**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

# **FORM 10-QSB**

 
| **ý**                                                                                                                                                                                                                                                                                                           | **Quarterly  report under Section 13 or 15(d) of the Securities Exchange Act of 1934.** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                 |
| **For the  quarterly period ended June 30, 2003**                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                 |
| **OR**                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                 |
| **o**                                                                                                                                                                                                                                                                                                                | **Transition  report under Section 13 or 15(d) of the Exchange Act.**                   |
|                                                                                                                                                                                                                                                                                                                 |
| **For the  transition period from                          to                        .** |
|                                                                                                                                                                                                                                                                                                                 |
| **Commission file number 333-96977**                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                 |
| **ILLINOIS RIVER  ENERGY, LLC**                                                                                                                                                                                                                                                                                      |
| (Exact name of small  business issuer as specified in its charter)                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                 |
| **Delaware**                                                                                                                                                                                                                                                                                                         |                                                                                    | **30-0044341** |
| (State or other  jurisdiction of  incorporation or organization)                                                                                                                                                                                                                                                     |                                                                                    | (I.R.S. Employer  Identification No.) |
|                                                                                                                                                                                                                                                                                                                 |
| **1201 South Seventh Street, Suite110  Rochelle, IL  61068**                                                                                                                                                                                                                                                    |
| (Address of principal  executive offices)                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                 |
| **(815)  561-0650**                                                                                                                                                                                                                                                                                                  |
| (Issuer’s telephone  number)                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                      |                                                                                         |  |  |

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date: As ofAugust 10, 2003, there were 1,313,000 Class A Units outstanding.

 

TransitionalSmall Business Disclosure Format (Check one):  o  Yes    ý  No

 

 

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**INDEX**

 
| PART I.    | FINANCIAL INFORMATION                                           |
|------------|-----------------------------------------------------------------|
|       |                                                            |
| Item 1.    | Financial Statements                                            |
|       |                                                            |
| Item 2.    | Management’s Discussion and  Analysis or Plan of Operation |
|       |                                                            |
| Item 3.    | Controls and Procedures                                         |
|       |                                                            |
| PART  II.  | OTHER  INFORMATION                                              |
|       |                                                            |
| Item 1.    | Legal Proceedings                                               |
|       |                                                            |
| Item 2.    | Changes in Securities                                           |
|       |                                                            |
| Item 3.    | Defaults Upon  Senior Securities                                |
|       |                                                            |
| Item  4.   | Submission  of Matters to a Vote of Security Holders            |
|       |                                                            |
| Item 5.    | Other Information                                               |
|       |                                                            |
| Item 6.    | Exhibits and  Reports on Form 8-K                               |
|       |                                                            |
| SIGNATURES |

 

i

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**PART I****.****                                                   ****FINANCIAL INFORMATION**

 

**Item 1****.****                                                          ****Financial Statements**

** **

**ILLINOISRIVER ENERGY, LLC**

(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

 
|                                                                 |   | **June 30,  2003** |       | **December 31,  2002** | ** ** |
|----------------------------------------------------------------------|--------|-------------------------|------------|-----------------------------|------------|
|                                                                 |   | **(Unaudited)**         |       | **Audited**                 | ** ** |
|                                                                 |   |                    |       |                        |       |
| **ASSETS**                                                           |   |                    |       |                        |       |
| **CURRENT ASSETS**                                                   |   |                    |       |                        |       |
| Cash and cash equivalents                                            |   | $                       | 47,530     |                        | $          | 30,914 |   |
| Prepaid insurance                                                    |   | 21,342                  |       | 3,208                       |       |
| Grants receivable                                                    |   | 45,000                  |       | 0                           |       |
| Other receivables                                                    |   | 71,821                  |       | 0                           |       |
|                                                                 |   |                    |       |                        |       |
| Total Current Assets                                                 |   | $                       | 185,693    |                        | $          | 34,122 |   |
|                                                                 |   |                    |       |                        |       |
| **PROPERTY AND  EQUIPMENT**                                          |   |                    |       |                        |       |
| Office equipment                                                     |   | $                       | 20,807     |                        | $          | 20,807 |   |
| Accumulated depreciation                                             |   | (3,651                  | )          | (1,570                      | )          |
|                                                                 |   |                    |       |                        |       |
| Net Property and Equipment                                           |   | $                       | 17,156     |                        | $          | 19,237 |   |
|                                                                 |   |                    |       |                        |       |
| **OTHER ASSETS**                                                     |   |                    |       |                        |       |
| Deposits and deferred land costs                                     |   | $                       | 21,000     |                        | $          | 20,000 |   |
| Deferred offering costs                                              |   | 422,012                 |       | 218,078                     |       |
|                                                                 |   |                    |       |                        |       |
| Total Other Assets                                                   |   | $                       | 443,012    |                        | $          | 238,078 |   |
|                                                                 |   |                    |       |                        |       |
| **TOTAL ASSETS**                                                     |   | $                       | 645,861    |                        | $          | 291,437 |   |
|                                                                 |   |                    |       |                        |       |
| **LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)**                   |   |                    | ** ** |                        | ** ** |
|                                                                 |   |                    |       |                        |       |
| **CURRENT LIABILITIES**                                              |   |                    |       |                        |       |
| Accounts payable                                                     |   | $                       | 749,322    |                        | $          | 317,618 |   |
| Notes payable                                                        |   | 101,500                 |       | 0                           |       |
| Current maturities of capital lease  obligation                      |   | 1,105                   |       | 1,030                       |       |
|                                                                 |   |                    |       |                        |       |
| Total Current Liabilities                                            |   | $                       | 851,927    |                        | $          | 318,648 |   |
|                                                                 |   |                    |       |                        |       |
| **LONG-TERM DEBT**,  Less Current Maturities                         |   | 5,044                   |       | 5,616                       |       |
|                                                                 |   |                    |       |                        |       |
| **MEMBERS’ EQUITY  (DEFICIT)**                                  |   |                    |       |                        |       |
| Member contributions, net of costs related  to capital contributions |   | $                       | 568,476    |                        | $          | 562,976 |   |
| Deficit accumulated during development  stage                        |   | (779,586                | )          | (595,803                    | )          |
|                                                                 |   |                    |       |                        |       |
| Total Members’ Equity (Deficit)                                 |   | $                       | (211,110   | )                           | $          | (32,827 | ) |
|                                                                 |   |                    |       |                        |       |
| **TOTAL LIABILITIES  AND MEMBERS’ EQUITY (DEFICIT)**            |   | $                       | 645,861    |                        | $          | 291,437 |   |

 

See Accompanying Notes

1

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**ILLINOIS RIVER ENERGY, LLC**

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

 
|                                    |   | **Quarter Ended  June 30,** | ** ** | **Year to Date  June 30,** | ** ** | **Date of  Inception to** | ** ** |
|-----------------------------------------|--------|----------------------------------|------------|---------------------------------|------------|---------------------------|------------|
|                                    |   | **2003**                         |       | **2002**                        | ** ** | **2003**                  | ** ** | **2002** | ** ** | **June 30, 2003** | ** ** |
|                                    |   | **(Unaudited)**                  |       | **(Unaudited)**                 |       | **(Unaudited)**           |       | **(Unaudited)** |   | **(Unaudited)** |   |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| **REVENUE**                             |   | $                                | 0          |                            | $          | 0                         |       | $ | 0 |   | $ | 0 |   | $ | 0 |   |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| **OPERATING EXPENSES**                  |   |                             |       |                            |       |                      |       |   |   |   |   |
| Consulting fees                         |   | $                                | 604        |                            | $          | 0                         |       | $ | 2,707 |   | $ | 150,000 |   | $ | 152,707 |   |
| Legal fees                              |   | 96,168                           |       | 44,074                          |       | 114,884                   |       | 44,574 |   | 221,880 |   |
| Accounting fees                         |   | 12,143                           |       | 8,200                           |       | 39,437                    |       | 8,200 |   | 93,318 |   |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| Project coordinator                     |   | 20,769                           |       | 16,875                          |       | 41,519                    |       | 23,625 |   | 109,019 |   |
| Construction contract                   |   | 0                                |       | 0                               |       | 0                         |       | 0 |   | 89,904 |   |
| Site engineering                        |   | 0                                |       | 0                               |       | 0                         |       | 0 |   | 14,498 |   |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| Office                                  |   | 11,512                           |       | 3,248                           |       | 28,517                    |       | 4,350 |   | 62,003 |   |
| Advertising and meetings                |   | 3,881                            |       | 0                               |       | 10,866                    |       | 0 |   | 15,923 |   |
| Insurance expense                       |   | 5,550                            |       | 0                               |       | 7,476                     |       | 0 |   | 12,968 |   |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| Management expense                      |   | 22,871                           |       | 24,468                          |       | 57,394                    |       | 24,528 |   | 141,591 |   |
| Miscellaneous                           |   | 723                              |       | 430                             |       | 783                       |       | 430 |   | 6,340 |   |
| Depreciation                            |   | 1,041                            |       | 51                              |       | 2,081                     |       | 107 |   | 3,651 |   |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| Site construction costs                 |   | 11,450                           |       | 0                               |       | 11,450                    |       | 0 |   | 11,450 |   |
| Travel and mileage                      |   | 0                                |       | 0                               |       | 1,890                     |       | 0 |   | 1,890 |   |
| Total Operating Expenses                |   | $                                | 186,712    |                            | $          | 97,346                    |       | $ | 319,004 |   | $ | 255,814 |   | $ | 937,142 |   |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| **OPERATING LOSS**                      |   | $                                | (186,712   | )                               | $          | (97,346                   | )          | $ | (319,004 | ) | $ | (255,814 | ) | $ | (937,142 | ) |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| **OTHER INCOME**                        |   |                             |       |                            |       |                      |       |   |   |   |   |
| Grant income                            |   | $                                | 65,000     |                            | $          | 0                         |       | $ | 105,000 |   | $ | 0 |   | $ | 125,000 |   |
| Other income                            |   | 30,058                           |       | 3,268                           |       | 30,221                    |       | 3,268 |   | 32,556 |   |
| Total Other Income                      |   | $                                | 95,058     |                            | $          | 3,268                     |       | $ | 135,221 |   | $ | 3,268 |   | $ | 157,556 |   |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| **NET LOSS**                            |   | $                                | (91,654    | )                               | $          | (94,078                   | )          | $ | (183,783 | ) | $ | (252,546 | ) | $ | (779,586 | ) |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| **Weighted average units  outstanding** |   | 1,313,000                        |       | 1,313,000                       |       | 1,313,000                 |       | 1,171,708 |   | 1,275,893 |   |
|                                    |   |                             |       |                            |       |                      |       |   |   |   |   |
| **Loss per unit**                       |   | $                                | (0.07      | )                               | $          | (0.07                     | )          | $ | (0.14 | ) | $ | (0.22 | ) | $ | (0.61 | ) |

 

See Accompanying Notes

2

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**ILLINOIS RIVER ENERGY, LLC**

(A DEVELOPMENT STAGE COMPANY)

STATEMENTSOF CASH FLOWS

 
|                                                                             |   | **Year to Date  June 30,** |       | **Date of  Inception to** |       |
|----------------------------------------------------------------------------------|--------|---------------------------------|------------|---------------------------|------------|
|                                                                             |   | **2003**                        |       | **2002**                  | ** ** | **June 30, 2003** | ** ** |
|                                                                             |   | **(Unaudited)**                 |       | **(Unaudited)**           |       | **(Unaudited)** |   |
|                                                                             |   |                            |       |                      |       |   |   |
| **CASH FLOWS FROM OPERATING  ACTIVITIES**                                        |   |                            |       |                      |       |   |   |
| Net Loss                                                                         |   | $                               | (183,783   | )                         | $          | (252,546 | ) | $ | (779,586 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities: |   |                            |       |                      |       |   |   |
| Depreciation                                                                     |   | 2,081                           |       | 107                       |       | 3,651 |   |
|                                                                             |   |                            |       |                      |       |   |   |
| (Increase) decrease in:                                                          |   |                            |       |                      |       |   |   |
| Prepaid insurance                                                                |   | (18,134                         | )          | (7,700                    | )          | (21,342 | ) |
| Grants receivable                                                                |   | (45,000                         | )          | 0                         |       | (45,000 | ) |
| Other current receivables                                                        |   | (71,821                         | )          | (646                      | )          | (71,821 | ) |
|                                                                             |   |                            |       |                      |       |   |   |
| Increase (decrease) in:                                                          |   |                            |       |                      |       |   |   |
| Accounts payable                                                                 |   | 267,467                         |       | 904                       |       | 445,631 |   |
|                                                                             |   |                            |       |                      |       |   |   |
| Net Cash Used By Operating Activities                                            |   | $                               | (49,190    | )                         | $          | (259,881 | ) | $ | (468,467 | ) |
|                                                                             |   |                            |       |                      |       |   |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES**                                        |   |                            |       |                      |       |   |   |
| Capital expenditures for equipment                                               |   | $                               | 0          |                      | $          | (4,257 | ) | $ | (13,700 | ) |
| Deposits and deferred land costs                                                 |   | (1,000                          | )          | 0                         |       | (21,000 | ) |
|                                                                             |   |                            |       |                      |       |   |   |
| Net Cash Used By Investing Activities                                            |   | $                               | (1,000     | )                         | $          | (4,257 | ) | $ | (34,700 | ) |
|                                                                             |   |                            | ** ** |                      | ** ** |   | ** ** |
| **CASH FLOWS FROM FINANCING  ACTIVITIES**                                        |   |                            |       |                      |       |   |   |
| Borrowings under notes payable                                                   |   | $                               | 101,500    |                      | $          | 0 |   | $ | 101,500 |   |
| Capital lease obligation payments                                                |   | (497                            | )          | 0                         |       | (958 | ) |
| Payments for the costs of raising capital                                        |   | (39,697                         | )          | (23,024                   | )          | (141,345 | ) |
| Receipt of member contributions                                                  |   | 5,500                           |       | 586,000                   |       | 591,500 |   |
|                                                                             |   |                            |       |                      |       |   |   |
| Net Cash Provided By Financing Activities                                        |   | $                               | 66,806     |                      | $          | 562,976 |   | $ | 550,697 |   |
|                                                                             |   |                            |       |                      |       |   |   |
| **NET INCREASE IN CASH AND CASH  EQUIVALENTS**                                   |   | $                               | 16,616     |                      | $          | 298,838 |   | $ | 47,530 |   |
|                                                                             |   |                            |       |                      |       |   |   |
| **CASH AND CASH EQUIVALENTS -  beginning of period**                             |   | 30,914                          |       | 0                         |       | 0 |   |
|                                                                             |   |                            |       |                      |       |   |   |
| **CASH AND CASH EQUIVALENTS - end  of period**                                   |   | $                               | 47,530     |                      | $          | 298,838 |   | $ | 47,530 |   |
|                                                                             |   |                            |       |                      |       |   |   |   |   |   |
| **SCHEDULE OF NONCASH INVESTING AND  FINANCING ACTIVITIES**                      |   |                            |       |                      |       |   |   |
|                                                                             |   |                            |       |                      |       |   |   |
| Office equipment financed with capital lease                                     |   | $                               | 0          |                      | $          | 0 |   | $ | 7,107 |   |
| Member units subscribed                                                          |   | $                               | 0          |                      | $          | 5,500 |   | $ | 0 |   |
| Deferred offering costs in accounts payable                                      |   | $                               | 303,691    |                      | $          | 78,624 |   | $ | 303,691 |   |
|                                                                             |   |                            |       |                      |       |   |   |
| **SUPPLEMENTAL DISCLOSURES OF CASH  FLOW INFORMATION**                           |   |                            |       |                      |       |   |   |
|                                                                             |   |                            |       |                      |       |   |   |
| Cash paid during the period for interest                                         |   | $                               | 457        |                      | $          | 0 |   | $ | 632 |   |

 

SeeAccompanying Notes

3

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**ILLINOIS RIVER ENERGY, LLC**

(A Development Stage Company)

 

Notes to Financial Statements

 

June 30, 2003 and 2002

 

The statements included hereinhave been prepared by Illinois River Energy, LLC, without audit, pursuant tothe rules and regulations of the Securities and Exchange Commission, andreflect all adjustments which are, in the opinion of management, necessary to afair presentation of the financial statements for the interim period, on abasis consistent with the annual audited financial statements.  The adjustments made to these financialstatements consist only of normal recurring adjustments.  These financial statements should be read inconjunction with the financial statements and the summary of significantaccounting polices and notes thereto included in the Company’s RegistrationStatement on Form SB-2, as amended (SEC Registration No. 333-96977).

 

**1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

*Nature of Business*

 

Illinois RiverEnergy, LLC (a Delaware Limited Liability Company) to be located near Rochelle,Illinois, was organized to pool investors and to provide a corn supplyinitially for a 50 million gallon per year ethanol plant, with the intent toconsider expanding capacity shortly after the start-up of the initialplant.  As of June 30, 2003, theCompany is in the development stage with its efforts being principally devotedto organizational and project feasibility activities.  Preliminary design preparation began in late 2002.

 

*Fiscal Reporting Period*

 

The Company has adopted a fiscal year endingDecember 31 for reporting financial operations.

 

## ***Accounting Estimates***

 

Management uses estimates and assumptions inpreparing these financial statements in accordance with generally acceptedaccounting principles.  Those estimatesand assumptions affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities, and the reported revenues andexpenses.  Actual results could differfrom those estimates.

 

## ***Cash and Equivalents***

 

The Company considers allhighly liquid debt instruments purchased with a maturity of three months orless to be cash equivalents.

 

The Company maintains itsaccounts primarily at two financial institutions.  At times, the Company’s cash balances may exceed amounts insuredby the Federal Deposit Insurance Corporation.

 

*Property and Equipment*

 

Property and equipment are stated at thelower of cost or estimated fair value. Depreciation is provided over the estimated useful lives by use of thestraight-line method.  Maintenance andrepairs are expensed as incurred; major improvements and betterments arecapitalized.  The present values ofcapital lease obligations are classified as long-term debt and the relatedassets are included in equipment. Amortization of equipment under capital leases is included indepreciation expense.

 

4

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## ***Deferred Offering Costs***

 

The Company defers the costs incurred toraise equity financing until that financing occurs.  At such time that the issuance of new equity occurs, these costswill be netted against the proceeds received; or if the financing does notoccur, they will be expensed.

 

*Income Taxes*

 

The Company is treated as a partnership forFederal and state income tax purposes and does not incur income taxes.  Instead, its earnings and losses areincluded in the income tax returns of the members. Therefore, no provision orliability for Federal or state income taxes has been included in these financialstatements.

 

*Grants*

 

The Company recognizes grant income as otherincome for reimbursement of expenses incurred upon complying with theconditions of the grant.  Forreimbursements of capital expenditures, the grants are recognized as areduction of the basis of the depreciable asset upon complying with theconditions of the grant.

 

*Financial Instruments*

 

Financial instruments consisting of cash andequivalents, notes payable and a capital lease obligation are carried atamounts that approximate fair value.

 

**2.  DEVELOPMENT STAGE ENTERPRISE**

 

The Company was formedFebruary 20, 2002 to have a perpetual life.  The Company was initially capitalized by contributions from itsfounding members and later by seed capital investors.  The four founding members contributed $67,000 for 264,000units.  Seed capital investorscontributed $524,500 for 1,049,000 units.

 

Income and losses are allocated to allmembers based upon their respective percentage of total units held.  See Note 3 for further discussion of members’equity.

 

As shown in theaccompanying financial statements, the Company incurred a net loss of $183,783and $252,546 for the six months ended June 30, 2003 and 2002,respectively.  As of June 30, 2003,current liabilities substantially exceed current assets and total liabilitiesexceed total assets. Management has developed a plan, which was adopted by theBoard of Managers on March 21, 2003, to defer certain accounts payableuntil after offering proceeds have been raised and to obtain short term financingby issuing promissory notes with warrants to certain existing members.  As of June 30, 2003, the Company issued$101,500 in promissory notes to six of its members, of which five are also onthe Board of Managers.  Subsequent toJune 30, 2003 the Company received approximately $400,000, net ofapplicable closing costs, in connection with the land exchange agreementreferred to in Note 5.

 

The notes bear interest at the prime rateplus 4% and contain a warrant to purchase one unit per $1 of principal lent tothe Company at $1 per unit for five years from the date of issuance.  The warrants have an anti-dilutive impact onthe earnings per share calculations and are therefore not included in thecalculations.  The value of the warrantsare insignificant to the financial statements. The notes will be due upon completion of the sale of the minimum amountof units, 25,000,000, as described in Note 3 and securing a debt commitment, orif the Company is unable to close on the minimum amount of units, one year fromthe date of issuance.  Managementbelieves this short-term bridge financing will be adequate to meet theCompany’s current obligations as they continue to raise equity financing andseek a debt commitment.  The ability ofthe Company to continue as a going concern is dependent on the execution andsuccess of this plan and a successful offering.  The financial statements do not include any adjustments thatmight be necessary if the Company is unable to continue as a going concern.

 

5

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**3.  MEMBERS’ EQUITY**

 

As specified in the Company’s operatingagreement, the Company will have Class A and Class B units and is authorized toissue up to an aggregate of 75,000,000 units. The Company has designated 20,000,000 units as Class B units with theremaining 55,000,000 units designated as Class A units.  The Class B members must own a minimum ofone million (1,000,000) Class B units while the Class A members must own aminimum of five thousand (5,000) Class A units.

 

On January 10, 2003 the Company’s FormSB-2 Registration Statement was declared effective by the Securities andExchange Commission (SEC) for up to 20,000,000 Class B units and up to45,000,000 Class A units less the number of Class B units sold.  Both Class A and B units are available forsale at $1 per unit. Should the Company not raise the minimum of $25,000,000through this offering by August 31, 2003, subject to one or moreextensions to no later than December 31, 2003, the capital raised throughthe offering will be returned to the respective investors. Should the Companyraise the minimum of $25,000,000 through the offering, but not yet obtain acommitment letter for debt financing from a lender, 10% of the subscriptionproceeds will be released to the Company to purchase the land and begin plantconstruction activities.  Thereafter,should the debt commitment not be obtained, the remaining subscription proceedsraised through the offering will be returned to the respective investors.  As of June 30, 2003, the Company hasreceived subscriptions for 2,346,000 Class A units.  The proceeds from those sales, however, are held in escrow.  The Company has not received any subscriptionsfor Class B units.

 

**4.  RELATED PARTY TRANSACTIONS**

 

At June 30, 2003, the Company includedin accounts payable $106,250 owed for administrative per diem expenses to themembers of the board of managers, who are also investors in the Company. Forthe six month period ended June 30, 2003, the Company had incurred $41,519of project coordinator fees, which were paid to an investor of the Company.

 

**5.  COMMITMENTS AND CONTINGENCIES**

 

The Company entered into an agreement with amember to perform consulting services for $6,750 a month, which expired onFebruary 28, 2003.  The agreementwas renewed until August 31, 2003 for $7,250 a month.  The member acts as the project coordinatorand is responsible for the coordination of the completion of the proposedethanol plant.

 

The Company entered into an agreement with aconsulting firm to perform project services including project financing,facility design and construction, and initial plant operations.  The agreement required a nonrefundable feeof $110,000 and provides for additional fees based on the total projectcapitalization.  An aggregate of 3.25%of the total project capitalization is due upon successful completion of theoffering, construction and production of ethanol.  An additional 0.75% of total project capitalization is due uponsuccessful production of ethanol meeting defined specifications andguarantees.  This 0.75% will be paid innine monthly installments.  Theagreement expires nine months after the production of ethanol and plantoperations meet the planned specifications.

 

The Company entered into an agency agreementand financial services agreement with a financial institution to act as sellingagent to offer and sell the units and to help the Company place the debtfinancing, which includes assisting and advising the Company in developing andimplementing a financing strategy and evaluating financing options. OnMarch 25, 2003, management entered into a termination agreement with thefinancial institution and entered into new agreements on similar terms withanother party.  These agreements providefor fees based on the total project capitalization and equity investment.  A fee of 1.50% of the total equity financingof the project is due upon the release of offering proceeds from escrow and afee of 1.75% of the total project capitalization is due at the financialclose.  An additional .25% of the totalproject capitalization is due upon successful commissioning of the plant andproduction of ethanol meeting defined specifications and guarantees and ispayable in nine monthly installments. Total project capitalization is estimated at $68 million, excludingcertain site improvements which the Company expects to be provided by the Cityof Rochelle and DP Industrial, LLC. Under these agreements, a receivable balance of $71,821 is due as ofJune 30, 2003 for reimbursement of certain expenditures incurred by theCompany.  Management does not anticipateany additional cost or commitments due to the change in service provider.

 

6

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The Company entered into a finder’s feeagreement with a cooperative association to provide a list of members of thecooperative and an introduction to its affiliates as potential investors in theCompany. The agreement requires an initial payment of 4.00% of any investmentmade by a member of the cooperative due upon successful completion of theoffering.  This payment may be made inthe form of units in lieu of cash at the option of the cooperative.  In addition, the agreement requires anannual fee of 0.80% for five years based on the aggregate amount invested bythe cooperatives’ members.  This amountis capped at $50,000 annually.  Theagreement is terminable upon 90 days notice by either the Company or thecooperative.

 

The Company signed a preliminary design-buildagreement with an engineer and general contractor to construct a plant for afixed lump sum amount of $53.5 million. Plant construction is contingent on securing financing for the project.

 

In July 2002, the Company had enteredinto two option agreements for two adjacent parcels of land totalingapproximately 86 acres.  The Companypaid a total of $20,000 for these options. The costs of these options are included in deposits and deferred landcosts on the balance sheet.  The optionpayments are nonrefundable, but will be applied towards the purchase of the81-acre site described below.

 

InApril 2003, the Company had entered into a land exchange agreement with DPIndustrial, LLC, an unrelated third party. Under this agreement the Company would exchange the 86 acres it hadunder option agreements for approximately 81 acres of land the other party hadunder option agreements.  The Companyreceived $30,000 upon delivery of this agreement, which has been recorded asother income to cover a portion of the site costs incurred thus far.  The Company considers this 81-acre parcel ofland as a viable site for its ethanol plant.

 

In July 2003,the Company entered into an agreement with another unrelated third partyassigning the options it had to purchase the 86 acres to this party who thenpurchased the 86 acres of land.  Uponpurchasing the 86 acres of land, this party exchanged the 86 acres for the 81acres, thereby executing the land exchange agreement entered into by theCompany.  The Company has entered intoan option agreement with this party allowing the Company to purchase the 81acre site for approximately $2,079,000. The Company paid $21,000 for this option, which expires onAugust 14, 2004.  In return forexecuting the exchange, the Company paid this party $148,000.  Upon the execution of the land exchangeagreement, the Company received $630,000 to cover costs relating to siteinfrastructure and development, as well as applicable closing costs.

 

In conjunctionwith the execution of the land exchange agreement, the City of Rochelle annexedthe 81-acre site.  The City of Rochelleand DP Industrial, LLC, along with some assistance from the Company, will payfor certain rail, water and sewer extensions, and road improvements to thesite.

 

7

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**Item 2****.****                                                          ****Management’s Discussion andAnalysis or Plan of Operation.**

 

This report containsforward-looking statements that involve future events, our future performanceand our expected future operations and actions. In some cases you can identifyforward-looking statements by the use of words such as “may,” “should,”“anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,”“estimate,” “predict,” “hope,” “potential,” “continue,” or the negative ofthese terms or other similar expressions. These forward-looking statements are only our predictions and involvenumerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from theseforward-looking statements for many reasons, including the risks described inour Registration Statement on Form SB-2, as amended (SEC Registration No.333-96977) and appearing elsewhere in this report.  We are not under any duty to update the forward-lookingstatements contained in this report.  Wecannot guarantee future results, levels of activity, performance orachievements.  We caution you not to putundue reliance on any forward-looking statements, which speak only as of thedate of this report.  You should read this report and the documents thatwe reference in this report and have filed as exhibits, completely and with theunderstanding that our actual future results may be materially different fromwhat we currently expect.  We qualifyall of our forward-looking statements by these cautionary statements.

 

**Overview**

 

We are a start-up company in development stage.  We plan to build a corn-based ethanolprocessing facility that will produce ethanol, distillers grains and carbondioxide.  We plan to build our ethanolplant near Rochelle, Illinois and process approximately 17,800,000 bushels ofcorn per year into 50,000,000 gallons of denatured fuel grade ethanol, which weintend to sell throughout the nation. We also intend to produce approximately 120,000 tons of carbon dioxideand approximately 160,000 tons of distillers grains per year.

 

We filed a Registration Statement on Form SB-2 (SECRegistration No. 333-96977), as amended (the “Registration Statement”), withthe Securities and Exchange Commission, which originally became effective onJanuary 10, 2003, for an initial public offering of an aggregate minimumof 25,000,000 and an aggregate maximum of 45,000,000 Class A and Class B Units(the “Offering”).  We subsequently amended the Registration Statementto reflect certain changes from and additions to the Registration Statementthat was originally declared effective.  The Securities and ExchangeCommission declared the subsequently amended Registration Statement effectiveon May 8, 2003.

 

Depending on the amount of equity we raise in theOffering, we expect that the project will cost a total of approximately$67,000,000 to $68,000,000, excluding certain site improvements from the Cityof Rochelle and DP Industrial, LLC.  We have raised $591,500 in seedcapital and plan to raise a minimum of $25,000,000 and a maximum of $45,000,000in equity capital pursuant to the Offering, and secure the balance throughfederal, state and local grants and debt financing.  We will require asignificant amount of debt financing to complete our project.  The amountof debt financing that we need depends on the amount we raise in the Offeringand whether we receive the grants we intend to pursue or the anticipated siteimprovements.  We will close on theentire Offering when we raise the minimum amount offered and secure an executedcommitment letter from a lender for our debt financing.  However, an executed commitment letter isnot a binding loan agreement.  If weobtain an executed commitment letter, but the lender later declines the loan,then we will seek debt financing from other lenders.  We have no agreement with any lender for the debt financing thatwe need.  If we do not secure the debt financing that we need, we will notbe able to construct our proposed ethanol plant and may have to liquidate ourassets and abandon our business.

 

We expect that it will take at least 13 monthsfrom the date we close the Offering to construct the ethanol plant and commencestart-up operations.  If we raise themaximum amount offered, we intend to consider expanding the ethanol plantshortly after plant start-up.  We do notintend to hire a sales staff to market our products, and intend to hire staffonly to operate our ethanol plant and manage our business.  We plan toengage third party distributors to market or purchase our ethanol anddistillers grains.  We also plan to sellour carbon dioxide to a third party processor who may build a processingfacility next to our ethanol plant.  Wehave no agreement with any party to sell any of our expected products.  We plan to pay commissions or fees todistributors to market and sell our products.

 

8

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We plan to use the calendar year as our fiscal year.

 

**Size of Ethanol Plant**

 

We intend to build a 50,000,000 gallon per yearethanol plant near Rochelle, Illinois. We intend to build an ethanol plant with a higher building height toaccommodate an additional level in the main pipe rack for expansionpurposes.  If we raise the maximumamount offered, we intend to consider expanding the ethanol plant shortly afterplant start-up.  This is in part tomaximize the payments potentially available to us under the Commodity CreditCorporation (CCC) Bioenergy Program.  Asdescribed below, expanding production over several fiscal years of this programcould generate additional payments to us under the program.  While we intend to consider pursuing thisexpansion strategy if we raise the maximum amount offered in the Offering, wecurrently have no agreements for the expansion of the ethanol plant.

 

Whether we expand the ethanol plant is contingentupon numerous factors, including, among others, financing, the condition of theethanol and distillers grains markets in general, environmental and otherregulatory requirements, general economic conditions, increased cost ofoperation and our financial performance and condition.  The board of managers will determine, intheir sole discretion, whether we expand the ethanol plant.  Although we intend to consider expanding theethanol plant if we raise the maximum amount offered, we cannot assure you thatwe will ever be in a position to expand the ethanol plant.

 

One reason we are planning to build a 50,000,000gallon per year ethanol plant and considering expanding its production capacityfollowing plant start-up, rather than initially constructing an expanded sizeplant, is to take full advantage of the payments available under the CCCBioenergy Program.  The CCC BioenergyProgram makes payments of up to $7,500,000 per year through fiscal year 2006(September 30, 2006) to eligible ethanol producers for increases in theirproduction of ethanol over their prior year’s production.  New production is eligible and is consideredincreased production.  Payments underthe program are subject to pro rata reduction if aggregate payments to allproducers in any one fiscal year exceed the maximum annual funding of$150,000,000 authorized by Congress.  Inaddition, payments under the program in any one fiscal year may be less ifCongress does not fully fund the program for that fiscal year (funding for theprogram is subject to an annual appropriation).

 

Under the program, ethanol producers may receivepayments based upon the producer’s increased production during a fiscal yearthat exceeds the producer’s production during the prior fiscal year.  For example, a producer that produces30,000,000 gallons of ethanol this fiscal year, but produced only 20,000,000gallons last fiscal year is entitled to payment for one bushel of corn forevery 2.5 bushels of corn used to produce 10,000,000 gallons of ethanol, whichrepresents this fiscal year’s increased production over the prior fiscal year’sproduction.  Under the Program, whichassumes that 1 bushel of corn produces 2.5 gallons of ethanol, the ethanolproducer would be entitled to receive reimbursement for 1 bushel of corn forevery 2.5 bushels used for the increased ethanol production.  The reimbursement drops to 1 bushel of cornfor every 3.5 bushels used if the producer’s annual production capacity isequal to or more than 65,000,000 gallons. The per bushel value for reimbursement purposes is determined by the CCCin accordance with established terminal market prices announced daily by theKansas City Commodity Office, adjusted by the county average differential forthe county in which the ethanol plant is located and the applicable qualityfactors determined by the CCC.  If thereis no established terminal market price, then the CCC will set the price.

 

Based on the program’s formula for calculatingpayments, we estimate that we would reach the $7,500,000 maximum per fiscalyear cap with approximately 21,000,000 gallons of increased production.  We arrived at this number by dividing21,000,000 gallons by 2.5 to determine the number of bushels of corn used togenerate the increased production.  Wethen divided the number of bushels of corn (8,400,000 bushels) by 2.5 to arriveat the qualified number of bushels subject to reimbursement.  Assuming that the price of corn is $2.26 perbushel, we estimate that for 21,000,000 gallons of increased production, wewould be entitled to receive the $7,500,000 maximum per fiscal year paymentunder the program.  This means that aramp-up of production that straddles over several of the program’s fiscal yearscould result in higher aggregate payments under the program as compared to havingall increased production occurring within a single fiscal year.

 

9

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In addition, there is a Federal Small ProducerCredit that provides a 10¢ per gallon tax credit for the first 15,000,000gallons of ethanol produced annually. The tax credit is currently available only to producers with an annualcapacity of 30,000,000 gallons or less and is scheduled to expire onDecember 31, 2007.  Therefore,under current legislation, our proposed ethanol plant would not be eligible forthe tax credit.  However, legislationhas been introduced which, in its current form, would renew the tax credit andextend the benefits to ethanol plants with up to 60,000,000 gallons of annual capacity.We cannot assure you that the legislation will pass.  Ethanol producers that qualify can deduct the credit from theirfederal income tax annually.  However,the credit is considered taxable income and taxes must be paid on the amountcredited.

 

**Site Selection and Project Analysis**

 

We intend to build the ethanol plant near Rochelle,Illinois.  We selected the Rochelle,Illinois area based upon a number of factors, including the availability andcost of corn, natural gas, water supply and electric service, transportationcosts, permitting requirements, and proximity to certain ethanol markets.  However, we may modify or change thelocation of the ethanol plant if we cannot obtain the necessary permits,approvals, utility and other services, or cannot obtain them at reasonablecost.  We believe that the Rochelle,Illinois area has several favorable attributes for locating a large scaleethanol plant, including:

 

•                  An abundant corn supply, because according tothe Illinois Agricultural Statistics Supplement 2001, in the year 2001,approximately 669,000,000 bushels of corn were grown within a 100-mile radiusof Rochelle, Illinois;

 

•                  Favorable transportation logistics becauseRochelle, Illinois is close to the Chicago/Milwaukee area, one of the largestethanol markets in the United States;

 

•                  Favorable rail costs because the City ofRochelle is situated on an intersection of Burlington Northern RailroadCompany’s and Union Pacific Railroad Company’s mainline rail systems.  In addition, we can use the City ofRochelle’s short line rail system that connects into Burlington Northern’s andUnion Pacific’s main rail line without any switching fees;

 

•                  Close proximity to the intermodal facilityfor rail and truck, which should bring significant truck traffic to the areaand allow us to pick and choose from among many possible subcontractors to haulour products;

 

•                  The availability of city run utilities thatprovide readily usable water and electricity at substantial savings as comparedto other Illinois sites we considered; and

 

•                  The Greater Rochelle Economic DevelopmentAuthority’s assistance with certain site improvements and its willingness toassist us with applying for grants for which we may be eligible.

 

We expect to build the ethanol plant on anapproximately 81 acre site near Rochelle, Illinois.  A Phase I Environmental Site Assessment of the site has beencompleted and revealed no evidence recognized environmental conditions on thesite.

 

We had executed options with unrelated privatelandowners to purchase an approximately 86 acre site located approximately halfa mile north of the 81 acre site for approximately $1,468,000.  Because the options were expiring onJuly 4, 2003, we assigned the options to Mr. James D. Carmichael, anunrelated third party, who then exercised the options and purchased thesite.  We had also entered into anagreement with DP Industrial, LLC, an unrelated third party, under which wewould exchange the 86 acre site for the 81 acre site.  In July 2003, after purchasing the 86 acre site, Mr. Carmichaelexchanged the site for the 81 acre site. We paid a fee of approximately $148,000 to Mr. Carmichael for completingthe exchange.  We have entered into anoption agreement with Mr. Carmichael giving us the right to purchase the 81acre site for approximately $2,079,000, together with interest on the amountpaid by Mr. Carmichael to acquire the 86 acre site, at a rate of 5% perannum.  The fee of $21,000 for theoption was satisfied by a credit of the fees we originally paid for the optionson the 86 acre site.  The option expireson August 14, 2004.

 

10

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The City of Rochelle has annexed the 81 acresite.  Under the annexation agreement,the City of Rochelle will provide certain rail extensions to this site.  In addition, the City of Rochelle willconstruct certain water and sewer extensions and road improvements.  The City of Rochelle and DP Industrial,along with some assistance from us, will pay for those rail, water and sewerextensions and road improvements.

 

Upon executing the exchange agreement, we received anon-refundable $30,000 payment from DP Industrial to cover a portion of ourcosts relating to site infrastructure and development.  When the exchange was completed, DPIndustrial paid us $630,000 pursuant to the exchange agreement, less theapproximately $148,000 fee paid to Mr. Carmichael for completing theexchange.  In addition, DP Industrialwill, among other things, pay the first $75,000 of the incremental cost tobuild a 125 foot exhaust stack rather than a 73 foot exhaust stack on theethanol plant, and 50% of all incremental costs over $75,000, up to anaggregate maximum payment of $150,000.

 

When considering entering into the exchangeagreement, our board of managers considered, among other things, the following:

 

•                  Anticipated building conditions on the 86acre site and the 81 acre site, which we expect will be more favorable at the81 acre site because of lower water tables and better overall drainage;

 

•                  The location of the two sites, both of whichare located on and have access to the same rail and highway transportationsystems;

 

•                  The availability of utilities at the twosites, both of which have access to the same gas, electric and other utilityservices; and

 

•                  Our belief that moving the ethanol plant tothe 81 acre site would not change the timing, requirements or consideration ofour air pollution construction permit application.

 

When considering the development of our ethanolplant and selecting a site, the key criteria that we examined were:

 

•                  The total cost of the project;

 

•                  The regional price of ethanol, distillersgrains and carbon dioxide;

 

•                  Production costs;

 

•                  General and administrative expenses; and

 

•                  Interest expenses.

 

Based on our preliminary design-build agreement withLurgi PSI, we estimate that our proposed ethanol plant, once constructed, willprocess approximately 17,800,000 bushels of corn into approximately 50,000,000gallons of ethanol, 160,000 tons of distillers grains and 120,000 tons of rawcarbon dioxide annually.  We currentlyestimate that total project costs will be approximately $67,000,000 to$68,000,000, or $1.34 to $1.36 per gallon of estimated annual ethanolproduction, excluding the anticipated site improvements from the City ofRochelle and DP Industrial.  We haveentered into a preliminary design-build agreement with Lurgi PSI to constructthe ethanol plant for a fixed lump sum price of $53,500,000, which translatesinto an ethanol plant construction cost of $1.07 per gallon of estimated annualethanol production.

 

According to Oil Price Information Service, theaverage price of ethanol from May 1997 to May 2002 in Illinois,Minnesota and Colorado was approximately $1.25 per gallon.  According to the Commodity Services Corporation,the average FOB Chicago price of distillers grains from February 1997 toFebruary 2002 was approximately $96 per ton, excluding commissions.  We believed that these historical priceswere reasonable and warranted our moving forward on the project.  However, we cannot assure you that we willreceive these prices for

 

11

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our products or that we willbe able to operate profitably.  Based upon our preliminary discussionswith several carbon dioxide processors, we also believe that we can sell abouthalf of the raw carbon dioxide that we produce (or 60,000 tons annually).

 

Controlling costs is fundamental to the success ofany ethanol plant.  We expect that cornwill be the principal cost of our revenue. Based on the process guarantees of our preliminary design-buildagreement, we will need to process approximately 17,800,000 bushels of cornannually.  According to John Stewart andAssociates, the average price of corn in the Rochelle, Illinois area from 1992through 2001, excluding the highest and lowest annual corn prices, isapproximately $2.23 per bushel.  Basedon these averages, we believe that our cost of corn for our ethanol plant inthe Rochelle, Illinois area will compare favorably to other similarly sized ethanolproducers located in other areas of the state of Illinois.  However, corn prices change constantly andwe cannot assure you that our corn costs will not be significantly higher.

 

**Net Offering Proceeds**

 

Gross proceeds from the Offering will be $25,000,000if the minimum number of units offered is sold, and $45,000,000 if the maximumis sold.  We estimate that offeringexpenses will be approximately $350,000. We anticipate paying our Selling Agent, Northland Securities, Inc., aplacement fee equal to 3.25% of the equity raised in the Offering.  1.5% of the fee is due on the date or datesthat offering proceeds are released from escrow and are available for ourimmediate use and the remaining 1.75% is due at the time of financial close.  By financial close, we mean when we close onall project financing, including our debt financing.  We have also agreed to pay the Selling Agent an additional fee of..25% of the equity raised in the offering. This additional fee is due and payable in nine monthly installmentsafter ethanol production at the ethanol plant meets design specifications on adaily basis and all production meets the guarantees provided by engineers andcontractors.  We have also agreed to paya finder a fee equal to 4% of the offering price per unit for all sales tomembers of the finder who were in good standing and listed on its membershiproster as of June 1, 2002.  Becausethe number of units that we will sell to these members is not yet determinable,we have estimated the aggregate finder’s fee at $320,000 if the minimum is soldand $400,000 if the maximum is sold. The finder may elect to receive Class A Units in lieu of itsfinder’s fee at a price of $1.00 per unit. These units will not count towards our meeting the minimum number ofunits offered, but are included as part of the maximum number of units offeredin the Offering.  We have also agreed topay the finder an annual fee of .80% of the offering price per unit sold tothese members, up to a maximum of $50,000 per year, for five years after thefinancial closing date.  By financialclosing date, we mean the date upon which we secure an executed commitmentletter for our debt financing, which along with proceeds from the sale ofunits, will be sufficient to finance the project.

 

We estimate that net proceeds, after deductingoffering expenses, from the Offering will be $23,517,500 if the minimum numberof units offered is sold, and $42,787,500 if the maximum is sold, as set forthin the following table.

 
|                                  |   | **Minimum** |       | **Maximum** |   |
|---------------------------------------|--------|-------------|------------|-------------|--------|
| Gross offering proceeds               |   | $           | 25,000,000 |        | $      | 45,000,000 |   |
| Offering expenses                     |   | 350,000     |       | 350,000     |   |
| Selling Agent’s fee(1)           |   | 812,500     |       | 1,462,500   |   |
| Finder’s fee(2)                  |   | 320,000     |       | 400,000     |   |
|                                  |   |        |       |        |   |
| Net proceeds to Illinois River Energy |   | $           | 23,517,500 |        | $      | 42,787,500 |   |

 

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(1)                Reflects anaggregate placement fee payable to Northland Securities of 3.25% of the equityraised in the Offering.

(2)                Reflects estimatedfinder’s fee of $320,000 if the minimum is sold and $400,000 if the maximum issold.

 

12

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We plan to use a portion of the net proceeds fromthe Offering to repay approximately $100,000 in interim bridge financing fromour managers and others.  We plan to usethe remaining net proceeds, as well as funds from federal, state and localgrants and our debt financing, to purchase a site, construct the ethanol plantand fund start-up costs.  A portion ofthe proceeds will also be used to purchase the initial inventory of corn,chemicals, yeast and denaturant, our major raw materials and to cover otheroperating costs.

 

**Plan of Operation to Close of the Offering**

 

Under the terms of the Offering, if we raise theminimum amount offered, 10% of the proceeds will be released to us from escrow,even if we have not secured an executed commitment letter for the debtfinancing that we need.  In an effort tomeet our target construction schedule, we intend to use any such proceedsreceived prior to the close of the Offering, approximately $100,000 in interimbridge financing from our managers and others and the net proceeds we receivedfrom DP Industrial upon completion of the exchange of the 86 acre site for the81 acre site to accomplish some or all of the following by the time we closethe Offering:

 

•                  Purchasea site;

 

•                  Completecertain site and project specific pre-construction engineering work, such asgeneral arrangement drawing, piping, instrumentation, manufacturingspecifications and control equipment, and engineering drawings necessary tosecure the regulatory permits that we need to begin construction; and

 

•                  Completecertain site improvements, including, but not limited to, soil boring, sitegrading, and installation of a rough grade road.

 

The following table sets forth our estimated costsand expenses from May 2003 to the close of the Offering, assuming that 10%of the proceeds from the Offering are released to us from escrow.  These are only estimates and our actualcosts and expenditures could be much higher.

 
| Cost of site (1)        |   | $       | 1,610,000 |   |
|-------------------------|--------|---------|-----------|--------|
| Site work               |   | 420,000 |      |
| Permits                 |   | 95,000  |      |
| Project coordinator     |   | 60,000  |      |
| Offering expenses       |   | 238,000 |      |
| Preliminary engineering |   | 280,000 |      |
| Working capital         |   | 84,000  |      |
|                    |   |    |      |
| Total                   |   | $       | 2,817,000 |   |

 

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(1)         Reflectstotal site acquisition cost of approximately $2,143,000, plus an approximately$148,000 fee paid to Mr. Carmichael for exchanging the 86 acre site for the 81acre site, less the $660,000 of payments from DP Industrial pursuant to theexchange agreement and the $21,000 option fee previously paid.

 

We plan to spend approximately $1,610,000 to acquirethe 81 acre site.  We expect that wewill spend approximately $795,000 on site work, permitting and preliminaryengineering costs.  We also plan to payapproximately $238,000 of costs related to the Offering, including, among otherthings, legal, accounting and printing fees. We expect that our consulting costs and working capital needs will totalapproximately $144,000.  If we do nothave sufficient cash on hand or if we decide to acquire a site and begincertain site work prior to our closing on all or a portion of the Offering, itwill be necessary for us to borrow other funds or defer payment of certainexpenses.  We currently have nocommitments for any additional interim financing.

 

**Plan of Operations to Start-up of Ethanol Plant**

 

If we close on the debt financing that we need andcomplete the sale of the remaining 90% of the units subscribed, we plan tospend the following 13 months designing, developing and constructing theethanol plant.  We

 

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expect to have sufficientfunds to cover our costs through start-up operations, including working capital(cash, inventory and spare parts).  We anticipate funding, among otherthings, development costs, such as installation of utilities, construction,equipment acquisition, and other expenses.  We expect to also fund ouroperating and administrative costs, such as, among other things, raw materials,personnel, general and administrative expenses, and legal and accounting fees.

 

We believe we may be eligible for federal, state,and local grants to help fund our project. We have engaged a professional grantwriter to assist us with preparing grant applications and proposals.  We received $20,000 in grant proceeds fromthe Illinois Corn Marketing Board on November 25, 2002.  We also received $40,000 in grant proceedsfrom the Illinois AgriFirst Program in February 2003 and an additional$40,000 in grant proceeds in July 2003. In addition, on April 7, 2003, we received $20,000 in grant proceedsfrom the Illinois Department of Commerce and Community Affairs to assist withsite engineering drawings and expect to receive an additional $5,000 in grantproceeds upon submitting a project completion certification form.  We have no binding commitment for any othergrants.  We cannot assure you that wewill receive any additional grants.  Ifwe do not receive additional grant proceeds, we will need to secure additionaldebt financing to cover any shortfall. We cannot assure you that we will be able to obtain any additional debtfinancing on reasonable terms, or at all.

 

The following is an estimate of our sources and usesof funds until the ethanol plant is built and we begin operations.  The following schedule assumes that we usethe 81 acre site and the City of Rochelle and DP Industrial provide us withcertain rail, water and sewer extensions and road improvements to thatsite.  Because any assistance we receivefrom the City of Rochelle and DP Industrial will come in the form of siteimprovements, we have not included the source and use of the funds for theseimprovements in the schedule below.  Thefollowing schedule also assumes that we build a 50,000,000 gallon per yearethanol plant and that we receive $1,020,000 from grants.  The information set forth below representsonly estimates and actual sources and uses of funds could be much higher due toa variety of factors, including those described in the Registration Statementand elsewhere in this report.

 

We have obtained approximately $100,000 in interimbridge financing from our managers and others to bridge the timing differencesbetween our receipt of estimated sources of funds and our expenditure ofestimated uses of funds.  Obtaining thebridge financing does not represent an additional source of funds for theproject because it will be repaid from the net proceeds of the Offering when wecomplete the sale of the minimum offering amount.  Similarly, the use of the bridge financing does not increase thetotal estimated uses of funds because the expenses we plan to pay with thebridge financing are already included in the estimated uses of funds shown onthe schedule below.  Because the use ofbridge financing does not increase the total estimated uses of funds for theproject and will ultimately be funded by the Offering proceeds, the receipt andrepayment of the bridge financing are not specifically shown on the schedulebelow.

 

**Sources ofFunds:**

 
|                                |   | **Minimum** |           | **Maximum** |   |
|-------------------------------------|--------|-------------|----------------|-------------|--------|
| Equity(1)                           |   | $           | 25,000,000     |        | $      | 45,000,000 |   |
| Seed Capital(2)                     |   | 563,000     |           | 563,000     |   |
| Debt financing                      |   | 41,500,000  |           | 20,840,000  |   |
| Illinois Corn Marketing Board Grant |   | 20,000      |           | 20,000      |   |
| Expected Grants                     |   | 1,000,000   |           | 1,000,000   |   |
|                                |   |        |           |        |   |
| **Total sources of  funds**         |   | **$**       | **68,083,000** | ** **  | **$**  | **67,423,000** | ** ** |

** **

**Uses of Funds:**

** **
|                                        |   | **Minimum** |           | **Maximum** | ** ** |
|---------------------------------------------|--------|-------------|----------------|-------------|------------|
| Plant Construction(3)                       |   | $           | 53,500,000     |        | $          | 53,500,000 |   |
| Construction Contingency                    |   | 1,187,000   |           | 1,187,000   |       |
| Site Acquisition(4)                         |   | 1,631,000   |           | 1,631,000   |       |
| Site Infrastructure and Development(5)      |   | 1,550,000   |           | 1,550,000   |       |
| Insurance Costs                             |   | 109,000     |           | 109,000     |       |
| Organizational Costs                        |   | 92,000      |           | 92,000      |       |
| Permits                                     |   | 100,000     |           | 100,000     |       |
| Consulting Fees(6)                          |   | 2,219,000   |           | 2,197,000   |       |
| Offering Expenses                           |   | 350,000     |           | 350,000     |       |
| Selling Agent’s Fee(7)                 |   | 812,500     |           | 1,462,500   |       |
| Finder’s Fee(8)                        |   | 320,000     |           | 400,000     |       |
| Capitalized Interest(9)                     |   | 900,000     |           | 0           |       |
| Sales Taxes                                 |   | 150,000     |           | 150,000     |       |
| ***Financing  Costs:***                     |   |        |           |        |       |
| Consulting and Debt Placement Fee(10)       |   | 754,000     |           | 393,000     |       |
| Legal Fees                                  |   | 185,000     |           | 185,000     |       |
| Commitment Fees                             |   | 207,000     |           | 104,000     |       |
| Miscellaneous Expenses                      |   | 65,000      |           | 65,000      |       |
| ***Start  Up Costs:***                      |   |        |           |        |       |
| Preproduction Period Costs(11)              |   | 535,000     |           | 535,000     |       |
| Inventory—Corn                         |   | 795,000     |           | 795,000     |       |
| Inventory—Chemicals, Yeast, Denaturant |   | 865,000     |           | 865,000     |       |
| Inventory—Ethanol                      |   | 1,000,000   |           | 1,000,000   |       |
| Inventory—Distillers Grains            |   | 250,000     |           | 250,000     |       |
| Spare Parts                                 |   | 250,000     |           | 250,000     |       |
| Other Working Capital                       |   | 256,500     |           | 252,500     |       |
|                                        |   |        |           |        |       |
| **Total Uses of Funds**                     |   | **$**       | **68,083,000** | ** **  | **$**      | **67,423,000** | ** ** |

 

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(1)           Assumes we complete thesale of an aggregate minimum of 25,000,000 units and an aggregate maximum of45,000,000 units in the Offering.

 

(2)           Represents $586,000 ofseed capital previously raised (excludes subscription receivable ofapproximately $5,000, which has been received as of June 30, 2003) lessthe cost of raising capital of approximately $23,000.

 

(3)           Does not include theconstruction of a 125 foot exhaust stack rather than a 73 foot exhaust stack atan anticipated maximum incremental cost of $219,000, of which our cost net ofDP Industrial’s reimbursement will be up to $72,000.

 

(4)           Reflects total site acquisitioncost of approximately $2,143,000, plus an approximately $148,000 fee paid toMr. Carmichael for exchanging the 86 acre site for the 81 acre site, less the$660,000 of payments from DP Industrial pursuant to the exchange agreement.

 

(5)           We may realize costsavings on site infrastructure and development because the City of Rochelle andDP Industrial have agreed to cover certain water and sewer extensions and roadimprovements.  There may also beadditional expenses as a result of our use of the 81 acre site.  We will allocate any net cost savings toconstruction contingency and working capital.

 

(6)           Reflects consultingfees payable to GreenWay Consulting, LLC at the time we close on our seniordebt financing.  We have also agreed topay GreenWay an additional fee of .75% of the total sources of funds for theproject, excluding seed capital.  Thisadditional fee is due and payable in nine monthly installments after ethanolproduction at the ethanol plant meets design specifications on a daily basis andall production meets the guarantees provided by engineers and contractors.

 

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(7)           Reflects an aggregateplacement fee payable to Northland Securities of 3.25% of the equity raised inthe Offering.

 

(8)           Reflects estimatedfinder’s fees of $320,000 if the minimum is sold and $400,000 if the maximum issold.

 

(9)           Net of interest incomeearned on offering proceeds.

 

(10)     Includes a consulting feepayable to Northland Securities of 1.75% of the total sources of funds for theproject, excluding seed capital and the equity raised in the Offering.

 

(11)     Includes accrued per diemfees payable to our managers as of June 30, 2003 of $106,250, plusestimated additional per diem fees from July 1, 2003 to start-up of theethanol plant of approximately $111,000.

 

We estimate that our expenses relating to theOffering will total approximately $350,000. We estimate that our financing cost for our debt financing willtotal approximately $1,211,000 if the minimum number of units offered is sold,and approximately $747,000 if the maximum is sold.  Financing costs includes lender commitment fees and consultingand debt placement fees, as well as out-of-pocket expenses such as title insurance,legal fees, appraisal costs and filing fees. Because we intend to capitalize all of our interest expenses and notmake any payments on our debt financing until we begin start-up operations, weestimate that by the time we begin start-up operations, capitalized interestwill total approximately $900,000 if the minimum number of units offered issold.  We expect that we will not haveany capitalized interest if we raise the maximum amount offered because ourinterest earnings on the Offering proceeds should offset our interestexpenses.  We estimate that we willspend approximately $109,000 on managers and officers’ insurance, builder’srisk insurance, general commercial liability, workers’ compensation andproperty insurance for our business. Because our consulting fees are based upon our total project cost, weexpect that our consulting fees will total approximately $2,219,000 if we raisethe minimum amount offered and $2,197,000 if we raise the maximum amountoffered.  We also expect to spend approximately$100,000 to procure necessary permits. We have spent approximately $92,000 to organize our limited liabilitycompany, including legal, accounting and related expenses.

 

We expect to spend the majority of our funds,approximately $58,018,000, on site acquisition, site preparation, engineeringand construction of the ethanol plant, infrastructure, equipment and salestaxes.  These costs include leveling andgrading the site, general site work to prepare for construction of the ethanolplant, preparing and pouring foundations, and material and labor to constructthe plant and ancillary facilities.  Wewill also be purchasing and installing ethanol production equipment, such aspumps, grinders, processing equipment, storage tanks and conveyors.  We expect that Lurgi PSI will handleconstruction, equipment purchases and installation, which we will pay for bymaking monthly progress payments based on the work completed and invoiced to usby Lurgi PSI.  We estimate that we willspend approximately $535,000 on preproduction costs, such as administrative andother expenses.  We anticipate having working capital of approximately$3,410,000 at plant start-up, consisting of approximately $3,160,000 of spareparts and corn, chemicals, yeast, denaturant, ethanol and distillers grainsinventory, and approximately $250,000 of cash.

 

**Administration**

 

We currently do not have a full-time office staff,and we do not expect to retain one until the ethanol plant is nearcompletion.  Until then, we aredependent upon our Associate Vice President—Chief Operating Officer, ourpart-time officers and the board of managers to maintain our books andrecords.  These individuals areresponsible for complying with the rules and regulations promulgated under theSecurities and Exchange Act of 1934 concerning the maintenance of accuratebooks and records, and the timely submission of periodic reports and otherrequirements with the Securities and Exchange Commission.

 

**Operating Expenses**

 

When the ethanol plant nears completion, we expectto incur various operating expenses, such as supplies, utilities and salariesfor administration and production personnel. Along with operating expenses, we anticipate that we will havesignificant expenses relating to financing and interest.  We have allocated funds in our capitalstructure

 

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for these expenses, butcannot assure you that the funds allocated will be sufficient to cover theseexpenses.  We may need additionalfunding to cover these costs if sufficient funds are not available or if costsare higher than expected.

 

**Employees**

 

Upon completion of the ethanol plant, we expect tohave approximately 28 employees, including 22 in ethanol production operations,and six in general management and administration.  We will not maintain an internal sales organization.  We anticipate that we will need thefollowing personnel to operate and manage our ethanol plant:

 

 
| **Position**                                      |   | **# of Employees** |   |
|---------------------------------------------------|--------|--------------------|--------|
| General Manager                                   |   | 1                  |   |
| Controller                                        |   | 1                  |   |
| Production Manager                                |   | 1                  |   |
| Lab Manager                                       |   | 1                  |   |
| First Line Supervisors (Shift Supervisors)        |   | 4                  |   |
| Stationary Engineers                              |   | 4                  |   |
| Plant and System Operators                        |   | 4                  |   |
| Tank Car and Truck Loaders                        |   | 2                  |   |
| First Line Supervisors (Maintenance  Supervisors) |   | 1                  |   |
| Maintenance Repairer                              |   | 4                  |   |
| Precision Instrument Repairer                     |   | 1                  |   |
| Electrician                                       |   | 1                  |   |
| Lab Technician                                    |   | 1                  |   |
| Office Staff                                      |   | 2                  |   |
|                                              |   |               |   |
| Total                                             |   | 28                 |   |

 

**Liquidity and Capital Resources**

 

As of June 30, 2003, we had cash and cashequivalents of $47,530, current assets of $185,693 and total assets of$645,861.  Our total assets include$422,012 of deferred offering costs relating to the Offering.  At the timewe issue units in the Offering, these costs will be netted against the proceedsreceived, or if we do not complete the sale of any units in the Offering, theywill be expensed.  To date, we have raised $591,500 in seed capital, whichwe have used to fund our organization and operation to date.  As of June 30, 2003, we had currentliabilities of $851,927, which consists primarily of our accounts payable.  Since our inception on February 20,2002 through June 30, 2003, we have an accumulated deficit of$779,586.  Total members’ equity as ofJune 30, 2003 was ($211,110). Since inception, we have generated no revenue from operations, and cashflows provided by financing activities through June 30, 2003 consistsprimarily of member contributions.

 

We have obtained approximately $100,000 in interimbridge financing from our managers and others to help fund a portion of ourestimated costs and expenditures on an interim basis prior to our receiving anyproceeds from the Offering.  We areissuing promissory notes together with warrants to purchase Class A Unitsto each person who provided us the bridge financing.  The notes pay interest at a rate of prime plus four percentper annum.  We will not make anyprincipal or interest payments on the notes until we complete the sale of theminimum offering amount, at which time the notes will become due andpayable.  If we do not complete the saleof the minimum offering amount, the notes will become due and payable one yearfrom the date of issuance.  The warrantsgive the holders the right to purchase one Class A Unit for each dollar offinancing provided, at an exercise price of $1.00 per unit.  The warrants are exercisable at any time fora period of five years from the date of issuance.

 

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As of June 30, 2003, our current liabilitiessubstantially exceeded our current assets and our total liabilities exceededour total assets.  In addition to theinterim debt financing described above, we plan to defer certain accountspayable until after we have obtained sufficient proceeds from theOffering.  Our ability to continue as agoing concern is dependent on the execution and success of these plans and asuccessful completion of the Offering. Our financial statements do not include any adjustments that might benecessary if we are unable to continue as a going concern.

 

We are seeking to raise a minimum of $25,000,000 anda maximum of $45,000,000 in the Offering. Depending on the results of the Offering, we believe that the projectwill cost a total of approximately $67,000,000 to $68,000,000, excludingcertain site improvements from the City of Rochelle and DP Industrial.  We plan to finance the project with seed capital,proceeds from the Offering, federal, state and local grants, assistance withsite improvements and debt financing. Other than three grants totaling $125,000, we have no commitment for anyother grants.  We do not have anycommitments for the debt financing that we need.  Completion of the proposed ethanol plant depends on our abilityto satisfy all conditions to breaking escrow and close on the entire Offering.

 

We expect that our debt financing will be in theform of a construction loan that will convert to a permanent loan when we beginoperations.  We also expect that theloan will be secured by all of our real property and substantially all of ourother assets, including receivables and inventories.  In addition to repaying the principal, we plan to pay interest atmarket rate for loans to start-up ethanol projects, plus annual fees formaintenance and observation of the loan by the lender.  We intend to capitalize all of our interestuntil we commence start-up operation, which means that we will not make anypayment on the loan until we construct the ethanol plant and begin producingethanol.  We expect that our debtfinancing will consist of a construction loan with a term of 13 months,which will then convert to a permanent loan when we begin operations.  We expect to repay the permanent loanthrough fixed quarterly payments of principal and interest beginning after wecommence operations.  If the projectsuffers delays, we may not be able to timely repay the loan.  If interest rates increase, we will havehigher interest payments, which could adversely affect our business.

 

The amount of debt financing that we need depends onthe amount of equity we raise in the Offering and whether we receive anyadditional grant proceeds or our anticipated site improvements from the City ofRochelle and DP Industrial.  We intendto seek debt financing from lenders who have provided debt financing to otherethanol projects in the past or who have expressed an interest in providingdebt financing to ethanol projects.  Weplan to locate these lenders either by attending trade conferences for lendersrelating to the ethanol industry or by contacting lenders who currently providedebt financing to the ethanol industry. These lenders include farm credit system financial institutions withTitle I and Title II authority under the Farm Credit Act, other state orfederally chartered financial institutions, and insurance companies.

 

**Item 3****.****          ****Controls and Procedures.**

 

(a)                                  Evaluation of Disclosure Controls andProcedures.

 

Our President (the principal executive officer),Floyd A. Schultz, and our Treasurer (the principal financial officer), DouglasG. Foss, have evaluated our disclosure controls and procedures as of theend of the period covered by this report. Based upon that review, they have concluded that these controls and procedures are effective inensuring that material information related to us is made known to them byothers within the Company.

 

(b)                                 Changes in Internal Controls.

 

There have been no significant changes in internalcontrol over financial reporting that occurred during the fiscal quartercovered by this report that have materially affected, or are reasonably likelyto materially affect, our internal control over financial reporting.

 

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**PART II.      OTHERINFORMATION**

 

**Item 1.****          ****Legal Proceedings.**

 

None.

 

**Item 2.****          ****Changes in Securities.**

 

(a)                                  None.

 

(b)                                 None.

 

(c)                                  Wesold an aggregate of $101,500 of promissory notes to our managers, Messrs.Floyd A. Schultz, Gregory C. Marshall, Stanley R. Blunier, Bradley A. Riskedaland Dennis Denton, and one of our consultants, Agri-Source Consulting, whichhas had and continues to have significant involvement in our development andoperations.  The notes bear interest atthe rate of prime plus four percent per annum. The notes will become due andpayable upon completion of the sale of the minimum offering amount in theOffering.  If we do not complete thesale of the minimum offering amount, the notes will become due and payable oneyear from the date of issuance.  Theseindividuals and entities are also receiving warrants to purchase a total of101,500 Class A Units.  The warrantsgive the holders the right to purchase one Class A Unit for each dollar offinancing provided, at an exercise price of $1.00 per unit.  The warrants are being issued in connectionwith the bridge financing as additional consideration to compensate thesepersons for the risk that we may be unable to repay the notes if we do notcomplete the Offering.

 

These sales were deemed to be exempt fromregistration under the Securities Act in reliance on Section 4(2), astransactions by an issuer not involving a public offering.  We conducted no general solicitation in connectionwith the offer or sale of the securities. The investors represented their intention to acquire the securities forinvestment only and not with a view to, or for sale in connection with, anydistribution thereof.  Each of ourManagers is an accredited investor. Agri-Source Consulting is a sophisticated investor and its majorityequity holder and principal executive officer is an accredited investor.  Each investor represented to us that suchinvestor had such knowledge and experience in financial and business mattersthat such investor was capable of evaluating the merits and risks of thesecurities.  Appropriate legends will beaffixed to all instruments representing the securities indicating that theyconstitute restricted securities and may not be sold without registration underthe Securities Act of 1933 or an exemption therefrom.  All investors either received adequate information about us orhad adequate access, through their relationships with us, to the information.  The proceeds from the bridge financing arebeing used to fund current operations on an interim basis and will be repaidwhen we complete the sale of the minimum 25,000,000 units in the Offering.

 

(d)                                 The Securities and Exchange Commissionoriginally declared our Registration Statement on Form SB-2 (SEC RegistrationNo. 333-96977), as amended (the “Registration Statement”), effective onJanuary 10, 2003.  We commenced our initial public offering of ourClass A and Class B Units on January 10, 2003.  We subsequentlyamended the Registration Statement to reflect certain changes from andadditions to the Registration Statement that was originally declared effective,and ceased our selling efforts pending effectiveness of the subsequentlyamended Registration Statement.  TheSecurities and Exchange Commission declared the subsequently amendedRegistration Statement effective on May 8, 2003, and we thereupon resumedour selling efforts.  We have not closedthe Offering and are continuing to offer the units.  We have hired Northland Securities, Inc. to act as our SellingAgent to offer and sell the units on our behalf on a best efforts basis.  Northland Securities is an underwriter underthe Securities Act.  Our officers andmanagers may also participate in the offer and sale of the units.  We donot pay our officers or managers any compensation for services related to theoffer or sale of the units.

 

We registered a total of 45,000,000 Class A andClass B Units with an aggregate gross offering price of $45,000,000, or $1.00per unit.  We intend to close theOffering on August 31, 2003, subject to one or more extensions to no laterthan December 31, 2003.  As ofJune 30, 2003, we have received subscriptions for approximately 2,346,000units, or an aggregate of $2,346,000 of subscription payments.  We are depositing all subscription paymentsfrom the Offering in an escrow account.  We have not yet met theconditions to breaking escrow and therefore have not completed the sale of anyof the units subscribed.  We will notbreak escrow and

 

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complete the sale of any ofthe units subscribed until we raise at least the minimum amount offered.  If we raise the minimum amount offered, then10% of each investor’s investment will be released to us to pay for projectdevelopment costs and we will issue the investor units for 10% of the amountsubscribed.  We will not break escrowand complete the sale of the remaining 90% of each investor’s subscriptionuntil we secure an executed commitment letter for $20,840,000 to $44,400,000 ofdebt financing (the $44,400,000 assumes that we only raise the minimum amountoffered and do not receive any additional grant proceeds or site improvementsfrom the City of Rochelle or DP Industrial).

 

From January 10, 2003 (the original effectivedate of the Registration Statement) to June 30, 2003, we incurred noexpenses for our account in connection with the issuance and distribution ofthe units registered for underwriting discounts and commissions, finders’ fees,expenses paid to or for underwriters. Other (and total) expenses incurred for this period for our account inconnection with the issuance and distribution of the units were approximately$35,858.  None of these payments weredirect or indirect payments to our managers, officers or their associates,persons owning 10% or more of any class of our equity securities or ouraffiliates.**** From January 10, 2003 to June 30,2003, we did not receive or use any net offering proceeds.

 

**Item 3.****          ****Defaults Upon SeniorSecurities.**

 

None.

 

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

 

None.

 

**Item 5.****          ****Other Information.**

 

None.

 

**Item 6.****          ****Exhibits and Reports on Form8-K.**

 

(a)          The following exhibits are included herein:

 
| 10.1  |   | Assignment  of Option Agreements with James D. Carmichael                                                                                                                                                                                                                     |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2  |   | Option  Agreement with James D. Carmichael                                                                                                                                                                                                                                    |
| 10.3  |   | Real  Estate Exchange Agreement with DP Industrial, LLC (Incorporated herein by  reference to Exhibit 10.11 to Post-Effective Amendment No. 3 to the Company’s  Registration Statement on Form SB-2 filed on May 2, 2003 (SEC  Registration No. 333-96977))         |
| 10.3a |   | First  Amendment to Real Estate Exchange Agreement with DP Industrial, LLC                                                                                                                                                                                                    |
| 10.4  |   | Amendment  to Agency Agreement with Northland Securities, Inc. (Incorporated herein by  reference to Exhibit 1.3.1 to Post-Effective Amendment No. 4 to the Company’s  Registration Statement on Form SB-2 filed on May 14, 2003 (SEC  Registration No. 333-96977)) |
| 10.5  |   | Notice  of Amendment to Escrow Agreement (Incorporated herein by reference to Exhibit  4.4.1 to Post-Effective Amendment No. 4 to the Company’s Registration  Statement on Form SB-2 filed on May 14, 2003 (SEC Registration No.  333-96977))                       |
| 10.6  |   | Form  of Subscription Agreement for Bridge Financing (Incorporated herein by  reference to Exhibit 10.10 to Post-Effective Amendment No. 1 to the Company’s  Registration Statement on Form SB-2 filed on March 31, 2003 (SEC  Registration No. 333-96977))         |
| 31    |   | Certifications pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act).                                                                                                                                                      |
| 32    |   | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (18 U.S.C. §1350).                                                                                                                                                                             |

 

(b)         Reports on Form 8-K:

 

None.

 

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**SIGNATURES**

 

Inaccordance with the requirements of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|   | ILLINOIS  RIVER ENERGY, LLC                              |
|--------|----------------------------------------------------------|
|   |                                                     |
|   |                                                     |
| Date:  | August 14,  2003                                    |   | /s/  Floyd A. Schultz |
|   | Floyd  A. Schultz                                        |
|   | President*(Principal Executive Officer)*                 |
|   |                                                     |
|   |                                                     |
| Date:  | August 14,  2003                                    |   | /s/  Douglas G. Foss |
|   | Douglas  G. Foss                                         |
|   | Treasurer*(Principal Financial and Accounting  Officer)* |

 

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