** **

**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, 2007**                                                                |
|                                                                                                                 |
| **Or**                                                                                                               |
|                                                                                                                 |
| o  **Transition Report Pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934** |
|                                                                                                                 |
| **For the transition period from**                                                                                   |
|                                                                                                                 |
| **Commission file number: 0-49779**                                                                                  |
|                                                                                                                      |                 |        |

 

**Great Plains Ethanol, LLC**

(Exact name of registrant as specified in the charter)

 

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

 

**27716 462ndAvenueChancellor, South Dakota57015**

(Address of Principal Executive Offices) (ZipCode)

 

**(605)647-0040**

(Registrant’s Telephone Number, IncludingArea Code)

 

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

**None**

 

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

**Class ACapital Units**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

o  Yes    x  No

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

o  Yes    x  No

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.   x  Yes    o  No

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§229.405 of this chapter) is not contained in this form, and no disclosurewill be contained, to the best of registrant’s knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.  x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 
| o  Large Accelerated Filer | o  Accelerated Filer | o  Non-Accelerated Filer             | x  Smaller Reporting Company |
|--------------------------------------|--------------------------------|------------------------------------------------|----------------------------------------|
|                                 |                           | (Do not check if a  smaller reporting company) |                                   |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct).

o  Yes    x  No

 

The aggregate marketvalue of the registrant’s capital units held by non-affiliates at June 30,2007 was approximately $74,533,000. The aggregate market value was computed byreference to the last sales price during the registrant’s most recentlycompleted second fiscal quarter.

 

As of March 1, 2008,there were 1,513 Class A, 200 Class B and 2,029 Class C capitalunits of the registrant outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Part IIIof Form 10-K - Portions of the Proxy/Information Statement for the 2008Annual Meeting of Members.

 

 

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**CAUTIONARYSTATEMENT REGARDINGFORWARD-LOOKING INFORMATION**

 

This Annual Report on Form 10-K and other reports issued by GreatPlains Ethanol, LLC (including reports filed with the Securities and ExchangeCommission (the “SEC” or “Commission”), contain “forward-looking statements”that deal with future results, expectations, plans and performance. Forward-looking statements may include statements which use words such as “believe,”“expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,”“should,” “could,” “may,” “future,” “potential,” or the negatives of thesewords, and all similar expressions. These forward-looking statements are madebased on our expectations and beliefs concerning future events affecting us andare subject to uncertainties and factors relating to our operations andbusiness environment, all of which are difficult to predict and many of whichare beyond our control, that could cause our actual results to differmaterially from those matters expressed in or implied by these forward-lookingstatements. We do not undertake any responsibility to release publicly anyrevisions to these forward-looking statements to take into account events orcircumstances that occur after the date of this report. Additionally, we do notundertake any responsibility to update you on the occurrence of anyunanticipated events which may cause actual results to differ from thoseexpressed or implied by the forward-looking statements contained in thisreport.  Important factors that couldcause actual results to differ materially from our expectations are disclosedunder “Risk Factors” and elsewhere in this report. As stated elsewhere in thisreport such factors include, among others:

 

·                                          Excess growth,production capacity and supply in the ethanol industry;

 

·                                          The pricevolatility and uncertainty of raw materials used in the production process,particularly with corn and natural gas;

 

·                                          Changes in theweather or general economic conditions impacting the availability and price ofcommodities, particularly corn and natural gas;

 

·                                          The results ofour risk management or hedging strategies;

 

·                                          Competitionfrom alternative fuels and alternative fuel additives;

 

·                                          Fluctuations inU.S. oil consumption and petroleum prices;

 

·                                          Changes incapital improvements or development plans;

 

·                                          Theavailability of additional capital to support capital improvements anddevelopment;

 

·                                          Theavailability and adequacy of our cash flow to meet our requirements;

 

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·                                          Changes ordevelopments in laws, regulations or taxes in the ethanol, agricultural orenergy industries;

 

·                                          Damage to orloss of our plant due to casualty, weather, mechanical failure or any extendedor extraordinary maintenance or inspection that may be required;

 

·                                          An increase inenvironmental regulation and scrutiny from federal and state governments; and

 

·                                          Other factorsdiscussed below under the item entitled “Risk Factors.”

 

We are not under any duty to update the forward-looking statementscontained in this report, nor do we guarantee future results or performance orwhat future business conditions will be like. We caution you not to putundue reliance on any forward-looking statements, which speak only as of thedate of this report.

 

**PART I**

 

**Item 1. Description of Business.**

 

**Overview**

 

Great Plains Ethanol, LLC (also referred to as “we,” “our,” or “us”) isa South Dakota limited liability company that owns and operates an ethanolplant (the “plant” or “our 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 our plant. Our members areprimarily agricultural producers who principally reside in South Dakota.

 

Our revenues are derived from the sale and distribution of ethanol anddistillers grains to customers located primarily in the U.S.  Corn for ourproduction process is supplied primarily from local agricultural producers andfrom purchases on the open market. After processing the corn, we sell ourethanol to POETTM Ethanol Products, LLC (f/k/a Ethanol Products, LLC), whichsubsequently markets and sells the ethanol to gasoline blenders and refinerieslocated throughout the continental U.S.  All of our distillers grains aresold through our marketing agent, POETTM Nutrition, Inc. (f/k/a DakotaCommodities), which markets and sells the product to livestock feeders locatedprimarily in the continental U.S.  Theday-to-day operations of the plant are managed by POETTM Plant Management, LLC,of Sioux Falls, South Dakota.

 

 Our operating results arelargely driven by the prices at which we sell ethanol and distillers grains andthe costs related to their production.  Historically, the price of ethanoltends to fluctuate in the same direction as the price of unleaded gasoline andother petroleum products, although in 2005 the prices of ethanol and gasolinebegan a divergence with ethanol selling for less than gasoline at the wholesalelevel.  The greatest effect on the priceof ethanol is the supply and demand for ethanol in the markets. Our two largestcosts of production are corn and natural gas.

 

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**GeneralDevelopments of Business**

 

Wewere organized in 2000 as a South Dakota limited liability company. We aretaxed as a partnership for federal income tax purposes, meaning that all of ourincome is subject to single-level, pass through tax treatment at the memberlevel rather than at the company level.

 

We completed construction of our plant in March 2003, andcommenced full operations in April 2003. We originally built our plant with an annual name-plate productioncapacity of 40 million gallons of ethanol. Since that time, we have madesignificant capital improvements to our plant. In August 2005, wecompleted construction for and incorporated BPXTM technology into the productionprocess. In addition to reducing energy costs, BPXTM releases additional starch content inthe ethanol conversion process, increases the protein content and quality ofour products and decreases emissions. Incorporating the BPXTM technology alsoincreased our annual name-plate production capacity to 45 million gallons ofethanol.  In August 2006, wecommenced construction on our plant’s expansion which increased our annualname-plate capacity to 100 million gallons of ethanol.  Construction on the expansion was completedthe week of March 17, 2008. In addition, we commenced construction in November 2007of a solid waste fuel boiler, which will be produce enough steam to supply upto 55% of the expanded plant’s energy requirements. The boiler is scheduled tobe completed in early fall 2008.  Thedesign and construction of the BPXTM, expansion and solid waste fuel boilerprojects was and is being completed by POETTM Design and Construction, Inc.(f/k/a Broin and Associates, Inc.), of Sioux Falls, South Dakota, ourplant’s original design-builder.

 

**Principal Products**

 

We produce two main products at our plant: fuel grade ethanol anddistillers grains.

 

***Ethanol***

 

Ethanol is ethyl alcohol. Ethanol is produced from starch or sugar-based feed products such ascorn, potatoes, wheat, and sorghum, as well as from agricultural waste productsincluding sugar, rice straw, cheese whey, beverage wastes and forestry andpaper wastes. Historically, corn has been the primary source of producingethanol because of its relatively low cost, wide availability and ability toproduce large quantities of carbohydrates that convert into glucose more easilythan other products.  Today, approximately 90% of the ethanol produced inthe U.S. is produced from corn.

 

Ethanol is used for three primary purposes: 1) as an oxygenated fueladditive; 2) as an octane enhancer in fuels; and 3) as a non-petroleum basedgas substitute. Approximately 95% of all ethanol is used for blending withunleaded gasoline and other fuel products. Ethanol has been utilized as a fueladditive since the late 1970s when its value as a product extender for gasolinewas discovered during the OPEC oil embargo crisis.  In the 1980s, ethanolbegan to see widespread use as an octane enhancer, replacing otherenvironmentally harmful components in gasoline such as lead and benzene. Ethanol’s use as an oxygenate continued to increase with the passage of theClean Air Act Amendments of 1990, which required the addition of oxygenates togasoline in the nation’s most polluted areas.  Because ethanol containsapproximately 35% oxygen, its combination with gasoline increases thepercentage of oxygen in gasoline.  As a result, the gasoline burns cleanerand releases less carbon monoxide and other exhaust emissions into theatmosphere.

 

For our fiscal years ended December 31, 2007, 2006 and 2005, ourrevenues from sales of ethanol were approximately 83.7%, 88.0% and 83.3% oftotal revenues, respectively.

 

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***Distillers Grains***

 

A principal co-product of the ethanol production process is distillersgrains.  Distillers grains are a high protein, high energy feed supplementmarketed primarily to the dairy, beef, sheep, swine, and poultryindustries. It is a popular animal feed supplement, with millions of tonsproduced in North America annually.  Most of the distillers grainsproduced in the U.S. are sold for use in animal feeds within the continentalU.S., but an increasing percentage is exported to countries like Mexico andthose located on the Pacific Rim.

 

Dry mill ethanol processing generally produces three forms ofdistillers 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.

 

Forour fiscal years ended December 31, 2007, 2006 and 2005, our revenues fromsales of distillers grains were approximately 15.6%, 11.4% and 15.8% of totalrevenues, respectively.

 

**Marketing and Distribution**

 

***Ethanol***

 

Allof our ethanol is sold to POETTM Ethanol Products, LLC (f/k/a Ethanol Products,LLC), the terms of which are governed by an agreement.  POETTM EthanolProducts, in turn, markets and sells the ethanol to major, multi-national oilcompanies with blending and refinery facilities located throughout thecontinental U.S. The price that we receive from the sale to POETTM EthanolProducts is based upon various contracts between POETTM Ethanol Products and itscustomers, and is fixed upon the transfer of title to POETTM Ethanol Products.

 

We ship our ethanol using rail cars operated by POETTM Ethanol Productsor trucks supplied by companies with which POETTM Ethanol Products contracts.Transfer of title and risk of loss shifts to POETTM Ethanol Products upon theloading of the ethanol onto railcars and trucks at our plant site. We areserved by rail facilities and connections to the Burlington Northern Santa Ferailroad system, which facilitate the transportation of approximately 90% ofour ethanol. We are also served by multiple South Dakota state highways andInterstate Highways 29 and 90, which provide transportation links in alldirections.

 

Our agreement with POETTM Ethanol Products is in effect until October 2013,and automatically renews for three-year terms unless terminated by either partyupon three months advanced notice. POETTM Ethanol Products charges us amarketing and service fee based upon each gallon of ethanol sold. Shippingcosts associated with the transportation of ethanol are borne by us and areincluded in gross revenues and cost of revenues. POETTM Ethanol Products alsocharges us a fee for each gallon of ethanol to which renewable identificationnumbers, or RINS, are assigned, which is necessary for complying with thefederal renewable fuels standard and the U.S. Environmental Protection Agency’senforcement of such standard.  In theevent that our relationship with POETTM Ethanol Products is interrupted for anyreason, we believe that another entity to market the ethanol could 

 

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belocated. Any interruption, however, could temporarily disrupt the sale ofethanol and adversely affect our business and operations.

 

***Distillers Grains***

 

All of our distillers grains are sold through POETTM Nutrition, Inc.(f/k/a Dakota Gold Marketing), the terms of which are governed by a marketingagreement. We produce three variations of distillers grains that aremarketed through POETTM Nutrition: 1) Dakota GoldTM; 2) DDGS; and 3) distillerswet grains. Dakota GoldTM is DDGS which contains a certification indicating thatDDGS meet certain standards and specifications. The production and sale ofdistillers wet grains varies depending upon the general operations of the plantand actual market conditions for each product.

 

POETTM Nutrition markets our distillers grains to local, regional,national and international markets. We sell Dakota GoldTM and DDGSprimarily to markets in the western and southwestern U.S. and to Mexico, whileshipments of modified distillers wet grains and distillers wet grains are soldto local and regional markets. Shipments of Dakota GoldTM and DDGS aretransported by rail because of a longer shelf life, whereas shipments ofdistillers wet grains are transported by truck. We also contract withPOETTM Nutrition for the use of railcars in transporting Dakota GoldTM and DDGS,paying POETTM Nutrition a flat fee per railcar in connection with each shipmentin addition to a railcar mileage fee depending upon the destination. Allshipping costs associated with the transportation of distillers grains areborne by us and are included in gross revenues and cost of revenues. Althoughwe rely on POETTM Nutrition to market 100% of our distillers grains, POETTMNutrition is not dependent upon one or a limited number of customers.

 

Our marketing agreement with POETTM Nutrition is in effect until October 2013,automatically renewing for three-year terms unless discontinued by either partyupon at least three months advanced written notice prior to the end of theterm. We pay POETTM Nutrition a marketing fee based on gross monthly sales ofdistillers grains. We are responsible for all accounts receivable losses, andPOETTM Nutrition is responsible for invoicing all loads and receiving paymentsfrom the customers, the payment of which is remitted to us.

 

**Risk Management**

 

Due to fluctuations in the price of corn and natural gas, we use riskmanagement or hedging strategies to minimize our commodity risk.  Hedgingis a means of protecting the price that we will buy corn and natural gas in thefuture.  All of the commodity risk management services relating to cornand natural gas are provided by POETTM Plant Management under a risk managementagreement.  Under the agreement, we payPOETTM Plant Management an annual flat fee.  This agreement is in effectuntil January 2012, renewing automatically for additional five-year termsunless discontinued by either party upon written notice prior to the expirationof the term.

 

**Dependence upon a Single or Few Customers**

 

We, as discussed above, are substantially dependent upon POETTM EthanolProducts for the purchase, marketing and distribution of ethanol. POETTM EthanolProducts purchases 100% of our ethanol, all of which is marketed and distributedto its customers.

 

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**Financial Information about Geographic Areas**

 

Allof our operations are domiciled in the U.S.  All of the products sold toour customers for fiscal years 2007, 2006 and 2005 were produced in the U.S.,and all of our long-lived assets are domiciled in the U.S. In addition, 97.4%of revenues in 2007 were derived from sales to customers in the U.S. and 2.6%of sales were derived from sales outside of the U.S.

 

**Sources and Availability of Raw Materials**

 

***Corn***

 

Our production process requires an ample supply of corn. To operate ata name-plate capacity of 45 million gallons annually, we require approximately14 million bushels of corn annually. Following expansion to 100 million gallonsannually, our corn requirements will increase to approximately 37 millionbushels of corn annually. Bushels are supplied by our Class A members on atrimester basis and by purchasing from local corn producers and storageelevators.

 

In 2007, Class A members supplied and delivered approximately15.8% of our corn requirements based on a corn delivery obligation. Class Amembers receive payment for their delivery of corn based on an average ofmarket prices at predetermined elevators, or at individually contracted prices,plus a freight allowance. The remaining balance of our corn requirements issupplied from purchases on the open market, based upon individually contractedprices. Our Class A members may apply on an annual basis to bereleased from the corn delivery obligation if any of the following conditionsapply: 1) the member historically has not produced enough corn to meet therequirement; 2) the member does not produce enough corn to meet the requirementbecause the member’s corn is fed to livestock; or 3) the member produces andstores the majority of the member’s corn greater than 40 miles from our plant.As of December 31, 2007, approximately 29.0% of our Class A memberswere granted an exemption from the corn delivery obligation.

 

Historically, our location in Turner County, South Dakota, has providedan ample supply of corn to meet and exceed our plant’s name-plate productioncapacity. We also believe that our location will continue to provide an amplesupply of corn to meet the new corn requirement following expansion. However,there may be increased pressure on corn supply in the local area and possiblyprice because a new 100 million gallon plant, US Bio Marion, was builtapproximately 15 miles from our plant, and started operating in February of2008.

 

#### ***Natural Gas***

####  

Our production process requires a significant andconstant amount of natural gas. Natural gas is necessary to power our boilersthat generate steam for the cooking, evaporation, and distillation processes,as well as the drying of distillers grains. We contract with NorthWesternCorporation of Sioux Falls, South Dakota, to supply and distribute natural gasto our plant. Our agreement with NorthWestern is in effect until 2018. Theagreement requires that we use a minimum amount of natural gas on an annualbasis to cover NorthWestern’s previously incurred costs of constructing apipeline 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 which was originally issued in 2003 and has been renewed annuallyever since. Since operations were commenced, we have used the minimum amount ofnatural gas required by the agreement, and we have not experienced anyinterruption in supply.

 

We also have a natural gas reservation securityagreement with Northern Natural Gas of Omaha, Nebraska. This agreement allowsus to purchase natural gas from Northern Natural Gas in the event that 

 

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weneed additional natural gas to supply to our plant after expansion. Theagreement is in effect until 2011. In the event that we do not use or displacethe natural gas from the distributor, Northern Natural Gas is allowed to drawon an irrevocable standby letter of credit.

 

***Water***

 

Our production process requires a significant amount of water. Watersupply and water quality are important requirements to produce ethanol. All ofour water requirements are currently supplied from five existing wells. Sinceoperations were commenced, we have not experienced any interruption orshortages in the supply of water as all our requirements have been met.

 

***Electricity***

 

Our production process requires a significant and constant amount ofelectricity. Electricity is necessary for lighting purposes and to powercertain machinery and equipment. We contract with Southeastern ElectricCooperative of Marion, South Dakota, to provide all of our electric powerrequirements. The agreement is in effect indefinitely unless we breach theagreement, at which time Southeastern may terminate it. The agreement setsrates based upon a rate structure and requires a minimum purchase ofelectricity annually. Since operations were commenced, we have not experiencedany shortages in the supply of electricity as all our requirements have beenmet.

 

***Alternative***

 

We are currently constructing a solid waste fuel boiler system whichwill be used to provide an alternative energy source for the plant’s productionprocess. Construction is scheduled to be completed in early fall 2008. Thesolid waste boiler will incinerate unused and discarded wood products such aspallets, which will be provided from a local supplier, Mueller Pallets, LLC, ofSioux Falls, South Dakota.  The steam generatedfrom the process will be captured and used to meet some of our energy needs. Itis anticipated that after our plant’s expansion, the energy generated from thisprocess will supply approximately 55% of our plant’s energy requirements,consequently reducing our dependence on natural gas.

 

**Research and Development**

 

We do not conduct any research and development associated with thedevelopment of new technologies for use in the production process. Rather, werely on POETTM Research, Inc., of Sioux Falls, South Dakota, to researchand develop new technologies. POETTM Research provides us this technologythrough a license agreement, where we pay POETTM Research a licensing fee on aquarterly basis.  The agreement is ineffect until either we terminate our management relationship with POETTM Plant Managementor we decide unilaterally not to use the technology.

 

**Competition**

 

***Domestic***

 

We are in direct competition with numerous other ethanol and distillersgrains producers, many of which have significantly greaterresources. Additional ethanol and distillers grains producers alsocontinue to enter the market.  As of March 2008,the ethanol industry has grown to 143 production

 

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facilitiesin the U.S., compared to 113 production facilities as of February 2007.The largest ethanol producers include Archer Daniels Midland, AventineRenewable Energy, Cargill, and VeraSun Energy Corporation, all of which arecapable of producing more ethanol than we do.  There are numerous ethanolplants of a similar size to us located in the Midwest region. In addition, atleast 57 new ethanol plants and seven expanding plants, with a combined annualproduction capacity of over five billion gallons annually, are set to come intoproduction in the next 18 months, which will increase the ethanol productioncapacity of our competitors.

 

In South Dakota, excluding the plant, there are currently 14 plants infull production and one plant under construction, all of which have a combinedproduction capacity of approximately 760 million gallons. One plant, US BioMarion, is located approximately 15 miles from our plant. Despite thisconcentration and growth, we believe that we can continue to compete effectivelybecause of the advanced technology incorporated into the areas of ourproduction process and product development, and the aggressive marketingstrategies pursued by our marketers.

 

The following table identifies most of the producers in the U.S. alongwith 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                          |       |                                       |       |
| Agri-Energy, LLC*              |       | Luverne, MN      |       | Corn          |       | 21                          |       |                                       |       |
| Al-Corn Clean Fuel*            |       | Claremont, MN    |       | Corn          |       | 35                          |       | 15                                         |       |
| Amaizing Energy, LLC*          |       | Denison, IA      |       | Corn          |       | 48                          |       |                                       |       |
|                           |       | Atlantic, IA     |       | Corn          |       |                        |       | 110                                        |       |
| Archer Daniels Midland         |       | Decatur, IL      |       | Corn          |       | 1,070                       |       | 550                                        |       |
|                           |       | Cedar Rapids, IA |       | Corn          |       |                        |       |                                       |       |
|                           |       | Clinton, IA      |       | Corn          |       |                        |       |                                       |       |
|                           |       | Columbus, NE     |       | Corn          |       |                        |       |                                       |       |
|                           |       | Marshall, MN     |       | Corn          |       |                        |       |                                       |       |
|                           |       | Peoria, IL       |       | Corn          |       |                        |       |                                       |       |
|                           |       | Wallhalla, ND    |       | Corn/barley   |       |                        |       |                                       |       |
| Arkalon Energy, LLC            |       | Liberal, KS      |       | Corn          |       | 110                         |       |                                       |       |
| Aventine Renewable Energy, LLC |       | Pekin, IL        |       | Corn          |       | 207                         |       | 226                                        |       |
|                           |       | Aurora, NE       |       | Corn          |       |                        |       |                                       |       |
| .                              |       | Mt. Vernon, IN   |       | Corn          |       |                        |       |                                       |       |

 

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| Badger State Ethanol, LLC*                 |   | Monroe, WI          |   | Corn               |   | 48     |   |   |   |
|--------------------------------------------|--------|---------------------|--------|--------------------|--------|--------|--------|--------|--------|
| Big River Resources, LLC*                  |   | West Burlington, IA |   | Corn               |   | 52     |   |   |   |
| BioFuel Energy - Pioneer Trail Energy, LLC |   | Wood River, NE      |   | Corn               |   |   |   | 115    |   |
| BioFuel Energy - Buffalo Lake Energy, LLC  |   | Fairmont, MN        |   | Corn               |   |   |   | 115    |   |
| Blue Flint Ethanol                         |   | Underwood, ND       |   | Corn               |   | 50     |   |   |   |
| Bonanza Energy, LLC                        |   | Garden City, KS     |   | Corn/milo          |   | 55     |   |   |   |
| Bushmills Ethanol, Inc.*              |   | Atwater, MN         |   | Corn               |   | 40     |   |   |   |
| Calgren                                    |   | Pixley, CA          |   | Corn               |   |   |   | 55     |   |
| Cardinal Ethanol                           |   | Harrisville, IN     |   | Corn               |   |   |   | 100    |   |
| Cargill, Inc.                         |   | Blair, NE           |   | Corn               |   | 85     |   |   |   |
|                                       |   | Eddyville, IA       |   | Corn               |   | 35     |   |   |   |
| Cascade Grain                              |   | Clatskanie, OR      |   | Corn               |   |   |   | 108    |   |
| Castle Rock Renewable Fuels, LLC           |   | Necedah, WI         |   | Corn               |   |   |   | 50     |   |
| Celunol                                    |   | Jennings, LA        |   | Sugar cane bagasse |   |   |   | 1.5    |   |
| Center Ethanol Company                     |   | Sauget, IL          |   | Corn               |   |   |   | 54     |   |
| Central Indiana Ethanol, LLC               |   | Marion, IN          |   | Corn               |   | 40     |   |   |   |
| Central MN Ethanol Coop*                   |   | Little Falls, MN    |   | Corn               |   | 21.5   |   |   |   |
| Chief Ethanol                              |   | Hastings, NE        |   | Corn               |   | 62     |   |   |   |
| Chippewa Valley Ethanol Co.*               |   | Benson, MN          |   | Corn               |   | 45     |   |   |   |
| Cilion Ethanol                             |   | Keyes, CA           |   | Corn               |   |   |   | 50     |   |
| 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   |   |   |   |
| E Energy Adams, LLC                        |   | Adams, NE           |   | Corn               |   | 50     |   |   |   |
| 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    |   |   |   |
| Ethanol Grain Processors, LLC              |   | Obion, TN           |   | Corn               |   |   |   | 100    |   |
| First United Ethanol, LLC (FUEL)           |   | Mitchell Co., GA    |   | Corn               |   |   |   | 100    |   |
| Front Range Energy, LLC                    |   | Windsor, CO         |   | Corn               |   | 40     |   |   |   |
| Gateway Ethanol                            |   | Pratt, KS           |   | Corn               |   | 55     |   |   |   |
| Glacial Lakes Energy, LLC*                 |   | Watertown, SD       |   | Corn               |   | 100    |   |   |   |
| 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               |   | 110    |   | 50     |   |
| Golden Triangle Energy, LLC*               |   | Craig, MO           |   | Corn               |   | 20     |   |   |   |
| Grand River Distribution                   |   | Cambria, WI         |   | Corn               |   |   |   | 40     |   |
| Grain Processing Corp.                     |   | Muscatine, IA       |   | Corn               |   | 20     |   |   |   |

 

10

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| Granite Falls Energy, LLC*            |   | Granite Falls, MN |   | Corn              |   | 52     |   |   |   |
|---------------------------------------|--------|-------------------|--------|-------------------|--------|--------|--------|--------|--------|
| 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    |   |
|                                  |   | Shell Rock, IA    |   | Corn              |   |   |   | 110    |   |
| Heartland Corn Products*              |   | Winthrop, MN      |   | Corn              |   | 100    |   |   |   |
| 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    |   |
| Husker Ag, LLC*                       |   | Plainview, NE     |   | Corn              |   | 26.5   |   |   |   |
| Idaho Ethanol Processing              |   | Caldwell, ID      |   | Potato Waste      |   | 4      |   |   |   |
| Illinois River Energy, LLC            |   | Rochelle, IL      |   | Corn              |   | 50     |   |   |   |
| Indiana Bio-Energy                    |   | Bluffton, IN      |   | Corn              |   |   |   | 101    |   |
| Iroquois Bio-Energy Company, LLC      |   | Rensselaer, IN    |   | Corn              |   | 40     |   |   |   |
| KAAPA Ethanol, LLC*                   |   | Minden, NE        |   | Corn              |   | 40     |   |   |   |
| Kansas Ethanol, LLC                   |   | Lyons, KS         |   | Corn              |   |   |   | 55     |   |
| KL Process Design Group               |   | Upton, WY         |   | Wood waste        |   | 1.5    |   |   |   |
| Land O’ Lakes*                   |   | Melrose, MN       |   | Cheese whey       |   | 2.6    |   |   |   |
| Levelland/Hockley County Ethanol, LLC |   | Levelland, TX     |   | Corn              |   |   |   | 40     |   |
| Lifeline Foods, LLC                   |   | St. Joseph, MO    |   | Corn              |   | 40     |   |   |   |
| Lincolnland Agri-Energy, LLC*         |   | Palestine, IL     |   | Corn              |   | 48     |   |   |   |
| Lincolnway Energy, LLC*               |   | Nevada, IA        |   | Corn              |   | 50     |   |   |   |
| 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      |   |              |   |   |   |   |   |
| Mid America Agri Products/Wheatland   |   | Madrid, NE        |   | Corn              |   |   |   | 44     |   |
| Mid America Agri Products/Horizon     |   | Cambridge, NE     |   | Corn              |   |   |   | 44     |   |
| Mid-Missouri Energy, Inc.*       |   | Malta Bend, MO    |   | Corn              |   | 45     |   |   |   |
| Midwest Renewable Energy, LLC         |   | Sutherland, NE    |   | Corn              |   | 25     |   |   |   |
| Minnesota Energy*                     |   | Buffalo Lake, MN  |   | Corn              |   | 18     |   |   |   |
| 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    |   |
| Northwest Renewable, LLC              |   | Longview, WA      |   | Corn              |   |   |   | 55     |   |
| Otter Tail Ag Enterprises             |   | Fergus Falls, MN  |   | Corn              |   |   |   | 57.5   |   |
| Pacific Ethanol                       |   | Madera, CA        |   | Corn              |   | 40     |   |   |   |
|                                  |   | Boardman, OR      |   | Corn              |   | 40     |   |   |   |
|                                  |   | Burley, ID        |   | Corn              |   |   |   | 50     |   |

 

11

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|                             |   | Stockton, CA           |   | Corn           |   |   |   | 50     |   |
|----------------------------------|--------|------------------------|--------|----------------|--------|--------|--------|--------|--------|
| Panda Ethanol                    |   | Hereford, TX           |   | Corn/milo      |   |   |   | 115    |   |
| Parallel Products                |   | Louisville, KY         |   | Beverage waste |   | 5.4    |   |   |   |
|                             |   | R. Cucamonga, CA       |   |           |   |   |   |   |   |
| Patriot Renewable Fuels, LLC     |   | Annawan, IL            |   | Corn           |   |   |   | 100    |   |
| Penford Products                 |   | Cedar Rapids, IA       |   | Corn           |   |   |   | 45     |   |
| Phoenix Biofuels                 |   | Goshen, CA             |   | Corn           |   | 25     |   |   |   |
| Pinal Energy, LLC                |   | Maricopa, AZ           |   | Corn           |   | 55     |   |   |   |
| Pine Lake Corn Processors, LLC*  |   | Steamboat Rock, IA     |   | Corn           |   | 20     |   |   |   |
| Platinum Ethanol, LLC*           |   | Arthur, IA             |   | Corn           |   |   |   | 110    |   |
| Plymouth Ethanol, LLC*           |   | Merrill, IA            |   | Corn           |   |   |   | 50     |   |
| POET                             |   | Sioux Falls, SD        |   |           |   | 1,208  |   | 327    |   |
|                             |   | Alexandria, IN         |   | Corn           |   |   |   |   | #      |
|                             |   | Ashton, IA             |   | Corn           |   |   |   |   |   |
|                             |   | Big Stone, SD          |   | Corn           |   |   |   |   |   |
|                             |   | Bingham Lake, MN       |   | Corn           |   |   |   |   |   |
|                             |   | Caro, MI               |   | Corn           |   |   |   |   |   |
|                             |   | Chancellor, SD         |   | Corn           |   |   |   |   |   |
|                             |   | Coon Rapids, IA        |   | Corn           |   |   |   |   |   |
|                             |   | Corning, IA            |   | Corn           |   |   |   |   |   |
|                             |   | Emmetsburg, IA         |   | Corn           |   |   |   |   |   |
|                             |   | Fostoria, OH           |   | Corn           |   |   |   |   | #      |
|                             |   | Glenville, MN          |   | Corn           |   |   |   |   |   |
|                             |   | Gowrie, IA             |   | Corn           |   |   |   |   |   |
|                             |   | Groton, SD             |   | Corn           |   |   |   |   |   |
|                             |   | Hanlontown, IA         |   | Corn           |   |   |   |   |   |
|                             |   | Hudson, SD             |   | Corn           |   |   |   |   |   |
|                             |   | Jewell, IA             |   | Corn           |   |   |   |   |   |
|                             |   | Laddonia, MO           |   | Corn           |   |   |   |   |   |
|                             |   | Lake Crystal, MN       |   | Corn           |   |   |   |   |   |
|                             |   | Leipsic, OH            |   | Corn           |   |   |   |   |   |
|                             |   | Macon, MO              |   | Corn           |   |   |   |   |   |
|                             |   | Marion, OH             |   | Corn           |   |   |   |   | #      |
|                             |   | Mitchell, SD           |   | Corn           |   |   |   |   |   |
|                             |   | North Manchester, IN   |   | Corn           |   |   |   |   | #      |
|                             |   | Portland, IN           |   | Corn           |   |   |   |   |   |
|                             |   | Preston, MN            |   | Corn           |   |   |   |   |   |
|                             |   | Scotland, SD           |   | Corn           |   |   |   |   |   |
| Prairie Horizon Agri-Energy, LLC |   | Phillipsburg, KS       |   | Corn           |   | 40     |   |   |   |
| Quad-County Corn Processors*     |   | Galva, IA              |   | Corn           |   | 27     |   |   |   |
| Range Fuels                      |   | Soperton, GA           |   | Wood waste     |   |   |   | 20     |   |
| 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    |   |   |   |

 

12

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| Siouxland Energy & Livestock Coop*              |   | Sioux Center, IA   |   | Corn              |       | 60           |       |        |       |
|----------------------------------------------------------|--------|--------------------|--------|-------------------|------------|--------------|------------|-------------|------------|
| Siouxland Ethanol, LLC                                   |   | Jackson, NE        |   | Corn              |       | 50           |       |        |       |
| Southwest Iowa Renewable Energy, LLC*                    |   | Council Bluffs, IA |   | Corn              |       |         |       | 110         |       |
| Sterling Ethanol, LLC                                    |   | Sterling, CO       |   | Corn              |       | 42           |       |        |       |
| 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          |       |        |       |
| Tharaldson Ethanol                                       |   | Casselton, ND      |   | 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              |       | 310          |       | 440         |       |
|                                                     |   | Woodbury, MI       |   | Corn              |       |         |       |        |       |
|                                                     |   | Hankinson, ND      |   | Corn              |       |         |       |        | #          |
|                                                     |   | Central City , NE  |   | Corn              |       |         |       |        | #          |
|                                                     |   | Ord, NE            |   | Corn              |       |         |       |        |       |
|                                                     |   | Dyersville, IA     |   | Corn              |       |         |       |        | #          |
|                                                     |   | Janesville, MN     |   | Corn              |       |         |       |        | #          |
|                                                     |   | Marion, SD         |   | Corn              |       |         |       |        |       |
| Utica Energy, LLC                                        |   | Oshkosh, WI        |   | Corn              |       | 48           |       |        |       |
| VeraSun Energy Corporation                               |   | Aurora, SD         |   | Corn              |       | 560          |       | 330         |       |
|                                                     |   | Ft. Dodge, IA      |   | Corn              |       |         |       |        |       |
|                                                     |   | Albion, NE         |   | Corn              |       |         |       |        |       |
|                                                     |   | Charles City, IA   |   | Corn              |       |         |       |        |       |
|                                                     |   | Linden, IN         |   | Corn              |       |         |       |        |       |
|                                                     |   | Welcome, MN        |   | Corn              |       |         |       |        | #          |
|                                                     |   | Hartely, IA        |   | Corn              |       |         |       |        | #          |
|                                                     |   | Bloomingburg, OH   |   | Corn              |       |         |       |        | #          |
| 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          |       |        |       |
|                                                     |   | Russell, KS        |   | Milo/wheat starch |       | 48           |       |        |       |
|                                                     |   | Plainview, TX      |   | Corn              |       |         |       | 100         |       |
| Wind Gap Farms                                           |   | Baconton, GA       |   | Brewery waste     |       | 0.4          |       |        |       |
| Renova Energy                                            |   | Torrington, WY     |   | Corn              |       | 5            |       |        |       |
| Xethanol BioFuels, LLC                                   |   | Blairstown, IA     |   | Corn              |       | 5            |       |        |       |
| Yuma Ethanol                                             |   | Yuma, CO           |   | Corn              |       | 40           |       |        |       |
| **Total  Current Capacity at 143 ethanol biorefineries** |   |               |   |              | ** ** | **8,159.9**  |       |        |       |
| **Total Under Construction (57)/Expansions (7)**         |   |               |   |              |       |         | ** ** | **5,246.0** | ** ** |
| **Total Capacity**                                       |   |               |   |              | ** ** | **13,405.9** |       |        |       |

 

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*locally-owned

#plant under construction 

Updated: March 4, 2008

Renewable FuelsAssociation

 

***International***

 

Ethanol production is expanding internationally.  Brazil has longbeen the world’s largest producer and exporter of ethanol, although since 2005ethanol production in the U.S. has exceeded Brazilian production. Ethanol isproduced more cheaply in Brazil than in the U.S. because of the use ofsugarcane, a less expensive raw material alternative to corn. However,because of various tariffs on the importation of ethanol into the U.S., theprice of ethanol produced in the U.S. is currently more competitive thanethanol imported from Brazil.  In the event that these tariffs are reducedor eliminated, which are scheduled to expire in December 2008, the priceof ethanol produced in the U.S. may become less competitive, which couldadversely impact our and the industry’s ability to sell ethanol.

 

In addition, the Caribbean Basin Initiative, or CBI, allows for ethanolproduced in participating Caribbean Basin countries to be imported into theU.S. duty free. While the Caribbean Basin Initiative caps the amount of dutyfree ethanol imported at 7% of the total U.S. production from the previousyear, as total production in the U.S. grows, the amount of ethanol producedfrom the Caribbean area and sold in the U.S. will grow accordingly, which couldimpact our and the industry’s ability to sell ethanol.

 

***Alternative Production Methods and Fuels***

 

Alternative ethanol production methods, fuels and gasoline oxygenatesare continually under development. The current trend in ethanol productionresearch is to develop an efficient method of producing ethanol fromcellulose-based biomass, such as agricultural waste, forest residue, municipalsolid waste, and energy crops. This trend is driven by the fact thatcellulose-based biomass is generally cheaper than corn, and producing ethanolfrom cellulose-based biomass would create opportunities to produce ethanol inareas which are unable to grow corn. Additionally, the enzymes used to producecellulose-based ethanol are becoming less expensive.  Beginning in 2010, the Energy Independenceand Security Act of 2007 (HR 6) requires that a specific volume of therenewable fuels standard be met by ethanol derived from cellulosic feedstocks.If an efficient method of producing ethanol from cellulose-based biomass isdeveloped, we may not be able to compete effectively with companies thatincorporate this production method.

 

Further,a number of automotive, industrial and power generation manufacturers aredeveloping alternative clean power systems using fuel cells or clean burninggaseous fuels.  Like ethanol, the emerging fuel cell industry offers atechnological option to address increasing worldwide energy costs, thelong-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing powersources because of their higher efficiency, reduced noise and lower emissions.Fuel cell 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 fuelcell and hydrogen industries continue to expand and gain broad acceptance andhydrogen becomes readily available to consumers for motor vehicle use, we maynot be able to compete effectively.  Thisadditional competition could reduce the demand for ethanol, which wouldnegatively impact our profitability.

 

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***Distillers Grains Competition***

 

We also face direct competition with numerous ethanol producers thatproduce distillers grains as a by product of the production process.Sales of distillers grainsare highly dependent on product quality, availability, and price of competingfeed ingredients. As domestic ethanol production increases, the amount ofdistillers’ grains entering the market is expected to increase and may reachthe point of market saturation. If such point is reached, we may need to sellan increasing supply of distillers grains to international markets whereadditional costs could be realized.

 

**Federal and State Government Supports**

 

Various federal and state laws, regulations, and programs have led toan increasing use of ethanol in fuel, including subsidies, tax credits,policies and other forms of financial incentives.  Some of these lawsprovide economic incentives to produce and blend ethanol and others mandate theuse of ethanol.

 

***The Renewable Fuels Standard***

 

The most recent ethanol supports are contained in the EnergyIndependence and Security Act of 2007 (HR 6) which was signed into law on December 19,2007. The bill increases the renewable fuel standard, or RFS, which sets theannual requirements for the amount of renewable fuel produced and used in motorvehicles. The first RFS was established under the Energy Policy Act of 2005,which required that 4 billion gallons of ethanol and biodiesel be used in 2006and 7.5 billion gallons be used by 2012.Under HR 6, however, the RFS is increasedfurther, requiring 9 billion gallons of renewable fuels in 2008 andprogressively increasing to 36 billion gallons by 2022. Beginning in 2010, aspecific volume of the annual mandate is met by ethanol derived from cellulosicfeedstocks, as opposed to corn. The specified volume of cellulosic ethanol userequired increases incrementally, culminating in the use of 16 billion gallonsof cellulosic ethanol annually in 2022. While the precise impact of HR 6 cannotyet be determined, we anticipate that it will maintain or enhance production ofethanol in the U.S.

 

***The Clean Air Act and Oxygenated Gasoline Program***

 

Ethanol sales have been favorably affected by the Clean Air Actamendments of 1990, particularly the Oxygenated Gasoline Program, which becameeffective November 1, 1992. The Oxygenated Gasoline Program requires thesale of oxygenated motor fuels during the winter months in certain majormetropolitan areas to reduce carbon monoxide pollution. Ethanol use has alsoincreased as the result of a second Clean Air Act program, the ReformulatedGasoline Program. This program became effective January 1, 1995 andrequires 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 inapproximately 25 states.

 

***TheVolumetric Ethanol Excise Tax Credit***

 

Theuse of ethanol as an alternative fuel source has been aided by federal taxpolicy In 2004, the Volumetric Ethanol Excise Tax Credit (“VEETC”) was created.This law amended the federal gasoline excise tax structure effective January 1,2005. As amended, the law creates a new volumetric ethanol excise tax credit of$0.51 per gallon of ethanol blended at 10%. The credit provided by VEETCreplaced an exemption which allowed ethanol blended fuel to be taxed at a lowerrate than regular gasoline. The

 

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useof ethanol as a fuel additive is enhanced by the availability of a credit fromthe federal gasoline excise tax. The VEETC is scheduled to expire on December 31,2010.

 

***Small Ethanol Producer Tax Credit***

 

The Energy Policy Act of 2005 expanded who qualifies for the smallethanol producer tax credit. The credit is available for small ethanolproducers with a production capacity up to 60 million gallons, compared to 30million gallons before the Act. The credit is taken on the first 15 milliongallons of production, but is capped at $1.5 million per year per producer.Because of our plant’s expansion to a 100 million gallon facility, we will notbe eligible to use this credit after 2008.

 

***Clean-Fuel Vehicle Refueling Equipment Tax Credit***

 

The Energy Policy Act of 2005 created a new tax credit that permitstaxpayers to claim a 30% credit (up to $30,000) for the cost of installingclean-fuel vehicle refueling equipment, such as an E85 fuel pump, to be used ina trade or business of the taxpayer or installed at the principal residence ofthe taxpayer. Under the provision, clean fuels are any fuel at least 85% of thevolume of which consists of ethanol, natural gas, compressed natural gas,liquefied natural gas, liquefied petroleum gas and hydrogen and any mixture ofdiesel fuel and biodiesel containing at least 20% biodiesel. The provision iseffective for equipment placed in service until January 1, 2010. While itis unclear how this credit will affect the demand for ethanol in the shortterm, it is expected to help raise consumer awareness of alternative sources offuel and could positively impact future demand for ethanol.

 

***Imported Ethanol Tariffs and Quotas***

 

Currently, there is a $0.54 per gallon tariff on imported ethanol,which is scheduled to expire in 2008.  In addition, ethanol imports from24 countries in Central America and the Caribbean region are exempted from thetariff under the Caribbean Basin Initiative or CBI, which provides thatspecified nations may export annually an aggregate of 7.0% of U.S. ethanolproduction with additional exemptions from ethanol produced from feedstock inthe Caribbean region over the 7.0% limit.

 

***StateLegislation Banning or Limiting MTBE Use***

 

As of August 2007, 25 states, includingCalifornia and New York, have banned or significantly limited the use ofMTBE due to environmental and public health concerns. Ethanol has served as areplacement for much of the discontinued volumes of MTBE and is expected tocontinue to replace future volumes of MTBE that are removed from the fuelsupply.

 

***South Dakota***

 

In South Dakota, the state provides an incentive production payment toethanol producers operating in South Dakota. The production incentiveconsists of a direct payment to South Dakota ethanol producers of up to $0.20per gallon, which is divided among producers of fuel ethanol within SouthDakota up to a maximum of $1 million per year per plant and a maximum of $10million over the life of a plant.  The program caps the payments that canbe distributed to all plants based in South Dakota in a program year to no morethan $7 million in payments in 2007 (program year ends on June 30), andevery year thereafter. The payments are distributed to each plant in proportionto the total number of gallons of ethanol produced and marketed annually by allplants in South Dakota.  As more 

 

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plantscommence production, or existing plants increase production, each plantreceives a lower proportionate share of the maximum payment under the program.

 

**Environmental Regulation and Costs**

 

We are subject to extensive environmental regulation at the federal andstate levels. The federal environmental regulations with which we mustcomply are promulgated by the U.S. Environmental Protection Agency (EPA)pursuant to the federal Clean Air Act. The state environmental regulations withwhich we must comply are promulgated by the South Dakota Department ofEnvironment and Natural Resources (DENR). The EPA and the DENR regulate the airquality at the plant, in particular the emissions into the air. The DENRalso regulates water collection and discharge. In addition to its ownenforcement authority under this law, the EPA has delegated permitting andenforcement authority to the DENR. To conduct operations, we are required tohave from these and other agencies the following permits:

 

·    *Title FiveOperating Permit from the DENR*. The Title Five Operating Permitserves as the air quality and operation permit for our plant. We must conductongoing emissions testing to verify compliance with the Title Five OperatingPermit.  This permit is due for renewalin 2012.

 

·    *Bureau ofAlcohol, Tobacco, Firearms and Explosives**from theDepartment of Treasury*.  Thispermit is required because of the alcohol content of ethanol, which is requiredto be renewed annually.

 

·    *SurfaceWater Discharge Permit from the DENR.* The Surface Water DischargePermit regulates any storm water discharges associated with industrialactivity. The permit requires us to provide the DENR with ongoing compliancereports. This permit is due for renewal in 2008.

 

·    *Storm Water DischargePermit from the DENR*. The Storm Water Discharge Permit regulates anysurface water from rain or other precipitation, which we collect and store in astorm water pond adjacent to our plant. This permit is due for renewal in 2008.

 

While we are currently in compliance with applicable environmentallaws, regulations and permits, we will need to continue to comply with allpermits and regulatory requirements. To ensure this, we maintain an on-going program to ensure compliance with theserequirements. Maintaining compliance also requires us to incur,occasionally, expenditures for such things as new or upgraded equipment orprocesses, some of which can be material and costly.

 

In addition, federal and state government’s regulation of theenvironment changes constantly. It is possible that more stringent federal orstate 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 be adopted thatcould have an adverse effect on the use of ethanol. For example, changes in theenvironmental regulations regarding ethanol’s use due to currently unknowneffects on the environment could have an adverse effect on the ethanol industry.Furthermore, the plant operations are governed by the Occupational Safety andHealth Administration (“OSHA”). OSHA regulations may change such that thefuture costs of the operation of the plant may increase. Any of theseregulatory factors may result in higher costs or other materially adverseconditions effecting our operations, cash flows and financial performance.

 

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

#####  

POETTM Plant Management, LLC, manages our day-to-day operations. We payPOETTM Management a fixed annual fee and an incentive bonus based on ourprofitability. We also pay certain expenses incurred with respect to operationof the plant, while other expenses, including but not limited to, theprovisions of a full time plant manager and technical manager, are paid byPOETTM Plant Management.  POETTM PlantManagement employs Mr. Rick Serie as the plant’s general manager. Mr. Serieoversees and is responsible for the operation and production on a day-to-daybasis. Mr. Serie also serves as our designated chief executive officer andchief financial officer for reporting and other purposes.

 

As of March 1, 2008, we employed 53 employees, all of whom arefull time. Not included in this number is the general manager, Mr. Serie,and the technical manager, both of whom are employed by POETTM Plant Management.

 

**Available Information**

 

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K, and amendments to reports filed pursuant tothe Securities Exchange Act of 1934, as amended, are filed with the SEC.  Such reports and other information filed byus with the SEC are available on the SEC website (www.sec.gov). The public mayread and copy any materials filed by us with the SEC at the SEC’s PublicReference Room at 100 F Street, NE, Room 1580, Washington, DC 20549.The public may obtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site thatcontains reports, proxy, and information statements and other informationregarding issuers that file electronically with the SEC at www.sec.gov. Thecontents of these websites are not incorporated into this filing. Our websiteis found at www.poetenergy.com, then clicking on “Meet POET,” “Plants,” “Chancellor,SD.”

 

**Item 1A. Risk Factors.**

 

**Risk Related to Operations**

 

***Our financial performance isdependent on market prices for ethanol and distillers grains and corn, and ourfinancial condition and results of operation are directly affected by changesin these market prices*****.**Our results ofoperations and financial condition is significantly affected by the cost andsupply of corn and by the selling price for ethanol and distillers grains.Changes in the price and supply of these commodities are subject to anddetermined by market forces over which we have no or little control, includingoverall supply and demand, government programs and policies, weather,availability and price of competing products, and other factors.

 

***Our business is highly sensitive tocorn prices, and we generally cannot pass on increases in corn prices to ourcustomers.***Cornis the principal raw material we use to produce ethanol and distillers grains.Because ethanol competes with fuels that are not corn-based, we generally areunable to pass along increased corn costs to our customers, and, accordingly,rising corn prices tend to produce lower profit margins. At certain levels,corn prices would make ethanol uneconomical to use in fuel markets. The priceof corn is influenced by weather conditions (especially droughts) and otherfactors affecting crop yields, farmer planting decisions and general economic,market and 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. In addition, increasing domestic ethanolcapacity could boost demand for corn 

 

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and result in increased cornprices. We may also have difficulty from time to time in purchasing corn oneconomical terms due to supply shortages. Any supply shortage could require usto suspend operations until corn became available at economical terms.Suspension of operations could have a material adverse effect on our business,results of operations and financial condition.

 

***The price of distillers grains isaffected by the price of other commodity products, and decreases in the priceof these commodities could decrease the price 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 in parton the prices of the commodities from which they are derived. Downward pressureon commodity prices, such as soybeans, will generally cause the price ofcompeting animal feed products to decline, resulting in downward pressure onthe price of distillers grains. As a result, we may experience lower revenueand income.

 

***Our business is subject to seasonalfluctuations.***Ouroperating results are influenced by seasonal fluctuations in the price of ourprimary production inputs, namely corn, and the price of our primary product,ethanol. In recent years, the spot price of corn tends to rise during thespring planting season in May and June and tends to decrease duringthe fall harvest in October and November. The price for natural gas,however, tends to move opposite of corn and tends to be lower in the spring andsummer and higher in the fall and winter. In addition, our ethanol prices aresubstantially correlated with the price of unleaded gasoline. As a result,because the price of unleaded gasoline tends to rise during the summer, theprice of ethanol generally rises in the summer.

 

***Hedging transactions involve risksthat could harm our profitability.***  In an attempt tominimize the effects of the volatility of corn and natural gas on operatingprofits, we engage in hedging activities in the corn and natural gas futuresmarkets.  The effectiveness of such hedging activities is dependent, amongother things, upon the cost of corn and natural gas and our ability to sellsufficient products to utilize all of the corn and natural gas subject to thefutures contracts.  There is no assurance that our hedging activities willreduce the risk caused by price fluctuation which may leave us vulnerable tohigh corn 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 canalso result in increased costs because price movements in corn and natural gasare highly volatile and are influenced by many factors that are beyond ourcontrol.

 

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

 

***We are heavily dependent upon POET****TM****, LLC.***  We have several agreements in place withcompanies owned and controlled by POETTM, LLC, of Sioux Falls, South Dakota,including those related to the purchase or marketing of ethanol and distillersgrains, management of the plant, design and construction, research andtechnology, and information technology. If any of the agreements were to 

 

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terminate,we might not be able to secure suitable and timely replacements for thoseservices at a reasonable cost or at all, which would materially harm ourbusiness.

 

***We are dependent upon POET****TM****Ethanol Products, LLC, to purchase and market all ofour ethanol.***** ** POETTMEthanol Products is the exclusive purchaser of all of the ethanol produced atthe plant which, in turn, markets and transports the ethanol to refinerieslocated throughout the U.S.  If POETTM Ethanol Products breaches theethanol marketing agreement or is not in the financial position to purchase allof the ethanol produced, we may not have any readily available means to sellthe ethanol and our financial condition will be adversely and materiallyaffected.  We would be forced to seek other arrangements to sell theethanol produced, but there are no assurances that these arrangements wouldachieve results comparable to those achieved by POETTM Ethanol Products.

 

***Interruptions in energy suppliescould delay or halt production, which will reduce our profitability.***  Ethanolproduction requires a constant and consistent supply of energy, includingelectricity, water and natural gas.  If there is any interruption in oursupply of energy for whatever reason, such as supply, delivery or mechanicalproblems, we may be required to halt production.  If production is haltedfor any extended period of time, it will reduce our profitability.  Wehave agreements with various companies to provide us with needed energy, but wecannot assure that these companies will continue to be able to supply reliablythe necessary energy that we need.  If we were to suffer interruptions inenergy supply, our business would be harmed.

 

**Risks Related to Industry**

 

***Overcapacity in the industry mayresult in a decrease in the price of ethanol and distillers grains.***Excess capacityin the ethanol industry would have an adverse impact on our results ofoperations, cash flows and general financial condition. Excess capacity may alsoresult or intensify from increases in production capacity coupled withinsufficient demand. If the demand for ethanol does not grow at the same paceas increases in supply, we expect the price for ethanol to decline. If excesscapacity in the ethanol industry occurs, the market price of ethanolmay decline to a level that is inadequate to generate sufficient cash flowto cover our costs. In addition, because ethanol production produces distillersgrains as a by-product, increased ethanol production may lead to increasedsupplies of distillers grains. An increase in the supply of distillers grains,without corresponding increases in demand, could lead to lower prices or aninability to sell our distillers grains. Any decline in the price of distillersgrain or the distillers grain market generally could have a material adverseeffect on our business and financial condition.

 

***We operate in an intenselycompetitive industry and there is no assurance that we will be able to competeeffectively.***  The ethanol business is highlycompetitive, and other companies presently in the market, or that are about toenter the market, could adversely affect prices for the products we sell.Commodity groups in the Midwest have encouraged the construction of ethanol plants,and there are numerous other entities considering the construction of ethanolplants. Nationally, the ethanol industry may become more competitive given thesubstantial construction and expansion that is occurring in the industry. Wecompete with other ethanol producers such as Archer Daniels Midland, Cargill,among others, all of which are capable of producing significantly greaterquantities of ethanol than the amount we produce.  In light of suchcompetition, there is no assurance that we will be able to compete effectivelyin the industry.

 

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***Competition from the advancement oftechnology may lessen the demand for ethanol and negatively impact ourprofitability*****.**** Alternativefuels, 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. Fuelcells have 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, we maynot be able to compete effectively. This additional competition could reducethe demand for ethanol, which would negatively impact our financial condition.

 

***Corn-based ethanol may compete withcellulose-based ethanol in the future, which could make it more difficult forus to produce ethanol on a cost-effective basis****. *Most ethanol iscurrently produced from corn and other raw grains, such as milo orsorghum-especially in the Midwest. The current trend in ethanol productionresearch is to develop an efficient method of producing ethanol fromcellulose-based biomass, such as agricultural waste, forest residue, municipalsolid waste, and energy crops. This trend is driven by the fact that cellulose-basedbiomass is generally cheaper than corn, and producing ethanol fromcellulose-based biomass would create opportunities to produce ethanol in areaswhich are unable to grow corn. Although current technology is not sufficientlyefficient to be competitive, new conversion technologies may be developed inthe future. If an efficient method of producing ethanol from cellulose-basedbiomass is developed, we may not be able to compete effectively. If we areunable to produce ethanol as cost-effectively as cellulose-based producers, ourability to generate revenue will be negatively impacted.

 

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

 

**Risks Related to Plant Expansion and Alternative Energy**

 

***We may need to increase costestimates for construction of our expansion and solid waste fuel boiler,******and such increase could reduce ourrevenue stream and make the expansion unprofitable.*** POETTM Design and Construction agreed to expandthe plant and build the solid waste fuel based on a fixed contract price,according to the plans and specifications in design-build agreements.  Webased our capital needs on a design for the plant expansion and boiler thatwill cost approximately $114.6 million.  

 

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Thereis no assurance that the final cost of the two projects will not be higher, noris there assurance that there will not be design changes or cost overrunsassociated with these projects.  Any significant increase in the estimatedconstruction cost of the projects may make these projects overly expensive tocomplete or less profitable to operate because our revenue stream may not beable to adequately support the increased cost and expense attributable toincreased construction costs.

 

***Construction delays could increaseour costs.***  We anticipate that construction of the solidwaste fuel boiler will be completed in early fall of 2008; however,construction projects often involve delays due to weather conditions, or otherevents that delay the construction schedule. If it takes longer to constructthe project than we anticipate, it may substantially increase our costs, whichcould have a material adverse effect on our results of operations and financialcondition.

 

**Risks Related to Governmental and Regulatory Action**

 

***A change in government policiesfavorable to ethanol may cause demand for ethanol to decline.***Growth anddemand for ethanol may be driven primarily by federal and state governmentpolicies, such as state laws banning MTBE and the national renewable fuelsstandard. The continuation of these policies is uncertain, which means thatdemand for ethanol may decline if these policies change or arediscontinued. A decline in the demand for ethanol is likely to cause lower ethanolprices which in turn will negatively affect our business.

 

***Tariffs effectively limit imported ethanol into theU.S., and their reduction or elimination could undermine the ethanol industryin the U.S.*******Imported ethanol isgenerally subject to a $0.54 per gallon tariff that was designed to offsetthe $0.51 per gallon ethanol incentive available under the federal excisetax incentive program for refineries that blend ethanol in their fuel. Thereis, 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 U.S. ethanol production per year. Imports from the exemptedcountries 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 U.S., 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 onU.S. prices for ethanol if the tariff is not renewed beyond its currentexpiration date in December 2008. Any changes in the tariff or exemptionfrom the tariff could have a material adverse effect on our business andfinancial condition.

 

***Government incentives for ethanolproduction may be eliminated in the future.***The ethanolindustry and our business are assisted by various federal ethanol taxincentives, including those contained in the Energy Independence and SecurityAct of 2007. Under this law, the renewable fuels standard is increased to amandate of 36 billion gallons by 2022. The elimination or reduction of this standard could reduce the marketfor ethanol, which could reduce prices and our revenues by making it morecostly or difficult for us to produce and sell ethanol.

 

***Changes in environmental regulationsor violations of the regulations could reduce our profitability.***We are subjectto extensive air, water and other environmental laws and regulations. Inaddition some of these laws require our plant to operate under a number ofenvironmental permits. These laws, regulations and permits can often requireexpensive pollution control equipment or operation changes to limit actual orpotential impacts to the environment. A violation of these laws and regulationsor permit conditions can result in substantial fines, damages, criminalsanctions, permit 

 

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revocationsand/or plant shutdowns. We do not assure you that we have been, are or will beat all times in complete compliance with these laws, regulations or permits orthat we have had or have all permits required to operate our business. We donot assure you that we will not be subject to legal actions brought byenvironmental advocacy groups and other parties for actual or allegedviolations of environmental laws or our permits. Additionally, any changes inenvironmental laws and regulations, both at the federal and state level, couldrequire us to invest or spend considerable resources in order to comply withfuture environmental regulations. The expense of compliance could besignificant enough to reduce our profitability and negatively affect our business.

 

**Item 2. Properties.**

 

Our plant is located on 119 acres of land that we own near the town ofChancellor in Turner County, South Dakota. This site is served by multiplestate highways and is near Interstate Highways 29 and 90 and has railfacilities and connections to the Burlington-Northern Santa Fe railroad systemto facilitate transporting the ethanol and distillers grains produced at ourplant to certain markets.

 

Theoriginal construction of our plant was completed in 2003, and followingcompletion of expansion in 2008, consists of the following main buildings andproperties:

 

·                  Anadministrative building, which contains office equipment, computer system, andfurniture and fixtures.

 

·                  A distillationbuilding, which contains distillation columns and mole sieves.

 

·                  A dryerbuilding which contains dryers, and a fluid bed.

 

·                  A boilerbuilding which contains boilers.

 

·                  An evaporationbuilding, which contains evaporations and related equipment.

 

·                  A grainsreceiving and shipping building, which contains a scale and dump pits, andadjacent storage bins.

 

·                  A mechanicalbuilding, which contains water treatment equipment

 

·                  A processbuilding, which contains a slurry, centrifuges, fermenters, heat exchangers,lab, and a process office.

 

All of our tangible and intangible property, real and personal, servesas collateral for our debt financing with AgCountry Farm Credit Services, whichis described below under “Item 7—****Management’sDiscussion and Analysis of Financial Condition and Results of Operation—Indebtedness.”

 

**Item 3. Legal Proceedings.**

 

From time to time in the ordinary course of business, we may benamed as a defendant in legal proceedings related to various issues, includingwithout limitation, workers’ compensation claims, tort claims, or contractualdisputes. We are not currently involved in any material legal proceeding and we

 

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arenot aware of any material claims pending or threatened against us that couldresult in the commencement of legal proceedings.

 

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

 

We did not submit any matter to a vote of our security holders throughthe solicitation of proxies or otherwise during the fourth quarter of 2007.

 

**PART II**

 

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

 

As of March 1, 2008 we had 508 Class A members, 1 Class Bmember, and 158 Class C members, representing a total of 549 members.

 

*Trading Activity and Restriction*

 

Ourcapital units are not traded on an established trading market such as a stockexchange or The NASDAQ Stock Market.  Rather, our capital units are tradedon a “qualified matching service” as defined by federal tax code. Under thequalified matching service, interested buyers and sellers of our capital unitsare matched on the basis of rules and conditions set forth under thefederal tax code, and all trades are subject to final approval by our board ofmanagers. Our qualified matching service is operated through Alerus SecuritiesCorporation, a registered broker-dealer operating an SEC registered AlternativeTrading System.  The following table contains historical information bytrimester for the past two years regarding the trading of capital units underthe qualified matching service:

 
| ** **                | ** ** | **Low**       | ** ** | **High**      | ** ** | **Average** | ** ** | **Units**  | ** ** |
|---------------------------|------------|---------------|------------|---------------|------------|-------------|------------|------------|------------|
| **Trimester**             | ** ** | **Price (1)** | ** ** | **Price (1)** | ** ** | **Price**   | ** ** | **Traded** | ** ** |
| 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 |   |
| January - April 2007      |       | $             | 23,500     |          | $          | 25,000      |       | $          | 24,000     |   | $ | 3 |   |
| May - August 2007         |       | $             | 23,500     |          | $          | 26,500      |       | $          | 25,342     |   | $ | 19 |   |
| September - December 2007 |       | $             | 15,000     |          | $          | 25,000      |       | $          | 19,642     |   | $ | 7 |   |

 

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(1)          The rules under the qualified matching services prohibitfirm bids; therefore, the prices reflect actual sales made during the two yearperiod.

 

There were no issuer purchases of equity securities during the fourthquarter ended December 31, 2007.

 

*Distributions*

 

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

 

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In 2007, we distributed to our members approximately $8.4 million intotal cash distributions, or $2,250 per capital unit. In 2008, we have made nodistributions to date.

 

Under the terms of our Fifth Amended and Restated Operating Agreementdated April 17, 2006, we are required to make a distribution to ourmembers of at least 20% of the net cash from operations, as long as net cashfrom operations is in excess of $500,000 for that year, or our board ofmanagers determines otherwise. However, we are prohibited from making anydistributions that would violate or cause us to default under any of the termsof our credit facilities or debt instruments. For further details of therestrictions under our debt facilities, please see “Item 7, Management’sDiscussion and Analysis of Financial Conditions and Results of Operations—Indebtedness.”In addition, distributions are required to be issued to members of record as ofthe last day of the trimester (four month periods) immediately prior to thetrimester in which the distribution was approved by our board of managers.

 

Our ability to issue distributions is substantially dependent upon ourprofitability, the discretion of our board of managers subject to theprovisions of our Operating Agreement, and the approval of our lender. Becauseof current economic conditions and our expansion projects, we anticipate adecrease in distributions in 2008 compared to 2007.

 

**Item 6. Selected Financial Data**

 

The following table sets forth selected financial data of Great PlainsEthanol, LLC for the periods indicated. The audited financial statementsincluded in Item 8 of this report have been audited by our independentauditors, Eide Bailly LLP.

 

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**Great Plains Ethanol, LLC**

**10-K Summary**

**Item 6. Selected Financial Data**

 
| ** **                                   | ** ** | **2007**   | ** **  | **2006**   | ** ** | **2005**    | ** ** | **2004**   | ** ** | **2003 (1)** | ** ** |
|----------------------------------------------|------------|------------|-------------|------------|------------|-------------|------------|------------|------------|--------------|------------|
| **Statement of Operations Data:**            | ** ** | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** **   | ** ** |
| ** **                                   | ** ** | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** **   | ** ** |
| Revenue                                      |       | $          | 116,860,787 |       | $          | 123,391,901 |       | $          | 84,645,519 |         | 88,920,352 |   | 52,354,635 |   |
| Cost of Revenues                             |       | $          | 96,632,969  |       | $          | 68,675,968  |       | $          | 65,434,525 |         | 71,588,411 |   | 42,833,701 |   |
| Gross Profit                                 |       | $          | 20,227,818  |       | $          | 54,715,933  |       | $          | 19,210,994 |         | 17,331,941 |   | 9,520,934 |   |
| General and Administrative Expense           |       | $          | 6,782,975   |       | $          | 6,044,239   |       | $          | 3,530,388  |         | 2,759,696  |   | 2,194,496 |   |
| Income from Operations                       |       | $          | 13,444,843  |       | $          | 48,671,694  |       | $          | 15,680,606 |         | 14,572,245 |   | 7,326,438 |   |
| Interest Expense                             |       | $          | (276,290    | )          | $          | (1,909,752  | )          | $          | (1,404,660 | )            | (1,176,009 | ) | (1,177,471 | ) |
| Other Income                                 |       | $          | 670,297     |       | $          | 399,886     |       | $          | 54,450     |         | 342,379    |   | 24,279 |   |
| Net Income                                   |       | $          | 13,838,850  |       | $          | 47,161,828  |       | $          | 14,330,396 |         | 13,738,615 |   | 6,173,246 |   |
|                                         |       |       |        |       |       |        |       |       |       |         |       |
| Capital Units Outstanding                    |       | 3,742      |        | 3,742      |       | 3,742       |       | 3,742      |       | 3,742        |       |
|                                         |       |       |        |       |       |        |       |       |       |         |       |
| Net Income per Capital Unit                  |       | $          | 3,698       |       | $          | 12,603      |       | $          | 3,830      |         | 3,671      |   | 1,650 |   |
| Cash Distributions declared per Capital Unit |       | $          | 1,250       |       | $          | 4,000       |       | $          | 2,850      |         | 1,936      |   | 1,000 |   |
|                                         |       |       |        |       |       |        |       |       |       |         |       |
| **Balance Sheet Data:**                      | ** ** | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** **   | ** ** |
| ** **                                   | ** ** | ** ** | ** **  | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** **   | ** ** |
| Working Capital                              |       | $          | 15,573,748  |       | $          | 29,898,507  |       | $          | 4,732,343  |         | 2,088,786  |   | 3,669,394 |   |
| Net Property, Plant & Equipment          |       | $          | 115,144,690 |       | $          | 51,788,029  |       | $          | 47,105,398 |         | 44,265,244 |   | 45,425,534 |   |
| Total Assets                                 |       | $          | 149,317,309 |       | $          | 97,449,445  |       | $          | 63,368,068 |         | 56,047,104 |   | 60,655,872 |   |
| Long-Term Debt Obligations                   |       | $          | 59,959,430  |       | $          | 19,229,863  |       | $          | 21,627,548 |         | 19,831,903 |   | 29,099,564 |   |
| Members Equity                               |       | $          | 71,843,803  |       | $          | 62,682,453  |       | $          | 30,488,625 |         | 26,822,928 |   | 20,329,536 |   |
| Book Value per Capital Unit                  |       | $          | 19,199      |       | $          | 16,751      |       | $          | 8,148      |         | 7,168      |   | 5,433 |   |

 

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(1) Wecommenced operations on March 20, 2003.; therefore, our financial dataonly represents nine months of operations.

 

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

 

*You should read the following discussion along withour financial statements and the notes to our financial statements includedelsewhere in this report. The following discussion contains forward-lookingstatements that are subject to risks, uncertainties and assumptions. Our actualresults, performance and achievements may differ materially from thoseexpressed in, or implied by, such forward-looking statements. See “CautionaryStatement Regarding Forward-Looking Information” at the beginning of thisreport.*

 

**Overview**

 

Ourrevenues are derived from the sale and distribution of ethanol and distillersgrains to customers located primarily in U.S. Corn for our plant’s production process is supplied primarily from localagricultural producers and from purchases on the open market. After processingthe corn, ethanol is sold to POETTM Ethanol Products, LLC, which subsequentlymarkets and sells the ethanol to gasoline blenders and refineries located inthe continental U.S.  All of our distillers grains are sold through POETTMNutrition, Inc., which markets and sells the product to livestock feedersprimarily located in the continental U.S.

 

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Our operating and financial performance is largely driven by the pricesat which we sell ethanol and distillers grains and the costs related toproduction. Since 2006, federal incentive programs are no longer a source ofrevenue, in contrast to South Dakota’s program which continues to provide us anominal source. The price of ethanol is influenced by factors such as prices ofunleaded gasoline and the petroleum markets, weather, government policies andprograms, and supply and demand. Excess ethanol supply in the market, inparticular, puts downward pressure on the price of ethanol. The price ofdistillers grains is influenced by the price of corn, soybean meal and otherprotein-based feed products, and supply and demand. Like ethanol, excess grainsupply in the market puts downward pressure on the price of distiller grains.Our two largest costs of production are corn and natural gas. The cost ofnatural gas and corn is generally impacted by factors such as supply anddemand, weather, government policies and programs, and our risk managementprogram used to protect against the price volatility of these commodities.

 

**Executive Summary**

 

We generated higher than expected profits in 2007 but significantlylower profits compared to 2006. Our net income decreased from $47.1 million in2006 to $13.8 million in 2007. The major factors driving this result are anincrease in corn costs and a decrease in ethanol prices**.**Corn costs increased approximately 87% from 2006 to 2007 because of increaseddemand from the ethanol industry and lower corn supply projections. The priceof ethanol per gallon, in contrast, decreased 19.8% as of December 31,2007 compared to December 31, 2006, because of excess supply in theindustry.  Offsetting these factors,however, are increases in our revenue from the sale of distillers grains.Revenue from the sale of distillers grains increased 30% between periods.  The price of distillers grains rose becauseof increases in demand from livestock producers who increased their use ofdistillers grains for feed purposes due to the high price of corn and otherprotein based feed products.

 

We are expecting challenges in 2008, which could cause further profiterosion.  Our first challenge is dealingwith the high price of corn. While the 2007 corn crop in the U.S. set a recordat 13.1 billion bushels harvested, up 24% from 2006, we expect prices to lingerat or above their current level ($5.22 per bushel as of March 25, 2008) throughat least the summer. A factor contributing to this expectation is the lowerthan projected carryout from 2007. On January 11, 2008, the USDA revisedits December carryout projection from 1.797 billion bushels to 1.438billion bushels, because of increased feed use for livestock and other residualuses. Another factor, and an additional challenge we face, is the increase indemand for corn from the ethanol industry. In the U.S., another 5.6 billiongallons of ethanol are expected to enter the market in the next 18 months, allfrom new or expanding plants. Unless new markets for ethanol open up to absorbthese gallons, we anticipate that ethanol prices will remain depressed orpossibly commence a downward trend. The newly enacted renewable fuels standard,or RFS, which mandates the use 9.0 billion gallons of renewable fuels in 2008and 15 billion gallons by 2015, though it is expected eventually to create newmarkets to absorb this excess supply, the timing of its impact is uncertain.

 

While challenges lie ahead, we are encouraged by factors that couldpartially counter the effects of these challenges. Distillers grains revenuesare expected to remain strong, as the high prices of corn and soybean mealshould make the use of distillers grains more attractive to livestockproducers. We also believe that natural gas costs will remain stable through atleast June because of high inventories nationwide. Further, our plant,upon achieving its new name-plate capacity starting this spring, should capturegreater efficiencies through economies of scale. Nevertheless, we believe itwill be difficult to 

 

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overcomecompletely the challenges expected in the ethanol and corn markets. Sternerfiscal measures will be necessary, including preserving more cash fromoperations which is likely to lead to a decrease in cash distributions tomembers compared to 2007.

 

#### **Results of Operations**

####  

**Comparison of years ended December 31,2007 and December 31, 2006.**

 

**Great Plains Ethanol, LLC**

**10-K Summary**

** **
| ** **                              | ** ** | **Year Ended December 31, 2007** | ** ** | **Year Ended December 31, 2006** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                              | ** ** | **$**                            | ** ** | **% of Revenue**                 | ** ** | **$** | ** ** | **% of Revenue** | ** ** |
| **Revenue:**                            | ** ** | ** **                       | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Ethanol                                 |       | 97,860,121                       |       | 83.8                             |       | 108,568,020 |   | 88.0 |   |
| Distillers Grains                       |       | 18,250,666                       |       | 15.6                             |       | 14,034,220 |   | 11.4 |   |
| Incentive                               |       | 750,000                          |       | 0.6                              |       | 789,662 |   | 0.6 |   |
| Total                                   |       | 116,860,787                      |       | 100                              |       | 123,391,902 |   | 100 |   |
| **Cost of Revenues**                    |       | 96,632,969                       |       | 82.7                             |       | 68,675,968 |   | 55.7 |   |
| ** **                              |       |                             |       |                             |       |   |   |   |   |
| **General and Administrative Expenses** |       | 6,782,975                        |       | 5.8                              |       | 6,044,239 |   | 4.9 |   |
| ** **                              |       |                             |       |                             |       |   |   |   |   |
| **Other Operating Income (Expense)**    |       | 394,007                          |       | 0.3                              |       | (1,509,866 | ) | (1.2 | ) |
| ** **                              |       |                             |       |                             |       |   |   |   |   |
| **Net Income**                          |       | 13,838,850                       |       | 11.8                             |       | 47,161,828 |   | 38.2 |   |

 

*Revenues*-  Revenues decreased $6.5 million, or 5.3%, to$116.8 million for the year ended December 31, 2007 from $123.3 millionfor the year ended December 31, 2006. The decrease is attributed to a 9.8% decrease in ethanol revenue, offsetby a 30% increase in our distillers grains’ revenue.

 

Revenue from the sale of ethanol decreased approximately $10.7 million,or 9.8%, to $97.8 million for the year ended December 31, 2007 from $108.5million for the year ended December 31, 2006.  The decrease in ethanol revenue is due to a10% decrease in the average price of ethanol along with a slight decrease insales volume.  Ethanol prices continuedto decrease as the supply from new production in the U.S. outpaced demand.  Since the fourth quarter, however, the priceof ethanol has increased slightly, due mainly to an increase in prices in thecrude oil market and delay in the anticipated amount of new ethanol coming intoproduction in the U.S. in 2008.

 

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Revenue from the sale of distillers grains increased $4.2 million, or30.5%, to $18.2 million for the year ended December 31, 2007 from $14million for the year ended December 31, 2006.  The increase is in direct correlation withthe increase in prices of other commodities during this period such as corn,soybean meal and wheat.  We anticipatethat revenue from the sale of distillers grains will continue to correlate withthe price of these commodities in 2008.

 

*Cost of Revenues -*Cost of revenues, which includes production expenses, increased $27.9 million,or 40.7%, to $96.6 million for the year ended December 31, 2007, from$68.6 million for the year ended December 31, 2006.  Cost of revenues increased primarily due toan 87.3% increase in corn costs, including costs from our hedging strategies,offset by a 4.1% decrease in chemical costs, a 5.9% decrease in denaturantcosts, and a 10.3% decrease in natural gas costs.

 

Corn costs increased from 2006 to 2007 dueto an increase in the market price of corn. The annual average of the local market price of corn increased 59.1%during this period due to a concern over the low carryout at the end of 2006and an increased demand for corn from the growing ethanol industry.

 

Chemical costs decreased from 2006 to 2007due to product purchase discounts. Denaturant costs decreased for the same period due to a reduction inoverall usage.  Natural gas costsdecreased for the same period due to a 2.6% decrease in the cost per decathermand the positive impact our risk management program had on the value (gain) ofour hedging instruments.

 

*Operating Expenses*- General and administrationexpenses increased $738,000, or 12.2%, from the year ended December 31,2006 to the year ended December 31, 2007. This increase is due to a $1.9 million loss on impairment of assets,offset by a reduction in costs associated directly with the decrease in netincome such as management incentive fees. The loss on impairment at December 31,2007 is directly related to the replacement of existing equipment in connectionwith our plant’s expansion project.

 

*Interest Expense*—**Interest expensedecreased $1.6 million, or 85.5%, to $276,290 for the year ended December 31,2007 from $1.9 million for the year ended December 31, 2006.  This decrease is due to the capitalization of$2.1 million in interest costs in connection with our plant’s expansion.  We capitalized eligible interest costs on newdebt that we used to finance the purchase of qualifying assets for our plant’sexpansion.

 

*Net Income —*Netincome decreased $33.3 million, or 70.6%, to $13.8 million for the year ended December 31,2007 from $47.1 million for the year ended December 31, 2006.  This change is caused principally by adecrease in ethanol revenue and an increase in corn costs.

 

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

 
| ** **                              | ** ** | **Year Ended December 31, 2007** | ** ** | **Year Ended December 31, 2006** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                              | ** ** | **$**                            | ** ** | **% of Revenue**                 | ** ** | **$** | ** ** | **% of 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 Revenues**                    |       | 68,675,968                       |       | 55.7                             |       | 65,434,525 |   | 77.3 |   |
| ** **                              |       |                             |       |                             |       |   |   |   |   |
| **General and Administrative Expenses** |       | 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*- Our revenues increased$38.7 million, or 45.8%, to $123.3 million for the year ended December 31,2006 from $84.6 million for the year ended December 31, 2005.  The increase in revenue is primarily theresult of an increase in ethanol revenue.

 

Revenue from the sale of ethanol increased approximately $38 million,or 53.9%, to $108.5 million for the year ended December 31, 2006 from$70.5 million for the year ended December 31, 2005.  The increase in ethanol revenue is due to a45.9% increase in ethanol prices along with a 7.0% increase in sales volume.  Ethanol prices increased between periods as aresult of an increase in demand for ethanol from refineries during 2006.  During the first three quarters of 2006,refineries demanded more ethanol in the oxygenate blending process as theyphased out MTBE as an additive.

 

Revenue from the sale of distillers grains increased $688,000, or5.16%, to $14 million for the year ended December 31, 2006, from $13.3million for the year ended December 31, 2005.  Although we experienced a 9.8% decrease inthe average price per ton of dried distillers grains, revenue increasedprimarily due an increase in sales volume of our premium dried distillersgrains product, Dakota GoldTM.

 

*Cost of Revenues*- Cost of revenues, which includes production expenses, increased $3.2 million,or 4.95%, to $68.6 million for the year ended December 31, 2006 from $65.4million for the year ended December 31, 2005.  The increase in cost of revenues is primarilyattributed to an increase in costs for denaturant, processing, chemicals andfreight, offset by a decrease in natural gas costs. Corn costs remainedrelatively constant between periods, increasingly only slightly.

 

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Denaturant costs increased $1.25 million, or42.9%, from December 31, 2005 to the year ended December 31, 2006 asa 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.  Inaddition, freight costs for distillers grains increased 25.7%, from 2005 to2006 due to an increase in surcharge and expenses imposed by the BurlingtonNorthern Santa Railroad.

 

Natural gas costs, including costs from natural gas hedging, decreased$622,000, or 4.2%, from the year ended December 31, 2005 to the year endedDecember 31, 2006.  The decrease inthe cost per unit of natural gas is attributed to a decrease in the price ofcrude oil after a five-year average high, particularly following the recoveryfrom an overly active hurricane season in 2005.

 

Corn costs from 2005 to 2006, including costs from hedging activities,increased just $288,000, or less than 1%. Despite a 10% average increase in themarket price of corn from 2005 to 2006, corn costs remained relatively constantas the price increase was offset by our risk management program which had apositive impact on the value (gain) of our hedging instruments.

 

*Operating Expenses -*General andadministrative expenses increased $2.5 million, or 71.2%, to $6.0 million forthe year ended December 31, 2006 from $3.5 million for the year ended December 31,2005.  The increase is primarily due tocosts directly attributed to increases in sales and net income such asmanagement incentive fees.

 

*Interest Expense -*Interestexpense increased $505,000, or 35.9%, to $1.9 million for the year ended December 31,2006 from $1.4 million for the year ended December 31, 2005.  The increase is due to additional debtacquired in the third quarter of 2005 in order to finance conversion to BPXTM atour plant, as well as a 17.9% increase in variable interest rates.

 

*Net Income -* Net income increased $32.8 million, or 229%, to $47.1 million for theyear ended December 31, 2006 from $14.3 million for the year ended December 31,2005.  This change is caused primarilyby, as discussed above, and increase in ethanol revenue during a period ofrelatively constant cost of revenues.

 

**Liquidity and Capital Resources**

 

Our primary sources of liquidity are cash provided by operations andborrowings under our $70.0 million expansion loan and our $15.0 millionrevolving loan which is discussed below under Indebtedness. Net working capitalis $15.5 million as of December 31, 2007 compared to $29.8 million as of December 31,2006. The change in working capital is due principally to a reduction in cashthat we used to pay for our plant’s expansion.

 

The following table shows the cash flows between the year ended December 31,2007 and the year ended December 31, 2006:

 

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| ** **                                           | ** ** | **Year Ended December 31** | ** **  |
|------------------------------------------------------|------------|----------------------------|-------------|
| ** **                                           | ** ** | **2007**                   | ** **  | **2006** | ** ** |
| Net cash from operating activities                   |       | $                          | 14,433,772  |   | $ | 36,699,052 |   |
| Net cash (used for) investing activities             |       | $                          | (60,389,481 | ) | $ | (7,791,587 | ) |
| Net cash provided by (used for) financing activities |       | $                          | 25,998,344  |   | $ | (14,134,388 | ) |

 

*Cash Flow From Operating Activities —*  The decrease in cash fromoperating activities between periods is primarily the result of a decrease innet income and receivables, offset by an increase in inventory and accountspayable. Corn inventory increased significantly when we tripled our storagecapacity by adding four grain storage bins, plus were impacted by a 22.7%increase in the cash price of corn as of December 31, 2007 compared to December 31,2006.  Ethanol inventory increasedslightly from 2006 to 2007 due to an increase in the number of gallons ininventory, offset by a decrease in net realizable value.

 

*Cash Flow From Investing Activities —*The increase in cash used for investing activities between periods isprimarily the result of significantly larger payments in 2007, compared to2006, for our expansion and solid waste fuel boiler projects. In 2006, ourpayments were principally related to general planning and preparatory work forour plant’s expansion, compared to 2007 when our payments were principally forinfrastructure and equipment relating to both the expansion and solid wastefuel boiler projects.

 

*Cash Flow From Financing Activities -* The increase in cash provided by financing activities between periodsis primarily due to advances from our new debt financing and from a reductionin cash distributions to members.  In2007, advances on new debt were made to pay for our expansion and solid wastefuel boiler projects, compared to 2006 when we used more cash to pay off ourexisting debt and made larger distributions to members.

 

We believe that cash flows from operations and our revolving debt willbe sufficient to meet our expected capital and liquidity requirements for theforeseeable future. We also anticipate preserving more cash from operations inorder to deal with the challenges anticipated in 2008, consequently makingfewer and smaller distributions to members in 2008, if any, compared to 2007.

 

The following table shows the cash flows between the year 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 provided by (used for) financing activities |       | $                          | (14,134,388 | ) | $ | (7,837,011 | ) |

 

*Cash Flow From Operating Activities -* The increase in cash from operating actives between periods isprimarily the result of an increase in net income and accounts payable, offsetby an increase in receivables, inventory, and investment in commoditiescontracts.

 

*Cash Flow From InvestingActivities -* The increase in cashused for investing activities between periods is due to the commencement ofpayments in 2006 for general planning and preparatory work for 

 

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the plant’s expansion, compared to 2005 whenpayments were related to the construction and implementation of the BPXTM project.

 

*Cash Flow from Financing Activities -*The increase in cash used from financing activities between periods isprimarily due to an increase of $4 million in cash distributions to members in2006 compared to 2005.  In addition, wehad $13.9 million in advances from our existing debt financing to pay for cornand natural gas purchases in 2005, compared to 2006 when no advances were made.

 

**Indebtedness**

 

As of the date of this filing, we have four loans with AgCountry FarmCredit Services under a Credit Agreement dated August 10, 2007 andagreement dated February 20, 2008: 1) a $70.0 million variable rate loan,2) a $20.0 million variable rate loan, 3) a $15.0 million variable raterevolving loan, and 4) a $15.0 million variable rate line of credit loan.

 

The $15.0 million variable rate, revolving loan permits us to cover anyof our short-term operating cash needs, allowing us to borrow the differencebetween the unpaid principal balance and $15 million. The unpaid principalbalance on the loan is subject to a variable rate equal to LIBOR plus 3.0%,payable monthly. The total unpaid principal balance is due at the loan’smaturity of July 1, 2018.  The loanis subject to an unused commitment fee of 0.40% per year, payable quarterly.The principal balance outstanding on this loan is $6.09 million as of December 31,2007.

 

 The $20 million loan iscurrently subject to a variable rate of LIBOR plus 3.0% (7.66% as of December 31,2007). We have the option at later date to elect a fixed or adjustable rate, asprovided by AgCountry, for any borrowed amount exceeding $1 million. Paymentsof principal and interest are due quarterly with a balloon payment due atmaturity on July 1, 2013.  Theprincipal balance outstanding for the loan is $18.33 million as of December 31,2007.

 

The $70.0 million expansion loan is subject to a variable rate of LIBORplus 3.0%, adjusted and payable monthly. We are subject to an unused commitmentfee of 0.40% per year on any funds not borrowed through the required completiondate of the plant’s expansion. Upon completion, the loan will be converted to aterm loan, at which time we may elect a variable or fixed rate made availableby AgCountry. Payments of principal and interest will be due quarterlybeginning on July 1, 2008 with a balloon payment due at maturity on April 1,2016.  Prepayment is subject to penaltyfor an amount that will result in AgCountry being made whole for any actual andimputed funding losses.  The principalbalance outstanding for the loan is $35.06 million as of December 31,2007.

 

On February 20, 2008, we entered into an agreement with AgCountryfor a $15.0 million variable rate, line of credit loan.  This loan permits us to cover any of ourshort-term operating cash needs, allowing us to borrow the difference betweenthe unpaid principal balance and the lesser of $15,000,000 or the borrowingbase. The borrowing base is defined as the sum of 1) 75% of inventory minusunsettled payables; 2) 75% of gain/loss on market contracts; and 3) 75% ofaccounts receivables less than 90 days. The unpaid principal balance on theloan is subject to a variable rate equal to LIBOR plus 3.0%, payable quarterly.The total unpaid principal balance is due at the loan’s maturity of April 1,2009.  The loan is subject to an unusedcommitment fee of 0.25% per year, payable quarterly. As of the date of thisfiling, there was a principal balance outstanding of $7 million.

 

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The four loans are secured by our real property, tangible and intangibleproperty, buildings, improvements, equipment, personal property, and contracts.In addition to standard covenants and conditions in the Credit Agreement, weare subject to certain conditions and/or covenants including: 1) a distributionlimitation of, prior to substantial completion of our expansion, not greaterthan 40% of net income, and, after substantial completion of our expansion, notgreater than 75% of net income, and 100% of net income so long as we achieve anowners’ equity ratio (as defined) exceeding 60% and working capital exceeding$12 million; 2) a capital expenditure limitation of $750,000 for expendituresunrelated to our expansion and $2 million after completion; 3) a minimumworking capital of $5 million until completion of our expansion project, $10million for the first year after completion, and $12 million after the secondyear; 4) a current ratio of 1.20:1, the calculation of which includes theunfunded balance from the $15 million revolving loan; 5) a minimum owner’sequity percentage of 45% at the end of fiscal year; and 6) a fixed coverageratio of 1.00:1.00 by December 31, 2008. As of December 31, 2007 andthe date of this filing, we are in compliance with all covenants and conditionsunder the Credit Agreement.

 

Thefollowing table summarizes our contractual obligations as of December 31,2007:

 

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| ** **                             | ** ** | ** ** | ** **  | **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)         |       | $          | 91,354,165  |                                           | 7,708,333  |   | 24,166,666 |   | 24,166,666 |   | 35,312,500 |   |
| Purchase Obligations (2)               |       | 26,535,915 |        | 3,550,642                                      |       | 6,826,759 |   | 5,695,291 |   | 10,463,223 |   |
| Operating Leases (3)                   |       | 576,000    |        | 64,000                                         |       | 128,000 |   | 128,000 |   | 256,000 |   |
| **Total Contractual Cash Obligations** |       | $          | 118,466,080 |                                           | 11,322,975 |   | 31,121,425 |   | 29,989,957 |   | 46,031,723 |   |
|                                   |       |       |        |                                           |       |   |   |   |   |   |   |
|                                   |       |       |        |                                           |       |   |   |   |   |   |   |
|                                   |       |       |        | **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 (4)           |       | $          | 688,000     |                                           | 688,000    |   |   |   |   |   |   |   |
| Irrevocable Letter of Credit (5)       |       | $          | 160,019     |                                           | 160,019    |   |   |   |   |   |   |   |
| **Total Commercial Commitments**       |       | $          | 848,019     |                                           | 848,019    |   | — |   | — |   |   |   |

 

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(1) Long-term debtobligations reflect payment obligations arising under the amended LoanAgreement dated August 10, 2007 and includes payment of principal andinterest under the amended terms.  Thisobligation does not include the revolving loan or the line of credit loan.

 

(2)  Purchaseobligations include our minimum obligation for natural gas usage, electricityusage, wood chip usage, and agreements for management services, marketing, andrisk management.  Purchase obligationswhich are indefinite are assumed to continue for a period of 10 years and areincluded in the “After Five Years” column.

 

(3)  Operatingleases reflect our minimum obligation for a grain storage facility, which terminatesin 2017.

 

(4) On February 19,2008, we renewed a standby letter of credit agreement with our natural gasdistributor. The standby letter of credit is a form of security providedto our natural gas distributor in the event we do not use a minimum amount ofnatural gas. The distributor may draw on the letter of credit if we do notcomply with certain payment, purchase and delivery obligations under a naturalgasdistributionagreement.If thenatural gas distributor draws on the letter of credit, an equal amount must bedrawn on a line of credit from Home Federal Bank of Sioux Falls, South Dakota,at which time it becomes our obligation. The maturity date on the letter ofcredit is March 1, 2009. As of December 31, 2007, and March 1,2008, no draws had been made on the letter of credit.

 

(5) On November 1,2007, we provided to a natural gas distributor an irrevocable standby letter ofcredit. The letter of credit is security for the distributor in the event thatwe not use or displace the natural gas provided by this distributor to which we

 

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own rights in order tosupply 100% of the plant following expansion. In the event we do not use or displace it, the distributor may draw onthe letter of credit with our lender at which time it will become a debtobligation of ours. The maturity date on the letter of credit is November 1,2011. As of December 31, 2007 and March 1, 2008, no draws had beenmade on the letter of credit.

 

**Off-Balance Sheet Arrangements**

 

Except as discussed immediately above in the contractual obligationtables with respect to the letters of credit, we do not use or have anyoff-balance sheet financial arrangements.

 

**Recent Accounting Pronouncements**

 

InSeptember 2006, the FASB issued SFAS 157,*Fair Value Measurements*. SFAS 157 defines fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements. The statement is effective for (1) financial assets andliabilities in financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years and (2) certainnon-financial assets and liabilities in financial statements issued for fiscalyears beginning after November 15, 2008, and interim periods within thosefiscal years. We are evaluating the effect, if any, that the adoption of SFAS157 will have on our results of operations, financial position, and the relateddisclosures.

 

InFebruary 2007, the FASB issued SFAS 159, *TheFair Value Option for Financial Assets and Financial Liabilities — Including anamendment of FASB Statement No. *115 (*Accounting for Certain Investments in Debt and Equity Securities*).SFAS 159 provides companies with an option to report selected financial assetsand liabilities at fair value and is effective for fiscal years beginning afterNovember 15, 2007 with early adoption permitted. We are evaluating theeffect, if any, that the adoption of SFAS 159 will have on our results ofoperations, financial position, and the related disclosures.

 

InDecember 2007, the FASB issued SFAS 160, *NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB No. 51(Consolidated Financial Statements)*. SFAS 160 establishes accountingand reporting standards for a noncontrolling interest in a subsidiary and forthe deconsolidation of a subsidiary. In addition, SFAS 160 requires certainconsolidation procedures for consistency with the requirements of SFAS 141, *Business Combinations*. SFAS 160 iseffective for fiscal years, and interim periods within those fiscal years,beginning on or after December 15, 2008 with earlier adoption prohibited.We are evaluating the effect, if any, that the adoption of SFAS 160 will haveon our results of operations, financial position, and the related disclosures.

 

InDecember 2007, the FASB issued SFAS 141(R), *Business Combinations*.  SFAS 141(R) expands thedefinition of transactions and events that qualify as business combinations;requires that the acquired assets and liabilities, including contingencies, berecorded at the fair value determined on the acquisition date and changesthereafter reflected in revenue, not goodwill; changes the recognition timingfor restructuring costs; and requires acquisition costs to be expensed asincurred. Adoption of SFAS 141(R) is required for combinations after December 15,2008. Early adoption and retroactive application of SFAS 141(R) to fiscalyears preceding the effective date are not permitted. We are evaluating theeffect, if any, that the adoption of SFAS 141(R) will have on our resultsof operations, financial position, and the related disclosures.

 

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**Application of Critical Accounting Policies and Estimates**

 

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

 

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

 

*Long-Lived Assets*

 

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

 

Long-lived assets, including property, plant and equipment andinvestments are evaluated for impairment on the basis of undiscounted cashflows whenever events or changes in circumstances indicate that the carryingamount of an asset may not be recoverable. An impaired asset is writtendown to its estimated fair market value based on the best informationavailable. Considerable management judgment is necessary to estimate futurecash flows and may differ from actual cash flows. Management does notexpect a material impairment of assets based on their assessment of the risksand rewards related to the ownership of these assets and the expected cashflows generated from the operation of the plant.

 

*Inventory Valuation*

 

We account for our corn inventory at estimated net realizable marketvalue. Corn is an agricultural commodity that is freely traded, has quotedmarket prices, may be sold without significant further processing and haspredictable and insignificant costs of disposal. We derive our estimates fromlocal market prices determined by grain terminals in the area. Change in themarket value of corn inventory is recognized as a component of cost ofrevenues. Ethanol and distillers grains’ inventories are stated at netrealizable value. Work-in-process, supplies, parts and chemical inventory arestated at the lower of cost or market on the first-in, first-out method.

 

###### *Revenue Recognition*

######  

Revenue from the production of ethanol and related products is recordedwhen title transfers to customers, net of allowances for estimatedreturns. Interest income is recognized when earned.

 

Revenue from state incentive programs is recorded when we have producedor sold the ethanol and satisfied the reporting requirements under the program.

 

37

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*Commitments and Contingencies*

 

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

 

*Derivative Instruments and Hedging Activities*

 

We enter into derivative contracts to hedge our exposure to price riskrelated to forecasted corn and natural gas purchases, forward corn purchasecontracts and certain distiller grain sales. We do not typically enter intoderivative instruments other than for hedging purposes. All derivativecontracts are recognized on the December 31, 2007 and 2006 balance sheetsat their fair market value.

 

On the date the derivative instrument is entered into, we designate thederivative as either (1) a hedge of the fair value of a recognized assetor liability or of an unrecognized firm commitment (fair value hedge), (2) ahedge of a forecasted transaction or of the variability of cash flows to bereceived 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 fairvalue of a derivative that is designated as and meets all the required criteriafor a fair value hedge, along with the gain or loss on the hedged asset orliability that is attributable to the hedged risk, are recorded in currentperiod earnings. Changes in the fair value of a derivative that is designatedas and meets all the required criteria for a cash flow hedge are recorded inaccumulated other comprehensive income and reclassified into earnings as theunderlying hedged item affects earnings. Changes in the fair value of aderivative that is not designated as a hedge are recorded in current periodearnings.

 

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

 

We are exposed to the impact of market fluctuations associated withcommodity prices and interest rates as discussed below. We have no exposure toforeign currency risk as all of our business is conducted in U.S. Dollars. Weuse derivative financial instruments as part of an overall strategy tomanage market risk. Specifically, we use forward, futures and option contractsto hedge changes to the commodity prices of corn, natural gas. However, we donot enter into these derivative financial instruments for trading orspeculative purposes, nor do we designate these contracts as hedges foraccounting purposes pursuant to the requirements of SFAS 133, Accounting forDerivative Instruments and Hedging Activities.

 

*Commodity Price Risk*

 

We produce ethanol and its co-product, distillers grains, from corn,and as such are sensitive to changes in the price of corn. The price of corn issubject to fluctuations due to unpredictable factors such as weather, totalcorn planted and harvested acreage, changes in national and global supply anddemand, and government programs and policies. We also use natural gas in theproduction process and, as such, are sensitive to changes in the price ofnatural gas. The price of natural gas is influenced by such weather factors asheat or cold in the summer and winter, in addition to the threat of hurricanesin the spring, summer and fall. Other natural gas price factors include thedomestic onshore and offshore rig count, and the amount of natural gas inunderground storage during both the injection (April 1st — 

 

38

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November 7th)and withdrawal (November 14th — March 31st) seasons. The price ofdistiller grains is influenced by the price of corn and soybean meal.

 

We attempt to reduce the market risk associated with fluctuations inthe price of corn and natural gas by employing a variety of risk managementstrategies. Strategies include the use of derivative financial instruments suchas futures and options initiated on the Chicago Board of Trade and/or the NewYork Mercantile Exchange, as well as the daily cash management of our totalcorn and natural gas ownership relative to its monthly demand for eachcommodity, which may incorporate the use of forward cash contracts orbasis contracts.

 

Corn is hedged with derivative instruments including futures andoptions contracts offered through the Chicago Board of Trade. Forward cash cornand basis contracts are also utilized to minimize future price risk. Likewise,natural gas is hedged with futures and options contracts offered through theNew York Mercantile Exchange. Basis contracts are also utilized to minimizefuture price risk.

 

Gains and losses on futures and options contracts used as economichedges of corn inventory as well as on forward cash corn and basis contracts,are recognized as a component of our cost of revenues for financial reportingon a monthly basis using month-end settlement prices for futures on the ChicagoBoard of Trade. Corn inventories and distillers grains are marked to fair valueusing market based prices so that gains or losses on the derivative contracts,as well as forward cash corn and basis contracts, are offset by gains or losseson inventories during the same accounting period.

 

Gains and losses on futures and options contracts used as economichedges of natural gas, as well as basis contracts, are recognized as acomponent of our cost of revenues for financial reporting on a monthly basisusing month-end settlement prices for natural gas futures on the New York MercantileExchange. The natural gas inventories hedged with these derivatives or basiscontracts are valued at the spot price of natural gas, plus or minus the gainor 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 estimate our exposure tocommodity price risk. The table presents the fair value of corn inventory,forward purchase contracts and open futures and option positions for corn andnatural gas as of December 31, 2007 and December 31, 2006 and thepotential loss in fair value resulting from a hypothetical 10% adverse changein corn and natural gas prices. The fair value of the positions is a summationof the fair values calculated by valuing each net position at quoted marketprices as of the applicable date. The results of this analysis, whichmay differ from actual results, are as follows:

 
| ** **     | ** ** | ** **     | ** ** | **Effect of**           | ** ** |
|----------------|------------|----------------|------------|-------------------------|------------|
| ** **     | ** ** | ** **     | ** ** | **Adverse**             | ** ** |
| **Year Ended** | ** ** | **Fair Value** | ** ** | **Change— Market** | ** ** |
| 31-Dec-07      |       | $              | 8,839,054  |                    | $          | 883,905 |   |
| 31-Dec-06      |       | $              | 20,221,981 |                    | $          | 2,022,198 |   |

 

*Interest Rate Risk*

 

Interest rate risk exposure pertains primarily to our variable rate,long-term debt. Specifically, as of December 31, 2007, we had $59.4million in variable rate, long-term debt, the variable rate being 7.66%. Wemanage interest rate risk by monitoring the effects of market changes on theinterest rates and converting portions of our variable-rate debt to fixed-ratedebt whenever possible.

 

39

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

 

Reference is made to the “Table of Contents” of Great Plains Ethanol,LLC located on the page immediately prior to page F-1 of this report,and financial statements for the year ended December 31, 2007 referencedtherein, which are hereby incorporated by reference.

 

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

 

None.

 

**Item 9A (T). Controls and Procedures.**

 

**Evaluation of Disclosure Controls and Procedures**

 

*Evaluation of Disclosure Controls and Procedures.*  Our management, with the participation of ourChief Executive Officer/Chief Financial Officer, has evaluated theeffectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”) as of the end of the period covered by this report. Based on thisevaluation,our managementhas concluded that our disclosure controls and procedures are effective toensure that information required to be disclosed by us in reports that we fileor submit under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms. Additionally, based on management’s evaluation, our disclosure controlsand procedures were effective in ensuring that information required to bedisclosed in our Exchange Act reports is accumulated and communicated to ourmanagement, including our Chief Executive Officer/Chief Financial Officer, toallow timely decisions regarding required disclosures.

 

*Management’s report on internal control over financial reporting. *Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rule 13a-15(f) of the SecuritiesExchange Act of 1934.  Our internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles in the U.S. Our internal control over financial reporting includes those policiesand procedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of assets; (ii) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with U.S. generally accepted accounting principles,and that our receipts and expenditures are being made only in accordance withauthorizations of our management and directors; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of our assets that could have a materialeffect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

Managementhas assessed our internal control over financial reporting in relation tocriteria described in *Internal Control-Integrated Framework*, issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this assessment using those criteria, we 

 

40

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concludedthat, as of December 31, 2007, our internal control over financialreporting was effective. Our management reviewed the results of theirassessment with the Audit Committee.

 

ThisAnnual Report does not include an attestation report of our registered publicaccounting firm regarding internal control over financial reporting.  Management’s report was not subject toattestation by our registered public accounting firm pursuant to temporary rules ofthe Commission that permit us to provide only management’s report in thisreport.

 

*Changes in Internal Control over Financial Reporting.*  There was no change in our internal controlover financial reporting that occurred during the quarter ended December 31,2007 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 
|   | /s/ Rick Serie                               |   |
|--------|----------------------------------------------|--------|
|   | Rick Serie, Chief Executive Officer          |   |
|   | and Chief Financial Officer, General Manager |   |
|   | (Principal Executive Officer)                |   |

 

**Item 9B. Other Information.**

 

None.

 

**PART III**

 

Pursuant to General Instructions G(3), weomit Part III, Items 10, 11, 12, 13 and 14, and incorporate such items byreference to an amendment to this Annual Report on Form 10-K or to anInformation Statement to be filed with the Commission within 120 days after theclose of the fiscal year covered by this report (December 31, 2007).

 

**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 “Table of Contents” ofGreat Plains Ethanol, LLC located on the page immediately prior to page F-1of this report for a list of the financial statements and schedules for theyear ended December 31, 2007 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.

 

41

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(b)  See Item 15(a)

 

**SIGNATURES**

 

Pursuant to the requirement of Section 13 or 15(d) of theSecurities Exchange Act, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
|   |                 | GREAT  PLAINS ETHANOL,LLC                                                                                 |
|--------|----------------------|-----------------------------------------------------------------------------------------------------------|
|   |                 |                                                                                                      |
| Date:  | March 27,  2008 | /s/  Rick Serie                                                                                           |
|   |                 | Rick  A. Serie, Chief   Executive Officer and   Chief Financial Officer   (Principal Executive   Officer) |

 

Pursuant to the requirements of the Securities Exchange Act, thisreport has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.

 
| Date:  | March 27,  2008 | /s/  Rick Serie                                          |
|--------|----------------------|----------------------------------------------------------|
|   |                 | Rick  A. Serie                                           |
|   |                 | Chief  Executive Officer   and Chief Financial   Officer |
|   |                 |                                                     |
|   |                 |                                                     |
| Date:  | March 27,  2008 | /s/  Dennis Hardy                                        |
|   |                 | Dennis  Hardy, Manager                                   |
|   |                 |                                                     |
| Date:  | March 27,  2008 | /s/  Darrin Ihnen                                        |
|   |                 | Darrin  Ihnen, Manager                                   |
|   |                 |                                                     |
| Date:  | March 27,  2008 | /s/  Mark Miller                                         |
|   |                 | Mark  Miller, Manager                                    |
|   |                 |                                                     |
| Date:  | March 27,  2008 | /s/  Dennis Schrag                                       |
|   |                 | Dennis  Schrag, Manager                                  |
|   |                 |                                                     |
| Date:  | March 27,  2008 | /s/  Steve Sinning                                       |
|   |                 | Steve  Sinning, Manager                                  |
|   |                 |                                                     |
| Date:  | March 27,  2008 | /s/  Fred Thurman                                        |
|   |                 | Fred  Thurman, Manager                                   |
|   |                 |                                                     |
| Date:  | March 27,  2008 | /s/  Dan Viet                                            |
|   |                 | Dan  Viet, Manager                                       |
|   |                 |                                                     |
| Date   | March 27,  2008 | /s/  Timothy Voegele                                     |
|   |                 | Timothy  Voegele, Manager                                |
|   |                 |                                                     |
| Date:  | March 27,  2008 | /s/  Larry Ward                                          |
|   |                 | Larry  Ward, Manager                                     |

 

42

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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 dated January 7, 2003.                                                  |       |               |       | Exhibit 10.21  to the registrant’s Form 10-KSB filed with the Commission on  March 4, 2003.                    |
| 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        |       | 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.                     |
| 10.12        |       | 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.                        |
| 10.13        |       | 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.                        |
| 10.14        |       | 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.                   |
| 10.15        |       | 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.                   |
| 10.16        |       | Amended and  Restated Letter of Credit dated February 16, 2007.                                  |       |               |       | Exhibit   10.21 to the registrant’s Form 10-K filed with the Commission on  March 21 2007                      |
| 10.17        |       | Promissory Note  Modification Agreement, dated February 14, 2007                                 |       |               |       | Exhibit   10.22 to the registrant’s Form 10-K filed with the Commission on  March 21, 2007                     |
| 10.18        |       | Corn and Natural  Gas Price Risk Management Agreement dated November 30, 2006.                   |       |               |       | Exhibit   10.23 to the registrant’s Form 10-K filed with the Commission on  March 21, 2007                     |
| 10.19        |       | Second Amendment  to Ethanol Marketing Service Agreement dated November 30, 2006.                |       |               |       | Exhibit   10.24 to the registrant’s Form 10-K filed with the Commission on March 21,  2007                     |

 

43

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| 10.20 |   | Agreement  between Owner and Design Builder dated May 9, 2007.                                          |   |   |   | Exhibit 10.1  to the registrant’s Form 10-Q filed with the Commission on  August 14, 2007.   |
|-------|--------|--------------------------------------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------|
| 10.21 |   | Master Credit  Agreement with AgCountry dated August 10, 2007.                                          |   |   |   | Exhibit 10.1  to the registrant’s Form 10-Q filed with the Commission on  November 14, 2007  |
| 10.22 |   | First Supplement  to Master Credit Agreement dated August 10, 2007                                      |   |   |   | Exhibit 10.2  to the registrant’s Form 10-Q filed with the Commission on  November 14, 2007. |
| 10.23 |   | Second  Supplement to Master Credit Agreement dated August 10, 2007                                     |   |   |   | Exhibit 10.3  to the registrant’s Form 10 filed with the Commission on  November 14, 2007.   |
| 10.24 |   | Third Supplement  to Master Credit Agreement dated August 10, 2007.                                     |   |   |   | Exhibit 10.4  to the registrant’s Form 10-Q filed with the Commission on  November 14, 2007. |
| 10.25 |   | Refinancing  Revolving and Expansion Promissory Noted dated August 10, 2007.                            |   |   |   | Exhibit 10.5  to the registrant’s Form 10-Q filed with the Commission on  November 14, 2007. |
| 10.26 |   | Mortgage with  AgCountry dated August 10, 2007                                                          |   |   |   | Exhibit 10.6  to the registrant’s Form 10-Q filed with the Commission on  November 14, 2007. |
| 10.27 |   | Security  Agreement with AgCountry dated August 10, 2007.                                               |   |   |   | Exhibit 10.7  to the registrant’s Form 10-Q filed with the Commission on  November 14, 2007. |
| 10.28 |   | Loan Agreement  with POETTM,  LLC dated January 14, 2008.                                           |   | X      |   |                                                                                                             |
| 10.29 |   | Loan Agreement  with POETTM,  LLC dated January 15, 2008.                                           |   | X      |   |                                                                                                             |
| 10.30 |   | Promissory  Note/Loan Agreement with AgCountry dated February 20, 2008.                                 |   | X      |   |                                                                                                             |
| 10.31 |   | Amendment to  Electric Service Agreement dated July 23, 2007.                                           |   | X      |   |                                                                                                             |
| 10.32 |   | Sixth Amended  and Restated Letter of Credit Agreement with Home Federal Bank dated  February 19, 2008. |   | X      |   |                                                                                                             |
| 10.33 |   | Amendment to  Purchase Agreement with Mueller Pallets, LLC dated February 20, 2008                      |   | X      |   |                                                                                                             |
| 31    |   | Rule 13a-14(a)/15d-14(a) Certifications                                                            |   | X      |   |                                                                                                             |
| 32    |   | Section 1350  Certification                                                                             |   | X      |   |                                                                                                             |

 

----

* Theredacted portions to Exhibit 10.16 were filed separately with theCommission subject to a request for confidential treatment dated May 13,2005.

 

** Documents can be found at www.sec.gov.

 

 

44

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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      |

 

 

----

 

 

Tothe Audit Committee of

**GreatPlains Ethanol, LLC**

Chancellor,South Dakota

 

Wehave audited the accompanying balance sheets of **Great PlainsEthanol, LLC** as of December 31, 2007 and 2006, and the relatedstatements of operations, changes in members’ equity, and cash flows for theyears ended December 31, 2007, 2006 and 2005. These financial statementsare the responsibility of the company’s management.  Our responsibility is to express an opinionon 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 suchan opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of **Great PlainsEthanol, LLC** as of December 31, 2007 an 2006, and the resultsof its operations and its cash flows for each of the years ended December 31,2007, 2006, and 2005 in conformity with accounting principles generallyaccepted in the United States of America.

 

 

SiouxFalls, South Dakota

March 24,2008

 

 

PEOPLE.PRINCIPLES. POSSIBILITIES.

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www.eidebailly.com

 

200E. 10th Street, Suite 500 ·PO Box 5125 · Sioux Falls, South Dakota57117-5125 · Phone 605.339.1999 · Fax 605.339.1306 ·EOE

 

 

F-1

----

 

 

 

 

**GREAT PLAINS ETHANOL, LLC**

**BALANCE SHEETS**

**DECEMBER 31, 2007 AND 2006**

 
| ** **                            | ** ** | **December 31,** | ** **      | **December 31,** | ** ** |
|---------------------------------------|------------|-----------------------|-----------------|-----------------------|------------|
| **ASSETS**                            | ** ** | **2007**              | ** **      | **2006**              | ** ** |
|                                  |       |                  |            |                  |       |
| CURRENT ASSETS                        |       |                  |            |                  |       |
| Cash and cash  equivalents            | ** ** | **$**                 | **10,953**      |                  | $          | 19,968,318 |   |
| Receivables                           |       |                  |            |                  |       |
| Ethanol -  related party              | ** ** | **4,389,077**         |            | 6,367,014             |       |
| Distillers grain                      | ** ** | **829,813**           |            | 634,718               |       |
| Incentives                            | ** ** | **166,667**           |            | 166,667               |       |
| Other                                 | ** ** | **42,457**            |            | 13,732                |       |
| Inventory                             | ** ** | **25,583,587**        |            | 15,856,010            |       |
| Investment in  commodities contracts  | ** ** | **1,974,846**         |            | 2,330,760             |       |
| Prepaid expenses                      | ** ** | **90,424**            |            | 98,418                |       |
| Total current  assets                 | ** ** | **33,087,824**        |            | 45,435,637            |       |
|                                  |       |                  |            |                  |       |
| PROPERTY AND EQUIPMENT                |       |                  |            |                  |       |
| Land                                  | ** ** | **270,210**           |            | 270,210               |       |
| Land  improvements                    | ** ** | **3,581,250**         |            | 3,581,250             |       |
| Buildings                             | ** ** | **6,987,893**         |            | 6,987,893             |       |
| Equipment                             | ** ** | **60,073,412**        |            | 43,415,286            |       |
| Construction in  process              | ** ** | **56,344,822**        |            | 7,532,027             |       |
|                                  | ** ** | **127,257,587**       |            | 61,786,665            |       |
| Less accumulated  depreciation        | ** ** | **(12,112,898**       | **)**           | (9,998,636            | )          |
| Net property and  equipment           | ** ** | **115,144,690**       |            | 51,788,029            |       |
|                                  |       |                  |            |                  |       |
| OTHER ASSETS                          |       |                  |            |                  |       |
| Financing costs,  net of amortization | ** ** | **781,255**           |            | 40,151                |       |
| Assets held for  sale                 | ** ** | **141,180**           |            | —                |       |
| Long term  prepaid expenses           | ** ** | **161,361**           |            | 184,628               |       |
| Other                                 | ** ** | **1,000**             |            | 1,000                 |       |
|                                  | ** ** | **1,084,796**         |            | 225,779               |       |
|                                  |       |                  |            |                  |       |
| **TOTAL  ASSETS**                     | ** ** | **$**                 | **149,317,309** |                  | $          | 97,449,445 |   |

 

See Notes to FinancialStatements

 

F-2

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| ** **                                                          | ** ** | **December 31,** | ** **      | **December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|-----------------|-----------------------|------------|
| **LIABILITIES AND MEMBERS’ EQUITY**                            | ** ** | **2007**              | ** **      | **2006**              | ** ** |
|                                                                |       |                  |            |                  |       |
| CURRENT LIABILITIES                                                 |       |                  |            |                  |       |
|                                                                |       |                  |            |                  |       |
| Accounts payable  - trade                                           | ** ** | **$**                 | **8,726,072**   |                  | $          | 5,158,562 |   |
| Accounts payable  to related party                                  | ** ** | **423,467**           |            | 842,988               |       |
| Accrued  distribution                                               | ** ** | **—**            |            | 3,742,000             |       |
| Excess of  outstanding checks over bank balance                     | ** ** | **262,912**           |            | 2,506,864             |       |
| Other accrued  liabilities                                          | ** ** | **393,291**           |            | 503,684               |       |
| Current portion  of long-term debt                                  | ** ** | **7,708,333**         |            | 2,783,032             |       |
|                                                                |       |                  |            |                  |       |
| Total current  liabilities                                          | ** ** | **17,514,076**        |            | 15,537,130            |       |
|                                                                |       |                  |            |                  |       |
| LONG-TERM DEBT                                                      | ** ** | **59,959,430**        |            | 19,229,863            |       |
|                                                                |       |                  |            |                  |       |
| COMMITMENTS AND CONTINGENCIES (See Note 7)                          |       |                  |            |                  |       |
|                                                                |       |                  |            |                  |       |
| 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, $5,000 par, 2,029 units issued and outstanding | ** ** | **10,145,000**        |            | 10,145,000            |       |
| Additional  paid-in capital                                         | ** ** | **7,000**             |            | 7,000                 |       |
| Retained  earnings                                                  | ** ** | **53,126,803**        |            | 43,965,453            |       |
|                                                                |       |                  |            |                  |       |
| Total members’  equity                                         | ** ** | **71,843,803**        |            | 62,682,453            |       |
|                                                                |       |                  |            |                  |       |
| **TOTAL LIABILITIES & MEMBERS’ EQUITY**               | ** ** | **$**                 | **149,317,309** |                  | $          | 97,449,445 |   |

 

See Notes to FinancialStatements

 

F-3

----

** **

# **GREAT PLAINS ETHANOL, LLC**

**STATEMENTS OF OPERATIONS**

**YEARS ENDED DECEMBER 31, 2007,2006 AND 2005**

 
| ** **                       | ** ** | **Year Ended**        | ** **     | **Year Ended**        | ** ** | **Year Ended**        | ** ** |
|----------------------------------|------------|-----------------------|----------------|-----------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **December 31,** | ** **     | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                       | ** ** | **2007**              | ** **     | **2006**              | ** ** | **2005**              | ** ** |
|                             |       |                  |           |                  |       |                  |       |
| REVENUES                         |       |                  |           |                  |       |                  |       |
| Sales - related  party           | ** ** | **$**                 | **97,860,121** |                  | $          | 108,568,020           |       | $ | 70,551,148 |   |
| Sales                            | ** ** | **18,250,666**        |           | 14,034,220            |       | 13,345,911            |       |
| Incentive  revenue               | ** ** | **750,000**           |           | 789,662               |       | 748,460               |       |
| Total revenues                   |       | **116,860,787**       | ** **     | 123,391,901           |       | 84,645,519            |       |
|                             |       |                  |           |                  |       |                  |       |
| COST OF REVENUES                 | ** ** | **96,632,969**        |           | 68,675,968            |       | 65,434,525            |       |
|                             |       |                  |           |                  |       |                  |       |
| GROSS PROFIT                     | ** ** | **20,227,818**        |           | 54,715,933            |       | 19,210,994            |       |
|                             |       |                  |           |                  |       |                  |       |
| OPERATING EXPENSES               |       |                  |           |                  |       |                  |       |
| General and  administrative      | ** ** | **4,790,232**         |           | 6,044,239             |       | 3,530,388             |       |
| Loss on  impairment of assets    | ** ** | **1,992,743**         |           | —                |       | —                |       |
| Total operating  expenses        | ** ** | **6,782,975**         |           | 6,044,239             |       | 3,530,388             |       |
|                             |       |                  |           |                  |       |                  |       |
| INCOME FROM OPERATIONS           | ** ** | **13,444,843**        |           | 48,671,694            |       | 15,680,606            |       |
|                             |       |                  |           |                  |       |                  |       |
| OTHER INCOME AND (EXPENSES)      |       |                  |           |                  |       |                  |       |
| Interest income                  | ** ** | **551,749**           |           | 582,789               |       | 47,894                |       |
| Interest expense                 | ** ** | **(276,290**          | **)**          | (1,909,752            | )          | (1,404,660            | )          |
| Other                            | ** ** | **118,547**           |           | (182,903              | )          | 6,556                 |       |
| Total other  income and expenses | ** ** | **394,007**           |           | (1,509,866            | )          | (1,350,210            | )          |
|                             |       |                  |           |                  |       |                  |       |
| NET INCOME                       | ** ** | **$**                 | **13,838,850** |                  | $          | 47,161,828            |       | $ | 14,330,397 |   |
|                             |       |                  |           |                  |       |                  |       |
| BASIC AND DILUTED INCOME         |       |                  |           |                  |       |                  |       |
| PER CAPITAL UNIT                 | ** ** | **$**                 | **3,698**      |                  | $          | 12,603                |       | $ | 3,830 |   |
|                             |       |                  |           |                  |       |                  |       |
| WEIGHTED AVERAGE CAPITAL         |       |                  |           |                  |       |                  |       |
| UNITS  OUTSTANDING:              |       |                  |           |                  |       |                  |       |
|                             |       |                  |           |                  |       |                  |       |
| BASIC AND  DILUTED               | ** ** | **3,742**             |           | 3,742                 |       | 3,742                 |       |

 

See Notes to FinancialStatements

 

F-4

----

# **GREAT PLAINS ETHANOL, LLC**

**STATEMENTSOF CHANGES IN MEMBERS’ EQUITY**

**YEARSENDED DECEMBER 31, 2007, 2006 AND 2005**

 
| ** **                                  | ** ** | **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, 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 |   |
|                                        |       |              |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                  |       | —            |       | —           |          | —           |       | —           |       | — |   | — |   | — |   | — |   | — |   | 13,838,850 |   | 13,838,850 |   |
|                                        |       |              |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions to members,   $1,250 per unit |       | —            |       | —           |          | —           |       | —           |       | — |   | — |   | — |   | — |   | — |   | (4,677,500 | ) | (4,677,500 | ) |
|                                        |       |              |       |             |          |             |       |             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance, December 31, 2007**         | ** ** | **1,513**         | ** ** | **$**            | **7,565,000** | ** **       | **200**    | ** **       | **$**      | **1,000,000** | ** ** | **2,029** | ** ** | **$** | **10,145,000** | ** ** | **—** | ** ** | **$** | **—** | ** ** | **$** | **7,000** | ** ** | **$** | **53,126,803** | ** ** | **$** | **71,843,803** | ** ** |

 

SeeNotes to Financial Statements

 

F-5

----

 

# ** **

# **GREAT PLAINS ETHANOL, LLC**

**STATEMENTSOF CASH FLOWS**

**YEARSENDED DECEMBER 31, 2007, 2006 AND 2005**

 
| ** **                                                               | ** ** | **Year Ended**        | ** **     | **Year Ended**        | ** ** | **Year Ended**        | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------|----------------|-----------------------|------------|-----------------------|------------|
| ** **                                                               | ** ** | **December 31,** | ** **     | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                               | ** ** | **2007**              | ** **     | **2006**              | ** ** | **2005**              | ** ** |
| OPERATING ACTIVITIES                                                     |       |                  |           |                  |       |                  |       |
| Net income                                                               | ** ** | **$**                 | **13,838,850** |                  | $          | 47,161,828            |       | $ | 14,330,397 |   |
| Changes to net income not affecting cash                                 |       |                  |           |                  |       |                  |       |
| Depreciation                                                             | ** ** | **3,080,966**         |           | 2,919,811             |       | 2,724,371             |       |
| Amortization                                                             | ** ** | **73,697**            |           | 6,850                 |       | 297,583               |       |
| (Gain)loss on equipment disposals                                        | ** ** | **(3,796**            | **)**          | 189,146               |       | —                |       |
| Loss on impairment of assets                                             | ** ** | **1,992,743**         |           | —                |       | —                |       |
| Change in operating assets and liabilities                               |       |                  |           |                  |       |                  |       |
| Receivables                                                              | ** ** | **1,754,117**         |           | (2,237,102            | )          | (728,293              | )          |
| Inventory                                                                | ** ** | **(9,727,577**        | **)**          | (11,028,327           | )          | (324,436              | )          |
| Investments in commodities contracts                                     | ** ** | **355,914**           |           | (1,440,270            | )          | 647,629               |       |
| Prepaid expenses                                                         | ** ** | **31,261**            |           | 73,179                |       | (90,468               | )          |
| Accounts payable - trade                                                 | ** ** | **3,567,511**         |           | 845,609               |       | 375,930               |       |
| Accounts payable to related party                                        | ** ** | **(419,521**          | **)**          | 284,834               |       | 223,225               |       |
| Accrued liabilities                                                      | ** ** | **(110,392**          | **)**          | (76,507               | )          | 342,603               |       |
|                                                                     |       |                  |           |                  |       |                  |       |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                | ** ** | **14,433,772**        |           | 36,699,052            |       | 17,798,541            |       |
|                                                                     |       |                  |           |                  |       |                  |       |
| INVESTING ACTIVITIES                                                     |       |                  |           |                  |       |                  |       |
| Purchase of property and equipment                                       | ** ** | **(60,389,481**       | **)**          | (7,791,587            | )          | (5,745,573            | )          |
|                                                                     |       |                  |           |                  |       |                  |       |
| NET CASH USED FOR INVESTING ACTIVITIES                                   | ** ** | **(60,389,481**       | **)**          | (7,791,587            | )          | (5,537,766            | )          |
|                                                                     |       |                  |           |                  |       |                  |       |
| FINANCING ACTIVITIES                                                     |       |                  |           |                  |       |                  |       |
| Advances on notes payable                                                | ** ** | **41,156,157**        |           | —                |       | 13,900,000            |       |
| Principal payments on notes payable                                      | ** ** | **(3,679,562**        | **)**          | (2,608,752            | )          | (11,588,827           | )          |
| Distributions paid to members, $2,250, $3,750, and $2,700 per unit       | ** ** | **(8,419,500**        | **)**          | (14,032,500           | )          | (10,103,400           | )          |
| Increase (Decrease) in excess of outstanding checks over bank balance    | ** ** | **(2,243,952**        | **)**          | 2,506,864             |       | —                |       |
| Financing costs paid                                                     | ** ** | **(814,800**          | **)**          | —                |       | (44,784               | )          |
|                                                                     |       |                  |           |                  |       |                  |       |
| NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES                     | ** ** | **25,998,344**        |           | (14,134,388           | )          | (7,837,011            | )          |
|                                                                     |       |                  |           |                  |       |                  |       |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                     | ** ** | **(19,957,366**       | **)**          | 14,773,076            |       | 4,423,764             |       |
|                                                                     |       |                  |           |                  |       |                  |       |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                         | ** ** | **19,968,318**        |           | 5,195,242             |       | 771,478               |       |
|                                                                     |       |                  |           |                  |       |                  |       |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                               | ** ** | **$**                 | **10,953**     |                  | $          | 19,968,318            |       | $ | 5,195,242 |   |
|                                                                     |       |                  |           |                  |       |                  |       |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                         |       |                  |           |                  |       |                  |       |
|                                                                     |       |                  |           |                  |       |                  |       |
| Cash paid for interest                                                   | ** ** | **$**                 | **2,415,071**  |                  | $          | 1,909,752             |       | 1,404,660 |   |
|                                                                     |       |                  |           |                  |       |                  |       |
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING  ACTIVITIES |       |                  |           |                  |       |                  |       |
|                                                                     |       |                  |           |                  |       |                  |       |
| Accounts payable incurred for construction costs                         | ** ** | **$**                 | **8,178,273**  |                  | $          | —                |       | — |   |
|                                                                     |       |                  |           |                  |       |                  |       |
| Accrued distributions payable                                            | ** ** | **$**                 | **—**     |                  | $          | 3,742,000             |       | 2,806,500 |   |

 

SeeNotes to Financial Statements

 

F-6

----

 

** **

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIAL STATEMENTS

** **

**NOTE 1 -       NATURE OF OPERATIONS**

** **

*Principal Business Activity*

 

Great Plains Ethanol, LLC (d/b/a POET Biorefining — Chancellor) (“theCompany”), a South Dakota limited liability company with its principal place ofbusiness in Turner County, South Dakota, was organized to obtain equityownership and debt financing to construct, own and operate a 40 million gallonethanol plant. The Company began activities on December 20, 2000, andcommenced its ethanol operations on March 20, 2003.  The Company sells ethanol and relatedproducts to customers located primarily in North America.

 

**NOTE 2 -       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

** **

*Basisof Accounting*

 

The Company uses theaccrual basis of accounting in accordance with accounting principles generallyaccepted in the United States of America. This method recognizes revenues as earned and expenses as incurred.

 

*Investment in CommoditiesContracts, Derivative Instruments and Hedging Activities*

 

SFAS No. 133 requires a company to evaluate its contracts todetermine whether the contracts are derivatives.  Certain contracts that literally meet thedefinition of a derivative may be exempted from SFAS No. 133 as normalpurchases or normal sales.  Normalpurchases and normal sales are contracts that provide for the purchase or saleof something other than a financial instrument or derivative instrument thatwill be delivered in quantities expected to be used or sold over a reasonableperiod in the normal course of business. Contracts that meet the requirements of normal are documented as normaland exempted from the accounting 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 accountedfor as 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 gains and losses related to derivative contracts areincluded as a component of cost of revenues in the accompanying financialstatements. Inventories are recorded at net realizable value so that gains andlosses on derivative contracts are offset by gains and losses on inventoriesand reflected in current earnings. For the statement of cash flows, suchcontract transactions are classified as operating activities.  We have recorded an increase in cost ofrevenues of $2,868,789 and $5,434,603, and a decrease to cost of revenues of$751,873 related to our derivative contracts for the years ended December 31,2007, 2006, and 2005, respectively. These derivative contracts can be found on the Balance Sheet under “Investmentin commodities contracts”.

 

*Cost of Revenues*

 

The primary components of cost ofrevenues from the production of ethanol and related co-product are cornexpense, energy expense (natural gas and electricity), raw materials expense(chemicals and denaturant), shipping 

 

(continued on next page)

 

F-7

----

** **

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIAL STATEMENTS

 

costs on sales, and direct laborcosts.

 

Shipping costs incurredby 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 components of general and administrative expenses aremanagement fee expense, administrative payroll expense, insurance expense, andprofessional fee expense (legal and audit).

 

*InventoryValuation*

 

Ethanol and relatedproduct inventory is stated at net realizable value.  Corn inventory is stated at market value,which approximates net realizable value (local market prices less cost ofdisposal), based on local market prices determined by grain terminals in thearea of the plant. Other raw materials, spare parts and work-in-processinventory are stated at the lower of cost or market on an average cost method.

 

Inventories at December 31,2007 and 2006 are as follows:

 

| ** **            | ** ** | **2007**      | ** **     | **2006**  | ** ** |
|-----------------------|------------|---------------|----------------|-----------|------------|
|                  |       |          |           |      |       |
| Finished goods        | ** ** | **$**         | **20,238,064** |      | $          | 10,971,003 |   |
| Raw materials         | ** ** | **3,366,405** |           | 3,221,355 |       |
| Work-in-process       | ** ** | **976,719**   |           | 803,352   |       |
| Spare parts inventory | ** ** | **1,002,400** |           | 860,300   |       |
|                  | ** ** | **$**         | **25,583,587** |      | $          | 15,856,010 |   |

 

*Cash and Cash Equivalents*

 

The Company considers allhighly liquid debt instruments purchased with an original 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 Insurance Corporation.  The Company does not believe it is exposed toany significant credit risk on cash and equivalents.

 

# ***EnvironmentalLiabilities***

# ** **

The Company’s operations are subject to environmental laws andregulations adopted by various governmental authorities in the jurisdiction inwhich it operates. These laws require the Company to investigate and remediatethe effects of the release or disposal of materials at its location.Accordingly, the Company has adopted policies, practices and procedures in theareas of pollution control, occupational health and the production, handling,storage and use of hazardous materials to prevent material environmental orother damage, and to limit the financial liability, which could result fromsuch events. Environmental liabilities are recorded when the Company’sliability is probable and the costs can be reasonably estimated.

 

(continued on next page)

 

F-8

----

 

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIAL STATEMENTS

 

*Financing Costs*

 

Financing costs are amortized over the term of the related debt usingthe interest method of amortization.   Itis expected that the amortization of our financing costs over the next fiveyears will be:

 

| **Year Ending December 31,** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2008                              |       | $          | 100,636    |   |
| 2009                              |       | 100,636    |       |
| 2010                              |       | 100,636    |       |
| 2011                              |       | 100,636    |       |
| 2012                              |       | 100,636    |       |
|                                   |            |            |            |  |

 

*Use of Estimates*

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions 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.

 

*Concentrations of Credit Risk*

 

The Company performsperiodic credit evaluations of its customers and generally does not requirecollateral.  The Company’s operations mayvary with the volatility of the commodity and ethanol markets.

 

*Property and Equipment*

 

Property and equipment isstated at cost. Significant additions and betterments are capitalized, whileexpenditures for maintenance, repairs and minor renewals are charged tooperations when incurred. Depreciation on assets placed in service is computedusing the straight-line method over estimated useful lives as follows:

 

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

 

 

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

 

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

 

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

 

The Company reviews its property and equipment for impairmentwhenever events indicate that the carrying amount of the asset may not berecoverable. An impairment loss is recorded when the sum of the future cashflows is less than the carrying amount of the asset. The amount of the loss isdetermined by comparing the fair market values of the asset to the carryingamount of the asset.

 

In August, 2001, the FASB issued SFAS No. 144, “Accountingfor the Impairment of Long Lived Assets” which supersedes SFAS No. 121.  The requirements of this statement is torecognize an impairment loss only if the carrying amount of a long-lived assetis not recoverable from its undiscounted cash flows and to measure theimpairment loss as the difference between the carrying amount and fair value ofthe asset.  This statement does 

 

(continued on next page)

 

F-9

----

 

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIAL STATEMENTS

 

not apply to goodwill, intangible assets, servicing assetsand other assets as specified in this statement.  In the year ended December 31, 2007, theCompany had a loss on impairment of assets in the amount of $1.99 million.  This loss was directly related to the Company’sprocessing equipment which was replaced with upgraded equipment as part of theplant’s expansion project.

 

*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.  Since December 31,2003, diluted earnings per unit are equal to basic earnings per unit.

 

*Income Taxes*

 

The Company is organizedas a limited liability company under state law. Accordingly, the Company’searnings pass through to the members and are taxed at the member level. Noincome 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 financial statementpurposes.  In addition, differences inlives and methods used in the depreciation of property and equipment result indifferences between the financial statement and tax basis of property andequipment.  Differences also exist on thetax treatments of the unrealized gains and losses for contracts and derivativeinstruments.

 

*Recently Issued Accounting Pronouncements*

 

In September 2006,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards No. 157 (SFAS No. 157), “Fair ValueMeasurements”.  SFAS 157 defines fairvalue, establishes a framework for measuring fair value, and expandsdisclosures about fair value measurements. The statement is effective for (1) financial assets and liabilitiesin financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years and (2) certainnon-financial assets and liabilities in financial statements issued for fiscalyears beginning after November 15, 2008, and interim periods within thosefiscal years.  The Company is evaluatingthe effect, if any, that the adoption of SFAS 157 will have on its results ofoperations, financial position, and the related disclosures.

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities.”  SFAS No. 159provides entities with an option to report certain financial assets andliabilities at fair value — with changes in fair value reported in earnings —and requires additional disclosures related to an entity’s election to use fairvalue reporting.  It also requiresentities to display the fair value of those assets and liabilities for whichthe entity has elected to use fair value on the face of the balance sheet.  SFAS No. 159 is effective for fiscalyears beginning after November 15, 2007. The Company is in the process of evaluating the effect that the adoptionof SFAS No. 159 will have on our results of operations and financialcondition.

 

InDecember 2007, the FASB issued SFAS 141(R), *Business Combinations*.  SFAS 141(R) expands thedefinition of transactions and events that qualify as business combinations;requires that the acquired assets and liabilities, including contingencies, berecorded at the fair value determined on the acquisition date and changesthereafter reflected in revenue, not goodwill; changes the recognition timingfor restructuring costs; and requires acquisition costs to be expensed asincurred. Adoption of SFAS 141(R) is required for combinations after December 15,2008. Early adoption and retroactive application of SFAS 141(R) to fiscalyears preceding the effective date are not permitted. The Company is evaluatingthe effect, if any, that the adoption of SFAS 141(R) will have on ourresults of operations, financial position, and the related disclosures.

 

(continued on next page)

 

F-10

----

** **

**GREATPLAINS ETHANOL, LLC**

NOTES TO FINANCIALSTATEMENTS

 

**NOTE 3 -         LONG-TERMDEBT**

** **

The Company originallyentered into a credit agreement with AgCountry Farm Credit Services on June 19,2002.  Several amendments to the originalcredit agreement occurred throughout the past five years.  As of December 31, 2006 the Company hadthree different loans under our credit agreement.  The first loan was payable in 40 equalquarterly installments of principal and interest at a variable rate of LIBORplus 2.64%.  The second loan (referred toas Term Note #2) was a $5.0 million variable rate note payable in quarterlyprincipal payments of $156,250 plus accrued interest until maturity on October 1,2013.  The third loan was an $8.0 millionvariable rate, revolving note at a rate of LIBOR plus 3.0%.  This note required monthly payments ofinterest based on the daily average balance, and is subject to a 0.50% annualcommitment fee assessed quarterly on any funds not borrowed.  On October 1, 2012, the Company must payon this note any principal balance outstanding that exceeds $4 million.

 

OnMarch 1, 2006, The Company and AgCountry entered into an Interest RateConversion Agreement to convert the existing $26.5 million variable rate,revolving note into two different segments and rates, a $16.5 million segment(referred to as Term Note #1) and a $10.0 million segment (referred to TermNote #3). Beginning on March 1, 2006, the $10.0 million segment was set ata fixed rate of 8.55% until March 1, 2011, plus was subject to anamortization of 7.6 years and a penalty for any prepayment during the firstyear. In contrast, the $16.5 million segment was set at a variable interestrate of LIBOR plus 2.64% (currently 7.96%), adjusted monthly, though beginningon June 1, 2006 and annually, the 2.64% margin was subject to change atthe discretion of AgCountry. The $16.5 million segment was subject to an amortizationof 7.6 years and prepayment is without penalty. Other than these new terms, thenew segments are subject to the same terms of the second amended CreditAgreement dated July 12, 2005 on which the original $26.5 million note isbased.

 

On August 10, 2007, the Company refinanced its three existingnotes listed above with AgCountry into one single loan of $20.0 million.  The $20.0 million loan is subject to avariable rate of LIBOR plus 3.0% (currently 7.66%) and is payable in quarterlyprincipal payments of $833,333 plus accrued interest until maturity on July 1,2013.  Also on August 10, 2007 twoadditional loans were added; a $70.0 million variable rate loan and a $15.0million variable-rate revolving loan.

 

The $70.0 million expansion loan is subject to a variable rate of LIBORplus 3.0%, adjusted and payable monthly. We are subject to an unused commitmentfee of 0.40% per year on any funds not borrowed through the required completiondate of the expansion project (August 1, 2008). Upon completion of theexpansion project, the loan will be converted to a term loan, at which time wemay elect a variable or fixed rate made available by AgCountry. Payments ofprincipal and interest will be due quarterly beginning on July 1, 2008with a balloon payment due at maturity on April 1, 2016.  Prepayment is subject to penalty in an amountthat will result in AgCountry being made whole for any actual and imputedfunding losses.

 

The $15.0 million variable rate, revolving loan permits us to cover anyof our short-term operating cash needs. The revolving amount reduces to $7.5million one year prior to the loan’s maturity of July 1, 2018. The unpaidprincipal balance on the loan is subject to a variable rate equal to LIBOR plus3.0%, payable monthly. The total unpaid principal balance is due atmaturity.  The loan is subject to anunused commitment fee of 0.40% per year, payable quarterly. As of December 31,2007, $6,090,000 is advanced on this note.

 

The three loans are secured by our real property, tangible and intangibleproperty, buildings, improvements, equipment, personal property, and contracts.In addition to standard covenants and conditions in the amended creditagreement, we are subject to certain conditions and/or covenants including: 1)a distribution limitation of, prior to substantial completion of the expansionproject, not greater than 40% of net income, and, after substantial completionof the expansion project, not greater than 75% of net income, and 100% of netincome so long as we achieve an owners’ equity ratio (as defined) exceeding 60%and working capital exceeding $12 million; 2) a 

 

(continued on next page)

 

F-11

----

 

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIAL STATEMENTS

 

capital expenditure limitation of $750,000 for expenditures unrelatedto the expansion project prior to completion of the expansion project and $2million after completion; 3) a minimum working capital of $5 million untilcompletion of the expansion project, $10 million for the first year aftercompletion, and $12 million after the second year; and 4) a current ratio of1.20:1, the calculation of which includes the unfunded balance from therevolving loan.

 

The balance of the notes payable as of December 31, 2007 and 2006is as follows:

 

| ** **                                                                 | ** ** | **2007**       | ** **     | **2006**   | ** ** |
|----------------------------------------------------------------------------|------------|----------------|----------------|------------|------------|
|                                                                       |       |           |           |       |       |
| Notes payable to AgCountry Farm Credit Services                            |       |           |           |       |       |
| Term Note#1                                                                | ** ** | **$**          | **—**     |       | $          | 8,773,769 |   |
| Term Note#2                                                                | ** ** | **—**     |           | 4,218,750  |       |
| Term Note#3                                                                | ** ** | **—**     |           | 9,020,376  |       |
| Term Note#4                                                                | ** ** | **18,333,333** |           | —     |       |
| Construction  Note#5                                                       | ** ** | **35,066,157** |           | —     |       |
| Revolving Term  Note                                                       | ** ** | **6,090,000**  |           | —     |       |
| Construction  Payable-Related Party (to be drawn from Construction Note#5) |       | **8,178,273**  |           | —     |       |
|                                                                       | ** ** | **67,667,763** |           | 22,012,895 |       |
| Less current portion                                                       | ** ** | **7,708,333**  |           | 2,783,032  |       |
|                                                                       |       |           |           |       |       |
|                                                                       | ** ** | **$**          | **59,959,430** |       | $          | 19,229,863 |   |

 

The Company had $8,910,000 available to borrow on the revolving termnote as of December 31, 2007.

 

Minimum principal payments for the next five years are estimated asfollows:

 

| **Year Ending December 31,** | ** ** | **Amount** | ** ** |
|-----------------------------------|------------|------------|------------|
|                              |       |       |       |
| 2008                              |       | $          | 7,708,333  |   |
| 2009                              |       | 12,083,333 |       |
| 2010                              |       | 12,083,333 |       |
| 2011                              |       | 12,083,333 |       |
| 2012                              |       | 12,083,333 |       |
|                                   |            |            |            |  |

 

**NOTE 4 -         FAIRVALUE OF FINANACIAL INSTRUMENTS**

 

The Company considers the carrying amount of significant classes offinancial instruments on the balance sheets, including cash, accountsreceivable, inventories, other assets, accounts payable, accrued liabilities,and variable rate long-term debt to be reasonable estimates of fair valueeither due to their length of maturity or the existence of variable interestrates underlying such financial instruments that approximate prevailing market ratesat December 31, 2007.

 

**NOTE 5 -         MEMBER’SEQUITY**

** **

As specified in theCompany’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 ofcorn to the Company on an annual basis. For all Class A Members, thisequates to 3,782,500 bushels of corn delivered

 

(continued on next page)

 

F-12

----

# **GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIAL STATEMENTS

 

annually.  Corn is purchased from the Class AMembers at a price based on the average market price from surrounding localmarkets.  Since 2003 the Companypurchased on average 19% of its total bushels required for production under theobligation related to Class A Capital Units.

 

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

 

Income and losses areallocated 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 or dispositionof Capital Units is subject to certain restrictions, including approval by theCompany’s Board of Managers.

 

**NOTE 6 -       INCOME TAXES**

** **

The differences betweenfinancial statement basis and tax basis of assets as of December 31, 2007and 2006 are as follows:

 
| ** **                                           | ** ** | **December 31,  2007** | ** **      | **December 31,  2006** | ** ** |
|------------------------------------------------------|------------|-----------------------------|-----------------|-----------------------------|------------|
|                                                 |       |                        |            |                        |       |
| Financial statement basis of assets                  | ** ** | **$**                       | **149,317,309** |                        | $          | 97,449,445 |   |
| Plus organization and start-up costs capitalized-net | ** ** | **52,825**                  |            | 264,123                     |       |
| Depreciation                                         | ** ** | **(77,435,946**             | **)**           | (23,425,456                 | )          |
| Hedging Unrealized Gain/Loss                         | ** ** | **(5,896,698**              | **)**           | (8,243,487                  | )          |
|                                                 |       |                        |            |                        |       |
| Tax basis of assets                                  | ** ** | **$**                       | **66,037,490**  |                        | $          | 66,044,625 |   |

 

There were no material differences between thefinancial statement basis and tax basis of the Company’s liabilities.

 

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

** **

Due to the name changeof Broin Companies, LLC (“Broin”) to POET, LLC in early 2007 and acorresponding change in the name of some Broin-related companies, the Company’sexisting contractual arrangements and agreements for plant development,operations, and marketing are now with newly named entities containingPOET.  All of the newly namedPOET-related entities are the same Broin-related entities that existed prior tothe Broin to POET name change.

 

The Board of Managershas entered into various agreements regarding the formation, operation andmanagement of the Company. Significant agreements are as follows:

 

Contract for FutureServices — TheCompany entered into various agreements with POET Plant Management LLC (theManaging Member) and certain of the Managing Member’s affiliates.

 

(continued on next page)

 

F-13

----

 

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIAL STATEMENTS

 

Agreements with theManaging Member and certain of its affiliates include:

 

Management Services —Pursuant to the terms set forth in the Company’s Operating Agreement, theManaging Member provides day-to-day management of the plant. The Company pays amanagement annual base fee, plus an incentive bonus based on a percentage ofnet income. The base fee is adjusted annually on March 1 for changes inthe consumer price index. This agreement continues unless terminated by a voteof Managers as provided in the Operating Agreement.

 

Technology and PatentRights License Agreement — In April, 2005 theCompany entered into a new technology licensing agreement that allows theCompany the right to use certain technology and patents owned, developed, orobtained by the Managing Member.  TheCompany is required to pay an annual licensing fee for the right to use suchtechnology and patents.  The term of thisagreement is for so long as the term of the management agreement discussedabove.

 

On May 24, 2006 the Company enteredinto an agreement with companies affiliated with the Managing Member to overseethe construction process to expand capacity to 100 million gallons per year.  The estimated expansion project cost totals$80 million.  Estimated completion datefor the expansion is early 2008.  As of December 31,2007, the Company spent $68.8 million on the construction process to expandcapacity.

 

On May 9, 2007 theCompany entered into an agreement with companies affiliated with the ManagingMember to assist in the design and construction of a solid waste fuel boilersystem.  Total estimated cost of thisproject is $25.5 million and is expected to be completed in late 2008.  As of December 31, 2007, the Companyspent $6.7 million on the solid waste fuel boiler system.

 

Marketing Agreements —The Company entered into agreements with companies affiliated with the ManagingMember to market all of its ethanol and distiller grains (DDGS). Fees forethanol are based on a per gallon basis and are payable for administrationservices and ethanol marketing.  Fees forDDGS are a percentage of gross sales with a minimum annual fee of $200,000. 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.

 

Corn Price Risk Management Agreement — The Company entered into an agreementwith Managing Member for the hedge and price risk management related to cornand natural gas requirements of the plant. The fee for this service is a fixedfee billed quarterly. The agreement has a term of 1 year and commenced upon thestart of operations. The agreement is renewable for successive 1-year termsunless terminated 30 days prior to expiration.

 

(continued on next page)

 

F-14

----

 

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIAL STATEMENTS

 

Revenues and expenses related to agreements withrelated parties for the years ended December 31, 2007 and 2006 are asfollows:

 

| ** **            | ** ** | **2007**      | ** **     | **2006**  | ** ** |
|-----------------------|------------|---------------|----------------|-----------|------------|
|                  |       |          |           |      |       |
| Finished goods        | ** ** | **$**         | **20,238,064** |      | $          | 10,971,003 |   |
| Raw materials         | ** ** | **3,366,405** |           | 3,221,355 |       |
| Work-in-process       | ** ** | **976,719**   |           | 803,352   |       |
| Spare parts inventory | ** ** | **1,002,400** |           | 860,300   |       |
|                  | ** ** | **$**         | **25,583,587** |      | $          | 15,856,010 |   |

 

Agreements with unrelatedparties are as follows:

 

NaturalGas — Theagreement provides the Company with natural gas for a 15 year period beginningwith the date the plant begins operations. During the initial 10 years of theagreement, the Company has a minimum obligation for delivery of natural gas ata rate that covers the cost of construction of the pipeline. The Company isrequired to pay a monthly Distribution Delivery Fee based on the minimumobligation.  This fee is at a fixed ratefor the 15 year period.  The Company isalso required to hold an irrevocable standby letter of credit or similarinstrument to guarantee payment of the obligation. The letter of credit will bereduced each year by an amount equal to amortization of a $1,600,000 loan at8.5%. Minimum payments, regardless of whether the plant takes delivery of thenatural gas, are as follows:

 

Electricity — On July 23, 2007 the Companyentered into an amendment for electric service for a term of 3 years. Theagreement sets rates for energy usage based on an agreed upon rate structureand requires a minimum purchase of electricity each month during the initialterm of the agreement. Minimum annual payments during the initial term of theelectricity agreement are as follows:

 

Letter of Credit — During the year ended December 31,2007, the Company renewed a $1,250,000 letter of credit agreement with HomeFederal Bank at a reduced amount of $780,000. The letter of 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 $780,000. 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, 2008. The letter of credit is securedby a lien on the Company’s real and personal property. As of December 31,2007, there was no outstanding balance on the letter of credit.

 

To obtain the letter ofcredit, Home Federal Bank required personal guarantees totaling $780,000 fromcertain members or related parties of the Company. The Company has agreed topay each party an annual guarantee fee of 2% of the amount guaranteed. TheCompany paid $15,600, $19,200, and $22,500, for the guarantee fee for the yearsended December 31, 2007, 2006, and 2005, respectively.

 

Letter of Credit — On November 1, 2007, the Companyentered into an irrevocable letter of credit agreement with AgCountry FarmCredit Services in the amount of $160,019. The letter of credit is

 

(continued on next page)

 

F-15

----

 

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIALSTATEMENTS

 

security for the Company’sreservation charges for the transportation service of natural gas.  As of December 31, 2007, there was nooutstanding balance on the letter of credit.

 

The Company entered intoseveral agreements related to the production of ethanol as follows:

 

Product Supply — The Company entered into an agreement onDecember 27, 2006 which commences on December 1, 2007, to supply theCompany with a product that will be used in the solid waste fuel boiler systemwhich is expected to be completed in late 2008. This agreement is in effect for a period of ten years and requires adaily minimum purchase of product.  Noshipments were made to the Company as of December 31, 2007.

 

Grain Storage — The Company entered into an agreement onJune 1, 2007 to rent a grain storage facility beginning on September 1,2007.  This agreement is in effect for 10years.  The monthly rent for the facilityis calculated based on the number of bushels stored in the facility.  Minimum bushel requirements have beenestablished.  The Company paid $56,292,for grain storage for the year ended December 31, 2007.

 

Minimum payments relatedto the above agreements are summarized in the following table:

 
| **Year Ending December 31,** | ** ** | **Lease  Agreements** | ** ** | **Management  Agreements** | ** ** | **Purchase  Agreements** | ** ** | **Total**  | ** ** |
|-----------------------------------|------------|-----------------------|------------|----------------------------|------------|--------------------------|------------|------------|------------|
| 2008                              |       | $                     | 64,000     |                       | $          | 1,305,992                |       | $          | 2,244,650  |   | $ | 3,614,642 |   |
| 2009                              |       | 64,000                |       | 1,001,377                  |       | 2,361,950                |       | 3,427,327  |       |
| 2010                              |       | 64,000                |       | 1,017,232                  |       | 2,446,200                |       | 3,527,432  |       |
| 2011                              |       | 64,000                |       | 1,033,721                  |       | 1,805,350                |       | 2,903,071  |       |
| 2012                              |       | 64,000                |       | 1,050,870                  |       | 1,805,350                |       | 2,920,220  |       |
| 2013-2018                         |       | 256,000               |       | 4,593,523                  |       | 5,869,700                |       | 10,719,223 |       |
|                              |       | 576,000               |       | 10,002,713                 |       | 16,533,200               |       | 27,111,913 |       |
|                                   |            |                       |            |                            |            |                          |            |            |            |  |  |  |  |

 

The Company receivesincentives related to the production of ethanol as follows:

 

Incentives — The Company receives an incentivepayment from the State of South Dakota to produce ethanol. In accordance withthe terms of this arrangement, revenue is recorded based on ethanol sold. TheState of South Dakota has set a maximum of up to $1,000,000 per year for thisprogram per qualifying producer. Incentive revenue of $750,000, $777,416, and$701,886, was recorded for the years ended December 31, 2007, 2006, and2005, respectively.

 

**NOTE 8 -         RELATEDPARTIES**

** **

Certain owners of Class A,Class B and Class C Capital Units are parties to agreements with theCompany.  Related party agreements withthe Managing Member and its affiliates are described in Note 7.

 

**NOTE 9 -         INTERESTEXPENSE**

** **

Statement of FinancialAccounting Standards (SFAS) No. 34 “Capitalization of Interest Costs”states that the amount of interest cost to be capitalized for qualifying assetsis intended to be that portion of the interest cost incurred during the assets’acquisition periods that theoretically could have been avoided (for example, by

 

(continued on next page)

 

F-16

----

 

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIALSTATEMENTS

 

avoiding additionalborrowings or by using the funds expended for the assets to repay existingborrowings) if expenditures for the assets had not been made.   The Company capitalized its interest costsfor cash payments made for its expansion project.  As of December 31, 2007, the Companyfunded 100% of its expansion project with cash flows from operations and hadexisting outstanding debt of $35 million. As a result, the Company has expensed interest costs of $276,290 and hascapitalized interest costs of $2,138,781 for the fiscal year end December 31,2007.

 

**NOTE 10 -      RETIREMENTPLAN**

 

On April 1, 2004,the Company set up a 401(k) profit sharing plan for substantially allemployees who work more than 1,000 hours per year.  Employees can make voluntary contributions upto federally designated limits.  The Companymatches 50% of the employee contributions up to a maximum of 2% of grosswages.  Employee voluntary contributionsup to federally 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 31,2007, 2006, and 2005, was $28,068, $23,122, and $15,249, respectively.

 

**NOTE 11 -      SUBSEQUENTEVENTS**

** **

On January 14, 2008,the Company entered into two short-term loan agreements with POET, LLC for asum of $6.3 million.  The purpose of theunsecured loan was to cover margin calls that were triggered recently from theimpact of a price increase in the corn futures market at the Chicago Board ofTrade (CBOT).  The loans were obtainedbecause the Company did not have the necessary funds from operations to coverthe margin calls.  The interest rate on thenew loans is calculated at an annual rate of 9.25%, and full payment of principaland interest is due on February 13, 2008. The loan was repaid on March 6, 2008.

 

On February 19, 2008 the Company renewed the line of credit withHome Federal Bank referenced in Note 7. The new maturity date on the line of credit is March 1, 2009, andthe amount of the line of credit is $688,000.

 

OnFebruary 20, 2008, the Company entered into an agreement with AgCountryfor a $15.0 million variable rate, line of credit loan.  This loan permits us to cover any of ourshort-term operating cash needs, allowing us to borrow the difference betweenthe unpaid principal balance and the lesser of $15,000,000 or the borrowingbase. The borrowing base is defined as the sum of 1) 75% of inventory minusunsettled payables; 2) 75% of gain/loss on market contracts; and 3) 75% ofaccounts receivables less than 90 days. The loan is secured by our real property, tangible and intangibleproperty, buildings, improvements, equipment, personal property, and contracts.  The unpaid principal balance on the loan issubject to a variable rate equal to LIBOR plus 3.0%, payable quarterly. Thetotal unpaid principal balance is due at the loan’s maturity of April 1,2009.  The loan is subject to an unusedcommitment fee of 0.25% per year, payable quarterly. As of the date of thisfiling, there was a principal balance of $7 million.

 

F-17

----

 

**GREAT PLAINS ETHANOL, LLC**

NOTES TO FINANCIALSTATEMENTS

 

**NOTE 12 -     QUARTERLY FINANCIAL DATA (UNAUDITED)**

 

Summary quarterly resultsare as follows:

 
| ** **                        | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** |
|-----------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|
|                              |       |               |       |                |       |               |       |                |       |
| Year Ended December 31, 2007 |       |               |       |                |       |               |       |                |       |
|                              |       |               |       |                |       |               |       |                |       |
| Total Revenues                    |       | $                  | 32,251,100 |                | $          | 31,667,190         |       | $                   | 28,521,791 |   | $ | 24,420,706 |   |
| Gross Profit                      |       | 8,605,572          |       | 3,461,729           |       | 5,122,374          |       | 3,038,143           |       |
| Operating Income                  |       | 7,252,515          |       | 2,281,535           |       | 3,872,546          |       | 38,247              |       |
| Net Income                        |       | 7,140,582          |       | 1,998,453           |       | 4,599,799          |       | 100,016             |       |
| Basic Earnings per unit           |       | 1,908              |       | 534                 |       | 1,229              |       | 27                  |       |
|                              |       |               |       |                |       |               |       |                |       |
| Year Ended December 31, 2006 |       |               |       |                |       |               |       |                |       |
|                              |       |               |       |                |       |               |       |                |       |
| Total Revenues                    |       | $                  | 25,275,904 |                | $          | 32,255,377         |       | $                   | 34,741,296 |   | $ | 31,119,324 |   |
| Gross Profit                      |       | 5,451,680          |       | 15,562,775          |       | 17,705,894         |       | 15,995,584          |       |
| Operating Income                  |       | 4,345,263          |       | 13,956,730          |       | 16,009,738         |       | 14,359,963          |       |
| Net Income                        |       | 3,926,633          |       | 13,563,332          |       | 15,736,526         |       | 13,935,337          |       |
| Basic Earnings 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                      |       | 6,360,011          |       | 2,843,659           |       | 2,843,223          |       | 7,164,101           |       |
| Operating Income                  |       | 5,516,484          |       | 2,112,985           |       | 1,887,610          |       | 6,163,527           |       |
| Net Income                        |       | 5,227,395          |       | 1,807,441           |       | 1,526,225          |       | 5,769,336           |       |
| Basic Earnings per unit           |       | 1,397              |       | 483                 |       | 408                |       | 1,542               |       |

 

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-18

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