**UNITED STATES**

**SECURITIES ANDEXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

**FORM l0-KSB**

 

**Annual Report Pursuant to Section 13 or**

**15(d) of the Securities Exchange Act of 1934**

** **

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

 

**Commissionfile number 333-74982**

 

**Western PlainsEnergy, L.L.C.**

(Name of Small BusinessIssuer in its Charter)

 

| **Kansas**                                                       |   | **48-1247506**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **414  Main Street  P.O. Box 340  Quinter, Kansas**              |   | **67752**                             |
| (Address of Principal  Executive Offices)                        |   | (Zip Code)                            |
|                                                             |   |                                  |
| **(785)  754-2119**                                              |
| (Issuer’s Telephone  Number, Including Area Code)           |
|                                                             |   |                                  |
| Securities registered  under Section 12(b) of the Exchange Act:  |
| **None**                                                         |
|                                                             |   |                                  |
| Securities registered  under Section 12(g) of the Exchange Act:  |
| **None**                                                         |

 

Check whether the issuer(1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act of 1934 during the past 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

 

ý Yes     o No

 

Check if there is nodisclosure of delinquent filers in response to Item 405 of Regulation S-B inthis form, and no disclosure will be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-KSB or any amendment to this Form10-KSB.   ý

 

State issuer’s revenuesfor its most recent fiscal year.                  **NONE**

 

The aggregate market valueof the registrant’s Class D capital units held by non-affiliates of theregistrant as of March 1, 2003 was approximately $0.

 

As of March 1, 2003, therewere 83 Class D capital units of the registrant outstanding.

 

Transitional SmallBusiness Disclosure Format:             o Yes    ý No

 

 

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**PART I**

 

**Item 1.    Description of Business.**

 

Western Plains Energy,L.L.C. is a Kansas limited liability company that recently completed itsinitial public offering.  We intend touse the proceeds from our initial public offering, along with our debtfinancing, to build and operate a 30 million gallon ethanol plant in GoveCounty, Kansas.  When completed, theplant will produce ethanol and two ethanol co-products, distiller’s driedgrains with solubles and distiller’s wet grain with solubles.

 

**OVERVIEW**

 

We were formed in July2001 and have had no operations to date. We commenced our initial public offering of up to 3,967 of our Class Aand Class B capital units on June 11, 2002. As of March 28, 2003, we had received subscriptions for 2,129 Class Aunits and 1,747 Class B units in our initial public offering and had closed theoffering.  The total value of thesubscriptions is $19,380,000.  Eachsubscriber has paid at least 10% of the total purchase price into an escrowaccount and 90% of the purchase price by executing a promissory note in favorof us that is subject to the call of our Board of Managers. Some investors,however, paid more than the required 10% with their subscriptions.  Any additional amounts received were alsoplaced into the escrow account.

 

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**THEETHANOL INDUSTRY**

 

Ethanol is a chemicalproduced by the fermentation of sugars found in grains and other biomass.Ethanol can be produced from a number of different types of grains, butapproximately 90% of ethanol in the United States today is produced fromcorn.  In Kansas, however, most ethanolis produced from milo, also known as grain sorghum, because it is usuallypriced lower than corn.

 

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

 

Currently,the most common oxygenate is methyl tertiary butyl ether, or MTBE.  MTBE, a petroleum-based product, is producedfrom methanol and natural gas and is largely imported from the Middle East.  However, since MTBE was introduced and hasbecome a commonly used oxygenate, MTBE has been found in well water, lakes andstreams.  While MTBE has not beenclassified as a carcinogen, it is not bio-degradable and has been shown tocause cancer in animals.  As a result,MTBE’s continued use has raised serious environmental concerns.  On March 20, 2000, the EnvironmentalProtection Agency called for MTBE to be banned or have its use significantlyreduced because of environmental problems associated with its use as a fueloxygenate.  Sixteen states have alreadyenacted laws banning or greatly restricting the sale of MTBE.  Although some of these bans are currently ineffect, the majority become effective at various times over the next fiveyears.

 

Because of federal and statepolicies promoting cleaner air and the state and federal tax and productionincentives, the ethanol industry has grown substantially in recent years.  Currently, U.S. ethanol plants have thecapacity to produce approximately 2.7 billion gallons of ethanol annually,compared to only 175 million gallons in 1980. There are more than 69 ethanol production facilities located in theUnited States, with the great majority of them located in the Midwest in thecorn-producing states of Illinois, Wisconsin, Minnesota, Iowa, North Dakota,South Dakota, Nebraska and Kansas. Kansas currently has five plants producing approximately 99 milliongallons of ethanol.

 

In addition to federal incentives, the state of Kansas provides anincentive production payment to ethanol producers.  The production incentive available to Kansas ethanol producers,who commence production after July 1, 2001 and sell at least 5 million gallons,consists of a direct payment of $.075 per gallon for up to 15 million gallonsper year.  Accordingly, the maximumamount a Kansas ethanol producer can currently receive in a year is$1,125,000.  These incentive paymentsare available for the first seven years of production.  The available statewide funding for theseincentive payments is $1,500,000 per year for 2002-2004 and $3,500,000 per yearfor 2005-2011 plus any excess balance carried over from the prior year’scurrent production account.  Anyshortfall in the available funds will result in a pro rata decrease in theincentives paid to the individual ethanol producers.  Because the number of ethanol producers who will qualify for the

 

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incentives is not known, we cannot predict whether the funds designatedwill be sufficient to fully fund the program in the future.

 

**ETHANOLMARKETING**

 

Based on information wereceived from our ethanol marketer, Ethanol Products, the target market areafor the ethanol to be produced at the plant is expected to include local,regional and national markets, as further described in detail below under"DDGS and DWGS Marketing." We estimate that, because of our plant’slocation, we will not only be able to service the Midwest market, but will alsobe well positioned to take advantage of markets in Colorado and the Southwestand the anticipated increased demand for ethanol in California.

 

We expect markets inDenver, Colorado; Colorado Springs, Colorado; Wichita, Kansas; Kansas City,Kansas; and Kansas City, Missouri to be the primary target local and regionalmarkets for our products.  Shipping willbe done primarily by truck to markets in Kansas, with the option to ship bytruck or rail to Colorado and western Missouri markets.  Nearby Interstate Highway 70 providesexcellent transportation links in all directions.

 

Our plant is beingdesigned with rail facilities and connections to the Kansas railroad system,which will facilitate transporting the ethanol we produce to our nationaltarget markets.  We expect thatapproximately 40% to 60% of the ethanol will be marketed by rail.  The national target rail markets for thefacility will include Phoenix, Arizona, as well as potential new markets on theEast Coast and California due to anticipated MTBE phase outs.

 

We have signed a contractwith Ethanol Products LLC to market the ethanol produced at our plant.  Ethanol Products has told us that itcurrently has exclusive ethanol marketing agreements with 12 ethanol producersin Minnesota, South Dakota, North Dakota, Missouri, Iowa and Michigan andcurrently provides 250 million gallons of fuel grade ethanol annually todomestic refiners and retail marketers. An “exclusive ethanol marketing agreement” gives the ethanol marketerthe exclusive right to market an ethanol producer’s ethanol for the term of theagreement.  While our Ethanol Marketingand Services Agreement is an “exclusive ethanol marketing agreement,” we do nothave any other exclusive business relationship with Ethanol Products.  Although we will rely entirely on EthanolProducts to market the ethanol we produce, Ethanol Products does not expect tobe dependent on one or a limited number of major customers.

 

Our Ethanol Marketing andServices Agreement with Ethanol Products will be in effect for automaticallyrenewing five year terms from the start of ethanol production at theplant.  Under the contract, EthanolProducts will charge us a marketing and administrative services fee of $.01 pergallon of ethanol produced.  All accountreceivable losses arising from the marketing of ethanol are our soleresponsibility.

 

**THE DDGSAND DWGS INDUSTRY**

 

A co-product of theethanol production process is distiller’s dried grains with solubles, orDDGS.  DDGS is a high protein, highenergy feed supplement marketed primarily to the dairy, beef, and sheepindustries.  DDGS is a popular feedsupplement, with approximately 3 million tons sold

 

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annually.  Most DDGS is sold for use in animal feedswithin the United States and Canada, and approximately one million tons isexported, primarily to Europe.  The vastmajority of the DDGS is fed to ruminant animals in the dairy and beef sector.However, new technologies, which have allowed for the production of a moreconsistent, quality product, have helped create a market for DDGS in the swineand poultry industries as well.  Whenoperated at its annual capacity of 30 million gallons, our plant will have theability to dry all distiller’s grains produced.

 

Another co-product of theethanol production process is distiller’s wet grains with solubles, orDWGS.  To produce DWGS, the distiller’smash from the fermentation process is only partially dried, creating a feedproduct that is 10% protein, 3% fat, and 60% moisture.  Although DWGS is less costly to produce thanDDGS because of the lower drying costs, it is more costly to transport becauseof its higher moisture content and can only be transported by end-dump trucktrailer, not by rail.

 

**DDGS ANDDWGS MARKETING**

 

According to the KansasAgricultural Statistical Service, the cattle population in Western Kansas isapproximately 2 million head of cattle. Based on this and a feed ration of four pounds of DDGS per head ofcattle per day, ICM Marketing, our DDGS and DWGS marketer, estimates that thetotal market potential for DDGS for cattle in Western Kansas to be 1.4 milliontons per year.  In addition, we expectthat some of the DDGS that we will produce will serve markets outside ofKansas.  We expect to have a distinctadvantage relative to other Midwest producers of DDGS in that ourtransportation costs for delivery should be much lower than other DDGSproducers.

 

As a result of the highertransportation costs for shipping DWGS, our potential market for DWGS will belimited to customers within approximately a 115-mile radius of the plant site.Again, based on information from the Kansas Agricultural Statistical Service,there are over 1 million head of cattle within this radius of our plant site,including several large cattle feedlots in the Scott City and Garden City areasin particular.

 

We have entered into anagreement with ICM Marketing, Inc. to market all of the DDGS and DWGS producedat the plant.  The initial term of ouragreement with ICM Marketing is for a three year term expiring on October 1,2004 and will automatically renew for one year terms unless terminated by us orICM Marketing with 90 days written notice. ICM Marketing will pay us 98% of the selling price, less applicablefreight, for all products.  Upon receiptof documentation from us, ICM Marketing will pay us an additional .5% of theselling price, less applicable freight, on all products sold to our memberssubject to a distiller’s grains purchase agreement.  ICM Marketing will be responsible for invoicing all loads,receiving payments from customers and paying freight when necessary.  All account receivable losses arising fromthe sales of distiller’s grains products will be the sole responsibility of ICMMarketing, unless such losses are related to the substandard quality ofproducts we have provided.

 

**COMPETITION**

 

We will be in directcompetition with numerous other ethanol producers, many of whom have greaterresources than we do.  We also expectthat additional ethanol producers will enter the

 

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market if the demand forethanol continues to increase.  Ourproposed ethanol plant will compete with other ethanol producers on the basisof price and, to a lesser extent, delivery service.  We believe we can compete favorably with other ethanol producersdue to our proximity to ample corn and milo supplies at favorable prices.

 

The ethanol industry hasgrown to 69 production facilities in the United States.  Industry authorities estimate that thesefacilities are capable of producing approximately 2.7 billion gallons ofethanol per year.  The largest ethanolproducers include Archer Daniels Midland, Cargill, Midwest Grain, WilliamsEnergy Service, New Energy Corporation and High Plains Corporation, all ofwhich are capable of producing more ethanol than we expect to produce.  In addition, there are several regionalfarmer-owned entities recently formed, or in the process of formation, of asimilar size and with similar resources to ours.  Most ethanol plants also produce DDGS or DWGS.

 

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

 

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

 

**CORN ANDMILO PROCUREMENT**

 

We expect that theproposed location of the plant in Gove County, Kansas, will allow accessibilityto corn and milo at necessary levels. The proposed plant will produce ethanol and the two co-products fromapproximately 10.7 millions bushels of corn and milo, which is also known asgrain sorghum, annually.  According tothe Kansas Agricultural Statistics Service, in 2002, approximately 40 millionbushels of corn and over 11 million bushels of milo were produced in theNorthwest and West Central portions of Kansas where our plant will belocated.  These production levels weresignificantly lower than prior years due to the drought conditions in WesternKansas in 2002.  In addition, the plantwill be located only 60 miles from the Nebraska state border and 75 miles fromthe Colorado state border, and we expect to purchase some of our corn and milofrom producers in these areas.  We anticipatethat our Class A members will choose to enter into grain delivery agreementswith us.  However, if necessary, we planto purchase grain on the open market to meet our grain needs and do notanticipate that the prices on the open market will be materially different thanthe price we will likely pay to our Class A members.  We also may decide to add the capability to receive grain by railbut our design/build agreement with ICM does not currently include constructingthe facilities and equipment to do so.

 

All of the corn and milowe purchase will be tested and must meet high quality control standards toensure the efficient operation and quality products of our plant.  We will use the United States Department ofAgriculture’s grade requirements for U.S. Number Two Corn and U.S. Number TwoGrain Sorghum.  From time to time, wemay also decide to accept grain that does not meet the criteria for U.S. NumberTwo Corn or U.S. Number Two Grain Sorghum or is otherwise

 

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substandard.  If we do, we will discount the price or makeother allowances to account for the lesser grade quality or condition atdelivery.

 

**GOVERNMENTREGULATION**

 

Various federal and statelaws, regulations and programs have led to the increasing use of ethanol infuel, including various subsidies, tax credits and other forms of financialincentives.  Some of these laws provideeconomic incentives to produce ethanol and other mandate the use of ethanol.  The revocation, amendment or non-renewal ofany one or more of these laws, regulations or programs could adversely affectthe future use of ethanol and our business and operations in a materialway.  Any material reduction of the useof ethanol would have an adverse affect on our profitability and viability.

 

**ENVIRONMENTALMATTERS**

 

Our operations will besubject to various federal, state and local laws and regulations with respectto environmental matters, including air and water quality and underground fuelstorage tanks.  As part of the constructionprocess, we will be required to apply for and obtain various environmentalpermits, and any delay in obtaining these permits could harm our business.  In addition, environmental compliance mayrequire us to incur expenditures for such things as new or upgraded equipmentor processes, some of which could be material to our business.  If we are found to have violated federal,state or local environmental regulations in the future, we could incurliability for cleanup costs, damage claims from third parties and civil orcriminal penalties that could materially adversely affect our business.

 

**EMPLOYEESAND MANAGEMENT**

 

We plan to engage ICM on a fee-for-services basis to select, hire, andtrain a plant manager to oversee and be responsible for plant operations andproduction on a day-to-day basis.  Theplant manager will be a full-time, on-site position.  In addition to the plant manager, we estimate that we will employapproximately 30 full-time or full-time equivalent employees once the plant isoperational, including an operations manager, a maintenance manager, amicrobiologist, a chief mechanical operator, plant operators, plant maintenancepersonnel, an accountant, a receptionist and a secretary.  Our annual payroll is estimated to beapproximately $900,000 (not including the plant manager’s salary or employeefringe benefits).

 

Neither Jeff Torluemke, our Chief Executive Officer, nor Dick Sterrett,our Chief Financial Officer, receives any compensation for his services to thecompany (other than any distribution either may receive as members and thedeemed dividend upon the conversion of the Class D units owned by each intoClass A units).

 

**Item2.  Description of Property.**

 

In February 2003, we exercised our option to purchase approximately 103acres of farmland located in Gove County, Kansas at a price of $1,000 per acrefor a total purchase price of $103,280.

 

We then simultaneously exchanged the 103 acre parcel of land for 53.5acres of neighboring farmland in Gove County and a waterline easement acrossthe approximately two miles of property

 

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between our proposed well site and our proposed plant site.  As additional consideration for theexchange, we paid $50,000 to the seller, $5,000 of which we had alreadypaid.  We exchanged the propertiesbecause there is an irrigation water well on this site and a nearby existing1,000,000 bushel grain storage facility and the site has close access to theUnion Pacific Railroad.  We have alsoagreed to lease, as dry land acres, that portion of the property not being usedin our plant site back to the seller for a period of five years following theexchange.  We will receive one-third ofthe crop production and government payments as rent on this land.  There is currently a home on approximatelyone acre of the land, and the exchange agreement provides that the resident maycontinue to live on this portion of the land for his lifetime.  Upon the earlier of his death or his ceasingto live on the property, we will acquire the property free of this encumbranceand may use it as we deem appropriate. This property serves as the collateral for our promissory note with ICM,Inc., which is described below under "Item 6.  Liquidity and Capital Resources."

 

Our original option agreement on the 103 acres of farmland providedthat any portion of the land not utilized by us for our plant site would beleased back to one of the sellers. Because we exchanged the property, we paid the seller $30,000 to buy outthis lease provision.

 

We have also purchased approximately 137 acres one and a half mileseast of the 53 acres that we received in the above-described exchange.  The purchase price for this additional 137acres was $178,373.  As part of thispurchase, we acquired water appropriation rights for two wells located on theproperty, but will need to apply to the Kansas Department of Agriculture,Division of Water Resources to change the type of water use from agriculturalirrigation use to industrial use if we need to utilize these wells.  We only anticipate using water from thesewells if we expand our plant capacity. We have agreed to lease the property back to one of the sellers for aperiod of five years with the amount of cash rent based on the portion of theland that is dry land acres and the portion that is irrigated acres, with theseller expressly recognizing that the water available for irrigation may bedramatically reduced, and possibly eliminated, if we use the water from thisproperty in our ethanol plant operations. This property serves as the collateral for our debt financing with FarmCredit of Ness City, FLCA, which is described below under “Item 6. Liquidityand Capital Resources.”

 

Our plant and facilities are designed to occupy approximately 20 acresof the 53 acre site and to have the capacity to produce up to 30 milliongallons of ethanol per year beginning in the first year of operation.

 

**Item3.  Legal Proceedings.**

 

From time to time we maybe subject to litigation incidental to our business. We are not currently aparty to any pending legal proceedings that are not routine litigationincidental to our business.

 

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

 

We did not submit anymatter to a vote of our security holders through the solicitation of proxies orotherwise during the fourth quarter.

 

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**PART II**

 

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

 

There is no public tradingmarket for our capital units. In addition, Article 4 of our Second Amended andRestated Operating Agreement provides a number of strict restrictions regardingthe transfer of capital units by our members.

 

As of March 1, 2003, therewere 83 Class D capital units outstanding, representing a total of 13 members.

 

Under the terms of ourSecond Amended and Restated Operating Agreement, we are required to make anannual distribution to our members of a minimum of 20% of the net cash we earnfrom operations, as long as net cash from operations is in excess of $500,000for that year.  However, we areprohibited from making any distributions if it would violate or cause us todefault under any of the terms of any of our credit facilities or debtinstruments.

 

As of March 28, 2003, we had completed our initial public offering ofour capital units, registered with the Securities and Exchange Commission in aregistration statement on Form SB-2 (Commission File Number 333-74982) whichthe Commission declared effective on June 10, 2002. The offering commenced on June11, 2002.  On March 14, 2003, weaccepted a commitment letter for our debt financing from AgCountry Farm CreditServices, as described below in “Item 6. Plan of Operations.” On March 28, 2003, we obtained written consent fromthe Kansas Securities Commissioner to break escrow, and broke escrow on March28, 2003.

 

In the offering, we registered the sale of up to 3,967 Class A andClass B capital units of Western Plains Energy, L.L.C. at a price of $5,000 perunit. The aggregate offering amount registered was $19,835,000. As of March 27,2003, investors had submitted subscriptions for 2,129 Class A capital units and1,747 Class B capital units, for an aggregate amount of $19,380,000.  Asof March 27, 2003, we had accepted subscriptions for this amount and $2,118,000had been deposited into the escrow account. We plan to call the remaining amounts due from investors as the fundsare needed, which we anticipate will be by the end of the second quarter of2003.

 

From June 10, 2002, the effective date of the registration statement toDecember 31, 2002, we incurred no expenses for our account in connection withthe issuance and distribution of the capital units registered for underwritingdiscounts and commissions, finders’ fees, expenses paid to or for underwriters.Other expenses for this period were approximately $186,555 and total expensesfor this period were approximately $186,555.  None of these payments weredirect or indirect payments to directors, officers, general partners of theissuer or their associates. Since, as of December 31, 2002, the proceeds of ouroffering remained in an escrow account, we had not yet received any netoffering proceeds and no proceeds had been used for any purpose as described inItem 701(f)(4) (vii)-(viii) of Regulation S-B.

 

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

 

**CAUTIONARYSTATEMENT REGARDING**

**FORWARD-LOOKINGINFORMATION**

 

You should read thefollowing discussion along with the audited financial statements and notes tothe audited financial statements included elsewhere in this report. This reportcontains forward-looking statements, including, but not limited to, those under“Plan of Operation” and “Liquidity and Capital Resources,” involving futureevents, future business and other conditions, our future performance, and ourexpected operations. Forward-looking statements may include statements whichuse words such as “believe,” “expect,” “anticipate,” “intend,” “plan,”“estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,”“potential,” or the negatives of these words, and all similar expressions.

 

Forward-looking statementsinvolve numerous assumptions, risks and uncertainties, which include, but arenot limited to, legislative acts, regulatory acts, changes in the prices ofcorn, milo and other commodities, including gasoline, and general economicconditions. The actual results, performance and achievements or actual businessor other conditions may differ materially from those contemplated, expressedin, or implied by, any forward-looking statements and we are not under any dutyto update the forward-looking statements contained in this report. We cannotguarantee future results or performance, or what future business conditionswill be like. You are cautioned not to put undue reliance on anyforward-looking statements. In particular:

 

•                  We have received a commitment forthe debt financing necessary to construct the ethanol plant, but there is noguarantee that we will be able to obtain debt financing on the terms describedin the commitment letter, or at all.

•                  Construction of our ethanol plantmay take longer than we anticipate due to a variety of factors beyond ourcontrol.

•                  We are dependent upon ICM to designand build our ethanol plant and select and train our plant manager.  We will also be dependent on ICM Marketingand Ethanol Products to market our ethanol and co-products.  If any of these entities cease providingservices to us, our operations could be materially harmed.

 

**PLAN OFOPERATION**

 

We are a development stagestart-up company planning to build a 30 million gallon ethanol plant in GoveCounty, Kansas, and to produce ethanol, as well as DDGS and DWGS, which areanimal feed supplements generated by the ethanol production process.

 

We plan to use theproceeds from our initial public offering as well as funds from a lender toacquire the land and construct the plant and other facilities. A portion of theproceeds will also be used to purchase the initial inventory of corn, milo,chemicals, yeast and denaturant, which are our major raw materials, and tocover our other operating costs until we begin collecting receivables. Weanticipate that a total of $41.1 million of debt and equity financing will benecessary to purchase the real estate, build the plant, make the necessarycapital improvements, purchase the machinery, equipment and initial inventory,and cover start-up,

 

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financing and offeringexpenses.  As of March 27, 2003,investors had submitted subscriptions for 2,129 Class A capital units and 1,747Class B capital units, totaling $19,380,000 in equity.  We stopped accepting subscription in ourinitial public offering on March 26, 2003.

 

On March 14, 2003, we accepted the terms of a conditional loancommitment with AgCountry Farm Credit Services to borrow up to $22 million inthe form of a non-revolving construction loan until August 1, 2004, at whichtime the outstanding balance of the loan will be converted into a term loan,maturing on April 1, 2014.  The commitment is conditioned, among otherthings, on us obtaining equity financing of $19 million for the plant, prior toclosing on the loan.  We obtained$19,380,000 in equity in our initial public offering.  We may convert up to $5 million of the term loan into a revolvingterm facility, subject to certain conditions and interest rateprovisions.  The interest rate on the construction loan will be the 30 dayLIBOR plus 4.00% per annum, which would have been 5.28% per annum as of March13, 2003.  After August 1, 2004, we will be able to choose among variousinterest rate options designated by the lender.  The construction and termloans will be secured by a first and prior lien on our real and personalproperty and the collateral assignment of our material contracts.  Theclosing fee to the lender will be $330,000, or 1.50% of the maximum principalamount of the loan.  We will also pay anannual administration fee to the lender of $25,000 and a commitment fee equalto .50% of the unused commitment on the construction loan from the firstdisbursement until construction is complete. Again, while we anticipate obtaining sufficient debt financing throughAg Country, there is no guarantee that we will be able to do so.

 

On March 28, 2003, we obtained written consent from the KansasSecurities Commissioner to break escrow and broke escrow on that day.

 

We plan to spend twomonths on engineering work before construction begins and then approximately 13to 15 months in constructing the ethanol plant.  We anticipate starting construction in the second quarter of 2003and we do not believe that ethanol production will begin until the Summer of2004.

 

We have entered into adesign/build agreement with ICM, Inc. to design and build the plant. We alsoplan to pay ICM to hire, employ, train, and assist our plant manager for atwo-year period beginning at least six months before our plant beginsoperating. We will be responsible for hiring and supervising all of our staffwith respect to the direct operations of the ethanol plant, includingreceiving, production and shipping.

 

We have also entered intoan agreement with ICM’s affiliate, ICM Marketing, Inc., to sell the DDGS andDWGS we produce. Ethanol Products, LLC will handle the marketing and sales ofethanol. We do not intend to hire a sales staff to market any of our products.ICM Marketing and Ethanol Products will be paid commissions under our marketingcontracts with them to market and sell our products.  For additional information about our agreements with ICMMarketing and Ethanol Products see “Item 1. Ethanol Marketing” and “Item 1. DDGS and DWGS Marketing.”

 

**Liquidityand Capital Resources**

 

In August 2001, we received a $100,000 loan from the Agricultural ValueAdded Center of the Kansas Department of Commerce and Housing for use asfunding to pay for professional services and actual costs associated withSecurities and Exchange Commission filings. Under the terms of this loan, if the proceeds of our initial public offeringare released from escrow by September 1, 2003,

 

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(under the terms of our offering, we must break escrow by March 31,2003) we agreed to repay the sum of $100,000 within seven days of escrow beingbroken.  We currently intend to repaythis loan by April 4, 2003.

 

In February 2002, we entered into a Note and Loan Agreement with FarmCredit of Ness City, FLCA.  We borrowed$120,000 from Farm Credit to finance a portion of the $178,373 purchase priceof the 137 acres of land described in detail under “Item 2.  Description of Property” above.  The note bears interest at 5% annually.  Under the terms of the note, five annualpayments of $27,717, including interest, are due to Farm Credit.  The loan is secured by the 137 acres ofland.

 

On August 26, 2002, weestablished a $100,000 line of credit with the First National Bank of Quinter,Kansas to assist us with our short-term financing needs.  Outstanding balances under the line ofcredit bear interest at the bank’s prime rate plus 2%, which was 6.25% as ofDecember 31, 2002.  As of December 31,2002, we had an outstanding balance of $100,000 on our line of credit with theFirst National Bank of Quinter.  Alloutstanding balances on the line of credit are due on August 26, 2003.  

 

On January 3, 2003, weexecuted a $250,000 promissory note in favor of ICM, Inc. to finance thepurchase price of our plant site and related costs described in detail under"Item 2. Description of Property" above. The note bears interest at6% annually and is due upon demand by ICM. The note is secured by the propertywe purchased in February 2003, as described above under "Item 2.Description of Property."

 

In January 2003, wereceived a $290,610 Value-Added Agricultural Product Market Development Grantfrom the United States Department of Agriculture, Rural Development.

 

We broke escrow on ourinitial public offering on March 28, 2003. Assuming we obtain debt financing from AgCountry as outlined in thecommitment letter, we expect to have sufficient cash on hand to coverconstruction costs including, but not limited to, site acquisition anddevelopment, installation of utilities, construction, equipment acquisition andinterest accrued during construction. In addition, we expect to have enoughcash to cover our operating and administrative costs for the first few weeks ofoperations until we begin collecting payment on our accounts receivable. Suchcosts include raw materials, staffing, office costs, audit, legal, regulatorycompliance and staff training, and to pay expenses related to our proposed debtfinancing and our initial public offering. We do not anticipate having to raise additional funds in the next twelvemonths.

 

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

 

Preparation of ourfinancial statements necessarily requires estimates and judgments to be madethat affect the amounts of assets, liabilities, revenues and expenses reported.Such decisions include the selection of the appropriate accounting principlesto be applied and the assumptions on which to base accounting estimates. Ourmanagement continually evaluates these estimates based on assumptions itbelieves to be reasonable under the circumstances.

 

The difficulty in applyingthese policies arises from the assumptions, estimates and judgments that haveto be made currently about matters that are inherently uncertain, such asfuture economic conditions, operating results and valuations, as well asmanagement intentions. As the difficulty increases, the level of precisiondecreases, meaning that actual results can, and probably will be, differentfrom those currently estimated.

 

12

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Of the significant accounting policies described in the notes to thefinancial statements, we believe that the following may involve a higher degreeof estimates, judgments, and complexity:

 

*Allocationof Costs Between Organizational, Operating and Offering Costs*

 

During our start-up anddevelopment, legal, consulting and other costs are incurred related toorganizational costs, operating costs and costs related to the offering of ourcapital units. As part of our procedures to determine the allocation of thesecosts to the appropriate category, we must establish the definition oforganizational, operating and offering costs and apply the facts andcircumstances surrounding each cost incurred to the applicable definition. Aspart of this process, we make judgments about costs incurred, and in turn howthose costs are allocated to the applicable area. Since the criteria related tothe definition of these costs is subjective, if different assumptions were usedto define the above costs, the amounts charged to operations or as an offeringcost could be different than the amounts reported. However, management does notbelieve the likelihood of materially different results would occur if differentassumptions were applied to these allocations.

 

*Classificationof Assets and Liabilities*

 

Our assets are classifiedas current or long-term in our financial statements based on our estimates ofthe time frames related to the conversion of these assets to other operatingassets or cash or reclassification of the asset to another classification,based on the definition of the asset during our operating cycle.

 

Long-termassets are evaluated for usage during the ensuing 12 month period, andmanagement makes estimates regarding the conversion of the asset to a currentasset or to another long-term asset.  Our long-term assets include prepaidengineering costs that will be included in the cost of the completedplant.  Contract deposits and land options are convertible to otherlong-term assets upon their exercise, based on management’s intentions relatedto these contracts.  In the event management’s assumptions and expectationschange related to the intended use or usefulness of the rights and privilegesrelated to these contracts, these amounts may be forfeited and become anexpense for us.

 

Basedon management’s current plan of operation, we believe the classification ofthese assets is reasonable based on current conditions and circumstances. However, if the conditions and circumstances related to these assets, inparticular the ability to complete the public offering and break escrow, arenot achieved, the impact of these adjustments would have a material effect onthe amounts recorded as assets, members’ equity and results of operations.

 

13

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*Commitmentsand Contingencies*

 

Contingencies, by theirnature, relate to uncertainties that require management to exercise judgmentboth in assessing the likelihood that a liability has been incurred, as well asin estimating the amount of the potential expense. In conformity withaccounting principles generally accepted in the United States, we accrue anexpense when it is probable that a liability has been incurred and the amountcan be reasonably estimated.

 

*Long-LivedAssets*

 

Depreciation andamortization of our property, plant and equipment will be provided on thestraight-line method by charges to operations at rates based upon the expecteduseful lives of individual or groups of assets that are placed in service.Economic circumstances or other factors may cause management’s estimates ofexpected useful lives to differ from the actual useful lives. Differencesbetween estimated lives and actual lives may be significant, but managementdoes not expect events that occur during the normal operation of our plantrelated to estimated useful lives to have a significant effect on results ofoperations.

 

Long-lived assets,including property, plant and equipment and investments are evaluated forimpairment on the basis of undiscounted cash flows whenever events or changesin circumstances indicate that the carrying amount of an asset may not berecoverable. An impaired asset is written down to its estimated fair marketvalue based on the best information available. Considerable management judgmentis necessary to estimate future cash flows and may differ from actual cashflows. Management does not expect an impairment of assets will exist based ontheir assessment of the risks and rewards related to the ownership of theseassets and the expected cash flows generated from the operation of the plant.

 

**Item7.  Financial Statements.**

 

Western Plains Energy,L.L.C.’s audited financial statements, described as follows, are appended tothe signature page of this report.

 

•                  Independent Auditor’s Report

 

•                  Balance Sheets – December 31, 2002and 2001

 

•                  Statements of Operations – For theYear ended December 31, 2002 and for the Period from July 10, 2001 to December31, 2001, and for the Period from July 10, 2001 to December 31, 2002

 

•                  Statements of Changes in Members’Equity – For the Period from July 10, 2001 to December 31, 2002

 

•                  Statements of Cash Flows – For theYear ended December 31, 2002, for the Period from July 10, 2001 to December 31,2001, and for the Period from July 10, 2001 to December 31, 2002

 

14

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Notes to FinancialStatements

 

**Item 8.  Changes in and Disagreements WithAccountants on Accounting and Financial Disclosure.**

 

To the best of ourknowledge, there are no disagreements with accountants on accounting andfinancial disclosure.

 

**PART III**

 

**Item9.  Directors, Executive Officers, Promotersand Control Persons; Compliance With Section 16(a) of the Exchange Act.**

 

**Board Of Managers**

 

A group of nine individuals are serving as our initial Board ofManagers until the members hold a special member meeting to elect a new Boardof Managers.  We expect to hold thatspecial meeting in the first quarter of 2004. A new Board of Managers will be elected at that time, as outlined in theOperating Agreement.  Because we are anewly formed company, all members of our Board of Managers are serving in theirinitial term of office.  They wereselected because of their involvement in the formation stage of Western PlainsEnergy, their experience in the agriculture industry and, in the case of RobertCasper, his experience in the ethanol industry.  Because we do not yet have a class of equity securitiesregistered pursuant to Section 12 of the Exchange Act, our managers andofficers have no obligation to file reports under Section 16(a) of the ExchangeAct.

 

With the exception of Robert Casper, who joined our Board of Managerson November 28, 2001, all of the following individuals have served on our Boardof Managers since the company was formally organized under Kansas law on July10, 2001.  The table below describesimportant information about the members of the Board of Managers.

 
| **Name, Address and  Telephone**                |   | **Age** |   | **Occupation**          |   | **Background**                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|-------------------------------------------------|--------|---------|--------|-------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                            |   |    |   |                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Brian G. Baalman**HC1 Box 62  Menlo, KS 67753 |   | 44      |   | Farmer, Feed Yard Owner |   | Brian has been farming in Sheridan, Thomas, and Gove counties in  Kansas since 1974.  He also owns a  10,000 head feed yard that he leases to a third-party.  He is a lifetime resident of Menlo, Kansas  and is currently the Vice President of the Kansas Corn Growers Association  and a member and current Vice President of the St. Martin’s Parish Council.  He was previously the President of the  Northwest Kansas Corn Growers Association. |

 

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| **Name, Address and  Telephone**                                          |   | **Age** |   | **Occupation**                                      |   | **Background**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------------------------------------------------------------------------|--------|---------|--------|-----------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                      |   |    |   |                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Ronald L. Blaesi**HC 2, Box 86  Sharon Springs, KS 67758                |   | 54      |   | Farmer                                              |   | Ron has been a cash grain farmer since 1971 in the Sharon Springs  area of Kansas.  He received a  Bachelor of Science degree in History from Kansas State University in  1971.  He currently is the Secretary  of the Board of Directors of the Kansas Corn Commission, is the President of  the Northwest Kansas Farm Management ASS, and holds various positions in the  National Corn Growers organization.   He previously served as President of the Wallace County Farm Bureau  and on the Board of Directors of the Wallace County Farmers Union.                                                                                                                 |
|                                                                      |   |    |   |                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Robert K. Casper**12700 Meadow Court  Wichita, KS 67206                 |   | 47      |   | President of Ethanol Products, LLC                  |   | Bob received a degree in Biology from Trinity University in  1977.  Prior to joining Ethanol  Products in 2000, Bob was an Executive Vice President at Koch Petroleum  Group, LP for seven years and an Executive Vice President with Koch Carbon,  Inc. for the prior five years.  Bob is  currently a board member of the Maurine Connelly Brinker Foundation.  He also served as the managing director of  Koch Hydrocarbon Partnership, B.V. from 1998 to 1999, as a director of Koch  Supply and Trading, LTD from 1993 to 1999, as Vice President of C. Reiss  Holding Company from 1986 to 1992, and as Vice President of Matador Coal  Company from 1988 to 1992. |
|                                                                      |   |    |   |                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Benedict C. Dickman**506 South Second  P.O. Box 275  Grinnell, KS 67738 |   | 48      |   | Farmer                                              |   | Ben received a Bachelor of Science degree in Agricultural Economics  from Kansas State University in 1975.   He has been farming in the Grinnell, Kansas area since 1976 and is  currently a member of the school board for the U.S.D. 291 Grinnell School  District.  He served as a board member  for the Northwest Kansas Groundwater Management District from 1980 to 1986 and  as a member of the Smoky Hill – Saline Basin Advisory Committee from 1985 to  1996.                                                                                                                                                                                                   |
|                                                                      |   |    |   |                                                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Gary L. Johnson**3572 Highway 40  Oakley, KS 67748                      |   | 55      |   | Co-owner of the Mitten Truck Stop in Oakley, Kansas |   | Gary has been the co-owner of the Mitten Truck Stop, Inc. for the  last 33 years.  He attended Cowley  County Jr. College for two years.  He  is a past board member and officer of the Oakley Jaycees, the Logan County  Fair Board, the Oakley Country Club, the Oakley Trap Club, and the Tri-County  Chapter of Pheasants Forever.  He  currently serves on the board of the Kansas Oil Marketers Association, the  National Texaco Travel Plaza Association, and the National Texaco Wholesale  Association.                                                                                                                                                         |

 

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| **Name, Address and  Telephone**                          |   | **Age** |   | **Occupation**                                            |   | **Background**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----------------------------------------------------------|--------|---------|--------|-----------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                      |   |    |   |                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **Ken A. Krien**P.O. Box 550  Bird City, KS 67731         |   | 62      |   | Sales of Crop Production Fertilizer and Chemicals, Farmer |   | Ken is the owner of Krien Farm Supply and has farmed in the Bird  City, Kansas area since 1970.  Ken  graduated from the High School in St. Francis, Kansas.  He is a Mason and also serves as a board  member of the Cheyenne County Airport Authority in St. Francis, Kansas.  He was the mayor of Bird City, Kansas from  1976 to 1980 and from 1984 to 1992.   Ken was also a city council member in Bird City, Kansas from 1974 to  1976.  He served on the Cheyenne  County Fair Board from 1972 to 1978.   He also was a member of the Bird City Methodist Church’s Board of  Trustees from 1992 to 1998. |
|                                                      |   |    |   |                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **David J. Mann**2334 Road 70  Quinter, KS 67758          |   | 50      |   | Farmer,  Cattle Rancher                              |   | Dave has been a farmer and a cattle rancher in the Quinter, Kansas  area for 29 years.He attended Kansas State University for two years.  He is a past member of the school board  for the U.S.D. 293 School District, a past member of the board of the  Northwest Kansas Educational Service Center in Oakley, Kansas and the  Northwest Kansas Groundwater Management District #4.  Dave is also a member of the Church of the  Brethren in Quinter, Kansas and has served in various positions in the  church.                                                                                                                        |
|                                                      |   |    |   |                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **Richard L. Sterrett**414 Main Street  Quinter, KS 67752 |   | 58      |   | Farmer, Businessman                                       |   | Dick has been farming and involved in business in the Quinter, Kansas  area since 1961.  Dick attended Fort  Hays State College.  Dick currently  serves as the President of the Board of Trustees of the Gove County Medical  Center and the Ogallala Aquifer Management Committee to the Governor of  Kansas.  He is a member of the Smoky  Hill-Saline Basin Advisory Committee to the Kansas Water Authority.  Dick is a past board member of the  Northwest Kansas Groundwater Management District, the Kansas Fertilizer and  Chemical Institute, and Williams Company’s Dealer Advisory Council.                    |
|                                                      |   |    |   |                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **Jeff Torluemke**P.O. Box 474  Hoxie, KS 67740           |   | 44      |   | Executive Vice-President of the State Bank; Farmer        |   | Jeff has been the Executive Vice-President of the State Bank since  1993.  Prior to that, he held various  positions, including Chairman, of the Peoples State Bank in Colby, Kansas  from 1985 to 1993.  He has also farmed  in the Hoxie area since 1976.  Jeff received  his Bachelor of Science degree in Agricultural Economics from Colorado State  University in 1981.  He has also  served as President of the Bankers Association of Northwest Kansas, on the  Agricultural Committee of the Kansas Bankers Associations, and as the Exalted  Ruler of the Hoxie, Kansas Elks Lodge.                                   |

 

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**ExecutiveOfficers**

 

Our initial Board of Managers has elected Jeff Torluemke to serve asour Chief Executive Officer and Dick Sterrett to serve as our Chief FinancialOfficer for an indefinite term.  Messrs.Torluemke and Sterrett are currently our only executive officers.  Biographies for these executive officers areincluded under “Management—Board of Managers” above.

 

None of our current managers or officers are related, and we do notanticipate at this time that any family relationship will exist between any ofour managers, officers or key employees.

 

**Item10.  Executive Compensation.**

 

**Compensation of Executive Officers**

 

Messrs. Torluemke and Sterrett receive no salary or other compensationfor their services as Chief Executive Officer and Chief Financial Officer,respectively.  Neither has received anyoptions or other long-term incentive awards.

 

***Summary CompensationTable. ***The followingtable sets forth all the compensation paid to Mr. Torluemke for the yearsended December 31, 2001 and 2002.

 
|                             |   |                         |   | **Annual  Compensation** |   | **Long-Term  Compensation** |   |                                |   |
|----------------------------------|--------|------------------------------|--------|--------------------------|--------|-----------------------------|--------|-------------------------------------|--------|
|                             |   |                         |   |                     |   |                        |   |                                |   | **Awards** |   | **Payouts** |   |   |   |
| **Name and Principal  Position** |   | **Period  ending  Dec. 31,** |   | **Salary  ($)**          |   | **Bonus  ($)**              |   | **Other  Annual  Compensation ($)** |   | **Restricted  Stock  Award(s)  ($)** |   | **Securities  Underlying  Options/  SARs (#)** |   | **LTIP  Payouts** |   | **All  Other  Compensation ($)** |   |
| Jeff Torluemke                   |   | 2002                         |   | —                   |   | —                      |   | —                              |   | — |   | — |   | — |   | — |   |
| *Chief Executive Officer*        |   | 2001                         |   | —                   |   | —                      |   | —                              |   | — |   | — |   | — |   | — |   |

 

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

 

The following table sets forth the current beneficial ownership of ourcapital units by management and any beneficial owner of more than 5% of anyclass of our capital units.

 
| **Title of  Class** |   | **Name and  Address of Beneficial Owner(1)**       |   | **Amount and  Nature of  Beneficial  Owner (in units)** |   | **Percent of  Class** |   |
|---------------------|--------|----------------------------------------------------|--------|---------------------------------------------------------|--------|-----------------------|--------|
| Class D             |   | Jeff Torluemke, Chief Executive Officer, Manager   |   | 8                                                       |   | 9.63                  | %      |
| Class D             |   | Richard Sterrett, Chief Financial Officer, Manager |   | 14                                                      |   | 16.86                 | %      |
| Class D             |   | Brian Baalman, Manager(2)                          |   | 24                                                      |   | 28.88                 | %      |
| Class D             |   | Ronald Blaesi, Manager(3)                          |   | 4                                                       |   | 4.81                  | %      |
| Class D             |   | Benedict Dickman, Manager(4)                       |   | 2                                                       |   | 2.4                   | %      |
| Class D             |   | Gary Johnson, Manager                              |   | 7                                                       |   | 8.43                  | %      |
| Class D             |   | Ken Krien, Manager(5)                              |   | 8                                                       |   | 9.63                  | %      |
| Class D             |   | David Mann, Manager                                |   | 4                                                       |   | 4.81                  | %      |
| Class D             |   | Tri M, Inc.(6)                                     |   | 8                                                       |   | 9.63                  | %      |
| Class D             |   | Managers and executive officers, as a group        |   | 71                                                      |   | 85.45                 | %      |

 

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(1)                                  Except as otherwiselisted, the addresses for each of the individual Managers listed above is setforth under “Item 9. Board of Managers.”

(2)                                  Includes 6 Class Dunits owned by the Baalman Feedyard Partnership, 6 Class D units owned by theGary and Janice Baalman, L.P., and 6 Class D units owned by the B2CPartnership.  The Baalman FeedyardPartnership is a Kansas general partnership. Its two partners are: B2C Partnership, a Kansas general partnershipowned and controlled by two Kansas corporations, one solely owned by Mr.Baalman and one solely owned by his spouse; and the Gary and Janice Baalman,L.P., a Kansas limited partnership which has general and limited partners thatare trusts and entities owned and controlled by Mr. Baalman’s father andmother.  The Gary and Janice Baalman,L.P. also owns 6 Class D units.  The B2CPartnership also owns 6 Class D units.

(3)                                  Mr. Blaesi owns these4 Class D units jointly with Dwight Blaesi.

(4)                                  These Class D unitsare owned by BJ Ag Producers, Inc., a Kansas corporation.  Mr. Dickman is the President and 50% ownerof BJ Ag Producers, Inc.  Mr. Dickman’sspouse also owns 50% of BJ Ag Producers, Inc.

(5)                                  These Class D unitsare owned the Krien Family Limited Partnership, L.P., a Kansas limitedpartnership.  The Krien Family LimitedPartnership’s general partner is the Krien Holding Company, Inc., an entitycontrolled by Mr. Krien and his spouse. The Krien Holding Company, Inc. owns 2% of the Krien Family LimitedPartnership, L.P.  The Krien FamilyLimited Partnership, L.P.’s limited partners are the Ken A. Krien RevocableLiving Trust and the Sherry D. Krien Revocable Living Trust, both of which owna 49% interest in the limited partnership.

(6)                                  The address for TriM, Inc. is P.O. Box 356, Hoxie, Kansas 67740.

 

**Item12.  Certain Relationships and RelatedTransactions.**

 

With the exception of Robert Casper, who is the President and an 18.5%equity owner of Ethanol Products, the individual members of our initial Boardof Managers have not entered into, and do not anticipate entering into, anycontractual or other transactions between themselves and Western Plains Energy,except for Subscription Agreements for their Class D units and any SubscriptionAgreements they may have executed individually during the initial publicoffering in forms identical to those provided to other investors.  Otherthan the conversion of their Class D units into two Class A units, theinitial members of our Board of Managers are not receiving any compensationrelative to the capital units we are selling in this offering.

 

We have retained Val-Add Service Corporation on a fee-for-servicesbasis to be our project coordinator. Val-Add is a South Dakota-based consulting firm that provides servicesto businesses in South Dakota and neighboring states.  We entered into a consulting agreement with Val-Add effective asof June 27, 2001.  Val-Add is assistingus with the development of our proposed ethanol plant. The consulting agreementis of indefinite duration and can be terminated by either party upon 10 dayswritten notice to the other party. Under the contract, we will pay Val-Add

 

19

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$5,000 per month for services rendered and a bonus of $60,000 payablein three installments of $20,000 upon the completion of certain milestones.  If the consulting agreement is terminated,our payment obligations to Val-Add will cease, except that Val-Add will beentitled to payments for periods or partial periods that occurred prior to thedate of termination and for which Val-Add has not yet been paid.  Val-Add is also entitled to reimbursementfor travel expenses at a flat rate of $450 per trip from the Sioux Falls, SouthDakota area to Hoxie, Kansas, postage, and copying.

 

We also entered into a Service Agreement with Val-Add effective as ofNovember 1, 2001.  Under this Agreement,Val-Add will provide record keeping, data entry, file retention, newsletters,billings, grain delivery schedules, and member share certificate processingservices.  We will pay Val-Add $25.00per hour for these services, plus a flat monthly fee of $50.  We will also reimburse Val-Add for postage,outside printing, phone and travel expenses. The Service Agreement is of indefinite duration and can be terminated byeither party upon 10 days written notice to the other party.

 

We incurred approximately $79,000 and $56,000 of consulting expensesrelated to these agreements for the periods ended December 31, 2002 and 2001,respectively.  Val-Add plays no role inthe management of our company, other than providing the services set forthabove.  Steven Sershen, the Presidentand owner of Val-Add is also one of our Class D members and will receive twoClass A units for conversion of each of his Class D units upon the closing ofour initial public offering.

 

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

 

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

 

(a)           Exhibits. See Exhibit Index.

 

(b)           Reports on Form 8-K. None.

 

**Item14.  Controls and Procedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

Our Chief ExecutiveOfficer and Chief Financial Officer, after evaluating the effectiveness of ourdisclosure controls and procedures (as defined in Rule 15d-14(c) under theSecurities Exchange Act of 1934, as amended), as of a date (the “EvaluationDate”) within 90 days before the filing date of this annual report, haveconcluded that our disclosure controls and procedures are effective in ensuringthat material information required to be disclosed is included in the reportsthat we file with the Securities and Exchange Commission.

 

**Changesin Internal Controls**

 

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

 

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SIGNATURES

 

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

 

 
|                             | WESTERN PLAINS ENERGY,  L.L.C.              |
|----------------------------------|---------------------------------------------|
|                             |                                        |
|                             |                                        |
| Date:  March  27, 2003 |     /s/  Jeff Torluemke |   |
|                             | By Jeff Torluemke                           |
|                             | Chief Executive Officer                     |
|                             |                                        |
| Date:  March  27, 2003 |     /s/  Dick Sterrett  |   |
|                             | By Dick Sterrett                            |
|                             | Chief Financial Officer                     |

 

In accordance with theExchange Act, this report has been assigned below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.

 

 
| Date:  March  27, 2003 |  /s/  Jeff Torluemke |   |
|----------------------------------|---------------------------|--------|
|                             | Jeff  Torluemke, Manager  |
|                             |                      |
|                             |                      |
| Date:  March  28, 2003 | /s/  Brian Baalman        |   |
|                             | Brian  Baalman, Manager   |
|                             |                      |
|                             |                      |
| Date:  March  27, 2003 | /s/  Ronald Blaesi        |   |
|                             | Ronald  Blaesi, Manager   |
|                             |                      |
|                             |                      |
| Date:  March  27, 2003 | /s/  Bob Casper           |   |
|                             | Bob  Casper, Manager      |
|                             |                      |
|                             |                      |
| Date:  March  27, 2003 | /s/  Ben Dickman          |   |
|                             | Ben  Dickman, Manager     |
|                             |                      |
|                             |                      |
| Date:  March  27, 2003 | /s/  Gary Johnson         |   |
|                             | Gary  Johnson, Manager    |

 

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| Date:  March  27, 2003 | /s/  Ken Krien          |   |
|----------------------------------|-------------------------|--------|
|                             | Ken  Krien, Manager     |
|                             |                    |
|                             |                    |
| Date:  March  27, 2003 | /s/  David Mann         |   |
|                             | David  Mann, Manager    |
|                             |                    |
|                             |                    |
| Date:  March 27,  2003 | /s/  Dick Sterrett      |   |
|                             | Dick  Sterrett, Manager |

 

22

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**CERTIFICATIONS**

 

I, Jeff Torluemke, certifythat:

 

1.                                       I have reviewed this annual reporton Form 10-KSB of Western Plains Energy, L.L.C.;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6.                                       The registrant’s other certifyingofficers and I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluations, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

 
| Date:  | March 28, 2003                                         | /s/  Jeff Torluemke, CEO |   |
|--------|--------------------------------------------------------|--------------------------|--------|
|   | Jeff Torluemke                                         |
|   | Chief Executive Officer  (Principal Executive Officer) |

 

23

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**CERTIFICATIONS**

 

I, Dick Sterrett, certifythat:

 

1.                                       I have reviewed this annual reporton Form 10-KSB of Western Plains Energy, L.L.C.;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6.                                       The registrant’s other certifyingofficers and I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluations, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  | March 27, 2003                                         |   /s/ Dick  Sterrett |   |
|--------|--------------------------------------------------------|--------------------------------|--------|
|   | Dick Sterrett                                          |
|   | Chief Financial Officer  (Principal Financial Officer) |

 

24

----

 

EXHIBIT INDEX

 
| **Exhibit  No.** |   | **Description**                                                  |   | **Filed  Herewith** |   | **Incorporated  Herein by  Reference to**                                                                                               |
|------------------|--------|------------------------------------------------------------------|--------|---------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
| 3.1(i)           |   | Articles  of Organization                                        |   |                |   | Appendix  A to the Issuer’s Prospectus filed with the Commission pursuant to Rule  424(b)(3) on June 11, 2002 (File No. 333-74982) |
|             |   |                                                             |   |                |   |                                                                                                                                    |
| 3.1(ii)          |   | Operating  Agreement                                             |   |                |   | Appendix  A to the Issuer’s Prospectus filed with the Commission pursuant to Rule  424(b)(3) on June 11, 2002 (File No. 333-74982) |
|             |   |                                                             |   |                |   |                                                                                                                                    |
| 4.1              |   | Form  of Class A Capital Unit Certificate                        |   |                |   | Exhibit  4.1 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                        |
|             |   |                                                             |   |                |   |                                                                                                                                    |
| 4.2              |   | Form  of Class B Capital Unit Certificate                        |   |                |   | Exhibit  4.2 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                        |
|             |   |                                                             |   |                |   |                                                                                                                                    |
| 4.3              |   | Form  of Class C Capital Unit Certificate                        |   |                |   | Exhibit  4.3 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                        |
|             |   |                                                             |   |                |   |                                                                                                                                    |
| 4.4              |   | Form  of Class D Capital Unit Certificate                        |   |                |   | Exhibit  4.4 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                        |
|             |   |                                                             |   |                |   |                                                                                                                                    |
| 4.5              |   | Form  of Subscription Agreement (Classes A and B)                |   |                |   | Appendix  C to the Issuer’s Prospectus filed with the Commission pursuant to Rule  424(b)(3) on June 11, 2002 (File No. 333-74982) |
|             |   |                                                             |   |                |   |                                                                                                                                    |
| 4.6              |   | Form  of Subscription Agreement (Class D)                        |   |                |   | Exhibit  4.6 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                        |
|             |   |                                                             |   |                |   |                                                                                                                                    |
| 10.1             |   | Letter  of Intent with ICM, Inc., dated July 18, 2001            |   |                |   | Exhibit  10.1 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                       |
|             |   |                                                             |   |                |   |                                                                                                                                    |
| 10.2             |   | Letter  of Understanding with ICM, Inc., dated November 16, 2001 |   |                |   | Exhibit  10.2 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                       |

 

25

----

 
| 10.3   |   | Service  Agreement with Val-Add Service Corporation, dated November 1, 2001                        |   |   |   | Exhibit  10.3 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)       |
|--------|--------|----------------------------------------------------------------------------------------------------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.4   |   | Consulting  Agreement with Val-Add Service Corporation, dated June 27, 2001                        |   |   |   | Exhibit  10.4 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)       |
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.5   |   | DDGS/DWGS Marketing Agreement with ICM Marketing, Inc., dated October  1, 2001                     |   |   |   | Exhibit  10.5 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)       |
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.6   |   | Ethanol  Marketing and Services Agreement with Ethanol Products,  LLC, dated October 31, 2001 |   |   |   | Exhibit  10.6 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)       |
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.7   |   | U.S.  Energy Services Agreement, dated September 12, 2001                                          |   |   |   | Exhibit  10.7 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)       |
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.8   |   | Option  to Purchase Real Estate, dated September 15, 2001                                          |   |   |   | Exhibit  10.8 to the Issuer’s Form SB-2 filed with the Commission on February 7, 2002  (File No. 333-74982)        |
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.9   |   | Land  Exchange Agreement, dated November 23, 2001                                                  |   |   |   | Exhibit  10.9 to the Issuer’s Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)       |
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.10  |   | Real  Estate Purchase Agreement, dated December 21, 2001                                           |   |   |   | Exhibit  10.10 to the Issuer’s Form SB-2 filed with the Commission on May 1, 2002  (File No. 333-74982)            |
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.11  |   | Well  Construction and Pumping Agreement, dated November 19, 2001                                  |   |   |   | Exhibit  10.11 to the Issuer’s Form SB-2 filed with the Commission on December 12,  2001 (File No. 333-74982)      |
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.12  |   | Design/Build  Agreement with ICM, Inc., dated April 4, 2002                                        |   |   |   | Exhibit  10.12 to the Issuer’s Form SB-2 filed with the Commission on May 1, 2002  (File No. 333-74982)            |
|   |   |                                                                                               |   |   |   |                                                                                                                    |
| 10.13  |   | Kansas  Department of Commerce and Housing Agreement, as amended on October 31, 2001               |   |   |   | Exhibit  10.13 to the Issuer’s Form SB-2 filed with the Commission on February 7,  2002  (File No. 333-74982) |

 

26

----

 
| 10.14  |   | Note  and Loan Agreement with Farm Credit of Ness City, dated February 28, 2002                                                                               |   |   |   | Exhibit  10.14 to the Issuer’s Form SB-2 filed with the Commission on May 31, 2002(File No. 333-74982) |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                          |   |   |   |                                                                                                        |
| 99.1   |   | Certification of Chief Executive Officer and Chief Financial Officer  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.  § 1350) |   | ý |   |                                                                                                        |

 

27

----

 

 

# **WESTERN PLAINS ENERGY,L.L.C.**

 

***FINANCIAL STATEMENTS***

***FOR THE PERIODS ENDED***

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

 

----

 

**WESTERNPLAINS ENERGY, L.L.C.**

 

Table of Contents

 
|                                  |                                          | **Page** |
|---------------------------------------|-----------------------------------------------|----------|
|                                  |                                          |     |
| **INDEPENDENT AUDITOR’S REPORT** | 1                                             |
|                                  |                                          |     |
| **FINANCIAL  STATEMENTS**             |                                          |
|                                  | Balance  Sheets                               | 2        |
|                                  | Statements of Operations                      | 3        |
|                                  | Statements of Changes in Members’ Equity | 4        |
|                                  | Statements of Cash Flows                      | 5        |
|                                  | Notes to Financial Statements                 | 6        |

 

----

 

 

## **INDEPENDENTAUDITOR’S REPORT**

 

The Board of Managers

**WesternPlains Energy, L.L.C.**

Quinter, Kansas

 

We have audited the accompanying balancesheets of **Western Plains Energy****, L.L.C.,**(a development stage limited liability company) as of December 31, 2002 and 2001,and the related statements of operations, changes in members’ equity and cashflows for the year ended December 31, 2002, for the period from July 10, 2001(inception) through December 31, 2001 and the cumulative period from July 10,2001 (inception) through December 31, 2002. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

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

 

In our opinion, the financial statementsreferred to above present fairly, in all material respects, the financialposition of **Western****PlainsEnergy, L.L.C.** as of December 31, 2002 and 2001, and the results ofits operations and cash flows for the year ended December 31, 2002, and for theperiod from July 10, 2001 (inception) through December 31, 2001 and for thecumulative period from July 10, 2001 (inception) through December 31, 2002, inconformity with accounting principles generally accepted in the United Statesof America.

 

/s/ Eide Bailly LLP

Bloomington, Minnesota

January 14, 2003

 

1

----

 

**WESTERNPLAINS ENERGY, L.L.C.**

**(ADEVELOPMENT STAGE COMPANY)**

**BALANCE SHEETS**

**DECEMBER31, 2002 and 2001**

 
|                                                       |   | **2002**     |        | **2001**   |   |
|------------------------------------------------------------|--------|--------------|-------------|------------|--------|
| **ASSETS**                                                 |   |         |        |       |   |
|                                                       |   |         |        |       |   |
| **CURRENT ASSETS**                                         |   |         |        |       |   |
| Cash                                                       |   | **$**        | **17,655**  |       | $      | 243,031 |   |
| Prepaid offering costs                                     |   | **215,305**  |        | 64,043     |   |
| Prepaid legal services                                     |   | **12,494**   |        | 59,990     |   |
| Prepaid expenses                                           |   | **3,500**    |        | 27,250     |   |
| Deposits for Class C Units in escrow                       |   | **25,000**   |        | 25,000     |   |
| Deposits for land                                          |   | **—**   |        | 17,837     |   |
| Total current assets                                       |   | **273,954**  |        | 437,151    |   |
|                                                       |   |         |        |       |   |
| LAND                                                       |   | **182,765**  |        | —     |   |
|                                                       |   |         |        |       |   |
| OTHER ASSETS                                               |   |         |        |       |   |
| Prepaid engineering costs                                  |   | **50,109**   |        | 9,200      |   |
| Contract deposits                                          |   | **7,500**    |        | 7,500      |   |
| Land options                                               |   | **6,000**    |        | 6,000      |   |
| Available-for-sale securities                              |   | **1,000**    |        | —     |   |
|                                                       |   | **64,609**   |        | 22,700     |   |
|                                                       |   |         |        |       |   |
| **TOTAL ASSETS**                                           |   | **$**        | **521,328** |       | $      | 459,851 |   |
|                                                       |   |         |        |       |   |
| **LIABILITIES AND MEMBERS’ EQUITY**                   |   |         |        |       |   |
|                                                       |   |         |        |       |   |
| **CURRENT LIABILITIES**                                    |   |         |        |       |   |
| Accounts payable                                           |   | **$**        | **148,204** |       | $      | 43,321 |   |
| Accounts payable - related party                           |   | **—**   |        | 100        |   |
| Accrued liabilities                                        |   | **50,160**   |        | 10,300     |   |
| Deferred rent                                              |   | **1,855**    |        | —     |   |
| Line of credit                                             |   | **100,000**  |        | —     |   |
| Current portion of notes payable                           |   | **121,700**  |        | 100,000    |   |
| Total current liabilities                                  |   | **421,919**  |        | 153,721    |   |
|                                                       |   |         |        |       |   |
| **NOTES PAYABLE, LESS CURRENT MATURITIES**                 |   | **98,300**   |        | —     |   |
|                                                       |   |         |        |       |   |
| **COMMITMENTS AND CONTINGENCIES**(Note 7)                  |   |         |        |       |   |
|                                                       |   |         |        |       |   |
| **MEMBERS’ EQUITY**                                   |   |         |        |       |   |
| Class C Capital Units, 50 authorized and 0 outstanding     |   | **250,000**  |        | 250,000    |   |
| Less:  Subscription for Class  C Units                |   | **(225,000** | **)**       | (225,000   | )      |
| Class D Capital Units, 83 units authorized and outstanding |   | **415,000**  | ** **  | 415,000    |   |
| Less:  Discount on Class D  Units                     |   | **(415,000** | **)**       | (415,000   | )      |
| Additional Paid In Capital                                 |   | **434,500**  | ** **  | 434,500    |   |
| Deficit accumulated during development stage               |   | **(458,391** | **)**       | (153,370   | )      |
| Total members’ equity                                 |   | **1,109**    | ** **  | 306,130    |   |
|                                                       |   |         | ** **  |       |   |
| **TOTAL LIABILITIES AND MEMBERS’ EQUITY**             |   | **$**        | **521,328** | ** ** | $      | 459,851 |   |

 

See Notes to FinancialStatements

 

2

----

 

**WESTERNPLAINS ENERGY, L.L.C.**

**(ADEVELOPMENT STAGE COMPANY)**

**STATEMENTS OF OPERATIONS**

 
|                                             |   | **For Year Ended  December 31, 2002** |     | **Period  From  July 10, 2001  (Inception) to  December 31, 2001** |   | **Period  From  July 10, 2001  (Inception) to  December 31, 2002** |   |
|--------------------------------------------------|--------|---------------------------------------|----------|--------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
| **REVENUE**                                      |   | $                                     | —   |                                                               | $      | —                                                             |   | $ | — |   |
|                                             |   |                                  |     |                                                               |   |                                                               |   |
| **EXPENSES**                                     |   |                                  |     |                                                               |   |                                                               |   |
| Organizational expenses                          |   | 21,232                                |     | 42,258                                                             |   | 63,490                                                             |   |
| Start-up expenses                                |   | 287,729                               |     | 111,112                                                            |   | 398,841                                                            |   |
| Total expenses                                   |   | 308,961                               |     | 153,370                                                            |   | 462,331                                                            |   |
|                                             |   |                                  |     |                                                               |   |                                                               |   |
| LOSS FROM                                        |   |                                  |     |                                                               |   |                                                               |   |
| Start-up activities                              |   | (308,961                              | )        | (153,370                                                           | )      | (462,331                                                           | )      |
|                                             |   |                                  |     |                                                               |   |                                                               |   |
| Other income (expense)                           |   |                                  |     |                                                               |   |                                                               |   |
| Interest expense                                 |   | (7,351                                | )        | —                                                             |   | (7,351                                                             | )      |
| Other income                                     |   | 11,291                                |     | —                                                             |   | 11,291                                                             |   |
|                                             |   |                                  |     |                                                               |   |                                                               |   |
| Total other income                               |   | 3,940                                 |     | —                                                             |   | 3,940                                                              |   |
|                                             |   |                                  |     |                                                               |   |                                                               |   |
| **DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE** |   | $                                     | (305,021 | )                                                                  | $      | (153,370                                                           | )      | $ | (458,391 | ) |
|                                             |   |                                  |     |                                                               |   |                                                               |   |
| **DEFICIT ACCUMULATED PER UNIT**                 |   |                                  |     |                                                               |   |                                                               |   |
| BASIC AND DILUTED                                |   | $                                     | (3,675   | )                                                                  | $      | (15,337                                                            | )      |   |   |
|                                             |   |                                  |     |                                                               |   |                                                               |   |
| **WEIGHTED AVERAGE UNITS OUTSTANDING**           |   |                                  |     |                                                               |   |                                                               |   |
| BASIC AND DILUTED                                |   | 83                                    |     | 10                                                                 |   |                                                               |   |

 

See Notes to FinancialStatements

 

3

----

 

**WESTERNPLAINS ENERGY, L.L.C.**

**(ADEVELOPMENT STAGE COMPANY)**

**STATEMENTSOF CHANGES IN MEMBERS’ EQUITY**

 
|                                                 |   | **Capital  Units** |   | **Additional** |   | **Class C  Unit** |   | **Discount on** |   | **Deficit  Accumulated********During The** |   |             |   |
|------------------------------------------------------|--------|--------------------|--------|----------------|--------|-------------------|--------|-----------------|--------|--------------------------------------------|--------|------------------|--------|
|                                                 |   | **Class A**        |   | **Class B**    |   | **Class C**       |   | **Class D**     |   | **Paid In**                                |   | **Subscription** |   | **Class D** |   | **Development** |   | **Total** |   |
|                                                 |   | **Units**          |   | **Amount**     |   | **Units**         |   | **Amount**      |   | **Units**                                  |   | **Amount**       |   | **Units** |   | **Amount** |   | **Capital** |   | **Receivable** |   | **Units** |   | **Stage** |   | **Amount** |   |
|                                                 |   |               |   |           |   |              |   |            |   |                                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, July 10, 2001, Inception                    |   | —             |   | $              | — |              | — |            | $      | —                                     |   | —           |   | $ | — |   | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
|                                                 |   |               |   |           |   |              |   |            |   |                                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Additional paid in capital received                  |   | —             |   | —         |   | —            |   | —          |   | —                                     |   | —           |   | — |   | — |   | 19,500 |   | — |   | — |   | — |   | 19,500 |   |
|                                                 |   |               |   |           |   |              |   |            |   |                                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Class C units subscribed                             |   | —             |   | —         |   | —            |   | —          |   | —                                     |   | 250,000          |   | — |   | — |   | — |   | (225,000 | ) | — |   | — |   | 25,000 |   |
|                                                 |   |               |   |           |   |              |   |            |   |                                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Class D units issued with 2 for 1 conversion feature |   | —             |   | —         |   | —            |   | —          |   | —                                     |   | —           |   | 83 |   | 415,000 |   | 415,000 |   | — |   | (415,000 | ) | — |   | 415,000 |   |
|                                                 |   |               |   |           |   |              |   |            |   |                                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deficit accumulated during the development stage     |   | —             |   | —         |   | —            |   | —          |   | —                                     |   | —           |   | — |   | — |   | — |   | — |   | — |   | (153,370 | ) | (153,370 | ) |
|                                                 |   |               |   |           |   |              |   |            |   |                                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2001                           |   | —             |   | $              | — |              | — |            | $      | —                                     |   | —           |   | $ | 250,000 |   | 83 |   | $ | 415,000 |   | $ | 434,500 |   | $ | (225,000 | ) | $ | (415,000 | ) | $ | (153,370 | ) | $ | 306,130 |   |
|                                                 |   |               |   |           |   |              |   |            |   |                                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deficit accumulated during the development stage     |   | —             |   | —         |   | —            |   | —          |   | —                                     |   | —           |   | — |   | — |   | — |   | — |   | — |   | (305,021 | ) | (305,021 | ) |
|                                                 |   |               |   |           |   |              |   |            |   |                                       |   |             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance, December 31, 2002                           |   | —             |   | $              | — |              | — |            | $      | —                                     |   | —           |   | $ | 250,000 |   | 83 |   | $ | 415,000 |   | $ | 434,500 |   | $ | (225,000 | ) | $ | (415,000 | ) | $ | (458,391 | ) | $ | 1,109 |   |
|                                                      |        |                    |        |                |        |                   |        |                 |        |                                            |        |                  |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See Notes to FinancialStatements

 

4

----

 

**WESTERNPLAINS ENERGY, L.L.C.**

**(ADEVELOPMENT STAGE COMPANY)**

**STATEMENTS OF CASH FLOWS**

 
|                                                                         |   | **For Year Ended  December 31, 2002** |     | **Period  From  July 10, 2001  (Inception) to  December 31, 2001** |   | **Period  From  July 10, 2001  (Inception) to  December 31, 2002** |   |
|------------------------------------------------------------------------------|--------|---------------------------------------|----------|--------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
| **OPERATING ACTIVITIES**                                                     |   |                                  |     |                                                               |   |                                                               |   |
| Deficit accumulated during development  stage                                |   | $                                     | (305,021 | )                                                                  | $      | (153,370                                                           | )      | $ | (458,391 | ) |
| Changes in assets and liabilities                                            |   |                                  |     |                                                               |   |                                                               |   |
| Prepaid legal services                                                       |   | 47,496                                |     | (59,990                                                            | )      | (12,494                                                            | )      |
| Prepaid expenses                                                             |   | (11,159                               | )        | (27,250                                                            | )      | (45,609                                                            | )      |
| Accounts payable and accrued liabilities                                     |   | 146,498                               |     | 46,521                                                             |   | 200,219                                                            |   |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| **NET CASH USED FOR OPERATING ACTIVITIES**                                   |   | (122,186                              | )        | (194,089                                                           | )      | (316,275                                                           | )      |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| **INVESTING ACTIVITIES**                                                     |   |                                  |     |                                                               |   |                                                               |   |
| Contract deposits                                                            |   | —                                |     | (7,500                                                             | )      | (7,500                                                             | )      |
| Engineering costs paid                                                       |   | (6,000                                | )        | (2,000                                                             | )      | (8,000                                                             | )      |
| Deposits for land                                                            |   | —                                |     | (17,837                                                            | )      | (17,837                                                            | )      |
| Purchase of land                                                             |   | (164,928                              | )        | —                                                             |   | (164,928                                                           | )      |
| Option to purchase land and water rights                                     |   | —                                |     | (6,000                                                             | )      | (6,000                                                             | )      |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| **NET CASH USED FOR INVESTING ACTIVITIES**                                   |   | (170,928                              | )        | (33,337                                                            | )      | (204,265                                                           | )      |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| **FINANCING ACTIVITIES**                                                     |   |                                  |     |                                                               |   |                                                               |   |
| Borrowings on line of credit                                                 |   | 100,000                               |     | —                                                             |   | 100,000                                                            |   |
| Proceeds from note payable                                                   |   | 119,000                               |     | 100,000                                                            |   | 219,000                                                            |   |
| Class D units issued                                                         |   | —                                |     | 415,000                                                            |   | 415,000                                                            |   |
| Offering costs paid                                                          |   | (151,262                              | )        | (64,043                                                            | )      | (215,305                                                           | )      |
| Additional paid in capital received                                          |   | —                                |     | 19,500                                                             |   | 19,500                                                             |   |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| **NET CASH PROVIDED BY FINANCING ACTIVITIES**                                |   | 67,738                                |     | 470,457                                                            |   | 538,195                                                            |   |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| **NET INCREASE (DECREASE) IN CASH**                                          |   | (225,376                              | )        | 243,031                                                            |   | 17,655                                                             |   |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| **CASH - beginning of period**                                               |   | 243,031                               |     | —                                                             |   | —                                                             |   |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| **CASH - end of period**                                                     |   | $                                     | 17,655   |                                                               | $      | 243,031                                                            |   | $ | 17,655 |   |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| **SUPPLEMENTAL DISCLOSURES OF NON-CASH  INVESTING AND FINANCING ACTIVITIES** |   |                                  |     |                                                               |   |                                                               |   |
| Deposits received in escrow for Class C  Units                               |   | $                                     | —   |                                                               | $      | 25,000                                                             |   | $ | 25,000 |   |
| Engineering costs incurred                                                   |   | $                                     | 27,600   |                                                               | $      | 9,200                                                              |   | $ | 36,800 |   |
|                                                                         |   |                                  |     |                                                               |   |                                                               |   |
| Securities received in conjunction with  proceeds from bank note payable     |   | $                                     | 1,000    |                                                               | $      | —                                                             |   | $ | 1,000 |   |

 

See Notes to FinancialStatements

 

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**WESTERNPLAINS ENERGY, L.L.C.**

**(ADEVELOPMENT STAGE COMPANY)**

**NOTESTO FINANCIAL STATEMENTS**

 

**NOTE 1 -****             NATURE OF OPERATIONS**

 

*Principal Business Activity*

 

Western Plains Energy, L.L.C.(a Kansas Limited Liability Company with its principal place of business to belocated in Gove County, Kansas) was organized to obtain equity ownership anddebt financing to construct, own and operate a 30 million gallon ethanol plant.Western Plains Energy, L.L.C. (the Company) was organized on July 10,2001. Prior to July 10, 2001, costs occurred related to a feasibility study andother organizational activities occurred. The Company has assumed the expenses and other agreements related tothese activities, and has reflected the effects of these transactions in theaccompanying financial statements.

 

As of December 31, 2002, theCompany is in the development stage with its current efforts being principallydevoted to organizational and financing activities. On June 11, 2002, theCompany registered the offer and sale of its Class A and B capital units withthe Securities and Exchange Commission as an initial public offering. TheCompany is offering Class A and Class B capital units to raise a minimum of$15,735,000 and a maximum of $19,835,000.

 

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

 

*Revenue Recognition*

 

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

 

*Land Option and Engineering Services*

 

Costsincurred for the purchase of land or for land option agreements arecapitalized.  Engineering costs thatrelate to future acquisition of property and equipment are capitalized.  Depreciation or amortization of engineeringcosts occurs over the estimated useful life of the related asset when therelated assets are placed in service.

 

*Long-Lived Assets*

 

TheCompany reviews the value of its non-current assets for impairment wheneverevents indicate that the carrying amount of the asset may not be recoverable.An impairment loss is recorded when the sum of the future cash flows is lessthan the carrying amount of the asset. The amount of the loss is determined bycomparing the fair market value of the asset to the carrying amount of theasset. Such assessments did not result in any adjustment to the value ofnon-current assets.

 

*Organizational and Start-Up Costs*

 

Organizational and start-upcosts are expensed as incurred.  Organizationalcosts consist of amounts related to the formation of the Company.  Start-up costs consist of amounts incurredduring the development stage related to the operation and management of theCompany which do not qualify as a capitalized cost.

 

(continued on next page)

 

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*Offering Costs*

 

Costs incurred related to theinitial public offering of Class A and Class B capital units are recorded asprepaid offering costs until the subscriptions for Class A and Class B capitalunits related to the offering have been accepted by the Company. Prepaidoffering costs are allocated to members’ equity in proportion to the number ofunits issued versus the total number of units issuable from the Company’soffering.  Offering costs include directcosts related to the offering such as legal fees, registration costs and otherdirect costs associated with the offering.

 

*Use of Estimates*

 

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

 

*Concentration of Credit Risk*

 

The Company’s cash balances aremaintained in bank depositories and periodically exceed federally insuredlimits.

 

*Available-for-Sale Securities*

 

Investmentsare recorded at cost as there are no quoted market prices for the securitiesheld by the Company.

 

*Fair Value of Financial Instruments*

 

Unlessotherwise disclosed, the carrying amounts of financial instruments approximate fairvalue at December 31, 2002 and 2001, because of the relatively short maturityor variable rates of these instruments. Investments are recorded at cost asthere are no quoted market prices for the securities by the Company.

 

*Income Taxes*

 

The Company is organized as alimited liability company under state law. As a limited liability company thathas elected to be taxed as a partnership, the Company’s earnings pass throughto the members and are taxed at the member level. Accordingly, no income taxprovision has been included in these financial statements. Differences betweenthe financial statement basis of assets and the tax basis of assets is relatedto capitalization and amortization of organization and start-up costs for taxpurposes, whereas these costs are expensed for financial statement purposes.

 

*Additional Paid In Capital*

 

TheCompany received amounts from various entities to assist in funding theCompany’s formation and development. The Company is under no obligation to issue capital units related tothese receipts and has recorded these amounts as additional paid-in capital.

 

(continued on next page)

 

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*Earnings Per Capital Unit*

 

For purposes of calculatingbasic earnings per capital unit, capital units subscribed for and issued by theCompany are considered outstanding on the effective date of issuance. Forpurposes of calculating diluted earnings per capital unit, units subscribed forbut not issued by the Company are included in the computation of outstandingcapital units*.*As of December31, 2002 and 2001, there were no unitsincludable in basic or diluted earnings per capital unit as there were no unitssubscribed for or accepted at that date.

 

*Recently Issued Accounting Pronouncements*

 

In June2001, the FASB issued SFAS No. 143, “Accounting for Asset RetirementObligations” (SFAS No. 143).  Thisstatement addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs.

 

InJuly 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated withExit or Disposal Activities,” (SFAS No. 146). The statement requires companiesto recognize costs associated with exit or disposal activities when they areincurred rather than at the date of a commitment to an exit or disposalplan.  Statement 146 is to be appliedprospectively to exit or disposal activities initiated after December 31, 2002.

 

Managementdoes not expect the adoption of the above pronouncements to have a materialimpact on the Company.

 

**NOTE 3 -****             LAND**

 

In February 2002, the Companypurchased land and water appropriation rights, for $182,765, including closingcosts and previously paid deposits. The Company has entered into an agreementto lease back approximately 137 acres to one of the sellers under a five-yearoperating lease.

 

**NOTE 4 -****             MEMBERS’ EQUITY**

 

As specified in the Company’sOperating Agreement, the Company will initially have four classes of membershipcapital units: Class A, B, C and D. Capital units of each class are issued in denominations of $5,000.

 

Class D capital units willautomatically convert into two (2) Class A capital units upon completion of thepublic offering of Class A and B capital units described below. The conversionfeature is reflected as a discount on Class D shares on the accompanyingbalance sheets. At the date of conversion the discount will be removed from thebalance sheet and receive treatment as a dividend.

 

Class A and Class B capitalunits have been offered for sale in the public offering.  No more than 3,967 Class A and B capitalunits will be offered at a price of $5,000 per unit pursuant to a registrationstatement to be filed with the Securities and Exchange Commission, with aminimum of $15,735,000 and a maximum of $19,835,000 raised from such offeringof units. In the event the minimum of $15,735,000 is not raised, amountsreceived from subscriptions will be returned to the purchaser without interest.

 

For Class A and Class B capitalunits, 10% of the offering price is due upon subscription, with the remainingamount executed as a promissory note due subject to call of the Board ofManagers.

 

(continued on next page)

 

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The Company is initiallyoffering Class A capital units only to producers of agricultural products, witha minimum purchase of two (2) Class A Capital Units per investor.  The Company is also offering to sell Class Bcapital units with a minimum purchase of seven (7) Class B capital units perinvestor.  For the first 45 days of theoffering, Class B capital units were only offered to purchasers of Class Acapital units.

 

When the Board of Managerscalls amounts due on promissory notes for Class A and Class B capital units,subscribers are obligated to make payment on the notes within 30 days of call.

 

For Class C capital unitssubscribed in a private placement prior to the public offering, 10% of theoffering price was due upon subscription with the remaining amount executed asa promissory note due subject to the call of the Board of Managers. The Companyreceived a subscription for 50 Class C Units, totaling $250,000, from EthanolProducts, LLC.  In accordance with thesubscription agreement, a nonrefundable $25,000 was received by the Company anddeposited into an escrow account.  Theremaining $225,000 of the subscription is due in accordance with the terms ofthe note executed with the subscription agreement which requires payment within30 days of a call by the Company.

 

Upon default on certainobligations of members related to capital units, the Company has the right toredeem the member’s interest at 10% of the price at which the Capital Unitswere originally offered for sale by the Company.  If an investor defaults on the payment of the purchase pricepursuant to a promissory note referenced above, the Company will have the rightto retain all amounts paid by the investor as liquidated damages.

 

The Company must approve alltransfers or other dispositions of capital units.

 

Voting rights are one vote permember for Class A and D capital units, and one vote per unit for Class B andClass C capital units.  The Board ofManagers is elected by members, and members must approve any merger orconsolidation with another business entity, sale of substantially all of theCompany’s assets or voluntary dissolution. All other matters regarding operation and management of the Company,including amendment of the Operating Agreement, are decided by the Board ofManagers.

 

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

 

Upon dissolution of theCompany, and after the payment of all debts and liabilities of the Company, theassets shall be distributed to the unit holders ratably in proportion to thecredit balances in their respective capital accounts for all classes of units.

 

Subscribers of Class A andClass B capital units are required to pay an amount equal to 10 percent of thepurchase price of the capital units subscribed for. These funds are excludedfrom the balance sheet and held in escrow until such time the minimum offeringis sold. As of December 31, 2002, approximately $665,000 was held in escrow.

 

(continued on next page)

 

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**NOTE 5 -****             ACCUMULATED DEFICIT PER CAPITAL UNIT**

 

For purposes of calculatingbasic earnings per capital unit, capital units subscribed for and issued by theCompany are considered outstanding on the effective date of issuance. In thecomputation of diluted earnings per capital unit, the total number of Class Dunits was not included on an as-if converted basis and Class C units subscribedfor but not issued. As a result of the registration for the offer and sale ofClass A and Class B capital units as of December 31, 2002, approximately 922Class A and 408 Class B were subscribed for but not issued.  These dilutive securities are not includedin the computation of outstanding capital units because the inclusion of theseunits would have an antidilutive effect on the computation of earnings percapital unit.

 

**NOTE 6 -****             FINANCING ARRANGEMENTS**

 

*Line of Credit*

 

On August 26, 2002, the Companyestablished a $100,000 revolving line of credit with the First National Bank ofQuinter, Kansas.  The outstandingbalances bear interest at the bank’s prime rate plus 2% (6.25% at December 31,2002).  Interest is due on a quarterlybasis.  All outstanding balances are dueat the maturity date of August 26, 2003. The line is secured by certain assets of the Company.  There was no availability under therevolving line of credit as of December 31, 2002.

 

*Notes Payable*

 

The Company has an outstandingloan of $100,000 from the Kansas Department of Commerce and Housing.  The loan is non-interest bearing through thelater of 7 days following the release from escrow of proceeds of the offeringto the Company or September 1, 2003.  Inthe event the proceeds of the offering are not released from escrow by September1, 2003, the loan bears interest at 7.75% from September 1, 2003 throughrepayment, due 7 days after the release of the offering proceeds from escrow.In the event escrow is not broken, repayment is not required as long as theproceeds were used in accordance with the terms of the agreement. Based onmanagement’s plans and the terms of the agreement, management estimatesrepayment of the loan by June 30, 2003. Based on the borrowing rates currentlyavailable for loans with similar terms and maturities, the fair value of thenote is approximately $96,915 at December 31, 2002.

 

In February 2002, the Companyentered into a 5% note payable with Farm Credit Services for $120,000.  The note is due in annual installments of$27,717, including interest, with the final installment due on March 1, 2007,and is secured by land.  As a portion ofthe proceeds from the note, the Company received 200 shares of Farm CreditServices stock at a cost of $1,000.

 

(continued on next page)

 

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Long-term notes payablematurities are as follows:

 

 

| **Year Ending  December 31,** |   | **Amount** |    |
|-------------------------------|--------|------------|---------|
| 2003                          |   | $          | 121,700 |   |
| 2004                          |   | 22,802     |    |
| 2005                          |   | 23,942     |    |
| 2006                          |   | 25,139     |    |
| 2007                          |   | 26,417     |    |
|                          |   | 220,000    |    |
| Less current maturities       |   | (121,700   | )       |
|                          |   |       |    |
|                          |   | $          | 98,300  |   |

 

**NOTE 7 -****             INCOME TAXES**

 

The differences between thefinancial statement basis and tax basis of assets as of December 31, is asfollows:

 

|                                                        |   | **2002**    |        | **2001** |   |
|-------------------------------------------------------------|--------|-------------|-------------|----------|--------|
| Financial statement basis of assets                         |   | **$**       | **521,293** |     | $      | 459,851 |   |
| Plus organization and startup cost, net of tax amortization |   | **444,101** |        | 153,370  |   |
|                                                        |   |        |        |     |   |
| Tax basis of assets                                         |   | **$**       | **965,394** |     | $      | 613,221 |   |

 

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

 

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

 

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

 

*Consulting Agreement*

 

The Company has entered into aconsulting agreement with Val-Add Service Corporation (Val-Add).  The consulting agreement provides for a basefee of $5,000 per month plus expenses and a travel allowance for assistance innegotiating and financing the ethanol plant. This agreement also includesprovisions whereby Val-Add is eligible for bonuses totaling $60,000 atcompletion of duties outlined in the agreement.  The agreement may be terminated with 10 days notice by eitherparty.

 

A separate agreement withVal-Add Service Corporation provides for certain administrative services.  The fee for these services is $25 per hour,plus a flat monthly fee of $50, plus out of pocket expenses.  The agreement may be terminated by eitherparty with 10 days advance notice. The Company recognized approximately $79,000and $56,000 of consulting expenses related to this agreement for the periodsended December 31, 2002 and 2001, respectively.

 

(continued on next page)

 

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*Energy Management Services*

 

The Company has entered into anagreement with U.S. Energy Service, Inc., for energy management and engineeringservices.  The agreement expires onAugust 31, 2003, and is renewable for one year terms unless terminated byeither party with 30 days advance notice. The agreement provides for fees of $2,800 per month, with $2,300 of thisfee contingent upon completion of the initial public offering and release tothe Company of the proceeds of the offering to the Company.  Fees included in the balance sheet as prepaidengineering costs related to this agreement as of December 31, 2002 and 2001,were $44,800 and $9,200, respectively.

 

*Land Option Agreements*

* *

The Company entered into anoption to purchase a tract of land for the greater of $1,000 per acre or$100,000.  The agreement requiredpayment of $1,000, with the balance due upon exercise of the option andexchange of the properties.  The optionto purchase expires March 1, 2003.

 

The Company entered into anoption to purchase land in Gove County, Kansas, in exchange for the propertysubject to the above agreement plus $50,000. The agreement required a payment of $5,000, with the remaining $45,000due upon exercise of the option and exchange of the properties.  The agreement expires March 1, 2003.

* *

* *

*Sales Service Agreement*

 

The Company has entered into anagreement with ICM Marketing, Inc., for the sale of the bulk feed gradeproducts (distiller’s grains) produced from the plant.  The agreement expires October 1, 2004, andis automatically renewed for one year terms unless either party provideswritten notice 90 days prior to expiration of the agreement.  Under the terms of the agreement, ICMMarketing, Inc. would purchase all products at a price equal to 98% of theselling price, less applicable freight. If the product is sold to members of the Company, the price is set at98.5% of the selling price, less applicable freight.  ICM Marketing, Inc. is responsible for billing and accountservicing of the product sales and for losses related to non payment unlesssuch non payment relates to substandard products.

 

(continued on next page)

 

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*Ground Water Services*

 

The Company entered into anagreement to secure rights to ground water for the ethanol plant.  The agreement requires a payment of $15,000for the rights, of which $7,500 was payable upon execution of the agreement andthe remainder is payable 7 days prior to commencement of the drilling of thewater well by the Company.  In addition,the agreement requires payments of $1,050 per quarter during the first 15 yearsof the agreement, commencing with pumping of the well, with the partiesrenegotiating the quarterly fee after the first 15 years of the agreement.  The agreement has a 20 year term commencingwith pumping of the well, with renewal for successive 5 year periods unlessnotice of termination is provided 60 days prior to expiration of theagreement.  Minimum payments related topumping water from the well are $4,200 per year, with a total commitment of$63,000 during the first 15 years of the agreement.

 

*Management Agreement*

 

The Company has entered into aletter of understanding that outlines the anticipated terms regarding aManagement Placement Agreement with ICM, Inc. for placement of a manager at theethanol plant.  As outlined in theletter of understanding, the agreement will have a term of two years, andbegins approximately 3 to 6 months prior to plant startup. ICM will provide theplant manager and other technical assistance for a fee of $250,000 per year,plus certain out of pocket expenses, for a total minimum commitment of $500,000during the term of the agreement.  TheCompany will have the option to hire the manager upon expiration of theagreement at a salary similar to the salary provided by ICM, or employ outsidemanagement with six months advance notice provided to ICM prior to theexpiration of the agreement.

 

*Marketing Agreement*

 

The Company entered into anagreement with Ethanol Products, LLC, for the marketing of the Company’sethanol and certain administrative services. The agreement has a term of 5 years and commences upon start of ethanolproduction, with a fee of $.01 per gallon of ethanol produced.  The agreement is renewable for 5 year termsunless notice of termination has been delivered at least 90 days prior toexpiration.

 

*Construction Contract*

 

During April 2002, the Companyentered into an agreement with ICM for the construction of the dry mill ethanolplant at a cost of approximately $35,500,000 subject to the terms of theagreement.  The construction iscontingent upon, among other things, the Company securing financial commitmentssufficient to fund the project to the satisfaction of ICM.  Management anticipates that the financingwill be obtained by March 31, 2003.

 

**NOTE 9 -****             COMPREHENSIVE INCOME**

 

The Company reportscomprehensive income in accordance with SFAS No. 131, “Reporting ComprehensiveIncome,” which requires the reporting of all changes in equity during a period,except those resulting from investment by owners and distribution to owners, ina financial statement for the period in which they are recognized.  This encompasses unrealized gains and lossesfrom available-for-sale securities held. There was no comprehensive income recorded during the period as therewas no change in the fair value of investments.

 

(continued on next page)

 

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**NOTE 10 -****      RELATED PARTY TRANSACTIONS**

 

The Company has reimbursedmembers of the Board of Managers for certain expenses incurred by the Companyand paid by the members of the Board of Managers during the developmentstage.  Expense reimbursements for theperiods ended December 31, 2002 and 2001, totaled $144 and $7,955, respectivelyof which $100 was unpaid at December 31, 2001.

 

A principal owner of Val-Add isalso one of the initial Class D members of the Company.

 

**NOTE 11 -****      SUBSEQUENT EVENTS**

 

In January 2003, the Companyreceived a value-added agricultural product market development grant from theUnited States Department of Agriculture, Rural Development. The grant providesmatching funds not to exceed $290,610 for working capital expenses.

 

In January 2003, the Companyentered into a 6% note payable with ICM for $250,000 that is secured byproperty purchased subsequent to year-end. This property was previously under option for purchase (Note 8).  The outstanding balance is due on demand.

 

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