**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K**
| **(Mark  One)**                                                                                                       |
|-----------------------------------------------------------------------------------------------------------------------|
| x  **Annual Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934**      |
|                                                                                                                  |
| **For  the fiscal year ended December 31, 2006**                                                                 |
|                                                                                                                  |
| **Or**                                                                                                                |
|                                                                                                                  |
| o  **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934** |
|                                                                                                                  |
| **For  the transition period from          **                       |
|                                                                                                                  |
| **Commission  file number: 0-49779**                                                                                  |

**GreatPlains Ethanol, LLC**

(Exact name of registrant as specified in the charter)

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

**27716462****nd AvenueChancellor, South Dakota57015**

(Address of Principal Executive Offices) (Zip Code)

**(605)647-0040**

(Registrant’s Telephone Number, Including Area Code)

Securitiesregistered under Section 12(b) of the Exchange Act:

**None**

Securitiesregistered under Section 12(g) of the Exchange Act:

**Class A Capital Units**

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

o  Yes    x  No

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

o  Yes    x  No

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Exchange Act of 1934 duringthe preceding 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.    x  Yes    o  No

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained in this form, and nodisclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference inPart III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of accelerated filer and large accelerated filer in Rule 12b-2of the Exchange Act).
| o Large Accelerated Filer | o Accelerated  Filer | x    Non-Accelerated Filer |
|--------------------------------|---------------------------|----------------------------------------------|

 

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

o  Yes    x  No

Theaggregate market value of the registrant’s capital units held by non-affiliatesat June 30, 2006 was approximately $61,852,520. The aggregate market valuewas computed by reference to the last sales price during the registrant’s mostrecently completed second fiscal quarter.

As ofMarch 1, 2007, there were 1,513 Class A, 200 Class B and 2,029Class C capital units of the registrant outstanding.

**DOCUMENTS INCORPORATED BY REFERENCE**

Part IIIof Form 10-K - Portions of the Proxy/Information Statement for 2007 AnnualMeeting of Members.

 

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**CAUTIONARY STATEMENT REGARDINGFORWARD-LOOKING INFORMATION**

This Annual Report on Form 10-K and other reportsissued by Great Plains Ethanol, LLC (including reports filed with theSecurities and Exchange Commission (the “SEC” or “Commission”), contain “forward-lookingstatements” that deal with future results, expectations, plans andperformance.  Forward-looking statements may include statements which usewords 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. These forward-lookingstatements are made based on our expectations and beliefs concerning futureevents affecting us and are subject to uncertainties and factors relating toour operations and business environment, all of which are difficult to predictand many of which are beyond our control, that could cause our actual resultsto differ materially from those matters expressed in or implied by theseforward-looking statements. We do not undertake any responsibility to releasepublicly any revisions to these forward-looking statements to take into accountevents or circumstances that occur after the date of this prospectus.Additionally, we do not undertake any responsibility to update you on theoccurrence of any unanticipated events which may cause actual results to differfrom those expressed or implied by the forward-looking statements contained inthis Annual Report.  Important factorsthat could cause actual results to differ materially from our expectations aredisclosed under “Risk Factors” and elsewhere in this report. As statedelsewhere in this report such factors include, among others:

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·                                          Changesin ethanol supply and demand;

·                                          Changesin the weather or general economic conditions impacting the availability andprice of commodities, particularly corn and natural gas;

·                                          Theavailability and cost of raw materials for the production process, particularlyfor corn, natural gas, steam, and water;

·                                          Theresults of risk management or hedging strategies;

·                                          Competitionfrom alternative fuels and alternative fuel additives;

·                                          Fluctuationsin United States oil consumption and petroleum prices;

·                                          Changesin business strategy, capital improvements or development plans;

·                                          Theavailability of additional capital to support capital improvements anddevelopment;

·                                          Changesor developments in laws, regulations or taxes in the ethanol, agricultural orenergy industries;

·                                          Damageto or loss of the plant due to casualty, weather, mechanical failure orany   extended or extraordinarymaintenance or inspection that may be required;

·                                          Anincrease in environmental regulation and scrutiny from federal and stategovernments

·                                          Otherfactors discussed below under the item entitled “Risk Factors.”

We are not under any duty to update theforward-looking statements contained in this report, nor do we guarantee futureresults or performance or what future business conditions will be like. Wecaution you not to put undue reliance on any forward-looking statements, whichspeak only as of the date of this report.

**PART I**

**Item 1. Description of Business.**

**Overview**

Great Plains Ethanol, LLC (also referred to as “we,” “our,”or “us”) is a South Dakota limited liability company that owns and operates anethanol plant (the “plant”) near Chancellor, South Dakota. We wereorganized under South Dakota law in 2000, after which we commenced an equityoffering and obtained debt financing to build the plant. Our plant commencedoperations in March 2003 and began operating at full name-plate productioncapacity in April 2003. Our members are primarily agricultural producerswho principally reside in South Dakota.

We are engaged in the business of producing andselling ethanol and distillers grains from the processing of corn. Corn issupplied to us by our members and from

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purchasesof corn on the open market. The ethanol produced at our plant is soldexclusively to Ethanol Products, LLC, a division of Broin Enterprises, Inc.,which markets and sells the ethanol to an array of customers located throughoutthe continental United States. Distillers grains, a co-product of theproduction process, are exclusively marketed and sold through Dakota GoldMarketing, Inc., a division of Broin Enterprises, Inc., to local, regional andnational livestock feeders.

**The Plant**

Our plant, which has a name-plate capacity of 45million gallons of ethanol annually, is located near the city of Chancellor,South Dakota. The plant was designed and built by Broin and Associates, Inc.,of Sioux Falls, South Dakota, a division of the Broin Companies, LLC,  specializing in the design and constructionof ethanol plants. The plant was originally built with a name-plate capacity of40 million gallons annually.  The plantis managed by Broin Management, LLC, a division of the Broin Companies, LLC,specializing in the management and operation of ethanol plants.  In August 2006, we entered into adesign-build agreement with Broin and Associates to expand the plant from aname-plate production capacity of 45 million gallons annually to a name-plateproduction capacity of 100 million gallons annually.  Upon the approval of our air quality permitwith the State of South Dakota, we anticipate commencing construction in earlyspring of 2007 provided weather permits it.

The plant is essentially a fermentationplant.  The corn supplied to the plant is ground and then mixed withwater to form a mash.  The mash is heated and enzymes added toconvert the starch into fermentable sugars.  Fermentation occurs whenyeast is added to convert the sugars into alcohol and carbon dioxide.  Fermentation produces a mixture called “beer,”which contains about 10% alcohol and 90% water.  The “beer” is then boiledin a distillation column to separate the water, resulting in ethyl alcohol thatis 90 to 95% pure.  The mixture then goes through a dehydration process,which increases the alcohol content to 99% or greater.  This product isthen mixed with a certified denaturant to make the product unfit for human consumptionand commercially saleable.

**PrincipalProducts**

The principal products produced at our plant are fuelgrade ethanol and distillers grains.

***Ethanol***

Ethanol is ethyl alcohol.  Ethanol is produced from starch orsugar-based feed products such as corn, potatoes, wheat, and sorghum, as wellas from agricultural waste products including sugar, rice straw, cheese whey,beverage wastes and forestry and paper wastes. Historically, corn has been theprimary source of producing ethanol because of its relatively low cost, wideavailability and ability to produce large quantities of carbohydrates thatconvert into glucose more easily than other products.  Today,approximately 90% of the ethanol produced in the United States is produced fromcorn.

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Ethanol is used for three primary purposes: 1) as anoxygenated fuel additive; 2) as an octane enhancer in fuels; and 3) as anon-petroleum based gas substitute. Approximately 95% of all ethanol is usedfor blending with unleaded gasoline and other fuel products. Ethanol has beenutilized as a fuel additive since the late 1970s when its value as a productextender for gasoline was discovered during the OPEC oil embargo crisis. In the 1980s, ethanol began to see widespread use as an octane enhancer,replacing other environmentally harmful components in gasoline such as lead andbenzene.  Ethanol’s use as an oxygenate continued to increase with thepassage of the Clean Air Act Amendments of 1990, which required the addition ofoxygenates to gasoline in the nation’s most polluted areas.  Becauseethanol contains approximately 35% oxygen, its combination with gasolineincreases the percentage of oxygen in gasoline.  As a result, the gasolineburns cleaner and releases less carbon monoxide and other exhaust emissionsinto the atmosphere.

***Distillers Grains***

A principal co-product of the ethanol productionprocess is distillers grains.  Distillers grains are a high protein, highenergy feed supplement marketed primarily to the dairy, beef, sheep, swine, andpoultry industries. It is a popular animal feed supplement, with millionsof tons produced in North America annually.  Most of the distillers grainsproduced in the United States are sold for use in animal feeds within thecontinental United States, and a small percentage is exported primarily toCanada, Mexico and Europe.

Dry mill ethanol processing produces generally threeforms of distillers grains, all of which differ in moisture content and shelflife: 1) dried distillers grains with solubles (DDGS); 2) distillers wetgrains or “wet cake”; and 3) modified distillers grains.  Distillers wetgrains are processed corn mash that does not go through a drying process andcontains approximately 70% moisture content.  Distillers wet grains have ashort shelf life of approximately three days and can be sold only to livestockproducers within the immediate vicinity of the plant.  Modified distillersgrains are distillers wet grains that have been dried to a 40% moisturecontent.  Modified distillers grains have a slightly longer shelf life andare often sold to nearby livestock producers. DDGS are distillers wet grainsthat are dried to an 8-10% moisture content. DDGS have an almost indefiniteshelf life and may be sold and shipped to any market regardless of its vicinityto the plant.

**Marketingand Distribution**

***Ethanol***

All of the ethanol produced at the plant is sold toEthanol Products, LLC, a division of Broin Enterprises, Inc., under an ethanolmarketing agreement.  Ethanol Products, in turn, markets and sells theethanol to major, multi-national oil companies with blending and refineryfacilities located throughout the continental United States. The price receivedfrom the sale to Ethanol Products is based upon various types of contractsbetween us and Ethanol Products and is fixed upon the transfer of title toEthanol Products.

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The ethanol produced at our plant is shipped usingrail cars operated by Ethanol Products or trucks supplied by companies withwhich Ethanol Products contracts. Transfer of title and risk of loss is made toEthanol Products upon the loading of ethanol onto the railcars and trucks atthe plant. The plant is served by rail facilities and connections to theBurlington Northern Santa Fe railroad system, which facilitate thetransportation of approximately 90% of the ethanol produced at the plant. It isalso served by multiple South Dakota state highways and Interstate Highways 29and 90, which provide transportation links in all directions.

The marketing agreement with Ethanol Products is ineffect until October 2013, and automatically renews for three-year termsunless terminated by either party with three months advance notice prior to theend of the term. Ethanol Products charges us a marketing and service feebased upon each gallon of ethanol sold. Shipping costs in transporting theethanol are borne by us and are included in gross revenues and cost ofrevenues. In the event that our relationship with Ethanol Products isinterrupted for any reason, we believe that another entity to market theethanol could be located. Any interruption, however, could temporarily disruptthe sale of ethanol and adversely affect our business and operations.

***Distillers Grains***

We contract with Dakota Gold Marketing, Inc. adivision of Broin Enterprises, Inc., to market all of the distillers grainsproduced at the plant. There are four variations of distillers grainsproduced by us and marketed through Dakota Gold Marketing: 1) Dakota GoldTM; 2)DDGS; 3) modified distillers wet grains; and 4) distillers wet grains. DakotaGoldTM is DDGS that is certified by Dakota Gold Marketing indicating that DDGSmeet certain processing and specifications standards. The sale of Dakota GoldTMmakes up the majority of our total sales of distillers grains. The productionand sale of modified distillers wet grains and distillers wet grains, variesdepending upon the general operations of the plant and actual market conditionsfor each product.

Dakota Gold Marketing markets our distillers grains tolocal, regional and national markets. We ship Dakota GoldTM and DDGSprimarily to markets in the western and southwestern United States, whileshipments of modified distillers wet grains and distillers wet grains areshipped to local and regional markets. Shipments of Dakota GoldTM and DDGS areprimarily done by rail because of a longer shelf life, and shipments ofmodified distillers wet grains and distillers wet grains are done bytruck. We also contract with Dakota Gold Marketing for the use of railcarsin transporting Dakota GoldTM and DDGS, paying Dakota Gold Marketing inconnection with each shipment a flat fee per railcar in addition to a railcarmileage fee depending upon the destination. All shipping costs associatedwith transporting distillers grains from the plant to customers are borne by usand are included in gross revenues and cost of revenues. Although we rely onDakota Gold Marketing to market 100% of our distillers grains, Dakota GoldMarketing is not dependent upon one or a limited number of major customers.

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Our marketing contract with Dakota Gold Marketing isin effect until October 2013. It automatically renews for three-year termsunless discontinued by either party upon at least three months advanced writtennotice prior to the end of the term. We pay Dakota Gold Marketing a marketingfee based on gross monthly sales of distillers grains. We are responsible forall accounts receivable losses, and Dakota Gold Marketing is responsible forinvoicing all loads and receiving payments from the customers, the payment ofwhich is remitted to us.

**Risk Management**

Due to fluctuations in the price of corn and naturalgas, we use risk management or hedging strategies to minimize our commodityrisk.  Hedging is a means of protecting the price that we will buy cornand natural gas in the future.  All of the commodity risk managementservices relating to corn and natural gas are provided by Broin Managementunder a corn and natural gas risk management agreement.   This agreement is in effect untilJanuary 2012, renewing automatically for additional five-year terms unlessdiscontinued by either party upon written notice prior to the expiration of theterm.

**Dependence upon a Single or Few Customers**

We, as discussed above, are substantially dependentupon Ethanol Products for the purchase, marketing and distribution of ethanol.Ethanol Products purchases 100% of the ethanol produced at the plant, all ofwhich is marketed and distributed to its customers.

**Sources and Availability of Raw Materials**

**Corn**

The major raw material required for the production ofethanol and distillers grains is corn. To operate at a name-plate capacity of45 million gallons annually, our plant requires approximately 14 millionbushels of corn annually. These bushels are supplied by our Class Amembers on a trimester basis and from local corn producers and elevators.

Class A members supply and deliver approximately17% of the plant’s corn requirements based on a corn delivery obligation.Class A members receive payment for their delivery of corn based on anaverage of market prices at predetermined elevators, or at individuallycontracted prices, plus a freight allowance. The remaining balance of our corn requirementsis supplied from purchases on the open market, namely from local corn producersand storage elevators, based upon individually contracted prices. OurClass A members may apply on an annual basis to be released from thecorn delivery obligation if any of the following conditions apply: 1) themember historically has not produced enough corn to meet the requirement; 2)the member does not produce enough corn to meet the requirement because themember’s corn is fed to livestock; or 3) the member produces and stores themajority of the member’s corn greater than 40 miles from our plant. As ofDecember 31, 2006, approximately 28% of our Class A members weregranted an exemption from the corn delivery obligation.

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Historically, the plant’s location in Turner County,South Dakota, has provided an ample supply of corn to meet and exceedname-plate production capacity of the plant. In 2006, approximately 14.8million bushels of corn for grain were produced in Turner County and over 86.5million bushels of corn for grain were produced in the nearby counties ofLincoln, Hutchinson, McCook, Hanson, Minnehaha, Yankton, and Union.

Following expansion of the plant from a name-platecapacity of 45 million gallons to 100 million gallons annually, the plant’scorn requirements are expected to increase to approximately 37 million bushelsof corn annually. We believe that our plant’s location in Turner County willcontinue to provide an ample supply of corn to meet this new requirement.However, there will be increased pressure on corn supply and possibly pricebecause Turner County is also the location of a plant under construction thatis expected to have a production capacity of 100 million gallons of ethanolannually. This plant is scheduled to commence operations in the spring of 2008.

#### **Natural Gas**

The production of ethanol at our plant requires asignificant amount of natural gas. Natural gas is necessary to fuel the boilersthat generate steam for the cooking, evaporation, and distillation processes,as well as to fuel the drying of distillers grains. We contract withNorthWestern Corporation of Sioux Falls, South Dakota, to supply and distributenatural gas to the plant. Our agreement with NorthWestern is in effect until2018. The agreement requires that we use a minimum amount of natural gas on anannual basis to cover NorthWestern’s previously incurred costs of constructinga pipeline to our plant. In the event that we do not use a minimum amount ofnatural gas, NorthWestern is entitled to draw on an irrevocable standby letterof credit that we provided in May 2003. Since operations were commenced,however, we have used the minimum amount of natural gas required by theagreement, and we have not experienced any interruption in the supply ofnatural gas as all our requirements have been met.

**Water**

The production of ethanol and distillers grainsrequires a significant amount of water. Water supply and water quality areimportant requirements to produce ethanol. All of our water requirements arecurrently supplied through three existing wells located near the plant. Sinceoperations were commenced, we have not experienced any interruption orshortages in the supply of water as all our requirements have been met. InJanuary 2006, we purchased two small parcels of real estate near the plantin order to install back-up ground wells. These parcels will include two new wells and will require approximatelythree miles of piping in order to connect to our plant.  These wells have been drilled and tested anda portion of the piping has been installed. Completion of the piping and wells is expected in late spring or earlysummer of 2007.

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**Electricity**

The production of ethanol and distillers grainsrequires a significant amount of electricity. Electricity is needed forlighting purposes and to power much of the machinery and equipment. We contractwith Southeastern Electric Cooperative of Marion, South Dakota, to provide allof our electric power and energy requirements for the plant. The agreement isin effect indefinitely unless we breach the agreement, at which timeSoutheastern may terminate the agreement. Since operations were commenced,we have not experienced any shortages in the supply of electricity as all ourrequirements have been met.

**OtherEnergy**

We are currently exploring using other potentialsources of energy for the production process including a solid waste fuelboiler system.  The energy generated fromthis process may be used to reduce our reliance on natural gas in the productionprocess and, therefore, save on energy costs.

**Research and Development**

We do not conduct any research and developmentassociated with the development of new technologies for use in producingethanol and distillers grains. We rely instead on Broin Research, Inc., adivision of Broin and Associates, to research and develop new technologies toimprove on the production process and end products. Under a licensingagreement with Broin Research, in exchange for an initial and annual licensingfee, Broin Research licenses to us the right to use certain technology andpatents owned, developed, or obtained by it and that relate to the ethanol anddistillers grains production process. The term of this agreement is for so longas the term of the management agreement is between us and Broin Management, orif we decide to no longer use any of the technology.

**Competition**

We are in direct competition with numerous ethanol anddistillers grains producers, many of which have significantly greater resourcesthan we do. Additional ethanol and distillers grains producers will continue toenter the market if the demand and governmental supports for ethanol continueto increase.

The ethanol industry has grown to 113 productionfacilities in the United States as of February 2007, compared to 96 productionfacilities in the United States as of March 2006. The largest ethanol producersinclude Abengoa Bioenergy Corp, Archer Daniels Midland, Aventine RenewableEnergy, Cargill, US Bioenergy and VeraSun Energy Corporation. There are alsonumerous ethanol plants of a similar size to our plant located in the Midwest.In addition, at least 77 new ethanol plants, along with seven existing plantsthat are undergoing expansion, are set to come into production in the next 12months, therefore adding another three billion gallons of production capacity.

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In South Dakota, excluding our plant, there arecurrently 15 plants in full production, three of which are in an expansionphase, and four new plants undergoing construction, all of which have acombined production capacity of approximately 915 million gallons. Of thefour plants under construction, one plant will be located approximately 15miles from our plant. The concentration of two plants in close proximity toeach other could put increased pressure on the supply of corn, particularlyduring a drought or poor harvest season, thereby increasing our costs ofproduction. Despite this concentration and growth, we believe that we cancontinue to compete effectively because of the advanced technology incorporatedinto the areas of our production and product development and the aggressivemarketing strategies pursued by our product marketers.

The following table identifies most of the producersin the United States along with their production capacities.

 
| **Company**                        | ** ** | **Location**     | ** ** | **Feedstock** | ** ** | **Current  Capacity  (mgy)** | ** ** | **Under Construction/  Expansions  (mgy)** |
|------------------------------------|------------|------------------|------------|---------------|------------|------------------------------|------------|--------------------------------------------|
| Abengoa Bioenergy  Corp.           |       | York, NE         |       | Corn/milo     |       | 55                           |       |                                       |
|                               |       | Colwich, KS      |       |          |       | 25                           |       |                                       |
|                               |       | Portales, NM     |       |          |       | 30                           |       |                                       |
|                               |       | Ravenna, NE      |       |          |       |                         |       | 88                                         |
| Aberdeen Energy*                   |       | Mina, SD         |       | Corn          |       |                         |       | 100                                        |
| Absolute Energy,  LLC*             |       | St. Ansgar, IA   |       | Corn          |       |                         |       | 100                                        |
| ACE Ethanol, LLC                   |       | Stanley, WI      |       | Corn          |       | 41                           |       |                                       |
| Adkins Energy,  LLC*               |       | Lena, IL         |       | Corn          |       | 40                           |       |                                       |
| Advanced  Bioenergy                |       | Fairmont, NE     |       | Corn          |       |                         |       | 100                                        |
| AGP*                               |       | Hastings, NE     |       | Corn          |       | 52                           |       |                                       |
| Agra Resources  Coop. d.b.a. EXOL* |       | Albert Lea, MN   |       | Corn          |       | 40                           |       | 8                                          |
| Agri-Energy, LLC*                  |       | Luverne, MN      |       | Corn          |       | 21                           |       |                                       |
| Alchem Ltd. LLLP                   |       | Grafton, ND      |       | Corn          |       | 10.5                         |       |                                       |
| Al-Corn Clean  Fuel*               |       | Claremont, MN    |       | Corn          |       | 35                           |       | 15                                         |
| Amaizing Energy,  LLC*             |       | Denison, IA      |       | Corn          |       | 40                           |       |                                       |
| Archer Daniels  Midland            |       | Decatur, IL      |       | Corn          |       | 1,070                        |       | 275                                        |
|                               |       | Cedar Rapids, IA |       | Corn          |       |                         |       |                                       |
|                               |       | Clinton, IA      |       | Corn          |       |                         |       |                                       |
|                               |       | Columbus, NE     |       | Corn          |       |                         |       |                                       |

 

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|                              |   | Marshall, MN        |   | Corn        |   |   |   |   |
|-----------------------------------|--------|---------------------|--------|-------------|--------|--------|--------|--------|
|                              |   | Peoria, IL          |   | Corn        |   |   |   |   |
|                              |   | Wallhalla, ND       |   | Corn/barley |   |   |   |   |
| Arkalon Energy,  LLC              |   | Liberal, KS         |   | Corn        |   |   |   | 110    |
| ASAlliances  Biofuels, LLC        |   | Albion, NE          |   | Corn        |   |   |   | 100    |
|                              |   | Linden, IN          |   | Corn        |   |   |   | 100    |
|                              |   | Bloomingburg, OH    |   | Corn        |   |   |   | 100    |
| Aventine  Renewable Energy, LLC   |   | Pekin, IL           |   | Corn        |   | 207    |   |   |
|                              |   | Aurora, NE          |   | Corn        |   |   |   |   |
| Badger State  Ethanol, LLC*       |   | Monroe, WI          |   | Corn        |   | 48     |   |   |
| Big River  Resources, LLC*        |   | West Burlington, IA |   | Corn        |   | 52     |   |   |
| Blue Flint  Ethanol               |   | Underwood, ND       |   | Corn        |   |   |   | 50     |
| Bonanza Energy,  LLC              |   | Garden City, KS     |   | Corn/milo   |   |   |   | 55     |
| Broin  Enterprises, Inc.*         |   | Scotland, SD        |   | Corn        |   | 11     |   |   |
| Bushmills  Ethanol, Inc.*         |   | Atwater, MN         |   | Corn        |   | 40     |   |   |
| Cardinal Ethanol                  |   | Harrisville, IN     |   | Corn        |   |   |   | 100    |
| Cargill, Inc.                     |   | Blair, NE           |   | Corn        |   | 85     |   |   |
|                              |   | Eddyville, IA       |   | Corn        |   | 35     |   |   |
| Cascade Grain                     |   | Clatskanie, OR      |   | Corn        |   |   |   | 108    |
| CassCo Amaizing  Energy, LLC      |   | Atlantic, IA        |   | Corn        |   |   |   | 110    |
| Castle Rock  Renewable Fuels, LLC |   | Necedah, WI         |   | Corn        |   |   |   | 50     |
| Center Ethanol  Company           |   | Sauget, IL          |   | Corn        |   |   |   | 54     |
| Central Indiana  Ethanol, LLC     |   | Marion, IN          |   | Corn        |   |   |   | 40     |
| Central Illinois  Energy, LLC     |   | Canton, IL          |   | Corn        |   |   |   | 37     |
| Central MN  Ethanol Coop*         |   | Little Falls, MN    |   | Corn        |   | 21.5   |   |   |
| Central Wisconsin  Alcohol        |   | Plover, WI          |   | Seed corn   |   | 4      |   |   |
| Chief Ethanol                     |   | Hastings, NE        |   | Corn        |   | 62     |   |   |
| Chippewa Valley  Ethanol Co.*     |   | Benson, MN          |   | Corn        |   | 45     |   |   |
| Commonwealth  Agri-Energy, LLC*   |   | Hopkinsville, KY    |   | Corn        |   | 33     |   |   |
| Corn, LP*                         |   | Goldfield, IA       |   | Corn        |   | 50     |   |   |
| Cornhusker Energy  Lexington, LLC |   | Lexington, NE       |   | Corn        |   | 40     |   |   |
| Corn Plus, LLP*                   |   | Winnebago, MN       |   | Corn        |   | 44     |   |   |
| Coshoctan  Ethanol, OH            |   | Coshoctan, OH       |   | Corn        |   |   |   | 60     |
| Dakota Ethanol,  LLC*             |   | Wentworth, SD       |   | Corn        |   | 50     |   |   |
| DENCO, LLC                        |   | Morris, MN          |   | Corn        |   | 21.5   |   |   |

 

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| Dexter Ethanol,  LLC                     |   | Dexter, IA        |   | Corn        |   |   |   | 100    |
|------------------------------------------|--------|-------------------|--------|-------------|--------|--------|--------|--------|
| E Energy Adams,  LLC                     |   | Adams, NE         |   | Corn        |   |   |   | 50     |
| E3 Biofuels                              |   | Mead, NE          |   | Corn        |   |   |   | 24     |
| E Caruso  (Goodland Energy Center)       |   | Goodland, KS      |   | Corn        |   |   |   | 20     |
| East Kansas  Agri-Energy, LLC*           |   | Garnett, KS       |   | Corn        |   | 35     |   |   |
| Elkhorn Valley  Ethanol, LLC             |   | Norfolk, NE       |   | Corn        |   |   |   | 40     |
| ESE Alcohol Inc.                         |   | Leoti, KS         |   | Seed corn   |   | 1.5    |   |   |
| Ethanol2000, LLP*                        |   | Bingham Lake, MN  |   | Corn        |   | 32     |   |   |
| Ethanol Grain  Processors, LLC           |   | Obion, TN         |   | Corn        |   |   |   | 100    |
| First United  Ethanol, LLC (FUEL)        |   | Mitchell Co., GA  |   | Corn        |   |   |   | 100    |
| Frontier Ethanol,  LLC                   |   | Gowrie, IA        |   | Corn        |   | 60     |   |   |
| Front Range  Energy, LLC                 |   | Windsor, CO       |   | Corn        |   | 40     |   |   |
| Gateway Ethanol                          |   | Pratt, KS         |   | Corn        |   |   |   | 55     |
| Glacial Lakes  Energy, LLC*              |   | Watertown, SD     |   | Corn        |   | 50     |   | 50     |
| Global  Ethanol/Midwest Grain Processors |   | Lakota, IA        |   | Corn        |   | 95     |   |   |
|                                     |   | Riga, MI          |   | Corn        |   |   |   | 57     |
| Golden Cheese  Company of California*    |   | Corona, CA        |   | Cheese whey |   | 5      |   |   |
| Golden Grain  Energy, LLC*               |   | Mason City, IA    |   | Corn        |   | 60     |   | 50     |
| Golden Triangle  Energy, LLC*            |   | Craig, MO         |   | Corn        |   | 20     |   |   |
| Grand River  Distribution                |   | Cambria, WI       |   | Corn        |   |   |   | 40     |
| Grain Processing  Corp.                  |   | Muscatine, IA     |   | Corn        |   | 20     |   |   |
| Granite Falls  Energy, LLC*              |   | Granite Falls, MN |   | Corn        |   | 52     |   |   |
| Great Plains Ethanol,  LLC*              |   | Chancellor, SD    |   | Corn        |   | 50     |   |   |
| Greater Ohio  Ethanol, LLC               |   | Lima, OH          |   | Corn        |   |   |   | 54     |
| Green Plains  Renewable Energy           |   | Shenandoah, IA    |   | Corn        |   |   |   | 50     |
|                                     |   | Superior, IA      |   | Corn        |   |   |   | 50     |
| Hawkeye  Renewables, LLC                 |   | Iowa Falls, IA    |   | Corn        |   | 105    |   |   |
|                                     |   | Fairbank, IA      |   | Corn        |   | 115    |   |   |
|                                     |   | Menlo, IA         |   | Corn        |   |   |   | 100    |
| Heartland Corn  Products*                |   | Winthrop, MN      |   | Corn        |   | 35     |   |   |
| Heartland Grain  Fuels, LP*              |   | Aberdeen, SD      |   | Corn        |   | 9      |   |   |
|                                     |   | Huron, SD         |   | Corn        |   | 12     |   | 18     |
| Heron Lake  BioEnergy, LLC               |   | Heron Lake, MN    |   | Corn        |   |   |   | 50     |
| Holt County  Ethanol                     |   | O’Neill, NE  |   | Corn        |   |   |   | 100    |
| Horizon Ethanol,  LLC                    |   | Jewell, IA        |   | Corn        |   | 60     |   |   |

 

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| Husker Ag, LLC*                         |   | Plainview, NE      |   | Corn              |   | 26.5   |   |   |
|-----------------------------------------|--------|--------------------|--------|-------------------|--------|--------|--------|--------|
| Illinois River  Energy, LLC             |   | Rochelle, IL       |   | Corn              |   | 50     |   |   |
| Indiana  Bio-Energy                     |   | Bluffton, IN       |   | Corn              |   |   |   | 101    |
| Iowa Ethanol,  LLC*                     |   | Hanlontown, IA     |   | Corn              |   | 50     |   |   |
| Iroquois  Bio-Energy Company, LLC       |   | Rensselaer, IN     |   | Corn              |   | 40     |   |   |
| James Valley  Ethanol, LLC              |   | Groton, SD         |   | Corn              |   | 50     |   |   |
| KAAPA Ethanol,  LLC*                    |   | Minden, NE         |   | Corn              |   | 40     |   |   |
| Kansas Ethanol,  LLC                    |   | Lyons, KS          |   | Corn              |   |   |   | 55     |
| Land O’ Lakes*                     |   | Melrose, MN        |   | Cheese whey       |   | 2.6    |   |   |
| Levelland/Hockley  County Ethanol, LLC  |   | Levelland, TX      |   | Corn              |   |   |   | 40     |
| Lincolnland  Agri-Energy, LLC*          |   | Palestine, IL      |   | Corn              |   | 48     |   |   |
| Lincolnway  Energy, LLC*                |   | Nevada, IA         |   | Corn              |   | 50     |   |   |
| Liquid Resources  of Ohio               |   | Medina, OH         |   | Waste Beverage    |   | 3      |   |   |
| Little Sioux Corn  Processors, LP*      |   | Marcus, IA         |   | Corn              |   | 52     |   |   |
| Marquis Energy,  LLC                    |   | Hennepin, IL       |   | Corn              |   |   |   | 100    |
| Marysville  Ethanol, LLC                |   | Marysville, MI     |   | Corn              |   |   |   | 50     |
| Merrick &  Company                  |   | Golden, CO         |   | Waste beer        |   | 3      |   |   |
| MGP Ingredients,  Inc.                  |   | Pekin, IL          |   | Corn/wheat starch |   | 78     |   |   |
|                                    |   | Atchison, KS       |   |              |   |   |   |   |
| Michigan Ethanol,  LLC                  |   | Caro, MI           |   | Corn              |   | 50     |   |   |
| Mid America Agri  Products/Wheatland    |   | Madrid, NE         |   | Corn              |   |   |   | 44     |
| Mid-Missouri  Energy, Inc.*             |   | Malta Bend, MO     |   | Corn              |   | 45     |   |   |
| Midwest Renewable  Energy, LLC          |   | Sutherland, NE     |   | Corn              |   | 25     |   |   |
| Millennium  Ethanol                     |   | Marion, SD         |   | Corn              |   |   |   | 100    |
| Minnesota Energy*                       |   | Buffalo Lake, MN   |   | Corn              |   | 18     |   |   |
| Missouri Ethanol                        |   | Laddonia, MO       |   | Corn              |   | 45     |   |   |
| Missouri Valley  Renewable Energy, LLC* |   | Meckling, SD       |   | Corn              |   |   |   | 60     |
| NEDAK Ethanol                           |   | Atkinson, NE       |   | Corn              |   |   |   | 44     |
| New Energy Corp.                        |   | South Bend, IN     |   | Corn              |   | 102    |   |   |
| North Country  Ethanol, LLC*            |   | Rosholt, SD        |   | Corn              |   | 20     |   |   |
| Northeast  Biofuels                     |   | Volney, NY         |   | Corn              |   |   |   | 114    |
| Northeast  Missouri Grain, LLC*         |   | Macon, MO          |   | Corn              |   | 45     |   |   |
| Northern Lights  Ethanol, LLC*          |   | Big Stone City, SD |   | Corn              |   | 50     |   |   |

 

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| Northstar  Ethanol, LLC                 |   | Lake Crystal, MN       |   | Corn                  |   | 52     |   |   |
|-----------------------------------------|--------|------------------------|--------|-----------------------|--------|--------|--------|--------|
| Northwest  Renewable, LLC               |   | Longview, WA           |   | Corn                  |   |   |   | 55     |
| Otter Creek  Ethanol, LLC*              |   | Ashton, IA             |   | Corn                  |   | 55     |   |   |
| Otter Tail Ag  Enterprises              |   | Fergus Falls, MN       |   | Corn                  |   |   |   | 57.5   |
| Pacific Ethanol                         |   | Madera, CA             |   | Corn                  |   | 35     |   |   |
|                                    |   | Boardman, OR           |   | Corn                  |   |   |   | 35     |
|                                    |   | Burley, ID             |   | Corn                  |   |   |   | 50     |
| Panda Energy                            |   | Hereford, TX           |   | Corn/milo             |   |   |   | 100    |
| Panhandle  Energies of Dumas, LP        |   | Dumas, TX              |   | Corn/Grain Sorghum    |   |   |   | 30     |
| Parallel Products                       |   | Louisville, KY         |   | Beverage waste        |   | 5.4    |   |   |
|                                    |   | R. Cucamonga, CA       |   |                  |   |   |   |   |
| Patriot  Renewable Fuels, LLC           |   | Annawan, IL            |   | Corn                  |   |   |   | 100    |
| Penford Products                        |   | Ceder Rapids, IA       |   | Corn                  |   |   |   | 45     |
| Permeate Refining                       |   | Hopkinton, IA          |   | Sugars & starches |   | 1.5    |   |   |
| Phoenix Biofuels                        |   | Goshen, CA             |   | Corn                  |   | 25     |   |   |
| Pinal Energy, LLC                       |   | Maricopa, AZ           |   | Corn                  |   |   |   | 55     |
| Pine Lake Corn  Processors, LLC*        |   | Steamboat Rock, IA     |   | Corn                  |   | 20     |   |   |
| Pinnacle  Ethanol, LLC                  |   | Corning, IA            |   | Corn                  |   |   |   | 60     |
| Plainview  BioEnergy, LLC               |   | Plainview, TX          |   | Corn                  |   |   |   | 100    |
| Platinum  Ethanol, LLC*                 |   | Arthur, IA             |   | Corn                  |   |   |   | 110    |
| Plymouth  Ethanol, LLC*                 |   | Merrill, IA            |   | Corn                  |   |   |   | 50     |
| Prairie Ethanol,  LLC                   |   | Loomis, SD             |   | Corn                  |   | 60     |   |   |
| Prairie Horizon  Agri-Energy, LLC       |   | Phillipsburg, KS       |   | Corn                  |   | 40     |   |   |
| Premier Ethanol                         |   | Portland, IN           |   | Corn                  |   |   |   | 60     |
| Pro-Corn, LLC*                          |   | Preston, MN            |   | Corn                  |   | 42     |   |   |
| Quad-County Corn  Processors*           |   | Galva, IA              |   | Corn                  |   | 27     |   |   |
| Red Trail Energy,  LLC                  |   | Richardton, ND         |   | Corn                  |   |   |   | 50     |
| Redfield Energy,  LLC *                 |   | Redfield, SD           |   | Corn                  |   | 50     |   |   |
| Reeve Agri-Energy                       |   | Garden City, KS        |   | Corn/milo             |   | 12     |   |   |
| Renew Energy                            |   | Jefferson Junction, WI |   | Corn                  |   |   |   | 130    |
| Siouxland Energy  & Livestock Coop* |   | Sioux Center, IA       |   | Corn                  |   | 25     |   | 40     |

 

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| Siouxland Ethanol, LLC                   |   | Jackson, NE        |   | Corn              |   |   |   | 50     |
|------------------------------------------|--------|--------------------|--------|-------------------|--------|--------|--------|--------|
| Sioux River Ethanol, LLC*                |   | Hudson, SD         |   | Corn              |   | 50     |   |   |
| Southwest Iowa Renewable Energy, LLC *   |   | Council Bluffs, IA |   | Corn              |   |   |   | 110    |
| Sterling Ethanol, LLC                    |   | Sterling, CO       |   | Corn              |   | 42     |   |   |
| Summit Ethanol                           |   | Leipsic, OH        |   | Corn              |   |   |   | 60     |
| Tall Corn Ethanol, LLC*                  |   | Coon Rapids, IA    |   | Corn              |   | 49     |   |   |
| Tama Ethanol, LLC                        |   | Tama, IA           |   | Corn              |   |   |   | 100    |
| Tate & Lyle                          |   | Loudon, TN         |   | Corn              |   | 67     |   | 38     |
|                                     |   | Ft. Dodge, IA      |   | Corn              |   |   |   | 105    |
| The Andersons Albion Ethanol LLC         |   | Albion, MI         |   | Corn              |   | 55     |   |   |
| The Andersons Clymers Ethanol, LLC       |   | Clymers, IN        |   | Corn              |   |   |   | 110    |
| The Andersons Marathon Ethanol, LLC      |   | Greenville, OH     |   | Corn              |   |   |   | 110    |
| Trenton Agri Products, LLC               |   | Trenton, NE        |   | Corn              |   | 40     |   |   |
| United Ethanol                           |   | Milton, WI         |   | Corn              |   |   |   | 52     |
| United WI Grain Producers, LLC*          |   | Friesland, WI      |   | Corn              |   | 49     |   |   |
| US BioEnergy Corp.                       |   | Albert City, IA    |   | Corn              |   | 250    |   | 250    |
|                                     |   | Woodbury, MI       |   | Corn              |   |   |   |   |
|                                     |   | Hankinson, ND      |   | Corn              |   |   |   |   |
|                                     |   | Ord, NE            |   | Corn              |   |   |   |   |
|                                     |   | Central City , NE  |   | Corn              |   |   |   |   |
|                                     |   | Dyersville, IA     |   | Corn              |   |   |   |   |
| U.S. Energy Partners, LLC (White Energy) |   | Russell, KS        |   | Milo/wheat starch |   | 48     |   |   |
| Utica Energy, LLC                        |   | Oshkosh, WI        |   | Corn              |   | 48     |   |   |
| VeraSun Energy Corporation               |   | Aurora, SD         |   | Corn              |   | 230    |   | 330    |
|                                     |   | Ft. Dodge, IA      |   | Corn              |   |   |   |   |
|                                     |   | Charles City, IA   |   | Corn              |   |   |   |   |
|                                     |   | Welcome, MN        |   | Corn              |   |   |   |   |
|                                     |   | Hartely, IA        |   | Corn              |   |   |   |   |
| Voyager Ethanol, LLC*                    |   | Emmetsburg, IA     |   | Corn              |   | 52     |   |   |
| Western New York Energy, LLC             |   | Shelby, NY         |   | Corn              |   |   |   | 50     |
| Western Plains Energy, LLC*              |   | Campus, KS         |   | Corn              |   | 45     |   |   |
| Western Wisconsin Renewable Energy, LLC* |   | Boyceville, WI     |   | Corn              |   | 40     |   |   |
| White Energy                             |   | Hereford, TX       |   | Corn/Milo         |   |   |   | 100    |

 

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| Wind Gap Farms                                                      |       | Baconton, GA   |   | Brewery waste |   | 0.4          |   |        |
|---------------------------------------------------------------------|------------|----------------|--------|---------------|--------|--------------|--------|-------------|
| Renova Energy                                                       |       | Torrington, WY |   | Corn          |   | 5            |   |        |
| Xethanol  BioFuels, LLC                                             |       | Blairstown, IA |   | Corn          |   | 5            |   | 35          |
| Yuma Ethanol                                                        |       | Yuma, CO       |   | Corn          |   |         |   | 40          |
| ****Total Current Capacity at********113  ethanol biorefineries**** | ** ** | ** **     |   |          |   | **5,583.4**  |   | ** **  |
| ****Total Under Construction (78)/Expansions (7)****                | ** ** | ** **     |   |          |   |         |   | **6,243.5** |
| **Total Capacity**                                                  | ** ** | ** **     |   |          |   | **11,826.9** |   | ** **  |

 

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* locally-owned

Updated: February 12, 2007RenewableFuels Association

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*farmer-owned

 Ethanol production is also expandinginternationally.  Brazil has long been the world’s largest producer andexporter of ethanol, though since 2005, United States ethanol productionslightly exceeded Brazilian production. Ethanol is produced more cheaply inBrazil than in the United States because of the use of sugarcane, a lessexpensive raw material alternative to corn.  Because of various tariffs onthe importation of ethanol into the United States, the price of ethanolproduced in the United States is currently more competitive than ethanolimported from Brazil.  In the event that these tariffs are reduced oreliminated, which are scheduled to expire in December 2008, the price ofethanol produced in the United States may become less competitive, which couldadversely impact the ability to sell ethanol.

The Caribbean Basin Initiative allows for ethanolproduced in participating Caribbean Basin countries to be imported into theUnited States duty free. Ethanol producers, like Cargill, have expressed aninterest in building ethanol plants in these countries, such as ElSalvador.  The Caribbean Basin Initiativecaps the amount of duty free ethanol imported into the United States at 7% ofthe total United States’ production from the previous year.   As total production in the United Statesgrows, the amount of ethanol produced from the Caribbean area and sold in theUnited States will also grow accordingly, which could impact the ability tosell ethanol.

Finally, alternative fuels, gasoline oxygenates andethanol production methods are continually under development. The current trendin ethanol production research is to develop an efficient method of producingethanol from cellulose-based biomass, such as agricultural waste, forestresidue, municipal solid waste, and energy crops. This trend is driven by thefact that cellulose-based biomass is generally cheaper than corn, and producingethanol from cellulose-based biomass would create opportunities to produceethanol in areas which are unable to grow corn. Additionally, the enzymes usedto produce cellulose-based ethanol have recently become less expensive, butsignificantly exceed those used today in the dry mill process.  Furthermore, the Department of Energy has recently announced support for thedevelopment of cellulose-based ethanol, including a $160 million Department ofEnergy program for pilot plants producing cellulose-based

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ethanol. Several large companies, including Broin and Associates, Iogen Corporation,Abengoa, Royal Dutch Shell Group, Goldman Sachs Group, Dupont and ArcherDaniels Midland, have all indicated that they are interested in research anddevelopment in this area.  In addition, Voyager Ethanol of Emmetsburg,Iowa, has stated plans to convert or expand their plant to a cellulose-basedethanol facility after 2007.

**Federal and State Government Supports**

Various federal and state laws, regulations, andprograms have led to an increasing use of ethanol in fuel, including subsidies,tax credits, policies and other forms of financial incentives.  Some ofthese laws provide economic incentives to produce and blend ethanol and othersmandate the use of ethanol.

***The Renewable Fuels Standard***

The most recent ethanol supports are contained in theEnergy Policy Act of 2005. This law became effective on August 8, 2005 and isexpected to impact favorably the ethanol industry by enhancing both theproduction and use of ethanol. The provision of the Energy Policy Act of 2005likely to have the greatest impact on the ethanol industry is the creation of aRenewable Fuels Standard, known as the RFS. The RFS is a national program thatimposes requirements with respect to the amount of renewable fuel produced andused. RFS applies to refineries, blenders, distributors and importers, allowingthese entities to use renewable fuel blends in those areas where it is mostcost effective. The RFS requires that 4.7 billion gallons be sold or dispensedin 2007, increasing to 7.5 billion gallons by 2012.

***The Clean Air Act and OxygenatedGasoline Program***

Ethanol sales have been favorably affected by theClean Air Act amendments of 1990, particularly the Oxygenated Gasoline Program,which became effective November 1, 1992. The Oxygenated Gasoline Programrequires the sale of oxygenated motor fuels during the winter months in certainmajor metropolitan areas to reduce carbon monoxide pollution. Ethanol use hasalso increased as the result of a second Clean Air Act program, theReformulated Gasoline Program. This program became effective January 1, 1995and requires the sale of reformulated gasoline in numerous areas to reducepollutants, specifically those that contribute to ground level ozone, betterknown as smog. Reformulated gasoline that meets the performance criteria set bythe Clean Air Act can be reformulated in a number of ways, including theaddition of oxygenates to the gasoline. The two major oxygenates added toreformulated gasoline pursuant to these programs are MTBE and ethanol. MTBE hasbeen linked to groundwater contamination and has been banned from use in manystates. Although the Energy Policy Act did not impose a national ban of MTBE,its failure to include liability protection for manufacturers of MTBE isexpected to result in refiners and blenders using ethanol rather than MTBE.Prior to the passage of the Energy Policy Act , the reformulated gasolineprogram included a requirement that reformulated gasoline contain 2% oxygenate,but the Energy Policy Act repealed this requirement.

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***The Volumetric Ethanol ExciseTax Credit***

The use of ethanol as an alternative fuel source hasbeen aided by federal tax policy. In October 2004, President Bush signed a lawthat contained the Volumetric Ethanol Excise Tax Credit, known as VEETC, andamended the federal excise tax structure effective as of January 1, 2005. Priorto VEETC, ethanol-blended fuel was taxed at a lower rate than regular gasoline(13.2 cents on a 10% blend). Under VEETC, the ethanol excise tax exemption waseliminated, thereby allowing the full federal excise tax of 18.4 cents pergallon of gasoline to be collected on all gasoline and allocated to the highwaytrust fund. In place of the exemption, the law created a new volumetric ethanolexcise tax credit of 51 cents per gallon of ethanol blended at 10%. Based onvolume, the VEETC is expected to allow much greater refinery flexibility inblending ethanol since it makes the tax credit available on all ethanol blendedwith all gasoline, diesel and ethyl tertiary butyl ether, known as ETBE,including ethanol in E85 (an 85% ethanol fuel blend) and E20 (a 20% ethanolfuel blend) in Minnesota. The VEETC is scheduled to expire on December 31,2010.

***Small Ethanol Producer TaxCredit***

The Energy Policy Act expanded who qualifies for thesmall ethanol producer tax credit. Historically, small ethanol producers wereallowed a 10-cents-per-gallon production income tax credit on up to 15 milliongallons of production annually. The size of the plant eligible for the taxcredit was limited to 30 million gallons. Under the Energy Policy Act the sizelimitation on the production capacity for small ethanol producers increasedfrom 30 million to 60 million gallons. The credit can be taken on the first 15million gallons of production. The tax credit is capped at $1.5 million peryear per producer. Upon completion of the plant’s expansion, our annualproduction will exceed production limits of 60 million gallons per year whichwill make us ineligible for the credit.

***Clean-Fuel Vehicle RefuelingEquipment Tax Credit***

In addition, the Energy Policy Act creates a new taxcredit that permits taxpayers to claim a 30% credit (up to $30,000) for thecost of installing clean-fuel vehicle refueling equipment, such as an E85 fuelpump, to be used in a trade or business of the taxpayer or installed at theprincipal residence of the taxpayer. Under the provision, clean fuels are anyfuel at least 85% of the volume of which consists of ethanol, natural gas,compressed natural gas, liquefied natural gas, liquefied petroleum gas andhydrogen and any mixture of diesel fuel and biodiesel containing at least 20%biodiesel. The provision is effective for equipment placed in service followingDecember 31, 2005 and before January 1, 2010. While it is unclear how thiscredit will affect the demand for ethanol in the short term, it is expected tohelp raise consumer awareness of alternative sources of fuel and couldpositively impact future demand for ethanol.

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***Imported Ethanol Tariffs andQuotas***

Currently, there is a $0.54 per gallon tariff onimported ethanol, which is scheduled to expire in 2008.  Ethanol importsfrom 24 countries in Central America and the Caribbean region are exempted fromthe tariff under the Caribbean Basin Initiative or CBI, which provides thatspecified nations may export an aggregate of 7.0% of United States ethanolproduction per year into the United States, with additional exemptions fromethanol produced from feedstock in the Caribbean region over the 7.0%limit.  Ethanol producers, such as Cargill, have expressed interest inbuilding dehydration plants in participating Caribbean Basin countries, such asEl Salvador, which would convert ethanol into fuel-grade ethanol for shipmentto the United States. Ethanol imported from Caribbean Basin countries may be aless expensive alternative to domestically produced ethanol.

***State Legislation Banning orLimiting MTBE Use***

As of February 2007, 25 states including Californiaand New York, have banned or significantly limited the use of MTBE due toenvironmental and public health concerns. Ethanol has served as a replacementfor much of the discontinued volumes of MTBE and is expected to continue toreplace future volumes of MTBE that are removed from the fuel supply.

***South Dakota***

In South Dakota, the state provides an incentiveproduction payment to ethanol producers operating in South Dakota.  Theproduction incentive consists of a direct payment to South Dakota ethanolproducers of up to $0.20 per gallon, which is divided among producers of fuelethanol within South Dakota up to a maximum of $1 million per year per plant (amaximum of $83,333 per month in 2006) and a maximum of $10 million over thelife of a plant.  The program, however, caps the payments that can bedistributed to all plants based in South Dakota in a program year to no morethan $7 million in payments in 2007 (program year ending June 30, 2007), andevery year thereafter. The payments are distributed to each plant in proportionto the total number of gallons of ethanol produced and marketed annually by allthe plants in South Dakota.  As more plants commence production, orexisting plants increase production, each plant may receive a lowerproportionate share of the maximum payment under the program. Due to anincrease in claims made for payment from new and existing plants during the2006 program year, the funds were depleted in full midway through the 2006program year.  Based on the number of new plants and currently expandingplants, we believe the funds under the program will be again depleted beforethe end of the 2007 program year.

The ethanol industry and our business depend uponcontinuation of the federal and state ethanol supports discussed above. Thesegovernment incentives have supported a market for ethanol that might disappearwithout the incentives. Alternatively, the government incentives may becontinued at lower levels than those at which they currently exist. Theelimination or reduction of such federal ethanol supports would make it morecostly to sell ethanol.

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**Environmental Regulation and Costs**

We are subject to extensive environmental regulationat the federal and state levels. The federal environmental regulationswith which we must comply are promulgated by the United States EnvironmentalProtection Agency (EPA) pursuant to the federal Clean Air Act. The stateenvironmental regulations with which we must comply are promulgated by theSouth Dakota Department of Environment and Natural Resources (DENR). The EPAand the DENR regulate the air quality at the plant, in particular the emissionsinto the air. The DENR also regulates water collection and discharge. Inaddition to its own enforcement authority under this law, the EPA has delegatedpermitting and enforcement authority to the DENR. Our plant requires thefollowing permits from these and other agencies:

·    We have a Title Five Operating Permit fromthe DENR. The Title Five Operating Permit serves as the air quality andoperation permit for the plant. We must conduct ongoing emissions testing toverify compliance with the Title Five Operating Permit.

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

·    We have a Surface Water Discharge Permitfrom the DENR. The Surface Water Discharge Permit regulates any storm waterdischarges associated with industrial activity. The permit requires us toprovide the DENR with ongoing compliance reports. This permit is due forrenewal in 2008.

·    We have a Storm Water Discharge Permit fromthe DENR. The Storm Water Discharge Permit regulates any surface water fromrain or other precipitation, which we collect and store in a storm water pondadjacent to the plant. This permit is due for renewal in 2008.

While we are currently in compliance with applicableenvironmental laws, regulations and permits, we will need to continue to complywith all permits and regulatory requirements. To accomplish this, we maintainan on-going program to ensure compliance with these requirements. Maintainingcompliance may require us to incur expenditures for such things as new orupgraded equipment or processes, some of which could be material and costly.Approximately $8 million in capital expenditures is expected to be made onenvironmental control or other related equipment in the next 18 months, most ofwhich will relate to expansion of the plant

Finally, federal and state government’s regulation ofthe environment changes constantly. It is possible that more stringent federalor state environmental rules or regulations could be adopted, which couldincrease our future operating costs and expenses. It also is possible thatfederal or state environmental rules or regulations could

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beadopted that could have an adverse effect on the use of ethanol. For example,changes in the environmental regulations regarding ethanol’s use due tocurrently unknown effects on the environment could have an adverse effect onthe ethanol industry. Furthermore, the plant operations are governed by theOccupational Safety and Health Administration (“OSHA”). OSHA regulationsmay change such that the future costs of the operation of the plantmay increase. Any of these regulatory factors may result in highercosts or other materially adverse conditions effecting our operations, cashflows and financial performance.

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

Broin Management, LLC, a division of the BroinCompanies, LLC, manages the day-to-day operations of the plant. We pay BroinManagement a fixed annual fee and an incentive bonus based on our annual netincome. We also pay certain expenses incurred with respect to operation of theplant while other expenses, including but not limited to, the provisions of afull time plant manager and technical manager, are paid by BroinManagement.  Broin Management employsMr. Rick Serie as the plant’s general manager. Mr. Serie oversees andis responsible for the operation and production on a day-to-day basis.Mr. Serie also serves as our designated Chief Executive Officer and ChiefFinancial Officer for reporting purposes.

As of March 1, 2006, we employed 42 employees,all but one being full time. Our employees include an operations manager, amaintenance manager, a commodities manager, a microbiologist, a controller, amembership coordinator, a chief mechanical operator, plant operators, plantmaintenance personnel, accounting assistants and administrative assistants.This list does not include Mr. Serie and the technical manager, both ofwhom are employed by Broin Management.

**Item 1A. Risk Factors.**

**Risk Related to Operations**

***Our financialcondition is dependent on corn prices and market prices for ethanol anddistillers dried grains, and our financial condition and results of operationare directly affected by changes in these market prices*.**Ourresults of operations and financial condition are significantly affected by thecost and supply of corn and by the selling price for ethanol and distillersgrains. Changes in the price and supply of commodities are subject to anddetermined by market forces over which we have no control including supply anddemand, government programs and policies, weather, availability and price ofcompeting products, and other factors.

***Our business ishighly sensitive to corn prices, and we generally cannot pass on increases incorn prices to our customers.***Corn is the principal raw material we use toproduce ethanol and distillers grains. Because ethanol competes with fuels thatare not corn-based, we generally are unable to pass along increased corn coststo our customers, and, accordingly, rising corn prices tend to produce lowerprofit margins. At certain

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levels, corn prices wouldmake ethanol uneconomical to use in fuel markets. The price of corn isinfluenced by weather conditions (especially droughts) and other factorsaffecting crop yields, farmer planting decisions and general economic, marketand regulatory factors, including government policies and subsidies withrespect to agriculture and international trade, and global and local supply anddemand. The price of corn has fluctuated significantly in the past and mayfluctuate significantly in the future. For example, over the ten-year periodfrom 1996 through 2006, corn prices (based on Chicago Board of Trade, or CBOT,daily futures data) have ranged from a low of $1.75 per bushel in 2000 to ahigh of $5.48 per bushel in 1996, with prices averaging $2.44 per bushel duringthis period. On December 31, 2006, the CBOT price of corn was $3.90 perbushel.  In addition, increasing domesticethanol capacity could boost demand for corn and result in increased cornprices.****We may also havedifficulty from time to time in purchasing corn on economical terms due tosupply shortages. Any supply shortage could require us to suspend operationsuntil corn became available at economical terms. Suspension of operations couldhave a material adverse effect on our business, results of operations andfinancial condition.

***Fluctuations in theselling price and production cost of gasoline may reduce our profit margins*.**Ethanol is marketed both as a fuel additive toreduce vehicle emissions from gasoline and as an octane enhancer to improve theoctane rating of gasoline with which it is blended. As a result, ethanol pricesare influenced by the supply and demand for gasoline.  Future results of operations and financialcondition may be materially adversely affected if gasoline demand or pricedecreases.

***The price ofdistillers grains is affected by the price of other commodity products, such assoybeans, and decreases in the price of these commodities could decrease theprice of distillers grains***. Distillers grains compete with other protein-based animal feed products.The price of distillers grains may decrease when the price of competing feedproducts decrease. The prices of competing animal feed products are based inpart on the prices of the commodities from which they are derived. Downwardpressure on commodity prices, such as soybeans, will generally cause the priceof competing animal feed products to decline, resulting in downward pressure onthe price of distillers grain. As a result, we may experience lower revenue andincome.

***Our business issubject to seasonal fluctuations.***Our operating results are influenced byseasonal fluctuations in the price of our primary operating inputs, corn andnatural gas, and the price of our primary product, ethanol. In recent years,the spot price of corn tends to rise during the spring planting season in Mayand June and tends to decrease during the fall harvest in October and November.The price for natural gas, however, tends to move opposite of corn and tends tobe lower in the spring and summer and higher in the fall and winter. Inaddition, our ethanol prices are substantially correlated with the price ofunleaded gasoline. As a result, because the price of unleaded gasoline tends torise during the summer, the price of ethanol generally does the same.

***Hedgingtransactions involve risks that could harm our profitability.***Inan attempt to minimize the effects of the volatility of corn and natural gascosts on operating

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profits,we engage in hedging activities in the corn and natural gas futures markets.The effectiveness of such hedging activities is dependent, among other things,upon the cost of corn and natural gas and our ability to sell sufficientproducts to utilize all of the corn and natural gas subject to the futurescontracts. There are no assurances that our hedging activities will reduce therisk caused by price fluctuation which may leave us vulnerable to highcorn and natural gas prices. In addition, we may choose not to takehedging positions in the future, which may adversely affect our financialcondition if corn and natural gas prices increase. Our hedging activities canthemselves result in increased costs because price movements in corn andnatural gas are highly volatile and are influenced by many factors which arebeyond its control.

***Our business is notdiversified because it is limited to the fuel grade ethanol industry, whichmay limit our ability to adapt to changing business and market conditions.***  Our sole business is the production and saleof fuel grade ethanol and distillers grain produced from corn. Our plant doesnot have the capability of producing industrial or food and beverage gradeethanol, which is used in such products as cosmetics, perfume, paint thinnerand vinegar. Our plant also is not equipped to capture carbon dioxide, anotherco-product of the ethanol production process. The lack of diversification ofour business may limit our ability to adapt to changing business andmarket conditions.

***We are heavilydependent upon the Broin Companies, LLC.***We haveseveral agreements in place with the companies owned and controlled by theBroin Companies, including those related to the purchase or marketing ofethanol and distillers grains, management of the plant, construction of theplant’s expansion, research and technology, and information technology. If anyof the agreements were to terminate, we might not be able to secure suitableand timely replacements for those services at a reasonable cost or at all,which would materially harm our business.

***We are dependentupon Ethanol Products, LLC to purchase and market all of the ethanol producedat the plant*.** Ethanol Products is the exclusivepurchaser of all of the ethanol produced at the plant which, in turn, marketsand transports the ethanol to refineries located throughout the United States.If Ethanol Products breaches our ethanol marketing agreement or is not in thefinancial position to purchase all of the ethanol produced, we may nothave any readily available means to sell the ethanol and our financialcondition will be adversely and materially affected. If the ethanol marketingagreement with Ethanol Products were to terminate, we would be forced to seekother arrangements to sell the ethanol produced, but there are no assurancesthat these arrangements would achieve results comparable to those achieved byEthanol Products.

***Interruptions inenergy supplies could delay or halt our production, which will reduce ourprofitability.***Ethanol production requires a constant andconsistent supply of energy, including electricity and natural gas. If there isany interruption in our supply of energy for whatever reason, such as supply,delivery or mechanical problems, we may be required to halt production. Ifproduction is halted for any extended period of time, it will reduce ourprofitability. We have agreements with various companies to provide our

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neededenergy, but we cannot assure you that these companies will continue to be ableto supply reliably the necessary energy that we need. If we were to sufferinterruptions in our energy supply, our business would be harmed.

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

***We have restrictiveloan covenants with our lender.***    Ourloan agreement with AgCountry Farm Credit Services obligates us to maintaincertain amounts of working capital, capital expenditure and cash distributionto member limitations, and fixed coverage ratios. The failure to comply withthe various loan covenants may result in penalties, restrict our activities orresult in a default which may have an adverse effect on our liquidity.

**Risks Related to Industry**

***As more ethanol plants are built,ethanol production will increase and, if demand does not sufficiently increase,the price of ethanol and distillers grains may decrease*.**According to the RFA, domestic ethanol production capacity has increasedsteadily from 1.7 billion gallons per year in January of 1999 to5.58 billion gallons per year in February 2007. In addition, there is asignificant amount of capacity being added to the ethanol industry. As ofFebruary 2007 approximately 6.2 billion gallons per year of productioncapacity, is currently under construction at new and existing facilities. Thiscapacity is being added to address anticipated increases in demand. However,demand for ethanol may not increase as quickly as expected or to a level thatexceeds supply, or at all. If the ethanol industry has excess capacity, itcould have a material adverse effect on our business, results of operations andfinancial condition. Excess ethanol production capacity also may result fromdecreases in the demand for ethanol or increased imported supply.  In addition, because ethanol productionproduces distillers grains as a co-product, increased ethanol production willlead to increased supplies of distillers grains. An increase in the supply ofdistillers grains, without corresponding increases in demand, could lead tolower prices or an inability to sell our distillers grain production. A declinein the price of distillers grain or the distillers grain market generally couldhave a material adverse effect on our business, results of operations andfinancial condition.

***We operate in anintensely competitive industry and there is no assurance that we will be ableto compete effectively.*** The ethanol business ishighly competitive, and other companies presently in the market, or that areabout to enter the market, could adversely affect prices for the ethanol productswe sell. Commodity groups in the

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Midwesthave encouraged the construction of ethanol plants, and there are numerousother entities considering the construction of ethanol plants. Nationally, theethanol industry will become competitive given the substantial construction andexpansion that is occurring in the industry. We compete with other ethanolproducers such as Archer Daniels Midland, Cargill, among others, all of whichare capable of producing significantly greater quantities of ethanol than theamount we produce. In light of such competition, there is no assurance that wewill be able to compete effectively in the industry.

***Competition with anethanol plant located near our plant could adversely impact our operations.***Anethanol plant, with a name-plate production capacity of up to 100 milliongallons annually, is currently under construction approximately 15 miles fromour plant with a scheduled completion date in the spring of 2008. This plantwill be the second plant to be built and operate in Turner County, SouthDakota, including our plant. The concentration of two plants in Turner Countycould reduce our ability to obtain corn from the local area and at commerciallyreasonable prices, particularly in the event of a poor harvest season due todrought or other factors.  Any increasein the price of corn will likely have an adverse effect on our financialcondition and results of operations.

***The effect of the RenewableFuels Standard, or RFS, in the Energy Policy Act of 2005 on the ethanol industryis uncertain*. **The use of fuel oxygenates, includingethanol, was mandated through regulation, and much of the forecasted growth indemand for ethanol was expected to result from additional mandated use ofoxygenates. Most of this growth was projected to occur in the next few years asthe remaining markets switch from MTBE to ethanol. The Energy Policy Act,however, eliminated the mandated use of oxygenates and instead establishedminimum nationwide levels of renewable fuels (ethanol, biodiesel or any otherliquid fuel produced from biomass or biogas) to be included in gasoline.Because biodiesel and other renewable fuels in addition to ethanol are countedtoward the minimum usage requirements of the RFS, the elimination of theoxygenate requirement for reformulated gasoline may result in a decline inethanol consumption, which in turn could have a material adverse effect on ourbusiness, results of operations and financial condition.

***Corn-based ethanolmay compete with cellulose-based ethanol in the future, which could make itmore difficult for us to produce ethanol on a cost-effective basis****. *Most ethanol is currently producedfrom corn and other raw grains, such as milo or sorghum-especially in theMidwest. The current trend in ethanol production research is to develop anefficient method of producing ethanol from cellulose-based biomass, such asagricultural waste, forest residue, municipal solid waste, and energy crops.This trend is driven by the fact that cellulose-based biomass is generally cheaperthan corn, and producing ethanol from cellulose-based biomass would createopportunities to produce ethanol in areas which are unable to grow corn.Although current technology is not sufficiently efficient to be competitive,new conversion technologies may be developed in the future. If an efficientmethod of producing ethanol from cellulose-based biomass is developed, we maynot be able to compete effectively. If we are unable to produce

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ethanolas cost-effectively as cellulose-based producers, our ability to generaterevenue will be negatively impacted.

***Competition fromthe advancement of technology may lessen the demand for ethanol andnegatively impact our profitability*.**Alternative fuels,gasoline oxygenates and ethanol production methods are continually underdevelopment. A number of automotive, industrial and power generationmanufacturers are developing more efficient engines, hybrid engines andalternative clean power systems using fuel cells or clean burning gaseousfuels. Vehicle manufacturers are working to develop vehicles that are more fuelefficient and have reduced emissions using conventional gasoline. Vehiclemanufacturers have developed and continue to work to improve hybrid technology,which powers vehicles by engines that utilize both electric and conventionalgasoline fuel sources. In the future, the emerging fuel cell industry offers atechnological option to address increasing worldwide energy costs, thelong-term availability of petroleum reserves and environmental concerns. Fuel cellshave emerged as a potential alternative to certain existing power sourcesbecause of their higher efficiency, reduced noise and lower emissions. Fuelcell industry participants are currently targeting the transportation,stationary power and portable power markets in order to decrease fuel costs,lessen dependence on crude oil and reduce harmful emissions. If the fuel celland hydrogen industries continue to expand and gain broad acceptance, andhydrogen becomes readily available to consumers for motor vehicle use, wemay not be able to compete effectively. This additional competition couldreduce the demand for ethanol, which would negatively impact our financialcondition and results of operations.

***Consumer resistanceto the use of ethanol based on the belief that ethanol is expensive, adds toair pollution, harms engines and takes more energy to produce than itcontributes may affect the demand for ethanol which could affect ourability to market our product.***Certain individualsbelieve that use of ethanol will have a negative impact on retail prices. Manyalso believe that ethanol adds to air pollution and harms car and truckengines. Still other consumers believe that the process of producing ethanolactually uses more fossil energy, such as oil and natural gas, than the amountof ethanol that is produced. These consumer beliefs could potentially bewide-spread. If consumers choose not to buy ethanol, it would affect the demandfor the ethanol we produce which could lower demand for ethanol and negativelyaffect our profitability.

***Competition fromethanol imported from Caribbean Basin countries may be a less expensivealternative to our ethanol, which would cause us to lose market share*.**Ethanol produced or processed in certain countries in Central America andthe Caribbean region is eligible for tariff reduction or elimination uponimportation to the United States under a program known as the Caribbean BasinInitiative. Large ethanol producers, such as Cargill, have expressed interestin building dehydration plants in participating Caribbean Basin countries, suchas El Salvador, which would convert ethanol into fuel-grade ethanol forshipment to the United States. Ethanol imported from Caribbean Basin countriesmay be a less expensive alternative to ethanol produced domestically.Thus, competition from ethanol imported from Caribbean Basin countriesmay affect our ability to sell ethanol profitably.

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**Ethanol Plant Expansion Risks**

***We may need toincrease cost estimates for construction of the plant’s expansion,**and such increase could reduce our revenuestream and make the expansion unprofitable.**** *Broin and Associates agreed toexpand the plant based on a fixed contract price, according to the plans andspecifications in a design-build agreement.  We have based our capitalneeds on a design for the plant expansion that will cost approximately $80million.  There is no assurance that the final cost of the expansion willnot be higher, nor is there assurance that there will not be design changes orcost overruns associated with the expansion of the plant. In addition,shortages of steel could affect the final cost and final completion date of theproject.  Any significant increase in the estimated construction cost ofthe expansion may make the expansion too expensive to complete or unprofitableto operate because our revenue stream may not be able to adequately support theincreased cost and expense attributable to increased construction costs.

***Construction delayscould increase our costs.***  We anticipate constructionof the expansion will be commenced in the spring 2007 and completed in thesummer of 2008; however, construction projects often involve delays inobtaining permits, construction delays due to weather conditions, or otherevents that delay the construction schedule. If it takes longer to constructthe expansion than we anticipate, it may substantially increase our costs,which could have a material adverse effect on our results of operations andfinancial condition.

***Delays and defectsin construction relating to the plant’s expansion could impair the plant’sability to operate.*** Under the terms of thedesign-build agreement with Broin and Associates, Inc., Broin and Associateswarrants that the material and equipment furnished for the plant expansion willbe new, of good quality, and free from defects in material orworkmanship.  Although Broin and Associates will, for a period of oneyear after substantial completion of the plant’s expansion, correct all defectsin material or workmanship at no additional expense to us, any defects inmaterial or workmanship may interrupt or hinder the operation of theplant.  These defects may have a material adverse impact on our financialcondition.

**Government, Regulatory and Tax Risks**

***Governmentregulation could increase costs and reduce profitability.*** Theoperation of an ethanol plant is subject to ongoing compliance with applicablefederal and state governmental regulations, such as those governing emissioncontrol, ethanol production, grain purchasing and other matters. If any ofthese regulations were to change, it could cost us significantly more to complywith them. Further, other regulations may arise in future years regardingthe operation of the ethanol plant, including the possibility of additional permitsand licenses. We might have difficulty obtaining any such additional permits orlicenses, and they could involve significant

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unanticipatedcosts. We are subject to all of these regulations without regard to whether theoperation of the ethanol plant is profitable.

***Tariffs effectively limitimported ethanol into the United States, and their reduction or eliminationcould undermine the ethanol industry in the United States*.**Imported ethanol is generallysubject to a $0.54 per gallon tariff that was designed to offset the$0.51 per gallon ethanol incentive available under the federal excise taxincentive program for refineries that blend ethanol in their fuel. There is,however, a special exemption from this tariff for ethanol imported from 24countries in Central America and the Caribbean Islands, which is limited to atotal of 7% of United States ethanol production per year. Imports from theexempted countries may increase as a result of new plants in development. Sinceproduction costs for ethanol in these countries are significantly less thanwhat they are in the United States, the duty-free import of ethanol through thecountries exempted from the tariff may negatively affect the demand fordomestic ethanol and the price at which we sell our ethanol. ** **We do not know theextent to which the volume of imports would increase or the effect on UnitedStates prices for ethanol is enacted or if the tariff is not renewedbeyond its current expiration date in December 2008. Any changes in the tariffor exemption from the tariff could have a material adverse effect on ourbusiness, results of operations and financial condition.

***Federal and statelaws, regulations and tax incentives concerning ethanol could expire or change,which could harm our business*. **As described in moredetail above, ethanol sales have been favorably affected by a variety offederal laws and supports.  The Clean Air Act Amendments of 1990 helpedspur demand for ethanol by requiring the use of oxygenated motor fuels. TheEnergy Policy Act of 2005 mandates the use of ethanol in motor vehicles through2012.  The Volumetric Ethanol Excise Tax Credit offers to blenders avolumetric ethanol excise tax credit of $0.51 cents per gallon of any ethanolblend.  The South Dakota program provides incentives to ethanol producersto produce ethanol.  The modification or elimination of any of the federaland states laws and programs, among others, could have a material adverseimpact on us.

***If we are treatedas a corporation for federal income tax purposes, our members’ capital unitscould decline in value.*** We have elected to betreated as a partnership for federal income tax purposes. This means that we donot pay income tax at the company level and that members pay tax on theirproportionate share of our net income. In the event there are changes in thelaw or IRS interpretations, or trading in capital units that could result inclassification of us as a publicly traded partnership, for example, wemay be treated as a corporation rather than a partnership for federalincome tax purposes. In that case, we would pay tax on our income at corporaterates and no income, gains, losses, deductions or credits would flow through toour members. Currently, the maximum effective federal corporate rate is 35%. Inaddition, distributions would generally be taxed to members upon receipt ascorporate dividends. Because a tax would be imposed upon us at the entitylevel, the cash available for distribution to our members would be reduced bythe amount of the tax paid. Reduced distributions could reduce the value of ourmembers’ capital units.

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***There aresignificant restrictions on transferring the capital units.*** Tomaintain preferential partnership tax status, our capital units may not betraded on an established securities market or readily tradable on a secondarymarket. To help ensure that a market does not develop, our Operating Agreementprohibits transfers other than through the procedures specified in our CapitalUnits Transfer System. Under this system, all transactions must be approved byour board of managers. The board generally approves transfers that fall within “safeharbors” contained in the publicly traded partnership rules under thefederal tax code. Permitted transfers include transfers by gift or sales toqualified family members, transfers upon death and through a “qualifiedmatching service.”  Transfers through our qualified matching service arelimited by the federal tax code to no more than 10% of our capital unitsoutstanding annually. If a member transfers capital units in violation of thepublicly traded partnership rules or without the prior written consent ofthe board, the transfer is considered null and void and the board has theoption to redeem the capital units at a substantial discount. These restrictionson transfer could reduce the value of a member’s capital units.

**Item 2. Properties.**

Our ethanol plant is located on 119 acres of land weown near the town of Chancellor in Turner County, 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 distillers grainsproduced at our plant to certain markets. All of our tangible and intangibleproperty, real and personal, serves as collateral for our debt financing withAgCountry Farm Credit Services, which is described below under “Item 7—****Management’s Discussion and Analysis ofFinancial Condition and Results of Operation—Indebtedness.”

**Item 3. Legal Proceedings.**

From time to time in the ordinary course of business,we may be named as a defendant in legal proceedings related to variousissues, including without limitation, workers’ compensation claims, tortclaims, or contractual disputes. We are not currently involved in any materiallegal proceeding and we are not aware of any material claims pending orthreatened against us that could result in the commencement of legalproceedings.

**Item 4. Submission of Matters to a Vote of Security Holders.**

We did not submit any matter to a vote of our securityholders through the solicitation of proxies or otherwise during the fourthquarter of 2006.

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**PART II**

**Item 5. Market for Registrant’s Member Units and RelatedMember Matters and Issuer Purchases of Equity Securities.**

As of March 1, 2007, we had 505 Class Amembers, 1 Class B member, and 162 Class C members, representing atotal of 552 members.

*Trading Activity*

Our capital units are not traded on an establishedpublic trading market such as a stock exchange or The NASDAQ Stock Markets.Capital units may only be transferred in accordance with our OperatingAgreement and Capital Units Transfer System. Our Capital Units Transfer Systemis designed to preserve the single-level tax status as a limited liabilitycompany. Internal Revenue Service regulations impose significant tradingrestrictions on our capital units if we want to maintain this status. TheCapital Units Transfer System provides for transfers by gift to family members,upon death, and through a “qualified matching service,” subject to our board ofmanagers’ final approval. Since January 1, 2005, our qualified matchingservice has been operated through Alerus Securities Corporation, a registeredbroker-dealer operating a registered Alternative Trading System with the SEC.

The following tablecontains historical information by trimester for sales of our Class Acapital units through our qualified matching service since January 1,2005.
| ** **                 | ** ** | **Low**   | ** ** | **High**  | ** ** | **Average** | ** ** | **Units**  | ** ** |
|----------------------------|------------|-----------|------------|-----------|------------|-------------|------------|------------|------------|
| **Trimester**              | ** ** | **Price** | ** ** | **Price** | ** ** | **Price**   | ** ** | **Traded** | ** ** |
| January - April 2005       |       | $         | 12,500     |      | $          | 12,500      |       | $          | 12,500     |   | $ | 2 |   |
| May - August 2005          |       | $         | None       |      | $          | None        |       | $          | None       |   | $ | None |   |
| September - December 2005  |       | $         | 15,000     |      | $          | 15,000      |       | $          | 15,000     |   | $ | 2 |   |
| January - April 2006       |       | $         | 19,250     |      | $          | 21,000      |       | $          | 19,854     |   | $ | 14 |   |
| May - August 2006          |       | $         | 22,500     |      | $          | 27,500      |       | $          | 25,000     |   | $ | 7 |   |
| September -  December 2006 |       | $         | 29,000     |      | $          | 29,750      |       | $          | 29,250     |   | $ | 3 |   |

 

There were no issuer purchases of equity securitiesduring the fourth quarter ended December 31, 2005.

*Distributions*

In 2005, we distributed to our members approximately$10.1 million in total cash distributions, or $2,700 per capital unit.

In 2006, we distributed to our members approximately$14 million in total cash distributions, or $3,750 per capital unit.

On January 19, 2007, we distributed to ourmembers approximately $3.74 million in cash distributions, or $1,000 percapital unit.

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Under the terms of our Fourth Amended and RestatedOperating Agreement, dated February 17, 2005, we are required to make adistribution to our members of at least 20% of the net cash from operations, aslong as net cash from operations is in excess of $500,000 for that year, or ourboard of managers determines otherwise. However, we are prohibited from makingany distributions that would violate or cause us to default under any of theterms of our credit facilities or debt instrument. Under our loan agreementwith our lender, AgCountry Farm Credit Services, we are prohibited from makingdistributions to members in any rolling 12 month period that exceed 75% of ournet income unless certain conditions apply. For further details of this loanagreement, please see “Item 7, Management’s Discussion and Analysis ofFinancial Conditions and Results of Operations—Indebtedness.” In addition, ourdistributions are required to be issued to members of record as of the last dayof the trimester immediately prior to the trimester in which the distributionwas declared by our board of managers.

It is uncertain whether we will make similardistributions in 2007 as in 2006. Our ability to issue similar distributions issubstantially dependent upon our profitability, the discretion of our board ofmanagers subject to the provisions of our Operating Agreement, and the approvalof our lender.

**Item 6. Selected Financial Data**

The following table setsforth selected financial data of Great Plains Ethanol, LLC for the periodsindicated. The audited financial statements included in Item 8 of this reporthave been audited by our independent auditors, Eide Bailly LLP.
| ** **                                    | ** ** | **2006**   | ** **  | **2005**   | ** ** | **2004**   | ** ** | **2003 (1)** | ** ** |
|-----------------------------------------------|------------|------------|-------------|------------|------------|------------|------------|-------------------|------------|
| **Statement  of Operations Data:**            | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** |
| Revenue                                       |       | $          | 123,391,901 |       | $          | 84,645,519 |       | 88,920,352        |       | 52,354,635 |   |
| Cost of Revenues                              |       | $          | 68,675,968  |       | $          | 65,434,525 |       | 71,588,411        |       | 42,833,701 |   |
| Gross Profit                                  |       | $          | 54,715,933  |       | $          | 19,210,994 |       | 17,331,941        |       | 9,520,934 |   |
| General and  Administrative Expense           |       | $          | 6,044,239   |       | $          | 3,530,388  |       | 2,759,696         |       | 2,194,496 |   |
| Income from  Operations                       |       | $          | 48,671,694  |       | $          | 15,680,606 |       | 14,572,245        |       | 7,326,438 |   |
| Interest Expense                              |       | $          | (1,909,752  | )          | $          | (1,404,660 | )          | (1,176,009        | )          | (1,177,471 | ) |
| Other Income                                  |       | $          | 399,886     |       | $          | 54,450     |       | 342,379           |       | 24,279 |   |
| Net Income                                    |       | $          | 47,161,828  |       | $          | 14,330,397 |       | 13,738,615        |       | 6,173,246 |   |
|                                          |       |       |        |       |       |       |       |              |       |
| Capital Units  Outstanding                    |       | 3,742      |        | 3,742      |       | 3,742      |       | 3,742             |       |
| Net Income per  Capital Unit                  |       | $          | 12,603      |       | $          | 3,830      |       | 3,671             |       | 1,650 |   |
| Cash  Distributions declared per Capital Unit |       | $          | 4,000       |       | $          | 2,850      |       | 1,936             |       | 1,000 |   |
|                                          |       |       |        |       |       |       |       |              |       |
| **Balance  Sheet Data:**                      | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** |
| Working Capital                               |       | $          | 29,898,507  |       | $          | 4,732,343  |       | 2,088,786         |       | 3,669,394 |   |
| Net Property,  Plant & Equipment          |       | $          | 51,788,029  |       | $          | 47,105,398 |       | 44,265,244        |       | 45,425,534 |   |
| Total Assets                                  |       | $          | 97,449,445  |       | $          | 63,368,068 |       | 56,047,104        |       | 60,655,872 |   |
| Long-Term Debt  Obligations                   |       | $          | 19,229,863  |       | $          | 21,627,548 |       | 19,831,903        |       | 29,099,564 |   |
| Members Equity                                |       | $          | 62,682,453  |       | $          | 30,488,625 |       | 26,822,928        |       | 20,329,536 |   |
| Book Value per Capital  Unit                  |       | $          | 16,751      |       | $          | 8,148      |       | 7,168             |       | 5,433 |   |

 

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(1) Wecommenced operations on March 20, 2003. Therefore, our financial data onlyrepresents nine months of operations

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**Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operation.**

*You should read the followingdiscussion along with our financial statements and the notes to our financialstatements included elsewhere in this report. The following discussion containsforward-looking statements that are subject to risks, uncertainties andassumptions. Our actual results, performance and achievements may differmaterially from those expressed in, or implied by, such forward-lookingstatements. See “Cautionary Statement Regarding Forward-Looking Information” atthe beginning of this report.*

**Overview and Executive Summary**

We are engaged in the production of fuel-grade ethanoland distillers grains. We obtain corn for processing into ethanol and distillergrains from the local corn market, our members and local corn producers. Afterprocessing the corn into ethanol and distillers grains, the ethanol is sold toEthanol Products, LLC, which subsequently markets and sells the ethanol togasoline blenders and refineries located throughout the continental UnitedStates. Distillers grains are sold through Dakota Gold Marketing, Inc. whichmarkets and sells the product to livestock feeders.

Our operating and financial performance is largelydriven by the prices at which we sell ethanol and distillers grains and thecosts related to production. Federal and state government incentive programs,unlike in prior years, are no longer a material source of revenue and income.The price of ethanol is generally influenced by factors such as supply anddemand, prices of unleaded gasoline and the petroleum markets, weather, andgovernment policies and programs. The price of distillers grains is generallyinfluenced

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bysupply and demand, the price of corn, soybean meal and other protein-based feedproducts. Our two largest costs of production are corn and natural gas. Thecost of natural gas and corn is generally impacted by factors such as supplyand demand, weather, government policies and programs, and our risk managementprogram used to protect against the price volatility of these commodities.

We generated record profits in 2006. Our net income for2006 was $47.1 million compared to $14.3 million in 2005.  The primary driving force was an increase inethanol revenues, as revenues rose significantly because of a 45.9% increase inethanol prices. Ethanol prices rose during the first three quarters as a resultof increased demand from refineries and increases in price of unleadedgasoline. Demand was spurred by refineries accelerating their phase out of MTBEin the refinery process, switching to ethanol in its place. Ethanol prices didpull back significantly, however, during the fourth quarter due to a reductionin the price of unleaded gasoline.

Our prospects in 2007 are not as positive as 2006, assignificant challenges will be faced. Our first challenge is dealing with the potential of excess supply.Nationally, 77 plants are under construction and seven existing plants areundergoing expansion, which is expected to create over three billion gallons ofnew ethanol production. Further increases in supply are expected from theimport of ethanol from countries like Brazil. Unless new markets for ethanolopen up to absorb these gallons, we anticipate that there will be downwardpressure on ethanol prices.

Less certain is the effect of new production ofethanol on distillers grain prices. New production of ethanol will definitelytranslate to an increase in production of distillers grains. Like ethanol,unless new markets for distillers grains open up, such as in the hog andpoultry industries, or the price of distillers grains does not movecorrespondingly with a rise in corn prices, there could be downward pressure ondistillers grains’ prices and therefore our revenues. We will depend even moreon our marketer to locate these new markets, which could include furtheremphasis on developing markets internationally.

Another challenge is dealing with the potential ofrising corn costs, which would translate to a higher cost of revenues. Sincethe fourth quarter of 2006, corn supplies have tightened nationwide due to apoor corn harvest worldwide and increase in demand from the ethanol industry.This resulted in the price of corn reaching close to $4.00 in January 2007, arecord high since 1996. While we currently have a price protection program inplace against rising corn prices through May 2007, which should mitigateagainst this risk in part, we will be subject again to the risk of the marketand decreased margins after this period. A potential offset to rising corncosts could be a continuation potentially of low and stable natural gas prices.Natural gas prices are expected to remain at their comparatively low levelsthrough the summer of 2007 due to adequate storage supplies and a relativelymild winter thus far.

To protect against these risks, we plan to continue tobe proactive in improving on our plant efficiencies in order to reduce costsand increase margins. In August 2005, we

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completedthe incorporation of new technology into the production process called BPXTM,which has resulted in a decrease in energy costs. Also, we are planning thisspring to commence expansion of our plant from 45 million gallons to 100million gallons of capacity annually, which is expected to capture furtherefficiencies through economies of scale. Another contemplated option may be to increase our cash reserves in lieuof making distributions in part to members. Thus, smaller distributions to ourmembers in 2007 than 2006 could result. In short, we believe that we arepositioned well to deal with the challenges presented in 2007, the reassessmentof which will be made at the end of the year.

#### **Results of Operations**

**Comparison of years endedDecember 31, 2006 and December 31, 2005.**

|                                        | ** ** | **Year Ended  December 31,  2006** | ** ** | **Year Ended  December 31,  2005** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                             | ** ** | ** **                                   | ** ** | **%**                                        | ** ** | ** ** | ** ** | **%** | ** ** |
| ** **                             | ** ** | ** **                                   | ** ** | **of**                                       | ** ** | ** ** | ** ** | **Of** | ** ** |
| ** **                             | ** ** | **$**                                        | ** ** | **Revenue**                                  | ** ** | **$** | ** ** | **Revenue** | ** ** |
| **Revenue:**                           | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Ethanol                                |       | 108,568,020                                  |       | 88.0                                         |       | 70,551,148 |   | 83.3 |   |
| Distillers Grains                      |       | 14,034,220                                   |       | 11.4                                         |       | 13,345,911 |   | 15.8 |   |
| Incentive                              |       | 789,662                                      |       | 0.6                                          |       | 748,460 |   | 0.9 |   |
| Total                                  |       | 123,391,902                                  |       | 100                                          |       | 84,645,519 |   | 100 |   |
|                                   |       |                                         |       |                                         |       |   |   |   |   |
| **Cost of Revenue**                    |       | 68,675,968                                   |       | 55.7                                         |       | 65,434,525 |   | 77.3 |   |
|                                   |       |                                         |       |                                         |       |   |   |   |   |
| **General and Administrative Expense** |       | 6,044,239                                    |       | 4.9                                          |       | 3,530,388 |   | 4.2 |   |
|                                   |       |                                         |       |                                         |       |   |   |   |   |
| **Other Operating Income (Expense)**   |       | (1,509,866                                   | )          | (1.2                                         | )          | (1,350,209 | ) | (1.6 | ) |
|                                   |       |                                         |       |                                         |       |   |   |   |   |
| **Net  Income**                        |       | 47,161,828                                   |       | 38.2                                         |       | 14,330,397 |   | 16.9 |   |

 

*Revenues*-Ourrevenues increased $38.7 million, or 45.8%, to $123.3 million for the yearended December 31, 2006 from $84.6 million for the year ended December 31,2005.  The increase in revenue wasprimarily the result of an increase in ethanol sales.

Revenue from the sale of ethanol increasedapproximately $38 million, or 53.9%, to $108.5 million for the year endedDecember 31, 2006, from $70.5 million for the year ended December 31, 2005.  The increase ethanol revenue was due to a45.9% increase in ethanol prices along with a 7.0% increase in salesvolume.  Ethanol prices increased

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betweenperiods as a result of an increase in demand for ethanol from refineries during2006.  During the first three quarters of2006, refineries demanded more ethanol in the oxygenated blending process asthey phased out MTBE as an additive.

Since the fourth quarter, however, the price ofethanol has decreased. The price has decreased primarily due to a decrease inthe price of unleaded gasoline and an increase in ethanol supply resulting fromnew production and the importation of ethanol. As new ethanol plants come on line, ethanol prices are expected tocontinue to be impacted adversely unless new markets open up for ethanol whichis uncertain at this time.

Revenue from the sale of distillers grains increased$688,000, or 5.16%, to $14 million for the year ended December 31, 2006, from$13.3 million for the year ended December 31, 2005.  Although there was a 9.8% decrease in theaverage price per ton of dry distillers grains products, and a 4.3% decrease indry tons sold, revenue increased due an increase in sales of our premium drydistillers grains product, Dakota GoldTM.

Revenue from federal and state governmental incentiveprograms remained relatively constant with a slight increase of 5.5%. Incentiverevenue consists of income earned from federal and state governments inconnection with our ethanol production. A decrease in federal incentive revenueunder the United States Department of Agriculture’s Commodity CreditCorporation Bioenergy Program after the program ended on June 30, 2006, wasoffset by 10.7% increase in state incentive revenue under the State of SouthDakota program.

*Cost of Revenues-*Cost of revenues, which includes productionexpenses, increased $3.1 million, or 4.73%, to $68.6 million for the year endedDecember 31, 2006 from $65.5 million for the year ended December 31, 2005.  The increase in cost of revenues wasprimarily attributed to an increase in costs for denaturant, processing,chemicals and freight, offset by a decrease in natural gas costs. Corn costsremained relatively constant between periods, increasingly only slightly.

Denaturant costs increased$1.25 million, or 42.9%, from December 31, 2005 to the year ended December 31,2006 as a result of increased production and an increase in general usage.  Similarly, processing chemicals increased$1.28 million, or 33.9%, from 2005 to 2006 due to an increase in production andconversion to BPXTM.  In addition,freight costs for distillers grains increased 25.7% from 2005 to 2006 due to anincrease in surcharge and expenses imposed by the Burlington Northern SantaRailroad. In contrast, corn costs, including costs from hedging activities,increased just $288,000, or less than 1%, from the year ended December 31, 2005to the year ended December 31, 2006. Corn costs remained constant despite an average increase of 10% in themarket price of corn between periods as the price increase was offset by gainsresulting from favorable corn hedging strategies.

Natural gas costs, including costs from natural gashedging, decreased $622,000, or 4.2%, from the year ended December 31, 2005 tothe year ended December 31, 2006

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due toa decrease in cost per unit of natural gas. The decrease in the cost per unit was attributed to a decrease in theprice of crude oil after a five-year average high, most of which was due to therecovery following the overly active hurricane season in 2005.

*General and Administrative Expenses*-Generaland administrative expenses increased $2.5 million, or 71.2%, to $6.0 millionfor the year ended December 31, 2006 from $3.5 million for the year endedDecember 31, 2005.  The increase wasprimarily due to costs directly attributed to increases in sales and net incomesuch as management incentive fees.

*Interest Expense*-Interestexpense increased $505,000, or 35.9%, to $1.9 million for the year endedDecember 31, 2006 from $1.4 million for the year ended December 31, 2005.  The increase was due to additional debtacquired in the third quarter of 2005 to finance our BPXTM project and a 17.9%increase in variable rates.

*Net Income-*Net income increased $32.8 million, or 229%,to $47.1 million for the year ended December 31, 2006 from $14.3 million forthe year ended December 31, 2005.  Thischange was caused primarily by, as discussed above, and increase in ethanolrevenue.

**Comparison of years endedDecember 31, 2005 and December 31, 2004.**

|                                        | ** ** | **Year Ended  December 31,  2005** | ** ** | **Year Ended  December 31,  2004** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                             | ** ** | ** **                                   | ** ** | **%**                                        | ** ** | ** ** | ** ** | **%** | ** ** |
| ** **                             | ** ** | ** **                                   | ** ** | **of**                                       | ** ** | ** ** | ** ** | **of** | ** ** |
| ** **                             | ** ** | **$**                                        | ** ** | **Revenue**                                  | ** ** | **$** | ** ** | **Revenue** | ** ** |
| **Revenue:**                           | ** ** | ** **                                   | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Ethanol                                |       | 70,551,148                                   |       | 57.2                                         |       | 69,464,217 |   | 82.1 |   |
| Distillers Grains                      |       | 13,345,911                                   |       | 10.8                                         |       | 13,896,018 |   | 16.4 |   |
| Incentive                              |       | 748,460                                      |       | 0.6                                          |       | 5,560,117 |   | 6.6 |   |
| Total                                  |       | 84,645,519                                   |       | 69                                           |       | 88,920,352 |   | 105 |   |
|                                   |       |                                         |       |                                         |       |   |   |   |   |
| **Cost of Revenue**                    |       | 65,434,525                                   |       | 53.0                                         |       | 71,588,411 |   | 84.6 |   |
|                                   |       |                                         |       |                                         |       |   |   |   |   |
| **General and Administrative Expense** |       | 3,530,388                                    |       | 2.9                                          |       | 2,759,696 |   | 3.3 |   |
|                                   |       |                                         |       |                                         |       |   |   |   |   |
| **Other Operating Income (Expense)**   |       | (1,350,209                                   | )          | (1.1                                         | )          | (833,630 | ) | (1.0 | ) |
|                                   |       |                                         |       |                                         |       |   |   |   |   |
| **Net  Income**                        |       | 14,330,397                                   |       | 11.6                                         |       | 13,738,615 |   | 16.2 |   |

 

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*Revenues*-Ourrevenues decreased $4.2 million, or 4.8%, to $84.6 million for the year endedDecember 31, 2005 from $88.9 million for the year ended December 31, 2004.  The decrease was primarily related to areduction of incentive revenue received under the federal Bioenergy Program.

Revenue from the sale of ethanol increasedapproximately $1.1 million, or 1.54%, to $70.5 million for the year endedDecember 31, 2005, from $69.4 million for the year ended December 31,2004.  The increase in ethanol revenue wasthe result of a modest increase in ethanol prices per gallon, along with a 1%increase in sales volume.

Revenue from the sale of distiller grains decreased$550,000, or 4%, to $13.35 million for the year ended December 31, 2005, from$13.9 million for the year ended December 31, 2004.  The decrease was due to a 17.6% decrease inprice per ton, offset by a 4.5% increase in sales volume. Prices decreasedbecause of a decrease in the price of protein-based feed products such assoybean meal, while sales volume rose following an increase in production.

Revenue from federal and state governmental incentiveprograms decreased $4.8 million dollars, or 86.5%, to $748,000 for the yearended December 31, 2005, from $5.6 million for the year ended December, 312004.  For the year ended December 31,2005, we recorded incentive revenue from the United States Department ofAgriculture’s Commodity Credit Corporation Bioenergy Program of approximately$46,000, compared to $4.9 million for the year ended December 31, 2004.  The decrease was directly related to how thepayments were structured under this program prior to the program’s terminationin 2006, as payments were based on an increase of ethanol produced compared tothe prior year’s production for that same period. The plant’s production in2005, however, was comparable to production in 2004 which led to the decrease.

The decrease in revenue from the Bioenergy Program,however, was slightly offset by an increase in incentive revenue from the Stateof South Dakota. For the year ended December 31, 2005, we recordedapproximately $702,000 in incentive revenue from the state, compared to$667,000 for the year ended December 31, 2004. The increase in revenue was related to an increase in funds allocated tothis program by the state in 2005.

*Cost of Revenues*-Ourcost of revenues, which includes production expenses, decreased $6.15 million,or 8.6%, to $65.4 million for the year ended December 31, 2005, from $71.5million for the year ended December 31, 2004. The decrease in cost of revenues was primarily due to a 30.6% decreasein cost of corn, offset by increases in natural gas costs, shipping costs andingredient costs.

The decrease in the cost of corn between periods wasprimarily due to a 26.5% decrease in the market price of corn between periodsand the impact and effect of our hedging strategies. The decrease in pricebetween periods was due largely to a large carryout and a plentiful cornharvest in 2005. In addition, the use and effect of our hedging instrumentsrelative to the market price of corn between periods decreased costs. 

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Gainsand losses that result from a change in value are recognized in cost ofrevenues as the changes occur. Gains are recognized as a decrease in cost ofrevenues while losses are recognized as an increase in cost of revenues.   For the year ended December 31, 2004, ourcost of revenues included losses of $3.6 million from the use and effects ofcorn hedging instruments.  These losses were caused by the significantprice fluctuations of corn in 2004 and the effect on the value of the hedginginstruments at the time.  At the end of 2003, we increased our use ofhedging instruments and positions for 2004 to protect against the market priceforecasts for corn, which predicted higher prices because of low world carryoutprior to the growing season, decreased production, and drought.  As theyear progressed, however, and it became apparent that corn production would bemuch higher than expected, the original market forecasts proved incorrect andthe market price of corn actually declined.  When the market pricedeclined, the value of our corn hedging instruments fell which led to $3.6million loss and a corresponding increase in our cost of corn and cost ofrevenues.

In contrast, there was no material adverse effect oncost of revenues from the use of hedging instruments and the corn market forthe year ended December 31, 2005.  Due to a record carryout of corn into2005 and the overall stable conditions in the commodities markets, we took fewerhedging positions to protect against potential price volatility. As a result,there was considerably less market risk exposure in 2005 and potential forlosses.  Accordingly, for the year ended December 31, 2005, a $1.25million gain resulted from the use of corn hedging instruments which, in turn,led to a corresponding decrease in the cost of revenues.

The decrease in the cost of corn between 2004 and 2005was offset by increases in natural gas costs, ingredient costs and shippingcosts.  Natural gas costs increased byapproximately 36.5% between periods due largely to a decrease in natural gasproduction nationwide. Production decreased because of an overly activehurricane season and an increase in demand. General ingredient costs for theproduction process increased by approximately 26.7% between periods due to achange in the production process from the incorporation of BPXTM.  Finally, shipping costs for ethanol anddistillers grains increased by 34.2% between periods because of an increase infreight charges imposed by the Burlington-Northern Santa Fe railroad system

*General and Administrative Expenses-*Generaland administration expenses increased $770,692, or 27.9%, to $3.5 million forthe year ended December 31, 2005 from $2.7 million for the year ended December31, 2004.  The substantial majority ofthe increase was due to a write off of previously capitalized loan costsincurred with the original debt, new licensing fees paid to Broin andAssociates under a new technology licensing agreement, and incentive fees paidto Broin Management for managing the plant.

*Interest Expense-*Interestexpense increased $228,651, or 19.4%, to $1.4 million for the year endedDecember 31, 2005, from $1.1 million for the year ended December 31, 2004. Theincrease was primarily due to rising interest rates on our variable-rate debt 

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instruments,as rates increased 42.8% from the year ended December 31, 2005 to the yearended December 31, 2004.

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

**Liquidity and Capital Resources**

Our primary sources of liquidity are cash provided byoperations and borrowings under our $8.0 million revolving credit facilitywhich is discussed below under Indebtedness. Net working capital as of December31, 2006 was $29.8 million compared to $4.7 million as of December 31, 2005.

The following table shows the cash flows between theyear ended December 31, 2006 and the year ended December 31, 2005:
|                                           | ** ** | **Year Ended December 31** | ** **  |
|-------------------------------------------|------------|-------------------------------------------|-------------|
| ** **                                | ** ** | **2006**                                  | ** **  | **2005** | ** ** |
| Net cash from  operating activities       |       | $                                         | 36,699,052  |   | $ | 17,798,541 |   |
| Net cash (used  for) investing activities |       | $                                         | (7,791,587  | ) | $ | (5,537,766 | ) |
| Net cash (used for)  financing activities |       | $                                         | (14,134,388 | ) | $ | (7,837,011 | ) |

 

*Cash Flow From Operating Activities—*Operating activities provided $36.6 millionfor the year ended December 31, 2006 compared to $17.7 million for the yearended December 31, 2005.  This increasewas primarily driven by an increase in net income and accounts payable duringthe same period, offset by an increase in receivables, inventory, andinvestment in commodities contracts.

*Cash Flow From Investing Activities—*Investing activities used $7.7 million forthe twelve months ended December 31, 2006 compared to $5.5 million for thetwelve months ended December 31, 2005. Cash used for investing activities for the year ended December 31, 2006consisted of general capital improvements relating to expansion, while the cashused for investing activities for the year ended December 31, 2005 consisted ofequipment purchased for the construction and implementation of BPXTM.

We anticipate that at least $100 million in capitalexpenditures will be made in 2007.  Amajority of these capital expenditures will directly relate to the plant’sexpansion. However, expenditures may also relate to other projects, includingthe potential construction of a solid waste boiler to be used for generating anew source of energy for the production process. If we proceed with theconstruction of the solid waste fuel boiler, we anticipate that the total costof both projects will be approximately $108 million, of which $80 million and$28 million are expected to be financed with new debt and cash flows fromoperations, respectively. We are currently negotiating with our primary lender,AgCountry Farm Credit Services, to finance the debt portion of the

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projects,but it is uncertain on when an agreement will be reached. Until then, weanticipate that we will finance the projects through cash flows fromoperations. Because we will be retaining earnings to finance a portion ofprojects, distributions to our members, if any, will be limited until ourfinancing and construction phase is completed.

*Cash Flow From Financing Activities—*Net cash used for financing activities was$14.1 million for the year ended December 31, 2006 compared to $7.8 million forthe year ended December 31, 2005.  Netcash used was higher in 2006 compared to 2005 primarily because of advances in2005 of $13.9 million in financing for corn and natural gas purchases.  In addition, cash distributions to ourmembers increased $4 million for the year ended December 31, 2006 to the yearended December 31, 2005.

We believe that cash flows from operations and ourrevolving debt will be sufficient to meet our expected capital (except forexpansion) and liquidity requirements for the foreseeable future.

The following table shows the cash flows between theyear ended December 31, 2005 and the year ended December 31, 2004:
|                                           | ** ** | **Year Ended December 31** | ** ** |
|-------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| Net cash from  operating activities       |       | $                                         | 17,798,541 |   | $ | 15,211,601 |   |
| Net cash (used  for) investing activities |       | $                                         | (5,537,766 | ) | $ | (1,534,189 | ) |
| Net cash (used for)  financing activities |       | $                                         | (7,837,011 | ) | $ | (18,385,926 | ) |

 

*Cash Flow From Operating Activities—*Operatingactivities provided $17.80 million for the year ended December 31, 2005,compared to $15.21 million for the year ended December 31, 2004.  Cash flow from operating activities for theyear ended December 31, 2005 was higher than for the same period in 2004primarily due to increases in net income, accounts receivable and inventory,offset by a decrease in investments in commodity contracts.

*Cash Flow From Investing Activities—*Investing activities used $5.54 million forthe year ended December 31, 2005, compared to $1.53 million for the year endedDecember 31, 2004.  Additional cash wasused in 2005 to purchase equipment and make improvements to the plant,particularly for the BPXTM project.  In2004, our investments were primarily related to purchasing new equipment forour distiller grains’ system that had been damaged by a fire in March 2004.

*Cash Flow from Financing Activities—*Net cash used for financing activities was$7.84 million for the year ended December 31, 2005, compared to $18.36 millionfor year ended December 31, 2004.  Netcash used was significantly lower in 2005 than in 2004 primarily due to therestructuring and refinancing of our debt in 2005.

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**Indebtedness**

Our indebtedness is in the form of a $26.5 millionnote; a $5.0 million variable rate note; and a $8.0 million variable-raterevolving note, all issued to and held by AgCountry Farm Credit Services inconnection with a Credit Agreement. We anticipate that our Credit Agreementwith AgCountry will be amended upon reaching an agreement  to finance the substantial majority of theplant’s expansion and related improvements.

The $26.5 million note was converted on March 1, 2006into two different segments and rates, a $16.5 million segment and a $10.0million segment. The $10.0 million segment has a fixed interest rate of 8.55%until March 1, 2011, amortized over a period of 7.6 years, and is subject topenalty for any prepayment during the first year. The $16.5 million segment hasa variable interest rate of LIBOR plus 3.0% (currently 7.96%), adjustedmonthly. On June 1, 2006 and annually thereafter, the 3.0% margin is subject tochange at the discretion of AgCountry but currently is at 2.64%. The $16.5million segment is subject to an amortization of 7.6 years and prepayment iswithout penalty. The principal balance outstanding for both segments combinedwas $17.7 million as of December 31, 2006.

The $5.0 million variable rate note bears interest atLIBOR plus 3.0%. This note financed the construction and improvements relatingto BPXTM, which was completed in August 2005. The note requires quarterlypayments of principal plus accrued interest until maturity on October 1,2013. The principal balance outstanding was $4.2 million as of December 31,2006.

The $8 million variable rate, revolving note wasissued on July 12, 2005. The $8.0 million variable rate, revolving notebears interest equal to LIBOR plus 3.0%. The purpose of the $8.0 millionrevolver is to cover any of our short-term operating cash needs, permitting usto borrow in multiples of $100,000 on a revolving basis, the difference betweenthe principal balance outstanding and $8.0 million. The note requiresmonthly payments of interest based on the average daily balance of therevolving loan during the related monthly period, subject to a 0.50% annualcommitment fee assessed quarterly on any funds not borrowed. On October 1,2012, we are required to repay any principal balance outstanding that exceeds$4 million, after which and until maturity on October 1, 2013, therevolving feature permits us to borrow the difference between the principal balanceoutstanding and $4 million. As of December 31, 2006, there was no principalbalance outstanding.

All loans and notes outstanding with AgCountry aresecured by our real property, personal property, general intangibles,improvements, contracts, and other rights set forth under our Credit Agreement.In addition to standard covenants and conditions in the Credit Agreement, weare subject to the following covenants and/or conditions: 1) fixed chargecoverage ratio of not less than 1.15:1.00; 2) owner’s equity ratio of 44% onDecember 31, 2006, 46% on December 31, 2007, 48% onDecember 31, 2008, and 50% on December 31, 2009 through maturity; 3)capital expenditure limitation of $750,000 annually; 4) current ratio coverageof 1.2:1; 5) minimum working capital of $5 million including the unadvancedportion of the $8.0 million revolving note; and 6) cash 

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distributionsto members not to exceed 75% of net income unless members’ equity ratio exceeds60% and working capital exceeds $6 million at which time distributions tomembers can be made up to 100% of net income. In event of default, AgCountrymay terminate the Credit Agreement, as amended, and declare the entire amountimmediately due and owing. Events of default generally include failure to makepayments when due or violations of one or more of the covenants.  As of December 31, 2006 and the date of thisfiling, we are in compliance with all of our covenants and conditions under ourCredit Agreement.

The following table summarizes our consolidatedcontractual obligations as of December 31, 2006:
| ** **                          | ** ** | ** ** | ** ** | **Payment Due by Period** | ** ** |
|-------------------------------------|------------|------------|------------|------------------------------------------|------------|
| ** **                          | ** ** | ** ** | ** ** | **Less than**                       | ** ** | **One to** | ** ** | **Four to** | ** ** | **After** | ** ** |
| ** **                          | ** ** | ** ** | ** ** | **One**                                  | ** ** | **Three** | ** ** | **Five** | ** ** | **Five** | ** ** |
| ** **                          | ** ** | **Total**  | ** ** | **Year**                                 | ** ** | **Years** | ** ** | **Years** | ** ** | **Years** | ** ** |
|                                |       |       |       |                                     |       |   |   |   |   |   |   |
| Long-Term Debt  Obligations (1)     |       | $          | 24,294,968 |                                     | 4,529,388  |   | 8,908,660 |   | 8,584,949 |   | 2,271,971 |   |
|                                |       |       |       |                                     |       |   |   |   |   |   |   |
| Purchase  Obligations (2)           |       | 9,288,126  |       | 2,024,349                                |       | 2,958,966 |   | 2,812,674 |   | 1,492,137 |   |
|                                |       |       |       |                                     |       |   |   |   |   |   |   |
| Total Contractual Cash  Obligations |       | $          | 33,583,094 |                                     | 6,553,737  |   | 11,867,626 |   | 11,397,623 |   | 3,764,108 |   |

 
| ** **                       | ** ** | ** ** | ** ** | **Amount of Commitment Expiration Per Period** | ** ** |
|----------------------------------|------------|------------|------------|-------------------------------------------------------------------------|------------|
| ** **                       | ** ** | ** ** | ** ** | **Less than**                                                      | ** ** | **One to** | ** ** | **Four to** | ** ** | **After** | ** ** |
| ** **                       | ** ** | ** ** | ** ** | **One**                                                                 | ** ** | **Three** | ** ** | **Five** | ** ** | **Five** | ** ** |
| ** **                       | ** ** | **Total**  | ** ** | **Year**                                                                | ** ** | **Years** | ** ** | **Years** | ** ** | **Years** | ** ** |
| Standby Letter  of Credit (3)    |       | $          | 780,000    |                                                                    | 780,000    |   |   |   |   |   |   |   |
|                             |       |       |       |                                                                    |       |   |   |   |   |   |   |
| **Total Commercial Commitments** |       | $          | 780,000    |                                                                    | 780,000    |   | — |   | — |   | — |   |

 

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(1) Long-termdebt obligations reflect payment obligations arising under the amended LoanAgreement dated July 12, 2005 and includes payment of principal andinterest under the amended terms.

(2) Purchase obligations include our minimum obligation for natural gas usage,electricity usage, and agreements for management services, marketing, and riskmanagement.

(3) OnFebruary 20, 2007, we renewed a standby letter of credit agreement with ournatural gas distributor. The standby letter of credit is a form ofsecurity provided to our natural gas distributor in the event we do not use aminimum amount of natural gas. The distributor may draw on the letter ofcredit if we do not comply with certain payment, purchase and deliveryobligations under a natural gas distribution agreement. If the natural gasdistributor draws on the letter of credit, an equal amount must be drawn on theline of 

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creditwith Home Federal Bank, which then becomes a liability to us. The maturity dateon the line of credit is March 1, 2008. As of December 31, 2006,there was no principal balance outstanding on the line of credit.

**Off-Balance Sheet Arrangements**

We do not use or have any material off-balance sheetfinancial arrangements.

**Recent Accounting Pronouncements**

In September 2006,the FASB issued Statement No. 157, “Fair Value Measurements”. This Statementdefines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles and expands disclosure about fairvalue measurement. The implementation of this Statement is not expected to havea material impact on our financial statements.

In September 2006,the Securities and Exchange Commission adopted SAB No. 108, “Considering theEffects of Prior Year Misstatements when Quantifying Misstatements in CurrentYear Financial Statements.” This SAB provides guidance on the consideration ofthe effects of prior year misstatements in quantifying current yearmisstatements for the purpose of a materiality assessment. SAB 108 establishesan approach that requires quantification of financial statement errors based onthe effects of each of a company’s balance sheets and statements of operationsand the related financial statement disclosures. The SAB permits existingpublic companies to record the cumulative effect of initially applying thisapproach in the first year ending after November 15, 2006 by recording thenecessary correcting adjustments to the carrying values of assets andliabilities as of the beginning of that year with the offsetting adjustmentrecorded to the opening balance of retained earnings. Additionally, the use ofthe cumulative effect transition method requires detailed disclosure of thenature and amount of each individual error being corrected through thecumulative adjustment and how and when it arose.  We expect that theadoption of SAB 108 will not have a material impact on our financialstatements.

In July 2006, theFASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes-an Interpretation of FASB Statement No. 109.” This Interpretationprescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. This Interpretation also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. The Interpretation is effective for fiscalyears beginning after December 15, 2006 and we expect that the adoption of FASBInterpretation No. 48 will not have a material impact on our financialstatements.

**Application of Critical Accounting Policies and Estimates**

Preparation of our financial statements necessarilyrequires estimates and judgments to be made that affect the amounts of assets,liabilities, revenues and expenses

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reported.Such decisions include the selection of the appropriate accounting principlesto be applied and the assumptions on which to base accounting estimates. Ourmanagement continually evaluates these estimates based on assumptions itbelieves to be reasonable under the circumstances.

The difficulty in applying these policies arises fromthe assumptions, estimates and judgments that have to be made currently aboutmatters that are inherently uncertain, such as future economic conditions,operating results and valuations, as well as management’s intentions. As thedifficulty increases, the level of precision decreases, meaning that actualresults can, and probably will be, different from those currently estimated.

*Long-Lived Assets*

Depreciation and amortization of our property, plantand equipment will be provided on the straight-line method by charges tooperations at rates based upon the expected useful lives of individual orgroups of assets that are placed in service. Economic circumstances or otherfactors may cause management’s estimates of expected useful lives todiffer from the actual useful lives. Differences between estimated lives andactual lives may be significant, but management does not expect eventsthat occur during the normal operation of our plant related to estimated usefullives to have a significant effect on results of operations.

Long-lived assets, including property, plant andequipment and investments are evaluated for impairment on the basis ofundiscounted cash flows whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. An impairedasset is written down to its estimated fair market value based on the bestinformation available. Considerable management judgment is necessary toestimate future cash flows and may differ from actual cash flows.Management does not expect a material impairment of assets based on theirassessment of the risks and rewards related to the ownership of these assetsand the expected cash flows generated from the operation of the plant.

*Inventory Valuation*

We account for our corn inventory at estimated netrealizable market value. Corn is an agricultural commodity that is freelytraded, has quoted market prices, may be sold without significant furtherprocessing and has predictable and insignificant costs of disposal. We deriveour estimates from local market prices determined by grain terminals in itsarea. Change in the market value of corn inventory is recognized as a componentof cost of revenues. Ethanol and distillers grains’ inventories are stated atnet realizable value. Work-in-process, supplies, parts and chemical inventoryare stated at the lower of cost or market on the first-in, first-out method.

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###### *Revenue Recognition*

Revenue from the production of ethanol and relatedproducts is recorded when title transfers to customers, net of allowances forestimated returns. Interest income is recognized when earned.

Revenue from federal and state incentive programs isrecorded when we have produced or sold the ethanol and satisfied the reportingrequirements under each applicable program. When it is uncertain whether wewill receive full allocation and payment due under the federal incentiveprogram, we derive an estimate of the incentive revenue**for the**relevant period based on various factors including the most recentlyused payment factor applied to the program. The estimate is subject to changeas management becomes aware of increases or decreases in the amount of fundingavailable under the federal incentive program or other factors that affectfunding or allocation of funds under such program.

*Commitments and Contingencies*

Contingencies, by their nature, relate touncertainties that require management to exercise judgment both in assessingthe likelihood that a liability has been incurred, as well as in estimating theamount of the potential expense. In conformity with accounting principlesgenerally accepted in the United States, we accrue an expense when it is probablethat a liability has been incurred and the amount can be reasonably estimated.

*Derivative Instruments and Hedging Activities*

We enter into derivative contracts to hedge ourexposure to price risk related to forecasted corn and natural gas purchases, forwardcorn purchase contracts and certain distiller grain sales. We do not typicallyenter into derivative instruments other than for hedging purposes. Allderivative contracts are recognized on the December 31, 2006 and 2005balance sheets at their fair market value.

On the date the derivative instrument is entered into,we designate the derivative as either (1) a hedge of the fair value of arecognized asset or liability or of an unrecognized firm commitment (fair valuehedge), (2) a hedge of a forecasted transaction or of the variability ofcash flows to be received or paid related to a recognized asset or liability(cash flow hedge) or (3) will not designate the derivative as a hedge.Changes in the fair value of a derivative that is designated as and meets allthe required criteria for a fair value hedge, along with the gain or loss onthe hedged asset or liability that is attributable to the hedged risk, arerecorded in current period earnings. Changes in the fair value of a derivativethat is designated as and meets all the required criteria for a cash flow hedgeare recorded in accumulated other comprehensive income and reclassified intoearnings as the underlying hedged item affects earnings. Changes in the fairvalue of a derivative that is not designated as a hedge are recorded in currentperiod earnings.

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**Item 7A. Quantitative and Qualitative Disclosure About MarketRisk.**

We are exposed to the impact of market fluctuationsassociated with commodity prices and interest rates as discussed below. We haveno exposure to foreign currency risk as all of its business is conducted inU.S. Dollars. We use derivative financial instruments as part of anoverall strategy to manage market risk. Specifically, we use forward, futuresand option contracts to hedge changes to the commodity prices of corn, naturalgas. However, we do not enter into these derivative financial instruments fortrading or speculative purposes, nor do we designate these contracts as hedgesfor accounting purposes pursuant to the requirements of SFAS 133, Accountingfor Derivative Instruments and Hedging Activities.

*Commodity Price Risk*

We produce ethanol and its co-product, distillersgrains, from corn, and as such are sensitive to changes in the price of corn.The price of corn is subject to fluctuations due to unpredictable factors suchas weather, total corn planted and harvested acreage, changes in national andglobal supply and demand, and government programs and policies. We also usenatural gas in the production process and, as such, are sensitive to changes inthe price of natural gas. The price of natural gas is influenced by suchweather factors as heat or cold in the summer and winter, in addition to thethreat of hurricanes in the spring, summer and fall. Other natural gas price factorsinclude the domestic onshore and offshore rig count, and the amount of naturalgas in underground storage during both the injection (April 1st –November 7th) and withdrawal (November 14th – March 31st)seasons. The price of distiller grains is influenced by the price of corn andsoybean meal.

We attempt to reduce the market risk associated withfluctuations in the price of corn and natural gas by employing a variety ofrisk management strategies. Strategies include the use of derivative financialinstruments such as futures and options initiated on the Chicago Board of Tradeand/or the New York Mercantile Exchange, as well as the daily cash managementof our total corn and natural gas ownership relative to its monthly demand foreach commodity, which may incorporate the use of forward cash contracts orbasis contracts.

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

Gains and losses on futures and options contracts usedas economic hedges of corn inventory as well as on forward cash corn and basiscontracts, are recognized as a component of our cost of revenues for financialreporting on a monthly basis using month-end settlement prices for futures onthe Chicago Board of Trade. Corn inventories and distillers grains are markedto fair value using market based prices so that gains or

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losseson the derivative contracts, as well as forward cash corn and basis contracts,are offset by gains or losses on inventories during the same accounting period.

Gains and losses on futures and options contracts usedas economic hedges of natural gas, as well as basis contracts, are recognizedas a component of our cost of revenues for financial reporting on a monthlybasis using month-end settlement prices for natural gas futures on the New YorkMercantile Exchange. The natural gas inventories hedged with these derivativesor basis contracts are valued at the spot price of natural gas, plus or minusthe gain or loss on the futures or options positions relative to the month-endsettlement price on the New York Mercantile Exchange.

A sensitivity analysis has been prepared to estimateour exposure to commodity price risk. The table presents the fair value of corninventory, forward purchase contracts and open futures and option positions forcorn, natural gas and distillers grains as of December 31, 2006 andDecember 31, 2005 and the potential loss in fair value resulting from ahypothetical 10% adverse change in corn and natural gas prices. The fair valueof the positions is a summation of the fair values calculated by valuing eachnet position at quoted market prices as of the applicable date. The results ofthis analysis, which may differ from actual results, are as follows:
| ** **          | ** ** | ** **          | ** ** | **Effect of Hypothetical** | ** ** |
|---------------------|------------|---------------------|------------|--------------------------------------|------------|
| ** **          | ** ** | ** **          | ** ** | **Adverse**                          | ** ** |
| ** **          | ** ** | ** **          | ** ** | **Change— Market**         | ** ** |
| **Year Ended** | ** ** | **Fair Value** | ** ** | **Risk**                             | ** ** |
| 31-Dec-06           |       | $                   | 20,221,981 |                                 | $          | 2,022,198 |   |
| 31-Dec-05           |       | $                   | 4,962,096  |                                 | $          | 496,210 |   |

 

*Interest Rate Risk*

Interest rate risk exposure pertains primarily to ourvariable rate, long-term debt. Specifically, as of December 31, 2006, wehad $8.7 million and $4.2 million in variable rate, long-term debt, thevariable rate being 7.96% and 8.32%, respectively. We manage interest rate riskby monitoring the effects of market changes on the interest rates andconverting portions of our variable-rate debt to fixed-rate debt wheneverpossible.

**Item 8. Financial Statements and Supplementary Data.**

Reference is made to the “Index to FinancialStatements” of Great Plains Ethanol, LLC located at page F-1 of thisreport, and financial statements for the year ended December 31, 2006referenced therein, which are hereby incorporated by reference.

**Item 9. Changes in and Disagreements with Accountants onAccounting and Financial Disclosure.**

None.

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

**Evaluation of Disclosure Controls and Procedures**

Our chief executive officer and chief financialofficer, after evaluating the effectiveness of our disclosure controls andprocedures (as defined in Rule 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended), as of the end of the periodcovered by this report, has concluded that our disclosure controls andprocedures are effective in ensuring that material information required to bedisclosed is included in the reports that we file with the Commission.

*Changes in Internal Controls*

There were no significant changes in our internalcontrols or in other factors that could significantly affect these controlsduring the fourth quarter of 2006.

**Item 9B. Other Information.**

None.

**PART III**

**Item 10. Directors and Executive Officers of the Registrant.**

**Compliance with Section 16(a) of the Exchange Act**

Information regarding untimely filings pursuant toSection 16 of the Securities Exchange Act of 1934, as amended, is incorporatedin this Form 10-K by reference from our definitive Proxy/InformationStatement for the Annual Meeting of Members to be held in 2007, a copy of whichwill be filed with the Commission no later than 120 days afterDecember 31, 2006.

**Code of Ethics**

Information regarding a code of ethics is incorporatedin this Form 10-K by reference to our definitive Proxy/InformationStatement for the Annual Meeting of Members to be held in 2007, a copy of whichwill be filed with the Commission no later than 120 days afterDecember 31, 2006.

**Directors**

Information regarding our board of directors ormanagers is incorporated in this Form 10-K by reference from thedefinitive Proxy/Information Statement for the Annual Meeting of Members to beheld in 2007, a copy of which will be filed with the Commission no later than120 days after December 31, 2006.

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**Executive officers**

Information required by this item regarding thebusiness experience of our executive is incorporated in this Form 10-K byreference from the definitive Proxy/Information Statement for the AnnualMeeting of Members to be held in 2007, a copy of which will be filed with theCommission no later than 120 days after December 31, 2006.

**Item 11. Executive Compensation.**

The information required by this item is incorporatedby reference in this Form 10-K from our definitive Proxy/InformationStatement for the Annual Meeting of Members to be held in 2007, a copy of whichwill be filed with the Commission no later than 120 days afterDecember 31, 2006.

**Item 12. Security Ownership of Certain Beneficial Owners andManagement.**

The information required by this item is incorporatedby reference in this Form 10-K from our definitive Proxy/InformationStatement for the Annual Meeting of Members to be held in 2007, a copy of whichwill be filed with the Commission no later than 120 days afterDecember 31, 2006.

**Item 13. Certain Relationships and Related Transactions, andDirectors Independence.**

The information required by this item is incorporatedby reference in this Form 10-K from our definitive Proxy/InformationStatement for the Annual Meeting of Members to be held in 2007, a copy of whichwill be filed with the Commission no later than 120 days afterDecember 31, 2006.

**Item 14. Principal Accounting Fees and Services.**

 The information required by this item isincorporated by reference in this Form 10-K from our definitiveProxy/Information Statement for the Annual Meeting of Members to be held in2007, a copy of which will be filed with the Commission no later than 120 daysafter December 31, 2006.

**PART IV**

**Item 15. Exhibits, Financial Statements Schedules.**

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

(1)         Financial Statements – Reference is made to the “Index to FinancialStatements” of Great Plains Ethanol, LLC located at page F-1 of thisreport for a 

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listof the financial statements and schedules for the year ended December 31,2006 included herein.

(2)         All supplemental schedules are omitted because of the absence of conditionsunder which they are required or because the information is shown in theConsolidated Financial Statements or notes thereto.

(3)         The exhibits we have filed herewith or incorporated by reference herein are setforth on the attached Exhibit Index.

(b)  See Item 15(a)

**SIGNATURES**

Pursuant to the requirement of Section 13 or15(d) of the Securities Exchange Act, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.
|        |                | GREAT PLAINS ETHANOL,  LLC                                                                           |
|--------|---------------------|------------------------------------------------------------------------------------------------------|
|   |                |                                                                                                 |
| Date:  | March 21, 2007 |                                                                                                 |  /s/ Rick A. Serie |   |
|   |                | Rick A. Serie, Chief  Executive Officer and  Chief Financial Officer  (Principal Executive  Officer) |
|        |                     |                                                                                                      |  |  |

 

Pursuant to the requirements of the SecuritiesExchange Act, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.

| Date:  | March 21, 2007      |  /s/ Rick A. Serie                               |   |
|--------|---------------------|-------------------------------------------------------|--------|
|   |                | Rick A. Serie                                         |
|   |                | Chief Executive Officer  and Chief Financial  Officer |
|   |                |                                                  |
| Date:  | March 21, 2007 |  /s/ Jeff Fox                                    |   |
|   |                | Jeff Fox, Manager                                     |
|   |                |                                                  |
| Date:  | March 21, 2007      |  /s/ Dennis Hardy                                |   |
|   |                | Dennis Hardy, Manager                                 |
|   |                |                                                  |
| Date:  | March 21, 2007      |  /s/ Darrin Ihnen                                |   |
|   |                | Darrin Ihnen, Manager                                 |

 

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| Date:  | March 21, 2007 |  /s/ Mark Miller   |   |
|--------|----------------|-------------------------|--------|
|   |           | Mark Miller, Manager    |
|   |           |                    |
| Date:  | March 21, 2007 |  /s/ Dennis Schrag |   |
|   |           | Dennis Schrag, Manager  |
|   |           |                    |
| Date:  | March 21, 2007 |  /s/ Steve Sinning |   |
|   |           | Steve Sinning, Manager  |
|   |           |                    |
| Date:  | March 21, 2007 |  /s/ Fred Thurman  |   |
|   |           | Fred Thurman, Manager   |
|   |           |                    |
| Date:  | March 21, 2007 | /s/ Dan Viet            |   |
|   |           | Dan Viet, Manager       |
|   |           |                    |
| Date:  | March 21, 2007 | /s/ Larry Ward          |   |
|   |           | Larry Ward, Manager     |

 

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**EXHIBIT INDEX**
| Exhibit # | ** ** | **Description**                                                                                             | ** ** | **Filed  Herewith** | ** ** | **Incorporated by  Reference**                                                                                           |
|-----------|------------|-------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------|
| 3.1       |       | Articles of  Organization                                                                                   |       |                |       | Appendix A to  registrant’s Prospectus filed with the Commission pursuant to Rule 424(b)(3)  on June 11, 2001. |
| 3.2       |       | Amended and  Restated Operating Agreement dated April 17, 2006                                              |       |                |       | Exhibit 3.2 to  the registrant’s Form 10-Q filed with the Commission on May 15, 2006.                               |
| 4.1       |       | Form of Class A  Certificate                                                                                |       |                |       | Exhibit 4.1 to  the registrant’s Form SB-2 filed with the Commission on February 28,  2001.                    |
| 4.2       |       | Form of Class B  Certificate                                                                                |       |                |       | Exhibit 4.2 to  the registrant’s Form SB-2 filed with the Commission on February 28,  2001.                    |
| 4.3       |       | Form of Class C  Certificate                                                                                |       |                |       | Exhibit 4.3 to  the registrant’s Form SB-2 filed with the Commission on February 28,  2001.                    |
| 10.1      |       | Ethanol  Marketing and Services Agreement with Ethanol Products, LLC, dated  December 18, 2000         |       |                |       | Exhibit 10.4 to  the registrant’s Form SB-2 filed with the Commission on February 28,  2001.                   |
| 10.2      |       | Water Purchase  Agreement with Lincoln County Rural Water System, Inc., dated May 24, 2002                  |       |                |       | Exhibit 10.3 to  the registrant’s Form 10-QSB filed with the Commission on August 14,  2002.                   |
| 10.3      |       | Credit Agreement  with Ag Country Farm Services Credit, FLCA, dated June 19, 2002                      |       |                |       | Exhibit 10.1 to  the registrant’s Form 8-K filed with the Commission on June 20, 2002.                         |
| 10.4      |       | Promissory Note  with Ag Country Farm Credit Services, dated June 20, 2002                             |       |                |       | Exhibit 10.2 to  the registrant’s Form 8-K filed with the Commission on June 20, 2002.                         |
| 10.5      |       | Natural Gas  Distribution Agreement, dated September 2, 2002                                           |       |                |       | Exhibit 10.2 to  the registrant’s Form 10-QSB filed with the Commission on November 14,  2002.                 |
| 10.6      |       | Natural Gas  Supply Agreement                                                                               |       |                |       | Exhibit 10.3 to  the registrant’s Form 10-QSB filed with the Commission on November 14,  2002                  |
| 10.7      |       | Natural Gas  Interstate Pipeline Transportation Agreement, dated September 2, 2002                     |       |                |       | Exhibit 10.4 to  the registrant’s From 10-QSB filed with the Commission on November 14,  2002.                 |
| 10.8      |       | Electric Service  Agreement, dated September 25, 2002                                                  |       |                |       | Exhibit 10.1 to  the registrant’s Form 10-QSB filed with the Commission on November 14,  2002.                 |
| 10.9      |       | DDGS Marketing  Contract with Broin Enterprises, Inc. d/b/a Dakota Commodities, dated  January 7, 2003 |       |                |       | Exhibit 10.21 to  the registrant’s Form 10-KSB filed with the Commission on March 4, 2003.                     |

 

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| 10.10 |   | Loan Agreement  with Home Federal Bank, dated February 28, 2003                               |   |   |   | Exhibit 10.3 to  the registrant’s Form 10-QSB filed with the Commission on August 14,  2003. |
|-------|--------|----------------------------------------------------------------------------------------------------|--------|--------|--------|--------------------------------------------------------------------------------------------------------|
| 10.11 |   | Amended and  Restated Letter of Credit, dated February 16, 2006                                    |   |   |   | Exhibit 10.21 to  the registrant’s Form 10-K filed with the Commission on March 31, 2006.         |
| 10.12 |   | Promissory Note  Modification Agreement, dated February 16, 2006                                   |   |   |   | Exhibit 10.23 to  the registrant’s Form 10-KSB filed with the Commission on March 31, 2006.       |
| 10.13 |   | Agreement to  Compensate Guarantors, dated February 16, 2006                                       |   |   |   | Exhibit 10.24 to  the registrant’s Form 10-K filed with the Commission on March 31, 2006.         |
| 10.14 |   | Technology and  Patent Rights License Agreement with Broin and Associates dated April 5, 2005  *   |   |   |   | Exhibit 10.1 to  the registrant’s Form 10-Q filed with the Commission on May 16, 2005.            |
| 10.15 |   | Design-Build  Agreement with Broin and Associates dated April 5, 2005                              |   |   |   | Exhibit 10.2 to  the registrant’s Form 10-Q filed with the Commission on May 16, 2005.            |
| 10.16 |   | Amended and  Restated Credit Agreement with Ag Country Farm Credit Services dated July 12,  2005   |   |   |   | Exhibit 10.1 to  the registrant’s Form 10-Q filed with the Commission on August 15, 2005.         |
| 10.17 |   | Amended and  Restated Mortgage Agreement with Ag Country Farm Credit Services dated July  12, 2005 |   |   |   | Exhibit 10.2 to  the registrant’s Form 10-Q filed with the Commission on August 15, 2005.         |
| 10.18 |   | Amended and  Restated Security Agreement with Ag Country Farm Credit Services dated July  12, 2005 |   |   |   | Exhibit 10.3 to  the registrant’s Form 10-Q filed with the Commission on August 15, 2005.         |
| 10.19 |   | Feasibility  Agreement with Broin and Associates dated August 23, 2005                             |   |   |   | Exhibit 10.1 to  the registrant’s Form 10-Q filed with the Commission on November 14, 2005.       |
| 10.20 |   | Agreement  between Owner and Design Builder dated August 28, 2006                                  |   |   |   | Exhibit 10.1 to  the registrant’s Form 10-Q filed with the Commission on November 14, 2006.       |
| 10.21 |   | Amended and  Restated Letter of Credit dated February 16, 2007                                     |   | X      |   |                                                                                                   |
| 10.22 |   | Promissory Note  Modification Agreement, dated February 14, 2007.                                  |   | X      |   |                                                                                                   |
| 10.23 |   | Corn and Natural  Gas Price Risk Management Agreement dated November 30, 2006                      |   | X      |   |                                                                                                   |
| 10.24 |   | Second Amendment  to Ethanol Marketing Service Agreement dated November 30, 2006                   |   | X      |   |                                                                                                   |
| 31    |   | Rule  13a-14(a)/15d-14(a) Certifications                                                           |   | X      |   |                                                                                                   |
| 32    |   | Section 1350  Certification                                                                   |   | X      |   |                                                                                                   |

 

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* The redacted portions to Exhibit 10.16 were filedseparately with the Commission subject to a request for confidential treatmentdated May 13, 2005.

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**GREAT PLAINS ETHANOL, LLC**

Table of Contents
|                                        | ** ** | **Page** |
|----------------------------------------|------------|----------|
| **INDEPENDENT  AUDITOR’S REPORT** |       | F-1      |
| ** **                             |       |     |
| **FINANCIAL STATEMENTS**               |       |     |
| Balance Sheets                         |       | F-2      |
| Operations                             |       | F-4      |
| Changes in  Members’ Equity       |       | F-5      |
| Cash Flows                             |       | F-6      |
| Notes to Financial  Statements         |       | F-7      |

 

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**(AUDITOR’SREPORT)**

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Audit Committee of

**Great Plains Ethanol, LLC**

Chancellor,South Dakota

Wehave audited the accompanying balance sheets of **Great PlainsEthanol, LLC** as of December31, 2006 and 2005, and the related statements of operations, changes inmembers’ equity, and cash flows for the years ended December 31, 2006, 2005 and 2004. These financial statements arethe responsibility of the company’s management. Our responsibility is to expressan opinion on these financial statements based on our audits.

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the company’sinternal control over financial reporting. Accordingly, we do not express such an opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of **Great PlainsEthanol, LLC** as of December31, 2006 and 2005, and the results of its operations and its cash flowsfor each of the years ended December31, 2006, 2005, and 2004 in conformity with accounting principlesgenerally accepted in the United States of America.

Sioux Falls, South Dakota

March 21, 2007

 

 

 

PEOPLE. PRINCIPLES. POSSIBILITIES.

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www.eidebailly.com

200 E. 10th Street, Suite500   PO Box 5125    Sioux Falls, South Dakota57117-5125   Phone 605.339.1999Fax 605.339.1306    EOE

 

 

 

F-1

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**GREAT PLAINS ETHANOL, LLC**

**BALANCESHEETS**

**DECEMBER 31, 2006 AND 2005**

**ASSETS**

 
| ** **                            | ** ** | **December 31,** | ** **     | **December 31,** | ** ** |
|---------------------------------------|------------|-----------------------|----------------|-----------------------|------------|
| ** **                            | ** ** | **2006**              | ** **     | **2005**              | ** ** |
| CURRENT ASSETS                        |       |                  |           |                  |       |
| Cash and cash  equivalents            | ** ** | **$**                 | **19,968,318** |                  | $          | 5,195,242 |   |
| Receivables                           |       |                  |           |                  |       |
| Ethanol -  related party              | ** ** | **6,367,014**         |           | 4,267,374             |       |
| Distillers grain                      | ** ** | **634,718**           |           | 481,371               |       |
| Incentives                            | ** ** | **166,667**           |           | 190,871               |       |
| Other                                 | ** ** | **13,732**            |           | 5,412                 |       |
| Inventory                             |       |                  |           |                  |       |
| Raw materials                         | ** ** | **10,971,003**        |           | 915,711               |       |
| Finished goods                        | ** ** | **3,221,355**         |           | 2,420,626             |       |
| Work in process                       | ** ** | **803,352**           |           | 506,728               |       |
| Parts inventory                       | ** ** | **860,300**           |           | 984,618               |       |
| Investment in  commodities contracts  | ** ** | **2,330,760**         |           | 890,489               |       |
| Prepaid expenses                      | ** ** | **98,418**            |           | 125,794               |       |
| Total current  assets                 | ** ** | **45,435,637**        |           | 15,984,238            |       |
|                                  |       |                  |           |                  |       |
| PROPERTY AND EQUIPMENT                |       |                  |           |                  |       |
| Land                                  | ** ** | **270,210**           |           | 270,210               |       |
| Land  improvements                    | ** ** | **3,581,250**         |           | 3,581,250             |       |
| Buildings                             | ** ** | **6,987,893**         |           | 6,987,893             |       |
| Equipment                             | ** ** | **43,415,286**        |           | 43,156,148            |       |
| Construction in  process              | ** ** | **7,532,027**         |           | 262,122               |       |
| ** **                            |       | **61,786,665**        |           | 54,257,623            |       |
| Less accumulated  depreciation        | ** ** | **(9,998,636**        | **)**          | (7,152,225            | )          |
| Net property and  equipment           | ** ** | **51,788,029**        |           | 47,105,398            |       |
|                                  |       |                  |           |                  |       |
| OTHER ASSETS                          |       |                  |           |                  |       |
| Financing costs,  net of amortization | ** ** | **40,151**            |           | 47,002                |       |
| Long term  prepaid expenses           | ** ** | **184,628**           |           | 230,430               |       |
| Other                                 | ** ** | **1,000**             |           | 1,000                 |       |
| ** **                            |       | **225,779**           |           | 278,432               |       |
|                                  |       |                  |           |                  |       |
| **TOTAL ASSETS**                      | ** ** | **$**                 | **97,449,445** |                  | $          | 63,368,068 |   |

 

See Notes toFinancial Statements

F-2

----

**GREAT PLAINS ETHANOL, LLC**

**BALANCESHEETS**

**DECEMBER 31, 2006 AND 2005**

**LIABILITIES AND MEMBERS’ EQUITY**

 
| ** **                                                     | ** ** | **December 31,** | ** **     | **December 31,** | ** ** |
|----------------------------------------------------------------|------------|-----------------------|----------------|-----------------------|------------|
| ** **                                                     | ** ** | **2006**              | ** **     | **2005**              | ** ** |
| CURRENT  LIABILITIES                                           |       |                  |           |                  |       |
|                                                           |       |                  |           |                  |       |
| Accounts payable - trade                                       | ** ** | **$**                 | **5,158,562**  |                  | $          | 4,312,952 |   |
| Accounts payable to related party                              | ** ** | **842,988**           |           | 558,154               |       |
| Accrued distribution                                           | ** ** | **3,742,000**         |           | 2,806,500             |       |
| Excess of outstanding checks over bank balance                 | ** ** | **2,506,864**         |           | —                |       |
| Other accrued liabilities                                      | ** ** | **503,684**           |           | 580,190               |       |
| Current portion of long-term debt                              | ** ** | **2,783,032**         |           | 2,994,098             |       |
|                                                           |       |                  |           |                  |       |
| Total current liabilities                                      | ** ** | **15,537,130**        |           | 11,251,895            |       |
|                                                           |       |                  |           |                  |       |
| LONG-TERM DEBT                                                 | ** ** | **19,229,863**        |           | 21,627,548            |       |
|                                                           |       |                  |           |                  |       |
| COMMITMENTS AND  CONTINGENCIES (See Note 5)                    |       |                  |           |                  |       |
|                                                           |       |                  |           |                  |       |
| MEMBERS’ EQUITY                                           |       |                  |           |                  |       |
|                                                           |       |                  |           |                  |       |
| Total units authorized - 4,700                                 |       |                  |           |                  |       |
| Class A Units, $5,000 par, 1,513 units issued and  outstanding | ** ** | **7,565,000**         |           | 7,565,000             |       |
| Class B Units, $5,000 par, 200 units issued and  outstanding   | ** ** | **1,000,000**         |           | 1,000,000             |       |
| Class C Units, $5,000 par, 2,029 units issued and  outstanding | ** ** | **10,145,000**        |           | 10,145,000            |       |
| Additional paid-in capital                                     | ** ** | **7,000**             |           | 7,000                 |       |
| Retained earnings                                              | ** ** | **43,965,453**        |           | 11,771,625            |       |
|                                                           |       |                  |           |                  |       |
| Total members’ equity                                     | ** ** | **62,682,453**        |           | 30,488,625            |       |
|                                                           |       |                  |           |                  |       |
| **TOTAL LIABILITIES &  MEMBERS’ EQUITY**              | ** ** | **$**                 | **97,449,445** |                  | $          | 63,368,068 |   |

 

F-3

----

**GREAT PLAINS ETHANOL, LLC**

**STATEMENTS OF OPERATIONS**

**YEARS ENDED DECEMBER 31, 2006,2005 AND 2004**
| ** **                                   | ** ** | **Twelve**            | ** **      | **Twelve**            | ** ** | **Twelve**            | ** ** |
|----------------------------------------------|------------|-----------------------|-----------------|-----------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **Months Ended** | ** **      | **Months Ended** | ** ** | **Months Ended** | ** ** |
| ** **                                   | ** ** | **December 31,** | ** **      | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                   | ** ** | **2006**              | ** **      | **2005**              | ** ** | **2004**              | ** ** |
|                                         |       |                  |            |                  |       |                  |       |
| REVENUES                                     |       |                  |            |                  |       |                  |       |
| Sales - related party                        | ** ** | **$**                 | **108,568,020** |                  | $          | 70,551,148            |       | $ | 69,464,217 |   |
| Sales                                        | ** ** | **14,034,220**        |            | 13,345,911            |       | 13,896,018            |       |
| Incentive revenue                            | ** ** | **789,662**           |            | 748,460               |       | 5,560,117             |       |
| Total revenues                               | ** ** | **123,391,901**       |            | 84,645,519            |       | 88,920,352            |       |
|                                         |       |                  |            |                  |       |                  |       |
| COST OF REVENUES                             | ** ** | **68,675,968**        |            | 65,434,525            |       | 71,588,411            |       |
|                                         |       |                  |            |                  |       |                  |       |
| GROSS PROFIT                                 | ** ** | **54,715,933**        |            | 19,210,994            |       | 17,331,941            |       |
|                                         |       |                  |            |                  |       |                  |       |
| OPERATING  EXPENSES                          |       |                  |            |                  |       |                  |       |
| General and administrative                   | ** ** | **6,044,239**         |            | 3,530,388             |       | 2,759,696             |       |
| Total operating expenses                     | ** ** | **6,044,239**         |            | 3,530,388             | ** ** | 2,759,696             |       |
|                                         |       |                  |            |                  |       |                  |       |
| INCOME FROM  OPERATIONS                      | ** ** | **48,671,694**        |            | 15,680,606            |       | 14,572,245            |       |
|                                         |       |                  |            |                  |       |                  |       |
| OTHER INCOME AND  (EXPENSES)                 |       |                  |            |                  |       |                  |       |
| Interest income                              | ** ** | **582,789**           |            | 47,894                |       | 11,420                |       |
| Interest expense                             | ** ** | **(1,909,752**        | **)**           | (1,404,660            | )          | (1,176,009            | )          |
| Other                                        | ** ** | **(182,903**          | **)**           | 6,556                 |       | 330,959               |       |
| Total other income and expenses              | ** ** | **(1,509,866**        | **)**           | (1,350,210            | )          | (833,630              | )          |
|                                         |       |                  |            |                  |       |                  |       |
| NET INCOME                                   | ** ** | **$**                 | **47,161,828**  |                  | $          | 14,330,397            |       | $ | 13,738,615 |   |
|                                         |       |                  |            |                  |       |                  |       |
| BASIC AND  DILUTED INCOME PER CAPITAL UNIT   | ** ** | **$**                 | **12,603**      |                  | $          | 3,830                 |       | $ | 3,671 |   |
|                                         |       |                  |            |                  |       |                  |       |
| WEIGHTED AVERAGE  CAPITAL UNITS OUTSTANDING: |       |                  |            |                  |       |                  |       |
|                                         |       |                  |            |                  |       |                  |       |
| BASIC AND  DILUTED                           | ** ** | **3,742**             |            | 3,742                 |       | 3,742                 |       |

 

See Notes to Financial Statements

F-4

----

# **GREATPLAINS ETHANOL, LLC**

**STATEMENTSOF CHANGES IN MEMBERS’ EQUITY**

**YEARS ENDED DECEMBER 31, 2006,2005 AND 2004**
| ** **                                 | ** ** | **Capital Units** | ** ** | **Additional**   | ** **    | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------|------------|------------------------|------------|------------------|---------------|------------------|------------|------------------|------------|
| ** **                                 | ** ** | **Class A**       | ** ** | **Class B** | ** **    | **Class C** | ** ** | **Class D** | ** ** | **Paid In** | ** ** | **Retained** | ** ** | **Total** | ** ** |
| ** **                                 | ** ** | **Units**              | ** ** | **Amount**       | ** **    | **Units**        | ** ** | **Amount**       | ** ** | **Units** | ** ** | **Amount** | ** ** | **Units** | ** ** | **Amount** | ** ** | **Capital** | ** ** | **Earnings** | ** ** | **Amount** | ** ** |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December  31, 2003                |       | 1,513                  |       | $                | 7,565,000     |             | 200        |             | $          | 1,000,000 |   | 2,029 |   | $ | 10,145,000 |   | — |   | $ | — |   | $ | 7,000 |   | $ | 1,612,536 |   | $ | 20,329,536 |   |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                 |       | —                 |       | —           |          | —           |       | —           |       | — |   | — |   | — |   | — |   | — |   | 13,738,615 |   | 13,738,615 |   |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions to members,  $1,936 per unit |       | —                 |       | —           |          | —           |       | —           |       | — |   | — |   | — |   | — |   | — |   | (7,245,223 | ) | (7,245,223 | ) |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December  31, 2004                |       | 1,513                  |       | $                | 7,565,000     |             | 200        |             | $          | 1,000,000 |   | 2,029 |   | $ | 10,145,000 |   | — |   | $ | — |   | $ | 7,000 |   | $ | 8,105,928 |   | $ | 26,822,928 |   |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                 |       | —                 |       | —           |          | —           |       | —           |       | — |   | — |   | — |   | — |   | — |   | 14,330,397 |   | 14,330,397 |   |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions to  members, $2,850 per unit |       | —                 |       | —           |          | —           |       | —           |       | — |   | — |   | — |   | — |   | — |   | (10,664,700 | ) | (10,664,700 | ) |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December  31, 2005                |       | 1,513                  |       | $                | 7,565,000     |             | 200        |             | $          | 1,000,000 |   | 2,029 |   | $ | 10,145,000 |   | — |   | $ | — |   | $ | 7,000 |   | $ | 11,771,625 |   | $ | 30,488,625 |   |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                 |       | —                 |       | —           |          | —           |       | —           |       | — |   | — |   | — |   | — |   | — |   | 47,161,828 |   | 47,161,828 |   |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions to  members, $4,000 per unit |       | —                 |       | —           |          | —           |       | —           |       | — |   | — |   | — |   | — |   | — |   | (14,968,000 | ) | (14,968,000 | ) |
|                                       |       |                   |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance, December 31, 2006**             | ** ** | **1,513**              | ** ** | **$**            | **7,565,000** | ** **       | **200**    | ** **       | **$**      | **1,000,000** | ** ** | **2,029** | ** ** | **$** | **10,145,000** | ** ** | **—** | ** ** | **$** | **—** | ** ** | **$** | **7,000** | ** ** | **$** | **43,965,453** | ** ** | **$** | **62,682,453** | ** ** |

 

See Notes to FinancialStatements

F-5

----

# **GREAT PLAINSETHANOL, LLC**

**STATEMENTSOF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2006,2005 AND 2004**
| ** **                                                               | ** ** | **Twelve Months** | ** **     | **Twelve Months** | ** ** | **Twelve Months** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------|----------------|------------------------|------------|------------------------|------------|
| ** **                                                               | ** ** | **Ended**              | ** **     | **Ended**              | ** ** | **Ended**              | ** ** |
| ** **                                                               | ** ** | **December 31,**  | ** **     | **December 31,**  | ** ** | **December 31,**  | ** ** |
| ** **                                                               | ** ** | **2006**               | ** **     | **2005**               | ** ** | **2004**               | ** ** |
|                                                                     |       |                   |           |                   |       |                   |       |
| OPERATING  ACTIVITIES                                                    |       |                   |           |                   |       |                   |       |
| Net income                                                               | ** ** | **$**                  | **47,161,828** |                   | $          | 14,330,397             |       | $ | 13,738,615 |   |
| Changes to net income not affecting cash                                 |       |                   |           |                   |       |                   |       |
| Depreciation                                                             | ** ** | **2,919,811**          |           | 2,724,371              |       | 2,525,266              |       |
| Amortization                                                             | ** ** | **6,850**              |           | 297,583                |       | 40,871                 |       |
| Gain/Loss on equipment disposals                                         | ** ** | **189,146**            |           | —                 |       | (324,652               | )          |
| Change in operating assets and liabilities                               |       |                   |           |                   |       |                   |       |
| Receivables                                                              | ** ** | **(2,237,102**         | **)**          | (728,293               | )          | 1,254,479              |       |
| Inventory                                                                | ** ** | **(11,028,327**        | **)**          | (324,436               | )          | (1,683,656             | )          |
| Investments in commodities contracts                                     | ** ** | **(1,440,270**         | **)**          | 647,629                |       | (644,219               | )          |
| Prepaid expenses                                                         | ** ** | **73,179**             |           | (90,468                | )          | (208,637               | )          |
| Accounts payable - trade                                                 | ** ** | **845,609**            |           | 375,930                |       | 294,461                |       |
| Accounts payable to related party                                        | ** ** | **284,834**            |           | 223,225                |       | 106,956                |       |
| Accrued liabilities                                                      | ** ** | **(76,507**            | **)**          | 342,603                |       | 112,117                |       |
|                                                                     |       |                   |           |                   |       |                   |       |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                               | ** ** | **36,699,052**         |           | 17,798,541             |       | 15,211,601             |       |
|                                                                     |       |                   |           |                   |       |                   |       |
| INVESTING  ACTIVITIES                                                    |       |                   |           |                   |       |                   |       |
| Insurance proceeds on property damaged by fire                           | ** ** | **—**             |           | —                 |       | 993,588                |       |
| Purchase of property and equipment                                       | ** ** | **(7,791,587**         | **)**          | (5,745,573             | )          | (2,626,519             | )          |
| Excise and sales taxes refunded on construction  contract                | ** ** | **—**             |           | 207,807                |       | 98,742                 |       |
|                                                                     |       |                   |           |                   |       |                   |       |
| NET CASH USED  FOR INVESTING ACTIVITIES                                  | ** ** | **(7,791,587**         | **)**          | (5,537,766             | )          | (1,534,189             | )          |
|                                                                     |       |                   |           |                   |       |                   |       |
| FINANCING  ACTIVITIES                                                    |       |                   |           |                   |       |                   |       |
| Advances on notes payable                                                | ** ** | **—**             |           | 13,900,000             |       | 9,700,000              |       |
| Principal payments on notes payable                                      | ** ** | **(2,608,752**         | **)**          | (11,588,827            | )          | (19,336,403            | )          |
| Distributions paid to members, $3,750, $2,700, and  $2,336 per unit      | ** ** | **(14,032,500**        | **)**          | (10,103,400            | )          | (8,742,023             | )          |
| Increase in excess of outstanding checks over bank  balance              | ** ** | **2,506,864**          |           | —                 |       | —                 |       |
| Financing costs paid                                                     | ** ** | **—**             |           | (44,784                | )          | (7,500                 | )          |
|                                                                     |       |                   |           |                   |       |                   |       |
| NET CASH USED  FOR FINANCING ACTIVITIES                                  | ** ** | **(14,134,388**        | **)**          | (7,837,011             | )          | (18,385,926            | )          |
|                                                                     |       |                   |           |                   |       |                   |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                    | ** ** | **14,773,076**         |           | 4,423,764              |       | (4,708,514             | )          |
|                                                                     |       |                   |           |                   |       |                   |       |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                        | ** ** | **5,195,242**          |           | 771,478                |       | 5,479,992              |       |
|                                                                     |       |                   |           |                   |       |                   |       |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                              | ** ** | **$**                  | **19,968,318** |                   | $          | 5,195,242              |       | $ | 771,478 |   |
|                                                                     | ** ** | ** **             |           |                   |       |                   |       |
| SUPPLEMENTAL DISCLOSURE  OF CASH FLOW INFORMATION                        |       |                   |           |                   |       |                   |       |
|                                                                     |       |                   |           |                   |       |                   |       |
| Cash paid for  interest                                                  | ** ** | **$**                  | **1,909,752**  |                   | 1,404,660  |                   | 1,176,009  |   |
|                                                                     |       |                   |           |                   |       |                   |       |
| SUPPLEMENTAL  DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES |       |                   |           |                   |       |                   |       |
|                                                                     |       |                   |           |                   |       |                   |       |
| Accounts payable  incurred for construction costs                        | ** ** | **$**                  | **—**     |                   | —     |                   | 158,964    |   |
|                                                                     |       |                   |           |                   |       |                   |       |
| Accrued Distributions  Payable                                           | ** ** | **$**                  | **3,742,000**  |                   | 2,806,500  |                   | 2,245,200  |   |

 

See Notes to FinancialStatements

F-6

----

# **GREAT PLAINS ETHANOL, LLCNOTES TO FINANCIAL STATEMENTS**

**NOTE 1 -   NATURE OFOPERATIONS**

*PrincipalBusiness Activity*

Great PlainsEthanol, LLC, a South Dakota limited liability company with its principal placeof business in Turner County, South Dakota, was organized to obtain equityownership and debt financing to construct, own and operate a 40 million gallonethanol plant. Great Plains Ethanol, LLC (the Company) began activities onDecember 20, 2000. On March 20, 2003, the ethanol plant commenced its principaloperations.  The Company sells ethanoland related products to customers located in North America.

**NOTE 2 -   SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

*Basisof Accounting*

The Company usesthe accrual basis of accounting in accordance with accounting principlesgenerally accepted in the United States of America.  This method recognizes revenues as earned andexpenses as incurred.

*Investmentin Commodities Contracts, Derivative Instruments and Hedging Activities*

SFAS No. 133 requires a company to evaluate its contracts to determinewhether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative maybe exempted from SFAS No. 133 as normal purchases or normal sales.  Normal purchases and normal sales are contractsthat provide for the purchase or sale of something other than a financialinstrument or derivative instrument that will be delivered in quantitiesexpected to be used or sold over a reasonable period in the normal course ofbusiness.  Contracts that meet therequirements of normal are documented as normal and exempted from theaccounting and reporting requirements of SFAS No. 133.

The Company enters into short-term cash, options and futures contractsas a means of securing corn and natural gas for the ethanol plant and managingexposure to changes in commodity prices. All of the Company’s derivatives aredesignated as non-hedge derivatives. Although the contracts are effectiveeconomic hedges of specified risks, they are not designated as and accounted foras hedging instruments.

As part of its trading activity, the Company uses futures and optionscontracts offered through regulated commodity exchanges to reduce risk and isexposed to risk of loss in the market value of inventories. To reduce thatrisk, the Company generally takes positions using cash and futures contractsand options.

Unrealized gainsand losses related to derivative contracts are included as a component of costof revenues in the accompanying financial statements. Inventories are recordedat net realizable value so that gains and losses on derivative contracts areoffset by gains and losses on inventories and reflected in current earnings.For the statement of cash flows, such contract transactions are classified asoperating activities.  We have recordedan increase to cost of revenues of $5,434,603, a decrease to cost of revenuesof $751,873, and an increase to cost of revenues of $3,941,781 related to ourderivative contracts for the years ended December 31, 2006, 2005 and 2004,respectively.  These derivative contractscan be found on the Balance Sheet under “Investment in commodities contracts”.

*RevenueRecognition*

Revenue from theproduction of ethanol and related products is recorded when title transfers tocustomers, net of allowances for estimated returns. Generally, ethanol isshipped FOB shipping point and related products are shipped FOBdestination.  Interest income isrecognized as earned.

(continued on next page)

F-7

----

# **GREAT PLAINS ETHANOL, LLCNOTES TO FINANCIAL STATEMENTS**

The Companyreceives payments for incentives to produce ethanol from the State of SouthDakota and from the United States Department of Agriculture. In accordance withthe terms of these arrangements, revenue is recorded based on production orsale of ethanol.

Management reviewsforward sales contracts of ethanol and related products and compares thecurrent cost of production with the contract prices. For contracts with a salesvalue that is less than the current cost of production, a loss is recorded as acomponent of cost of sales. For contracts with a sales value that exceeds thecurrent cost of production, the applicable revenue is recognized upon delivery(fulfillment of the contract).

*Cost ofRevenues*

The primarycomponents of cost of revenues from the production of ethanol and relatedco-product are corn expense, energy expense (natural gas and electricity), rawmaterials expense (chemicals and denaturant), shipping costs on sales, anddirect labor costs.

Shipping costsincurred by the Company are recorded as a component of cost of revenues.  Shipping costs in cost of revenues includeinbound freight charges, purchasing and receiving costs, inspection costs,warehousing costs, and internal transfer costs.

*Generaland Administrative Expenses*

The primary componentsof general and administrative expenses are management fee expense,administrative payroll expense, insurance expense, and professional fee expense(legal and audit).

*InventoryValuation*

Corn inventory(raw materials) is stated at market value, which approximates net realizablevalue, based on local market prices determined by grain terminals located inthe area of the Company. Ethanol and related products are stated at netrealizable value. Work-in-process, supplies, parts and chemical inventory are statedat the lower of cost or market on the first-in, first-out method.

In addition, futures and option contracts are marked to market throughcost of revenues.

*Cash andCash Equivalents*

The Companyconsiders all highly liquid debt instruments purchased with a maturity of threemonths or less to be cash equivalents. At times throughout the year, the Company’s cash and cash equivalentsbalances may exceed amounts insured by the Federal Deposit InsuranceCorporation.  The Company does notbelieve it is exposed to any significant credit risk on cash and equivalents.

*Receivablesand Credit Policies*

Trade receivablesare uncollateralized customer obligations due under normal trade termsrequiring payment within fifteen days from the invoice date. Unpaid trade receivableswith invoice dates over thirty days old bear interest at 1.5% per month.

Trade receivablesare stated at the amount billed to the customer.

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

(continued on next page)

F-8

----

# **GREAT PLAINS ETHANOL, LLCNOTES TO FINANCIAL STATEMENTS**

The carryingamount of trade receivables is reduced by a valuation allowance that reflectsmanagement’s best estimate of the amounts that will not be collected.Management reviews all trade receivable balances that exceed sixty days fromthe invoice date and based on an assessment of current creditworthiness,estimates the portion, if any, of the balance that will not be collected.

# *EnvironmentalLiabilities*

The Company’soperations are subject to environmental laws and regulations adopted by variousgovernmental authorities in the jurisdiction in which it operates. These lawsrequire the Company to investigate and remediate the effects of the release ordisposal of materials at its location. Accordingly, the Company has adoptedpolicies, practices and procedures in the areas of pollution control,occupational health and the production, handling, storage and use of hazardousmaterials to prevent material environmental or other damage, and to limit thefinancial liability, which could result from such events. Environmentalliabilities are recorded when the Company’s liability is probable and the costscan be reasonably estimated.

*FinancingCosts*

Financing costsare amortized over the term of the related debt using the interest method ofamortization.

*Use ofEstimates*

The preparation offinancial statements in conformity with accounting principles generally acceptedin the United States of America requires management to make estimates andassumptions that affect the reported amount of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and revenues and expenses during the reporting period. Actualresults could differ from those estimates.

*Propertyand Equipment*

Property andequipment is stated at cost. Significant additions and betterments arecapitalized, while expenditures for maintenance, repairs and minor renewals arecharged to operations when incurred. Depreciation on assets placed in serviceis computed using the straight-line method over estimated useful lives asfollows:

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

 

“SiteImprovements” consist of landscaping, additional fencing, and improvements tothe roads for entering and exiting the plant.

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

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

The Companyreviews its property and equipment for impairment whenever events indicate thatthe carrying 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.

(continued on next page)

F-9

----

# **GREAT PLAINS ETHANOL, LLCNOTES TO FINANCIAL STATEMENTS**

*Earnings per Capital Unit*

For purposes ofcalculating basic earnings per capital unit, capital units issued by theCompany are considered 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.  SinceDecember 31, 2003, diluted earnings per unit are equal to basic earnings perunit.

*IncomeTaxes*

The Company isorganized as a limited liability company under state law. Accordingly, theCompany’s earnings pass through to the members and are taxed at the memberlevel. No income tax provision has been included in these financial statements.Differences between financial statement basis of assets and tax basis of assetsis related to capitalization and amortization of organization and start-upcosts for tax purposes, whereas these costs are expensed for financialstatement purposes.  In addition,differences in lives and methods used in the depreciation of property andequipment result in differences between the financial statement and tax basisof property and equipment.  Differencesalso exist on the tax treatments of the unrealized gains and losses forcontracts and derivative instruments.

**NOTE 3 -   LONG-TERM DEBT**

The Companyoriginally entered into a credit agreement with AgCountry Farm Credit Serviceson June 19, 2002.  Several amendments to theoriginal credit agreement occurred throughout the past four years.  As of December 31, 2005 the Company had threedifferent loans to our credit agreement. The first loan is payable in 40 equal quarterly installments ofprincipal and interest at a variable rate of LIBOR plus 2.64%.  The second loan (referred to Term Note #2) isa $5.0 million variable rate note payable in quarterly principal payments of$156,250 plus accrued interest until maturity on October 1, 2013.  The third loan is an $8.0 million variablerate, revolving note at LIBOR plus 3.0%. This note requires monthly payments of interest based on the dailyaverage balance, and is subject to a 0.50% annual commitment fee assessedquarterly on any funds not borrowed.  OnOctober 1, 2012, the Company must pay on this note any principal balanceoutstanding that exceeds $4 million.  Asof December 31, 2006 no funds were advanced on this note.

The three existingloans and notes are secured by our real property, personal property, inventory,accounts receivable, general intangibles, improvements, contracts, and otherrights set forth under our original Credit Agreement dated June 19, 2002. Inaddition to standard covenants and conditions in the amended Credit Agreement,we are subject to the following covenants and/or conditions: 1) fixed chargecoverage ratio of not less than 1.15:1.00; 2) owner’s equity ratio of 42% onDecember 31, 2005, 44% on December 31, 2006, 46% on December 31, 2007, 48% onDecember 31, 2008, and 50% on December 31, 2009 through maturity; 3) capitalexpenditure limitation of $750,000 annually except as it relates to the newproduction and process technology; 4) current ratio coverage of 1.2:1; 5)minimum working capital of $5 million including the unadvanced portion of the$8.0 million revolving note; and 6) cash distributions to members not to exceed75% of net income unless owner’s equity ratio exceeds 60% and working capitalexceeds $6 million, at which time distributions to members can be made up to100% of net income.

On March 1, 2006, we and AgCountry entered into anInterest Rate Conversion Agreement to convert the existing $26.5 millionvariable rate, revolving note into two different segments and rates, a $16.5million segment (referred to as Term Note #1) and a $10.0 million segment(referred to Term Note #3). Beginning on March 1, 2006, the $10.0 millionsegment is set at a fixed rate of 8.55% until March 1, 2011, plus is subject toan amortization of 7.6 years and a penalty for any prepayment during the firstyear. In contrast, the $16.5 million segment is set at a variable interest rateof LIBOR plus 2.64% (currently 7.96%), adjusted monthly, though beginning onJune 1, 2006 and annually, the 2.64% margin is subject to change at thediscretion of AgCountry. The $16.5 million segment is subject to anamortization of 7.6 years and prepayment is without penalty. Other

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# **GREAT PLAINS ETHANOL, LLCNOTES TO FINANCIAL STATEMENTS**

than these new terms, the new segments are subjectto the same terms of the second amended Credit Agreement dated July 12, 2005 onwhich the original $26.5 million note is based.

The balance of thenotes payable as of December 31, 2006 and 2005 is as follows:

|                                                  | ** ** | **2006**       | ** **     | **2005**   | ** ** |
|--------------------------------------------------|------------|----------------|----------------|------------|------------|
| Notes payable to  AgCountry Farm Credit Services |       |           |           |       |       |
| Term Note #1 (refinanced  in current year)       | ** ** | **$**          | **8,773,769**  |       | $          | 19,777,897 |   |
| Term Note #2                                     | ** ** | **4,218,750**  |           | 4,843,750  |       |
| Term Note #3                                     | ** ** | **9,020,376**  |           | —     |       |
| Revolving Term Note                              | ** ** | **—**     |           | —     |       |
|                                             |       |           |           |       |       |
|                                             | ** ** | **22,012,895** |           | 24,621,647 |       |
| Less current  portion                            | ** ** | **2,783,032**  |           | 2,994,098  |       |
|                                             |       |           |           |       |       |
|                                             | ** ** | **$**          | **19,229,863** |       | $          | 21,627,548 |   |

 

The Company had$8,000,000 available to borrow on the revolving term note as of December 31,2006.

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

| Year Ending December 31, | ** ** | **Amount** | ** ** |
|-----------------------------------------|------------|------------|------------|
| 2007                                    |       | $          | 2,783,032  |   |
| 2008                                    |       | 2,971,151  |       |
| 2009                                    |       | 3,170,971  |       |
| 2010                                    |       | 3,387,833  |       |
| 2011                                    |       | 3,623,191  |       |
|                                         |            |            |            |  |

 

**NOTE 4 -   FAIR VALUE OF FINANACIAL INSTRUMENTS**

The Company believes thecarrying amount of cash and cash equivalents approximates fair value due to theshort maturity of these instruments.

As the followingtable presents, the carrying amount of long-term note payable obligationsexceeds the fair value by approximately $13,764 at December 31, 2006.

|                                            | ** ** | **Carrying Value** | ** **    | **Fair Value** | ** ** |
|--------------------------------------------|------------|-------------------------|---------------|---------------------|------------|
| Long-term notes  payable December 31, 2006 | ** ** | **$**                   | **9,020,376** | ** **          | **$**      | **9,006,612** | ** ** |
|                                            |            |                         |               |                     |            |  |  |

 

The Companybelieves the carrying amount of short-term notes payable approximates theirvalue due to the short maturity of these instruments.

The Companybelieves the fair value of agreements for the purchase of utilitiesapproximates the carrying value based on the variable terms of the agreementsthat follow local market rates.

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F-11

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# **GREAT PLAINS ETHANOL, LLCNOTES TO FINANCIAL STATEMENTS**

**NOTE 5 -   MEMBER’S EQUITY**

As specified inthe Company’s Operating Agreement, the Company has four classes of membershipcapital units authorized: Class A, B, C and D.

For each Class ACapital Unit purchased, the member is obligated to deliver 2,500 bushels of cornto the Company on an annual basis. For all Class A Members, this equates to3,782,500 bushels of corn delivered annually. Corn is purchased from the Class A Members at a price based on theaverage market price from surrounding local markets.  Since 2003 the Company purchased on average19% of its total bushels required for production under the obligation relatedto Class A Capital units.

Voting rights areone vote per member for Class A Capital Units and one vote per unit for ClassB, Class C and Class D Capital Units.

Income and lossesare allocated to members based on their respective percentage of membershipinterest. Distributions to members are made on not less than an annual basisand not less than 20% of net cash from operations, as defined in the OperatingAgreement; provided if net cash from operations is in excess of $500,000 andthat such distribution does not constitute or cause a default under any of theCompany’s loan documents or credit facilities.

Transfer ordisposition of Capital Units is subject to certain restrictions, includingapproval by the Board of Managers.

**NOTE 6 -   INCOME TAXES**

The differences betweenfinancial statement basis and tax basis of assets as of December 31, 2006 and2005 are as follows:

|                                                       | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|-------------------------------------------------------|------------|-------------|------------|-------------|------------|
|                                                  |       |        |       |        |       |
| Financial  statement basis of assets                  |       | $           | 97,449,445 |        | $          | 63,368,068 |   |
| Plus  organization and start-up costs capitalized-net |       | 264,123     |       | 528,246     |       |
| Depreciation                                          |       | (23,425,456 | )          | (16,569,164 | )          |
| Hedging  Unrealized Gain/Loss                         |       | (8,243,487  | )          | 177,419     |       |
|                                                  |       |        |       |        |       |
| Tax basis of assets                                   |       | $           | 66,044,625 |        | $          | 47,504,568 |   |

 

There were nomaterial differences between the financial statement basis and tax basis of theCompany’s liabilities.

**NOTE 7 -   COMMITMENTS,CONTINGENCIES, AND AGREEMENTS**

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

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

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F-12

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# **GREAT PLAINS ETHANOL, LLCNOTES TO FINANCIAL STATEMENTS**

Agreementswith the Managing Member and certain of its affiliates include:

ManagementServices – Pursuant to the terms set forth in theCompany’s Operating Agreement, the Managing Member provides day-to-daymanagement of the plant. The Company pays a management annual base fee, plus 4%of the net income of the Company as defined in the Company’s OperatingAgreement. The base fee is adjusted annually for inflation. This agreementcontinues unless terminated by a vote of Managers as provided in the OperatingAgreement. For the years ended December 31, 2006, 2005 and 2004, fees relatingto the management services and bonus arrangement were $2,435,664, $957,461, and$939,271, respectively.

InApril, 2005 the Company also entered into a new technology licensing agreementthat allows the Company the right to use certain technology and patents owned,developed, or obtained by the Managing Member. The Company pays a technology fee of .3% of gross sales.  The term of this agreement is for so long asthe term of the management agreement discussed above.  For the years ended December 31, 2006 and2005, fees relating to the technology agreement were $403,313 and $200,307respectively.

OnMay 24, 2006 Great Plains Ethanol Boardof Managers passed a resolution to expand Great Plains Ethanol LLC from itscurrent capacity of 45 million gallons per year production rate to an expandedcapacity of 100 million gallons per year. An agreement was signed with an affiliate of our Managing Member to oversee the construction process.  Theestimated expansion project cost totals $80 million.  On October 17, 2006 site work had begun and aportion of the equipment costs were locked in. Expansion costs that were recorded in 2006 totaled $7,532,027 and can befound under Construction in Progress. The $7.5 million were paid from the Company’s operating cash flowleaving an outstanding balance of $72.5 million.  The Company intends to receive financing for$60 million and will inject $20 million in cash.  Estimated completion date for the expansionis early 2008.

MarketingAgreements – The Company entered into agreements withcompanies affiliated with the Managing Member to market all of its ethanol anddistiller grains (DDGS). Fees are based on a per gallon basis and are payablefor administration services and ethanol marketing. Fees of 3% of gross sales,with a minimum annual fee of $200,000, are payable for marketing DDGS. Theethanol agreement continues for the length of the original primary debtfinancing for the plant construction, while the DDGS agreement has a term of 7years or the length of the original primary debt for plant construction,whichever is longer. Both agreements are renewable for 3-year periods after theinitial term of the agreements. For the years ended December 31, 2006, 2005 and2004, fees relating to the marketing agreements were $628,078, $637,466, and$668,663 respectively.

Corn Price Risk Management Agreement –The Company entered into an agreement with Broin Management, LLC for the hedgeand price risk management related to corn and natural gas requirements of theplant. The fee for this service is a fixed fee billed quarterly. The agreementhas a term of 1 year and commenced upon the start of operations. The agreementis renewable for successive 1-year terms unless terminated 30 days prior toexpiration. For the years ended December 31, 2006, 2005 and 2004, fees relatingto this agreement were $49,483, $50,000, and $52,000 respectively.

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F-13

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# **GREAT PLAINS ETHANOL, LLCNOTES TO FINANCIAL STATEMENTS**

Minimum payments related to these agreements are asfollows:

| Year Ending December 31, | ** ** | **Amount** | ** ** |
|-----------------------------------------|------------|------------|------------|
|                                    |       |       |       |
| 2007                                    |       | $          | 1,314,749  |   |
| 2008                                    |       | 1,011,748  |       |
| 2009                                    |       | 1,028,018  |       |
| 2010                                    |       | 1,044,938  |       |
| 2011                                    |       | 1,062,536  |       |
| 2012-2013                               |       | 1,080,837  |       |
|                                    |       |       |       |
|                                    |       | $          | 6,542,825  |   |

 

The Companyentered into agreements for the purchase of natural gas and electricity.

Natural Gas –The agreement provide the Company with natural gas for a 15 year periodbeginning with the date the plant begins operations. During the initial 10years of the agreement, the Company has a minimum obligation for delivery ofnatural gas at a rate that covers the cost of construction of the pipeline. TheCompany is required to pay a monthly Distribution Delivery Fee based on theminimum obligation.  This fee is at afixed rate for the 15 year period.  TheCompany is also required to hold an irrevocable standby letter of credit orsimilar instrument to guarantee payment of the obligation. The letter of creditwill be reduced each year by an amount equal to amortization of a $1,600,000loan at 8.5%. Minimum payments, regardless of whether the plant takes deliveryof the natural gas, are as follows:

| Year Ending December 31, | ** ** | **Amount** | ** ** |
|-----------------------------------------|------------|------------|------------|
| 2007                                    |       | $          | 352,600    |   |
| 2008                                    |       | 352,600    |       |
| 2009                                    |       | 352,600    |       |
| 2010                                    |       | 352,600    |       |
| 2011                                    |       | 352,600    |       |
| 2012-2013                               |       | 411,300    |       |
|                                    |       |       |       |
| Total                                   |       | 2,174,300  |       |
| Less amount representing interest       |       | 486,612    |       |
| Total at present value                  |       | $          | 1,687,688  |   |

 

Electricity – The agreement providesthe Company with electric service for a term of 5 years. The agreement setsrates for energy usage based on an agreed upon rate structure and requires aminimum purchase of electricity each month during the initial term of theagreement. Minimum annual payments during the initial term of the electricityagreement are as follows:

| Year Ending December 31, | ** ** | **Amount** | ** ** |
|-----------------------------------------|------------|------------|------------|
| 2007                                    |       | $          | 357,000    |   |
| 2008                                    |       | 214,000    |       |
|                                    |       | $          | 571,000    |   |

 

Letter of Credit –During the year ended December 31, 2006, the Company renewed a $1,250,000letter of credit agreement with Home Federal Bank at a reduced amount of$960,000. The letter of

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# **GREAT PLAINS ETHANOL, LLCNOTES TO FINANCIAL STATEMENTS**

credit agreement isrequired by Home Federal Bank in connection with a letter of credit agreemententered into between Home Federal Bank and the supplier of natural gas to theCompany’s plant. The letter of credit is security for the Company’s natural gasdistribution agreement as it relates to construction of the gas pipeline to theplant. Under the letter of credit, the Company entered into a promissory notewith Home Federal Bank to borrow up to $960,000. In the event of any amountdrawn on the letter of credit by the supplier of natural gas, an equal amountwill be drawn on the letter of credit by Home Federal, which will be recordedas a liability of the Company. The interest rate on the promissory note is theprime rate as published by the Wall Street Journal plus 2%. The maturity dateon the letter of credit is March 1, 2007. The letter of credit is secured by alien on the Company’s real and personal property. As of December 31, 2006,there was no outstanding balance on the letter of credit.

To obtain the letter of credit, Home Federal Bankrequired personal guarantees totaling $960,000 from certain members or relatedparties of the Company. The Company has agreed to pay each party an annualguarantee fee of 2% of the amount guaranteed. The Company paid $19,200,$22,500, and $25,000 for the guarantee fee for the years ended December 31,2006, 2005, and 2004, respectively.

The Companyreceives incentives related to the production of ethanol as follows:

Incentives – The Company receives anincentive payment from the United States Department of Agriculture (USDA) forthe use of corn to produce ethanol. In accordance with the terms of thisarrangement, revenue is recorded based on incremental production of ethanolcompared to the prior year. The USDA has set the annual maximum not to exceed$5,000,000 for each eligible producer. The incentive is calculated on the USDAfiscal year of October 1 to September 30. Revenue of $37,660, $192,279, and$6,355,819 has been earned for the USDA program years ended September 30, 2006,2005, and 2004, respectively.  Incentiverevenue of $12,245, $46,574, and $4,893,450 was recorded for the years endedDecember 31, 2006, 2005, and 2004, respectively.  The USDA incentive payment program had endedeffective June 30, 2006.

The Company also receives an incentive payment fromthe State of South Dakota to produce ethanol. In accordance with the terms ofthis arrangement, revenue is recorded based on ethanol sold. The State of SouthDakota has set a maximum of up to $1,000,000 per year for this program perqualifying producer. Incentive revenue of $777,416, $701,886, and $666,667 wasrecorded for the years ended December 31, 2006, 2005, and 2004, respectively.

**NOTE 8 -   RELATED PARTIES**

Certain owners ofClass 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 4 and Note 7.

**NOTE 9 -   RETIREMENT PLAN**

On April 1, 2004, theCompany set up a 401(k) profit sharing plan for substantially all employees whowork more than 1,000 hours per year. Employees can make voluntary contributions up to federally designatedlimits.  The Company matches 50% of theemployee contributions up to a maximum of 2% of gross wages.  Employee voluntary contributions up tofederally designated limits are always fully vested.  Employer contributions to eligible employeesare vested on the following schedule: Less than 1 year = 0%, 1 year = 10%, 2 years = 20%, 3 years = 40%, 4years = 60%, 5 years = 80%, and 6 years = 100%. The Company’s 401(k) expense for the years ended December 31, 2006,2005, and 2004 was $23,122, $15,249, and $325, respectively.

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**NOTE 10 – QUARTERLY FINANCIALDATA (UNAUDITED)**

Summary quarterly resultsare as follows:
| ** **                      | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|---------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                      | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
|                            |       |        |       |        |       |        |       |        |       |
| Year Ended  December 31, 2006   |       |        |       |        |       |        |       |        |       |
|                            |       |        |       |        |       |        |       |        |       |
| Total Revenues                  |       | $           | 25,275,904 |        | $          | 32,255,377  |       | $           | 34,741,296 |   | $ | 31,119,324 |   |
| Gross Profit  (loss)            |       | 5,451,680   |       | 15,562,775  |       | 17,705,894  |       | 15,995,584  |       |
| Operating Income  (loss)        |       | 4,345,263   |       | 13,956,730  |       | 16,009,738  |       | 14,359,963  |       |
| Net Income  (loss)              |       | 3,926,633   |       | 13,563,332  |       | 15,736,526  |       | 13,935,337  |       |
| Basic Earnings  (loss) per unit |       | 1,049       |       | 3,625       |       | 4,205       |       | 3,724       |       |
|                            |       |        |       |        |       |        |       |        |       |
| Year Ended  December 31, 2005   |       |        |       |        |       |        |       |        |       |
|                            |       |        |       |        |       |        |       |        |       |
| Total Revenues                  |       | $           | 22,130,587 |        | $          | 19,427,866  |       | $           | 20,209,331 |   | $ | 22,877,735 |   |
| Gross Profit  (loss)            |       | 6,360,011   |       | 2,843,659   |       | 2,843,223   |       | 7,164,101   |       |
| Operating Income  (loss)        |       | 5,516,484   |       | 2,112,985   |       | 1,887,610   |       | 6,163,527   |       |
| Net Income  (loss)              |       | 5,227,395   |       | 1,807,441   |       | 1,526,225   |       | 5,769,336   |       |
| Basic Earnings  (loss) per unit |       | 1,397       |       | 483         |       | 408         |       | 1,542       |       |
|                            |       |        |       |        |       |        |       |        |       |
| Year Ended  December 31, 2004   |       |        |       |        |       |        |       |        |       |
|                            |       |        |       |        |       |        |       |        |       |
| Total Revenues                  |       | $           | 22,820,873 |        | $          | 20,847,391  |       | $           | 23,068,520 |   | $ | 22,183,568 |   |
| Gross Profit  (loss)            |       | 9,039,155   |       | (1,647,101  | )          | 2,961,247   |       | 6,978,640   |       |
| Operating Income  (loss)        |       | 8,179,617   |       | (2,079,003  | )          | 2,335,206   |       | 6,136,425   |       |
| Net Income  (loss)              |       | 7,873,627   |       | (2,349,675  | )          | 2,365,888   |       | 5,848,775   |       |
| Basic Earnings  (loss) per unit |       | 2,104       |       | (628        | )          | 632         |       | 1,563       |       |

 

The above quarterlyfinancial data is unaudited, but in the opinion of management, all adjustmentsnecessary for a fair presentation of the selected data for these interimperiods presented have been included.

F-16

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