**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-KSB**

 

**Annual Report Pursuant toSection 13 or**

**15(d) of the SecuritiesExchange Act of 1934**

 

**For the fiscal year ended December 31, 2001**

 

**Commission file number 333-56368**

 

**GreatPlains Ethanol, LLC**

(Name of small businessissuer in its charter)

 

| **South  Dakota**                                                               |   | **46-0459188**                        |
|---------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation of organization)                 |   | (I.R.S. Employer  Identification No.) |
|                                                                            |
|                                                                            |   |                                  |
| **46569  South Dakota Highway 44  P.O. Box 217  Lennox, South Dakota****57039** |
| (Address of principal  executive offices)  (Zip Code)                      |
|                                                                            |   |                                  |
| **(605)  647-0040**                                                             |
| (Issuer’s telephone  number)                                               |

 

Securities registeredunder Section 12(b) of the Exchange Act:

None

 

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

 

None(1)

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act of 1934 during the past 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.   ý Yes     o No

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B in this form, and no disclosure will be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB.   o

 

State issuer’s revenues for its most recent fiscal year.  NONE

 

The aggregate market value ofthe ClassA, Class B and Class C capital units held by non-affiliates of theregistrant as of March 20, 2002 was approximately $13,710,000 based on theaggregate price paid for the capital units.

 

As of March 20, 2002,there were 1,513 Class A, 200 Class B and 2,029 Class C capital units of theregistrant outstanding.

 

Transitional Small Business Disclosure Format:        o Yes     ý No

 

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(1) Capital units to be registered by April 30, 2002 pursuant tosection 12(g) of Securities and Exchange Act of 1934.

 

 

 

**PART I**

 

**Item1.   Description of Business.**

 

Great Plains Ethanol, LLC (“GPE”) is a South Dakota limited liabilitycompany currently in the design and construction phase of building a 40 milliongallon ethanol plant in Turner County, South Dakota.  When built, the plant will produce and sell ethanol and aco-product called distiller's dried grains with solubles which is an animalfeed supplement.

 

**OVERVIEW**

 

GPE was formed on December 20, 2000 and has not been an operatingentity.  It commenced its initial publicoffering of up to 4,460 of its Class A and Class C capital units on June 11,2001 and stopped accepting subscriptions in its public offering on July 9,2001.  GPE obtained subscriptions forthe sale of 1,529 Class A units and 1,973 Class C units.  The total value of the subscriptions was$17,510,000.  Each subscriber paid 10%of the subscriber’s total purchase price to GPE’s escrow account and 90% of thepurchase price by executing a promissory note in favor of GPE that was subjectto the call of the Board of Managers. On November 5, 2001, the Board of Managers, in anticipation of theexecution of a loan commitment letter, authorized the call on the remainingamounts due on the promissory notes for Class A, Class B and Class C units,with 40% of the total purchase price due on January 15, 2002, and the remaining50% due on April 1, 2002.  As of March15, 2002, three subscribers holding a total of 16 units had defaulted on theirpromissory notes.  Instead of pursuingcollection actions, GPE exercised its option to redeem the capital units heldby the defaulting subscribers at no cost to GPE, and GPE retained thedefaulting subscribers’ previously contributed capital contributions (anaggregate of $7,000) as liquidated damages for defaulting on the obligation topay the remaining purchase price of the capital units pursuant to thepromissory notes.  Included in the 16defaulted units are two units from one subscriber who had submitted twoseparate Subscription Agreements, each of which included subscriptions fordifferent numbers of units.  GPEaccepted both Subscription Agreements. GPE later learned from the subscriber that he did not intend to haveboth agreements accepted.  Once GPE hadbeen informed of this, it agreed to apply $1,000 of the subscriber's initialcash payment to the remaining 90% of the purchase price for the remaining unitshe had subscribed for.  This $1,000accounted for 2 of the 16 defaulted units. GPE recognized a net loss of $73,000 of investment value as a result ofthe default by the three subscribers.

 

As of March 20, 2002, GPE had 504 members.  There were 503 holders of Class A units, one holder of Class Bunits, and 120 holders of Class C units, all of whom also hold Class A or ClassB units.  In the initial publicoffering, investors had to be agricultural producers to purchase Class Aunits.  Also, until August 25, 2001,investors could only purchase Class C units in the initial public offering ifthey (or their affiliates) had also purchased Class A or Class B units.  Since GPE stopped accepting subscriptions onJuly 9, 2001, all Class C members are also Class A members other than BroinInvestments II, LLC and Broin Management LLC, who are the Class B member andone of its affiliates.

 

GPE secured a commitment letter from AgCountry Farm Credit Services ofFargo, North Dakota for its debt financing and broke escrow on November 7,2001.  The commitment letter, datedNovember 2, 2001, provides for a $32,500,000 non-revolving construction loanwhich will be available upon the closing of the loan until October 1,2003.  After October 1, 2003, the loanwill be converted into a term loan with a ten year maturity, and GPE mayconvert up to $6 million of the term loan into a revolving term facility, subjectto certain conditions and interest rate provisions.

 

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On November 7, 2001, GPE exercised its option to purchase the proposedsite for the ethanol plant. Construction is scheduled to begin in mid-April 2002.  The ethanol plant is being designed andbuilt by Broin and Associates, Inc., and once the ethanol plant is completed,Broin affiliates will manage the plant and market the ethanol and DDGS producedat the plant.

 

**THE ETHANOL INDUSTRY**

 

Ethanol is a chemicalproduced by the fermentation of sugars found in grains and other biomass.  Although ethanol can be produced from anumber of different types of grains, such as wheat and sorghum, as well as fromagricultural waste products such as rice hulls, cheese whey, potato waste,brewery and beverage wastes and forestry and paper wastes, approximately 90% ofethanol in the United States today is produced from corn because corn produceslarge quantities of carbohydrates, which convert into glucose more easily thanother kinds of biomass.  A typical bushelof U.S. Number Two Corn weighs approximately 56 pounds and typically yields2.65 gallons of undenatured fuel ethanol. Current annual domestic ethanol production capacity is approximately 2.3billion gallons.

 

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

 

Theuse of ethanol as an additive to gasoline was stimulated by the Federal CleanAir Act, which was significantly amended in 1990.  The 1990 amendments mandated the use of oxygenated fuels (with aminimum of 2.7% oxygen by volume) in specific regions of the United Statesduring the winter monthsto reduce carbon monoxide.  Cities,regions and states not meeting minimum clean air standards for these pollutantsmust require the use of cleaner-burning fuels. Accordingly, they require that oxygenates be added to gasoline sold inthese locations.

 

Tenmajor U.S. metropolitan areas are out of compliance with the Clean Air Actstandards and are required to use RFG year-round.  Other areas are only required to use RFG during the winter months.  Five states, the District of Columbia, andeight metropolitan areas have voluntarily chosen to use RFG to help achievetheir clean air goals.

 

Approximately35% of the gasoline sold in the U.S. contains oxygenates.  Currently, the most common oxygenate ismethyl tertiary butyl ether, or MTBE. MTBE, a petroleum-based product, is produced from methanol and naturalgas and is largely imported from the Middle East.  About 13% of the nation’s RFG uses ethanol as an oxygenate andMTBE makes up the vast majority of the balance.  However, since MTBE was introduced and has become a commonly usedoxygenate, MTBE has been found in well water, lakes and streams.  While MTBE has not been classified as acarcinogen, it has been shown to cause cancer in animals and its continued usehas raised serious environmental concerns. On March 20, 2000, the Environmental Protection Agency called forMTBE to be banned or have its use significantly reduced because ofenvironmental problems associated with its use as a fuel oxygenate.  On 

 

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March 8, 2002, the Senate passed a billthat would phase out MTBE over four years and require refineries to use atleast 5 billion gallons of ethanol by 2012.  The bill now awaits consideration before the House ofRepresentatives.  

 

Because of federal andstate policies promoting cleaner air and the state and federal tax andproduction incentives, the ethanol industry has grown substantially in recentyears.  Currently, U.S. ethanol plantshave the capacity to produce approximately 2.3 billion gallons of ethanolannually, compared to only 175million gallons in 1980.  There are morethan 60 ethanol production facilities located in the United States, with thegreat majority of them located in the Midwest in the corn-producing states ofIllinois, Wisconsin, Minnesota, Iowa, North Dakota, South Dakota, Nebraska andKansas.  South Dakota currently has fiveplants producing approximately 90 million gallons of ethanol annually from over33 million bushels of corn and two additional plants under construction thatwill each have annual production capacity of 40 million gallons.

 

In addition, automobilecompanies have begun developing ethanol-friendly vehicles.  Gasoline blends containing up to 10% ethanolare approved under the warranties of most major domestic and foreign automobilemanufacturers marketing vehicles in the United States, and many recommend theuse of cleaner burning fuel, such as ethanol, in their vehicle owner manuals.  Similarly, most major manufacturers of powerequipment,motorcycles, snowmobiles and outboard motors endorse the use of ethanol blendsin their products.  In the last severalyears, automobile companies have introduced a growing number of flexible fuelvehicles that operate on fuel mixtures of up to 85% ethanol.  In addition, ethanol industry advocates havedeveloped new diesel fuels, commonly referred to as “OxyDiesel,” which are ablend of diesel fuel and ethanol.

 

**ETHANOLMARKETING**

 

The target market area forthe ethanol produced at the plant is expected to include local, regional andnational markets.  The local andregional markets include the state of South Dakota, as well as markets inMinnesota and northwest Iowa.  Marketsin Sioux Falls, Mitchell, Watertown and Wolsey, South Dakota are expected to bethe primary local target markets for the facility, along with regional marketsin Milford, LeMars, Rock Rapids and Sioux City, Iowa, and regional markets inMarshall, Alexandria, Mankato, Minneapolis and St. Paul, Minnesota.  Shipping will be done primarily by truck tomarkets in South Dakota, Minnesota and Iowa. The proposed plant site is served by multiple South Dakota Statehighways.  Interstate Highways 29 and 90provide excellent transportation links in all directions.

 

The plant is beingdesigned with rail facilities and connections to the Burlington Northern SantaFe railroad system, which will facilitate transporting the ethanol GPE produces to its national targetmarkets.  Approximately two-thirds ofthe ethanol is expected to be marketed by rail.  The national target rail markets for the facility will includeChicago, the Pacific Northwest,

 

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the Southern and Southwest markets, as well as potential new markets onthe East Coast and California due to anticipated MTBE phase outs.

 

GPE has signed a contractwith Ethanol Products LLC, a Broin affiliate, to market the ethanol produced atits plant.  Ethanol Products, LLCcurrently markets ethanol for seven producers located in Minnesota, SouthDakota, North Dakota and Missouri.  GPEdoes not expect to be dependent on one or a limited number of majorcustomers.  See Item 12 below for adescription of the contract terms with Ethanol Products, LLC.

 

**THE DDGSINDUSTRY**

 

A co-product of theethanol production process is distiller’s dried grains with solubles, orDDGS.  DDGS is a high protein, highenergy feed supplement marketed primarily to the dairy, beef, sheep, swine andpoultry industries.  DDGS is a popularanimal feed supplement, with approximately 3.5 million tons produced in NorthAmerica annually.  Most of thisproduction is sold for use in animal feeds within the United States and Canada,and approximately one million tons is exported, primarily to Europe.  The vast majority of the DDGS is feed for ruminant animals in the dairy and beefsector.  However, new technologies thathave allowed for the production of a more consistent, quality product havehelped create a market for DDGS in the swine and poultry industries as well.

 

Since DDGS is a dried feedsupplement, it is much less susceptible to spoilage than other feedsupplements.  This allows DDGS to besold and shipped to any market regardless of its vicinity to an ethanol plant.  The proposed plant is designed to have thecapacity to dry all distiller’s grains produced when operated at its annualethanol production capacity of 40 million gallons.  GPE’s design-builder, Broin & Associates, Inc., hasguaranteed that the plant will yield 17 pounds of DDGS per bushel of corn (testweight 56 pounds or greater).  GPE willutilize state-of-the-art production processes and quality control methods toproduce DDGS.  This produces DDGS with abright golden color and increased nutrient digestibility and palatability whichis designed to increase the performance of the animals consuming the DDGS.

 

**DDGSMARKETING**

 

GPE has negotiated andentered into a DDGS marketing contract with Dakota Commodities, a division ofBroin Enterprises, Inc., to market all of the DDGS from the ethanol plant.  The target market for the DDGS produced atthe plant is expected to include local, regional and national markets.  Approximately 30% of the DDGS produced at theplant will be shipped to local markets within 100 miles of the plant andregional markets within 800 miles of the plant.  Shipments of DDGS to local or regional markets will be primarilyby truck.  Approximately 70% of the DDGSwill be shipped to national markets, primarily in the Southwestern UnitedStates.  Shipments to the nationalmarkets will be primarily by rail.  SeeItem 12 below for a description of the contract terms with Dakota Commodities.

 

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**COMPETITION**

 

GPE will be in directcompetition with numerous other ethanol and DDGS producers, many of whom havegreater resources than GPE.  GPE alsoexpects that additional ethanol and DDGS producers will enter the market if the demandfor ethanol continues to increase. GPE’s proposed ethanol plant will compete with other ethanol and DDGSproducers on the basis of price and, to a lesser extent, delivery service.  GPE believes it can compete favorably withother ethanol and DDGS producers due to its proximity to ample corn supplies atfavorable prices.

 

The ethanol industry hasgrown to over 60 production facilities in the United States.  Industry authorities estimate that thesefacilities are capable of producing approximately 2.3 billion gallons ofethanol per year.  The largest ethanolproducers include Archer Daniels Midland, Cargill, Minnesota Corn Processors, Midwest Grain,Williams Energy Service, New Energy Corporation and High Plains Corporation,all of which are capable of producing more ethanol than GPE expects toproduce.  In addition, there are severalregional farmer-owned entities recently formed, or in the process of formation,of a similar size and with similar resources to GPE’s.  Most ethanol producers also produce DDGS orcompeting animal feed products such as distiller's wet grains.

 

In addition, thirteen newplants with a combined production capacity of over 390 million gallons areunder construction and plans to expand existing plants have also been announced which wouldincrease the ethanol production capacity of our competitors.  GPE is unable to determine the number andproduction capacity of plants that ultimately may be constructed, the timing ofsuch construction, or the effect of resulting production upon the demand orprice for GPE’s ethanol.

 

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

 

**CORN PROCUREMENT**

 

GPE’s major raw material for ethanol and DDGS production is corn.  To operate at full capacity, the plant willrequire approximately 14 million bushels of corn annually.  GPE anticipates that its Class A memberswill supply approximately one quarter of its corn requirements and that thebalance will be purchased from other local corn producers.  Once GPE commences operations of the ethanolplant, each Class A member, upon receipt of notice from GPE, will be requiredto deliver 2,500 bushels of corn to GPE per each Class A capital unitowned.  The corn will be delivered bythe Class A members based upon a delivery schedule prepared by GPE.

 

GPE expects that the proposed location of the plant in Turner County,South Dakota, will allow accessibility to corn at necessary levels.  In 2000, over 17 million bushels of corn forgrain were produced in Turner County and over 81 million bushels of corn forgrain were produced in nearby Lincoln, Hutchinson, McCook, Hanson, Yankton, andUnion Counties.  All corn GPE purchaseswill be tested and must meet high quality control standards to ensure theefficient 

 

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operation and quality productsof GPE’s plant.  GPE will use the UnitedStates Department of Agriculture’s grade requirements for U.S. Number TwoYellow Corn.

 

From time to time GPE may also decide to accept corn that does not meetthe criteria for U.S. Number Two Yellow Corn or is otherwise substandard;however, GPE may, in its discretion, discount the price or make otherallowances to account for the corn’s lesser grade quality, or condition atdelivery.

 

**GOVERNMENT REGULATION AND ENVIRONMENTALMATTERS**

 

There are various federal and state laws andregulations and programs which have led to the increasing use of ethanol infuel, including various subsidies, tax credits and other forms of financialincentives.  Some of theselaws provide economic incentives to produce ethanol and some of these lawsmandate the use of ethanol.  The revocation, amendment or non-renewal of anyone or more of these laws, regulations or programs could adversely affect thefuture use of ethanol and our business and operations in a material way.  Any material reduction of the use of ethanolwould have an adverse affect on GPE’s profitability and viability.

 

The operations of GPE are subject to various federal, state and locallaws and regulations with respect to environmental matters, including air andwater quality and underground fuel storage tanks.  GPE believes it is currently in compliance with environmentallaws and regulations.  Protection of theenvironment will require GPE to incur expenditures for equipment or processes,none of which have been or are believed to be material to its business.  If GPE were found to have violated federal,state or local environmental regulations, GPE could incur liability for cleanupcosts, damage claims from third parties and civil or criminal penalties thatcould materially adversely affect its business.

 

**EMPLOYEES**

 

As of March 20, 2002, Brian Minish, the Chief Executive Officer andChief Financial Officer of GPE, is the only person employed by GPE, and GPEemploys Brian Minish on a part-time basis. See Item 9 below for additional information on Brian Minish.  In addition, GPE occasionally hirestemporary employees to work on an as-needed basis.

 

Prior to the plant becoming operational, Broin Management, LLC willselect a general manager to oversee and be responsible for operations andproduction on a day-to-day basis.  Thegeneral manager will be a full-time, on-site position, although the generalmanager will actually be an employee of Broin Management, LLC.  In addition, GPE anticipates that it willemploy 33 full-time or full-time equivalent employees once the plant isoperational, including an operations manager, a maintenance manager, amicrobiologist, a chief mechanical operator, plant operators, plant maintenancepersonnel, an accountant, a receptionist and a secretary.  GPE estimates that its annual payroll willbe approximately $1.3 million once the plant is operational (not including thesalary of the general manager employed by Broin Management).

 

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**Item 2.  Description of Property.**

 

On November 7, 2001, GPE purchased 119 acres of land near the town ofChancellor in Turner County, South Dakota. The real estate was conveyed by warranty deed and is not subject to anyencumbrance.  GPE plans to build theethanol plant on this site.  The site isserved by multiple state highways and is near Interstate Highways 29 and 90which will provide transportation links in all directions.  The site will also have rail facilities andconnections to the Burlington Northern Santa Fe railroad system, which willfacilitate transporting the ethanol and DDGS produced at the plant to nationaltarget markets.

 

**Item 3.  Legal Proceedings.**

 

From time to time GPE may be subject to litigation incidental to itsbusiness.  GPE is not currently a partyto any material legal proceedings.

 

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

 

During the fourth quarter of the fiscal year covered by this report,GPE did not submit any matter to a vote of security holders through thesolicitation of proxies or otherwise.

** **

**PART II**

 

**Item 5.  Market for Common Equity and Related Stockholder Matters.**

 

There is no public trading market for GPE’s capital units.  In addition, Article 4 of GPE’s FirstAmended and Restated Operating Agreement provides a number of restrictionsregarding the transfer of capital units by GPE members.  The Operating Agreement prohibits membersfrom disposing of capital units without approval by GPE’s Board of Managers andcompliance with the Capital Units Transfer System.  The Operating Agreement prohibits the GPE Board of Managers fromapproving a disposition of units if the units are not registered under theSecurities Act of 1933 or are not exempt from registration requirements underthe Securities Act of 1933.  Inaddition, the Board of Managers may not approve a disposition of units if thedisposition, combined with all other dispositions of capital units within thepreceding 12 months, would result in GPE losing its partnership status andbeing taxed as a C corporation under the Internal Revenue Code.  The Board of Managers anticipate that theywill adopt a Capital Units Transfer System during the first trimester of2003.  The Capital Units Transfer Systemmust be designed to preserve GPE’s partnership tax status.

 

Transferees of Class A units will be required to execute a CornDelivery Agreement.  In addition,dispositions of some or all of Broin Investments II, LLC’s Class B units isprohibited unless Broin Investments II, LLC first offers to sell the Class Bunits to GPE at the fair market value which is determined according to Section4.5 of the Operating Agreement.

 

As of March 20, 2002, there were 503 Class A members, 1 Class B member,and 120 Class C members, representing a total of 504 members.

 

GPE is required to make an annual distribution to its members of aminimum of 20% of the net cash it earns from operations as long as net cashfrom operations is in excess of $500,000 for that year, and the distributionwould not violate or cause GPE to default under any of the terms of any ofGPE’s credit facilities or debt instruments.

 

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**PRIVATE PLACEMENTS**

 

All 200 Class B units were sold to Broin Investments II, LLC in aprivate offering pursuant to the terms of the Contract for Future Serviceseffective December 18, 2000.  Theoffering price for each Class B unit was $5,000 and Broin Investments II, LLCinitially paid 10% of the total purchase price in cash and 90% by executing anddelivering a promissory note in favor of GPE. Prior to December 31, 2001, the Board of Managers called the remainingamounts due on the promissory note, with 40% of the total purchase price due onJanuary 15, 2001, and the remaining 50% due on April 1, 2002.

 

Broin Management, LLC also purchased 40 Class C units in a privateoffering pursuant to the terms of the Contract for Future Services effectiveDecember 18, 2000.  The offering pricefor each Class C unit was $5,000 and the total purchase price was$200,000.  Broin Management, LLC paid10% of the total purchase price in cash and 90% of the purchase price byexecuting and delivering a promissory note in favor of GPE.  Prior to December 31, 2001, the Board ofManagers called the remaining amounts due on the promissory note, with 40% ofthe total purchase price due on January 15, 2001, and the remaining 50% due onApril 1, 2002.

 

In addition, 16 Class D units were sold to the members of the initialBoard of Managers and the Managing Member in a private offering that took placein December 2000, when GPE was formed. Each member of the initial Board of Managers and the Managing Member,Broin Management, LLC, purchased one Class D unit for a purchase price of $100per unit.  Upon the completion of theinitial public offering, each Class D unit was automatically converted into oneClass C unit.  Because the offeringprice of $5,000 per capital unit substantially exceeds the price paid for theClass D units, the members of GPE’s initial Board of Managers and its ManagingMember realized an immediate increase in the net tangible book value of theirClass D units and investors realized an immediate dilution of the capital unitspurchased in the other private offerings and the initial public offering.  However, because the Class C units that wereissued upon conversion of the Class D units represented less than 1% of thetotal outstanding units, the total dilution to the investors was not significant.

 

The offering of the Class B, Class C and Class D units described in theforegoing paragraphs have not been registered under the Securities Act of1933.  Pursuant to § 4(2) of theSecurities Act of 1933, the transactions were exempt from the registrationrequirements of §5 of the Securities Act of 1933 because the transactions didnot involve a public offering.  See “Useof Proceeds” below for a description of how the proceeds of the privateoffering will be used.

 

**THE INITIAL PUBLIC OFFERING**

 

A registration statement under the Securities Act of 1933 was filed toregister the initial public offering of Class A and Class C units and declaredeffective by the SEC on June 8, 2001. The registration file number assigned by the SEC is 333-56368.  GPE’s initial public offering, which beganon June 11, 2001, was for a minimum of 2,310 units and a maximum of 4,460 unitsat a price of $5,000 per unit. The consideration for the units consisted of aninitial cash payment of $500 per unit and a note for $4,500 per unit.

 

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GPE terminated the offering onJuly 9, 2001 after receiving subscriptions for 3,502 units with an aggregateoffering price of $17,510,000.

 

As of December 31, 2001, the net proceeds received by GPE from theinitial public offering were $1,904,600 in cash and $15,513,400 in promissorynotes.  On November 5, 2001, the Boardof Managers, in anticipation of the execution of a loan commitment letter,authorized the call on the amounts due on the promissory notes for Class A andClass C units, with $2,000 per unit due on January 15, 2002, and the remaining$2,500 per unit due on April 1, 2002. As of March 20, 2002, three subscribers had defaulted on subscriptionsto purchase an aggregate of 16 units by failing to make the January 15, 2002 payment.  Pursuant to Section 4.3 of GPE’s OperatingAgreement, GPE could either pursue collection actions against these investorsor redeem their capital units at no cost to GPE.  The Board of Managers decided to exercise GPE’s option to redeemthe capital units, and GPE retained the defaulting subscribers’ previouslycontributed capital contributions (an aggregate of $7,000) as liquidateddamages as provided in the Operating Agreement.  Included in the 16 defaulted units are two units from onesubscriber who had submitted two separate Subscription Agreements, each ofwhich included subscriptions for different numbers of units.  GPE accepted both SubscriptionAgreements.  GPE later learned from thesubscriber that he did not intend to have both agreements accepted.  Once GPE had been informed of this, itagreed to apply $1,000 of the subscriber's initial cash payment to theremaining 90% of the purchase price for the remaining units he had subscribedfor.  This $1,000 accounted for 2 of the16 defaulted units.  The net loss ininvestment value to GPE as a result of these defaults was $73,000.  See Item 6 below for a description of howthe proceeds of the public offering will be used.

 

**USE OF PROCEEDS**

 

From June 8, 2001, the effective date of the registration statement, toDecember 31, 2001, Great Plains incurred no expenses in connection with theissuance and distribution of the registered capital units for underwritingdiscounts and commissions, finders’ fees, or expenses paid to or forunderwriters.  Other expenses relatingto the issuance and distribution of the registered capital units for thisperiod were $80,300 and total expenses for this period were $92,000.  Except for the salary paid to Brian Minishas Chief Executive Officer and Chief Financial Officer of GPE, none of thesepayments were direct or indirect payments to directors, officers, generalpartners of the issuer or their associates.

 

GPE used $291,346 of the offering proceeds to purchase the land for theethanol plant to be built in Turner County, South Dakota.  GPE also used the proceeds of the privateand public offerings described above to make the following payments:  (1) $208,000 in direct payments to BroinManagement, LLC for management services; (2) $78,000 to repay a line of credit;(3) $24,375 for financing costs; (4) approximately $160,000 in offering coststhat were incurred prior to June 8, 2001; and (5) approximately $208,000 inother startup costs.

 

**Item 6.  Management’s Discussion and Analysis or Plan of Operation.**

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

GPE is a development stage start-up company in the process of designingand building a 40 million gallon ethanol plant to produce ethanol andDDGS.  GPE received net proceeds of$17,418,000 (in cash and promissory notes) relating to subscriptions for 1,513Class A and 1,973 Class C units from its initial public offering, $200,000 for40 Class C units in a private offering to Broin Management, LLC, $1,000,000 for200 Class B units

 

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in a private offering to BroinInvestments II, LLC, and $1,600 for 16 Class D units in a private offering toGPE’s Board of Managers and Managing Member. GPE has also received $7,000 relating to subscriptions for a total of 16capital units in the initial public offering which were later redeemed due tothe subscribers’ default on their promissory notes.  As of March 20, 2002, GPE had collected an aggregate ofapproximately $9,715,000 of the amount owed by subscribers.  The remaining amount is due from subscribersby April 1, 2002.

 

On November 7, 2001, GPE accepted the terms of a loan commitment withAgCountry Farm Credit Services to borrow up to $32.5 million in the form of anon-revolving construction loan until October 1, 2003, at which time theoutstanding balance of the loan shall be converted into a term loan with a tenyear maturity.  GPE may convert up to $6million of the term loan into a revolving term facility, subject to certainconditions and interest rate provisions. The interest rate on the construction loan will be the 30 day LIBOR plus3.14% per annum.  After October 1, 2003,GPE will be able to choose among various interest rate options designated bythe lender.  The construction and termloans will be secured by a first and prior lien on the GPE real and personalproperty and the collateral assignment of the GPE’s material contracts.  Absent unforeseen circumstances, GPE andAgCountry Farm Credit Services have agreed that the closing for theconstruction loan will take place on April 30, 2002, and they anticipate thatAgCountry’s appraisal process will begin around April 15, 2002.  The closing fee to the lender will be$243,750, or .75% of the maximum principal amount of the loan.

 

Pursuant to the terms in the commitment letter, the loan from AgCountryFarm Credit Services will contain a number of covenants that will restrictGPE’s ability to take certain actions and will require GPE to meet certainfinancial requirements.  The loan willcontain the following covenants:

 

(1)                                  GPEmust have a minimum ratio of (i) total current assets to (ii) total currentliabilities of 1:1 on October 1, 2003 and thereafter, and a ratio of 1.2:1 onor after October 1, 2004;

 

(2)                                  GPEmust have a maximum ratio of (i) net worth to (ii) total assets of 0.4:1 onOctober 1, 2004, and thereafter;

 

(3)                                  GPEmust have a minimum fixed charge coverage ratio of (i) earnings beforeinterest, taxes, depreciation and amortization to (ii) the sum of interest,mandatory debt payments, non-financed maintenance capital expenditures, and equitydistributions of 1.15:1 at all times;

 

(4)                                  GPEshall not make any capital expenditures that exceed $500,000 in any fiscal yearwithout the prior consent of AgCountry Farm Credit Services; and

 

(5)                                  GPEshall not make annual distributions to the holders of GPE ownership units inexcess of 75% of GPE’s pre-tax net income (after GPE has made all requiredprincipal and interest payments) without the approval of AgCountry Farm CreditServices

 

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Under the termsof the initial public offering, once GPE accepted the terms of the loancommitment, GPE was able to break escrow. See “Use of Proceeds” under Item 5.

 

GPE has also received notification of an award of a United StatesDepartment of Agriculture Value-Added Agricultural Product Market DevelopmentGrant.  GPE was awarded $401,704 underthe grant, and received payments under the grant in January and March2002.  This money may be used to pay forcertain organizational, offering and start-up costs related to the formationand capitalization of the Company.

 

In addition, on March 19, 2002, the Turner County Board ofCommissioners approved a request for tax increment financing for the GPEethanol plant.  GPE anticipates that itwill receive approximately $1 million, based upon the predicted increased taxrevenue that will be realized as a result of the ethanol plant project.  Turner County will raise this amount byselling tax increment bonds.  GPE willnot have any liability for repaying the bonds. The bonds are payable solely from the positive tax increment portion ofthe real property taxes which are imposed and collected on real propertypursuant to South Dakota law.

 

**PLAN OF OPERATIONS**

 

During the 2002 fiscal year, GPE plans to use the proceeds from its initialpublic offering, as well as funds from lenders and government sources to beginconstruction of the 40 million gallon ethanol plant and other facilities on theproperty located in Turner County, South Dakota.  Construction of the ethanol plant will take approximately 14 to16 months from the time that GPE completes site preparations and begins pouringconcrete.

 

GPE has entered into a Design/Build Construction Contract with Broinand Associates, Inc. for the design and construction of the ethanol plant.  Broin and Associates, Inc. is currentlyreceiving bids for the grading work and the construction of the grain storagebins.  GPE expects that contractors willbegin grading the site on or about April 13, 2002.  This will include preparing the rail beds and road beds to accessthe site as well as preparing the foundation for the plant and grain bins.  GPE anticipates that contractors will beginlaying the foundation and constructing the grain storage bins by the end of May2002.

 

GPE has entered into a Consulting Agreement with U.S. Energy Services,Inc. to assist GPE in managing its energy needs and negotiating with energysuppliers.  U.S. Energy has provided GPEwith an analysis of how GPE can most efficiently and economically meet itsnatural gas and electricity needs.  U.S.Energy is currently negotiating with multiple suppliers of electrical and gasto supply GPE with its energy needs. GPE expects these negotiations to be completed during the 2002 fiscalyear.  In addition, GPE and BroinManagement, LLP are also conducting final negotiations for the supply of waterto the plant.

 

Once completed, Broin Management, LLC will be responsible for theplant’s day-to-day operations.  GPEanticipates that a total of $52 million of debt and equity will be necessary topurchase the real estate, complete the construction of the plant, make thenecessary capital improvements, purchase the machinery, equipment and initialinventory, and cover start-up, financing and offering expenses.  GPE expects to raise an aggregate ofapproximately 

 

11

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$52,533,000 through its initialpublic offering, private offerings to Broin affiliates, the loan agreement fromAgCountry Farm Credit Services, the grant from the U.S. Department of Agriculture,and the tax increment financing from Turner County.

 

GPE has entered into agreements with Broin affiliates to market andsell all of the ethanol and DDGS it produces. GPE does not intend to hire a sales staff to market any of its products.  Broin affiliates will be paid commissionsunder the marketing contracts with them to market and sell GPE’s products.  As the Managing Member, Broin Management,LLC will also be responsible for hiring and supervising all of the GPE staffwith respect to the direct operations of the ethanol plant, includingreceiving, production and shipping.

 

With the proceeds of the initial public offering, the privateofferings, the debt financing, the government grants and the tax incrementfinancing, GPE expects to have sufficient cash on hand to cover constructioncosts, including the installation of utilities, construction of the plant,equipment acquisition and interest accrued during construction.  In addition, GPE expects to have enough cashto cover its operating and administrative expenses until it begins collectingpayment on its accounts receivable. Such costs include raw materials, staffing, office costs, audit, legal,regulatory compliance and staff training, and to pay expenses related to itsdebt financing and its initial public offering.

 

GPE anticipates that it will have adopted and approved a Capital UnitsTransfer System by the third trimester of 2002.  The Capital Units Transfer System will conform with Section1.7704-1 et seq. of the Treasury Regulations as adopted or amended by theInternal Revenue Service from time to time. No member may dispose of any capital units until the Board of Managershas adopted the Capital Units Transfer System, and all such dispositions mustcomply with the Capital Units Transfer System.

 

**Item7.   Financial Statements.**

 

Great Plains Ethanol’s audited financial statements, described asfollows, are appended to the signature page of this report.

 

Independent Auditor’s Report

 

Balance Sheets – December 31, 2001 and 2000

 

Statements ofOperations – For the Year ended December 31, 2001, for the Period from December20, 2000 to December 31, 2000, and for the Period from December 20, 2000 toDecember 31, 2001

 

Statements of Changes in Members’ Equity – For the Period December 20,2000 to December 31, 2001

 

Statements ofCash Flows – For the Year ended December 31, 2001, for the Period from December20, 2000 to December 31, 2000, and for the Period from December 20, 2000 toDecember 31, 2001

 

Notes to Financial Statements

 

12

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

 

To the best of GPE’s knowledge, there are no disagreements withaccountants on accounting and financial disclosure.

 

**PART III**

 

**Item9.   Directors, Executive Officers,Promoters and Control Persons; Compliance With Section 16(a) of the ExchangeAct.**

 

BOARD OF MANAGERS

 

Fifteen individuals serve as GPE’s initial Board of Managers until themembers hold a special meeting to elect a new Board of Managers.  GPE expects to hold the special meeting toelect a new Board of Managers during the first quarter of 2003 in anticipationof the completion of construction.  Allmembers of the Board of Managers are serving in their initial term ofoffice.  Pursuant to the First Amendedand Restated Operating Agreement, the initial members may not be replaced orremoved until a special meeting is called to elect a new Board of Managers.

 

13

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The table below sets forth important information concerning the initialmembers of the Board of Managers.

 
| **Name, Address and Telephone**                                                      |   | **Age** |   | **Occupation**                    |   | **Background**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|--------------------------------------------------------------------------------------|--------|---------|--------|-----------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **Dwayne Atkins**  46939 273rd Street   Tea, SD  57064   (605) 368-2613         |   | 66      |   | Farmer                            |   | Mr. Atkins  has been in the business of farming near Tea, South Dakota for the past 31  years, and has worked in the trucking industry and served as the manager of a  local grain elevator. He has been a member of Southeastern Grain Dealers  Association since 1980.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|                                                                                 |   |    |   |                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Jeff Broin**  2209 East 57th Street North   Sioux Falls, SD 57108   (605) 965-2200 |   | 36      |   | Ethanol Business Development      |   | Mr. Broin  has been integrally involved in this ethanol project from the early planning  stages.  Mr. Broin is currently the  Chief Executive Officer of Broin and Associates, Inc., the Chief Managing  Officer of Broin Management, LLC  and  the Chief Executive Officer of Broin Enterprises, Inc. since 1987.  Mr. Broin also managed Broin Enterprise’s  ethanol plant in Scotland, South Dakota for approximately 10 years.  Mr. Broin has been instrumental in  the construction and management of ethanol plants in the Midwest and in  ethanol product marketing since 1987.   Mr. Broin has a Bachelor of Science in Agricultural Business from the  University of Wisconsin.  Mr. Broin  also has served on the board of the American Coalition for Ethanol since  1990, as the acting Director of the South Dakota Ethanol Producers  Association since 1991, and as a member of the Renewable Fuels Association  since 1997.  He is also an associate  member of the South Dakota Corn Growers Association.  Mr. Broin also serves on the boards of six  other ethanol plants operated and managed by Broin Management. |   |
|                                                                                 |   |    |   |                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Darrell Buller**  45722 272nd Street   Parker, SD 57053   (605) 297-4569           |   | 47      |   | Farmer/ Insurance Claims Adjuster |   | Mr. Buller has been farming in the Parker, South Dakota area since  1981.  He has also been employed as an  insurance claims adjuster for 24 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|                                                                                 |   |    |   |                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Steve Christensen**  27821 452nd Avenue Parker, SD 57053   (605) 297-4863     |   | 49      |   | Farmer                            |   | Mr. Christensen has been a farmer for the last 30 years in Parker,  South Dakota.  He also worked at the  Terminal Grain Elevator in Parker, South Dakota on a part-time basis from  1980 to 1992.  Mr. Christensen was a  member of the South Dakota Air National Guard from 1971 to 1991.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|                                                                                 |   |    |   |                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Dennis Hardy**  47312 288th Street   Beresford, SD 57004   (605) 372-4696          |   | 56      |   | Farmer                            |   | Mr. Hardy  has farmed in the Beresford, South Dakota area for over 20 years.  He is the current President of the Farmers  Pork Cooperative and the immediate past chairman of the South Dakota Soybean  Research and Promotion Council.  Mr.  Hardy received a Bachelor of Science degree in Electrical Engineering from  South Dakota State University in 1968.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                                                 |   |    |   |                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| **Rich Horton**  45446 285th Street  Hurley, SD 57036   (605) 238-5891               |   | 53      |   | Farmer                            |   | Mr. Horton  has farmed in the Hurley, South Dakota area for over 20 years.  He was employed as a farm manager in the  areas of farm management and banking until 1979.  He received a Bachelor of Science degree in Agricultural  Science from Iowa State University in 1973.   He is a former member of the board of directors of the Turner County  Pork Producers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                                                                 |   |    |   |                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |

 

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| **Darrin Ihnen**  28065 459th Avenue   Hurley, SD 57036   (605) 238-5544        |   | 36     |   | Farmer                  |   | Mr. Ihnen  has been a farmer for 20 years in Hurley, South Dakota.  He is currently a board member of the  South Dakota Corn Growers Association and a member of the Turner County Pork  Producers and the South Dakota Soybean Association.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
|---------------------------------------------------------------------------------|--------|--------|--------|-------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                            |   |   |   |                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| **David Lambert**  Post Office Box 295   Parker, SD 57053   (605) 297-3399      |   | 41     |   | Economic Development    |   | Mr. Lambert  has been a facilitator for the Southeast Enterprise Facilitation Project in  Turner County, South Dakota since 1997.   He previously was a community economic developer for the City of  Fayette, Missouri and a planner for the Northeast Council of Governments in  Aberdeen, South Dakota.  Mr. Lambert  received an Associate of Applied Sciences degree in Agricultural Management  from the Mitchell, South Dakota Vocational-Technical School, a Bachelor of  Arts in Business with an Accounting emphasis from Dakota Wesleyan University,  and a Master of Arts in Public Administration from Mankato State University.  He is also currently a member of the  Southeast South Dakota Economic Advisory Board. |   |
|                                                                            |   |   |   |                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| **John A. Ludens**114 South Garfield Street   Lennox, SD 57039   (605) 647-2215 |   | 76     |   | Retired                 |   | Mr. Ludens  farmed in the Davis, South Dakota area for over 40 years.  He is the past President of the South  Dakota Livestock Feeders and the South Dakota Irrigators.  He also served on the National Cattleman’s  Association board for 9 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|                                                                            |   |   |   |                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| **Mark Miller**  216 West Well Street   Freeman, SD 57029   (605) 925-4992      |   | 31     |   | Farmer                  |   | Mr. Miller  has been a farmer in Freeman, South Dakota since 1999.  He was a youth minister in Milbank, South  Dakota from 1995 to 1999.  He received  an Associates Degree in Aviation from Hesston College.  From 1991 to 1992, Mr. Miller was a flight  instructor at South Dakota State University.                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                                            |   |   |   |                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| **Jim Rand**  27966 452nd Avenue   Parker, SD 57053   605-297-9873              |   | 47     |   | Farm and Business Owner |   | Mr. Rand has  been farming in the Parker, South Dakota area since 1974.  He also has owned and operated a  construction business since 1985.  Mr.  Rand was a member of the Parker Township Board and the Farmers Union  Cooperative Board for approximately 15 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
|                                                                            |   |   |   |                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| **Dennis Schrag**  44133 283rd Street   Freeman, SD 57029   (605) 925-7482      |   | 45     |   | Farmer                  |   | Mr. Schrag  has been a farmer in the Freeman, South Dakota area since 1973.  He is a former member of the Childstown  Township Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|                                                                            |   |   |   |                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| **Paul Shubeck**  121 Dakota Avenue   Centerville, SD 57014   (605) 563-2914    |   | 47     |   | Farmer                  |   | Mr. Shubeck  has been a farmer in the Centerville, South Dakota area for the last 18  years.  He also has been a mediator  for the United States Department of Agriculture and the South Dakota  Department of Agriculture for the last 12 years.  He is currently a member of the Turner County Conservation  District Board and the Clay County Farm Bureau Board.  Mr. Shubeck received a Bachelor of Science  degree in Agricultural Engineering from South Dakota State University in 1977  and a Master of Business Administration degree from the University of Sioux  Falls in 1994.                                                                                                                                         |   |
|                                                                            |   |   |   |                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| **Steve Sinning**  46366 280th Street   Lennox, SD 57039   (605) 647-5339       |   | 47     |   | Farmer                  |   | Mr. Sinning  has farmed in the Lennox, South Dakota area since 1978.  He holds a degree in Biology and Chemistry  from the University of South Dakota.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|                                                                            |   |   |   |                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| **Dan Viet**  27148 SD Highway 19   Parker, SD 57053   (605) 297-3175           |   | 39     |   | Farmer                  |   | Mr. Viet has  been a farmer in Parker, South Dakota since 1982.  He graduated from Mitchell, South Dakota Vocational-Technical  College in 1982.  He is a current  member of the Turner County Fair Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |

 

15

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**EXECUTIVE OFFICERS**

 

GPE’s initial Board of Managers has appointed Brian Minish to serve asGPE’s Chief Executive Officer and Chief Financial Officer for an indefiniteterm.  Mr. Minish serves on a part-timebasis and is currently the only executive officer of GPE.

 

Mr. Minish’s employment history in the agriculture industry includes asales position with Monsanto from 1976 to 1980, and he was a grain elevatormanager in Harmon, Illinois from 1980 to 1983 and Woodbine, Iowa from 1983 to1985.  He also was employed in thesecurities industry as a commodity broker at Securities Corporation of Iowa in1986.  In 1986, Mr. Minish joinedAmerican Cyanamid, where he held positions in logistics, sales supervision andmarketing management.  At AmericanCyanamid he was responsible for the marketing management of the company’sdomestic insecticide products.  Mr.Minish left American Cyanamid in 1999. Since 1999, he has worked as a consultant to South Dakota Ag ProducerVentures, the Sioux Empire Fair in Sioux Falls, South Dakota and Dakota LayersCooperative.  Mr. Minish received aBachelor of Science in Agriculture from the University of Wisconsin atPlatteville, Wisconsin in 1975 and a Master of Business Administration degreefrom Northwest Missouri State in 1978.

 

Mr. Minish is also an employee of Val-Add Service Corporation, whichserves as GPE’s project coordinator.

 

**Item10.   Executive Compensation.**

 

**BOARD OFMANAGERS**

 

GPE does not anticipatepaying the initial members of the Board of Managers any cash compensation fortheir service as Board members; however, the members of the Board of Managers eachreceived a Class D unit for which each Board member paid $100.  Upon the completion of the initial publicoffering, the Class D units held by the Board members were convertedautomatically to Class C units which were otherwise being sold for $5,000 perunit.  Board members will be reimbursedfor reasonable expenses incurred in carrying out their duties as Board members.  A per diem fee for attending meetings may beset by the Board of Managers.  All Boardmembers who are members of GPE will receive the same membership benefits allother members receive.

 

**EXECUTIVEOFFICERS**

 

Mr. Minish receives a salary of $4,500 per month for his services asChief Executive Officer and Chief Financial Officer, which was increased from$3,000 per month on October 1, 2001 by the Board of Managers.  Mr. Minish’s employment is subject to anemployment contract with GPE beginning on December 18, 2000.  Mr. Minish has not received any optionsor other long-term incentive awards.  Pursuant to his contract, Mr. Minish does not receive any health-care,retirement or other benefits, but is paid a salary and reimbursed for his costsand expenses incurred in connection with his employment.  The contract is terminable by either partywith 60 days’ notice.

 

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The following table sets forth all the compensation paid to each of ourexecutive officers prior to December 31, 2001, the end of our latest fiscalyear.

 
|                                                                   |   |                        |   | **Annual  Compensation** |   | **Long-Term  Compensation** |   |                                          |   |
|------------------------------------------------------------------------|--------|-----------------------------|--------|--------------------------|--------|-----------------------------|--------|-----------------------------------------------|--------|
|                                                                   |   |                        |   |                     |   |                        |   |                                          |   | **Awards** |   | **Payouts** |   |   |   |
| **Name and Principal Position**                                        |   | **Year   ended   Dec. 31,** |   | **Salary  ($)**          |   | **Bonus   ($)**             |   | **Other   Annual   Compen–  sation ($)** |   | **Restricted    Stock   Award(s)   ($)** |   | **Securities    Underlying   Options/   SARs (#)** |   | **LTIP   Payouts** |   | **All   Other Compen-  sation ($)** |   |
| Brian Minish*****Chief Executive Officer  and Chief Financial Officer* |   | 2000   2001                 |   | 3,000  40,500            | (1)    | **—**                  |   | **—**                                    |   | **—** |   | **—** |   | **—** |   | **—** |   |

 

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(1)           Brian Minish was only employed by GPE during one month in2000.

 

                GPE has not issued, either directly or aspart of a Long-Term Incentive Plan, any options or stock appreciation rights toany executive officer or Board member of the company.

 

**Item11.   Security Ownership of CertainBeneficial Owners and Management.**

 

The following table sets forth the current beneficial ownership of GPEcapital units in terms of equity and voting interests, by members of the Boardof Managers, executive officers, the Managing Member, and any beneficial ownerof more than 5% of any class of GPE’s capital units.

 
| **Title of Class** |   | **Name and  Address of Beneficial Owner****(1)**              |   | **Amount and    Nature of   Beneficial Owner   (in units)** |   | **Equity   Percent of****Class** |   | **Voting  Percent   of****Class** |   |
|--------------------|--------|---------------------------------------------------------------|--------|-------------------------------------------------------------|--------|----------------------------------|--------|-----------------------------------|--------|
| Class A            |   | Dwayne  Atkins, Manager                                       |   | 2                                                           |   | *                                |   | *                                 |   |
| Class A            |   | Darrell  Buller, Manager                                      |   | 2                                                           |   | *                                |   | *                                 |   |
| Class A            |   | Steve  Christensen, Manager                                   |   | 2                                                           |   | *                                |   | *                                 |   |
| Class A            |   | Dennis  Hardy, Manager                                        |   | 11                                                          |   | *                                |   | *                                 |   |
| Class A            |   | Rich Horton,  Manager                                         |   | 10                                                          |   | *                                |   | *                                 |   |
| Class A            |   | Darrin  Ihnen, Manager                                        |   | 10                                                          |   | *                                |   | *                                 |   |
| Class A            |   | David  Lambert, Manager                                       |   | 2                                                           |   | *                                |   | *                                 |   |
| Class A            |   | John A.  Ludens, Manager                                      |   | 42                                                          |   | 2.78                             |   | *                                 |   |
| Class A            |   | Mark Miller,  Manager                                         |   | 2                                                           |   | *                                |   | *                                 |   |
| Class A            |   | Jim Rand,  Manager                                            |   | 20                                                          |   | 1.32                             |   | *                                 |   |
| Class A            |   | Dennis  Schrag, Manager                                       |   | 2                                                           |   | *                                |   | *                                 |   |
| Class A            |   | Paul  Shubeck, Manager                                        |   | 2                                                           |   | *                                |   | *                                 |   |
| Class A            |   | Steve  Sinning, Manager                                       |   | 6                                                           |   | *                                |   | *                                 |   |
| Class A            |   | Dan Viet,  Manager                                            |   | 4                                                           |   | *                                |   | *                                 |   |
| Class A            |   | Brian  Minish, CEO and CFO                                    |   | 2                                                           |   | *                                |   | *                                 |   |
| Class A            |   | Managers,  Managing Member and executive officers, as a group |   | 119                                                         |   | 7.87                             |   | 2.98                              |   |
|               |   |                                                          |   |                                                        |   |                             |   |                              |   |
| Class B            |   | Broin Investments  II, LLC                                    |   | 200                                                         |   | 100                              |   | 100                               |   |
| Class B            |   | Jeff Broin,  Manager(2)                                       |   | 200                                                         |   | 100                              |   | 100                               |   |
| Class B            |   | Managers,  Managing Member and executive officers, as a group |   | 200                                                         |   | 100                              |   | 100                               |   |

 

17

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| Class C |   | Broin  Investments II, LLC(3)                                 |   | 400 |   | 19.71 |   | 19.71 |   |
|---------|--------|---------------------------------------------------------------|--------|-----|--------|-------|--------|-------|--------|
| Class C |   | Broin  Management, LLC, Managing Member (3)                   |   | 41  |   | 2.02  |   | 2.02  |   |
| Class C |   | Dwayne  Atkins, Manager                                       |   | 53  |   | 2.61  |   | 2.61  |   |
| Class C |   | Jeff Broin,  Manager (3)                                      |   | 442 |   | 21.78 |   | 21.78 |   |
| Class C |   | Darrell  Buller, Manager                                      |   | 26  |   | 1.28  |   | 1.28  |   |
| Class C |   | Steve  Christensen, Manager                                   |   | 14  |   | *     |   | *     |   |
| Class C |   | Dennis  Hardy, Manager                                        |   | 1   |   | *     |   | *     |   |
| Class C |   | Rich Horton,  Manager                                         |   | 15  |   | *     |   | *     |   |
| Class C |   | Darrin  Ihnen, Manager                                        |   | 1   |   | *     |   | *     |   |
| Class C |   | David  Lambert, Manager                                       |   | 12  |   | *     |   | *     |   |
| Class C |   | John A.  Ludens, Manager                                      |   | 49  |   | 2.41  |   | 2.41  |   |
| Class C |   | Mark Miller,  Manager                                         |   | 11  |   | *     |   | *     |   |
| Class C |   | Jim Rand,  Manager                                            |   | 11  |   | *     |   | *     |   |
| Class C |   | Dennis  Schrag, Manager                                       |   | 13  |   | *     |   | *     |   |
| Class C |   | Paul  Shubeck, Manager                                        |   | 11  |   | *     |   | *     |   |
| Class C |   | Steve  Sinning, Manager                                       |   | 11  |   | *     |   | *     |   |
| Class C |   | Dan Viet,  Manager                                            |   | 1   |   | *     |   | *     |   |
| Class C |   | Brian  Minish, CEO and CFO                                    |   | 10  |   | *     |   | *     |   |
| Class C |   | Managers,  Managing Member and executive officers, as a group |   | 681 |   | 33.56 |   | 33.56 |   |

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*              Equals less than 1% beneficial ownership of the class.

(1)                                  Theaddresses for each of the individual Managers listed above are set forth underItem 9 above.  The address for BroinManagement, LLC and Broin Investment II, LLC is 2209 East 57th Street North,Sioux Falls, South Dakota 57104.

(2)                                  Represents200 Class B units held of record by Broin Investments II, LLC that werepurchased in connection with  theDecember 18, 2000 Contract for Future Services.  Mr. Broin holds an ownership interest in and controls BroinInvestments II, LLC and is, therefore, a beneficial owner of the shares ownedby Broin Investments II, LLC.

(3)                                  Representsone Class C unit held of record by Jeff Broin, which was received upon theconversion of his Class D unit, one Class C unit held of record by BroinManagement, LLC, which was received upon the conversion of its Class D unit, 40Class C units held of record by Broin Management LLC that were purchased inconnection with the December 18, 2000 Contract for Future Services, and 400Class C units held of record by Broin Investments II, LLC that were purchasedin the initial public offering.  Mr.Broin holds an ownership interest in and controls Broin Management, LLC andBroin Investments II, LLC; accordingly, Mr. Broin is a beneficial owner of allthe shares owned by each of Broin Management, LLC and Broin Investments II,LLC.

 

**Item12.   Certain Relationships and RelatedTransactions.**

 

The individual members of GPE’s initial Board of Managers and the ChiefExecutive Officer and Chief Financial Officer have not entered into, and do notanticipate entering into, any contractual or other transactions betweenthemselves and Great Plains Ethanol, except for Subscription Agreements for theClass D units which each Board member and the Managing Member has entered into,and Subscription Agreements and Corn Delivery Agreements they have entered intoupon purchasing units during the initial public offering in forms identical tothose provided to other investors.

 

18

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GPE has contracted with Broin and Associates, Inc. and its affiliatedcompanies to assist GPE in virtually all aspects of the ethanol plant project,including site selection, permitting and zoning, construction, plant managementand operation, and the marketing and sale of ethanol and DDGS.  Broin and Associates, Inc. is a Sioux Falls,South Dakota based engineering and construction management firm specializing inthe design, engineering, construction, and plant start-up of new ethanolproduction facilities in the Midwest. Broin and Associates, Inc. is owned by Robert, Jeff, Todd and LowellBroin, and Jeff Broin is the Chief Executive Officer of Broin and Associates,Inc.  Jeff Broin currently serves on theBoard of Managers of GPE and six other ethanol production facilities managed byBroin.

 

Broin Management, LLC, an affiliate of Broin and Associates, Inc. willserve as the Managing Member of GPE and will manage the day-to-day operationsof the ethanol plant.  GPE will payBroin Management a fixed annual fee of $250,000, to be adjusted annually forinflation.  GPE will also pay BroinManagement, LLC an incentive bonus of 4% of the trimester net income.  The trimester bonus will be calculatedannually based upon audited net profits. GPE will pay certain expenses incurred with respect to operation of theplant while other expenses, including, but not limited to, the provision of afull-time plant manager, are included as part of Broin Management’s fees.  GPE may only terminate Broin Management “forcause” which is defined in GPE’s Operating Agreement as illegal or unethicalconduct, substandard performance of the ethanol plant for a period of twoconsecutive years, and the sale, change of control or disposition of BroinManagement.

 

GPE has signed an Ethanol Marketing and Services Contract with EthanolProducts, LLC, an affiliate of Broin and Associates, Inc., to market theethanol produced at the ethanol plant. The contract will be in effect for a term equal to the term of GPE’sprimary debt financing for the ethanol plant. Ethanol Products, LLC will receive a marketing fee of $.0040 per gallonof ethanol sold and an administrative fee of $.0025 per gallon of ethanol sold.

 

GPE has signed a DDGS Marketing Contract with Dakota Commodities, anaffiliate of Broin and Associates, Inc., to market the DDGS produced at theethanol plant.  The contract will be ineffect until the later of the following two events:  the term of GPE’s initial debt funding for the ethanol plant, orseven years from the date that the ethanol plant begins operations.  It will automatically renew for additionalthree-year periods, unless discontinued by either party upon at least threemonths prior written notice of nonrenewal. GPE will pay Dakota Commodities a marketing fee of 2% of the grossmonthly sales of DDGS with a minimum annual fee of $200,000 per year.  GPE will be responsible for invoicing allloads, receiving payments from customers and paying freight whennecessary.  All account receivablelosses arising from the sales of DDGS will be the sole responsibility of GPE.

 

Broin Investments II, LLC, a Broin and Associates, Inc. affiliate, iscurrently the only Class B member and, as such, has the right to elect oneperson to the Board of Managers.

 

GPE entered into a consulting agreement with Val-Add ServiceCorporation (“Val-Add”) in December 2000 to act as the project coordinator.  Val-Add is a South Dakota based consultingfirm that provides services to businesses in South Dakota and neighboringstates.  Brian Minish, Chief ExecutiveOfficer and Chief Financial Officer of GPE, is also an employee of Val-Add.

 

19

----

 

Val-Add has been assisting GPEwith development and structuring of its business plan, negotiations with Broinand Associates, Inc., and securing the required debt financing for theproject.  The consulting agreement is foran indefinite period and can be cancelled by either party upon 10 days writtennotice to the other party.  Under thecontract, GPE will pay Val-Add $1,500 per month for services rendered and, withapproval of the Board of Managers, a bonus of $50,000 upon execution of aletter of commitment from a lending institution.  If the consulting agreement is terminated, GPE’s paymentobligations to Val-Add will cease, except that Val-Add will be entitled topayments for periods or partial periods that occurred prior to the date oftermination and for which Val-Add has not yet been paid.  Val-Add is also entitled to reimbursementfor postage, copying, web hosting and long distance telephone charges.

 

GPE also entered into a services agreement with Val-Add in December2000.  The services agreement is ofindefinite duration and can be terminated by either party upon 10 days writtennotice to the other party.  Under theservices agreement, GPE will pay Val-Add a flat monthly fee of $35 and anhourly fee of $25 for certain clerical and administrative services related tothe operation of the proposed ethanol plant.

 

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

 

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

 

(a)           Exhibits. See Exhibit Index

 

(b)           Reports on Form 8-K.  No reports on Form 8-K were filed during fiscal year 2001.

 

20

----

 

**SIGNATURES**

 

In accordance with Section 13or 15(d) of the Exchange Act, the registrant caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.

 
|                                                                                                                                                                             |           | GREAT PLAINS  ETHANOL, LLC   |             |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|------------------------------|------------------|
|                                                                                                                                                                             |           |                         |             |
| Date:                                                                                                                                                                            | March 29, 2002 | By                           | /s/ Brian Minish |   |
|                                                                                                                                                                             |           | Brian Minish                 |             |
|                                                                                                                                                                             |           | Chief  Executive Officer and |             |
|                                                                                                                                                                             |           | Chief  Financial Officer     |             |
|                                                                                                                                                                             |           |                         |             |
| In accordance  with the Exchange Act, this report has been signed below by the following  persons on behalf of the registrant and in the capacities and on the dates  indicated. |
|                                                                                                                                                                             |           |                         |             |
| /s/ Brian Minish                                                                                                                                                                 |           | Date                         | March 29, 2002   |   |
| Brian Minish, Chief Executive Officer                                                                                                                                            |           |                         |             |
| and Chief Financial Officer                                                                                                                                                      |           |                         |             |
| (Principal Executive and Principal                                                                                                                                               |           |                         |             |
| Financial Officer)                                                                                                                                                               |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Dwayne Atkins                                                                                                                                                                |           | Date                         | March 28, 2002   |   |
| Dwayne Atkins                                                                                                                                                                    |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Jeff Broin                                                                                                                                                                   |           | Date                         | March 28, 2002   |   |
| Jeff Broin                                                                                                                                                                       |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Darrell Buller                                                                                                                                                               |           | Date                         | March 28, 2002   |   |
| Darrell Buller                                                                                                                                                                   |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Steve Christensen                                                                                                                                                            |           | Date                         | March 28, 2002   |   |
| Steve Christensen                                                                                                                                                                |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
|                                                                                                                                                                             |           | Date                         |             |   |
| Dennis Hardy                                                                                                                                                                     |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Rich Horton                                                                                                                                                                  |           | Date                         | March 28, 2002   |   |
| Rich Horton                                                                                                                                                                      |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Darrin Ihnen                                                                                                                                                                 |           | Date                         | March 29, 2002   |   |
| Darrin Ihnen                                                                                                                                                                     |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ David Lambert                                                                                                                                                                |           | Date                         | March 30, 2002   |   |
| David Lambert                                                                                                                                                                    |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ John A. Ludens                                                                                                                                                               |           | Date                         | March 28, 2002   |   |
| John A. Ludens                                                                                                                                                                   |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Mark Miller                                                                                                                                                                  |           | Date                         | March 28, 2002   |   |
| Mark Miller                                                                                                                                                                      |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Jim Rand                                                                                                                                                                     |           | Date                         | March 28, 2002   |   |
| Jim Rand                                                                                                                                                                         |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Dennis Schrag                                                                                                                                                                |           | Date                         | March 28, 2002   |   |
| Dennis Schrag                                                                                                                                                                    |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Paul Shubeck                                                                                                                                                                 |           | Date                         | March 29, 2002   |   |
| Paul Shubeck                                                                                                                                                                     |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
| /s/ Steve Sinning                                                                                                                                                                |           | Date                         | March 28, 2002   |   |
| Steve Sinning                                                                                                                                                                    |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                             |           |                         |             |
|                                                                                                                                                                             |           | Date                         |             |   |
| Dan Viet                                                                                                                                                                         |           |                         |             |
| Manager                                                                                                                                                                          |           |                         |             |
|                                                                                                                                                                                  |                |                              |                  |  |  |  |  |

 

21

----

 

 

# **GREAT PLAINS ETHANOL, LLC**

 

***FINANCIAL STATEMENTS***

***DECEMBER 31, 2001 AND 2000***

 

 

 

**GREAT PLAINS ETHANOL,LLC**

 

Table of Contents

 

 

 
|                                                    |   |
|---------------------------------------------------------|--------|
| **INDEPENDENT AUDITOR’S REPORT**                   |   |
|                                                    |   |
| **FINANCIAL  STATEMENTS**                               |   |
| Balance  Sheets                                         |   |
| Operations                                              |   |
| Changes in Members’ Equity (Deficiency in  Assets) |   |
| Cash Flows                                              |   |
| Notes to Financial Statements                           |   |

 

 

**INDEPENDENTAUDITOR’S REPORT**

 

 

 

The Board of Managers

Great Plains Ethanol, LLC

Lennox, South Dakota

 

 

We have audited the accompanyingbalance sheets of **Great Plains Ethanol, LLC,** (a developmentstage limited liability company) as of December 31, 2001 and 2000, and therelated statements of operations, changes in members’ equity (deficiency inassets) and cash flows for the year ended December 31, 2001, for the periodfrom December 20, 2000 (inception) through December 31, 2000 and the cumulativeperiod from December 20, 2000 (inception) through December 31, 2001. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audit.

 

We conducted our audits inaccordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit 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.

 

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

 

 

 

/s/ Eide Bailly LLP

 

Eden Prairie, Minnesota

January 10, 2002

 

----

 
| **GREAT PLAINES ETHANOL, LLC  (A Development Stage Company)BALANCE SHEETS  DECEMBER 31, 2001 AND 2000** |   |            |          |       |   |
|---------------------------------------------------------------------------------------------------------|--------|-----------------|---------------|------------|--------|
|                                                                                                    |   |            |          |       |   |
|                                                                                                    |   | **2001**        |          | **2000**   |   |
| **ASSETS**                                                                                              |   |            |          |       |   |
|                                                                                                    |   |            |          |       |   |
| CURRENT ASSETS                                                                                          |   |            |          |       |   |
| Cash                                                                                                    |   | **$**           | **1,141,317** |       | $      | 2,949 |   |
| Subscriptions receivable                                                                                |   | **—**      |          | 1,600      |   |
| Grant receivable                                                                                        |   | **38,534**      |          | —     |   |
| Prepaid expenses                                                                                        |   | **27,085**      |          | 461        |   |
| Total current assets                                                                                    |   | **1,206,936**   |          | 5,010      |   |
|                                                                                                    |   |            |          |       |   |
| PROPERTY AND EQUIPMENT                                                                                  |   |            |          |       |   |
| Land                                                                                                    |   | **290,626**     |          | —     |   |
| Office equipment                                                                                        |   | **1,220**       |          | —     |   |
| Construction in progress                                                                                |   | **375,000**     |          | —     |   |
|                                                                                                    |   | **666,846**     |          | **—** |   |
| Less accumulated depreciation                                                                           |   | **(175)**       |          | —     |   |
| Net property and equipment                                                                              |   | **666,671**     |          | —     |   |
|                                                                                                    |   |            |          |       |   |
| OTHER ASSETS                                                                                            |   |            |          |       |   |
| Prepaid offering expenses                                                                               |   | **—**      |          | 66,930     |   |
| Land option                                                                                             |   | **—**      |          | 500        |   |
| Financing costs                                                                                         |   | **24,375**      |          | —     |   |
|                                                                                                    |   | **24,375**      |          | 67,430     |   |
|                                                                                                    |   |            |          |       |   |
|                                                                                                    |   | **$**           | **1,897,982** |       | $      | 72,440 |   |
|                                                                                                    |   |            |          |       |   |   |   |
| **LIABILITIES  AND MEMBERS’ EQUITY (DEFICIENCY IN ASSETS)**                                        |   |            |          |       |   |
|                                                                                                    |   |            |          |       |   |
| CURRENT LIABILITIES                                                                                     |   |            |          |       |   |
| Accounts payable — trade                                                                           |   | **$**           | **11,000**    |       | $      | 71,130 |   |
| Accounts payable — offering costs                                                                  |   | **—**      |          | 66,930     |   |
| Accounts payable to related party — construction costs                                             |   | **375,000**     |          | —     |   |
| Accrued liabilities                                                                                     |   | **2,755**       |          | 3,230      |   |
| Total current liabilities                                                                               |   | **388,755**     |          | 141,290    |   |
|                                                                                                    |   |            |          |       |   |
|                                                                                                    |   |            |          |       |   |
|                                                                                                    |   |            |          |       |   |
| MEMBERS’ EQUITY  (DEFICIENCY IN ASSETS)                                                            |   |            |          |       |   |
| Total units authorized — 4,700                                                                     |   |            |          |       |   |
| Class A Units, $5,000 par, 1,529 and 0 units subscribed, respectively                                   |   | **7,645,000**   |          | —     |   |
| Class B Units, $5,000 par, 200 and 0 units subscribed, respectively                                     |   | **1,000,000**   |          | —     |   |
| Class C Units, $5,000 par, 2,029 and 0 units subscribed, respectively                                   |   | **10,145,000**  |          | —     |   |
| Class D Units, $100 par, 0 and 16 units issued and outstanding,  respectively                           |   | **—**      |          | 1,600      |   |
| Additional paid-in capital                                                                              |   | **—**      |          | 4,151      |   |
| Deficit accumulated during the development stage                                                        |   | **(765,773**    | **)**         | (74,601    | )      |
| Less subscriptions receivable:                                                                          |   |            |          |       |   |
| Related party                                                                                           |   | **(2,854,000**  | **)**         | —     |   |
| Others                                                                                                  |   | **(13,661,000** | **)**         | —     |   |
| Total members’ equity                                                                              |   | **1,509,227**   |          | (68,850    | )      |
|                                                                                                    |   |            |          |       |   |
|                                                                                                    |   | **$**           | **1,897,982** |       | $      | 72,440 |   |
|                                                                                                         |        |                 |               |            |        |  |  |  |  |  |  |  |

 

 

 

See Notes to Financial Statements

 

2

----

 
| **GREAT PLAINS ETHANOL, LLC  (A Development State Company)STATEMENTS OF OPERATIONS**

  |   |                                     |    |                                                                               |   |                                                                               |   |
|----------------------------------------------------------------------------------------------|--------|------------------------------------------|---------|------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
|                                                                                         |   | **Year Ended  December 31,********2001** |    | **Period From  December 20, 2000********(Inception) to  December 31,********2000** |   | **Period From  December 20, 2000  (Inception) to********December 31,********2001** |   |
| OPERATING REVENUES                                                                           |   | $                                        | —  |                                                                               | $      | —                                                                             |   | $ | — |   |
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| OPERATING EXPENSES                                                                           |   |                                     |    |                                                                               |   |                                                                               |   |
| Organizational costs                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| Legal fees                                                                                   |   | 16,348                                   |    | 44,285                                                                             |   | 60,633                                                                             |   |
| Accounting fees                                                                              |   |                                     |    | 2,709                                                                              |   | 2,709                                                                              |   |
| Startup expenses                                                                             |   |                                     |    |                                                                               |   |                                                                               |   |
| Legal fees                                                                                   |   | 39,879                                   |    | 7,567                                                                              |   | 47,446                                                                             |   |
| Accounting fees                                                                              |   | 32,830                                   |    | 13,000                                                                             |   | 45,830                                                                             |   |
| Administrative services                                                                      |   | 240,078                                  |    | 3,569                                                                              |   | 243,647                                                                            |   |
| Salaries and benefits                                                                        |   | 62,689                                   |    | 3,230                                                                              |   | 65,919                                                                             |   |
| Other                                                                                        |   | 45,920                                   |    | 241                                                                                |   | 46,161                                                                             |   |
| Total operating expenses                                                                     |   | 437,744                                  |    | 74,601                                                                             |   | 512,345                                                                            |   |
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| LOSS FROM START-UP ACTIVITIES                                                                |   | (437,744                                 | )       | (74,601                                                                            | )      | (512,345                                                                           | )      |
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| OTHER INCOME AND (EXPENSES)                                                                  |   |                                     |    |                                                                               |   |                                                                               |   |
| Interest income                                                                              |   | 20,576                                   |    |                                                                               |   | 20,576                                                                             |   |
| Interest expense                                                                             |   | (1,328                                   | )       |                                                                               |   | (1,328                                                                             | )      |
| Other                                                                                        |   | (1,556                                   | )       |                                                                               |   | (1,556                                                                             | )      |
| Total other income and expenses                                                              |   | 17,692                                   |    | —                                                                             |   | 17,692                                                                             |   |
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| LOSS ACCUMULATED DURING DEVELOPMENT STAGE                                                    |   | (420,052                                 | )       | (74,601                                                                            | )      | (494,653                                                                           | )      |
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| BASIC LOSS PER CAPITAL UNIT                                                                  |   | $                                        | (26,253 | )                                                                                  | $      | (4,663                                                                             | )      |   |   |
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| DILUTED LOSS PER CAPITAL UNIT                                                                |   |                                     |    | $                                                                                  | (4,904 | )                                                                                  |   |   |
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| WEIGHTED AVERAGE CAPITAL UNITS   OUTSTANDING:                                           |   |                                     |    |                                                                               |   |                                                                               |   |
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| BASIC                                                                                        |   | 16                                       |    | 16                                                                                 |   |                                                                               |   |
|                                                                                         |   |                                     |    |                                                                               |   |                                                                               |   |
| DILUTED                                                                                      |   |                                     |    | 56                                                                                 |   |                                                                               |   |
|                                                                                              |        |                                          |         |                                                                                    |        |                                                                                    |        |  |  |  |

 

See Notes to Financial Statements

 

3

----

 
| **GREAT PLAINES ETHANOL, LLC**

**(A Development Stage Company)**

**STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIENCY  IN ASSETS)**

**PERIOD FROM DECEMBER 20, 2000 (DATE OF INCEPTION) TO  DECEMBER 31, 2001** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                 |

 

 

 
|                                                          | **Additional  Paid In  Capital** |              | **Deficit  Accumulated  During The  Development  Stage** |        | **Total  Amount** |        |
|---------------------------------------------------------------|----------------------------------|-------------------|----------------------------------------------------------|-------------|-------------------|-------------|
|                                                          |                             | **Capital Units** |                                                     |        |              |        |
|                                                          |                             | **Class A**       |                                                     | **Class B** |              | **Class C** |   | **Class D** |   | **Subscriptions  Receivable** |   |   |   |   |
| **Units**                                                     |                             | **Amount**        | **Units**                                                |        | **Amount**        | **Units**   |   | **Amount** | **Units** |   | **Amount** |
| Balance,  December 20,  2000                                  |                             | —            |                                                     | $           |  —      |        | — |   | $ |  — |   | — |   | $ |  — |   | — |   | $ |  — |   | $ |  — |   | $ |  — |   | $ |  — |   | $ |  — |   |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Additional  paid  in capital  received                        |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   | 4,151 |   |   |   | 4,151 |   |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Units  issued                                                 |                             | —            |                                                     | —      |              | —      |   | — |   | — |   | — |   | 16 |   | 1,600 |   |   |   |   |   |   |   | 1,600 |   |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less  subscriptions  receivable                               |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   | (1,600 | ) |   |   |   |   | (1,600 | ) |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss  accumulated  duringthe  development  stage              |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (74,601 | ) | (74,601 | ) |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,  December 31,  2000                                  |                             | —            |                                                     | —      |              | —      |   | — |   | — |   | — |   | 16 |   | 1,600 |   | (1,600 | ) | 1,451 |   | (74,601 | ) | (74,450 | ) |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Additional  paid  in capital  received                        |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   | 127,234 |   |   |   | 127,234 |   |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Units  subscribed                                             |                             | 1,529             |                                                     | 7,645,000   |              | 200         |   | 1,000,000 |   | 2,013 |   | 10,065,000 |   |   |   |   |   |   |   |   |   |   |   | 18,710,000 |   |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less  subscriptions  receivable                               |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   | (18,710,000 | ) |   |   |   |   | (18,710,000 | ) |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Collection  of  unit  subscriptions                           |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   | 2,196,600 |   |   |   |   |   | 2,196,600 |   |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion  of  Class D unitsto Class C  units                |                             |              |                                                     |        |              |        |   |   |   | 16 |   | 1,600 |   | (16 | ) | (1,600 | ) |   |   |   |   |   |   | — |   |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividend  on   conversion  ofClass D  units to  Class C units |                             |              |                                                     |        |              |        |   |   |   |   |   | 78,400 |   |   |   |   |   |   |   |   |   | (78,400 | ) |  — |   |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost  of issuing  membership  units                           |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   | (131,385 | ) | (192,720 | ) | (324,105 | ) |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss  accumulated  duringthe  development  stage              |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (420,052 | ) | (420,052 | ) |
|                                                          |                             |              |                                                     |        |              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,  December  31, 2001                                  |                             | 1,529             |                                                     | $           | 7,645,000         |        | 200 |   | $ | 1,000,000 |   | 2,029 |   | $ | 10,145,000 |   |  — |   | $ |  — |   | $ | (16,515,000 | ) | $ |  — |   | $ | (765,773 | ) | $ | 1,509,227 |   |

 

See Notes to Financial Statements

 

4

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| **GREAT PLAINS ETHANOL, LLC**

**(A Development Stage Company)**

**STATEMENTS OF CASH FLOWS** |   |                  |       |                   |   |                   |   |
|------------------------------------------------------------------------------------------------|--------|-----------------------|------------|------------------------|--------|------------------------|--------|
|                                                                                           |   |                  |       |                   |   |                   |   |
|                                                                                           |   |                  |       |                   |   |                   |   |
|                                                                                           |   |                  |       | **Period  From**       |   | **Period  From**       |   |
|                                                                                           |   |                  |       | **December 20, 2000**  |   | **December  20, 2000** |   |
|                                                                                           |   | **Year Ended**        |       | **(Inception)  to**    |   | **(Inception)  to**    |   |
|                                                                                           |   | **December 31, 2001** |       | **December  31, 2000** |   | **December  31, 2001** |   |
| OPERATING ACTIVITIES                                                                           |   |                  |       |                   |   |                   |   |
| Loss accumulated during development stage                                                      |   | $                     | (420,052   | )                      | $      | (74,601                | )      | $ | (494,653 | ) |
| Changes to loss accumulated during the development stage not  affecting cash                   |   |                  |       |                   |   |                   |   |
| Depreciation                                                                                   |   | 175                   |       | $                      | — |                   | 175    |   |
| (Increase) in current assets                                                                   |   |                  |       |                   |   |                   |   |
| Prepaid expenses                                                                               |   | (26,624               | )          | (461                   | )      | (27,085                | )      |
| Increase (decrease) in current liabilities                                                     |   |                  |       |                   |   | —                 |   |
| Accounts payable                                                                               |   | (60,130               | )          | 71,130                 |   | 11,000                 |   |
| Accrued expenses                                                                               |   | (475                  | )          | 3,230                  |   | 2,755                  |   |
|                                                                                           |   |                  |       |                   |   |                   |   |
| NET CASH USED FOR OPERATING ACTIVITIES                                                         |   | (507,106              | )          | (702                   | )      | (507,808               | )      |
|                                                                                           |   |                  |       |                   |   |                   |   |
| INVESTING ACTIVITIES                                                                           |   |                  |       |                   |   |                   |   |
| Purchase of property and equipment                                                             |   | (291,346              | )          | —                 |   | (291,346               | )      |
|                                                                                           |   |                  |       |                   |   |                   |   |
| FINANCING ACTIVITIES                                                                           |   |                  |       |                   |   |                   |   |
| Proceeds from line of credit                                                                   |   | 78,000                |       | —                 |   | 78,000                 |   |
| Payments on line of credit                                                                     |   | (78,000               | )          | —                 |   | (78,000                | )      |
| Financing costs paid                                                                           |   | (24,375               | )          | —                 |   | (24,375                | )      |
| Proceeds from issuance of capital units                                                        |   | 2,196,600             |       | —                 |   | 2,196,600              |   |
| Additional paid in capital received                                                            |   | 88,700                |       | 3,651                  |   | 92,351                 |   |
| Cost of issuing membership units                                                               |   | (324,105              | )          | —                 |   | (324,105               | )      |
|                                                                                           |   |                  |       |                   |   |                   |   |
| NET CASH PROVIDED BY FINANCING ACTIVITIES                                                      |   | 1,936,820             |       | 3,651                  |   | 1,940,471              |   |
|                                                                                           |   |                  |       |                   |   |                   |   |
| NET INCREASE IN CASH                                                                           |   | 1,138,368             |       | 2,949                  |   | 1,141,317              |   |
|                                                                                           |   |                  |       |                   |   |                   |   |
| CASH AT BEGINNING OF PERIOD                                                                    |   | 2,949                 |       | —                 |   | —                 |   |
|                                                                                           |   |                  |       |                   |   |                   |   |
| CASH AT END OF PERIOD                                                                          |   | $                     | 1,141,317  |                   | $      | 2,949                  |   | $ | 1,141,317 |   |
|                                                                                           |   |                  |       |                   |   |                   |   |
| SUPPLEMENTAL DISCLOSURES                                                                       |   |                  |       |                   |   |                   |   |
| Cash paid for interest                                                                         |   | $                     | 1,328      |                   | $      | —                 |   | $ | 1,328 |   |
|                                                                                           |   |                  |       |                   |   |                   |   |
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING  ACTIVITIES                       |   |                  |       |                   |   |                   |   |
| Accounts payable incurred for prepaid offering costs                                           |   | $                     | —     |                   | $      | 66,930                 |   | $ | — |   |
| Dividend on conversion of Class D units to Class C units                                       |   | $                     | 78,400     |                   | $      | —                 |   | $ | 78,400 |   |
| Subscriptions receivable for membership units                                                  |   | $                     | 16,515,000 |                   | $      | 1,600                  |   | $ | 16,515,000 |   |
| Additional paid-in capital related to grant receivable                                         |   | $                     | 38,534     |                   | $      | —                 |   | $ | 38,534 |   |
| Land option assignment received as additional paid-in capital                                  |   | $                     | —     |                   | $      | 500                    |   | $ | 500 |   |

** **

**See Notes to Financial Statements**

 

5

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** **
| **GREAT PLAINS ETHANOL, LLC****(A Development State Company)  NOTES TO FINANCIAL STATEMENTS  DECEMBER 31, 2001 AND 2000** |
|---------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                      |

** **

**NOTE 1 -       NATUREOF OPERATIONS**

 

*Principal BusinessActivity*

 

Great Plains Ethanol, LLC, aSouth Dakota limited liability company with its principal place of business inTurner County, South Dakota, was organized to obtain equity ownership and debtfinancing to construct, own and operate a 40 million gallon ethanol plant.Great Plains Ethanol, LLC (the Company) began activities on December 20, 2000.As of December 31, 2001, the Company is in the development stage with itscurrent efforts being principally devoted to the initial phases of engineeringand construction of the ethanol plant.

 

**NOTE 2 -       SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

*Basis of Accounting*

 

The Company uses the accrualbasis of accounting in accordance with generally accepted accountingprinciples.  This method recognizesrevenues as earned and expenses as incurred.

 

*Revenue Recognition*

 

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

 

*Organizational andStart-Up Costs*

 

Organizational and start-upcosts are expensed as incurred. Organizational costs consist of amounts relatedto the formation of the company. Start-up costs consist of amounts incurred during the development stagerelated to the operation and management of the company, which do not qualify asa capitalized cost.

 

*Financing Costs*

 

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

 

*Cost of IssuingMembership Stock*

 

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

 

(continued on next page)

 

6

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*Use of Estimates*

 

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

 

*Concentrations ofCredit Risk*

 

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

 

*Property andEquipment*

 

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

 

Office equipment                                  7years

 

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

 

Construction in progressconsists of amounts incurred for the construction of the ethanol plant,capitalized interest and other costs that meet capitalization criteria.  As of December 31, 2001, the amountconsisted solely of construction costs, as interest and other costs related toconstruction had not been incurred.

 

*Additional Paid-InCapital*

 

The Company received amountsfrom various entities to assist in funding the Company’s formation anddevelopment.  In addition, amountsearned under grant agreements are included in additional paid-in capital.  The Company is under no obligation to issuecapital units related to these receipts and has recorded these amounts asadditional paid-in capital.

 

*Subscriptions Receivable*

 

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

 

(continued on next page)

 

7

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*Earnings Per Capitalunit*

 

For purposes of calculatingbasic earnings per capital unit, capital units subscribed and 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.

 

Units subscribed for and not issued have not been included in dilutedearnings (loss) per unit due to their antidilutive effect.

 

*Income Taxes*

 

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

 

*Recently IssuedAccounting Pronouncements*

 

The Financial AccountingStandards Board has recently issued Statement 143 regarding Accounting forAsset Retirement Obligations and Statement 144 regarding Accounting forImpairment of Long Lived Assets. Management does not expect the implementation of these pronouncements tohave a significant effect on the financial statements.

 

**NOTE 3 -       LINEOF CREDIT**

 

On July 9, 2001,the Company obtained a line of credit from Dakota Heritage State Bank ofChancellor, South Dakota.  The line ofcredit is due on July 9, 2002 and bears interest at a variable rate.  The total amount available to the Company is$100,000.  The debt is secured by allproperty held by the Company, including the Grant (See Note 4).  As of December 31, 2001, the Company had nooutstanding balance on the line of credit.

 

**NOTE 4 -       GRANTAGREEMENT**

 

The Company hasreceived notification of award of a United States Department of AgricultureValue-Added Agricultural Product Market Development Grant (the Grant) forapproximately $401,000.  The Grant canbe used to pay for certain organizational, offering and start-up costs relatedto the formation and capitalization of the Company.  As of December 31, 2001, the Company had requested $38,534 of theGrant, which has been recorded as additional paid-in capital.  This amount was received subsequent to yearend.

 

(continued on nextpage)

 

8

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**NOTE 5 -       MEMBERS’EQUITY**

 

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

 

As of December 31, 2001, theCompany had completed its public offering of Class A and Class C Capital Units.  The Company received subscriptions for 1,529Class A Capital Units and 1,973 Class C Capital Units, which would result inproceeds of $17,510,000 to the Company if all subscriptions were paid in full.The Company decided to stop accepting subscriptions in its public offering onJuly 9, 2001. As part of the public offering, 10% of the offering price foreach subscription was required to be deposited to an escrow account. TheCompany received payment in the form of promissory notes for the balance of thesubscription price from each subscriber. The funds in the escrow account werenot available to the Company until the Company secured a commitment letter fordebt financing to cover certain construction costs for the ethanol plant.  On November 7, 2001, the Company secured acommitment letter for debt financing and broke escrow and took possession ofthe $1,751,000 held in the escrow account related to the 1,529 Class A Unitsand 1,973 Class C Units subscribed in the offering.  In addition, the Company took possession of $120,000 held inescrow related to the Class B and Class C Units subscribed for in privatesales.

 

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

 

The Company offered to sell,and an entity related to the Managing Member agreed to purchase, 200 Class BCapital Units at a price of $5,000 per capital unit, for a total of $1,000,000in a private transaction.  As ofDecember 31, 2001, the 200 Class B Capital Units were subscribed, with 10%($100,000) of the proceeds received in cash, and the remaining $900,000 in theform of a promissoy note which is included in subscriptions receivable.  Transfer of Class B Capital Units isprohibited unless the units are first offered for sale to the Company at thefair market value of the units.

 

The Company also offered to sell, and the Managing Member agreed topurchase, 40 Class C Capital Units at a price of $5,000 per capital unit, for atotal of $200,000, in a private transaction in exchange for services related topreparation of a business plan and feasibility of the plant.  In connection with this agreement, theCompany paid the Managing Member $200,000 for the business plan and feasibilitystudy for the year ended December 31, 2001. The Managing Member has paid the Company $100,000 in cash which isrelated to the 40 Class C Capital Units, with the remaining $100,000 in theform of a promissory note which is included as subscriptions receivable as ofDecember 31, 2001.

 

An entity related to theManaging Member also subscribed for 400 Class C Capital Units, for a total of$2,000,000, as part of the public offering. As of December 31, 2001, $200,000 had been received in cash, with$1,800,000 in the form of a promissory note which is included as subscriptionsreceivable.

 

 

9

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

 

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

 

Upon default on certainobligations of members related to Class A, B and C Capital Units, the Companyhas the right to redeem the member’s interest at 10% of the price at which theCapital Units were originally offered for sale by the Company.  If a member defaults on the payment of thepurchase price pursuant to the promissory note referenced above, the Companywill have the option to redeem the member’s interest and retain all amountspaid by the member as liquidated damages.

 

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

 

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

 

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

 

The following is areconciliation of basic and diluted earnings (loss) per Capital Unit for the periodended December 31, 2000:

 

10

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

 

As of December 31, 2001, diluted earnings per unit are not presentedsince the effect of including potential units would be antidilutive.

 

 

**NOTE 6 -       INCOMETAXES**

 

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

 
|                                             |   | **2001** |      | **2000** |   |
|--------------------------------------------------|--------|----------|-----------|----------|--------|
| Financial Statement basis of assets              |   | $        | 1,897,982 |     | $      | 72,440 |   |
|                                             |   |     |      |     |   |
| Plus organization and start-up costs capitalized |   | 515,229  |      | 74,601   |   |
|                                             |   |     |      |     |   |
| Tax basis of assets                              |   | $        | 2,413,211 |     | $      | 147,041 |   |

 

There were no difference between the financial statement basis and taxbasis of the Company’s liabilities.

** **

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

 

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

 

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

 

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

 

11

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The services agreement provides paymentto Val-Add of $25 per hour for certain administrative and record-keepingservices provided to the Company.

 

Either of theseagreements is terminable with 10 days notice by either party.

 

Start-up and organizational expensesrelated to the agreements with Val-Add totaled $84,600 for the year endedDecember 31, 2001, $3,569 for the period ended December 31, 2000, and $88,169for the period from inception to December 31, 2001.

 

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

 

Agreements with the Managing Member andcertain of its affiliates include:

 

Management Services — Pursuant to theterms set forth in the Company’s Operating Agreement, the Managing Member willprovide day to day management of the ethanol plant. The Company will pay amanagement fee of $250,000 annually (the base fee), plus 4% of the net incomeof the Company as defined in the Company’s Operating Agreement. The base fee isadjusted annually for inflation, and commences no sooner than nine months priorto the operation of the ethanol plant. In addition, the Managing Memberreceived a bonus of $200,000 upon completion of the offering for preparation ofthe business plan and other items needed to identify the feasibility of theplant. This agreement continues unless terminated by a vote of Managers asprovided in the Operating Agreement. For the periods ended December 2001 and2000, expenses related to the bonus arrangement totaled $200,000 and 0,respectively.

 

Marketing Agreements — The Company hasentered into agreements with companies affiliated with the Managing Member tomarket all of its ethanol and DDGS. Fees of $.0065 per gallon are payable foradministration services and ethanol marketing. Fees of 2% of gross sales, witha minimum annual fee of $200,000, are payable for marketing DDGS. The ethanolagreement continues for the length of the original primary debt financing forthe plant construction, while the DDGS agreement has a term of 7 years or thelength of the original primary debt for plant construction, whichever islonger. Both agreements are renewable for 3-year periods after the initial termof the agreements.

 

On November20, 2001, the Company entered into a contract for the construction of theethanol plant with Broin and Associates, Inc., a party related to the ManagingMember.  The construction contracttotals $47,533,000, of which $375,000 had been incurred and unpaid as ofDecember 31, 2001.

 

Land OptionAgreement — During the period ended December 31, 2000, the Company received anassignment of an option to purchase real estate. The option was exercised andthe land purchased during the year ended

 

12

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December 31, 2001 for a price of $289,560.  The Company had recorded the land option of$500 as additional paid in capital.

 

On November 7, 2001, theCompany accepted the terms of a loan commitment with AgCountry Farm CreditServices of Fargo, North Dakota, to borrow up to $32.5 million in the form of anon-revolving construction loan until October 1, 2003 at which time theoutstanding balance of the loan shall be converted into a term loan with a tenyear maturity.  The Company may convert upto $6 million of the term loan into revolving term facility, subject to certainconditions and interest rate provisions. The interest rate on the construction loan will be the 30-day LIBOR plus3.14% per annum.  After October 1, 2003,the Company will be able to choose among various interest rate optionsdesignated by the lender.  Theconstruction and term loans will be secured by a first and prior lien on theCompany’s real and personal property and the collateral assignment of theCompany’s material contracts.  Thecommitment requires that the closing for the construction loan be no later thanApril 1, 2002.  The closing fee to thelender will be $243,750 or .75% of the maximum principal amount of the loan, ofwhich $24,375 had been paid as of December 31, 2001.

 

 

**NOTE 8 — RELATED PARTIES**

 

Certain owners of Class A,Class B and Class C Capital Units are parties to agreements with theCompany.  Related party agreements withthe Managing Member and its affiliates are described in Note 7 and Note 5.  In addition, one of the owners of Val-Add(Note 7) is also a member of the Company, and an employee of Val-Add serves asChief Executive Officer and Chief Financial Officer of the Company.

 

13

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EXHIBIT INDEX

 
| **Exhibit   No.** |   | **Description**                                                                                                                                                                                                           |   | **Filed   Herewith** |   | **Incorporated Herein by   Reference to**                                                                                               |   |
|-------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|
| 3.1               |   | Articles of  Organization                                                                                                                                                                                                 |   |                 |   | Appendix A  to the Issuer’s Prospectus filed with the Commission pursuant to Rule  424(b)(3) on June 11, 2001 (File No. 333-56368) |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 3.2               |   | First  Amended and Restated Operating Agreement                                                                                                                                                                           |   |                 |   | Appendix A  to the Issuer’s Prospectus filed with the Commission pursuant to Rule  424(b)(3) on June 11, 2001 (File No. 333-56368) |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.1              |   | Conditional  Loan Commitment by AgCountry Farm Credit Services, dated November 7, 2001                                                                                                                                    |   |                 |   | Exhibit  10.12 to the Issuer’s Form 10-QSB filed with the Commission on November 14,  2001 (File No. 333-56368)                    |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.2              |   | Contract for  Future Services with Broin and Associates, Inc., Broin Management, LLC.,  Ethanol Products, LLC, Broin Enterprises, Inc., d/b/a Dakota Commodities, and  Broin Investments II, LLC, dated December 18, 2000 |   |                 |   | Exhibit 10.1  to the Issuer’s Form SB-2 filed with the Commission on February 28, 2001  (File No. 333-56368)                       |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.3              |   | Construction  Contract with Broin and Associates, Inc. , dated November 20, 2001                                                                                                                                          |   | X                    |   |                                                                                                                                    |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.4              |   | Ethanol  Marketing and Services Agreement with Ethanol Products, LLC, dated December  18, 2000                                                                                                                            |   |                 |   | Exhibit 10.4  to the Issuer’s Form SB-2 filed with the Commission on February 28, 2001  (File No. 333-56368)                       |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.5              |   | DDGS  Marketing Agreement with Dakota Commodities, dated December 18, 2000                                                                                                                                                |   |                 |   | Exhibit 10.5  to the Issuer’s Form SB-2 filed with the Commission on February 28, 2001  (File No. 333-56368)                       |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.6              |   | Consulting  Agreement with Val-Add Service Corporation, dated December 1, 2000                                                                                                                                            |   |                 |   | Exhibit 10.2  to the Issuer’s Form SB-2 filed with the Commission on February 28, 2001  (File No. 333-56368)                       |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.7              |   | Service  Agreement with Val-Add Service Corporation, dated December 1, 2000                                                                                                                                               |   |                 |   | Exhibit 10.3  to the Issuer’s Form SB-2 filed with the Commission on February 28, 2001  (File No. 333-56368)                       |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.8              |   | Consulting  Agreement with U.S. Energy Services, Inc. , dated February 16, 2001                                                                                                                                           |   |                 |   | Exhibit  10.11 to the Issuer’s Form SB-2 filed with the Commission on February 28,  2001 (File No. 333-56368)                      |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.9              |   | Employment  Agreement with Brian Minish, dated December 18, 2000                                                                                                                                                          |   |                 |   | Exhibit 10.8  to the Issuer’s Form SB-2 filed with the Commission on February 28, 2001 (File  No. 333-56368)                       |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.10             |   | Licensing  Agreement with Broin Associates, Inc.                                                                                                                                                                          |   | X                    |   |                                                                                                                                    |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.11             |   | Process  Guarantee by Broin Associates, Inc., dated November 20, 2001                                                                                                                                                     |   | X                    |   |                                                                                                                                    |   |
|              |   |                                                                                                                                                                                                                      |   |                 |   |                                                                                                                                    |   |
| 10.12             |   | Value-Added  Agricultural Product Market Development Grant Agreement with the Rural  Business-Cooperative Service of the United States Department of Agriculture,  dated September 20, 2001                               |   | X                    |   |                                                                                                                                    |   |

 

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