planned capitalexpenditures, sell assets, restructure indebtedness or seek additional equitycapital. There are no assurances that we can accomplish any of these strategieson satisfactory terms, if at all. In addition, our debt financing agreementscontain numerous financial, maintenance and other restrictive covenants. Thesecovenants and obligations limit the ability to make cash distributions to ourmembers.

 

**Risks Related toIndustry**

 

***Increases in the production of ethanol could result in lower prices forethanol and its co-products and higher prices for corn***. There are currently 96 ethanol plantsnationwide that have the capacity to produce over four billion gallons annually.There are another 34 new ethanol plants under construction and nine existingplants under expansion, with a combined annual capacity of more than 2.1billion gallons, and more potentially in the planning stages. To accommodatethis increased supply, there are no assurances that there will be material orsignificant increases in the demand for ethanol. If demand does notcorrespondingly increase with supply, the prices of ethanol may declineand decrease our profitability in the process.

 

***We operate in an intensely competitive industry and there is noassurance that we will be able to compete effectively.*** The ethanol business is highlycompetitive, and other companies presently in the market, or that are about toenter the market, could adversely affect prices for the ethanol products wesell. Commodity groups in the Midwest have encouraged the construction ofethanol plants, and there are numerous other entities considering theconstruction of ethanol plants. Nationally, the ethanol industry will becomecompetitive given the substantial construction and expansion that is occurringin the industry. We compete with other ethanol producers such as Archer DanielsMidland, Cargill, among others, all of which are capable of producingsignificantly greater quantities of ethanol than the amount we produce. Inlight of such competition, there is no assurance that we will be able tocompete effectively in the industry.

 

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***Competition with a proposed ethanol plant based in Turner County, SouthDakota could adversely impact our operations.***A local farmer-based group from Marion, SouthDakota is planning to build an ethanol plant, with a name-plate productioncapacity of up to 100 million gallons annually, approximately 15 miles from ourplant. This plant, if built, would be the second plant to be built and operatein Turner County, next to ours. The concentration of two plants in TurnerCounty in such close proximity to each other could have a significant adverseeffect on our operations. Specifically, it could reduce our ability to obtaincorn from the local area and at commercially reasonable prices. Any increase inthe price of corn could reduce our margins, particularly if we are unable topass these additional costs to our customers.

 

***Competition from the advancement of technology may lessen thedemand for ethanol and negatively impact our profitability*****.**Alternative fuels, gasoline oxygenates andethanol production methods are continually under development. A number ofautomotive, industrial and power generation manufacturers are developing moreefficient engines, hybrid engines and alternative clean power systems usingfuel cells or clean burning gaseous fuels. Vehicle manufacturers are working todevelop vehicles that are more fuel efficient and have reduced emissions usingconventional gasoline. Vehicle manufacturers have developed and continue towork to improve hybrid technology, which powers vehicles by engines thatutilize both electric and conventional gasoline fuel sources. In the future,the emerging fuel cell industry offers a technological option to addressincreasing worldwide energy costs, the long-term availability of petroleumreserves and environmental concerns. Fuel cells have emerged as a potentialalternative to certain existing power sources because of their higherefficiency, reduced noise and lower emissions. Fuel cell industry participantsare currently targeting the transportation, stationary power and portable powermarkets in order to decrease fuel costs, lessen dependence on crude oil andreduce harmful emissions. If the fuel cell and hydrogen industries continue toexpand and gain broad acceptance, and hydrogen becomes readily available toconsumers for motor vehicle use, we may not be able to competeeffectively. This additional competition could reduce the demand for ethanol,which would negatively impact our financial condition and results ofoperations.

 

***Corn-based ethanol may compete withcellulose-based ethanol in the future, which could make it more difficult forus to produce ethanol on a cost-effective basis****.*Most ethanol is currently produced from cornand other raw grains, such as milo or sorghum-especially in the Midwest. Thecurrent trend in ethanol production research is to develop an efficient methodof producing ethanol from cellulose-based biomass, such as agricultural waste,forest residue, municipal solid waste, and energy crops. This trend is drivenby the fact that cellulose-based biomass is generally cheaper than corn, andproducing ethanol from cellulose-based biomass would create opportunities toproduce ethanol in areas which are unable to grow corn. Although currenttechnology is not sufficiently efficient to be competitive, new conversiontechnologies may be developed in the future. If an efficient method ofproducing ethanol from cellulose-based biomass is developed, we may not beable to compete effectively. We do not believe it will be cost-effective toconvert our plant into a plant that will use cellulose-based biomass to produce

 

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ethanol. If we are unable toproduce ethanol as cost-effectively as cellulose-based producers, our financialcondition and results of operations will be adversely affected.

 

***Consumer resistance to the use of ethanol based on the belief thatethanol is expensive, adds to air pollution, harms engines and takes moreenergy to produce than it contributes may affect the demand for ethanolwhich could affect our ability to market our product.***Certain individuals believe that use ofethanol will have a negative impact on retail prices. Many also believe thatethanol adds to air pollution and harms car and truck engines. Still otherconsumers believe that the process of producing ethanol actually uses morefossil energy, such as oil and natural gas, than the amount of ethanol that isproduced. These consumer beliefs could potentially be wide-spread. If consumerschoose not to buy ethanol, it would affect the demand for the ethanol weproduce which could lower demand for ethanol and negatively affect ourprofitability.

 

***Competition from ethanol imported from Caribbean basin countries may bea less expensive alternative to our ethanol, which would cause us to losemarket share*****.**Ethanolproduced or processed in certain countries in Central America and the Caribbeanregion is eligible for tariff reduction or elimination upon importation to theUnited States under a program known as the Caribbean Basin Initiative. Largeethanol producers, such as Cargill, have expressed interest in buildingdehydration plants in participating Caribbean Basin countries, such as ElSalvador, which would convert ethanol into fuel-grade ethanol for shipment tothe United States. Ethanol imported from Caribbean Basin countries may bea less expensive alternative to ethanol produced domestically. Thus,competition from ethanol imported from Caribbean Basin countries may affectour ability to sell ethanol profitably.

 

***Competition from ethanol imported from Brazil may be a lessexpensive alternative to our ethanol, which would cause us to lose market share*****.**Brazil is currently the world’s largestproducer and exporter of ethanol. In Brazil, ethanol is produced primarily fromsugarcane, which is also used to produce food-grade sugar. Brazil experienced adramatic increase in ethanol production and trade in 2004, exportingapproximately 112 million gallons to the United States alone. Ethanolimported from Brazil may be a less expensive alternative to ethanolproduced domestically, which is primarily made from corn. If the tariffspresently protecting United States ethanol producers are reduced or eliminated,competition from ethanol imported from Brazil and other countries may beincreased which would affect our ability to sell ethanol profitably.

 

**Ethanol Plant Technology andExpansion-Related Risks**

 

***There is no assurance that the recent incorporation of new technologyto our plant, or a possible expansion of the plant in the future, will improveour operations or profitability.*** In August 2005, wecompleted construction on various improvements to the plant associated with theincorporation of new technology called BPXTM. BPXTM is a new technology thateliminates an energy-intensive cooking step in the production process. We arealso considering the expansion of the plant from a name-plate capacity

 

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of 40 million gallons annually to 100 milliongallons annually. While we believe that BPXTM and expansion of the plant will improve our operations, there is noassurance that either project will improve our operations, financially orotherwise.

 

***Any construction associated with expansion of the plant could cost morethan anticipated.***Ifwe decide to proceed with a plant expansion, we strongly anticipate entering adesign-build construction contract with Broin and Associates based on a fixedprice. Like with any construction project, however, there could be costoverruns in connection with construction due to change orders approved by us,delays in completion of these improvements due to various factors, includingacts of God, destruction of the plant by fire or other hazards, and inabilityto obtain materials or labor or other factors.

 

***Before we proceed with any expansion of the plant, we will need toobtain approval of amendments to our existing permits from the South DakotaDepartment of Environment and Natural Resources.***If we proceed with expansion of the plant,there is no assurance that we will obtain the necessary approvals of theamendments to our existing permits in a timely manner or at all. Any delay orinability in obtaining approvals of these amendments would adversely affect theobjectives we might anticipate obtaining with expansion.

 

***To expand the plant, we will need an additional supply of water*****.** Ourcurrent water requirements are met by three operating ground wells located nearthe plant. These wells provide an adequate supply of water to meet ourrequirements. We recently purchased two parcels of nearby real estate as asource for additional ground wells. If we proceed with an expansion of theplant, there is no assurance that any newly identified well will provide anadequate supply of water to meet the requirements for operation of the plant. Wemay be forced to find other sources and this could require us to spendadditional capital, which could harm our business. If we are forced to findother sources, there is no assurance that we would be able to find alternativesources of water at commercially reasonable prices, if at all.

 

**Government, Regulatory and TaxRisks**

 

***Government regulation costs could increasecosts and reduce profitability.*** The operationof an ethanol plant is subject to ongoing compliance with applicable federaland state governmental regulations, such as those governing emission control,ethanol production, grain purchasing and other matters. If any of theseregulations were to change, it could cost us significantly more to comply withthem. Further, other regulations may arise in future years regarding theoperation of the ethanol plant, including the possibility of additional permitsand licenses. We might have difficulty obtaining any such additional permits orlicenses, and they could involve significant unanticipated costs. We aresubject to all of these regulations without regard to whether the operation ofthe ethanol plant is profitable.

 

***Federal and state laws, regulations and tax incentives concerningethanol could expire or change, which could harm our business*****.**As described in more detail herein,

 

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ethanol sales have been favorably affected by avariety of federal laws and supports. The Clean Air Act (including theReformulated Gasoline Program) and the Federal Oxygen Program helped spurdemand for ethanol by requiring the use of oxygenated motor fuels during thefall and winter months in certain metropolitan areas. The Volumetric EthanolExcise Tax Credit offers to blenders a volumetric ethanol excise tax credit of$0.51 per gallon of any ethanol blend. The federal Bioenergy Program and South Dakota program provide incentivesto produce ethanol. The modification or elimination of any of thefederal and states laws and programs described above, could have a materialadverse impact on the industry and our business.

 

***If we are treated as a corporation for federal income tax purposes, ourmembers’ capital units could decline in value.*** We have elected to be treated as apartnership for federal income tax purposes. This means that we do not payincome tax at the company level and that members pay tax on their proportionateshare of our net income. In the event there are changes in the law or IRSinterpretations, or trading in capital units that could result inclassification of us as a publicly traded partnership, for example, we may betreated as a corporation rather than a partnership for federal income taxpurposes. In that case, we would pay tax on our income at corporate rates andno income, gains, losses, deductions or credits would flow through to ourmembers. Currently, the maximum effective federal corporate rate is 35%. Inaddition, distributions would generally be taxed to members upon receipt ascorporate dividends. Because a tax would be imposed upon us at the entitylevel, the cash available for distribution to our members would be reduced by theamount of the tax paid. Reduced distributions could reduce the value of ourmembers’ capital units.

 

***There are significant restrictions on transferring the capital units.*** To maintain preferential partnershiptax status, our capital units may not be traded on an establishedsecurities market or readily tradable on a secondary market. To help ensurethat a market does not develop, our Operating Agreement prohibits transfersother than through the procedures specified in our Capital Units TransferSystem. Under this system, all transactions must be approved by our board ofmanagers. The board generally approves transfers that fall within “safe harbors”contained in the publicly traded partnership rules under the federal taxcode. Permitted transfers include transfers by gift or sales to qualifiedfamily members, transfers upon death and through a “qualified matching service.”  Transfers through our qualified matchingservice are limited by the federal tax code to no more than 10% of our capitalunits outstanding annually. If a member transfers capital units in violation ofthe publicly traded partnership rules or without the prior written consentof the board, the transfer is considered null and void and the board has theoption to redeem the capital units at a substantial discount. Theserestrictions on transfer could reduce the value of a member’s capital units.

 

**Item 2. Properties.**

 

Our ethanol plant is locatedon 119 acres of land we own near the town of Chancellor in Turner County, SouthDakota. This site is served by multiple state highways and is near InterstateHighways 29 and 90 and has rail facilities and

 

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connections to the Burlington-Northern Santa Ferailroad system to facilitate transporting the ethanol and distillers grainsproduced at our plant to certain markets. All of our tangible and intangibleproperty, real and personal, serves as collateral for our debt financing withAgCountry Farm Credit Services, which is described below under “Item 7—****Management’s Discussion and Analysis ofFinancial Condition and Results of Operation—Indebtedness.”

 

**Item 3. Legal Proceedings.**

 

From time to time in the ordinary course ofbusiness, we may be named as a defendant in legal proceedings related tovarious issues, including without limitation, workers’ compensation claims,tort claims, or contractual disputes. We are not currently involved in anymaterial legal proceeding and we are not aware of any material claims pendingor threatened against us that could result in the commencement of legalproceedings.

 

**Item 4. Submission of Matters to aVote of Security Holders.**

 

We did not submit any matterto a vote of our security holders through the solicitation of proxies orotherwise during the fourth quarter of 2005.

 

**PART II**

 

**Item 5. Market for Registrant’sMember Units and Related Member Matters and Issuer Purchases of EquitySecurities.**

 

As of March 1, 2006, wehad 501 Class A members, 1 Class B member, and 155 Class Cmembers, representing a total of 543 members.

 

*Trading Activity*

 

There is no establishedpublic trading market for our capital units. Capital units may only betransferred in accordance with our Operating Agreement and Capital UnitsTransfer System. Our Capital Units Transfer System is designed to preserve thesingle-level tax status as a limited liability company. Internal RevenueService regulations impose significant trading restrictions on our capitalunits if we want to maintain this status.

 

The Capital Units TransferSystem provides for transfers by gift to family members, upon death, andthrough a qualified matching service, subject to our board of managers’ finalapproval. From January 1, 2003 to December 31, 2004, our qualifiedmatching service was operated by Variable Investment Advisors, Inc., aregistered broker-dealer operating a registered Alternative Trading System withthe SEC. Since January 1, 2005, our qualified matching service has beenoperated by AlerusSecuritiesCorporation, a registered broker-dealer operating a registered AlternativeTrading System with the SEC.

 

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The following table containshistorical information by trimester for sales of our Class A capital unitsthrough our qualified matching service since January 1, 2004.

 

| **Trimester**                        | ** ** | **Low Price** | ** ** | **High Price** | ** ** | **Average  Price** | ** ** | **# of Capital  Units  Traded** | ** ** |
|--------------------------------------|------------|---------------|------------|----------------|------------|--------------------|------------|---------------------------------|------------|
| January - April 2004       |       | $             | 7,500      |           | $          | 8,011              |       | $                               | 7,751      |   | 18 |   |
| May - August 2004          |       | $             | 7,500      |           | $          | 7,500              |       | $                               | 7,500      |   | 10 |   |
| September -  December 2004 |       | $             | 7,530      |           | $          | 8,000              |       | $                               | 7,807      |   | 16 |   |
| January -  April 2005      |       | $             | 12,500     |           | $          | 12,500             |       | $                               | 12,500     |   | 2 |   |
| May - August 2005          |       | $             | None       |           | $          | None               |       | $                               | None       |   | None |   |
| September -  December 2005 |       | $             | 15,000     |           | $          | 15,000             |       | $                               | 15,000     |   | 2 |   |

 

There were noissuer purchases of equity securities during the quarter ended December 31,2005.

 

*Distributions*

 

In 2004, we distributed toour members approximately $8.7 million in total cash distributions, or $2,336per capital unit.

 

In 2005, wedistributed to our members approximately $7.9 million in total cashdistributions, or $2,700 per capital unit.

 

On January 23, 2006, wedistributed to our members approximately $2.8 million in cash, or $750 percapital unit.

 

Under the terms of ourFourth Amended and Restated Operating Agreement, dated February 17, 2005,we are required to make a distribution to our members of at least 20% of thenet cash from operations, as long as net cash from operations is in excess of$500,000 for that year, or our board of managers determines otherwise. However,we are prohibited from making any distributions that would violate or cause usto default under any of the terms of our credit facilities or debt instrument.Under our loan agreement with our lender, AgCountry Farm Credit Services, weare prohibited from making distributions to members in any rolling 12 monthperiod that exceed 75% of our net income unless certain conditions apply. Forfurther details of this loan, please see “Item 7, Management’s Discussion andAnalysis of Financial Conditions and Results of Operations—Indebtedness.” Inaddition, our distributions are required to be issued to members of record asof the last day of the trimester immediately prior to the trimester in whichthe distribution was declared by our board of managers.

 

It is uncertain whether we will make similar distributions in 2006 as in 2005. Our ability to issue similar distributions is substantially dependent upon our profitability, the discretion of our board of managers subject to the provisions of our Operating Agreement, and the approval of our lender.

 

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**Item 6. SelectedFinancial Data**

 

The following table setsforth selected financial data of Great Plains Ethanol, LLC for the periodsindicated. The audited financial statements included in Item 8 of this reporthave been audited by our independent auditors, Eide Bailly LLP.

 
| ** **                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003 (1)** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|--------------|------------|
| **Statement of Operations Data:**             |       |     |       |     |       |         |       |
| Revenue                                       |       | $        | 84,645,519 |     | 88,920,352 |         | 52,354,635 |   |
| Cost of  Revenues                             |       | $        | 65,434,525 |     | 71,588,411 |         | 42,833,701 |   |
| Gross Profit                                  |       | $        | 19,210,994 |     | 17,331,941 |         | 9,520,934  |   |
| General and  Administrative Expense           |       | $        | 3,530,388  |     | 2,759,696  |         | 2,194,496  |   |
| Income from  Operations                       |       | $        | 15,680,606 |     | 14,572,245 |         | 7,326,438  |   |
| Interest  Expense                             |       | $        | (1,404,660 | )        | (1,176,009 | )            | (1,177,471 | ) |
| Other Income                                  |       | $        | 54,450     |     | 342,379    |         | 24,279     |   |
| Net Income                                    |       | $        | 14,330,396 |     | 13,738,615 |         | 6,173,246  |   |
| Capital  Units Outstanding                    |       | 3,742    |       | 3,742    |       | 3,742        |       |
| Net Income  per Capital Unit                  |       | $        | 3,830      |     | 3,671      |         | 1,650      |   |
| Cash  Distributions declared per Capital Unit |       | $        | 2,850      |     | 1,936      |         | 1,000      |   |
|                                          |       |     |       |     |       |         |       |
| **Balance  Sheet Data:**                      |       |     |       |     |       |         |       |
| Working  Capital                              |       | $        | 4,732,343  |     | 2,088,786  |         | 3,669,394  |   |
| Net  Property, Plant & Equipment     |       | $        | 47,105,398 |     | 44,265,244 |         | 45,425,534 |   |
| Total Assets                                  |       | $        | 63,368,068 |     | 56,047,104 |         | 60,655,872 |   |
| Long-Term  Debt Obligations                   |       | $        | 21,627,548 |     | 19,831,903 |         | 29,099,564 |   |
| Members  Equity                               |       | $        | 30,488,625 |     | 26,822,928 |         | 28,219,377 |   |
| Book Value  per Capital Unit                  |       | $        | 8,148      |     | 7,168      |         | 5,433      |   |

 

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(1) We commenced operations on March 20,2003. Therefore, our financial data only represents nine months of operations.

 

**Item 7. Management’s Discussion andAnalysis of Financial Condition and Results of Operation.**

 

*You shouldread the following discussion along with our financial statements and the notesto our financial statements included elsewhere in this report. The followingdiscussion contains forward-looking statements that are subject to risks,uncertainties and assumptions. Our actual results, performance and achievementsmay differ materially from those expressed in, or implied by, such forward-lookingstatements. See “Cautionary Statement Regarding Forward-Looking Information” atthe beginning of this report.*

 

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**Overview and Executive Summary**

 

We are engaged in theproduction of fuel-grade ethanol and distillers grains. We obtain corn forprocessing into ethanol and distiller grains from the local corn market, ourmembers and local corn producers. After processing the corn into ethanol anddistillers grains, the ethanol is sold to Ethanol Products, LLC, a Broinaffiliate, which subsequently markets and sells the ethanol to gasolineblenders and refineries located throughout the continental United States. Distillersgrains are sold through Dakota Gold Marketing, another Broin affiliate, whichmarkets and sells the product to livestock feeders.

 

Our net incomeincreased by approximately $590,000, or 4.3%, from 2004 to 2005. Net incomeincreased between periods primarily due to low and stable corn prices, whichlowered our cost of revenues, and a continuation of strong ethanol prices. Cornprices and costs in 2005 remained low and stable due to a large carryout andplentiful corn harvest in 2005, in contrast to 2004 when corn prices and costswere significantly higher and more volatile which adversely impacted our costof revenues. Ethanol prices remained strong between periods primarily due to acontinuation of higher prices of unleaded gasoline and increased demand forethanol from new markets opening up in the United States. Lower corn costs, however,were offset by a rise in natural gas and shipping costs and a decrease inincentive revenue from the federal Bioenergy Program.

 

Our outlookfor 2006, at least for the first six months, is favorable yet cautious. Weexpect ethanol prices to remain favorable because the price of unleadedgasoline is expected to remain at or above its current price levels. Ethanolprices are expected to be impacted positively by blenders and refineriesincreasing their use of ethanol, new markets for ethanol opening up due to MTBEphase out, and increased acceptance and exposure of ethanol. However, theexpected increase in demand may be offset by an increase in supply.Approximately 34 plants are expected to come into production in the next 18months, along with nine existing plants expanding production capacity,therefore adding an additional 2.1 billion gallons of annual productioncapacity. Accordingly, the price of ethanol may trend downward if supplyexceeds demand. With respect to distillers grains, we believe that prices willremain at or near its currently low and stable levels due to the low price ofcorn and soybean meal and, therefore, revenues from the sale of distillergrains should remain relatively consistent with 2005.

 

In terms ofour cost of revenues, we expect corn prices and costs to remain low and stabledue to a large carryout from 2005. This trend could change in 2006 if inclementweather or other conditions make for poor planting, growing or harvestconditions. In addition, lower corn costs are likely to be offset, in part, bya continuation of higher prices of natural gas, as well as increases inshipping costs.

 

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**Results of Operations**

 

*Comparison of Year Ended December 31,2005 to December 31, 2004*

 
| ** **                          | ** ** | **Year Ended  December 31,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** |
|-------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                          | ** ** | **$**                                   | ** ** | **%  of  Revenue**                      | ** ** | **$** | ** ** | **%  of  Revenue** | ** ** |
| Revenue:                            | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Ethanol                             |       | 70,551,148                              |       | 83.3                                    |       | 69,464,217 |   | 78.1 |   |
| Distillers Grains                   |       | 13,345,911                              |       | 15.8                                    |       | 13,896,018 |   | 15.6 |   |
| Incentive                           |       | 748,460                                 |       | 0.9                                     |       | 5,560,117 |   | 6.3 |   |
| Total                               |       | 84,645,519                              |       | 100                                     |       | 88,920,352 |   | 100 |   |
|                                |       |                                    |       |                                    |       |   |   |   |   |
| Cost of Revenues                    |       | 65,434,525                              |       | 77.3                                    |       | 71,588,411 |   | 80.5 |   |
|                                |       |                                    |       |                                    |       |   |   |   |   |
| General and Administrative Expenses |       | 3,530,388                               |       | 4.2                                     |       | 2,759,696 |   | 3.1 |   |
|                                |       |                                    |       |                                    |       |   |   |   |   |
| Other Operating Income (Expense)    |       | (1,350,209                              | )          | (1.6                                    | )          | (833,630 | ) | (0.9 | ) |
|                                |       |                                    |       |                                    |       |   |   |   |   |
| Net Income                          |       | 14,330,397                              |       | 16.9                                    |       | 13,738,615 |   | 15.5 |   |

 

*Revenues*-Our revenues decreased $4.2 million, or4.8%, to $84.6 million for the year ended December 31, 2005 from $88.9 millionfor the year ended December 31, 2004. The decrease was primarily relatedto the reduction of incentive revenue received from the federal BioenergyProgram.

 

Revenue from the sale ofethanol increased approximately $1.1 million, or 1.54%, to $70.5 million forthe year ended December 31, 2005, from $69.4 million for the year ended December 31,2004. The increase in ethanol revenue was the result of a nominal change in theethanol prices per gallon, plus a 1% increase in sales volume.

 

Revenue from the sale ofdistiller grains decreased $550,000, or 4%, to $13.35 million for the yearended December 31, 2005, from $13.9 million for the year ended December 31,2004. The decrease was due to a 17.6% decrease in price per ton, offset by a4.5% increase in sales volume.

 

Revenue from federal andstate governmental incentive programs decreased $4.8 million, or 86.5%, to$748,000 for the year ended December 31, 2005, from $5.6 million for theyear ended December, 31 2004. Incentive revenue consists of income earned fromfederal and state governments in connection with our ethanol production. Forthe year ended December 31, 2005, we recorded incentive revenue from theUnited States Department of Agriculture’s Commodity Credit CorporationBioenergy Program of approximately $46,000 compared to $4.9 million for theyear ended December 31, 2004. The decrease was directly related to how thepayments are structured under this program, as payments are based on anincrease of ethanol produced compared to the prior year’s production for thatsame period. The plant’s production in 2005, though, was comparable toproduction in 2004. Minimal payments from this program are expected in

 

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2006 because of increased participation by ethanolproducers, decreased funding, and a termination of the program on September 30,2006

 

 The decrease in revenue from the BioenergyProgram, however, was very slightly offset by an increase in incentive revenuefrom the State of South Dakota. For the year ended December 31, 2005, werecorded approximately $702,000 in incentive revenue from the state, comparedto $667,000 for the year ended December 31, 2004. The increase in revenuewas related to an increase in funds the state allocated to this program in2005.

 

*Cost ofRevenues*-Our cost ofrevenues, which includes production expenses, decreased $6.15 million, or 8.6%,to $65.4 million for the year ended December 31, 2005, from $71.5 millionfor the year ended December 31, 2004. The decrease in cost of revenues wasprimarily due to a 30.6% decrease in cost of corn, offset by increases innatural gas costs, shipping costs and ingredient costs. The decrease in thecost of corn was primarily due to a 26.5% decrease in the market price of cornbetween periods. The decrease in price was due largely to a large carryout anda plentiful corn harvest in 2005.

 

The decrease in the cost ofcorn was also impacted in part by the use and effect of hedginginstruments relative to the market price of corn between periods. Gains andlosses that result from a change in value are recognized in cost of revenues asthe changes occur. Gains are recognized as a decrease in cost of revenues whilelosses are recognized as an increase in cost of revenues. For the year ended December 31,2004, our cost of revenues includes losses of $3.6 million from the use andeffects of corn hedging instruments. These losses were caused by thesignificant price fluctuations of corn in 2004 and the effect on the value ofthe hedging instruments at the time. At the end of 2003, we increased our useof hedging instruments and positions for 2004 to protect against the marketprice forecasts for corn, which predicted higher prices because of low worldcarryout prior to the growing season, decreased production, and drought. As theyear progressed, however, and it became apparent that corn production would bemuch higher than expected, the original market forecasts proved incorrect andthe market price of corn actually declined. When the market price declined, thevalue of our corn hedging instruments fell which led to $3.6 million loss and acorresponding increase in our cost of corn and cost of revenues.

 

In contrast, therewas no material adverse effect on cost of revenues from the use of hedginginstruments and the corn market for the year ended December 31, 2005. Dueto a record carryout of corn into 2005 and the overall stable conditions in thecommodities markets, we took fewer hedging positions to protect againstpotential price volatility. As a result, there was considerably less marketrisk exposure in 2005 and potential for losses. Accordingly, for the year endedDecember 31, 2005, a $1.25 million gain resulted from the use of cornhedging instruments which, in turn, led to a corresponding decrease in the costof revenues.

 

The decreasein the cost of corn between 2004 and 2005 was offset by increases in naturalgas costs, ingredient costs and shipping costs. Natural gas costs increased by

 

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approximately 36.5% between periods duelargely to a decrease in natural gas production nationwide caused primarily byan overly active hurricane season and an increase in demand. General ingredientcosts for the production process increased by approximately 26.7% betweenperiods due to a change in the production process from the incorporation ofBPXTM. Finally, shipping costs for ethanol and distillers grains increased by34.2% between periods because of an increase in freight charges imposed by the Burlington-NorthernSanta Fe railroad system. We anticipate that these higher shipping and naturalgas costs will continue at or near their current levels at least through 2006.

 

*Generaland Administrative Expenses*-General and administration expenses increased $770,692, or 27.9%, to$3.5 million for the year ended December 31, 2005, to $2.7 million for theyear ended December 31, 2004. The substantial majority of the increase wasdue to a write off of the previously capitalized loan costs incurred related tothe original debt, new licensing fees paid to Broin and Associates under a newtechnology licensing agreement, and incentive fees paid to Broin Management formanaging the plant.

 

*InterestExpense*-Interestexpense increased $228,651, or 19.4%, to $1.4 million for the year ended December 31,2005, from $1.1 million for the year ended December 31, 2004. The primaryreason for this increase was the rising interest rates on our variable-ratenotes. Rates increased 42.8% from the year ended December 31, 2005 to theyear ended December 31, 2004.

 

*Net Income*-Net income increased $591,782, or 4.3%, to$14.3 million for the year ended December 31, 2005 from $13.7 million forthe year ended December 31, 2004. The increase in net income was primarilyattributed to, as discussed above, a decrease in cost of revenues, offset by adecrease in total revenue.

 

*Comparison of Year Ended December 31,2004 to December 31, 2003*

 
|                               |   | **Year Ended  December 31,  2004** |   | **Year Ended  December 31,  2003** |   |
|------------------------------------|--------|-----------------------------------------|--------|-----------------------------------------|--------|
|                               |   | **$**                                   |   | **%  of  Revenue**                      |   | **$** |   | **%  of  Revenue** |   |
| Revenue:                           |   |                                    |   |                                    |   |   |   |   |   |
| Ethanol                            |   | 69,464,216                              |   | 78.1                                    |   | 35,683,989 |   | 68.2 |   |
| Distillers  Grains                 |   | 13,896,019                              |   | 15.6                                    |   | 8,904,112 |   | 17.0 |   |
| Incentive                          |   | 5,560,117                               |   | 6.3                                     |   | 7,663,419 |   | 14.6 |   |
| Grant                              |   | 0                                       |   |                                    |   | 103,115 |   | 0.2 |   |
| Total                              |   | 88,920,352                              |   | 100.0                                   |   | 52,354,635 |   | 100.0 |   |
|                               |   |                                    |   |                                    |   |   |   |   |   |
| Cost of Revenues                   |   | 71,588,411                              |   | 80.5                                    |   | 42,833,701 |   | 81.8 |   |
|                               |   |                                    |   |                                    |   |   |   |   |   |
| General and Administrative Expense |   | 2,759,696                               |   | 3.1                                     |   | 2,194,496 |   | 4.2 |   |
|                               |   |                                    |   |                                    |   |   |   |   |   |
| Other Operating Income (Expense)   |   | (833,630                                | )      | (0.9                                    | )      | (1,153,192 | ) | (2.2 | ) |
|                               |   |                                    |   |                                    |   |   |   |   |   |
| Net Income                         |   | 13,738,615                              |   | 15.5                                    |   | 6,173,246 |   | 11.8 |   |

 

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*Revenues-*Our revenue increased $36.5 million, or69.8%, to $88.9 million for the year ended December 31, 2004, from $52.3 million for the year ended December 31,2003. The increase was primarily due to our plant operating with onlynine months of production for the year ended December 31, 2003, as theplant did not commence production until March 20, 2003. Accordingly,because of a longer period of production in 2004, the plant produced and sold agreater volume of ethanol and distillers grains in 2004 than in 2003. Revenueswere also impacted by an increase in the price of ethanol and distillers grainsbetween periods.

 

Revenue from thesale of ethanol increasedapproximately $33.8 million, or 94.7%, to $69.4 million for theyear ended December 31, 2004,from $35.6 million forthe year ended December 31, 2003. In addition to the increase inproduction and sales volume in 2004, revenue from the sale of ethanol increasedbecause of higher ethanol prices. Ethanol prices, on a per gallon basis,increased approximately 28.5% from 2003 to 2004, due primarily to higher pricesof unleaded gasoline during this same period.

 

Revenuefrom the sale of distillers grains increased approximately $5.0million, or 56.1%, to $13.9 million for the year ended December 31, 2004, from $8.9 million for the year ended December 31,2003. In addition to the increase in production and sales volume in 2004because of the shortened year of production in 2003, revenue from the sale ofdistillers grains increased because of higher prices received for distillersgrains. Higher prices were the result of higher prices in the corn and soybeanmeal market, the principal competing products of distillers grains, and ourability to secure a premium price for Dakota Goldä.

 

Revenuefrom governmental incentive programs decreased $2.1 million, or 27.5%, to $5.5million for the year ended December 31, 2004, from $7.6 million for theyear ended December 31, 2003. Incentive revenue consists of income earnedfrom federal and state governments in connection with our ethanol production. Forthe year ended December 31, 2004, we recorded incentive revenue from theUnited States Department of Agriculture’s Commodity Credit CorporationBioenergy Program of approximately $4.9 million, compared to $7.1 million forthe year ended December 31, 2003. Since 2003 was our first year ofproduction, we had the largest increase in production from 2002. Between 2004and 2003, however, we had a far smaller increase in production which,accordingly, led to less incentive revenue being earned. Inaddition, we recorded incentive revenue from the State of South Dakota of$666,667 for the year ended December 31, 2004, compared to $583,333 forthe year ended December 31, 2003.

 

*Cost of Revenues*-Our cost of revenues, which includes production expenses,increased $28.7 million, or 67.1%, to $71.5 million for the year ended December 31,2004, from $42.8 million for the year ended December 31, 2003. The increase in the cost of revenues resultedfrom an increase in plant output and production volume following the start-upof plant operations in 2003, and an increase in the cost of corn. As the plant’soutput increased in 2004, an additional 5.5 million bushels of corn were usedfor

 

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production,a 48.3% increase. In addition to an increase in production volume and cornusage, the cost of corn per bushel increased 22.1% from the year ended December 31,2003 to the year ended December 31, 2004. The cost of corn increasedprimarily due to a 10.4% increase in the market price of corn between periods.Moreover, the cost of corn was impacted by the effect of the price volatilityof corn on the value of our hedging instruments. Such effect contributed to a$3.6 million loss in 2004 and a corresponding increase in cost of corn and costof revenues. In contrast, the effect of the use of hedging instruments relativeto the corn market in 2003 was not nearly as severe, contributing to a $350,000loss.

 

*Generaland Administrative Expenses*-General and administrativeexpenses increased $565,200, or 25.8%, to $2.75 million for the year ended December 31,2004, from $2.19 million for the year ended December 31, 2003. The increasewas primarily attributed to the plant operating under a full year of productionin 2004 compared to a nine-month period in 2003.

 

*InterestExpense*-Interest expense decreased only $1,462, or 0.1%, to $1,176,009for the year ended December 31, 2004, from $1,177,471 for the year ended December 31,2003. Interest expense remained relatively constant as higher interest rateswere offset by declining principal balances on our debt outstanding.

 

*NetIncome*-Net income increased $7.5 million, or 122.6%, for the year ended December 31,2004, from $6.1 million for the year ended December 31, 2003. The increasein net income was attributed to an increase in production volume and pricinglevels, as discussed above, and the efficiencies achieved following the startupof plant operations in 2003.

 

**Liquidity and Capital Resources**

 

The following table showsthe cash flows between the year ended December 31, 2005 and the year endedDecember 31, 2004:

 
| ** **                                | ** ** | **Year Ended December 31** | ** ** |
|-------------------------------------------|------------|---------------------------------|------------|
| ** **                                | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| Net cash  from operating activities       |       | $                               | 17,798,541 |   | $ | 15,211,601 |   |
| Net cash  (used for) investing activities |       | $                               | (5,537,766 | ) | $ | (1,534,189 | ) |
| Net cash  (used for) financing activities |       | $                               | (7,837,011 | ) | $ | (18,385,926 | ) |

 

*Cash Flowfrom Operating Activities-*Operating activities provided $17.80million for the year ended December 31, 2005, compared to $15.21 millionfor the year ended December 31, 2004. Cash flow from operating activitiesfor the year ended December 31, 2005 was higher than for the same periodin 2004 primarily due to an increase innet income and increases in accounts receivable and inventory, offset bya decrease in investments in commodity contracts. Accounts receivable increasedin 2005 because the average ethanol price per gallon increased by 9.1% from2004. Inventory increased in 2005 because ethanol inventory increased by 12.4%from 2004, and parts inventory

 

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increased by 85.3% for the same periodbecause of the BPXTM conversion. Investments in commodities contracts decreasedin 2005 because of our risk management strategy, as fewer positions to protectagainst the changing price of corn were taken in 2005 compared to 2004.

 

*Cash Flowfrom Investing Activities*Investing activities used $5.54 million forthe year ended December 31, 2005, compared to $1.53 million for the yearended December 31, 2004. Additional cash was used in 2005 primarily topurchase equipment and make improvements to the plant, including for BPXTM. In2004, our investments were primarily related to purchasing new equipment forour distiller grains system that had been damaged by a fire on March 14,2004. 

 

*Cash Flowfrom Financing Activities-*Net cash used for financing activities was$7.84 million for the year ended December 31, 2005, compared to $18.36million for year ended December 31, 2004. Net cash used was significantlylower in 2005 than in 2004 primarily due to the restructuring of our debt in2005. Restructuring of our debt decreased the amount of cash used primarily byeliminating the quarterly free cash flow payment, and by allowing us to rolltwo variable rate, revolving lines of credit into one variable-rate, revolvingloan.

 

If we were to proceed withan expansion of the plant, we anticipate that the additional capitalexpenditures on the plant will be primarily financed with additional debt andequity. We also expect in the next 12 months to have sufficient cash flows fromoperating activities andrevolvingdebt to fund working capital and to cover operating and administrative costs,capital expenditures (other than discussed in this report) and debt serviceobligations.

 

The following table showsthe cash flows between the year ended December 31, 2004 and the year endedDecember 31, 2003:

 
| ** **                                | ** ** | **Year Ended December 31** | ** **  |
|-------------------------------------------|------------|---------------------------------|-------------|
| ** **                                | ** ** | **2004**                        | ** **  | **2003** | ** ** |
| Net cash  from operating activities       |       | $                               | 15,211,601  |   | $ | 2,898,607 |   |
| Net cash  (used for) investing activities |       | $                               | (1,534,189  | ) | $ | (12,440,560 | ) |
| Net cash  (used for) financing activities |       | $                               | (18,385,926 | ) | $ | 14,870,344 |   |

 

*Cash Flowfrom Operating Activities-*Operating activities provided$15.21 million for the year ended December 31, 2004, compared to providing$2.90 million for the year ended December 31, 2003. Cash flow fromoperating activities for the year ended December 31, 2004 was higher thanthe same period in 2003 primarily due to an increase in net income. In addition,the change was impacted by an increase in inventory values and hedge positionvalues, offset by an increase in accounts payable. Inventory increased inethanol prices of 23.2% and corn values of resulted in higher carrying valuesfor our inventories. The increase in the value of our hedge positions increasedby 72.1% in 2004 in order to protect against the expected price volatility ofcorn. The increase in accounts

 

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payable increased by 8.1% due to an increasein corn values, along with seasonal trends for payments made to producers forcorn delivered to the plant.

 

*Cash Flowfrom Investing Activities***-**Investing activities used $1.53 million for theyear ended December 31, 2004, compared to $12.44 million for the yearended December 31, 2003. Investing activities used more cash in 2003 thanin 2004 because 2003 was the start-up year of the plant when equipment andmachinery was purchased for preparing for start-up of operations. In 2004,investing activities primarily consisted of purchases of new equipment toreplace distiller grains’ equipment that had been damaged in a fire in March.

 

*Cash Flow fromFinancing Activities-*Net cash used for financing activities was $18.36million for the year ended December 31, 2004, compared to net cashreceived of $14.87 million for year ended December 31, 2003. In 2003, wehad advances on notes payables of $17.4 million to finance construction of theplant and made principal payments on notes payable of $2.5 million. We alsoissued no distributions to members in 2003. By contrast, while we had advancesin 2004 of $9.7 million on short-term debt financing, we paid in 2004 $19.34million on our short-term and long-term debt obligations and issueddistributions to our members of $8.74 million.

 

**Indebtedness**

 

AgCountry Farm CreditServices is our primary lender. After entering into a second amended CreditAgreement with AgCountry Farm Credit Services on July 12, 2005, whichrefinanced our existing debt and provided new debt, we have the following loansoutstanding with AgCountry as of December 31, 2005: a $26.5 millionvariable-rate note; an $8.0 million variable-rate, revolving note; and a $5.0million variable-rate note. Prior to July 12, 2005, the following loanswith AgCountry were outstanding: a $26.5 million variable, rate note; a $6.0million variable-rate, revolving-credit note; and a $3.0 million variable rate, revolving line ofcredit note.

 

The $26.5 millionvariable-rate note bears interest equal to LIBOR plus 2.64% per annum. Thisnote requires quarterly payments of interest and principal on the basis of aten-year term. Prior to January 1, 2005 we were required by our CreditAgreement to prepay AgCountry each quarter 25% of the free cash flow for suchquarter, not to exceed $1.5 million in each fiscal year. The free cash flowpayment, however, was suspended by AgCountry retroactively to January 1,2005 when we entered into refinancing negotiations with AgCountry. Thus, forthe year ended December 31, 2005, we made principal payments of $11.09million, compared to principal and free cash flow payments of $19.34 millionfor the year ended December 31, 2004. As of December 31, 2005, thevariable rate was 6.21% and the principal balance outstanding was $21.63million.

 

The $8.0 million variablerate, revolving note bears interest equal to LIBOR plus 3.0%. The purpose ofthe $8.0 million revolver is to cover any of our short-term operating cashneeds. The note permits us to borrow in multiples of $100,000 on a revolvingbasis, the difference between the principal balance outstanding and $8.0

 

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million. The note requires monthly payments ofinterest based on the average daily balance of the revolving loan during therelated monthly period, subject to a 0.50% annual commitment fee assessedquarterly on any funds not borrowed. On October 1, 2012, we are requiredto repay any principal balance outstanding that exceeds $4 million, afterwhich, and until maturity on October 1, 2013, the revolving featurepermits us to borrow the difference between the principal balance outstandingand $4 million. As of December 31, 2005, the principal balance was $0.

 

The $5.0 million variablerate note bears interest at LIBOR plus 3.0%. The purpose of the note was tofinance the construction of BPXTM, which was completed in mid-August 2005.On January 1, 2006, we began making a quarterly payment of $156,250 inprincipal plus accrued interest and will continue to do so until maturity on October 1,2013. Prepayment is without penalty unless we prepay the loan with sourcesother than funds internally generated from our operations, at which time theprepayment penalty is 2.0% of net income.

 

The three loans and notesare secured by our real property, personal property, general intangibles,improvements, contracts, and other rights set forth under our original CreditAgreement dated June 19, 2002. In addition to standard covenants andconditions in the amended Credit Agreement, we are subject to the followingcovenants and/or conditions: 1) fixed charge coverage ratio of not less than1.15:1.00; 2) owner’s equity ratio of 42% on December 31, 2005, 44% on December 31,2006, 46% on December 31, 2007, 48% on December 31, 2008, and 50% on December 31,2009 through maturity; 3) capital expenditure limitation of $750,000 annuallyexcept as it relates to BPXTM; 4) current ratio coverage of 1.2:1; 5) minimumworking capital of $5 million including the unadvanced portion of the $8.0million revolving note; and 6) cash distributions to members not to exceed 75%of net income unless members’ equity ratio exceeds 60% and working capitalexceeds $6 million at which time distributions to members can be made up to100% of net income. In event of default, AgCountry may terminate theCredit Agreement, as amended, and declare the entire amount immediately due andowing. Events of default generally include failure to make payments when due orviolations of one or more of the covenants.

 

In addition, under a NaturalGas Distribution Delivery Agreement with NorthWestern Corporation dated September 2,2003, NorthWestern requires that we use a minimum amount of natural gasannually to cover NorthWestern’s $1.6 million cost that was previously incurredin constructing the pipeline to our plant. To protect against a minimum amountof natural gas not being used, NorthWestern requires that we provide securityin the form of an irrevocable standby letter of credit, which was obtainedHome Federal Bank of Sioux Falls, South Dakota  To satisfy the letter ofcredit requirement, we entered into a line of credit agreement with HomeFederal Bank for up to $1.6 million. Under the terms of the line of credit, inthe event that there is a draw down on the letter of credit, an equal amount isdrawn on the line of credit at which time it will be recognized as a liabilityof ours. The line of credit is evidenced by a promissory note with a variableinterest rate equal to the prime rate as published by the Wall Street Journal,plus 2.0%. In addition, six individuals, including three of our board of

 

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managers, signed personal guarantees to satisfy theline of credit requirements. In consideration of such guarantees, we agreed topay each individual guarantor an annual fee of 2% of the amount of hisguarantee until the expiration of the letter of credit. For the year ended December 31,2005, we paid these guarantors a sum of $22,500.

 

On February 16, 2006,we renewed the letter of credit with NorthWestern, the line of credit with HomeFederal and the agreements with all the guarantors. Each of these agreementswas renewed under the same terms as the original agreements except for a newmaturity date and reduced amount under the letter and line of credit. The newmaturity or expiration date for all the agreements, except the agreement tocompensate the guarantors, is March 1, 2007. The agreement to compensatethe guarantors terminates when the line of credit terminates. The new amountunder all the agreements is $960,000. As of December 31, 2005,NorthWestern has not drawn on the letter of credit and, therefore, there is nobalance outstanding on the line of credit with Home Federal Bank.

 

On March 1,2006, we and AgCountry entered into an Interest Rate Conversion Agreement toconvert the existing $26.5 million variable rate, revolving note into twodifferent segments and rates, a $16.5 million segment and a $10.0 millionsegment. Beginning on March 1, 2006, the $10.0 million segment is set at afixed rate of 8.55% until March 1, 2011, plus is subject to anamortization of 7.6 years and a penalty for any prepayment during the firstyear. In contrast, the $16.5 million segment is set at a variable interest rateof LIBOR plus 2.64% (currently 7.21%), adjusted monthly, though beginning on June 1,2006 and annually, the 2.64% margin is subject to change at the discretion ofAgCountry. The $16.5 million segment is subject to an amortization of 7.6 yearsand prepayment is without penalty. Other than these new terms, the new segmentsare subject to the same terms of the second amended Credit Agreement dated July 12,2005 on which the $26.5 million note is based.

 

In addition to our debtobligations, we have certain other contractual cash obligations and commitments.The following tables provide information regarding our contractual obligationsand othercommercialcommitments as of December 31, 2005:

 
| ** **                          | ** ** | ** ** | ** ** | **Payment Due by Period** | ** ** |
|-------------------------------------|------------|------------|------------|---------------------------|------------|
| ** **                          | ** ** | **Total**  | ** ** | **Less than  One  Year**  | ** ** | **One to  Three  Years** | ** ** | **Four to  Five  Years** | ** ** | **After  Five  Years** | ** ** |
|                                |       |       |       |                      |       |   |   |   |   |   |   |
| Long-Term  Debt Obligations (1)     |       | $          | 31,627,812 |                      | 4,683,838  |   | 9,248,106 |   | 9,052,273 |   | 8,643,595 |   |
|                                |       |       |       |                      |       |   |   |   |   |   |   |
| Purchase  Obligations (2)           |       | 10,301,777 |       | 1,766,409                 |       | 2,837,374 |   | 2,765,853 |   | 2,932,141 |   |
|                                |       |       |       |                      |       |   |   |   |   |   |   |
| Total  Contractual Cash Obligations |       | $          | 41,929,589 |                      | 6,450,247  |   | 12,085,480 |   | 11,818,126 |   | 11,575,736 |   |

 

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| ** **                        | ** ** | ** ** | ** ** | **Amount of Commitment Expiration Per** | ** ** |
|-----------------------------------|------------|------------|------------|-----------------------------------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **Payment Due by Period**               | ** ** |
| ** **                        | ** ** | ** ** | ** ** | **Period**                              | ** ** |
| ** **                        | ** ** | **Total**  | ** ** | **Less than  One  Year**                | ** ** | **One to  Three  Years** | ** ** | **Four to  Five  Years** | ** ** | **After  Five  Years** | ** ** |
|                              |       |       |       |                                    |       |   |   |   |   |   |   |
| Standby  Letter of Credit (3)     |       | $          | 960,000    |                                    | 960,000    |   |   |   |   |   |   |   |
| **Total  Commercial Commitments** |       | $          | 960,000    |                                    | 960,000    |   | — |   | — |   | — |   |

 

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(1) Long-term debt obligations reflectpayment obligations arising under the amended Loan Agreement dated July 12,2005 and includes payment of principal and interest under the amended terms.

(2)  Purchase obligations include ourminimum obligation for natural gas usage, electricity usage, and agreements formanagement services, marketing, and risk management.

(3) On February 16, 2006, we renewed a standbyletter of credit agreement with our natural gas distributor. The standby letterof credit is a form of security provided to our natural gas distributor inthe event we do not use a minimum amount of natural gas. The distributor may drawon the letter of credit if we do not comply with certain payment, purchase anddelivery obligations under a natural gas distribution agreement. If the naturalgas distributor draws on the letter of credit, an equal amount must be drawn onthe line of credit with Home Federal Bank, which then becomes a liability to us.The maturity date on the line of credit is March 1, 2007. As of December 31,2005, there was no principal balance outstanding on the line of credit.

 

**Off-Balance Sheet Arrangements**

 

We do not use or have anymaterial off-balance sheet financial arrangements.

 

**Recent Accounting Pronouncements**

 

We have reviewed the recentaccounting pronouncements and have not identified any that will have a materialimpact on our financial statements.

 

**Application of Critical AccountingPolicies and Estimates**

 

Preparation of our financialstatements necessarily requires estimates and judgments to be made that affectthe amounts of assets, liabilities, revenues and expenses reported. Suchdecisions include the selection of the appropriate accounting principles to beapplied and the assumptions on which to base accounting estimates. Ourmanagement continually evaluates these estimates based on assumptions itbelieves to be reasonable under the circumstances.

 

The difficulty in applyingthese policies arises from the assumptions, estimates and judgments that haveto be made currently about matters that are inherently uncertain, such asfuture economic conditions, operating results and valuations, as well asmanagement’s intentions. As the difficulty increases, the level of precisiondecreases, meaning that actual results can, and probably will be, differentfrom those currently estimated.

 

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*Long-Lived Assets*

 

Depreciation andamortization of our property, plant and equipment will be provided on thestraight-line method by charges to operations at rates based upon the expecteduseful lives of individual or groups of assets that are placed in service. Economiccircumstances or other factors may cause management’s estimates ofexpected useful lives to differ from the actual useful lives. Differencesbetween estimated lives and actual lives may be significant, butmanagement does not expect events that occur during the normal operation of ourplant related to estimated useful lives to have a significant effect on resultsof operations.

 

Long-lived assets, includingproperty, plant and equipment and investments are evaluated for impairment onthe basis of undiscounted cash flows whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. An impaired asset is written down to its estimated fair marketvalue based on the best information available. Considerable management judgmentis necessary to estimate future cash flows and may differ from actual cashflows. Management does not expect a material impairment of assets based ontheir assessment of the risks and rewards related to the ownership of theseassets and the expected cash flows generated from the operation of the plant.

 

*Inventory Valuation*

 

We account for our corninventory at estimated net realizable market value. Corn is an agriculturalcommodity that is freely traded, has quoted market prices, may be soldwithout significant further processing and has predictable and insignificantcosts of disposal. We derive our estimates from local market prices determinedby grain terminals in its area. Change in the market value of corn inventory isrecognized as a component of cost of revenues. Ethanol and distillers grains’inventories are stated at net realizable value. Work-in-process, supplies,parts and chemical inventory are stated at the lower of cost or market on thefirst-in, first-out method.

 

###### ***Revenue Recognition***

###### ** **

Revenue from the productionof ethanol and related products is recorded when title transfers to customers,net of allowances for estimated returns. Interest income is recognizedwhen earned.

 

Revenue from federal andstate incentive programs is recorded when we have produced or sold the ethanoland satisfied the reporting requirements under each applicable program. When itis uncertain whether we will receive full allocation and payment due under thefederal incentive program, we derive an estimate of the incentive revenue**for the**relevant period based on various factors including the most recentlyused payment factor applied to the program. The estimate is subject to changeas management becomes aware of increases or decreases in the amount of fundingavailable under the

 

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federal incentive program or other factors thataffect funding or allocation of funds under such program.

 

*Commitments and Contingencies*

 

Contingencies, by theirnature, relate to uncertainties that require management to exercise judgmentboth in assessing the likelihood that a liability has been incurred, as well asin estimating the amount of the potential expense. In conformity withaccounting principles generally accepted in the United States, we accrue anexpense when it is probable that a liability has been incurred and the amountcan be reasonably estimated.

 

*Derivative Instruments and HedgingActivities*

 

We enter into derivativecontracts to hedge our exposure to price risk related to forecasted corn andnatural gas purchases, forward corn purchase contracts and certain distillergrain sales. We do not typically enter into derivative instruments other thanfor hedging purposes. All derivative contracts are recognized on the December 31,2004 and 2003 balance sheets at their fair market value.

 

On the date the derivativeinstrument is entered into, we designate the derivative as either (1) ahedge of the fair value of a recognized asset or liability or of anunrecognized firm commitment (fair value hedge), (2) a hedge of aforecasted transaction or of the variability of cash flows to be received orpaid related to a recognized asset or liability (cash flow hedge) or (3) willnot designate the derivative as a hedge. Changes in the fair value of aderivative that is designated as and meets all the required criteria for a fairvalue hedge, along with the gain or loss on the hedged asset or liability thatis attributable to the hedged risk, are recorded in current period earnings. Changesin the fair value of a derivative that is designated as and meets all therequired criteria for a cash flow hedge are recorded in accumulated othercomprehensive income and reclassified into earnings as the underlying hedgeditem affects earnings. Changes in the fair value of a derivative that is notdesignated as a hedge are recorded in current period earnings.

 

**Item 7A. Quantitativeand Qualitative Disclosure About Market Risk.**

 

We are exposed to the impactof market fluctuations associated with commodity prices and interest rates asdiscussed below. We have no exposure to foreign currency risk as all of itsbusiness is conducted in U.S. Dollars. We use derivative financial instrumentsas part of an overall strategy to manage market risk. Specifically, we useforward, futures and option contracts to hedge changes to the commodity pricesof corn, natural gas. However, we do not enter into these derivative financialinstruments for trading or speculative purposes, nor do we designate thesecontracts as hedges for accounting purposes pursuant to the requirements ofSFAS 133, Accounting for Derivative Instruments and Hedging Activities.

 

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*Commodity Price Risk*

 

We produce ethanol and itsco-product, distillers grains, from corn, and as such are sensitive to changesin the price of corn. The price of corn is subject to fluctuations due tounpredictable factors such as weather, total corn planted and harvestedacreage, changes in national and global supply and demand, and governmentprograms and policies. We also use natural gas in the production process and,as such, are sensitive to changes in the price of natural gas. The price ofnatural gas is influenced by such weather factors as heat or cold in the summerand winter, in addition to the threat of hurricanes in the spring, summer andfall. Other natural gas price factors include the domestic onshore and offshorerig count, and the amount of natural gas in underground storage during both theinjection (April 1st – November 7th) and withdrawal (November 14th– March 31st) seasons. The price of distiller grains is influenced by theprice of corn and soybean meal.

 

We attempt to reduce the marketrisk associated with fluctuations in the price of corn, natural gas byemploying a variety of risk management strategies. Strategies include the useof derivative financial instruments such as futures and options initiated onthe Chicago Board of Trade and/or the New York Mercantile Exchange, as well asthe daily cash management of our total corn and natural gas ownership relativeto its monthly demand for each commodity, which may incorporate the use offorward cash contracts or basis contracts.

 

Corn is hedged withderivative instruments including futures and options contracts offered throughthe Chicago Board of Trade. Forward cash corn and basis contracts are alsoutilized to minimize future price risk. Likewise, natural gas is hedged withfutures and options contracts offered through the New York Mercantile Exchange.Basis contracts are also utilized to minimize future price risk.

 

Gains and losses on futuresand options contracts used as economic hedges of corn inventory as well as onforward cash corn and basis contracts, are recognized as a component of ourcost of revenues for financial reporting on a monthly basis using month-endsettlement prices for futures on the Chicago Board of Trade. Corn inventoriesand distillers grains are marked to fair value using market based prices sothat gains or losses on the derivative contracts, as well as forward cash cornand basis contracts, are offset by gains or losses on inventories during thesame accounting period.

 

Gains and losses on futuresand options contracts used as economic hedges of natural gas, as well as basiscontracts, are recognized as a component of our cost of revenues for financialreporting on a monthly basis using month-end settlement prices for natural gasfutures on the New York Mercantile Exchange. The natural gas inventories hedgedwith these derivatives or basis contracts are valued at the spot price ofnatural gas, plus or minus the gain or loss on the futures or options positionsrelative to the month-end settlement price on the New York Mercantile Exchange.

 

A sensitivity analysis hasbeen prepared to estimate our exposure to commodity price risk. The tablepresents the fair value of corn inventory, forward purchase contracts and openfutures and option positions for corn, natural gas and distillers grains as of

 

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December 31, 2005 and December 31, 2004and the potential loss in fair value resulting from a hypothetical 10% adversechange in corn, natural gas prices. The fair value of the positions is asummation of the fair values calculated by valuing each net position at quotedmarket prices as of the applicable date. The results of this analysis, which may differfrom actual results, are as follows:

 
| ** **             | ** ** | ** **     | ** ** | **Effect of  Hypothetical  Adverse** | ** ** |
|------------------------|------------|----------------|------------|--------------------------------------|------------|
| **Year Ended**         | ** ** | **Fair Value** | ** ** | **Change— Market  Risk**        | ** ** |
| December 31, 2005 |       | $              | 4,962,096  |                                 | $          | 496,210 |   |
| December 31, 2004 |       | $              | 4,762,478  |                                 | $          | 476,248 |   |

 

*Interest Rate Risk*

 

Interest rate risk exposurepertains primarily to our variable rate, long-term debt. Specifically, as of December 31,2005, we had $19,777,897 and $4,843,750 in variable rate, long-term debt, thevariable rate being 6.75% and 7.11%, respectively. We manage interest rate riskby monitoring the effects of market changes on the interest rates and usingfixed rate debt.

 

**Item 8. Financial Statements andSupplementary Data.**

 

Reference is made to the “Indexto Financial Statements” of Great Plains Ethanol, LLC located at page F-1of this report, and financial statements for the year ended December 31, 2005referenced therein, which are hereby incorporated by reference.

 

**Item 9. Changes in andDisagreements with Accountants on Accounting and Financial Disclosure.**

 

None.

 

**Item 9A. Controls and Procedures.**

 

**Evaluation of Disclosure Controlsand Procedures**

 

Our chief executive officerand chief financial officer, after evaluating the effectiveness of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended), as ofthe end of the period covered by this report, has concluded that our disclosurecontrols and procedures are effective in ensuring that material informationrequired to be disclosed is included in the reports that we file with theSecurities and Exchange Commission.

 

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*Changes in Internal Controls*

 

There were no significantchanges in our internal controls or in other factors that could significantlyaffect these controls during the fourth quarter of 2005.

 

**Item 9B. Other Information.**

 

None.

 

**PART III**

 

**Item 10. Directors and ExecutiveOfficers of the Registrant.**

 

**Compliance with Section 16(a) ofthe Exchange Act**

 

Information regardinguntimely filings pursuant to Section 16 of the Securities Exchange Act of1934, as amended, is incorporated in this Form 10-K by reference from ourdefinitive Proxy/Information Statement for the Annual Meeting of Members to beheld in 2006, a copy of which will be filed with the Commission not later than120 days after December 31, 2005.

 

**Code of Ethics**

 

Information regarding a codeof ethics is incorporated in this Form 10-K by reference to our definitiveProxy/Information Statement for the Annual Meeting of Members to be held in2006, a copy of which will be filed with the Commission not later than 120 daysafter December 31, 2005.

 

**Directors**

 

Information regarding ourboard of directors or managers is incorporated in this Form 10-K byreference from the definitive Proxy/Information Statement for the AnnualMeeting ofMembers to beheld in 2006, a copy of which will be filed with the Commission not later than120 days after December 31, 2005.

 

**Executive officers**

 

Information required by thisitem regarding the business experience of our executive is incorporated in thisForm 10-K by reference from the definitive Proxy/Information Statement forthe Annual Meeting of Members to be held in 2006, a copy of which will be filedwith the Commission not later than 120 days after December 31, 2005.

 

**Item 11. Executive Compensation.**

 

The information required bythis item is incorporated by reference in this Form 10-K from ourdefinitive Proxy/Information Statement for the Annual Meeting of

 

44

----

 

Members to be held in 2006, a copy of which will befiled with the Commission not later than 120 days after December 31, 2005.

 

**Item 12. Security Ownership ofCertain Beneficial Owners and Management.**

 

The information required bythis item is incorporated by reference in this Form 10-K from ourdefinitive Proxy/Information Statement for the Annual Meeting of Members to beheld in 2006, a copy of which will be filed with the Commission not later than120 days after December 31, 2005.

 

**Item 13. Certain Relationships andRelated Transactions.**

 

The information required bythis item is incorporated by reference in this Form 10-K from ourdefinitive Proxy/Information Statement for the Annual Meeting of Members to beheld in 2006, a copy of which will be filed with the Commission not later than120 days after December 31, 2005.

 

**Item 14. Principal Accounting Feesand Services.**

 

 The informationrequired by this item is incorporated by reference in this Form 10-K fromour definitive Proxy/Information Statement for the Annual Meeting of Members tobe held in 2006, a copy of which will be filed with the Commission not laterthan 120 days after December 31, 2005.

 

**PART IV**

 

**Item 15. Exhibits, FinancialStatements Schedules.**

 

(a)                                  The following exhibits and financialstatements are filed as part of, or are incorporated by reference into, thisreport:

 

(1)          Financial Statements – Reference is made to the “Index toFinancial Statements” of Great Plains Ethanol, LLC located at page F-1 ofthis report for a list of the financial statements and schedules for the yearended December 31, 2005 included herein.

 

(2)          All supplemental schedules are omittedbecause of the absence of conditions under which they are required or becausethe information is shown in the Consolidated Financial Statements or notesthereto.

 

(3)          The exhibits we have filed herewith orincorporated by reference herein are set forth on the attached Exhibit Index.

 

(b)                                 See Item 15(a)(3)

 

45

----

 

**SIGNATURES**

 

Pursuant to the requirementof Section 13 or 15(d) of the Securities Exchange Act, the registranthas duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|   |                | GREAT PLAINS ETHANOL, LLC               |
|--------|---------------------|-----------------------------------------|
|   |                |                                    |
| Date:  | March 31, 2006 |                                    | /s/ Rick Serie |   |
|   |                | Rick A. Serie, Chief Executive  Officer |
|        |                     |                                         |  |  |

 

Pursuant to the requirementsof the Securities Exchange Act, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

 

 
| Date:  | March 31, 2006      | /s/ Rick Serie                                        |
|--------|---------------------|-------------------------------------------------------|
|   |                | Rick A. Serie                                         |
|   |                | Chief Executive Officer and  Chief  Financial Officer |
|   |                |                                                  |
| Date:  | March 31, 2006 | /s/ Jeff Broin                                        |
|   |                | Jeff Broin, Manager                                   |
|   |                |                                                  |
| Date:  | March 31, 2006      | /s/ Dennis Hardy                                      |
|   |                | Dennis Hardy, Manager                                 |
|   |                |                                                  |
| Date:  | March 31, 2006      | /s/ Darrin Ihnen                                      |
|   |                | Darrin Ihnen, Manager                                 |
|   |                |                                                  |
| Date:  | March 31, 2006 | /s/ Mark Miller                                       |
|   |                | Mark Miller, Manager                                  |
|   |                |                                                  |
| Date:  | March 31, 2006      | /s/ Dennis Schrag                                     |
|   |                | Dennis Schrag, Manager                                |
|   |                |                                                  |
| Date:  | March 31, 2006      | /s/ Steve Sinning                                     |
|   |                | Steve Sinning, Manager                                |
|   |                |                                                  |
| Date:  | March 31, 2006      | /s/ Fred Thurman                                      |
|   |                | Fred Thurman, Manager                                 |

 

46

----

 
| Date:  | March 31, 2006 | /s/ Dan Viet        |
|--------|----------------|---------------------|
|   |           | Dan Viet, Manager   |
|   |           |                |
| Date:  | March 31, 2006 | /s/ Larry Ward      |
|   |           | Larry Ward, Manager |

 

47

----

 

**EXHIBIT INDEX**

 
| **Exhibit #** | ** ** | **Description**                                                                                      | ** ** | **Filed  Herewith** | ** ** | **Incorporated by Reference**                                                                                            |
|--------------------|------------|------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                |       | Articles of Organization                                                                             |       |                |       | Appendix A to registrant’s  Prospectus filed with the Commission pursuant to Rule 424(b)(3) on June 11,  2001. |
| 3.2                |       | Amended and Restated Operating Agreement  dated February 17, 2005                               |       |                |       | Exhibit 3.5 to the  registrant’s Form 10-KSB  filed with the Commission on March 31, 2005.                |
| 4.1                |       | Form of Class A  Certificate                                                               |       |                |       | Exhibit 4.1 to the  registrant’s Form SB-2 filed with the Commission on February 28,  2001.                    |
| 4.2                |       | Form of Class B  Certificate                                                               |       |                |       | Exhibit 4.2 to the  registrant’s Form SB-2 filed with the Commission on February 28,  2001.                    |
| 4.3                |       | Form of Class C  Certificate                                                               |       |                |       | Exhibit 4.3 to the  registrant’s Form SB-2 filed with the Commission on February 28,  2001.                    |
| 10.1               |       | Ethanol Marketing and Services Agreement  with Ethanol Products, LLC, dated December 18, 2000   |       |                |       | Exhibit 10.4 to the  registrant’s Form SB-2 filed with the Commission on February 28,  2001.                   |
| 10.2               |       | Water Purchase Agreement with  Lincoln County Rural Water System, Inc., dated May 24, 2002 |       |                |       | Exhibit 10.3 to the  registrant’s Form 10-QSB filed with the Commission on August 14,  2002.                   |
| 10.3               |       | Credit Agreement with Ag Country Farm  Services Credit, FLCA, dated June 19, 2002               |       |                |       | Exhibit 10.1 to the  registrant’s Form 8-K filed with the Commission on June 20, 2002.                         |
| 10.4               |       | Promissory Note with Ag Country  Farm Credit Services, dated June 20, 2002                      |       |                |       | Exhibit 10.2 to the  registrant’s Form 8-K filed with the Commission on June 20, 2002.                         |
| 10.5               |       | Natural Gas Distribution  Agreement, dated September 2, 2002                                    |       |                |       | Exhibit 10.2 to the  registrant’s Form 10-QSB filed with the Commission on November 14,  2002.                 |
| 10.6               |       | Natural Gas Supply Agreement                                                                         |       |                |       | Exhibit 10.3 to the  registrant’s Form 10-QSB filed with the Commission on November 14,  2002                  |
| 10.7               |       | Natural Gas Interstate Pipeline Transportation  Agreement, dated September 2, 2002              |       |                |       | Exhibit 10.4 to the  registrant’s From 10-QSB filed with the Commission on November 14, 2002.                       |
| 10.8               |       | Electric Service Agreement, dated  September 25, 2002                                           |       |                |       | Exhibit 10.1 to the  registrant’s Form 10-QSB filed with the Commission on November 14,  2002.                 |
| 10.9               |       | Corn Price Risk Management  Agreement with Broin Management, LLC, dated November 27, 2002       |       |                |       | Exhibit 10.20 to the  registrant’s Form 10-KSB filed with the Commission on March 4,  2003.                    |
| 10.10              |       | DDGS Marketing Contract with  Broin Enterprises, Inc. d/b/a Dakota                              |       |                |       | Exhibit 10.21 to the  registrant’s Form 10-KSB filed with the                                                       |

 

48

----

 
|   |   | Commodities, dated January 7,  2003                                                               |   |   |   | Commission on March 4, 2003.                                                                                |
|--------|--------|--------------------------------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------|
| 10.11  |   | Loan Agreement with Home Federal Bank,  dated February 28, 2003                                   |   |   |   | Exhibit 10.3 to the  registrant’s Form 10-QSB filed with the Commission on August 14,  2003. |
| 10.12  |   | Amended and Restated Letter of  Credit, dated February 28, 2005                                   |   |   |   | Exhibit 10.24 to the  registrant’s Form 10-KSB filed with the Commission on March 31,  2005. |
| 10.13  |   | Promissory Note Modification Agreement,  dated February 28, 2005                                  |   |   |   | Exhibit 10.25 to the  registrant’s Form 10-KSB filed with the Commission on March 31,  2005. |
| 10.14  |   | Agreement to Compensate  Guarantors, dated February 28, 2005                                      |   |   |   | Exhibit 10.26 to the  registrant’s Form 10-KSB filed with the Commission on March 31,  2005. |
| 10.15  |   | Trading Service Agreement with  Alerus Securities Corporation dated December 31, 2004             |   |   |   | Exhibit 10.1 to the  registrant’s Form 8-K filed with the Commission on January 3, 2005.     |
| 10.16  |   | Technology and Patent Rights  License Agreement with Broin and Associates dated April 5, 2005 *   |   |   |   | Exhibit 10.1 to the  registrant’s Form 10-Q filed with the Commission on May 16, 2005.       |
| 10.17  |   | Design-Build Agreement with Broin  and Associates dated April 5, 2005                             |   |   |   | Exhibit 10.2 to the  registrant’s Form 10-Q filed with the Commission on May 16, 2005.       |
| 10.18  |   | Amended and Restated Credit Agreement  with Ag Country Farm Credit Services dated July 12, 2005   |   |   |   | Exhibit 10.1 to the  registrant’s Form 10-Q filed with the Commission on August 15,  2005.   |
| 10.19  |   | Amended and Restated Mortgage Agreement  with Ag Country Farm Credit Services dated July 12, 2005 |   |   |   | Exhibit 10.2 to the  registrant’s Form 10-Q filed with the Commission on August 15,  2005.   |
| 10.20  |   | Amended and Restated Security Agreement  with Ag Country Farm Credit Services dated July 12, 2005 |   |   |   | Exhibit 10.3 to the  registrant’s Form 10-Q filed with the Commission on August 15,  2005.   |
| 10.21  |   | Feasibility Agreement with Broin  and Associates dated August 23, 2005                            |   |   |   | Exhibit 10.1 to the  registrant’s Form 10-Q filed with the Commission on November 14,  2005. |
| 10.22  |   | Amended and Restated Letter of  Credit dated February 16, 2006                                    |   | X      |   |                                                                                                             |
| 10.23  |   | Promissory Note Modification  Agreement, dated February 16, 2006.                                 |   | X      |   |                                                                                                             |
| 10.24  |   | Agreement to Compensate  Guarantors, dated February 16, 2006                                      |   | X      |   |                                                                                                             |
| 10.25  |   | Interest Rate Conversion  Agreement dated March 1, 2006                                           |   | X      |   |                                                                                                             |
| 31     |   | Rule 13a-14(a)/15d-14(a) Certifications                                                      |   | X      |   |                                                                                                             |
| 32     |   | Section 1350 Certification                                                                        |   | X      |   |                                                                                                             |

 

----

* The redacted portions to Exhibit 10.16 were filed separately withthe Commission subject to a request for confidential treatment dated May 13,2005.

 

49

----

 

**GREAT PLAINS ETHANOL, LLC**

 

Table of Contents

 
| INDEPENDENT  AUDITOR’S REPORT | F-1                             |
|------------------------------------|---------------------------------|
|                               |                            |
| **FINANCIAL STATEMENTS**           |                            |
|                               | Balance  Sheets                 | F-2 |
|                               | Operations                      | F-4 |
|                               | Changes in Members’ Equity | F-5 |
|                               | Cash  Flows                     | F-6 |
|                               | Notes to Financial Statements   | F-8 |

 

----

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Tothe Audit Committee of

**GreatPlains Ethanol, LLC**

Chancellor,South Dakota

 

We have audited theaccompanying balance sheets of **Great Plains Ethanol, LLC**as of December 31, 2005 and 2004,and the related statements of operations, changes in members’ equity, and cashflows for the years ended December 31,2005, 2004 and 2003. These financial statements are the responsibilityof the company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes consideration of internal control overfinancial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the company’s internal control over financialreporting. Accordingly, we do not express such an opinion. An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of **Great Plains Ethanol, LLC**as of December 31, 2005 and 2004,and the results of its operations and its cash flows for each of the yearsended December 31, 2005, 2004,and 2003 in conformity with accounting principles generally accepted in theUnited States of America.

 

 
| /s/ Eide Bailly LLP                                                       |   |
|---------------------------------------------------------------------------|--------|
|                                                                      |
| Sioux  Falls, South Dakota                                                |
| January  30, 2006, except for Note 12 for which the date is March 1, 2006 |

 

F-1

----

 

**GREAT PLAINS ETHANOL, LLC**

**BALANCESHEETS**

**DECEMBER 31, 2005 AND 2004**

 

**ASSETS**

 
| ** **                            | ** ** | **December 31,  2005** | ** **     | **December 31,  2004** | ** ** |
|---------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| CURRENT  ASSETS                       |       |                        |           |                        |       |
| Cash and  cash equivalents            | ** ** | **$**                       | **5,195,242**  |                        | $          | 771,478 |   |
| Receivables                           |       |                        |           |                        |       |
| Ethanol -  related party              | ** ** | **4,267,374**               |           | 3,409,859                   |       |
| Distillers  grain                     | ** ** | **481,371**                 |           | 487,533                     |       |
| Incentives                            | ** ** | **190,871**                 |           | 317,117                     |       |
| Excise and sales  tax refund          | ** ** | **—**                  |           | 185,725                     |       |
| Other                                 | ** ** | **5,412**                   |           | 2,226                       |       |
| Inventory                             |       |                        |           |                        |       |
| Raw  materials                        | ** ** | **915,711**                 |           | 1,369,527                   |       |
| Finished  goods                       | ** ** | **2,420,626**               |           | 2,221,080                   |       |
| Work in  process                      | ** ** | **506,728**                 |           | 381,277                     |       |
| Parts  inventory                      | ** ** | **984,618**                 |           | 531,363                     |       |
| Investment  in commodities contracts  | ** ** | **890,489**                 |           | 1,538,118                   |       |
| Prepaid  expenses                     | ** ** | **125,794**                 |           | 265,756                     |       |
| Total  current assets                 | ** ** | **15,984,238**              |           | 11,481,059                  |       |
|                                  |       |                        |           |                        |       |
| PROPERTY AND  EQUIPMENT               |       |                        |           |                        |       |
| Land                                  | ** ** | **270,210**                 |           | 270,210                     |       |
| Land  improvements                    | ** ** | **3,581,250**               |           | 3,556,518                   |       |
| Buildings                             | ** ** | **9,481,728**               |           | 8,889,160                   |       |
| Equipment                             | ** ** | **40,662,313**              |           | 35,977,210                  |       |
| Construction  in process              | ** ** | **262,122**                 |           | —                      |       |
| ** **                            |       | **54,257,623**              |           | 48,693,098                  |       |
| Less  accumulated depreciation        | ** ** | **(7,152,225**              | )              | (4,427,854                  | )          |
| Net property  and equipment           | ** ** | **47,105,398**              |           | 44,265,244                  |       |
|                                  |       |                        |           |                        |       |
| OTHER ASSETS                          |       |                        |           |                        |       |
| Financing  costs, net of amortization | ** ** | **47,002**                  |           | 299,801                     |       |
| Long Term  Prepaid Expenses           | ** ** | **230,430**                 |           | —                      |       |
| Other                                 | ** ** | **1,000**                   |           | 1,000                       |       |
| ** **                            |       | **278,432**                 |           | 300,801                     |       |
|                                  |       |                        |           |                        |       |
| **TOTAL  ASSETS**                     | ** ** | **$**                       | **63,368,068** |                        | $          | 56,047,104 |   |

 

See Notes to Financial Statements

 

F-2

----

 

**LIABILITIES AND MEMBERS’ EQUITY**

 
| ** **                                                          | ** ** | **December 31,  2005** | ** **     | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|----------------|-----------------------------|------------|
| CURRENT  LIABILITIES                                                |       |                        |           |                        |       |
|                                                                |       |                        |           |                        |       |
| Accounts  payable - trade                                           | ** ** | **$**                       | **4,312,952**  |                        | $          | 3,937,022 |   |
| Accounts  payable - construction costs                              | ** ** | **—**                  |           | 152,143                     |       |
| Accounts  payable to related party                                  | ** ** | **558,154**                 |           | 334,929                     |       |
| Accounts  payable to related party - construction costs             | ** ** | **—**                  |           | 6,821                       |       |
| Accrued  distribution                                               | ** ** | **2,806,500**               |           | 2,245,200                   |       |
| Other  accrued liabilities                                          | ** ** | **580,190**                 |           | 237,587                     |       |
| Current  portion of long-term debt                                  | ** ** | **2,994,098**               |           | 2,478,571                   |       |
|                                                                |       |                        |           |                        |       |
| Total  current liabilities                                          | ** ** | **11,251,895**              |           | 9,392,273                   |       |
|                                                                |       |                        |           |                        |       |
| LONG-TERM  DEBT                                                     | ** ** | **21,627,548**              |           | 19,831,903                  |       |
|                                                                |       |                        |           |                        |       |
| COMMITMENTS  AND CONTINGENCIES (See Note 8)                         |       |                        |           |                        |       |
|                                                                |       |                        |           |                        |       |
| MEMBERS’  EQUITY                                               |       |                        |           |                        |       |
|                                                                |       |                        |           |                        |       |
| Total units  authorized - 4,700                                     |       |                        |           |                        |       |
| Class A  Units, $5,000 par, 1,513 units issued and outstanding | ** ** | **7,565,000**               |           | 7,565,000                   |       |
| Class B  Units, $5,000 par, 200 units issued and outstanding   | ** ** | **1,000,000**               |           | 1,000,000                   |       |
| Class C  Units, $5,000 par, 2,029 units issued and outstanding | ** ** | **10,145,000**              |           | 10,145,000                  |       |
| Class D  Units, $100 par, 0 units issued and outstanding       | ** ** | **—**                  |           | —                      |       |
| Additional  paid-in capital                                         | ** ** | **7,000**                   |           | 7,000                       |       |
| Retained  earnings                                                  | ** ** | **11,771,625**              |           | 8,105,928                   |       |
|                                                                |       |                        |           |                        |       |
| Total  members’ equity                                         | ** ** | **30,488,625**              |           | 26,822,928                  |       |
|                                                                | ** ** | ** **                  |           |                        |       |
| **TOTAL  LIABILITIES & MEMBERS’ EQUITY**              | ** ** | **$**                       | **63,368,068** |                        | $          | 56,047,104 |   |

 

See Notes to Financial Statements

 

F-3

----

 

**GREAT PLAINS ETHANOL, LLC**

**STATEMENTS OF OPERATIONS**

**YEARS ENDED DECEMBER 31, 2005, 2004 AND2003**

 
| ** **                                   | ** ** | **Twelve  Months Ended  December 31,  2005** | ** **     | **Twelve  Months Ended  December 31,  2004** | ** ** | **Twelve  Months Ended  December 31,  2003** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------|----------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
|                                         |       |                                              |           |                                              |       |                                              |       |
| REVENUES                                     |       |                                              |           |                                              |       |                                              |       |
| Sales -  related party                       | ** ** | **$**                                             | **70,551,148** |                                              | $          |  69,464,217                                  |       | $ | 35,683,989 |   |
| Sales                                        | ** ** | **13,345,911**                                    |           | 13,896,018                                        |       | 8,904,112                                         |       |
| Incentive  revenue                           | ** ** | **748,460**                                       |           | 5,560,117                                         |       | 7,663,419                                         |       |
| Grant  revenue                               | ** ** | **—**                                        |           | —                                            |       | 103,115                                           |       |
| Total  revenues                              | ** ** | **84,645,519**                                    |           | 88,920,352                                        |       | 52,354,635                                        |       |
|                                         |       |                                              |           |                                              |       |                                              |       |
| COST OF  REVENUES                            | ** ** | **65,434,525**                                    |           | 71,588,411                                        |       | 42,833,701                                        |       |
|                                         |       |                                              |           |                                              |       |                                              |       |
| GROSS PROFIT                                 | ** ** | **19,210,994**                                    |           | 17,331,941                                        |       | 9,520,934                                         |       |
|                                         |       |                                              |           |                                              |       |                                              |       |
| OPERATING  EXPENSES                          |       |                                              |           |                                              |       |                                              |       |
| Startup  costs                               | ** ** | **—**                                        |           | —                                            |       | 403,801                                           |       |
| General and  administrative                  | ** ** | **3,530,388**                                     |           | 2,759,696                                         |       | 1,790,695                                         |       |
| Total  operating expenses                    | ** ** | **3,530,388**                                     |           | 2,759,696                                         |       | 2,194,496                                         |       |
|                                         |       |                                              |           |                                              |       |                                              |       |
| INCOME FROM  OPERATIONS                      | ** ** | **15,680,606**                                    |           | 14,572,245                                        |       | 7,326,438                                         |       |
|                                         |       |                                              | ** **     |                                              |       |                                              |       |
| OTHER INCOME  AND (EXPENSES)                 |       |                                              | ** **     |                                              |       |                                              |       |
| Interest  income                             | ** ** | **47,894**                                        | ** **     | 11,420                                            |       | 13,107                                            |       |
| Interest  expense                            | ** ** | **(1,404,660**                                    | **)**          | (1,176,009                                        | )          | (1,177,471                                        | )          |
| Other                                        | ** ** | **6,556**                                         | ** **     | 330,959                                           |       | 11,172                                            |       |
| Total other  income and expenses             | ** ** | **(1,350,210**                                    | **)**          | (833,630                                          | )          | (1,153,192                                        | )          |
|                                         |       |                                              | ** **     |                                              |       |                                              |       |
| NET INCOME                                   | ** ** | **$**                                             | **14,330,397** | ** **                                        | $          |  13,738,615                                  |       | $ | 6,173,246 |   |
|                                         |       |                                              | ** **     |                                              |       |                                              |       |
| BASIC AND  DILUTED INCOME PER CAPITAL UNIT   | ** ** | **$**                                             | **3,830**      | ** **                                        | $          |  3,671                                       |       | $ | 1,650 |   |
|                                         |       |                                              | ** **     |                                              |       |                                              |       |
| WEIGHTED  AVERAGE CAPITAL UNITS OUTSTANDING: |       |                                              | ** **     |                                              |       |                                              |       |
|                                         |       |                                              | ** **     |                                              |       |                                              |       |
| BASIC AND  DILUTED                           | ** ** | **3,742**                                         | ** **     | 3,742                                             |       | 3,742                                             |       |
|                                              |            |                                                   |                |                                                   |            |                                                   |            |  |  |  |  |  |  |

 

See Notes to Financial Statements

 

F-4

----

 

**GREAT PLAINS ETHANOL, LLC**

**STATEMENTS OF CHANGES IN MEMBERS’ EQUITY**

**YEARS ENDED DECEMBER 31, 2005, 2004 AND2003**

 
| ** **                                 | ** ** | **Capital Units** | ** ** | **Additional  Paid In  Capital** | ** **      | **Retained  Earnings** | ** ** | **Total  Amount** | ** ** |
|--------------------------------------------|------------|-------------------|------------|----------------------------------|-----------------|------------------------|------------|-------------------|------------|
| **Class A**                                | ** ** | **Class B**       | ** ** | **Class C**                      | ** **      | **Class D**            |
| **Units**                                  | ** ** | **Amount**        | ** ** | **Units**                        | ** **      | **Amount**             | ** ** | **Units**         | ** ** | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2002            |       | 1,513             |       | 7,565,000                        |            | 200                    |       | 1,000,000         |       | 2,029 |   | 10,145,000 |   | — |   | — |   | 7,000 |   | (818,710 | ) | 17,898,290 |   |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                 |       | —            |       | —                           |            | —                 |       | —            |       | — |   | — |   | — |   | — |   | — |   | 6,173,246 |   | 6,173,246 |   |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions to  members, $1,000 per unit |       | —            |       | —                           |            | —                 |       | —            |       | — |   | — |   | — |   | — |   | — |   | (3,742,000 | ) | (3,742,000 | ) |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2003            |       | 1,513             |       | $                                |  7,565,000 |                   | 200        |              | $          |  1,000,000 |   | 2,029 |   | $ |  10,145,000 |   | — |   | $ |  — |   | $ |  7,000 |   | $ |  1,612,536 |   | $ |  20,329,536 |   |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                 |       | —            |       | —                           |            | —                 |       | —            |       | — |   | — |   | — |   | — |   | — |   | 13,738,615 |   | 13,738,615 |   |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions to  members, $1,936 per unit |       | —            |       | —                           |            | —                 |       | —            |       | — |   | — |   | — |   | — |   | — |   | (7,245,223 | ) | (7,245,223 | ) |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2004            |       | 1,513             |       | $                                | 7,565,000       |                   | 200        |              | $          | 1,000,000 |   | 2,029 |   | $ | 10,145,000 |   | — |   | $ | — |   | $ | 7,000 |   | $ | 8,105,928 |   | $ | 26,822,928 |   |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                 |       | —            |       | —                           |            | —                 |       | —            |       | — |   | — |   | — |   | — |   | — |   | 14,330,397 |   | 14,330,397 |   |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions to  members, $2,850 per unit |       | —            |       | —                           |            | —                 |       | —            |       | — |   | — |   | — |   | — |   | — |   | (10,664,700 | ) | (10,664,700 | ) |
|                                       |       |              |       |                             |            |                   |       |              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance, December 31, 2005**        | ** ** | **1,513**         | ** ** | **$**                            | **7,565,000**   | ** **             | **200**    | ** **        | **$**      | **1,000,000** | ** ** | **2,029** | ** ** | **$** | **10,145,000** | ** ** | **—** | ** ** | **$** | **—** | ** ** | **$** | **7,000** | ** ** | **$** | **11,771,625** | ** ** | **$** | **30,488,625** | ** ** |

 

See Notes to Financial Statements

 

F-5

----

 

**GREAT PLAINS ETHANOL, LLC**

**STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2005, 2004 AND2003**

 
| ** **                                                 | ** ** | **Twelve Months  Ended  December 31,  2005** | ** **     | **Twelve Months  Ended  December 31,  2004** | ** ** | **Twelve Months  Ended  December 31,  2003** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------|----------------|---------------------------------------------------|------------|---------------------------------------------------|------------|
|                                                       |       |                                              | ** **     |                                              |       |                                              |       |
| OPERATING  ACTIVITIES                                      |       |                                              | ** **     |                                              |       |                                              |       |
| Net income                                                 | ** ** | **$**                                             | **14,330,397** | ** **                                        | $          | 13,738,615                                        |       | $ | 6,173,246 |   |
| Changes to  net income not affecting cash                  |       |                                              | ** **     |                                              |       |                                              |       |
| Depreciation                                               | ** ** | **2,724,371**                                     | ** **     | 2,525,266                                         |       | 1,946,955                                         |       |
| Amortization                                               | ** ** | **297,583**                                       | ** **     | 40,871                                            |       | 29,502                                            |       |
| Gain on  equipment disposals                               | ** ** | **—**                                        | ** **     | (324,652                                          | )          | —                                            |       |
| (Increase)  decrease in current assets                     |       |                                              | ** **     |                                              |       |                                              |       |
| Receivables                                                | ** ** | **(728,293**                                      | **)**          | 1,254,479                                         |       | (5,421,979                                        | )          |
| Inventory                                                  | ** ** | **(324,436**                                      | **)**          | (1,683,656                                        | )          | (2,819,591                                        | )          |
| Investments  in commodities contracts                      | ** ** | **647,629**                                       | ** **     | (644,219                                          | )          | (893,899                                          | )          |
| Prepaid  expenses                                          | ** ** | **(90,468**                                       | **)**          | (208,637                                          | )          | (18,491                                           | )          |
| Increase  (decrease) in current liabilities                |       |                                              | ** **     |                                              |       |                                              |       |
| Accounts  payable - trade                                  | ** ** | **375,930**                                       | ** **     | 294,461                                           |       | 3,637,346                                         |       |
| Accounts  payable to related party                         | ** ** | **223,225**                                       | ** **     | 106,956                                           |       | 216,973                                           |       |
| Accrued  interest                                          | ** ** | **—**                                        | ** **     | —                                            |       | (76,030                                           | )          |
| Accrued  liabilities                                       | ** ** | **342,603**                                       | ** **     | 112,117                                           |       | 124,575                                           |       |
|                                                       |       |                                              | ** **     |                                              |       |                                              |       |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                 | ** ** | **17,798,541**                                    | ** **     | 15,211,601                                        |       | 2,898,607                                         |       |
|                                                       |       |                                              | ** **     |                                              |       |                                              |       |
| INVESTING  ACTIVITIES                                      |       |                                              | ** **     |                                              |       |                                              |       |
| Insurance  proceeds on property damaged by fire            | ** ** | **—**                                        | ** **     | 993,588                                           |       | —                                            |       |
| Purchase of  property and equipment                        | ** ** | **(5,745,573**                                    | **)**          | (2,626,519                                        | )          | (12,908,826                                       | )          |
| Excise and  sales taxes refunded on construction contract  | ** ** | **207,807**                                       | ** **     | 98,742                                            |       | 468,266                                           |       |
|                                                       |       |                                              | ** **     |                                              |       |                                              |       |
| NET CASH  USED FOR INVESTING ACTIVITIES                    | ** ** | **(5,537,766**                                    | **)**          | (1,534,189                                        | )          | (12,440,560                                       | )          |
|                                                       |       |                                              | ** **     |                                              |       |                                              |       |
| FINANCING  ACTIVITIES                                      |       |                                              | ** **     |                                              |       |                                              |       |
| Advances on  notes payable                                 | ** ** | **13,900,000**                                    | ** **     | 9,700,000                                         |       | 17,440,626                                        |       |
| Principal  payments on notes payable                       | ** ** | **(11,588,827**                                   | **)**          | (19,336,403                                       | )          | (2,548,850                                        | )          |
| Distributions  paid to members, $2,700 and $2,336 per unit | ** ** | **(10,103,400**                                   | **)**          | (8,742,023                                        | )          | —                                            |       |
| Financing  costs paid                                      | ** ** | **(44,784**                                       | **)**          | (7,500                                            | )          | (21,432                                           | )          |
|                                                       |       |                                              | ** **     |                                              |       |                                              |       |
| NET CASH  USED FOR FINANCING ACTIVITIES                    | ** ** | **(7,837,011**                                    | **)**          | (18,385,926                                       | )          | 14,870,344                                        |       |
|                                                       |       |                                              | ** **     |                                              |       |                                              |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS      | ** ** | **4,423,764**                                     | ** **     | (4,708,514                                        | )          | 5,328,391                                         |       |
|                                                       |       |                                              | ** **     |                                              |       |                                              |       |
| PERIOD                                                     | ** ** | **771,478**                                       | ** **     | 5,479,992                                         |       | 151,601                                           |       |
|                                                       |       |                                              | ** **     |                                              |       |                                              |       |
| CASH AND  CASH EQUIVALENTS AT END OF PERIOD                | ** ** | **$**                                             | **5,195,242**  | ** **                                        | $          | 771,478                                           |       | $ | 5,479,992 |   |

 

See Notes to Financial Statements

 

(continued on next page)

 

F-6

----

 

 
| ** **                                                               | ** ** | **2005**   | ** **    | **2004** | ** ** | **2003**   | ** ** |
|--------------------------------------------------------------------------|------------|------------|---------------|----------|------------|------------|------------|
|                                                                     |       |       |          |     |       |       |       |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION                        |       |       |          |     |       |       |       |
|                                                                     |       |       |          |     |       |       |       |
| Cash paid  for interest                                                  | ** ** | **$**      | **1,404,660** |     | $          | 1,176,009  |       | 1,253,501 |   |
|                                                                     |       |       |          |     |       |       |       |
| SUPPLEMENTAL  DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES |       |       |          |     |       |       |       |
|                                                                     |       |       |          |     |       |       |       |
| Accounts  payable incurred for construction costs                        | ** ** | **$**      | **—**    |     | 158,964    |       | 641,455    |   |
|                                                                     |       |       |          |     |       |       |       |
| Financing  costs amortized and reclassified to capitalized interest      | ** ** | **$**      | **—**    |     | —     |       | 4,786      |   |
|                                                                     |       |       |          |     |       |       |       |
| Property and  equipment purchases                                        |       |       |          |     |       | 14,065,697 |       |
| Tax  increment finance district proceeds and other support               | ** ** | **—** |          | —   |       | (1,156,871 | )          |
|                                                                     |       |       |          |     |       |       |       |
| Property and  equipment purchases, net                                   | ** ** | **$**      | **—**    |     | $          | —     |       | $ | 12,908,826 |   |
|                                                                     |       |       |          |     |       |       |       |
| Accrued  Distributions Payable                                           | ** ** | **$**      | **2,806,500** |     | $          | 2,245,200  |       | $ | 3,742,000 |   |

 

See Notes toFinancial Statements

 

F-7

----

 

**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

** **

**NOTE1 -       NATURE OF OPERATIONS**

 

*Principal Business Activity*

 

Great Plains Ethanol,LLC, a South Dakota limited liability company with its principal place ofbusiness in Turner County, South Dakota, was organized to obtain equityownership and debt financing to construct, own and operate a 40 million gallonethanol plant. Great Plains Ethanol, LLC (the Company) began activities on December 20,2000. On March 20, 2003,the ethanol plant commenced its principal operations. Prior to March 20, 2003,the Company was in the development stage with its efforts being principallydevoted to construction of the ethanol plant. The Company sells ethanol andrelated products to customers located in North America.

 

**NOTE2 -       SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

*Basis of Accounting*

 

The Company uses the accrual basis of accounting in accordance withaccounting principles generally accepted in the United States of America. Thismethod recognizes revenues as earned and expenses as incurred.

 

*Investment in Commodities Contracts,Derivative Instruments and Hedging Activities*

 

SFAS No. 133 requires a companyto evaluate its contracts to determine whether the contracts are derivatives.Certain contracts that literally meet the definition of a derivative may beexempted from SFAS No. 133 as normal purchases or normal sales. Normalpurchases and normal sales are contracts that provide for the purchase or saleof something other than a financial instrument or derivative instrument thatwill be delivered in quantities expected to be used or sold over a reasonableperiod in the normal course of business. Contracts that meet the requirementsof normal are documented as normal and exempted from the accounting andreporting requirements of SFAS No. 133.

 

The Company enters intoshort-term cash, options and futures contracts as a means of securing corn andnatural gas for the ethanol plant and managing exposure to changes in commodityprices. All of the Company’s derivatives are designated as non-hedgederivatives. Although the contracts are effective economic hedges of specifiedrisks, they are not designated as and accounted for as hedging instruments.

 

As part of its tradingactivity, the Company uses futures and options contracts offered throughregulated commodity exchanges to reduce risk and is exposed to risk of loss inthe market value of inventories. To reduce that risk, the Company generallytakes positions using cash and futures contracts and options.

 

Unrealized gains and lossesrelated to derivative contracts are included as a component of cost of revenuesin the accompanying financial statements. Inventories are recorded at netrealizable value so that gains and losses on derivative contracts are offset bygains and losses on inventories and reflected in current earnings. For thestatement of cash flows, such contract transactions are classified as operatingactivities. We have recorded a decrease to cost of revenues of $751,873, anincrease to cost of revenues of $3,941,781, and $419,101 related to ourderivative contracts for the years ended December 31, 2005, 2004 and 2003,respectively. These derivative contracts can be found on the Balance Sheetunder “Investment in commodities contracts”.

 

*Revenue Recognition*

 

Revenue from the production ofethanol and related products is recorded when title transfers to customers, netof allowances for estimated returns. Generally, ethanol is shipped FOB shippingpoint and related products are shipped FOB destination. Interest income isrecognized as earned.

 

F-8

----

 

**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

The Company receives payments for incentives to produce ethanol fromthe State of South Dakota and from the United States Department of Agriculture.In accordance with the terms of these arrangements, revenue is recorded basedon production or sale of ethanol.

 

Management reviews forward sales contracts of ethanol and relatedproducts and compares the current cost of production with the contract prices.For contracts with a sales value that is less than the current cost ofproduction, a loss is recorded as a component of cost of sales. For contracts witha sales value that exceeds the current cost of production, the applicablerevenue is recognized upon delivery (fulfillment of the contract).

 

*Cost of Revenues*

 

The primary components of cost of revenues from the production ofethanol and related co-product are corn expense, energy expense (natural gasand electricity), raw materials expense (chemicals and denaturant), shippingcosts on sales, and direct labor costs.

 

Shipping costs incurred by the Company are recorded as a component ofcost of revenues. Shipping costs in cost of revenues include inbound freightcharges, purchasing and receiving costs, inspection costs, warehousing costs,and internal transfer costs.

 

*General and Administrative Expenses*

 

Theprimary components of general and administrative expenses are management feeexpense, administrative payroll expense, insurance expense, and professionalfee expense (legal and audit).

 

*Inventory Valuation*

 

Corn inventory (raw materials) is stated at market value, whichapproximates net realizable value, based on local market prices determined bygrain terminals located in the area of the Company. Ethanol and relatedproducts are stated at net realizable value. Work-in-process, supplies, partsand chemical inventory are stated at the lower of cost or market on thefirst-in, first-out method.

 

In addition, futures and option contracts aremarked to market through cost of revenues.

 

*Cash and Cash Equivalents*

 

The Company considers all highly liquid debt instruments purchased witha maturity of three months or less to be cash equivalents. The Companymaintains its accounts primarily at one financial institution. At timesthroughout the year, the Company’s cash and cash equivalents balances may exceedamounts insured by the Federal Deposit Insurance Corporation. The Company doesnot believe it is exposed to any significant credit risk on cash andequivalents.

 

*Receivables and Credit Policies*

 

Trade receivables are uncollateralized customer obligations due undernormal trade terms requiring payment within fifteen days from the invoice date.Unpaid trade receivables with invoice dates over thirty days old bear interestat 1.5% per month.

 

Trade receivables are stated at the amount billed to the customer.

 

F-9

----

 

**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

Payments of tradereceivables are allocated to the specific invoices identified on the customer’sremittance advice or, if unspecified, are applied to the earliest unpaidinvoices.

 

The carrying amount of trade receivables is reduced by a valuationallowance that reflects management’s best estimate of the amounts that will notbe collected. Management reviews all trade receivable balances that exceedsixty days from the invoice date and based on an assessment of currentcreditworthiness, estimates the portion, if any, of the balance that will notbe collected.

# ** **

# ***Environmental Liabilities***

 

The Company’s operations aresubject to environmental laws and regulations adopted by various governmentalauthorities in the jurisdiction in which it operates. These laws require theCompany to investigate and remediate the effects of the release or disposal ofmaterials at its location. Accordingly, the Company has adopted policies,practices and procedures in the areas of pollution control, occupational healthand the production, handling, storage and use of hazardous materials to preventmaterial environmental or other damage, and to limit the financial liability,which could result from such events. Environmental liabilities are recordedwhen the Company’s liability is probable and the costs can be reasonablyestimated.

 

*Start-Up Costs*

 

Start-up costs areexpensed as incurred. Start-up costs consist of amounts incurred during thedevelopment stage related to the operation and management of the Company, whichdo not qualify as a capitalized cost.

 

*Financing Costs*

 

Financingcosts are amortized over the term of the related debt using the interest methodof amortization. Amortization of financing costs during construction is capitalizedas part of construction period interest.

 

*Use of Estimates*

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amount ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

*Property and Equipment*

 

Property and equipment is stated at cost. Significant additions andbetterments are capitalized, while expenditures for maintenance, repairs andminor renewals are charged to operations when incurred. Depreciation on assetsplaced in service is computed using the straight-line method over estimateduseful lives as follows:

 

| Site improvements | 40 years          |
|-------------------|-------------------|
| Buildings         | 40 years          |
| Equipment         | 3 – 20 years |

 

“Site Improvements” consist of landscaping,additional fencing, and improvements to the roads for entering and exiting theplant.

 

“Buildings” consist of process, mechanical,and grain buildings, administrative offices, and sheds.

 

F-10

----

 

**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

“Equipment” consists of grain systems,trucks, mechanical and electrical production and process equipment, coolingtowers, boilers, field sensors, and power supplies.

 

The Company reviews itsproperty and equipment for impairment whenever events indicate that thecarrying amount of the asset may not be recoverable. An impairment loss isrecorded when the sum of the future cash flows is less than the carrying amountof the asset. The amount of the loss is determined by comparing the fair marketvalues of the asset to the carrying amount of the asset.

 

*Earnings per Capital Unit*

 

For purposes of calculating basic earnings per capital unit, capitalunits issued by the Company are considered outstanding on the effective date ofissue. Diluted earnings per unit are calculated by including dilutive potentialcapital units in the denominator and adjusting net earnings (loss) asapplicable. Since December 31, 2003, diluted earnings per unit are equalto basic earnings per unit.

 

*Income Taxes*

 

The Company is organized as a limited liability company under statelaw. Accordingly, the Company’s earnings pass through to the members and aretaxed at the member level. No income tax provision has been included in thesefinancial statements. Differences between financial statement basis of assetsand tax basis of assets is related to capitalization and amortization oforganization and start-up costs for tax purposes, whereas these costs areexpensed for financial statement purposes. In addition, differences in livesand methods used in the depreciation of property and equipment result indifferences between the financial statement and tax basis of property andequipment. Differences also exist on the tax treatments of the gains and lossesfor contracts and derivative instruments.

 

**NOTE 3 -         LONG-TERM DEBT**

 

On June 19, 2002,the Company entered into a credit agreement with AgCountry Farm CreditServices, FLCA outlining the terms of its construction, term and revolvingfinancing arrangements. The construction loan was limited to 65% ofconstruction costs of the ethanol plant or $32,500,000. Interest duringconstruction was payable monthly at a variable rate of LIBOR plus 3.14%. On October 1,2003, the loan converted to a $26,500,000 term loan payable in 40 equalquarterly installments of principal and interest at a variable rate of LIBORplus 2.64%. The Company converted $6,000,000 of the construction loan to arevolving loan with monthly payments of interest at LIBOR plus 3.14%, plus a..50% unused commitment fee billed on a quarterly basis beginning with thecalendar quarter ending January 1, 2004. On October 1 of each year,the Company must reduce the original amount outstanding by 10% of the amountconverted to the revolving loan. The maximum revolving loan amount was reducedeach year by this amount. The term and revolving loans had a final maturitydate of October 1, 2013. In addition, the Company paid, on a quarterlybasis, 25% of its free cash flow, not to exceed $1,500,000 in each fiscal year.The construction and term loans are secured by a first and prior lien on theCompany’s real and personal property and the collateral assignment of theCompany’s material contracts. The Company was subject to certain restrictivecovenants. The covenants required minimum ratios, restrict distributions to nomore than 75% of net income and limits capital expenditures to $6,000,000 in2005 and $750,000 each year thereafter without the consent of the lender.

 

On July 12, 2005, the Companyentered into a second amended Credit Agreement with AgCountry. The amendmentmade no material changes to the terms of the existing $26.5 million variablerate note except to eliminate the quarterly free cash flow payment as discussedabove.

 

The second amendment convertsand refinances the $6.0 million variable-rate, revolving-credit note and $3.0million variable rate, revolving line of credit, as disclosed below in Note 4,into an $8.0 million variable rate,

 

F-11

----

 

**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

revolving loan and note. Theinterest rate is LIBOR plus 3.0%. The note requires monthly payments ofinterest based on the average daily balance of the revolving loan during therelated monthly period, and is subject to a 0.50% annual commitment fee assessedquarterly on any funds not borrowed. On October 1, 2012, the Company must payany principal balance outstanding that exceeds $4 million, after which anduntil maturity on October 1, 2013, the revolving feature will permit us toborrow the difference between the principal balance outstanding and $4 million.

 

The second amendment alsocreates a new $5.0 million variable rate note to finance additional property,plant and equipment related to our use of new process and raw starchtechnology. The interest rate is LIBOR plus 3.0%. Quarterly principal paymentsof $156,250 plus accrued interest begin on January 1, 2006 and continue untilmaturity on October 1, 2013. Prepayment is without penalty unless we prepay theloan with sources other than funds internally generated from our operations, atwhich time the prepayment penalty is 2.0% of net income.

 

The three loans and notes aresecured by our real property, personal property, inventory, accountsreceivable, general intangibles, improvements, contracts, and other rights setforth under our original Credit Agreement dated June 19, 2002. In addition tostandard covenants and conditions in the amended Credit Agreement, we aresubject to the following covenants and/or conditions: 1) fixed charge coverageratio of not less than 1.15:1.00; 2) owner’s equity ratio of 42% on December31, 2005, 44% on December 31, 2006, 46% on December 31, 2007, 48% on December31, 2008, and 50% on December 31, 2009 through maturity; 3) capital expenditurelimitation of $750,000 annually except as it relates to the new production andprocess technology; 4) current ratio coverage of 1.2:1; 5) minimum workingcapital of $5 million including the unadvanced portion of the $8.0 millionrevolving note; and 6) cash distributions to members not to exceed 75% of netincome unless owner’s equity ratio exceeds 60% and working capital exceeds $6million, at which time distributions to members can be made up to 100% of netincome.

 

The balance of the notespayable as of December 31, 2005 and 2004 is as follows:

 
| ** **                                       | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|
|                                             |       |       |       |       |       |
| Notes  payable to AgCountry Farm Credit Services |       |       |       |       |       |
| Term Note #1 (refinanced  in current year)       |       | $          | 19,777,897 |       | $          | 22,310,474 |   |
| Term Note #2                                     |       | 4,843,750  |       | —     |       |
| Revolving  Term Note                             |       | —     |       | —     |       |
|                                             |       |       |       |       |       |
|                                             |       | 24,621,647 |       | 22,310,474 |       |
| Less current  portion                            |       | 2,994,098  |       | 2,478,571  |       |
|                                             |       |       |       |       |       |
|                                             |       | $          | 21,627,548 |       | $          | 19,831,903 |   |

 

The Company had$8,000,000 available to borrow on the revolving term note as of December 31,2005.

 

Minimum principalpayments for the next five years are estimated as follows:

 
| **Year Ending December 31,** | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2006                              |       | $          | 2,994,098  |   |
| 2007                              |       | 3,165,361  |       |
| 2008                              |       | 3,349,004  |       |
| 2009                              |       | 3,545,922  |       |
| 2010                              |       | 3,757,076  |       |
|                                   |            |            |            |  |

 

F-12

----

 

**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

**NOTE4 -       LINE OF CREDIT**

 

On September 1, 2004the Company obtained an additional $3,000,000 revolving line of credit fromAgCountry Farm Credit Services, FLCA. The line of credit is limited to 75% ofinventory, hedge accounts and accounts receivables less than 90 days old,calculated on a quarterly basis. The line of credit carried an interest rateequal to LIBOR plus 3.50%, adjusted on a monthly basis, plus a .40% unusedcommitment fee. Interest and unused commitment fees were payable quarterly beginningon October 1, 2004. On July 12, 2005 the revolving line of credit wasconverted and refinanced as discussed in Note 3 above.

 

**NOTE 5 -         MEMBERS EQUITY**

 

As specified in the Company’s Operating Agreement, the Company has fourclasses of membership capital units authorized: Class A, B, C and D.

 

For each Class A Capital Unit purchased, the member is obligatedto deliver 2,500 bushels of corn to the Company on an annual basis. For all Class AMembers, this equates to 3,782,500 bushels of corn delivered annually. Corn ispurchased from the Class A Members at a price based on the average marketprice from surrounding local markets. Since 2003 the Company purchased onaverage 20% of its total bushels required for production under the obligationrelated to Class A Capital units.

 

Voting rights are one vote per member for Class A Capital Unitsand one vote per unit for Class B, Class C and Class D CapitalUnits.

 

Incomeand losses are allocated to members based on their respective percentage ofmembership interest. Distributions to members are made on not less than annualbasis and not less than 20% of net cash from operations, as defined in theOperating Agreement; provided if net cash from operations is in excess of$500,000 and that such distribution does not constitute or cause a defaultunder any of the Company’s loan documents or credit facilities.

 

Transfer or disposition of Capital Units is subject to certainrestrictions, including approval by the Board of Managers.

 

**NOTE6 -       INCOME TAXES**

 

The differences between financial statement basis and tax basis ofassets as of December 31, 2005 and 2004 are as follows:

 
| ** **                                            | ** ** | **2005**    | ** ** | **2004**    | ** ** |
|-------------------------------------------------------|------------|-------------|------------|-------------|------------|
|                                                  |       |        |       |        |       |   |   |
| Financial statement basis of assets                   |       | $           | 63,368,068 |        | $          | 56,047,104 |   |
| Plus organization and start-up costs  capitalized-net |       | 528,246     |       | 686,719     |       |
| Depreciation                                          |       | (16,569,164 | )          | (16,568,870 | )          |
| Hedging Gain/Loss                                     |       | 177,419     |       | 566,899     |       |
|                                                  |       |        |       |        |       |   |   |
| Tax basis of assets                                   |       | $           | 47,504,568 |        | $          | 40,731,852 |   |
|                                                       |            |             |            |             |            |  |  |  |  |

 

Therewere no material differences between the financial statement basis and taxbasis of the Company’s liabilities.

 

F-13

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**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

**NOTE7 -       FAIR VALUE OF FINANCIALINSTRUMENTS**

 

TheCompany believes the carrying amount of cash and cash equivalents approximatesfair value due to the short maturity of these instruments.

 

The carrying amount of long-term obligations approximates fair valuebased on estimated interest rates for comparable debt. These obligations arecurrently structured with a variable interest rate.

 

The Company believes the fair value of agreements for the purchase ofutilities approximates the carrying value based on the variable terms of theagreements that follow local market rates.

 

**NOTE8 -       COMMITMENTS, CONTINGENCIES, ANDAGREEMENTS**

 

TheBoard of Managers has entered into various agreements regarding the formation,operation and management of the Company. Significant agreements are as follows:

 

Contractfor Future Services – The Company entered into variousagreements with Broin Management LLC (the Managing Member) and certain of theManaging Member’s affiliates.

 

Agreementswith the Managing Member and certain of its affiliates include:

 

ManagementServices – Pursuant to the terms set forth in theCompany’s Operating Agreement, the Managing Member provides day-to-daymanagement of the plant. The Company pays a management fee of $250,000 annually(the base fee), plus 4% of the net income of the Company as defined in theCompany’s Operating Agreement. The base fee is adjusted annually for inflation.This agreement continues unless terminated by a vote of Managers as provided inthe Operating Agreement. For the years ended December 31, 2005, 2004 and2003, fees relating to the management services and bonus arrangement were$957,461, $939,271, and $592,363, respectively.

 

MarketingAgreements – The Company entered into agreements withcompanies affiliated with the Managing Member to market all of its ethanol anddistiller grains (DDGS). Fees of $.0065 per gallon are payable for administrationservices and ethanol marketing. Fees of 3% of gross sales, with a minimumannual fee of $200,000, are payable for marketing DDGS. The ethanol agreementcontinues for the length of the original primary debt financing for the plantconstruction, while the DDGS agreement has a term of 7 years or the length ofthe original primary debt for plant construction, whichever is longer. Bothagreements are renewable for 3-year periods after the initial term of theagreements. For the years ended December 31, 2005, 2004 and 2003, feesrelating to the marketing agreements were $637,466, $668,663, and $436,620respectively.

 

Corn Price RiskManagement Agreement – The Company entered into an agreementwith Broin Management, LLC for the hedge and price risk management related tocorn and natural gas requirements of the plant. The fee for this service is$50,000 annually. The agreement has a term of 1 year and commenced upon thestart of operations. The agreement is renewable for successive 1-year termsunless terminated 30 days prior to expiration. For the years ended December 31,2005, 2004 and 2003, fees relating to this agreement were $50,000, $52,000, and$47,667 respectively.

 

F-14

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**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

Minimum payments related to these agreements are asfollows:

 
| **Year Ending December 31,** | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
|                              |       |       |       |   |
| 2006                              |       | $          | 1,067,809  |   |
| 2007                              |       | 878,999    |       |
| 2008                              |       | 896,175    |       |
| 2009                              |       | 914,038    |       |
| 2010                              |       | 932,615    |       |
| 2011-2013                         |       | 2,168,241  |       |
|                              |       |       |       |   |
|                              |       | $          | 6,857,877  |   |

 

The Company entered into agreements for the purchase of natural gas andelectricity.

 

Natural Gas – The agreement providethe Company with natural gas for a 15 year period beginning with the date theplant begins operations. During the initial 10 years of the agreement, theCompany has a minimum obligation for delivery of natural gas at a rate thatcovers the cost of construction of the pipeline. The Company is required to paya monthly Distribution Delivery Fee based on the minimum obligation. This fee isat a fixed rate for the 15 year period. The Company is also required to hold anirrevocable standby letter of credit or similar instrument to guarantee paymentof the obligation. The letter of credit will be reduced each year by an amountequal to amortization of a $1,600,000 loan at 8.5%. Minimum payments,regardless of whether the plant takes delivery of the natural gas, are asfollows:

 
| **Year Ending December 31,**  | ** ** | **Amount** | ** ** |
|------------------------------------|------------|------------|------------|
| 2006                               |       |       | $          | 352,600 |   |
| 2007                               |       |       | 352,600    |   |
| 2008                               |       |       | 352,600    |   |
| 2009                               |       |       | 352,600    |   |
| 2010                               |       |       | 352,600    |   |
| 2011-2013                          |       |       | 763,900    |   |
| Total                              |       | 2,526,900  |       |
| Less amount  representing interest |       | 544,351    |       |
| Total at  present value            |       | $          | 1,982,549  |   |

 

Electricity – Theagreement provide the Company with electric service for a term of 5 years. Theagreement sets rates for energy usage based on an agreed upon rate structureand requires a minimum purchase of electricity each month during the initialterm of the agreement. Minimum annual payments during the initial term of theelectricity agreement are as follows:

 

F-15

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** **

**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

 
| **Year Ending December 31,** | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2006                              |       | $          | 346,000    |   |
| 2007                              |       | 357,000    |       |
| 2008                              |       | 214,000    |       |
|                              |       | $          | 917,000    |   |

 

Line of Credit – During the yearended December 31, 2005, the Company renewed a $1,250,000 line of creditagreement with Home Federal Bank at a reduced amount of $1,125,000. The line ofcredit agreement is required by Home Federal Bank in connection with a letterof credit agreement entered into between Home Federal Bank and the supplier ofnatural gas to the Company’s plant. The letter of credit is security for theCompany’s natural gas distribution agreement as it relates to construction ofthe gas pipeline to the plant. Under the line of credit, the Company enteredinto a promissory note with Home Federal Bank to borrow up to $1,125,000. Inthe event of any amount drawn on the letter of credit by the supplier ofnatural gas, an equal amount will be drawn on the line of credit by HomeFederal, which will be recorded as a liability of the Company. The interestrate on the promissory note is the prime rate as published by the Wall StreetJournal plus 2%. The maturity date on the line of credit is March 1, 2006.The line of credit is secured by a lien on the Company’s real and personalproperty. As of December 31, 2005, there was no outstanding balance on theline of credit.

 

To obtain the letter of credit, Home FederalBank required personal guarantees totaling $1,125,000 from certain members orrelated parties of the Company. The Company has agreed to pay each party anannual guarantee fee of 2% of the amount guaranteed. The Company paid $22,500,$25,000, and $32,000 for the guarantee fee for the years ended December 31,2005, 2004, and 2003, respectively.

 

The Company receives incentives related to the production of ethanol asfollows:

 

Incentives — TheCompany receives an incentive payment from the United States Department ofAgriculture (USDA) for the use of corn to produce ethanol. In accordance with theterms of this arrangement, revenue is recorded based on incremental productionof ethanol compared to the prior year. The USDA has set the annual maximum notto exceed $5,000,000 for each eligible producer. The incentive is calculated onthe USDA fiscal year of October 1 to September 30. Revenue of $192,279,$6,355,819, and $5,371,895 has been earned for the USDA program years ended September30, 2005, 2004, and 2003, respectively. Incentive revenue of $46,574,$4,893,450, and $7,080,085 was recorded for the years ended December 31,2005, 2004, and 2003, respectively.

 

The Companyalso receives an incentive payment from the State of South Dakota to produceethanol. In accordance with the terms of this arrangement, revenue is recordedbased on ethanol sold. The State of South Dakota has set a maximum of up to$1,000,000 per year for this program per qualifying producer. Incentive revenueof $701,886, $666,667, and $583,334 was recorded for the years ended December31, 2005, 2004, and 2003, respectively.

 

**NOTE 9 -         RELATED PARTIES**

 

Certain owners of Class A, Class B and Class C CapitalUnits are parties to agreements with the Company. Related party agreements withthe Managing Member and its affiliates are described in Note 5 and Note 8.

 

F-16

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**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

**NOTE 10 -      RETIREMENT PLAN**

 

On April 1, 2004, the Company set up a 401(k) profit sharing planfor substantially all employees who work more than 1,000 hours per year.Employees can make voluntary contributions up to federally designated limits.The Company matches 50% of the employee contributions up to a maximum of 2% ofgross wages. Employee voluntary contributions up to federally designated limitsare always fully vested. Employer contributions to eligible employees arevested on the following schedule: Less than 1 year = 0%, 1 year = 10%, 2 years= 20%, 3 years = 40%, 4 years = 60%, 5 years = 80%, and 6 years = 100%. TheCompany’s 401(k) expense for the year ended December 31, 2005 and 2004respectively was $15,249 and $325.

 

**NOTE 11 – QUARTERLY FINANCIAL DATA(UNAUDITED)**

 

Summary quarterly results are as follows:

 
| ** **                        | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
|                              |       |               |       |                |       |               |       |                |       |
| Year Ended December 31, 2005 |       |               |       |                |       |               |       |                |       |
|                              |       |               |       |                |       |               |       |                |       |
| Total Revenues                    |       | $                  | 22,130,587 |                | $          | 19,427,866         |       | $                   | 20,209,331 |   | $ | 22,877,735 |   |
| Gross Profit (loss)               |       | 6,360,011          |       | 2,843,659           |       | 2,843,223          |       | 7,164,101           |       |
| Operating Income (loss)           |       | 5,516,484          |       | 2,112,985           |       | 1,887,610          |       | 6,163,527           |       |
| Net Income (loss)                 |       | 5,227,395          |       | 1,807,441           |       | 1,526,225          |       | 5,769,336           |       |
| Basic Earnings (loss) per unit    |       | 1,397              |       | 483                 |       | 408                |       | 1,542               |       |
|                              |       |               |       |                |       |               |       |                |       |
| Year Ended December 31, 2004 |       |               |       |                |       |               |       |                |       |
|                              |       |               |       |                |       |               |       |                |       |
| Total Revenues                    |       | $                  | 22,820,873 |                | $          | 20,847,391         |       | $                   | 23,068,520 |   | $ | 22,183,568 |   |
| Gross Profit (loss)               |       | 9,039,155          |       | (1,647,101          | )          | 2,961,247          |       | 6,978,640           |       |
| Operating Income (loss)           |       | 8,179,617          |       | (2,079,003          | )          | 2,335,206          |       | 6,136,425           |       |
| Net Income (loss)                 |       | 7,873,627          |       | (2,349,675          | )          | 2,365,888          |       | 5,848,775           |       |
| Basic Earnings (loss) per unit    |       | 2,104              |       | (628                | )          | 632                |       | 1,563               |       |
|                              |       |               |       |                |       |               |       |                |       |
| Year Ended December 31, 2003 |       |               |       |                |       |               |       |                |       |
|                              |       |               |       |                |       |               |       |                |       |
| Total Revenues                    |       | $                  | 243,081    |                | $          | 17,384,728         |       | $                   | 15,583,958 |   | $ | 19,142,868 |   |
| Gross Profit (loss)               |       | (96,987            | )          | 2,872,757           |       | 2,595,749          |       | 4,149,415           |       |
| Operating Income (loss)           |       | (568,463           | )          | 2,235,846           |       | 2,036,208          |       | 3,622,847           |       |
| Net Income (loss)                 |       | (605,915           | )          | 1,855,731           |       | 1,636,548          |       | 3,286,882           |       |
| Basic Earnings (loss) per unit    |       | (162               | )          | 496                 |       | 437                |       | 878                 |       |

 

The above quarterly financial data is unaudited, but in the opinion ofmanagement, all adjustments necessary for a fair presentation of the selecteddata for these interim periods presented have been included.

 

F-17

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**GREAT PLAINS ETHANOL, LLC**

**NOTES TO FINANCIAL STATEMENTS**

 

**NOTE 12 - SUBSEQUENT EVENTS**

 

On February 16,2006 the Company renewed the line of credit with Home Federal Bank referencedin Note 8. The new maturity date on the line of credit is March 1, 2007,and the amount of the line of credit is $960,000.

 

On March 1,2006 the Company restructured $10 million of its variable rate long term debtinto a fixed rate note for 5 years at a rate of 8.55%.

 

F-18

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