**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

**FORMl0-KSB**

 

**Annual Report Pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934**

 

**For thefiscal year ended December 31, 2002**

 

**Commissionfile number 333-56368**

 

**GreatPlains Ethanol, LLC**

**(Name ofSmall Business Issuer in its Charter)**

 

| **South  Dakota**                                                |   | **46-0459188**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **27716  462nd Avenue  Chancellor, South Dakota  57015**         |
| (Address of Principal  Executive Offices) (Zip Code)             |
|                                                             |   |                                  |
| **(605)  647-0040**                                              |
| (Issuer’s Telephone  Number, Including Area Code)           |
|                                                             |   |                                  |
| Securities registered  under Section 12(b) of the Exchange Act:  |
| **None**                                                         |
|                                                             |   |                                  |
| Securities registered  under Section 12(g) of the Exchange Act:  |
| **Class A  Capital Units**                                       |

 

Check whether the issuer (1) filed allreports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934during the past 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

ý Yes                   o No

 

Check if there is no disclosure of delinquentfilers in response to Item 405 of Regulation S-B is not contained in this form,and no disclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in PartIII of this Form 10-KSB or any amendment to this Form 10 – KSB.   ý

 

State issuer’s revenues for its most recentfiscal year.  $210,744.00

 

The aggregate market value of theregistrant’s Class A, Class B and Class C capital units held by non-affiliatesof the registrant as of March 1, 2003 was approximately $13,710,000, based onthe aggregate price paid for the capital units.

 

As of March 1, 2003, there were 1,513 ClassA, 200 Class B and 2,029 Class C capital units of the registrant outstanding.

 

Transitional Small Business DisclosureFormat:             o Yes                    ý No

 

 

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**PART I**

 

**Item 1.            Description of Business.**

 

Great Plains Ethanol, LLCis a South Dakota limited liability company in the final stages of theconstruction of a 40 million gallon ethanol plant in Turner County, SouthDakota.  When completed, it will produceethanol and an ethanol co-product, distiller’s dried grains with solubles, an animalfeed supplement.

 

**OVERVIEW**

 

We were formed on December20, 2000 and have had no operations to date. We commenced our initial public offering of up to 4,460 of our Class Aand Class C capital units on June 11, 2001, and received and accepted subscriptionsfor 1,529 Class A units and 1,973 Class C units in our public offering.  The total value of the subscriptions was$17,510,000.  Each subscriber paid 10%of the subscriber’s total purchase price into an escrow account, and 90% of thepurchase price by executing a promissory note in favor of us that was subjectto the call of the Board of Managers.

 

On November 5, 2001, ourBoard of Managers authorized the call of the remaining amounts due on thepromissory notes for Class A, Class B and Class C units, with 40% of the totalpurchase price due on January 15, 2002, and the remaining 50% due on April 1,2002.  Three subscribers, holding

 

 

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a total of 16 units,defaulted on their promissory notes.  Werecognized a net loss of $73,000 of investment value as a result of thesedefaults.

 

As of March 1, 2003, wehad 504 members.  We had 503 holders ofClass A units, one holder of Class B units, and 120 holders of Class C units,all of whom also held Class A or Class B units.

 

Broin and Associates, Inc.designed and is building our ethanol plant. Construction of our ethanol plant is nearly completed and we currentlyanticipate beginning production of ethanol and DDGS on or around March 19,2003.  The ethanol storage anddenaturant tanks in the tank farm have been completed and the connecting pipingto the rail and truck loading areas are currently being installed.  Construction on the plant office is alsonearly completed.  The thermal oxidizerinstallation is completed and the extensive wiring systems are beinginstalled.  Once the ethanol plant iscompleted, Broin affiliates will manage the plant and market the ethanol andDDGS we produce.  We entered into aLicense Agreement with Broin & Associates under which we have anonexclusive license to use Broin & Associates’ technology to make, use andsell ethanol and DDGS.  This LicenseAgreement is of an indefinite duration. We have not conducted any research and development activities in thelast two fiscal years.

 

**THEETHANOL INDUSTRY**

 

Ethanol is a chemicalproduced by the fermentation of sugars found in grains and other biomass.Although ethanol can be produced from a number of different types of grains,approximately 90% of ethanol in the United States today is produced fromcorn.  Current annual domestic ethanolproduction capacity is approximately 2.7 billion gallons.

 

Ethanol contains 35%oxygen by weight.  When combined withgasoline, ethanol acts as an oxygenate, which is to say it increases thepercentage of oxygen in gasoline.  As aresult, the gasoline burns more cleanly, and releases less carbon monoxide andother exhaust emissions into the atmosphere. Oxygenated gasoline is commonlyreferred to as reformulated gasoline or “RFG.” Although not all scientistsagree about the existence or extent of environmental benefits associated withthe use of ethanol, the use of ethanol is commonly viewed as a way to improvethe quality of automobile emissions.

 

Because of federal andstate policies promoting cleaner air and the state and federal tax andproduction incentives, the ethanol industry has grown substantially in recentyears.  Currently, U.S. ethanol plantshave the capacity to produce approximately 2.7 billion gallons of ethanolannually, compared to only 175 million gallons in 1980.  There are more than 68 ethanol productionfacilities located in the United States, with the great majority of themlocated in the Midwest in the corn-producing states of Illinois, Wisconsin,Minnesota, Iowa, North Dakota, South Dakota, Nebraska and Kansas.  South Dakota currently has six ethanolplants producing and three additional plants under construction, including ourplant, that will have a combined annual production capacity of 185 milliongallons.

 

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**ETHANOLMARKETING**

 

We expect the target market area for the ethanol produced at our plantto include local, regional and national markets.  The local and regional markets include the state of South Dakota,as well as markets in Minnesota and northwest Iowa.  We expect markets in Sioux Falls, Mitchell, Watertown and Wolsey,South Dakota to be the primary local target markets for our products, alongwith regional markets in Milford, LeMars, Rock Rapids and Sioux City, Iowa, andregional markets in Marshall, Alexandria, Mankato, Minneapolis and St. Paul,Minnesota.  We plan to ship the ethanolwe produce primarily by truck to markets in South Dakota, Minnesota and Iowa.  The plant will be served by multiple SouthDakota State highways and Interstate Highways 29 and 90 provide excellenttransportation links in all directions.

 

Our plant also has railfacilities and connections to the Burlington Northern Santa Fe railroad system,which will facilitate transporting the ethanol we produce to our nationaltarget markets. The national target rail markets for our plant will includeChicago, the Pacific Northwest, the Southern and Southwest markets, as well aspotential new markets on the East Coast and California due to anticipated MTBE phaseouts.

 

Ethanol Products LLC, aBroin affiliate, will market the ethanol produced at our plant. EthanolProducts currently markets ethanol for nine producers located in Minnesota,South Dakota, North Dakota, Missouri, and Michigan.  Although we will rely entirely on Ethanol Products to market theethanol we produce, we do not expect that Ethanol Products will be dependent onone or a limited number of major customers.

 

**THE DDGSINDUSTRY**

 

Distiller’s dried grainswith solubles, or DDGS, is a co-product of the ethanol production process. DDGSis a high protein, high energy feed supplement marketed primarily to the dairy,beef, sheep, swine and poultry industries. DDGS is a popular animal feedsupplement, with approximately 3.5 million tons produced in North Americaannually.  Most is sold for use inanimal feeds within the United States and Canada, and approximately one milliontons is exported, primarily to Europe. The vast majority of the DDGS is fed to ruminant animals in the dairyand beef sector, but its use in the swine sector is growing rapidly.

 

Our plant, as designed,will have the capacity to dry all distiller’s grains produced, when operated atits annual ethanol production capacity of 40 million gallons.

 

**DDGSMARKETING**

 

We have signed a DDGS marketingcontract with Broin Enterprises, Inc. d/b/a Dakota Commodities, to market theDDGS produced at the plant.  We expectthe DDGS target market to include local, regional and national markets.  We anticipate that we will ship DDGS tolocal markets within 100 miles of the plant and regional markets within 800miles of the plant.  We will ship DDGSto local or regional markets primarily by truck, and anticipate that we willship DDGS

 

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to national markets,primarily in the Southwestern United States. Shipments to the national markets will be primarily by rail.  Although we will rely entirely on DakotaCommodities to market the DDGS we produce, we do not expect that DakotaCommodities will be dependent on one or a limited number of major customers.

 

**COMPETITION**

 

We will be in directcompetition with numerous other ethanol and DDGS producers, many of whom havesignificantly greater resources than we do. The ethanol industry has grown to over 68 production facilities in theUnited States. Industry authorities estimate that these facilities are capableof producing approximately 2.7 billion gallons of ethanol per year.  The largest ethanol producers include ArcherDaniels Midland, Cargill, Midwest Grain, Williams Energy Service, New EnergyCorporation and High Plains Corporation, all of which are capable of producingmore ethanol than we expect to produce. In addition, there are numerous regional farmer-owned entities recentlyformed, or in the process of formation, of a similar size and with similarresources to ours.  Most ethanolproducers also produce DDGS, or competing animal feed products such asdistiller’s wet grains.

 

In addition, we believethat at least thirteen new plants with a combined production capacity of over443 million gallons are under construction and plans to expand existing plantshave also been announced which would increase the ethanol production capacityof our competitors.  We are unable todetermine the number and production capacity of plants that ultimately may beconstructed, the timing of such construction, or the effect of resultingproduction upon the demand or price for our products.

 

We also expect thatadditional ethanol and DDGS producers will enter the market if the demand forethanol continues to increase.  Ourethanol plant will compete with other ethanol and DDGS producers on the basisof price and, to a lesser extent, delivery service.  We believe we can compete favorably with other ethanol and DDGSproducers, primarily due to our proximity to ample corn supplies at favorableprices.

 

We may also have tocompete with international ethanol producers from countries such as Brazil, whomay have lower production costs and comparable transportation costs to UnitedStates coastal markets.

 

**CORNPROCUREMENT**

 

The major raw materialrequired for us to produce ethanol and DDGS is corn.  To operate at full capacity, our plant will require approximately14 million bushels of corn annually.  Weanticipate that our Class A members will supply approximately one quarter ofour corn requirements and that the balance will be purchased from other localcorn producers.  Beginning on May 1,2003, after we have begun operations, each Class A member, upon receipt ofnotice from us, will be required to deliver 2,500 bushels of corn to us pereach Class A capital unit owned.  ClassA members will deliver corn to us based upon a delivery schedule.

 

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We expect that thelocation of the plant in Turner County, South Dakota will allow accessibilityto corn at necessary levels.  In 2001,over 14 million bushels of corn for grain were produced in Turner County andover 69 million bushels of corn for grain were produced in nearby Lincoln,Hutchinson, McCook, Hanson, Yankton, and Union Counties.

 

**GOVERNMENTREGULATION**

 

Various federal and state laws, regulations and programs have led tothe increasing use of ethanol in fuel, including various subsidies, tax creditsand other forms of financial incentives. Some of these laws provide economic incentives to produce ethanol andothers mandate the use of ethanol.  Therevocation, amendment or non-renewal of any one or more of these laws,regulations or programs could adversely affect the future use of ethanol and ourbusiness and operations in a material way. Any material reduction of the use of ethanol would have an adverseaffect on our profitability and viability.

 

**ENVIRONMENTALMATTERS**

 

Our operations are subjectto various federal, state and local laws and regulations with respect toenvironmental matters, including air and water quality and aboveground fuelstorage tanks.  We believe we arecurrently in compliance with environmental laws and regulations. However,environmental compliance will require us to incur expenditures for such thingsas new or upgraded equipment or processes, some of which could be material toour business.  If we were found to haveviolated federal, state or local environmental regulations, we could incurliability for cleanup costs, damage claims from third parties and civil orcriminal penalties that could materially adversely affect our business.

 

Our plant was designed andis being constructed under an air quality permit issued by the South DakotaDepartment of Environment and Natural Resources.  The South Dakota DENR has requested that the permit be modifiedto conform with the terms of an air quality permit it recently issued foranother South Dakota ethanol plant.  Thepermit has been modified and the matter is currently awaiting conclusion of aperiod allowed for comments by the public and by the United StatesEnvironmental Protection Agency.

 

A number of ethanol plantsin Minnesota recently entered into consent decree settlements with the State ofMinnesota and the Environmental Protection Agency arising from allegedemissions violations.  Civil penaltieswere assessed against each ethanol plant, additional emissions devices wererequired, new testing protocols established, and air quality permits weremodified by the settlement agreements. As part of that settlement, the EPA informed Minnesota ethanol producersthat it would attempt to “level the playing field,” inferring action in otherstates.  Whether that will influence EPAto comment or act on our pending permit modifications is unknown.

 

In addition, on January 6, 2003, the EPA issued formal requests toethanol plants designed, constructed and/or managed by Broin to provide certaininformation pursuant to the Federal Clean Air Act, as amended in 1990.  We believe that some other ethanol plantsnot managed by Broin received identical requests.  These requests require ethanol plants to provide the EPA withcertain emissions data.  The purpose ofthese requests is to determine whether the plants are in compliance with theClean Air Act.  If the EPA determinesthat ethanol plants designed, constructed or managed by Broin do not complywith the Clean Air Act, the EPA could require pollution control mechanisms andinternal control processes that are not currently planned for our ethanolplant, or could withhold or delay the issuance of necessary permits.  Additional requirements, mechanisms orprocesses imposed by the EPA could increase the costs or slow the developmentof the plant’s start-up and operations in a material way.

 

 

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**EMPLOYEES**

 

As of March 1, 2003, we employed one part-time employee and 38full-time employees.  Brian Minish isour Chief Executive Officer and Chief Financial Officer. See "Item 9 –Directors, Executive Officers, Promoters and Control Persons; Compliance WithSection 16(a) of the Exchange Act" and "Item 10 – ExecutiveCompensation" below for additional information on Mr. Minish.

 

Broin Management has selectedMr. Rick Serie as our plant’s initial general manager.  Mr. Serie was previously with theAgri-Energy, LLC ethanol plant in Luverne, Minnesota, where he served as thegeneral manager.  Mr. Serie oversees andwill be responsible for operations and production on a day-to-day basis.  The general manager is a full-time, on-siteposition, but Mr. Serie is an employee of Broin Management, LLC.  See "Item 9 - Directors, Executive Officers, Promoters andControl Persons; Compliance With Section 16(a) of the Exchange Act" belowfor additional information on Mr. Serie. Our technical manager is also a Broin Management employee.

 

We have also hired a full-timecontroller, commodities manager, operations manager, maintenance manager,membership coordinator, and commodities supervisor.  We are in the process of hiring a chief mechanical operator, labmanager, plant operators, plant maintenance personnel, and commoditiesassistants.

 

We have hired Mr. Steve Kary as our full-timemembership coordinator.  Mr. Kary isresponsible for maintaining our membership records, providing generalassistance to our members, and handling the administrative aspects of sales andtransfers of capital units.

 

**Item2.  Description of Property.**

 

Our ethanol plant islocated on 119 acres of land we own near the town of Chancellor in TurnerCounty, South Dakota.  This site isserved by multiple state highways and is near Interstate Highways 29 and 90 andhas rail facilities and connections to the Burlington Northern Santa Ferailroad system to facilitate transporting the ethanol and DDGS produced at ourplant to national target markets.  Allof our tangible and intangible property, real and personal, serves as thecollateral for our debt financing with AgCountry Farm Credit Services, which isdescribed below under “Item 6 – Liquidity and Capital Resources.”

 

We do not invest in realestate, interests in real estate, real estate mortgages, or securities of orinterests of persons primarily engaged in real estate activities.  Accordingly, we have no policies withrespect to such investments.

 

**Item3.  Legal Proceedings.**

 

From time to time we maybe subject to litigation incidental to our business. We are not currently aparty to any pending legal proceedings that are not routine litigationincidental to our business.  However, asdescribed above under “Item 1-Description of Business – Environmental Matters,”we do not yet know if the EPA will comment or otherwise take action withrespect to the pending modifications to our air quality permit.

 

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**Item4.  Submission of Matters to a Vote ofSecurity Holders.**

 

We did not submit any matter to a vote of our security holders throughthe solicitation of proxies or otherwise during the fourth quarter of 2002.

 

**PART II**

 

**Item5.  Market for Common Equity and RelatedStockholder Matters.**

 

There is no public tradingmarket as such for our capital units. Our members may attempt to sell**** Class****Aand Class****C capital units, andothers may attempt to buy capital units listed for sale, on an alternativetrading system operated by Variable Investment Advisors, Inc., which may beaccessed at www.Agstocktrade.com. According to Variable Investment Advisors, there were no bids in thefourth quarter of 2002, which was the first quarter in which it operated thealternative trading system for our capital units.

 

As of March 1, 2003, therewere 503 Class A members, 1 Class B member, and 120 Class C members,representing a total of 504 members.

 

Under the terms of ourFirst Amended and Restated Operating Agreement, as further amended, we arerequired to make an annual distribution to our members of a minimum of 20% ofthe net cash we earn from operations, as long as net cash from operations is inexcess of $500,000 for that year. However, we are prohibited from making any distributions if it wouldviolate or cause us to default under any of the terms of any of our creditfacilities or debt instruments.

 

**Item6.  Management’s Discussion and Analysisor Plan of Operation.**

 

**CAUTIONARYSTATEMENT REGARDING**

**FORWARD-LOOKINGINFORMATION**

 

You should read the following discussion along with the auditedfinancial statements and notes to the audited financial statements includedelsewhere in this report. This report contains forward-looking statements,including, but not limited to, those under “Plan of Operation” and “Liquidityand Capital Resources,” involving future events, future business and otherconditions, our future performance, and our expected operations.Forward-looking statements may include statements which use words such as“believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,”“hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or thenegatives of these words, and all similar expressions.

 

Forward-looking statements involve numerous assumptions, risks anduncertainties, which include, but are not limited to, legislative acts,regulatory acts, changes in the prices of corn and other commodities, includinggasoline, and general economic conditions. The actual results, performance andachievements or actual business or other conditions may differ materially fromthose contemplated, expressed in, or implied by, any forward-looking statementsand we are not under any duty to update the forward-looking statementscontained in this report. We cannot guarantee future results or performance, orwhat future business conditions will be like. We caution you not to put unduereliance on any forward-looking statements. In particular:

 

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•                  While we anticipate that the thermaloxidizer we have installed will eliminate any potentially dangerous emissionsfrom the ethanol production process, we cannot guarantee that it will.

 

•                  We expect to begin production ofethanol in March of 2003, but unanticipated and unknown conditions could delaythe beginning of the production of ethanol.

 

**PLAN OF OPERATION**

 

We expect to spend the nextthree months completing construction and beginning to operate the plant.  The next nine to twelve months aftercompletion of construction will be used to work with Broin to get the plantoperating at full capacity.  We expectto have sufficient cash to cover our inventory, operating and administrativecosts for the first few weeks of operations until we begin collecting paymenton our accounts receivable.  Such costsinclude raw materials, staffing, office costs, audit, legal, regulatorycompliance, staff training, and expenses related to our debt financing. Broin Management, LLC isresponsible for hiring and supervising all of our staff with respect to thedirect operations of the ethanol plant, including receiving, production andshipping.

 

The Great Plains Ethanol planthas contracted Ethanol Products, LLC to market the ethanol and DakotaCommodities to market the Dried Distillers Grains with Solubles (DDGS) that isproduced at the plant.  We currentlyanticipate that ethanol production will begin on or around March 19, 2003 andthat the first DDGS shipment will be shipped approximately two weeks followingthe startup of DDGS production, which we expect to be approximately April 1,2003.  A percentage of the ethanol andDDGS will be sold with firm contracts and the remaining balance will be sold onthe spot market.  These percentages willbe dictated by market conditions.  Alsoa combination of rail and truck will be utilized for the transportation of theproducts.  We also expect to have sufficientcash to cover our inventory, operating and administrative costs for the firstfew weeks of operations until we begin collecting payment on our accounts receivable.  Such costs include raw materials, staffing,office costs, audit, legal, regulatory compliance and staff training, and topay expenses related to its debt financing.

 

We do not currently anticipate that the recent investigation by theEnvironmental Protection Agency of emissions released as a result of theprocess of producing ethanol will have a material effect on us because we haveinstalled a thermal oxidizer, which is a pollution control device, at itsethanol plant.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

We received net proceeds of $17,338,000 (in cash and promissory notes)in our initial public offering. We also received $7,000 relating tosubscriptions for a total of 16 capital units in our initial public offeringwhich were later redeemed due to the subscribers’ default on their promissorynotes. We have collected all of the amounts owed by subscribers, other than the

 

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$73,000 that was to be received for the 16 capital units which wereredeemed.  As of December 31, 2002, wehad used all of the net proceeds from our initial public offering.

 

On June 19, 2002, weentered into a definitive Credit Agreement with AgCountry Farm CreditServices.  On June 20, 2002, we alsoexecuted a promissory note in favor of AgCountry in the principal amount of$2,000,000.

 

Under our CreditAgreement, AgCountry will loan up to the lesser of 65% of the costs ofconstructing our ethanol plant or $32,500,000. During the construction period, we are paying AgCountry monthly interestonly payments based on the average daily balance of the construction loanduring the related monthly period at an annual floating interest rate equal toLIBOR plus 3.14%.

 

On October 1, 2003, ifcertain conditions are met, AgCountry will convert the construction loan to aterm loan, payable by us in 40 level amortized quarterly payments of principaland interest.  The interest rate will beselected by us from the rate options contemplated by the Credit Agreement.

 

After the constructionloan has been converted to a term loan and until October 1, 2013, we may electto convert between $1,000,000 and $6,000,000 of the principal amount of theterm loan into a revolving loan, payable in monthly interest payments based onthe average daily balance of the revolving loan during the related monthlyperiod based on an annual floating interest rate equal to LIBOR plus3.14%.  In addition, we must pay atleast 10% of the principal amount converted to a revolving loan by October 1 ofeach year until October 1, 2013, when all remaining principal and interest willbe due.  The annual paydown willpermanently reduce the amount we may borrow under our revolving creditfacility.

 

From the time itsconstruction loan is converted to a term loan and until October 1, 2013, we mayborrow up to the then available revolving commitment amount of our revolvingloan.

 

In addition to the otherpayments due to AgCountry under the Credit Agreement, we must pay to AgCountryeach quarter 25% of our free cash flow (as that term is defined in the CreditAgreement), not to exceed $1,500,000 in each fiscal year.

 

We were also awarded a total of approximately $400,000 under aValue-Added Agricultural Product Market Development from the United StatesDepartment of Agriculture. This money was used to pay for certainorganizational, offering and start-up costs related to our formation andcapitalization. As of December 31, 2002, we have received $249,278****under the grant and have requested anadditional $49,233.

 

In addition, on March 19, 2002, the Turner County Board ofCommissioners of Turner County, South Dakota approved a request for taxincrement financing for our ethanol plant. We anticipate that we will receiveapproximately $1 million, based upon the predicted increased tax revenue that willbe realized as a result of the ethanol plant project. Turner County will raisethis amount by selling tax increment bonds. We will have no liability for orobligation to repay the bonds. The bonds are payable solely from the positivetax increment portion of the real property taxes which

 

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are imposed and collected on real property pursuant to South Dakotalaw. As of December 31, 2002, we had not received any amounts from the TurnerCounty TIF financing.

 

As of December 31, 2002, we had an outstanding balance of $17,055,101****on our construction loan facility withAgCountry and no outstanding balance on the promissory note with AgCountry.

 

We expect to have enough cash to cover our operating and administrativeexpenses until we begin collecting payment on our accounts receivable. Suchcosts include raw materials, staffing, office costs, audit, legal, regulatorycompliance and staff training, and to pay expenses related to our debtfinancing.  However, in addition tooperating expenses, we have significant expenses related to financing andinterest and allocated funds in our capital structure for these expenses.  However, there can be no assurance that thefunds allocated will be sufficient to cover these operating expenses and we mayneed additional funding to cover these costs if sufficient funds are notretained up front or if such costs are higher than expected.

 

We are currently negotiating aline of credit arrangement with Home Federal Bank of Sioux Falls, South Dakota,and anticipate entering into a definitive agreement with Home Federal Bank soonafter we file this Annual Report on Form 10-KSB.  Under our Natural Gas Distribution Delivery Agreement withNorthWestern Services Group, Inc. we are required to obtain an irrevocableletter of credit or other payment assurance to cover the estimated cost of $1.6million to construct the pipe line to our ethanol plant if we fail to meetcertain minimum obligations under the agreement.  In order to obtain this letter of credit, we must secure aguarantee or guarantees from secondary sources.  We currently expect that Broin and Associates will provide 50percent of such guarantee and that individual members of our Board of Managerswill provide the remaining 50 percent. Broin and Associates and Board members are expected to receive a fee oftwo percent of the total amount each guarantees on an annual basis forproviding their guarantees.

** **

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

Preparation of our financial statements necessarily requires estimatesand judgments to be made that affect the amounts of assets, liabilities,revenues and expenses reported. Such decisions include the selection of theappropriate accounting principles to be applied and the assumptions on which tobase accounting estimates. Our management continually evaluates these estimatesbased on assumptions it believes to be reasonable under the circumstances.

 

The difficulty in applying these policies arises from the assumptions,estimates and judgments that have to be made currently about matters that areinherently uncertain, such as future economic conditions, operating results andvaluations, as well as management intentions. As the difficulty increases, thelevel of precision decreases, meaning that actual results can, and probablywill be, different from those currently estimated.

 

*Allocation of Costs Between Organizational,Operating and Offering Costs*

 

During our start-up and development, legal, consulting and other costsare incurred related to organizational costs, operating costs and costs relatedto the offering of our capital units. As part of our procedures to determinethe allocation of these costs to the appropriate category, we must establishthe definition of organizational, operating and offering costs and apply thefacts and circumstances surrounding each cost incurred to the applicabledefinition. As part of this process, we make judgments about costs incurred,and in turn how those costs are allocated to the applicable area. Since thecriteria related to the definition of these costs is subjective, if differentassumptions were used to define the above costs, the amounts charged tooperations or as an offering cost could be different than the amounts reported.However, our management does not believe the likelihood of materially differentresults would occur if different assumptions were applied to these allocations.

 

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*Classification of Assets and Liabilities*

 

Our assets are classified as current orlong-term in our financial statements based on our estimates of the time framesrelated to the conversion of these assets to other operating assets or cash orreclassification of the asset to another classification, based on the definitionof the asset during our operating cycle.

 

Long-term assets are evaluated for usage during the ensuing 12-monthperiod, and management makes estimates regarding the conversion of the asset toa current asset or to another long-term asset. Our long-term assets includeconstruction in progress, which is not depreciated until the assets are placedin service. Based on our management’s current plan of operation, theclassification of these assets is not expected to change based on currentconditions and circumstances.  However,if the conditions and circumstances related to these assets, in particular theability to complete construction of and successfully operate, the plant are notachieved, the adjustments would have a material effect on the amounts recordedas assets, members’ equity and results of operations.

 

Financing costs are capitalized and amortized based on the expectedterms of the related debt. If the final terms of the debt are not as previouslyexpected, amortization of the amounts may be different than previouslyanticipated. However, management does not expect that changes in the terms ofthe debt would have a material impact on the financial statements as it relatesto the amortization of financing costs.

 

Likewise, liabilities are classified as current or long-term based onour expectation related to the liquidation of the liability relative to theterms of the agreements surrounding those liabilities. Long-term liabilitiesare subject to security agreements that would require liquidation of theliability if the related asset were sold or otherwise disposed of. Managementhas classified the liability based on the terms of the debt agreement, aftertaking into account our plans for holding the applicable asset, andmanagement’s intentions with regard to liquidation of the liability inaccordance with the terms of the debt agreement. If management changes itsestimate of the nature and use of the related asset, or determines that theliability should be liquidated in advance of scheduled maturities, theliability would be classified as a current liability. If management changes itsplans regarding the liquidation of its long-term liabilities, the change to thebalance sheet classification would be material. Management does not expect tochange its plan of operation such that the classification of liabilities wouldchange by a material amount.

 

*Commitments and Contingencies*

 

Contingencies, by their nature, relate to uncertainties that requiremanagement to exercise judgment both in assessing the likelihood that aliability has been incurred, as well as in estimating the amount of thepotential expense. In conformity with accounting principles generally acceptedin the United States, we accrue an expense when it is probable that a liabilityhas been incurred and the amount can be reasonably estimated.

 

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*Long-Lived Assets*

 

Depreciation and amortization of our property, plant and equipment willbe provided on the straight-line method by charges to operations at rates basedupon the expected useful lives of individual or groups of assets that areplaced in service. Economic circumstances or other factors may causemanagement’s estimates of expected useful lives to differ from the actualuseful lives. Differences between estimated lives and actual lives may besignificant, but management does not expect events that occur during the normaloperation of our plant related to estimated useful lives to have a significantaffect on results of operations.

 

Long-lived assets, including property, plant and equipment andinvestments are evaluated for impairment on the basis of undiscounted cashflows whenever events or changes in circumstances indicate that the carryingamount of an asset may not be recoverable. An impaired asset is written down toits estimated fair market value based on the best information available.Considerable management judgment is necessary to estimate discounted futurecash flows and may differ from actual cash flows. Management does not expect animpairment of assets will exist based on their assessment of the risks andrewards related to the ownership of these assets and the expected cash flowsgenerated from the operation of the plant.

 

**Item 7.            Financial Statements.**

 

Great Plains Ethanol, LLC’saudited financial statements, described as follows, are appended to thesignature page of this report.

 

Independent Auditor’sReport

 

Balance Sheets – December31, 2002 and 2001

 

Statements of Operations –For the Years ended December 31, 2002 and 2001, for the Period from December20, 2000 to December 31, 2000, and for the Period from December 20, 2000, toDecember 31, 2002

 

Statements of Changes inMembers’ Equity – For the Period December 20, 2000 to December 31, 2002

 

Statements of Cash Flows –For the Years ended December 31, 2002 and 2001, for the Period from December20, 2000 to December 31, 2000, and for the Period from December 20, 2000 toDecember 31, 2002

 

Notes to FinancialStatements

 

**Item8.  Changes in and Disagreements WithAccountants on Accounting and Financial Disclosure.**

 

None.

 

13

----

 

**PART III**

 

**Item 9. Directors, Executive Officers, Promoters and Control Persons; ComplianceWith Section 16(a) of the Exchange Act.**

 

The information set forth under the captions“Management and Executive Officer” and “Section 16(a) Beneficial OwnershipReporting Compliance” in the definitive Proxy Statement for the Annual Meetingof Members to be held on April 10, 2003, to be filed with the Securities and ExchangeCommission (the “Commission”) on or before March 4, 2003, is incorporatedherein by reference.

 

**Item10.  Executive Compensation.**

 

The information set forth underthe caption “Compensation of Managers and Executive Officer” in the definitiveProxy Statement for the Annual Meeting of Members to be held on April 10, 2003,to be filed with the Commission on or before March 4, 2003, is incorporatedherein by reference.

 

**Item11.  Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters.**

 

The information set forth underthe caption “Security Ownership of Certain Beneficial Owners and Management” inthe definitive Proxy Statement for the Annual Meeting of Members to be held onApril 10, 2003, to be filed with the Commission on or before March 4, 2003, isincorporated herein by reference.

 

**Item12.  Certain Relationships and RelatedTransactions.**

 

The information set forthunder the caption “Certain Relationships and Related Transactions” in thedefinitive Proxy Statement for the Annual Meeting of Members tobe held on April 10, 2003, to be filed with the Commission on or before March4, 2003, is incorporated herein by reference.

 

**Item13.  Exhibits and Reports on Form 8-K.**

 

The following exhibits arefiled as part of, or are incorporated by reference into, this report:

 

(a)           Exhibits. See Exhibit Index

 

(b)           None.

 

14

----

 

**Item14.  Controls and Procedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

Our Chief Executive Officerand Chief Financial Officer, after evaluating the effectiveness of ourdisclosure controls and procedures (as defined in Rule 13a-14(c) under theSecurities Exchange Act of 1934, as amended), as of a date (the “EvaluationDate”) within 90 days before the filing date of this annual report, haveconcluded that our disclosure controls and procedures are effective in ensuringthat material information required to be disclosed is included in the reportsthat we file with the Securities and Exchange Commission.

 

**Changesin Internal Controls**

 

There were no significantchanges in our internal controls or in other factors that could significantlyeffect these controls subsequent to the date of the Evaluation Date referred toabove.

 

SIGNATURES

 

In accordance with Section13 or 15(d) of the Exchange Act, the registrant caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|   |          |   |   |   |                           | GREAT PLAINS ETHANOL, LLC                            |
|--------|---------------|--------|--------|--------|--------------------------------|------------------------------------------------------|
|   |          |   |   |   |                           |                                                 |
| Date:  | March 4, 2003 |   |   |   |     /s/ Brian Minish |
|   |          |   |   |   |                           | Brian Minish                                         |
|   |          |   |   |   |                           | Chief Executive Officer and Chief Financial  Officer |
|   |          |   |   |   |                           |                                                 |
| Date:  | March 4,      | 2003   |   |   |                           |     /s/ Dwayne Atkins                      |
|   |          |   |   |   |                           | Dwayne Atkins, Manager                               |
|   |          |   |   |   |                           |                                                 |
| Date:  | March 4,      | 2003   |   |   |                           |     /s/ Jeff Broin                         |
|   |          |   |   |   |                           | Jeff Broin, Manager                                  |
|   |          |   |   |   |                           |                                                 |
| Date:  | March 4,      | 2003   |   |   |                           |     /s/ Darrell Buller                     |
|   |          |   |   |   |                           | Darrell Buller, Manager                              |
|   |          |   |   |   |                           |                                                 |
| Date:  | March 4,      | 2003   |   |   |                           |     /s/ Steve Christensen                  |
|   |          |   |   |   |                           | Steve Christensen, Manager                           |
|        |               |        |        |        |                                |                                                      |  |  |  |  |

 

15

----

 
| Date:  | March 1, | 2003   |   |   |   |     /s/ Dennis Hardy   |
|--------|----------|--------|--------|--------|--------|----------------------------------|
|   |     |   |   |   |   | Dennis Hardy, Manager            |
|   |     |   |   |   |   |                             |
| Date:  | March 4, | 2003   |   |   |   |     /s/ Rich Horton    |
|   |     |   |   |   |   | Rich Horton, Manager             |
|   |     |   |   |   |   |                             |
| Date:  | March 4, | 2003   |   |   |   |     /s/ Darrin Ihnen   |
|   |     |   |   |   |   | Darrin Ihnen, Manager            |
|   |     |   |   |   |   |                             |
| Date:  | March 4, | 2003   |   |   |   |     /s/ John A. Ludens |
|   |     |   |   |   |   | John A. Ludens, Manager          |
|   |     |   |   |   |   |                             |
| Date:  | March 4, | 2003   |   |   |   |     /s/ Mark Miller    |
|   |     |   |   |   |   | Mark Miller, Manager             |
|   |     |   |   |   |   |                             |
| Date:  | March 4, | 2003   |   |   |   |     /s/ Jim Rand       |
|   |     |   |   |   |   | Jim Rand, Manager                |
|   |     |   |   |   |   |                             |
| Date:  | March 4, | 2003   |   |   |   |     /s/ Dennis Schrag  |
|   |     |   |   |   |   | Dennis Schrag, Manager           |
|   |     |   |   |   |   |                             |
| Date:  | March 4, | 2003   |   |   |   |     /s/ Paul Shubeck   |
|   |     |   |   |   |   | Paul Shubeck, Manager            |
|   |     |   |   |   |   |                             |
| Date:  | March 4, | 2003   |   |   |   |     /s/ Steve Sinning  |
|   |     |   |   |   |   | Steve Sinning, Manager           |
|   |     |   |   |   |   |                             |
| Date:  | March 4, | 2003   |   |   |   |     /s/ Dan Viet       |
|   |     |   |   |   |   | Dan Viet, Manager                |

 

16

----

 

**CERTIFICATION**

 

I, Brian Minish, certifythat:

 

1.                                       I have reviewed this annual reporton Form 10-KSB of Great Plains Ethanol, LLC;

 

2.                                       Based on my knowledge, this annualreport does not contain any untrue statement of a material fact or omit to statea material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3.                                       Based on my knowledge, thefinancial statements, and other financial information included in this annualreport, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, theperiods presented in this annual report.

 

4.                                       The registrant’s other certifyingofficers and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

a)                                      designed such disclosure controlsand procedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

 

b)                                     evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the “Evaluation Date”); and

 

c)                                      presented in this annual report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifyingofficers and I have disclosed, based on our most recent evaluation, to theregistrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent function):

 

a)                                      all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

 

b)                                     any fraud, whether or not material,that involves management or other employees who have a significant role in theregistrant’s internal controls; and

 

17

----

 

6.                                       The registrant’s other certifyingofficers and I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluations,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

 
| Date:  | March 4, 2003 |   |                                                            | /s/ Brian Minish |
|--------|---------------|--------|-----------------------------------------------------------------|------------------|
|   |          |   | Brian Minish                                                    |
|   |          |   | Chief Executive Officer and Chief Financial  Officer            |
|   |          |   | (Principal Executive Officer and Principal  Accounting Officer) |

 

18

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# **GREAT PLAINS ETHANOL, LLC**

 

***FINANCIAL STATEMENTS***

***DECEMBER 31, 2002 AND 2001***

 

 

----

**GREAT PLAINS ETHANOL, LLC**

 

Table of Contents

 

 

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

 

----

 

----

 

## ** **

## **INDEPENDENT AUDITOR’S REPORT**

 

 

The Board of Managers

**GreatPlains Ethanol, LLC**

Lennox, South Dakota

 

 

We have audited the accompanyingbalance sheets of **Great Plains Ethanol, LLC**, (a development stage limitedliability company) as of December 31, 2002 and 2001, and the related statementsof operations, changes in members’ equity and cash flows for the years endedDecember 31, 2002, and 2001 and for the period from December 20, 2000(inception) through December 31, 2000 and the cumulative period from December20, 2000 (inception) through December 31, 2002. These financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our audits in accordancewith auditing standards generally accepted in the United States of America.Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financialstatements referred to above present fairly, in all material respects, thefinancial position of **Great Plains Ethanol, LLC** as of December31, 2002 and 2001, and the results of its operations and cash flows for theperiods ended December 31, 2002, 2001, and 2000, in conformity with accountingprinciples generally accepted in the United States of America.

 

/s/ Eide Bailly LLP

Bloomington, Minnesota

January 18, 2003

 

1

----

**GREATPLAINS ETHANOL, LLC**

**(ADevelopment Stage Company)**

**BALANCESHEETS**

**DECEMBER31, 2002 AND 2001**

 
|                          |   | **2002**       |           | **2001**  |   |
|-------------------------------|--------|----------------|----------------|-----------|--------|
|                          |   |           |           |      |   |
| **ASSETS**                    |   |           |           |      |   |
|                          |   |           |           |      |   |
| CURRENT ASSETS                |   |           |           |      |   |
| Cash                          |   | **$**          | **151,601**    |      | $      | 1,141,317 |   |
| Receivables:                  |   |           |           |      |   |
| Grant                         |   | **49,233**     |           | 38,534    |   |
| Excise and sales tax refund   |   | **642,619**    |           | —    |   |
| Prepaid expenses              |   | **38,628**     |           | 27,085    |   |
| Total current assets          |   | **882,081**    |           | 1,206,936 |   |
|                          |   |           |           |      |   |
| PROPERTY AND EQUIPMENT        |   |           |           |      |   |
| Land                          |   | **312,710**    |           | 290,626   |   |
| Office equipment              |   | **1,220**      |           | 1,220     |   |
| Construction in progress      |   | **38,200,949** |           | 375,000   |   |
|                          |   | **38,514,879** |           | 666,846   |   |
| Less accumulated depreciation |   | **(581**       | )              | (175      | )      |
| Net property and equipment    |   | **38,514,298** |           | 666,671   |   |
|                          |   |           |           |      |   |
| OTHER ASSETS                  |   |           |           |      |   |
| Financing costs               |   | **346,028**    |           | 24,375    |   |
| Other investments             |   | **1,000**      |           | —    |   |
|                          |   | **347,028**    |           | 24,375    |   |
|                          |   |           |           |      |   |
|                          |   | **$**          | **39,743,407** |      | $      | 1,897,982 |   |

See Notes to FinancialStatements

2

----

 
|                                                                        |   | **2002**       |           | **2001**    |   |
|-----------------------------------------------------------------------------|--------|----------------|----------------|-------------|--------|
|                                                                        |   |           |           |        |   |
| **LIABILITIES AND MEMBERS’ EQUITY**                                    |   |           |           |        |   |
|                                                                        |   |           |           |        |   |
| CURRENT LIABILITIES                                                         |   |           |           |        |   |
| Accounts payable — trade                                               |   | **$**          | **5,215**      |        | $      | 11,000 |   |
| Accounts payable to related party                                           |   | **11,000**     |           | —      |   |
| Accounts payable to related party —  construction costs                |   | **4,696,876**  |           | 375,000     |   |
| Accrued interest                                                            |   | **76,030**     |           | —      |   |
| Accrued liabilities                                                         |   | **895**        |           | 2,755       |   |
| Total current liabilities                                                   |   | **4,790,016**  |           | 388,755     |   |
|                                                                        |   |           |           |        |   |
| LONG-TERM DEBT                                                              |   | **17,055,101** |           | —      |   |
|                                                                        |   |           |           |        |   |
| COMMITMENTS AND CONTINGENCIES                                               |   |           |           |        |   |
|                                                                        |   |           |           |        |   |
| MEMBERS’ EQUITY                                                        |   |           |           |        |   |
| Total units authorized — 4,700                                         |   |           |           |        |   |
| Class A Units, $5,000 par, 2002 — 1,513  units issued and outstanding; |   |           |           |        |   |
| 2001 — 1,529 units subscribed                                          |   | **7,565,000**  |           | 7,645,000   |   |
| Class B Units, $5,000 par, 2002 — 200 units  issued and outstanding;   |   |           |           |        |   |
| 2001 — 200 units subscribed                                            |   | **1,000,000**  |           | 1,000,000   |   |
| Class C Units, $5,000 par, 2002 — 2,029  units issued and outstanding  |   |           |           |        |   |
| 2001 — 2,029 units subscribed                                          |   | **10,145,000** |           | 10,145,000  |   |
| Class D Units, $100 par, 0 units issued                                     |   |           |           |        |   |
| and outstanding                                                             |   | **—**     |           | —      |   |
| Additional paid-in capital                                                  |   | **7,000**      |           | —      |   |
| Deficit accumulated during the development  stage                           |   | **(818,710**   | )              | (765,773    | )      |
| Less subscriptions receivable:                                              |   |           |           |        |   |
| Related party                                                               |   | **—**     |           | (2,854,000  | )      |
| Others                                                                      |   | **—**     |           | (13,661,000 | )      |
| Total members’ equity                                                  |   | **17,898,290** |           | 1,509,227   |   |
|                                                                        |   |           |           |        |   |
|                                                                        |   | **$**          | **39,743,407** |        | $      | 1,897,982 |   |
|                                                                        |   |           |           |        |   |

 

3

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**GREATPLAINS ETHANOL, LLC**

**(ADevelopment Stage Company)**

**STATEMENTSOF OPERATIONS**

 
|                                              |   |             |       |              |       | **Period  From**       |       | **Period  From**       |       |
|---------------------------------------------------|--------|------------------|------------|-------------------|------------|------------------------|------------|------------------------|------------|
|                                              |   |             |       |              |       | **December  20, 2000** |       | **December  20, 2000** |       |
|                                              |   | **Year Ended**   |       | **Year Ended**    |       | **(Inception)  to**    |       | **(Inception)  to**    |       |
|                                              |   | **December 31,** |       | **December  31,** |       | **December  31,**      |       | **December  31,**      |       |
|                                              |   | **2002**         |       | **2001**          |       | **2000**               |       | **2002**               |       |
|                                              |   |             |       |              |       |                   |       |                   |       |
| REVENUES                                          |   |             |       |              |       |                   |       |                   |       |
| Sales                                             |   | **$**            | **—** | ** **        | **$**      | **—**             | ** ** | **$**                  | **—** | ** ** | **$** | **—** | ** ** |
| Grant revenue                                     |   | **210,744**      | ** ** | **—**        | ** ** | **—**             |       | 210,744                |       |
| Total revenue                                     |   | **210,744**      | ** ** | **—**        | ** ** | **—**             |       | 210,744                |       |
|                                              |   |             |       |              |       |                   |       |                   |       |
| OPERATING EXPENSES                                |   |             |       |              |       |                   |       |                   |       |
| Organizational costs                              |   | **—**       |       | 16,348            |       | 46,994                 |       | 63,342                 |       |
| Startup costs                                     |   | **455,648**      |       | 421,396           |       | 27,607                 |       | 904,651                |       |
| Total operating expenses                          |   | **455,648**      |       | 437,744           |       | 74,601                 |       | 967,993                |       |
|                                              |   |             |       |              |       |                   |       |                   |       |
| LOSS FROM START-UP ACTIVITIES                     |   | **(244,904**     | )          | (437,744          | )          | (74,601                | )          | (757,249               | )          |
|                                              |   |             |       |              |       |                   |       |                   |       |
| OTHER INCOME AND (EXPENSES)                       |   |             |       |              |       |                   |       |                   |       |
| Interest income                                   |   | **190,028**      |       | 20,576            | ** ** | **—**             |       | 210,604                |       |
| Interest expense                                  |   | **—**       |       | (1,328            | **)**      | **—**             |       | (1,328                 | )          |
| Other                                             |   | **1,939**        |       | (1,556            | **)**      | **—**             |       | 383                    |       |
| Total other income and expenses                   |   | **191,967**      |       | 17,692            |       | —                 |       | 209,659                |       |
|                                              |   |             |       |              |       |                   |       |                   |       |
| LOSS ACCUMULATED DURING DEVELOPMENT STAGE         |   | **(52,937**      | )          | (420,052          | )          | (74,601                | )          | (547,590               | )          |
|                                              |   |             |       |              |       |                   |       |                   |       |
| BASIC LOSS PER CAPITAL UNIT                       |   | **$**            | **(19**    | )                 | $          | (26,253                | )          | $                      | (4,663     | ) |   |   |
|                                              |   |             |       |              |       |                   |       |                   |       |
| DILUTED LOSS PER CAPITAL UNIT                     |   |             |       |              |       | $                      | (4,904     | )                      |       |   |
|                                              |   |             |       |              |       |                   |       |                   |       |
| WEIGHTED AVERAGE CAPITAL UNITS  OUTSTANDING: |   |             |       |              |       |                   |       |                   |       |
|                                              |   |             |       |              |       |                   |       |                   |       |
| BASIC                                             |   | 2,766            |       | 16                |       | 16                     |       |                   |       |
|                                              |   |             |       |              |       |                   |       |                   |       |
| DILUTED                                           |   |             |       |              |       | 56                     |       |                   |       |
|                                              |   |             |       |              |       |                   |       |                   |       |
|                                                   |        |                  |            |                   |            |                        |            |                        |            |  |  |  |  |

See Notes to FinancialStatements

 

4

----

**GREATPLAINS ETHANOL, LLC**

**(ADevelopment Stage Company)**

**STATEMENTOF CHANGES IN MEMBER’S EQUITY**

 
|                                                    |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   |        |   | **Deficit**     |    |        |   |
|---------------------------------------------------------|--------|--------------------|--------|----------------|--------|----------------|--------|-------------|--------|-------------------|--------|-------------|--------|-----------------|--------|------------|--------|----------------|--------|-------------|--------|-----------------|---------|-------------|--------|
|                                                    |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   |        |   | **Accumulated** |    |        |   |
|                                                    |   | **Capital  Units** |   | **Additional** |   | **During The** |   |        |   |
|                                                    |   | **Class A**        |   | **Class B**    |   | **Class C**    |   | **Class D** |   | **Subscriptions** |   | **Paid In** |   | **Development** |   | **Total**  |   |
|                                                    |   | **Units**          |   | **Amount**     |   | **Units**      |   | **Amount**  |   | **Units**         |   | **Amount**  |   | **Units**       |   | **Amount** |   | **Receivable** |   | **Capital** |   | **Stage**       |    | **Amount**  |   |
|                                                    |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   |        |   |            |    |        |   |
| Balance, December 20, 2000                              |   | —             |   | $—        |   | —         |   | $—     |   | —            |   | $—     |   | —          |   | $—    |   | $—        |   | $—     |   | $—         |    | $—     |   |
| Additional paid-in capital received                     |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   | 4,151       |   |            |    | 4,151       |   |
| Units issued                                            |   |               |   |           |   |           |   |        |   |              |   |        |   | 16              |   | 1,600      |   |           |   |        |   |            |    | 1,600       |   |
| Less subscriptions receivable                           |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   | (1,600         | )      |        |   |            |    | (1,600      | )      |
| Loss accumulated during thedevelopment stage            |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   |        |   | (74,601         | )       | (74,601     | )      |
| Balance, December 31, 2000                              |   | —             |   | —         |   | —         |   | —      |   | —            |   | —      |   | 16              |   | 1,600      |   | (1,600         | )      | 4,151       |   | (74,601         | )       | $(70,450    | )      |
| Additional paid-in capital received                     |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   | 127,234     |   |            |    | 127,234     |   |
| Units subscribed                                        |   | 1,529              |   | 7,645,000      |   | 200            |   | 1,000,000   |   | 2,013             |   | 10,065,000  |   |            |   |       |   |           |   |        |   |            |    | 18,710,000  |   |
| Less subscriptions receivable                           |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   | (18,710,000    | )      |        |   |            |    | (18,710,000 | )      |
| Collection of unit subscriptions                        |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   | 2,196,600      |   |        |   |            |    | 2,196,600   |   |
| Conversion of Class D unitsto Class C units             |   |               |   |           |   |           |   |        |   | 16                |   | 1,600       |   | (16             | )      | (1,600     | )      |           |   |        |   |            |    | —      |   |
| Dividend on conversion ofClass D units to Class C units |   |               |   |           |   |           |   |        |   |              |   | 78,400      |   |            |   |       |   |           |   |        |   | (78,400         | )  | —      |   |
| Cost of issuing membership units                        |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   | (131,385    | )      | (192,720        | )       | (324,105    | )      |
| Loss accumulated during thedevelopment stage            |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   |        |   | (420,052        | )       | (420,052    | )      |
| Balance, December 31, 2001                              |   | 1,529              |   | 7,645,000      |   | 200            |   | 1,000,000   |   | 2,029             |   | 10,145,000  |   | —          |   | —     |   | (16,515,000    | )      | —      |   | (765,773        | )       | 1,509,227   |   |
| Collection of unit subscriptions                        |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   | 16,442,000     |   |        |   |            |    | 16,442,000  |   |
| Forfeitures and other adjustmentsto Class C units       |   | (16                | )      | (80,000        | )      |           |   |        |   |              |   |        |   |            |   |       |   | 73,000         |   | 7,000       |   |            |    | —      |   |
| Loss accumulated during thedevelopment stage            |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   |        |   | (52,937         | )       | (52,937     | )      |
| 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 |   |
|                                                    |   |               |   |           |   |           |   |        |   |              |   |        |   |            |   |       |   |           |   |        |   |            |    |        |   |
|                                                         |        |                    |        |                |        |                |        |             |        |                   |        |             |        |                 |        |            |        |                |        |             |        |                 |         |             |        |  |

 

See Notes to FinancialStatements

 

5

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**GREATPLAINS ETHANOL, LLC**

**(ADevelopment Stage Company)**

**STATEMENTSOF CASH FLOWS**

 
|                                                                                    |   |             |        |              |   | **Period  From**       |   | **Period  From**       |    |
|-----------------------------------------------------------------------------------------|--------|------------------|-------------|-------------------|--------|------------------------|--------|------------------------|---------|
|                                                                                    |   | **Year Ended**   |        | **Year Ended**    |   | **December  20, 2000** |   | **December  20, 2000** |    |
|                                                                                    |   | **December 31,** |        | **December  31,** |   | **(Inception)  to**    |   | **(Inception)  to**    |    |
|                                                                                    |   | **2002**         |        | **2001**          |   | **December  31, 2000** |   | **December  31, 2002** |    |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| OPERATING ACTIVITIES                                                                    |   |             |        |              |   |                   |   |                   |    |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| Loss accumulated during developmentstage                                                |   | **$ (52,937**    | **)**       | $ (420,052        | )      | $ (74,601              | )      | $ (547,590             | )       |
| Changes to loss accumulated during thedevelopment stage not affecting cash Depreciation |   | **406**          |        | 175               |   | —                 |   | 581                    |    |
| (Increase) in current assets                                                            |   |             |        |              |   |                   |   |                   |    |
| Receivables:                                                                            |   |             |        |              |   |                   |   |                   |    |
| Grant                                                                                   |   | **(10,699**      | )           | —            |   | —                 |   | (10,699                | )       |
| Prepaid expenses                                                                        |   | **(11,543**      | )           | (26,624           | )      | (461                   | )      | (38,628                | )       |
| Increase (decrease) in current liabilities                                              |   |             |        |              |   |                   |   |                   |    |
| Accounts payable — trade                                                           |   | **(5,785**       | )           | (60,130           | )      | 71,130                 |   | 5,215                  |    |
| Accounts payable to related party                                                       |   | **11,000**       |        |              |   |                   |   | 11,000                 |    |
| Accrued expenses                                                                        |   | **(1,860**       | )           | (475              | )      | 3,230                  |   | 895                    |    |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| NET CASH USED FOR OPERATING                                                             |   |             |        |              |   |                   |   |                   |    |
| ACTIVITIES                                                                              |   | **(71,418**      | )           | (507,106          | )      | (702                   | )      | (579,226               | )       |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| INVESTING ACTIVITIES                                                                    |   |             |        |              |   |                   |   |                   |    |
| Increase in other investments                                                           |   | **(1,000**       | )           |              |   |                   |   | (1,000                 | )  |
| Purchase of property and equipment                                                      |   | **(33,450,127**  | )           | (291,346          | )      | —                 |   | (33,741,473            | )       |
| Refunds receivable for excise and salestaxes paid on construction contract              |   | **(642,619**     | )           | —            |   | —                 |   | (642,619               | )       |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| NET CASH USED FOR INVESTING                                                             |   |             |        |              |   |                   |   |                   |    |
| ACTIVITIES                                                                              |   | **(34,093,746**  | )           | (291,346          | )      | —                 |   | (34,385,092            | )       |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| FINANCING ACTIVITIES                                                                    |   |             |        |              |   |                   |   |                   |    |
| Proceeds from line-of-credit                                                            |   | —           |        | 78,000            |   | —                 |   | 78,000                 |    |
| Payments on line-of-credit                                                              |   | **—**       |        | (78,000           | )      | —                 |   | (78,000                | )       |
| Advances on notes payable                                                               |   | **17,055,101**   |        |              |   |                   |   | 17,055,101             |    |
| Financing costs paid                                                                    |   | **(321,653**     | )           | (24,375           | )      | —                 |   | (346,028               | )       |
| Proceeds from issuance of capital units                                                 |   | **16,442,000**   |        | 2,196,600         |   | —                 |   | 18,638,600             |    |
| Additional paid in capital received                                                     |   | —           |        | 88,700            |   | 3,651                  |   | 92,351                 |    |
| Cost of issuing membership units                                                        |   | —           |        | (324,105          | )      | —                 |   | (324,105               | )       |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| NET CASH PROVIDED BY                                                                    |   |             |        |              |   |                   |   |                   |    |
| FINANCING ACTIVITIES                                                                    |   | **33,175,448**   |        | 1,936,820         |   | 3,651                  |   | 35,115,919             |    |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| NET INCREASE (DECREASE) IN CASH                                                         |   | **(989,716**     | )           | 1,138,368         |   | 2,949                  |   | 151,601                |    |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| CASH AT BEGINNING OF PERIOD                                                             |   | **1,141,317**    |        | 2,949             |   | —                 |   | —                 |    |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
| CASH AT END OF PERIOD                                                                   |   | **$**            | **151,601** |              | $      | 1,141,317              |   | $                      | 2,949   |   | $ | 151,601 |   |
|                                                                                    |   |             |        |              |   |                   |   |                   |    |
|                                                                                         |        |                  |             |                   |        |                        |        |                        |         |  |  |  |  |

(continued on next page)

 

6

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**STATEMENTSOF CASH FLOWS - page 2**

 
|                                                                      |   |             |       |              |   | **Period  From**       |   | **Period  From**       |   |
|---------------------------------------------------------------------------|--------|------------------|------------|-------------------|--------|------------------------|--------|------------------------|--------|
|                                                                      |   | **Year Ended**   |       | **Year Ended**    |   | **December  20, 2000** |   | **December  20, 2000** |   |
|                                                                      |   | **December 31,** |       | **December  31,** |   | **(Inception)  to**    |   | **(Inception)  to**    |   |
|                                                                      |   | **2002**         |       | **2001**          |   | **December  31, 2000** |   | **December  31, 2002** |   |
|                                                                      |   |             |       |              |   |                   |   |                   |   |
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING  AND

FINANCING ACTIVITIES |   |             |       |              |   |                   |   |                   |   |
| Accounts payable incurred for:                                            |   |             |       |              |   |                   |   |                   |   |
| Prepaid offering costs                                                    |   | **$**            | **—** |              | $      | —                 |   | $                      | 66,930 |   | $ | — |   |
| Construction costs                                                        |   | **4,696,876**    |       | 375,000           |   | —                 |   | 4,696,876              |   |
| Cash paid for interest, net of interest capitalized                       |   | —           |       | 1,328             |   | —                 |   | 1,328                  |   |
| Accrued interest capitalized                                              |   | **76,030**       |       | —            |   | —                 |   | 76,030                 |   |
| Dividend on conversion of                                                 |   |             |       |              |   |                   |   |                   |   |
| Class D units to Class C units                                            |   | —           |       | 78,400            |   | —                 |   | 78,400                 |   |
| Subscriptions receivable for membership units                             |   | —           |       | 16,515,000        |   | 1,600                  |   | —                 |   |
| Additional paid-in capital related to grant  receivable                   |   | —           |       | 38,534            |   | —                 |   | —                 |   |
| Land option assignment received as additional paid  in capital            |   | —           |       | —            |   | 500                    |   | 500                    |   |
|                                                                           |        |                  |            |                   |        |                        |        |                        |        |  |  |  |  |

 

See Notes to FinancialStatements

 

 

7

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**GREATPLAINS ETHANOL, LLC**

**(ADevelopment Stage Company)**

**NOTESTO FINANCIAL STATEMENTS**

**DECEMBER31, 2002 AND 2001**

** **

**NOTE 1 -       NATUREOF OPERATIONS**

 

*Principal Business Activity*

 

**GreatPlains Ethanol, LLC**, a South Dakota limited liabilitycompany with its principal place of business in Turner County, South Dakota,was organized to obtain equity ownership and debt financing to construct, ownand operate a 40 million gallon ethanol plant. **Great Plains Ethanol, LLC** (the Company) began activities onDecember 20, 2000. As of December 31, 2002, the Company is in the developmentstage with its current efforts being principally devoted to construction of theethanol plant.

 

 

**NOTE 2 -       SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

*Basis of Accounting*

 

The Company uses the accrualbasis of accounting in accordance with accounting principles generally acceptedin the United States of America.  Thismethod recognizes revenues as earned and expenses as incurred.

 

*Revenue Recognition*

 

Revenue from the production ofethanol and related products will be recorded upon delivery to customers.Interest income is recognized as earned.

 

Beginning in 2002, amountsearned under grant agreements relate to reimbursement of operating expenses andcertain construction costs such as builders risk insurance premiums.  Amounts related to operating expenses arerecorded as revenue when collection has been assured. Reimbursement ofcapitalized costs related to the grant agreement are recorded as a reduction ofthe cost basis of the asset.

 

*Receivables*

 

Thecarrying amount of receivables reflects management’s best estimate of theamounts that will be collected. Management reviews all receivable balances andestimates the portion, if any, of the balance that will not be collected.

 

*Organizational and Start-Up Costs*

 

Organizational and start-up costsare expensed as incurred. Organizational costs consist of legal and accountingfees related to the formation of the company. Start-up costs consist of expenses incurred during the development stagerelated to the operation and management of the Company which do not qualify asa capitalized cost.

 

*Financing Costs*

 

Financing costs will be amortized over the term of the related debt usingthe interest method of amortization. Amortization of financing costs during construction will be capitalizedas part of construction period interest.

 

(continued on nextpage)

 

8

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*Cost of Issuing Membership Stock*

 

Costs incurred related to thesale of membership stock are recorded as offering costs and deducted fromadditional paid-in capital, with any remaining amount applied to retainedearnings (accumulated deficit).  Suchcosts include direct costs related to the offering such as consulting fees,payroll and related costs, along with costs of meetings and materialsassociated with the Company’s initial public offering.

 

*Use of Estimates*

 

The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amount of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andrevenues and expenses during the reporting period. Actual results could differfrom those estimates.

 

*Concentrations of Credit Risk*

 

The Company’s cash balances aremaintained in bank depositories and periodically exceed federally insuredlimits. The Company has an agreement for excess deposit insurance for depositsup to $15,000,000 during the construction of the ethanol plant.

 

*Property and Equipment*

 

Property and equipment arestated at cost. Significant additions are capitalized, while expenditures formaintenance, repairs and minor renewals are charged to operations whenincurred. Depreciation on assets placed in service is computed using the straight-linemethod over estimated useful lives as follows:

 

Office equipment                 7 years

 

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.

 

Construction in progressconsists of amounts incurred for the construction of the ethanol plant,capitalized interest and other costs that meet capitalization criteria.

 

*Additional Paid-In Capital*

 

Prior to December 31, 2001, theCompany received amounts from various entities to assist in funding theCompany’s formation and development. The Company is under no obligation toissue capital units related to these receipts and has recorded these amounts asadditional paid-in capital.

 

During 2002, several investorsdefaulted on their capital unit subscriptions and forfeited amounts previouslypaid to the Company. Amounts forfeited are included in additional paid-incapital.

 

(continued on next page)

 

9

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*Subscriptions Receivable*

 

Subscriptions receivable wererecorded for amounts due from members accepted by the Company who have not paidthe entire amount due to the Company under the promissory notes issued fortheir Capital Units.  As of December 31,2000, subscriptions receivable were collected prior to management’s release ofthe financial statements and were classified as a current asset.  Subscriptions receivable as of December 31,2001 are classified as a reduction in members’ equity.

 

*Earnings Per Capital unit*

 

For purposes of calculatingbasic earnings per capital unit, capital units issued by the Company areconsidered outstanding on the effective date of issue.  Diluted earnings per unit are calculated byincluding dilutive potential capital units in the denominator and adjusting netearnings (loss) as applicable.

 

*Income Taxes*

 

The Company is organized as alimited liability company under state law. Accordingly, the Company’s earningspass through to the members and are taxed at the member level. No income taxprovision has been included in these financial statements. Differences betweenfinancial statement basis of assets and tax basis of assets is related tocapitalization and amortization of organization and start-up costs for taxpurposes, whereas these costs are expensed for financial statement purposes.

 

 

**NOTE 3 -       CONSTRUCTIONIN PROGRESS**

 

Amounts includedin construction in progress as of December 31, 2002 and 2001 are as follows:

 
|                         |   | **2002**    |           | **2001** |   |
|------------------------------|--------|-------------|----------------|----------|--------|
|                         |   |        |           |     |   |
| Construction costs           |   | **$**       | **38,006,801** |     | $      | 375,000 |   |
| Construction period interest |   | **175,873** |           | —   |   |
| Insurance and other costs    |   | **18,275**  |           | —   |   |
|                         |   |        |           |     |   |
|                         |   | **$**       | **38,200,949** |     | $      | 375,000 |   |
|                         |   |        |           |     |   |

 

**NOTE4 -         NOTES PAYABLE**

 

On July 9, 2001,the Company obtained a line-of-credit from Dakota Heritage State Bank ofChancellor, South Dakota.  Theline-of-credit was due on July 9, 2002 and was bearing interest at a variablerate.  The total amount available to theCompany was $100,000.  The debt wassecured by all property held by the Company, including the Grant (See Note5).  As of December 31, 2002, theCompany had no outstanding balance on the line-of-credit and the agreement hadexpired.

 

(continued on nextpage)

 

10

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On June 19, 2002, theCompany entered into a credit agreement with AgCountry Farm Credit Services,FLCA outlining the terms of its construction, term and revolving financingarrangements. The construction loan is limited to 65% of construction costs ofthe ethanol plant or $32,500,000. Interest during construction is payablemonthly at a variable rate of LIBOR plus 3.14%. On October 1, 2003, the loanwill convert to a term loan payable in 40 equal installments of principal andinterest at the rate option selected at that time. The Company may convertbetween $1,000,000 and $6,000,000 of the term loan to a revolving loan withmonthly payments of interest at LIBOR plus 3.14%. On October 1 of each year,the Company must reduce the original amount outstanding by 10% of the amountconverted to the revolving loan.  Themaximum revolving loan amount is reduced each year by this amount. The term andrevolving loans have a final maturity date of October 1, 2013. In addition, theCompany shall pay, on a quarterly basis, 25% of its free cash flow, not toexceed $1,500,000 in each fiscal year. The construction and term loans aresecured by a first and prior lien on the Company’s real and personal propertyand the collateral assignment of the Company’s material contracts.  Upon completion of construction orconversion to a term loan, the Company becomes subject to certain restrictivecovenants.  The covenants requireminimum ratios, restrict distributions to no more than 75% of net income andlimit capital expenditures without the consent of the lender.

 

The construction notepayable to AgCountry Farm Credit Services had a balance of $17,055,101 as ofDecember 31, 2002. The interest rate was 4.52% as of December 31, 2002. OnJanuary 7, 2003, the Company requested an additional draw of $4,400,254, whichwas advanced on January 14, 2003.

 

On June 20, 2002, theCompany entered into a promissory note with AgCountry Farm Credit Services, PCAto borrow an additional $2 million. The interest rate on the note is the 30-dayLIBOR plus 3.14% per annum.  The note isdue in semi-annual installments of $500,000, plus interest, beginning in June2004, and has a final maturity of December 2005. As of December 31, 2002, therewere no borrowings outstanding on the promissory note.

 

Minimum principalpayments for the next five years based on full funding of the construction noteand promissory note are estimated as follows:

 

|   | **Year Ended  December 31,** |   | **Amount** |   |
|--------|------------------------------|--------|------------|--------|
|   |                         |   |       |   |
|   | 2003                         |   | $          | — |   |
|   | 2004                         |   | 3,633,000  |   |
|   | 2005                         |   | 3,754,000  |   |
|   | 2006                         |   | 2,881,000  |   |
|   | 2007                         |   | 3,013,000  |   |
|        |                              |        |            |        |  |

 

As of December31, 2002, the fair value of the notes payable approximates cost based on thevariable interest rate features of the notes.

 

 

**NOTE5 -         GRANT AGREEMENT**

 

The Company hasbeen awarded a United States Department of Agriculture Value-Added AgriculturalProduct Market Development Grant (the Grant) for approximately $401,000.  The Grant can be used to pay for certainorganizational, offering and start-up costs related to the formation andcapitalization of the Company.  TheCompany has received $249,278 and has requested an additional $49,233 as ofDecember 31, 2002.

 

(continued on nextpage)

 

 

11

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**NOTE6 -         MEMBERS EQUITY**

 

As specified in the Company’sOperating Agreement, the Company has four classes of membership capital unitsauthorized: Class A, B, C and D.

 

During 2001, the Companycompleted its initial public offering of Class A and Class C CapitalUnits.  The Company receivedsubscriptions for 1,529 Class A Capital Units and 1,973 Class C Capital Units,which would result in proceeds of $17,510,000 to the Company if allsubscriptions were paid in full. As part of the public offering, 10% of theoffering price for each subscription was required to be deposited to an escrowaccount. The Company received payment in the form of promissory notes for thebalance of the subscription price from each subscriber. The funds in the escrowaccount were not available to the Company until the Company secured a commitmentletter for debt financing to cover certain construction costs for the ethanolplant.  On November 7, 2001, the Companysecured a commitment letter for debt financing and broke escrow and tookpossession of the $1,751,000 held in the escrow account related to the 1,529Class A Units and 1,973 Class C Units subscribed in the offering.  In addition, the Company took possession of$120,000 held in escrow related to the Class B and Class C Units subscribed forin private sales.

 

A total of sixteen (16) Class DCapital Units were privately offered and sold for $100 per unit to each memberof the initial Board of Managers and to the Company’s initial Managing Member.Class D Units were automatically converted to Class C Units upon completion ofthe public offering of Class A and C Capital Units described above.  A deemed dividend of $78,400 was recordedrelated to the conversion of the Class D Capital Units to Class C Capital Unitsduring the year ended December 31, 2001.

 

The Company offered to sell,and an entity related to the Managing Member agreed to purchase, 200 Class BCapital Units at a price of $5,000 per capital unit, for a total of $1,000,000in a private transaction.  The managingMember has paid the Company $1,000,000 in cash in connection with the sale ofthe 200 Class B Capital Units as of December 31, 2002. Transfer of Class BCapital Units is prohibited unless the units are first offered for sale to theCompany at the fair market value of the units.

 

The Company also offered to sell, and the Managing Member agreed topurchase, 40 Class C Capital Units at a price of $5,000 per capital unit, for atotal of $200,000, in a private transaction in exchange for services related topreparation of a business plan and feasibility of the plant.  In connection with this agreement, theCompany paid the Managing Member $200,000 for the business plan and feasibilitystudy during the year ended December 31, 2001. The Managing Member paid theCompany $200,000 in cash for the 40 Class C Capital Units as of December 31,2002.

 

An entity related to theManaging Member also subscribed for 400 Class C Capital Units, for a total of$2,000,000, as part of the public offering. The entity has paid the Company $2,000,000 in connection with the saleof the 400 Class C Capital Units as of December 31, 2002.

 

For Class A, B and C CapitalUnits, 10% of the offering price was due upon subscription, with the remainingamount paid in the form of a promissory note due subject to call of the Boardof Managers. Under the terms of its initial public offering, the Board ofManagers was required to call amounts due on promissory notes for Class A andClass C Capital Units subscribed before calling amounts due on promissory notesfrom Class B Capital Units subscribed. At December 31, 2001, the Board of Managers called the remaining amountsdue on promissory notes for Class A and Class C Capital Units, with 40% due onJanuary 15, 2002, and the remaining 50% due on April 1, 2002.

 

The Company offered Class CCapital units with a minimum purchase of ten (10) units per purchaser and ClassA Capital Units to producers of agricultural products, with a minimum purchaseof two (2) Class A Capital Units per purchaser. For each Class A Capital Unitpurchased, the member will be obligated to deliver 2,500 bushels of corn to theCompany on an annual basis. Corn will be purchased from the Class A Members ata price based on the average market price from surrounding local markets.

 

(continued on next page)

 

12

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Upon default on certainobligations of members related to Class A, B and C Capital Units, the Companyhad the right to redeem the member’s interest at 10% of the price at which theCapital Units were originally offered for sale by the Company.  If a member defaulted on the payment of thepurchase price pursuant to the promissory note referenced above, the Companyhad the option to redeem the member’s interest and retain all amounts paid bythe member as liquidated damages. During the year ended December 31, 2002,forfeitures and other adjustments resulted in a reduction of subscribed unitsof 16 Class A units, cancellation of $73,000 of subscriptions receivables, andforfeitures of $7,000.

 

Voting rights are one vote permember for Class A Capital Units, and one vote per unit for Class B, Class Cand Class D Capital Units.

 

Income and losses are allocated tomembers based on their respective percentage of membership interest.Distributions to members shall be no less than 20% of net cash from operations,as defined in the Operating Agreement, if net cash from operations is in excessof $500,000 on an annual basis; provided that any such distribution does notconstitute or cause a default under any of the Company’s loan documents orcredit facilities.

 

Transfer or disposition ofCapital Units is subject to certain restrictions, including approval by theBoard of Managers.

 

The following is areconciliation of basic and diluted earnings (loss) per Capital Unit:

 
|                                   |   | **For the  Period Ended December 31, 2000** |     |
|----------------------------------------|--------|---------------------------------------------|----------|
|                                   |   |                                        |     | **Weighted** |   |   |   |
|                                   |   | **Net  Earnings**                           |     | **Average** |   |   |   |
|                                   |   | **(Loss)**                                  |     | **Units** |   | **Per unit** |   |
|                                   |   | **(Numerator)**                             |     | **(Denominator)** |   | **Amount** |   |
|                                   |   |                                        |     |   |   |   |   |
| Basic earnings (loss) per unit         |   | $                                           | (74,601  | ) | 16 |   | $ | (4,663 | ) |
|                                   |   |                                        |     |   |   |   |   |
| Effect of dilutive securities          |   |                                        |     |   |   |   |   |
| Units issuable for management services |   | (200,000                                    | )        | 40 |   |   |   |
|                                   |   |                                        |     |   |   |   |   |
| Diluted earnings (loss) per unit       |   | $                                           | (274,601 | ) | 56 |   | $ | (4,904 | ) |
|                                   |   |                                        |     |   |   |   |   |

 

As of December 31, 2002 and2001, diluted earnings per unit are not presented since the effect of includingpotential units would be antidilutive.

 

 

**NOTE 7 -       INCOMETAXES**

 

The differences betweenfinancial statement basis and tax basis of assets are as follows:

 
|                                              |   | **2002**    |           | **2001** |   |
|---------------------------------------------------|--------|-------------|----------------|----------|--------|
|                                              |   |        |           |     |   |
| Financial statement basis of assets               |   | **$**       | **39,743,407** |     | $      | 1,897,982 |   |
|                                              |   |        |           |     |   |
| Plus organization and start-up costs  capitalized |   | **758,901** |           | 513,901  |   |
|                                              |   |        |           |     |   |
| Tax basis of assets                               |   | **$**       | **40,502,308** |     | $      | 2,411,883 |   |
|                                              |   |        |           |     |   |

 

 

There were no differencesbetween the financial statement basis and tax basis of the Company’sliabilities.

 

(continued on next page)

 

 

13

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**NOTE 8 -       COMMITMENTS,CONTINGENCIES, AND AGREEMENTS**

 

The Board of Managers has entered intovarious agreements regarding the formation, operation and management of theCompany. Significant agreements are as follows:

 

Consulting and Services Agreements — TheCompany has entered into a consulting agreement and a services agreement withVal-Add Service Corporation (Val-Add).

 

The consulting agreement provides for abase fee of $1,500 per month for assistance in negotiating and financing theethanol plant. This agreement also includes provisions whereby Val-Add iseligible for a bonus of $50,000 upon completion of a letter of commitment fordebt financing.

 

The services agreement provides paymentto Val-Add of $25 per hour for certain administrative and record-keepingservices provided to the Company.  Theservices agreement was assigned to Val-Add Administrative and Communications inDecember 2002.

 

Either of these agreements is terminablewith 10 days notice by either party.

 

Start-up and organizational expensesrelated to the agreements with Val-Add totaled $27,227 and $84,600 for theyears ended December 31, 2002 and 2001, respectively, $3,569 for the periodended December 31, 2000, and $115,396 for the period from inception to December31, 2002.

 

Contract for Future Services — TheCompany has entered into various agreements, with Broin Management LLC (theManaging Member) and certain of the Managing Member’s affiliates.

 

Agreements with the Managing Member andcertain of its affiliates include:

 

Management Services — Pursuant to theterms set forth in the Company’s Operating Agreement, the Managing Member willprovide day-to-day management of the ethanol plant. The Company will pay amanagement fee of $250,000 annually (the base fee), plus 4% of the net incomeof the Company as defined in the Company’s Operating Agreement. The base fee isadjusted annually for inflation, and commences no sooner than nine months priorto the operation of the ethanol plant. In addition, the Managing Memberreceived a bonus of $200,000 upon completion of the offering for preparation ofthe business plan and other items needed to identify the feasibility of theplant. This agreement continues unless terminated by a vote of Managers asprovided in the Operating Agreement.  Forthe periods ended December 31, 2002, 2001 and 2000, expenses related to thebonus arrangement and management fee totaled $86,667, $200,000 and $0,respectively.

 

Marketing Agreements — The Company hasentered into agreements with companies affiliated with the Managing Member tomarket all of its ethanol and DDGS. Fees of $.0065 per gallon are payable foradministration services and ethanol marketing. Fees of 3% of gross sales, witha minimum annual fee of $200,000, are payable for marketing DDGS. The ethanolagreement continues for the length of the original primary debt financing forthe plant construction, while the DDGS agreement has a term of 7 years or thelength of the original primary debt for plant construction, whichever islonger. Both agreements are renewable for 3-year periods after the initial termof the agreements.

 

Construction Contract —On November 20, 2001, the Company entered into a contract for the constructionof the ethanol plant with Broin and Associates, Inc., a party related to theManaging Member.  The construction contracttotals $48,006,440.  Construction costsas of December 31, 2002, totaled $37,506,653, of which $4,696,868 had beenincurred and unpaid.  The Company’sremaining commitment on the construction of the ethanol plant, with a relatedparty, is approximately $10,000,000 as of December 31, 2002.

 

(continuedon next page)

 

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Corn Price RiskManagement Agreement — The Company has entered into an agreement with BroinManagement, LLC for the hedge and price risk management related to cornrequirements of the plant. The fee for this service is $50,000 annually, andrequires a margin deposit of $65,000. By participating in the agreement, theCompany is subject to the risks and rewards intrinsic to the pool ofparticipating ethanol plants managed by Broin Management, LLC. The agreementhas a term of 1 year and commences upon the start of operations. The agreementis renewable for successive 1-year terms unless terminated 30 days prior toexpiration.

 

Land OptionAgreement — During the period ended December 31, 2000, the Company received anassignment of an option to purchase real estate. The option was exercised andthe land purchased during the year ended December 31, 2001 for a price of$289,560.  The Company had recorded theland option of $500 as additional paid-in capital.

 

The Company has entered intoagreements for the purchase of water, electricity and natural gas.

 

Water— The agreement provides the Company with water at a fixed rate for 5 years,renewable for 5 year periods at rates negotiated at the time of renewal. Nominimum purchase quantities are required by the agreement.

 

Natural Gas— The agreements provide the Company with natural gas at a fixed price for a15-year term, beginning with the date the plant begins operations.  During the initial 10 years of theagreement, the Company has a minimum obligation for delivery of natural gas ata rate that covers the cost of construction of the pipeline.  The Company is required to hold anirrevocable letter of credit or similar instrument to guarantee payment of theobligation.  The letter of credit willbe reduced each year by an amount equal to amortization of a $1,600,000 loan at8.5%.  At December 31, 2002, the Companyhad not entered into the letter of credit agreement.  Minimum payments, regardless of whether the plant takes deliveryof the natural gas, are as follows:

 

| **Year Ended  December 31,**      |   | **Amount** |      |
|-----------------------------------|--------|------------|-----------|
|                              |   |       |      |
| 2003                              |   | $          | 329,000   |   |
| 2004                              |   | 395,000    |      |
| 2005                              |   | 395,000    |      |
| 2006                              |   | 395,000    |      |
| 2007                              |   | 395,000    |      |
| 2008-2013                         |   | 2,040,000  |      |
|                              |   |       |      |
| Total                             |   | 3,949,000  |      |
| Less amount representing interest |   | 1,044,000  |      |
|                              |   |       |      |
| Total at present value            |   | $          | 2,905,000 |   |
|                              |   |       |      |

 

(continued on next page)

 

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Electricity— The agreements provide the Company with electric service for a term of 5years.  The agreement sets rates forenergy usage based on an agreed upon rate structure and requires a minimumpurchase of electricity each month during the initial term of the agreement.Minimum annual payments during the initial term of the electricity agreementare as follows:

 

| **Year Ended  December 31,** |   | **Amount** |      |
|------------------------------|--------|------------|-----------|
|                         |   |       |      |
| 2003                         |   | $          | 238,000   |   |
| 2004                         |   | 357,000    |      |
| 2005                         |   | 357,000    |      |
| 2006                         |   | 119,000    |      |
|                         |   |       |      |
|                         |   | $          | 1,071,000 |   |
|                         |   |       |      |

 

**NOTE9 -         RELATED PARTIES**

 

Certain owners of Class A,Class B and Class C Capital Units are parties to agreements with theCompany.  Related party agreements withthe Managing Member and its affiliates are described in Note 6 and Note 8.  In addition, one of the owners of Val-Add(Note 8) is also a member of the Company, and an employee of Val-Add serves asChief Executive Officer and Chief Financial Officer of the Company.

 

 

**NOTE10 -      NEW ACCOUNTING PRONOUNCEMENTS**

 

In June 2001, the FASB issuedSFAS No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143).This statement addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs.

 

In April 2002, the FASB issuedSFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment ofFASB Statement No. 13 and Technical Corrections,”(SFAS No. 145) that supercedesprevious guidance for the reporting of gains and losses from extinguishment ofdebt and accounting for leases, among other things. SFAS No. 145 will beapplied as required.

 

In July 2002, the FASB issuedSFAS No. 146, “Accounting for Costs Associated with Exit or DisposalActivities,”(SFAS No. 146). The statement requires companies to recognize costsassociated with exit or disposal activities when they are incurred rather thanat the date of a commitment to an exit or disposal plan. Statement 146 is to beapplied prospectively to exit or disposal activities initiated after December31, 2002.

 

Management does not expect theadoption of the above accounting standards to have a material impact on thefinancial statements of Company.

 

 

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EXHIBIT INDEX

 
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                                           | ** ** | **Filed   Herewith** | ** ** | **Incorporated  Herein by   Reference to**                                                                                              | ** ** |
|------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|------------|
| 3.1         |       | Articles of Organization                                                                                                                                                                                                  |       |                 |       | Appendix A to the Issuer’s Prospectus filed  with the Commission pursuant to Rule 424(b)(3) on June 11, 2001 (File No.  333-56368) |       |
|             |       |                                                                                                                                                                                                                      |       |                 |       |                                                                                                                                    |       |
| 3.2         |       | First Amended and Restated Operating Agreement                                                                                                                                                                            |       |                 |       | Appendix A to the Issuer’s Prospectus filed  with the Commission pursuant to Rule 424(b)(3) on June 11, 2001 (File No.  333-56368) |       |
|             |       |                                                                                                                                                                                                                      |       |                 |       |                                                                                                                                    |       |
| 3.3         |       | Amendment and Addendum to Great Plains  Ethanol, LLC Operating Agreement                                                                                                                                                  |       | X                    |       |                                                                                                                                    |       |
|             |       |                                                                                                                                                                                                                      |       |                 |       |                                                                                                                                    |       |
| 10.1        |       | Consulting Agreement with Val-Add Service  Corporation, dated December 1, 2000                                                                                                                                            |       |                 |       | Exhibit 10.2 to the Issuer’s Form SB-2 filed  with the Commission on February 28, 2001 (File No. 333-56368)                        |       |
|             |       |                                                                                                                                                                                                                      |       |                 |       |                                                                                                                                    |       |
| 10.2        |       | Service Agreement with Val-Add Service  Corporation, dated December 1, 2000                                                                                                                                               |       |                 |       | Exhibit 10.3 to the Issuer’s Form SB-2 filed  with the Commission on February 28, 2001 (File No. 333-56368)                        |       |
|             |       |                                                                                                                                                                                                                      |       |                 |       |                                                                                                                                    |       |
| 10.3        |       | Contract for Future Services with Broin and  Associates, Inc., Broin Management, LLC., Ethanol Products, LLC, Broin  Enterprises, Inc., d/b/a Dakota Commodities, and Broin Investments II, LLC,  dated December 18, 2000 |       |                 |       | Exhibit 10.1 to the Issuer’s Form SB-2 filed  with the Commission on February 28, 2001 (File No. 333-56368)                        |       |
|             |       |                                                                                                                                                                                                                      |       |                 |       |                                                                                                                                    |       |
| 10.4        |       | Ethanol Marketing and Services Agreement with  Ethanol Products, LLC, dated December 18, 2000                                                                                                                             |       |                 |       | Exhibit 10.4 to the Issuer’s Form SB-2 filed  with the Commission on February 28, 2001 (File No. 333-56368)                        |       |
|             |       |                                                                                                                                                                                                                      |       |                 |       |                                                                                                                                    |       |
| 10.5        |       | Employment Agreement with Brian Minish, dated  December 18, 2000                                                                                                                                                          |       |                 |       | Exhibit 10.8 to the Issuer’s Form SB-2 filed  with the Commission on February 28, 2001 (File No. 333-56368)                        |       |
|             |       |                                                                                                                                                                                                                      |       |                 |       |                                                                                                                                    |       |
| 10.6        |       | Consulting Agreement with U.S. Energy  Services, Inc., dated February 16, 2001                                                                                                                                            |       |                 |       | Exhibit 10.11 to the Issuer’s Form SB-2 filed  with the Commission on February 28, 2001 (File No. 333-56368)                       |       |
|             |       |                                                                                                                                                                                                                      |       |                 |       |                                                                                                                                    |       |

 

 

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| 10.7   |   | Value-Added Agricultural Product Market  Development Grant Agreement with the Rural Business-Cooperative Service of  the United States Department of Agriculture, dated September 20, 2001 |   |   |   | Exhibit 10.12 to the Issuers’ Form 10-KSB/A  filed with the Commission on May 15, 2002 (File No. 333-56368)  |   |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------|--------|
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.8   |   | Conditional Loan Commitment by AgCountry Farm  Credit Services, dated November 7, 2001                                                                                                     |   |   |   | Exhibit 10.12 to the Issuer’s Form 10-QSB  filed with the Commission on November 14, 2001 (File No. 333-56368)    |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.9   |   | Construction Contract with Broin and  Associates, Inc., dated November 20, 2001                                                                                                            |   |   |   | Exhibit 10.3 to the Issuer’s Form 10-KSB filed  with the Commission on April 1, 2002 (File No. 333-56368)         |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.10       |   | First Amendment to Agreement Between Owner and  Design Builder (Construction Contract) with Broin and Associates, Inc., dated  November 20, 2001                                           |   |   |   | Exhibit A 10.13 to the Issuer’s Form 10-KSB/A  filed with the Commission on May 15, 2002 (File No. 333-56368)     |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.11       |   | Licensing Agreement with Broin Associates,  Inc., dated November 20, 2001                                                                                                                  |   |   |   | Exhibit 10.10 to the Issuer’s Form 10-KSB  filed with the Commission on April 1, 2002 (File No. 333-56368)        |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.12       |   | Process Guarantee by Broin Associates, Inc.,  dated November 20, 2001                                                                                                                      |   |   |   | Exhibit 10.11 to the Issuer’s Form 10-KSB  filed with the Commission on April 1, 2002 (File No. 333-56368)        |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.13       |   | Water Purchase Agreement dated May 24, 2002  with Lincoln Rural Water System, Inc.                                                                                                         |   |   |   | Exhibit 10.3 to the Issuer’s Form 10-QSB filed  with the Commission on August 14, 2002                            |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.14  |   | Credit Agreement dated as of June 19, 2002  with Ag Country Farm Services Credit, FLCA                                                                                                     |   |   |   | Exhibit 10.1 to the Issuer’s Form 8-K filed  with the Commission on June 20, 2002                                 |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.15  |   | Promissory Note dated June 20, 2002 in favor  of Ag Country Farm Services Credit, PLA                                                                                                      |   |   |   | Exhibit 10.2 to the Issuer’s Form 8-K filed  with the Commission on June 20, 2002                                 |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.16       |   | Natural Gas Distribution Agreement dated  September 2, 2002                                                                                                                                |   |   |   | Exhibit 10.2 to the Issuer’s Form 10-QSB filed  with the Commission on November 14, 2002                          |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |
| 10.17       |   | Natural Gas Supply Agreement dated September  2, 2002                                                                                                                                      |   |   |   | Exhibit 10.3 to the Issuer’s Form 10-QSB filed  with the Commission on November 14, 2002                          |   |
|        |   |                                                                                                                                                                                       |   |   |   |                                                                                                                   |   |

 

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| 10.18  |   | Natural Gas Interstate Pipeline Transportation  Agreement dated September 2, 2002                                                                 |   |   |   | Exhibit 10.4 to the Issuer’s Form 10-QSB filed  with the Commission on November 14, 2002 |   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|-----------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                              |   |   |   |                                                                                          |   |
| 10.19  |   | Electric Service Agreement dated September 25,  2002                                                                                              |   |   |   | Exhibit 10.1 to the Issuer’s Form 10-QSB filed  with the Commission on November 14, 2002 |   |
|   |   |                                                                                                                                              |   |   |   |                                                                                          |   |
| 10.20  |   | Corn Price Risk Management Agreement with  Broin Management, LLC dated November 27, 2002                                                          |   | X      |   |                                                                                          |   |
|   |   |                                                                                                                                              |   |   |   |                                                                                          |   |
| 10.21  |   | DDGS Marketing Contract with Broin  Enterprises, Inc. d/b/a Dakota Commodities dated January 7, 2003                                              |   | X      |   |                                                                                          |   |
|   |   |                                                                                                                                              |   |   |   |                                                                                          |   |
| 99.1   |   | Certification of Chief Executive Officer and  Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (18 U.S.C. 1350) |   | X      |   |                                                                                          |   |

 

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