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**UNITED STATES**

**SECURITIES ANDEXCHANGE COMMISSION**

**Washington D.C. 20549**

 

**FORM 10-K**

 

| **x**      | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934**                                                                                               |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                |
|       | **For the fiscal year ended**   **September 30, 2008**                                                                                                                                    |
|       |                                                                                                                                                                                                |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                             |
|       |                                                                                                                                                                                                |
| ** ** | **For  the transition period from               to             ** |

 

**Commission file number: 0-50714**

 

**Western Plains Energy, L.L.C.**

(Exact name of registrant as specified in its charter)

 

| **Kansas**                      | ** ** | **48-1247506**                       |
|---------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of |       | (I.R.S. Employer Identification No.) |
| incorporation or organization)  |       |                                 |

 

**3022 County Road 18, Oakley, Kansas 67748**

(Address of principal executive offices)

 

Registrant’s telephone number, including area code:**(785) 672-8810**

 

Securities registered pursuant to Section 12(b) of theAct:  **None**

 

Securities registered pursuant to Section 12(g) of theAct:  **Class A Capital Units**

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.    Yes  o  No  x

 

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o  No  x

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the ExchangeAct during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  x  No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K.  x

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 
| Large  accelerated filer o |   | Accelerated  filer o       |
|----------------------------|--------|----------------------------|
|                       |   |                       |
| Non-accelerated  filer x   |   | Small  reporting company o |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Act).   Yes  o  No  x

 

The aggregate market value of the capital units held by non-affiliatesof the registrant as of March 31, 2008, was $44,870,000, computed byreference to the price at which membership units were last sold prior to thatdate.  There is no established publictrading market for the registrant’s securities.

 

As of December 24, 2008, 16,002 Class A Capital Units, 12,068 Class BCapital Units and 350 Class C Capital Units of the registrant wereoutstanding.

 

**DOCUMENTS INCORPORATED BY REFERENCE:**  The Definitive Proxy Statement for the nextannual meeting of members is incorporated by reference herein into Part III,Items 10-14.

 

 

 

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**TABLE OF CONTENTS**

 
| ** **  | ** **                                                                                  | **Page** |
|-------------|---------------------------------------------------------------------------------------------|----------|
| ** **  | **PART I**                                                                             |     |
|        |                                                                                        |     |
| ITEM 1:     | BUSINESS                                                                                    | 1        |
| ITEM 1A:    | RISK FACTORS                                                                                | 11       |
| ITEM 1B:    | UNRESOLVED  STAFF COMMENTS                                                                  | 17       |
| ITEM 2:     | PROPERTIES                                                                                  | 18       |
| ITEM 3:     | LEGAL PROCEEDINGS                                                                           | 19       |
| ITEM 4:     | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                        | 19       |
|        |                                                                                        |     |
| ** **  | **PART II**                                                                            |     |
|        |                                                                                        |     |
| ITEM 5:     | MARKET FOR  COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES   | 19       |
| ITEM 6:     | SELECTED  FINANCIAL DATA                                                                    | 20       |
| ITEM 7:     | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 21       |
| ITEM 7A     | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 | 33       |
| ITEM 8:     | FINANCIAL  STATEMENTS                                                                       | 35       |
| ITEM 9:     | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE       | 35       |
| ITEM 9A(T): | CONTROLS AND  PROCEDURES                                                                    | 35       |
| ITEM 9B:    | OTHER INFORMATION                                                                           | 35       |
|        |                                                                                        |     |
| ** **  | **PART III**                                                                           | 35       |
|        |                                                                                        |     |
| ** **  | **PART IV**                                                                            |     |
|        |                                                                                        |     |
| ITEM 15:    | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES                                                    | 36       |
|        |                                                                                        |     |
| ** **  | **SIGNATURES**                                                                              | 37       |
|        |                                                                                        |     |
| ** **  | **EXHIBIT INDEX**                                                                           |     |

 

**Additional Information**

 

Descriptionsin this report are qualified by reference to the contents of any contract,agreement or other document described herein and are not necessarilycomplete.  Reference is made to each suchcontract, agreement or document as an exhibit to this report, or incorporatedby reference as permitted by regulations of the Securities and ExchangeCommission.  For more informationregarding these documents, see the section titled “Exhibits” in this report.

 

**Special Note Regarding Forward-Looking Statements**

 

Pleasesee the note under “**Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations**”for a description of special factors potentially affecting forward-lookingstatements included in this report.

 

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**PART I**

 

**Item 1.  Business.**

 

**Overview.**

 

Ourbusiness focuses on the production and sale of ethanol and itsco-products.  Ethanol is a type ofalcohol which in the U.S. is typically produced from corn, but may be producedfrom other grains and biomass.  Ethanolis primarily used as a blend component for gasoline, and is typically added byrefiners or distributors to increase octane and reduce tailpipe emissions from vehicles.  The ethanol industry has grown significantlyover the past few years, increasing production capacity in the U.S. byapproximately 308% between 2003 and 2008 and we believe ethanol production willcontinue to grow in the future.  However,we anticipate that the increase in production capacity in the industry willlikely slow in the near future as a result of domestic ethanol productionmeeting or exceeding domestic demand.  Webelieve ethanol should continue to grow moderately as a result of many factors,some of which are its favorable production economics relative to gasoline, ashortage of domestic petroleum refining capacity, its clean-burningcharacteristics and federally mandated renewable fuel usage.  We also believe that E85 and other blendsgreater than 10% (see “**Our Products and TheirMarkets**,” below) will also become increasingly important over timeas an alternative to unleaded gasoline.

 

Weproduce fuel grade ethanol by processing corn and milo utilizing what is knownas “dry-milling” technology.  The grainis received by semitrailer truck, weighed and cleaned of rocks and debrisbefore it is conveyed to concrete storage silos. The grain is then transportedto a hammer mill or grinder where it is ground into flour and conveyed into aslurry tank for processing. We add water, heat and enzymes to break the groundgrain into a mash. The mash is heat sterilized and pumped into a tank whereother enzymes are added to convert the starches into glucose sugars. Next, themash is pumped into one of four fermenters, where yeast is added to begin a 48to 50 hour batch fermentation process. A distillation process vaporizes thealcohol from the mash. The alcohol is further dried in a rectifier andmolecular sieve. The resulting 200 proof-alcohol is then pumped to shift tanksand blended to achieve a mixture consisting of approximately 97% ethanol and 3%gasoline as it is pumped into denatured ethanol storage tanks.

 

Grainmash exiting the distillation process is pumped into one of severalcentrifuges. Water from the centrifuges, called thin stillage, is condensedinto a thicker syrup called condensed solubles. The solids that exit thecentrifuge are called distillers wet grains (“WDGS”). A portion of thesedistillers wet grains are sold in that form and a portion are subsequentlydried and mixed with condensed solubles to produce distillers grains withsolubles, which may be used as animal feed and are known as distillers drygrains (“DDGS”).  See “**Our Products and Their Markets**,” below.  During our 2008 fiscal year, which ended September 30,2008, we produced 46,857,389 gallons of fuel grade ethanol, 428,431 tons ofWDGS and 3,756 tons of DDGS.

 

**History.**

 

Wewere organized as a Kansas limited liability company in 2001.  We completed the initial public distributionof our membership units in 2003, raising proceeds of $19,330,000.  In 2008, we declared a forward split of ouroutstanding units on a seven (7) for one (1) basis.

 

Weconstructed our facility, located in western Kansas, during 2003 and beganproduction of ethanol in January 2004. Our initial nameplate (estimated) production capacity was 30 milliongallons of ethanol per year.  During our2005 fiscal year, we completed construction of an 

 

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expansionof our facility to give us nameplate capacity of 40 million gallons of ethanolper year.  During our 2007 fiscal year,we completed capital improvements to our plant giving us increased storagecapacity for grain which enables us to further manage our increased productioncapacity.  For a more detaileddiscussion, see “**Item 7. Management’s Discussion and Analysisof Financial Condition and Results of Operations**” below.

 

**Recent Developments.**

 

Thecontinued increase in production capacity in the ethanol industry during fiscal2008 had a significant impact on our business. Many ethanol producers completed construction of new plants or expansionof production capacity at existing plants. We believe the increased production capacity helped drive grain priceshigher and ethanol prices lower.  Recordproduction capacity in the industry contributed to increasing the supply ofethanol to an amount approximately equal to anticipated demand in themarket.  During most of fiscal year 2008,we continued to experience record-high grain prices and lower ethanol pricesthan in prior years. These metrics adversely affected the entire ethanolindustry during the second half of calendar 2007 and into the first part of 2008.

 

Theethanol industry also continued to undergo demographic changes during the lastfiscal year.  In addition to dramaticgrowth in the number of operating and proposed ethanol plants which are locallyowned and operated, the industry also continued to experience a trend towardconsolidation.  A few large ethanolproducers expanded their businesses by constructing or acquiring additionalethanol plants in new markets, developing their own marketing and resale servicesand changing their organizational form to a corporate structure to allow theirequity to be publicly traded on national securities exchanges.  Some examples of these companies are AventineRenewable Energy Holdings, Inc. and US BioEnergy Corporation.

 

Coincidentalto the end of our fiscal year, U.S. financial markets experienced a severedownturn, the full impact of which has likely not yet been realized.  Businesses across many sectors experienced alack of access to credit causing a series of liquidity crises.  A contraction in the local, national andglobal economies continues as we prepare this report.  This situation, coupled with increasedproduction capacity in our industry, may cause a wide array of businesses,including possibly some of our competitors, suppliers and customers, to experiencedifficulty in continuing operations, which in turn could affect our ability toprocure raw materials and sell ethanol and distillers grains.  In addition, in connection with the marketdownturn, commodities prices, including corn, ethanol and petroleum gasoline,have decreased dramatically, which will likely affect our fiscal 2009operations.

 

Toremain competitive during these challenging times, we have focused our effortson controlling our costs and increasing our operational efficiencies.    Inventory management is a key component tocost control.  The recent deflationarymomentum surrounding all commodities has also forced us to limit our exposureto commodity price fluctuations.

 

**Our Competitive Strengths.**

 

*Plant technology and efficiency*.  At September 30, 2008, our plant wasproducing ethanol at or above nameplate capacity, primarily due to capitalimprovements we made in addition to our plant expansion.  We have continued to focus on finding ways toimprove the production process and will upgrade equipment as necessary in orderto achieve maximum production goals.  Webelieve we will continue to compete as a low-cost producer of ethanol in thefuture, due to the improved efficiency from our equipment upgrades.

 

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Duringfiscal 2008, we worked with a prominent seed company to identify potentialbenefits in utilizing a new corn variety to introduce enzymes into the ethanolproduction process through the feed stock. Although this technology has not yet been perfected, we believe it holdsa great deal of promise for our future operating efficiencies.

 

*Absence of significant debt*.  In June 2006, we paid off theoutstanding balance on our term loan with our principal lender.  While we do maintain a revolving line ofcredit, the absence of term debt positions us favorably *vis-a-vis*other competitors who have long-term debt and who are required to service thatdebt from operations.  As a result of ourimproved leverage, we may be less sensitive to fluctuations in revenue as aresult of changes in the price of ethanol or the costs of our raw materials ascompared to similarly-situated ethanol plants that are required to makepayments under long-term debt contracts. Additionally, our cash flow allows us to have more flexibility indetermining how to use working capital.

 

*Plant expansion and improvements.*  We expanded the nameplate capacity of ourethanol plant in fiscal 2005 to 40 million gallons per year.  The expansion included, among other things, a750,000 gallon beer well, expansion of our existing cooling towers by one cell,a new cooling pump, a new style burner and a new centrifuge.  The expansion was built on our existing plantsite and did not require the acquisition of any additional property.  Our expansion was placed into service duringthe second quarter of fiscal 2005.  In2006 and 2007, we also increased our grain storage capacity approximately 1.5million bushels by purchasing the grain elevator adjacent to our plant andconstructing two 250,000 bushel grain bins. We believe our increase inproduction and storage capacity positions us favorably in the marketplace andprovides increased operating flexibility.

 

*Proximity to grain*.  The proximity of our plant to producers ofthe grain we need to produce ethanol favors us over some of ourcompetitors.  Local growers generallyproduce more than enough grain to meet our requirements, and the closeproximity for delivery can result in competitively favorable prices forus.  Additionally, many local grainproducers are members of our company who supply us at competitive prices.

 

**OurProducts and Their Markets.**

 

*Ethanol.*  We produceethanol to be used as a fuel component that serves as:

 

·                  An octane enhancer in fuels;

·                  An oxygenated fuel additivethat can reduce carbon monoxide vehicle emissions; and

·                  A non-petroleum-basedgasoline extender.

 

Ethanolin its primary form is mostly used for blending with unleaded gasoline andother fuel products. The implementation of the federal Clean Air Act has madeethanol fuels an important domestic renewable fuel additive. According to theAmerican Coalition for Ethanol (“ACE”), approximately 70% of all gasoline soldin the U.S. is blended with ethanol. Most of the ethanol is blended as E10, amixture of 10% ethanol and 90% petroleum gasoline. This fuel is covered bywarranty for use in all makes and models of vehicles. Some ethanol is blendedas E85, a mixture of 85% ethanol and 15% gasoline. This mixture is used inflexible fuel vehicles (“FFVs”), which are increasingly becoming available toconsumers as auto companies produce more FFV models.  Additional studies using a blend of 20%ethanol are currently being conducted. Used as a fuel oxygenate, ethanolprovides a means to reduce carbon monoxide vehicle emissions.

 

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Theprincipal purchasers of ethanol are generally the refined and wholesalegasoline marketer or blender.  Theprincipal end markets for our ethanol are petroleum terminals on the east andwest coasts of the United States.  Duringthe 2008 fiscal year, 83% of our net revenue was derived from the sale ofethanol, and we expect the sale of ethanol to comprise a substantial majorityof our revenue in the future.  Theremainder of our revenue is derived from the sale of distillers grains,discussed in more detail below.

 

*Distillers Grains.*  A principal co-product of the ethanolproduction process is distillers grains, which is a high-protein, high-energyanimal feed supplement primarily marketed to the dairy and beef industry.  By using the dry-milling ethanol productionprocess with a dryer system that can produce two moisture levels, we are ableto produce both WDGS and DDGS.  WDGS areprocessed grain mash and condensed solubles that contain approximately 65%moisture.  It has a shelf life slightlylonger than three days and is sold to markets in proximity to our plant.  DDGS are mash that has been dried to 10%moisture.  It has an almost indefiniteshelf life and is sold and shipped via truck or railcar to many marketsregardless of their vicinity to our ethanol plant.  During the 2008 fiscal year, approximately17% of our net revenue was derived from the sale of distillers grains, and weexpect the sale of distillers grains to continue to comprise a minority of ourrevenue in the future as compared to our revenue from ethanol.

 

**Raw Materials.**

 

*Grain Procurement.*  Ethanol in the U.S. is made primarily fromgrain, principally corn.  We have theadvantage of having access to and the ability to utilize sorghum or milo, thelatter of which we often can obtain at a lower price than corn.  During the 2008 fiscal year, we usedapproximately 17.7 million bushels of corn and milo to produce ethanol. Weobtained a majority of this grain from producers in western Kansas, where ourplant is located.  We believe that grainproducers in proximity to our plant will produce sufficient grain for our needsfor the foreseeable future.  In the eventsuch producers are unable to fulfill our requirements, we believe an adequatesupply is available from producers in other states, such as Nebraska andColorado.

 

Anincrease in the number of ethanol plants in the nation adversely affected theavailability and price of corn, milo and other grain products in fiscal 2008and may continue to do so in the future. According to the Renewable Fuels Association (“RFA”), between January 2003and January 2008, the number of ethanol plants currently producing fuelgrade ethanol in the U.S. increased from 68 to 139 and an additional 61 ethanolplants are currently under construction. Some of these plants are located in Kansas, eastern Colorado andsouthwestern Nebraska and they may compete with us for procurement of localgrain.  On a national level, theemergence of new ethanol plants will increase competition for our grainrequirements and we may be forced to satisfy our requirements from other partsof the country.

 

Weenter into hedging transactions in an effort to stabilize the price that we payfor grain.  Hedging involves theacquisition of option and futures contracts, designed as hedges of specificvolumes of grain expected to be used in our production process. We also usederivative financial instruments to manage the exposure to price risk relatedto grain purchases. At September 30, 2008, we had open long and shortpositions in option contracts, which positions were recorded in our financialstatements at fair value. As a result, we recorded $658,043 of unrealizedlosses for the year ended September 30, 2008 with respect to option andfuture contracts.

 

Productionprocesses using feed stocks other than grain to make ethanol are continuallybeing developed.  We will continue tofocus our production using grain for the foreseeable future.  However, we are monitoring the developmentsin the industry regarding the economic viability of 

 

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alternativefeed stocks and may consider whether to pursue converting from grain-basedethanol at some future date.

 

Theprice and availability of corn and milo are subject to significant fluctuationsdepending upon a number of factors which affect grain commodity prices ingeneral, including crop conditions, pestilence, weather, supply and demand,speculation, government programs and foreign purchases. Because the marketprice of ethanol is not related to grain prices, ethanol producers aregenerally not able to compensate for increases in the cost of grain throughadjustments and prices charged for ethanol. In contrast, the price for distillers grains tends to track with cornprices, and generally we are able to increase the price we charge for ourdistillers grains concurrent with increased corn prices.

 

Wecontinued to experience volatility in grain prices during the 2008 fiscal yearas the price of corn trended higher than previous years.  For a more detailed discussion, please see “**Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations**” below.

 

Theability to purchase and store large quantities of grain helps us manage ourgrain costs.  We completed an expansionof our storage facilities in 2007 and the new storage capacity enables us totake advantage of lower grain prices by allowing us to acquire a significantportion of our requirements during such times.

 

Droughtand other environmental occurrences could adversely effect the production andavailability of corn, milo and other grain products in the future.  Because of its relative aridity, the westernUnited States is more susceptible to drought than certain other areas of thecountry.  The drought experienced in thewestern United States during 2002 was partially mitigated between 2003 and2006, but there is no assurance that the conditions during 2002 will notrepeat.  In that event, we anticipatethat our grain requirements could be satisfied from other parts of the country,although transportation costs would be significantly higher.

 

Allof the corn and milo we purchase is tested and must meet high quality controlstandards to ensure the efficient operation and quality production of ourplant.  We use the United StatesDepartment of Agriculture’s grade requirements for U.S. Number Two Corn andU.S. Number Two Grain Sorghum. From time to time, we also accept grain thatdoes not meet the criteria for U.S. Number Two Corn or U.S. Number Two GrainSorghum or is otherwise substandard. When we do, we discount the price or makeother allowances to account for the lesser grade quality or condition atdelivery.

 

*Other Raw Materials.*  The other critical raw materials for theproduction of ethanol are water and natural gas. Water is mixed with theprocessed grain to begin the fermentation process. Natural gas is used to heatthe resulting mixture in conjunction with the fermentation process.

 

Anadequate supply of water is important to our ethanol business.  We currently have water wells to the northand east of our plant site from which we pipe water to our facility.  There are two additional wells located on ourproperty which are not currently permitted for industrial use. We believe thatwe have sufficient water to operate our plant. However, should we require more water, we believe that we can obtain itfrom the existing wells on our property. See “**Item 2.Properties**.”  We have receivedall necessary permits to obtain water and believe that we currently areoperating in compliance with all regulations of the Kansas Department ofAgriculture, Division of Water Resources.

 

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Inorder to be assured of a steady source of natural gas, we entered into aNatural Gas Service Agreement with Midwest Energy, Inc. (“Midwest”) in September 2003pursuant to which they deliver natural gas to our plant.  We purchase the gas from another third party.This agreement supplements a previous agreement with Kinder Morgan EnergyPartners and Kinder Morgan Interstate Gas Transmission LLC to deliver the gas toMidwest.  In exchange for our agreementnot to bypass its local gas distribution system, Midwest agreed to install andmaintain a gas main directly to our property in Gove County, Kansas.  We pay a monthly charge based on the amountof gas utilized each month.  The ratesare fixed through December 31, 2008, and are subject to change thereafterbased on increases or decreases applicable to distribution servicesgenerally and subject to review by the Kansas Corporation Commission. Ourcontract with Midwest extends through December 31, 2013.

 

Wealso contract with Post Rock Gas, LLC (“PRG”) to acquire the gas that istransported by Kinder Morgan and Midwest to our plant.  Our agreement with PRG commenced in December 2003and is terminable by either party on not less than 30 days’ advancenotice.  The price we paid for gas duringthe 2008 fiscal year was determined by reference to a published “spot” price.We believe our agreements with PRG, Kinder Morgan and Midwest will provide anample supply of natural gas for the foreseeable future.

 

Ouragreement with PRG helps us manage our risk from natural gas pricefluctuations.  Due to uncertainty in gasprices, we periodically evaluate our gas requirements and expectations offuture prices and may purchase forward contracts and implement derivativeinstruments on a portion of our requirements to allow us to benefit in theevent natural gas prices decline.  Afterdeclining from the increased levels set by hurricane-related shortages in late2005 and early 2006, natural gas prices have been relatively stable for theprior two fiscal years.  However, priceswere subject to extreme volatility in fiscal 2008, increasing nearly 100% ascompared to prior periods during the summer months of 2008 before decreasingagain proximate to our fiscal year end. We currently have contracts in place to supply approximately 20% of ournatural gas for the first quarter, none for the second quarter, and 20% foreach of the remaining quarters of fiscal 2009.

 

Wehave entered into an agreement with U.S. Energy Service, Inc. under whichU.S. Energy Service provides consulting services to us to help us manage ourenergy use and costs.  The agreement waseffective through August 31, 2008 and automatically renewed through August 31,2009.  The agreement will renew foradditional one-year terms unless terminated by either party with 30 daysadvance notice.

 

**Customers.**

 

Wesell essentially all of our products to two marketing firms, which in turn sellto other purchasers.  We have executed anexclusive marketing agreement to market the ethanol produced at our plant withEthanol Products LLC d/b/a POET Ethanol Products (“Ethanol Products”) ofWichita, Kansas.  Under the terms of theagreement, which commenced in January 2004, Ethanol Products has agreed topurchase all of the ethanol that is produced at our plant and is solelyresponsible for determining the price and terms at which the ethanol acquiredfrom our plant is sold and to whom it will be sold.  In exchange, we receive the gross sales priceof the ethanol, less the costs of transportation and storage and anadministrative fee of $0.01 per gallon sold. Subsequent to the end of the fiscal year, we executed a new agreementwith Ethanol Products which will commence February 1, 2009 for a five-yearterm and is automatically renewable for subsequent five-year terms unlessterminated by either party prior to expiration. Under the new agreement, the administrative fee paid to Ethanol Productswill equal 1% of the net-back sales price per gallon of ethanol sold.  In the event that our relationship withEthanol Products is 

 

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interruptedfor any reason, we believe that we would be able to locate another entity tomarket our ethanol. However, any interruption could temporarily disrupt thesale of our principal product and adversely affect our operating results.

 

Wehave also executed an exclusive agreement to market all of our distillersgrains with United Bio Energy Ingredients, LLC (“UBE”), which was previously anaffiliate of ICM, Inc.**** ICM was the general contractor for our ethanolplant.  Under the terms of thatagreement, we receive the gross selling price of all distillers grains sold byUBE, less applicable transportation costs and a fee of 2-2 1/2 % of the grossselling price depending on whether we sell DDGS or WDGS.  The agreement with UBE expires September 30,2009 and is automatically renewed each year unless the agreement is terminatedby either party following 90 days advance written notice.  As with the marketing arrangement withEthanol Products, any interruption in our relationship with UBE couldtemporarily affect our business, although we believe that we could find anotherentity to market our grains.

 

**Transportation and Delivery.**

 

Thegrain that we receive is delivered by trucks. Due to our proximity toInterstate 70, transportation to and from the plant is efficient.  Distillers grains are transported exclusivelyby semitruck. UBE, as our exclusive purchaser of distillers grains, selects thecarrier.

 

Ourplant was designed with a rail spur and connection to the Union Pacific railwaysystem, which facilitates transporting our ethanol to national markets.  Our plant is also located adjacent toInterstate 70.  We ship our ethanol byrail and by truck, determined with reference to a review and analysis of thecurrent market conditions, transportation costs and applicable environmentalregulations. The target for rail-transported ethanol includes the State ofCalifornia, the southwest and eastern United States.  Ethanol targeted for more proximate marketsis transported by truck.

 

**Legislation and Federal and State Supports or Subsidies.**

 

*Legislation.*  Existingfederal legislation will likely maintain or enhance the use of ethanol as afuel additive for the foreseeable future. The Energy Policy Act enacted in 2005 established the first everRenewable Fuel Standard (“RFS”) in federal law which mandated certain levels ofusage of biofuels in the domestic fuel supply beginning in 2006 and continuingthrough 2012.  In December 2007, theEnergy Independence and Security Act of 2007 (“EISA”) was enacted.  This legislation further increased the amountof mandated biofuel usage to a maximum of 36 billion gallons a year by2022.  For illustration purposes, theU.S. domestically produced approximately 6.5 billion gallons of fuel ethanol in2007.  Pursuant to the Energy Policy Actand EISA, the United States Environmental Protection Agency (“EPA”) haspromulgated rules requiring refineries, blenders, distributors andimporters to introduce or sell volumes of biofuels, including corn-basedethanol and other biodiesel fuel, into commerce in accordance with the annual RFS.The following table describes minimum biofuel use mandated for years 2008through 2015:

 

| **Year** | ** ** | **Biofuel usage  (in billions of gallons)** | ** ** |
|----------|------------|-----------------------------------------------------------------|------------|
| 2008     |       | 9.00                                                            |       |
| 2009     |       | 11.10                                                           |       |
| 2010     |       | 12.95                                                           |       |
| 2011     |       | 13.95                                                           |       |
| 2012     |       | 15.20                                                           |       |
| 2013     |       | 16.55                                                           |       |
| 2014     |       | 18.15                                                           |       |
| 2015     |       | 20.50                                                           |       |

 

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Underthe RFS as modified by EISA, the mandate for corn-based ethanol is capped at 15billion gallons in 2015 and continues at that level through 2022.  The remaining amount of biofuel required bythe RFS must be derived from non-corn-based ethanol.

 

TheAmerican Jobs Creation Act of 2004 contained the Volumetric Ethanol Excise TaxCredit (“VEETC”).  This law amended the federalgasoline excise tax structure effective January 1, 2005.  As amended, the law creates a new volumetricethanol excise tax credit of $0.51 per gallon of ethanol blended at 10%.  The credit provided by VEETC replaced anexemption which allowed ethanol blended fuel to be taxed at a lower rate thanregular gasoline.  The use of ethanol asa fuel additive is enhanced by the availability of a credit from the federalgasoline excise tax.

 

Inaddition to the legislation discussed above, ethanol sales have been favorablyaffected by other legislation, including the Clear Air Act Amendments of 1990,particularly the federal oxygenation program, which became effective November 1,1992.  The program requires the sale ofoxygenated motor fuels during the fall and winter months in certain majormetropolitan areas to reduce carbon monoxide pollution.  Ethanol use also has increased due to asecond Clean Air Act program, the Reformulated Gasoline Program.  This program became effective January 1,1995, and requires the sale of reformulated gasoline in certain major urbanareas to reduce pollutants, including those that contribute to ground levelozone, better known as smog.

 

Theuse of ethanol as an oxygenate to blend with fuel to comply with federalmandates also has been aided by federal tax policy. The Energy Tax Act of 1978exempted ethanol blended gasoline from the federal gas tax as a means ofstimulating the development of a domestic ethanol industry and mitigating theUnited State’s dependence on foreign oil. As amended, the federal gasoline taxcredit currently allows the market price of ethanol to compete with the priceof domestic gasoline. Although the federal tax credit is not directly availableto us, it allows us to sell our ethanol at prices that are competitive withother less expensive additives and gasoline.

 

Fuelgrade ethanol prices traditionally have varied directly with the wholesaleprice of gasoline. However, in some states, fuel grade ethanol typically sellsfor a higher price per gallon than wholesale gasoline because of theaforementioned excise tax incentives. Historically, fuel grade ethanol pricesalso have reflected a premium due to the oxygenate and octane enhancingproperties of this motor fuel additive.

 

*Federal Ethanol Supports.*  A federal tax credit for small ethanolproducers is generally available to our company and its members.  Eligibility to receive the credit is basedupon plant capacity and the Energy Policy Act increased the capacity limit from30 million to 60 million gallons of production. Ethanol producers that qualify for the credit can deduct from theirfederal income tax $0.10 per gallon on the first 15 million gallons producedannually. The small producer credit is scheduled to expire by its terms on December 31,2008. It is unknown at this time if this credit will be extended.** **Due to thepass-through nature of our partnership taxation structure, we expect thiscredit will be passed through to our members. However, the amount of any suchcredit received by our members must also be included in his or her grossincome, which could result in taxation on the amount of the credit passedthrough to the member. Also, the use of the credit by our members may belimited, so each member should consult his or her tax advisor.  This tax 

 

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creditmay foster additional growth in ethanol plants of a larger size and increasecompetition in this particular plant size category.

 

*State Ethanol Supports.*  The State of Kansas provides an incentivepayment to ethanol producers. The production incentive available to Kansasethanol producers that commence production after July 1, 2001 and sell at least5 million gallons consists of a direct payment of $0.075 per gallon for up to15 million gallons per year. Accordingly, the maximum amount a Kansas ethanol producer can currentlyreceive in a year is $1,125,000.  Theseincentive payments are available for the first seven years of production.  The available statewide funding for theseincentive payments is $3.5 million per year for 2005-2011 plus any excessbalance carried over from the prior year’s current production account.  Any shortfall in the available funds willresult in a pro rata decrease in the incentives paid to the individual ethanolproducers.  Because the number of ethanolplants participating in the program increased, the maximum amount available tous during 2008 was subject to proration. During the 2008 fiscal year, we were entitled to $731,174.  We received payments of $359,255, and haveaccrued an additional $371,919 at fiscal year end which we expect to receive inthe summer of 2009.

 

Weare unable to predict what effect, if any, expiration or termination of federaland state subsidies will have on the market or price for our ethanol in thefuture.  However, either event mayadversely affect our business. See “**Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations**”for further information relating to supports and subsidies.

 

**Environmental Matters.**

 

Theconstruction and expansion of our plant required various state and localpermits to comply with existing governmental regulations designed to protectthe environment and worker safety. While we are also subject to regulations onemissions by the EPA, current EPA rules did not require us to obtain anypermits or approvals in connection with the construction of our plant oroperation of our business.  Additionalexpenditures which may be required to achieve or maintain compliance withfuture laws and more stringent standards for environmental matters may alsolimit our operating flexibility.

 

Ourethanol production requires us to emit a significant amount of carbon dioxideinto the air. Current Kansas law regulating emissions does not restrict orprevent us from emitting carbon dioxide gas into the air, but this could changein the future.  However, the EPA has promulgatedNational Emissions Standards for Hazardous Air Pollutants (“NESHAP”), under theClean Air Act and it could apply to our facility if the emissions of hazardousair pollutants exceed certain thresholds. If our facility is authorized to emit hazardous air pollutants above thethreshold level, then we are required to comply with NESHAP for ourmanufacturing process and would be required to come into compliance withanother NESHAP standard applicable to boilers and process heaters.  We could also be subject to environmental ornuisance claims from adjacent property owners or residents in the area based onfoul smells or other air or water discharges from the plant.

 

Weobtained what we believe are all the necessary air and water permits to operateour plant before we commenced operations, including a permit to dischargewastewater from our plant. Under normal conditions, our plant utilizes a closedsystem and will not discharge process wastewater, but we obtained a permit todischarge wastewater in case of emergency failure of our wastewater treatmentequipment. We also obtained a permit to discharge water used in our coolingtower and boiler.

 

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Inaddition to the foregoing regulations affecting air and water quality, we aresubject to regulation for our fuel storage tanks. If we are found to haveviolated federal, state or local environmental regulations in the future, wecould incur liability for clean-up costs, damage claims from third parties andcivil or criminal penalties that could adversely affect our business.

 

**Competition.**

 

Weare in direct competition with numerous other ethanol producers, many of whichhave greater resources than we do. According to the Kansas Association ofEthanol Processors, 12 producers in the State of Kansas have the capacity toproduce approximately 519.5 million gallons of fuel grade ethanol annually andadditional ethanol production facilities are currently under construction.  Nationally, fuel grade ethanol plantsproduced approximately 6.5 billion gallons of ethanol in 2007, a 32% increasefrom 2006 and 132% increase since 2003 according to the RFA.  We also expect that additional ethanolproducers will enter the market if the demand for ethanol continues toincrease. Our ethanol plant competes with other ethanol producers on the basisof price and, to a lesser extent, delivery service. We believe we can competefavorably with other ethanol producers due to our proximity to ample corn andmilo supplies at competitive prices.

 

Severallarge ethanol producers are structured as corporations and have securitieswhich are publicly traded on a national securities exchange.  These producers may have an advantage over uswith respect to access to capital, as it is typically easier to obtainadditional financing as a publicly traded company.  While we are required to file reports withthe SEC, our securities are presently not traded on an exchange, thus we mayhave more limited access to capital markets.

 

Thelargest ethanol producers include Abengoa Bioenergy Corp., Archer DanielsMidland Company, Aventine Renewable Energy, LLC, Cargill, Inc., HawkeyeRenewables, LLC, New Energy Corporation and VeraSun Energy Corporation, all of whichare capable of producing more ethanol than we produce.  Producers of this size may have an advantageover us from economies of scale and negotiating position with purchasers.  In addition, there are many regional,farmer-owned entities recently formed, or in the process of formation, of asimilar size and with similar resources to ours. Most ethanol plants alsoproduce distillers grains.

 

Inaddition, new plants are under construction and plans to expand existing plantshave been announced, which would increase the ethanol production capacity ofour competitors. We are unable to determine the number and production capacityof plants that ultimately may be constructed, or the timing of suchconstruction; however it appears that the effect of resulting productionincreases over the past year has lowered the price received for our ethanol.

 

Technologicaladvances in and government initiatives for using biomass in lieu of grain toproduce ethanol, known as cellulosic ethanol production, will create additionalcompetitors to our business in the future unless we were to convert ouroperations from traditional grain based production to cellulosicproduction.  By way of example, the firstwood-based cellulosic plant is presently under construction in Georgia withanticipated ethanol production in 2010. Other forms of feed stock for cellulosic ethanol production includealgae, switchgrass and various plant wastes. Additional refineries focusing on a wide array feed stock for cellulosicethanol production are presently in the planning stages.

 

Wemay also compete with international ethanol producers from countries such asBrazil, who may have lower production costs and comparable transportation coststo coastal markets and 

 

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countrieslike Costa Rica and El Salvador and others subject to favorable tarifftreatment by the U.S. under the Caribbean Basin Initiative.

 

Wealso compete with non-ethanol oxygenates which may cost less to produce thanethanol.  Alternative fuels, gasolineoxygenates and ethanol production methods are continually under development byethanol and oil companies with far greater resources than we have.  Development of new products and methods ofethanol production by larger and financially more viable competitors couldprovide them with significant competitive advantages over us and thus couldharm our business.  These companies, someof which are publicly traded on national securities exchanges, generally haveaccess to larger capital and financing markets and thus may be able to obtainfinancing easier and at more favorable terms than us.

 

**Research and Development.**

 

Duringthe 2008 fiscal year, we participated in research and development programssponsored by our suppliers. This research was focused primarily on energyreduction and other issues related to plant operation and production methods todevelop more efficient methods of producing ethanol.  A primary focus in 2008 was delivery ofenzymes into the production process through the grain.  While this process is still in thedevelopmental stage, we believe it holds substantial promise to enhance ourproduction process.  In addition, wecontracted with a firm to further automate and fine tune our fermentation,distillation, evaporator and stillage management processes during fiscal 2008.

 

**Employees.**

 

Asof the date of filing this report, we have 36 full-time employees. Theseinclude a chief executive officer, chief accounting officer, plant manager whooversees plant operations and production, a commodities manager to overseegrain acquisition and risk management, a safety director, a lab manager, amaintenance manager, a controller, an office manager and an administrativeassistant. The remainder of our employees includes administrative, productionand maintenance support personnel. None of our employees are the subject ofcollective bargaining by labor unions, and we believe that we enjoy excellentrelations with our employees.

 

Fromtime to time, we also retain the services of outside consultants to supplementthe services provided by our employees. These include engineering,construction, legal, accounting and financial advisors. We believe that we canobtain the services of all personnel necessary to operate our business.

 

**Item 1A.  Risk Factors.**

 

*You should carefully read and consider the risks and uncertaintiesbelow and the other information contained in this report.  The risks and uncertainties below are not theonly risks we may face.  The followingrisks, together with additional risks and uncertainties not currently known tous or that we currently deem immaterial could impair our financial conditionand results of operation.*

 

**Risks Related to Our Business**

 

***We operate in an emerging growth industry.***  We commenced production of ethanol at ourplant in January 2004.  Accordingly,we have a limited operating history from which you can evaluate our businessand prospects.  Our operating resultshave fluctuated significantly in the 

 

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pastand could fluctuate significantly in the future as a result of a variety offactors, including those discussed throughout this report.  Many of these factors are outside ourcontrol.  As a result of these factors,our operating results may not be indicative of future operating results and youshould not rely on them as indications of our future performance.  In addition, our prospects must be consideredin light of the risks and uncertainties encountered by an early-stage companyand in rapidly growing industries, such as the ethanol industry, where supplyand demand may change substantially in a short amount of time.

 

***Our business is not diversified.***  Our success depends largely upon our abilityto profitably operate our ethanol plant. We do not have any other lines ofbusiness or other sources of revenue if we are unable to operate our ethanolplant and manufacture ethanol and distillers grains.  If economic or political factors adverselyaffect the market for ethanol, the company has no other line of business torely on if the ethanol business declines. Our business would also besignificantly harmed if our ethanol plant could not operate at full capacityfor any extended period of time.

 

***Our financial performance is significantlydependent on grain and natural gas prices.***  Our results of operations and financialcondition are significantly affected by the cost and supply of grain andnatural gas.  If our region becomessaturated by ethanol plants, the grain required for ethanol could consume asignificant portion of the total grain production in our region, which wouldlikely drive up local prices.  The amountof corn we used in our operations increased 5% from 2007 to 2008 as a result ofour increased operational efficiency.  Ifmore corn-based ethanol plants are constructed or existing plants expand theircapacity, the increase in demand for local corn and natural gas may drive upthe prices of those commodities. Generally, we cannot pass on increases in input prices to ourcustomers.  Changes in the price andsupply of grain and natural gas are subject to and determined by market forcesover which we have no control.

 

Graincosts significantly impact our cost of goods sold.  Our gross margins are principally dependentupon the spread between ethanol and grain prices, which has fluctuatedsignificantly in 2008 and may continue to do so in the future due to volatilecommodity prices.  Any reduction in thespread between ethanol and grain prices, whether as a result of an increase incorn prices or a reduction in ethanol prices, would adversely affect ourresults of operations and financial condition.

 

***Corn, as with most other crops, is affected byweather, disease and other environmental conditions.***  The price of corn is also influenced bygeneral economic, market and government factors.  These factors include weather conditions, farmerplanting decisions, domestic and foreign government farm programs and policies,global demand and supply and quality. Changes in the price of corn can significantly affect our business.  The annualized price of corn increased 23.5%in fiscal 2008 when compared to fiscal 2007. Corn prices began decreasing at the beginning of fiscal 2009 and havedecreased approximately 57% during the first quarter of fiscal 2009 from theirhighs in June 2008.  If a period ofhigh corn prices is sustained for some time, such pricing may reduce ourability to generate profits because of the higher cost of operating and maymake ethanol uneconomical to use in fuel markets.  We cannot offer any assurance that we will beable to offset any increase in the price of corn by increasing the price of ourproducts.  If we cannot offset increasesin the price of corn, our financial performance may be materially and adverselyaffected and we may be forced to curtail production.

 

***The price of natural gas is also affected by marketand environmental conditions and other factors beyond our control.***  The prices for and availability of naturalgas are subject to volatile market conditions, including supply shortages andinfrastructure incapacities.  Seasonalchanges 

 

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tendto affect the price of natural gas and increases during colder months tend toincrease our costs of production. Significant disruptions in the supply of natural gas could impair ourability to manufacture ethanol for our customers.  Furthermore, increases in natural gas pricesor changes in our natural gas costs relative to natural gas costs paid bycompetitors may adversely affect our results of operations and financialcondition.

 

***Our revenues will be greatly affected by the priceat which we can sell our ethanol and distillers grains.*** The prices ofethanol and distillers grains can be volatile as a result of a number of factors.These factors include the overall supply and demand, the price of gasoline,level of government support, and the availability and price of competingproducts. For instance, the price of ethanol tends to increase as the price ofgasoline increases, and the price of ethanol tends to decrease as the price ofgasoline decreases.  The recentsignificant decrease in gasoline prices may also affect our operations bydecreasing the demand for our ethanol for permissive blending which will reducerevenues.

 

***We sell all of the ethanol we produce to EthanolProducts under our ethanol marketing agreement.***  Ethanol Products is the sole marketer of allof our ethanol, and we rely heavily on its marketing efforts to sell ourproduct.  Because Ethanol Products sellsethanol for a number of other producers, we have limited control over its salesefforts.  Our financial performance isdependent upon the financial health of Ethanol Products, as a significantportion of our accounts receivable are attributable to customers of EthanolProducts.  If Ethanol Products breachesthe ethanol marketing agreement or is not in the financial position to marketall of the ethanol we produce, we could experience a material loss and we maynot have any readily available means to sell our ethanol, and our financialperformance will be adversely and materially affected.  If our agreement with Ethanol Productsterminates, we may seek other arrangements to sell our ethanol, includingselling our own product, but we give no assurance that our sales efforts wouldachieve results comparable to those achieved by Ethanol Products.

 

Asa result of federal regulations related to the RFS and under the terms of thenew marketing agreement we recently executed with Ethanol Products, title toour ethanol will pass to Ethanol Products when it leaves our plant.  However, we do not receive payment until theethanol reaches the end customer.  As aresult, we bear a risk of loss during the transporting of our product to ourcustomers.  We have attempted to mitigatethis risk by requiring Ethanol Products to include us as an additional insured,however we have no assurance we will be sufficiently compensated for any lostproduct we may suffer during transport.

 

***We sell all of the distillers grains we produce toUBE under our distillers grains marketing agreement.***  UBE is the sole buyer of all of ourdistillers grains that we sell locally, and we rely heavily on its marketingefforts to successfully sell our product. Because UBE sells distillers grains for a number of other producers, wehave limited control over its sales efforts. Our financial performance is dependent in part upon the financial healthof UBE, as a significant portion of our accounts receivable are due from UBE.  If UBE breaches the distillers grainsmarketing agreement or is not in the financial position to purchase and marketall of the distillers grains we produce, we could experience a material lossand we may not have any readily available means to sell our distillers grains,and our financial performance will be adversely and materially affected.  If our agreement with UBE terminates, we mayseek other arrangements to sell our distillers grains, including selling ourown product, but there is no assurance that our sales efforts would achieve resultscomparable to those achieved by UBE.

 

***We engage in hedging transactions that may becostly and ineffective.***  We are exposed to market risk from changes incommodity prices.  Exposure to commodityprice risk results from 

 

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ourdependence on corn and natural gas in the ethanol production process.  We seek to minimize the risks fromfluctuations in the prices of corn and natural gas through the use of hedginginstruments.  The effectiveness of ourhedging strategies is dependent in part upon the cost of corn and natural gasand our ability to sell sufficient products to use all of the corn and naturalgas for which we have futures contracts. There is no assurance that our hedging activities will successfullyreduce the risk caused by price fluctuation which may leave us vulnerable tohigh corn and natural prices. Alternatively, we may choose not to engage in hedgingtransactions in the future.  As a result,our results of operations and financial conditions may also be adverselyaffected during periods in which corn and/or natural gas prices increase.

 

***Hedging activities themselves can result in costsbecause price movements in corn and natural gas contracts are highly volatileand are influenced by many factors that are beyond our control.***  There are several variables that could affectthe extent to which our derivative instruments are impacted by price fluctuationsin the cost of corn or natural gas. However, it is likely that commodity cash prices will have the greatestimpact on the derivatives instruments with delivery dates nearest the currentcash price.  We may incur such costs andthey may be significant.

 

***Advances in ethanol production technology couldrequire us to incur costs to update our plant or could otherwise hinder ourability to compete or operate profitably.***  Advances and changes in the technology ofethanol production are expected to occur. Such advances and changes may make the ethanol production technologyinstalled in our plant less desirable or obsolete.  These advances could also allow ourcompetitors to produce ethanol at a lower cost than us.  If we are unable to adopt or incorporate technologicaladvances, our ethanol production methods and processes could be less efficientthan our competitors, which could cause our plant to become uncompetitive orcompletely obsolete.  If our competitorsdevelop, obtain or license technology that is superior to ours or that makesour technology obsolete, we may be required to incur significant costs toenhance or acquire new technology so that our ethanol production remainscompetitive.  Alternatively, we may be requiredto seek third-party licenses, which could also result in significantexpenditures.  We cannot assure you thatthird-party licenses will be available or, once obtained, will continue to beavailable on commercially reasonable terms, if at all.  These costs could negatively impact our financialperformance by increasing our operating costs and reducing our net income.

 

**Risks Related to Ethanol Industry**

 

***Decreasing gasoline prices will negatively impact our business.***  A significant portion of the demand forethanol results from what is known as “permissive blending” bywholesalers.  Historically, ethanol hasenjoyed a price advantage compared to gasoline, thus encouraging wholesalers toblend gasoline with ethanol.   Asgasoline prices have recently decreased significantly to levels lower than thatof ethanol prices, it is likely that these permissive blenders will find ituneconomical to blend gasoline with ethanol. As a result, the demand for ethanol may decrease, which will increasethe available market supply and make it more difficult to sell all of ourethanol.

 

***Increase in supply from new plants or decreases inthe demand for ethanol may result in excess production capacity which may leadto lower ethanol prices.***  The supply of domestically produced ethanolis at an all-time high. Domestic fuel grade ethanol production was 6.5 billiongallons in 2007 and the RFA estimates that ethanol production capacity incalendar 2008 will reach a record 11.8 billion gallons.  If the industry maximized productioncapacity, it would likely surpass the anticipated domestic demand for ethanolfor 2008.  Production of fuel gradeethanol 

 

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hasincreased 132% since 2003.  There are atleast 139 production facilities currently operating in the United States withmore under construction or planned for construction in the foreseeablefuture.  Excluding our facility, Kansascurrently has at least 12 ethanol plants operating or under currently underconstruction.

 

Excesscapacity in the ethanol industry would have an adverse impact on our results ofoperations, cash flows and general financial condition.  If the demand for ethanol does not grow atthe same pace as increases in supply, we would expect the price for ethanol todecline.  Ethanol prices could decline toa level that is inadequate to generate sufficient cash flow to cover our costs.

 

Theincreased production of ethanol could have other adverse effects. For example,the increased production could lead to increased supplies of co-products fromthe production of ethanol, such as distillers grains. Those increased suppliescould outpace demand, which would lead to lower prices for those by-products.There can be no assurance as to the price of ethanol or distillers grains inthe future. Any downward changes in the price of ethanol and/or distillersgrains may result in less income which would decrease our revenues andprofitability.

 

***We operate in a competitive industry and competewith larger, better financed entities.***  There is significant competition amongethanol producers with numerous producer and privately owned ethanol plantsplanned and operating throughout the Midwest and elsewhere in the UnitedStates.  The number of ethanol plantsbeing developed and constructed in the United States continues to increase at arapid pace. The passage of the Energy Policy Act of 2005 and EISA included arenewable fuels mandate that we expect will further increase the number ofdomestic ethanol production facilities. The largest ethanol producers include Abengoa Bioenergy Corp., ArcherDaniels Midland Company, Aventine Renewable Energy, LLC, Cargill, Inc.,Hawkeye Renewables, LLC, and New Energy Corp., each of which are capable ofproducing more ethanol than we expect to produce.  Larger, better financed ethanol producers maybe able to expand their production capacity and adapt to new technologieseasier than us.  Archer Daniels Midlandis currently the largest ethanol producer in the U.S. and controls asignificant portion of the ethanol market. If the demand for ethanol does not grow at the same pace as increases insupply, we expect that lower prices for ethanol will result which may adverselyaffect our ability to generate profits and our financial condition.

 

***We compete with other gasoline additives.***  Our ethanol plant also competes withproducers of other gasoline additives made from raw materials other than cornhaving similar octane and oxygenate values as ethanol, including but notlimited to methyl tertiary butyl ether (“MTBE”).  Alternative fuels, gasoline oxygenates andalternative ethanol production methods are also continually under development.The major oil companies have significantly greater resources than we have tomarket MTBE, to develop alternative products, and to influence legislation andpublic perception of MTBE and ethanol. These companies also have significantresources to begin production of ethanol should they choose to do so.

 

***Competition from the advancement of alternativefuels may lessen the demand for ethanol.***  Alternative fuels, gasoline oxygenates andethanol production methods are continually under development. A number ofautomotive, industrial and power generation manufacturers are developingalternative clean power systems using fuel cells or clean burning gaseousfuels. Like ethanol, the emerging fuel cell industry offers a technologicaloption to address increasing worldwide energy costs, the long-term availabilityof petroleum reserves and environmental concerns. Fuel cells have emerged as apotential alternative to certain existing power sources because of their higherefficiency, reduced noise and lower emissions. Fuel cell industry

 

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participants are currently targeting the transportation, stationarypower and portable power markets in order to decrease fuel costs, lessendependence on crude oil and reduce harmful emissions. If the fuel cell andhydrogen industries continue to expand and gain broad acceptance, and hydrogenbecomes readily available to consumers for motor vehicle use, we may not beable to compete effectively. This additional competition could reduce thedemand for ethanol, resulting in lower ethanol prices that might adverselyaffect our results of operations and financial condition.

 

***Corn-based ethanol may compete with cellulose-basedethanol in the future.***  Especially in the MidwesternU.S., most ethanol is currently produced from corn and other raw grains, suchas milo or sorghum. The current trend in ethanol production research is todevelop an efficient method of producing ethanol from cellulose-based biomass,such as agricultural waste, forest residue, municipal solid waste, and energycrops. This trend is driven by the fact that cellulose-based biomass isgenerally cheaper than corn, and producing ethanol from cellulose-based biomasswould create opportunities to produce ethanol in areas which are unable to growcorn.  The Energy Policy Act of 2005 andEISA included incentives designed to boost production of cellulose-basedethanol.  Although current cellulosetechnology is not sufficiently efficient to be competitive, new conversiontechnologies may be developed in the future and one of our competitors recentlyannounced it was beginning construction on a facility slated to becellulose-based.  If an efficient methodof producing ethanol from cellulose-based biomass is developed, we may not beable to compete effectively. We do not believe it will be cost-effective toconvert our ethanol plant into a plant which will use cellulose-based biomassto produce ethanol. If we are unable to produce ethanol as cost-effectively ascellulose-based producers, our ability to generate revenue and financialcondition will be negatively impacted.

 

***Ethanol imported from Caribbean basin countries andBrazil may be a less expensive alternative to our ethanol.*** Ethanol produced or processed in certain countries in Central Americaand the Caribbean region is eligible for tariff reduction or elimination uponimportation to the United States under a program known as the Caribbean BasinInitiative.  Large ethanol producers,such as Cargill, have expressed interest in building dehydration plants inparticipating Caribbean Basin countries, such as El Salvador, which wouldconvert ethanol into fuel-grade ethanol for shipment to the United States.Ethanol imported from Caribbean Basin countries may be a less expensivealternative to domestically produced ethanol. Competition from ethanol importedfrom Caribbean Basin countries may affect our ability to sell our ethanolprofitably, adversely affect our results of operations and financial condition.

 

Brazilis currently the world’s largest exporter of ethanol. In Brazil, ethanol isproduced primarily from sugarcane, which is also used to produce food-gradesugar.  Ethanol imported from Brazil maybe a less expensive alternative to domestically produced ethanol, which isprimarily made from corn. Tariffs presently protecting U.S. ethanol producersmay be reduced or eliminated. Competition from ethanol imported from Brazil mayaffect our ability to sell our ethanol profitably and our financial condition.

 

***Consumer beliefs may affect the demand for ethanol.***  Webelieve that certain consumers perceive the use of ethanol to have a negativeimpact on gasoline prices at the pump. Some consumers also believe that ethanoladds to air pollution and harms car and truck engines. Still other consumersbelieve that the process of producing ethanol actually uses more fossil energy,such as oil and natural gas, than the amount of ethanol that is produced. Theseconsumer beliefs could potentially be widespread. If consumers choose not tobuy ethanol, it would affect the demand for the ethanol we produce which couldlower demand for our product and negatively affect our profitability andfinancial condition.

 

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** Risks Related to Regulation andGovernmental Action**

 

***A change in government policies favorable toethanol may cause demand for ethanol to decline.*** Growth in demand for ethanol may be driven primarily by federal andstate government policies, such as state laws banning MTBE and the nationalrenewable fuels standard. The continuation of these policies is uncertain,which means that demand for ethanol may decline if these policies change or arediscontinued. A decline in the demand for ethanol is likely to cause lowerethanol prices which in turn will negatively affect our results of operations,financial condition and cash flows.

 

***Government incentives for ethanol production may beeliminated in the future.***  The ethanol industry and ourbusiness are assisted by various federal ethanol tax incentives, such as thesmall producer credit contained in the Energy Policy Act of 2005.  Additionally, we presently qualify for aportion of an annual incentive payment offered by the State of Kansas, which isprorated based on the number of producers. We have no assurance any of these tax credits or subsidies will continueto be offered in the future.  Theelimination or reduction of tax incentives to the ethanol industry could reducethe market for ethanol, which could reduce prices and our revenues by making itmore costly or difficult for us to produce and sell ethanol.

 

Mostlikely to have the greatest impact on the ethanol industry is the creation ofthe RFS in the Energy Policy Act, which was subsequently increased byEISA.  Biofuel usage mandates began with4 billion gallons in 2006 and increase to 36 billion gallons by 2022.  However, after the recent election, a newCongressional delegation and presidential administration will likely affect thenation’s energy policy.  While we have nopresent indication that there are plans to revise the RFS in the future, wehave no assurance the RFS will remain as presently drafted.  Additionally, the State of Kansas may passstate legislation setting its own renewable fuel standard in the foreseeablefuture.  The RFS helps support a marketfor ethanol that might disappear without this incentive.  If the federal incentives are eliminated orsharply curtailed, we believe that a decreased demand for ethanol will result,which could negatively affect our profitability and financial condition.

 

***Changes in environmental regulations or violationsof the regulations could reduce our profitability.***  Weare subject to extensive air, water and other environmental laws andregulations.  In addition some of theselaws require our plant to operate under a number of environmental permits.These laws, regulations and permits can often require expensive pollutioncontrol equipment or operation changes to limit actual or potential impacts tothe environment.  A violation of theselaws and regulations or permit conditions can result in substantial fines,damages, criminal sanctions, permit revocations and/or plant shutdowns.  We do not assure you that we have been, are orwill be at all times in complete compliance with these laws, regulations orpermits or that we have had or have all permits required to operate ourbusiness.  We do not assure you that wewill not be subject to legal actions brought by environmental advocacy groupsand other parties for actual or alleged violations of environmental laws or ourpermits.  Additionally, any changes inenvironmental laws and regulations, both at the federal and state level, could requireus to invest or spend considerable resources in order to comply with futureenvironmental regulations. The expense of compliance could be significantenough to reduce our profitability and negatively affect our financialcondition.

 

**Item 1B.  Unresolved StaffComments.**

 

None.

 

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**Item 2.  Properties.**

 

Wecurrently own 411 acres of real property in the state of Kansas, most of whichis currently undeveloped.  In October 2003,we completed an industrial revenue bond financing with Gove County that willprovide us with property tax savings on our plant site. As part of thefinancing, title to our plant site and all of our facilities have beentransferred to Gove County as security for the repayment of the bonds. We areleasing back the site for an amount that is equal to the amount of theprincipal and interest that is payable on the bonds. The term of the lease is30 years or as long as the bonds are outstanding. Also under the terms of thelease, we can repurchase the site for a nominal amount upon repayment of thebonds.

 

Weinitially acquired a 53.5 acre parcel of partially developed land in GoveCounty for the purpose of constructing our plant.  Our plant was developed on approximately 20acres of the 53.5 acre parcel.  In February 2002,we acquired a 137 acre parcel approximately one and a half miles east of theparcel where our plant is located.  In December 2004,we acquired a 141 acre parcel of land immediately to the east of our plantsite.  In December 2005, we acquiredan 80 acre parcel which had previously separated the land surrounding our plantsite from the 137 acre parcel acquired in 2002. We now own a contiguous parcel of property in Gove County.

 

Weacquired water appropriation rights for two wells when we purchased the 137acre parcel and one well when we purchased the 80 acre parcel.  We applied to the Kansas Department ofAgriculture, Division of Water Resources to change the type of water use fromagricultural irrigation use to industrial use for the well on the 80 acreparcel and constructed an irrigation system for delivery of water from thatwell to our plant.  We anticipate thesame undertaking if we decide to utilize the wells on the 137 acre parcel,which would be likely to occur in the event we further expand our plantcapacity.  We have agreed to lease the137 acre property back to one of the sellers for a period of five years withthe amount of rent based on the portion of the land that is dry land acres andthe portion that is irrigated acres, with the seller expressly recognizing thatthe water available for irrigation may be dramatically reduced, and possiblyeliminated, if we use the water from this property in our ethanol plantoperations. On February 6, 2007, we purchased 340 acre feet of waterrights on property adjacent to one of our parcels for $340,308. We have filedwith the State of Kansas to convert the classification of these water rightsfrom agriculture to industrial use. Pursuant to Kansas water laws, weanticipate a reduction in allowable withdrawal of approximately 25% uponapproval.

 

Inaddition to our ethanol plant, we also own an administrative building adjacentto the plant. The administrative building consists of approximately 3,000finished square feet (including a partially finished basement) and providesoffices for our administrative staff. We believe our existing facilities aresufficient for the foreseeable future.

 

InOctober 2006, we acquired a grain elevator located on a neighboring parcelwhich we utilize for grain storage.  Theunderlying land is owned by Union Pacific Railroad and we assumed the priorowner’s lease with the railroad.  Tofurther increase our storage capacity for grain, we constructed 500,000 bushelsof additional storage bins near our ethanol plant including two hammer millsand necessary infrastructure for the conveyance of the grain.

 

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**Item 3.  Legal Proceedings.**

 

Fromtime to time we may be subject to litigation that is incidental to ourbusiness.  However, we are not currentlya party to any pending legal proceedings that are not routine litigationincidental to our business.

 

**Item 4.  Submission of Matters toa Vote of Security Holders.**

 

None.

 

**PART II**

 

**Item 5.  Market for Our Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities.**

 

**Market Information**

 

Thereis no public trading market for our capital units. Article 4 of our ThirdAmended and Restated Operating Agreement (“Operating Agreement”) provides anumber of restrictions on the transfer of capital units by our members. Inessence, any proposed transfer must be approved by our Board of Managers.

 

Inaddition to the restrictions on transfer contained in our operating agreement,we are also subject to limitations imposed by the United States InternalRevenue Code (“Code”). In order to maintain our status as a partnership forincome tax purposes, we must not be treated as a “publicly traded partnership”under relevant provisions of the Code. Generally, the Code provides that a publicly traded partnership will betaxed as a corporation. In order to comply with these rules, we do not intendto list any of our capital units on a stock exchange or apply for quotations inany electronic trading system.

 

Duringthe 2008 fiscal year, we implemented a private matching service for ourmembers, also called an alternative trading system (“ATS”), which is operatedand maintained by a third party.  The ATSoffers an online electronic bulletin board that provides information toprospective sellers and buyers of our capital units.  Trading on the ATSin fiscal 2008 was extremely limited.

 

Inaddition to sales between willing buyers and sellers facilitated through theATS, the holders of our capital units who locate a purchaser or receive anoffer to purchase can sell the capital units to the purchaser subject to theapproval of the Board of Managers.  OurOperating Agreement also allows transfer of the capital units by:

 

·                  Gift;

·                  Last will or the laws of descent;

·                  Transfers between members of a family; and

·                  “Block” transfers.

 

Ablock transfer is a transfer by a member and any related person, as defined inthe Code, of membership interests representing in the aggregate more than 2% ofthe total interest in our capital or profits in one or more transactions duringany 30 calendar day period.

 

OnMarch 10, 2008 we implemented a seven (7) for one (1) forwardsplit of all of our outstanding Class A, B and C capital units.  The information contained in this reportreflects the result of that split.

 

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**Capital Unit Holders**

 

Asof December 24, 2008, there were 16,002 Class A capital units, 12,068 Class Bcapital units and 350 Class C capital units outstanding, owned by a totalof approximately 625 members.

 

**Distributions to Members**

 

Underthe terms of our Operating Agreement, we are required to make an annualdistribution to our members of a minimum of 20% of the net cash we earn fromoperations, as defined in the Operating Agreement, as long as net cash fromoperations exceeds $500,000 for that year. However, we are prohibited from making any distributions if it wouldviolate or cause us to default under any of the terms of any of our creditfacilities or debt instruments.

 

Duringthe 2008 fiscal year, we made distributions to our members three times for atotal of $4,882,000 in cash paid to our members.  During the 2007 fiscal year, we distributed atotal of $28,560,000 in cash to our members. Future distributions may be subject to restrictions that materially limitour ability to pay such distributions, such as our credit facilities if we havean outstanding balance with our lender. To the extent we are not subject to any restriction that materiallylimits our ability to pay distributions, however, future distributions inexcess of the amount required under our Operating Agreement will be made in thediscretion of our Board of Managers.

 

**Securities Authorized for Issuance under Equity Compensation Plans**

 

Wecurrently have no equity compensation plan.

 

**Item 6.  Selected Financial Data.**

 

Wecompleted construction of our plant and started operations in January 2004.  We changed our fiscal year end from December 31to September 30 beginning in 2004. The following selected financial datasets forth our summary historical financial data as of and for the years ended September 30,2008, 2007, 2006, 2005, and the period January 1, 2004 through September 30,2004. This information was derived from our audited financial statements foreach period. Our selected historical financial data is qualified in itsentirety by, and should be read in conjunction with, “**Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**” and the financial statements and the notes theretoincluded elsewhere in this report. For additional information relating to ouroperations, see “**Item 1. Business**” and “**Item 2. Properties**.”

 
| ** **                                       | ** ** | **Year Ended  September 30,** | ** **  | **Nine Months  Ended  September 30,** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------|-------------|-------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                | ** **  | **2007**                                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004(1)** | ** ** |
| **Income Statement data:**                       |       |                                    |        |                                            |       |   |   |   |   |   |   |
| Net sales                                        |       | $                                       | 119,228,676 |                                            | $          | 108,761,200 |   | $ | 108,044,168 |   | $ | 61,730,872 |   | $ | 39,862,629 |   |
| Net Income                                       |       | 3,670,407                               |        | 16,656,276                                      |       | 45,895,967 |   | 13,009,369 |   | 7,393,563 |   |
| Earnings per capital unit(2)                     |       | 129                                     |        | 583                                             |       | 1,607 |   | 456 |   | 259 |   |
| Cash distributions declared per capital  unit(2) |       | 171                                     |        | 1,000                                           |       | 1,000 |   | 301 |   | — |   |
| Book value per capital unit(3)                   |       | 1,096                                   |        | 1,180                                           |       | 1,675 |   | 1,070 |   | 896 |   |
|                                                  |            |                                         |             |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |

 

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** **
| ** **                             | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2008**               | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Balance Sheet data:**                |       |                   |       |                  |       |   |   |   |   |   |   |
| Total assets                           |       | $                      | 69,264,582 |                  | $          | 69,786,878 |   | $ | 82,304,265 |   | $ | 70,731,153 |   | $ | 73,879,570 |   |
| Total debt (current and long term) (4) |       | 32,008,119             |       | 32,943,846            |       | 32,077,769 |   | 38,181,000 |   | 47,956,000 |   |
| Members’ equity                   |       | 31,135,383             |       | 33,705,018            |       | 47,845,419 |   | 30,572,933 |   | 25,581,251 |   |
|                                        |            |                        |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |

 

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(1) – The information for 2004 representsoperations for the nine months ending September 30, 2004 resulting from achange in fiscal year end.  We beganproducing ethanol in January 2004.

(2) – Adjusted to reflect seven-for-one forwardsplit effective March 10, 2008.

(3) – Members’ equity divided by membershipunits outstanding as of the end of the period.

(4) – Includes a $32,000,000 lease obligationrelated to our sale and leaseback transaction with Gove County.   We sold our property to Gove County inexchange for industrial revenue bonds and the amount of our lease obligation isoffset by the amount of interest we receive on the bonds.

 

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

 

***Except for the historical information, thefollowing discussion contains forward-looking statements that are subject torisks and uncertainties.  We caution younot to put undue reliance on any forward-looking statements, which speak onlyas of the date of this report.  Ouractual results or actions may differ materially from these forward-lookingstatements for many reasons, including the risks described in “Risk Factors”and elsewhere in this annual report.  Ourdiscussion and analysis of our financial condition and results of operationsshould be read in conjunction with the financial statements and related notesand with the understanding that our actual future results may be materiallydifferent from what we currently expect.***

 

**Introduction**

 

The following discussionanalyzes our operating results for the three fiscal years ended September 30,2008 and our financial condition at September 30, 2008, 2007 and 2006,with a particular emphasis on the year ended September 30, 2008.

 

Wederive revenue from the sale of fuel grade ethanol and distillers grains.  We operate in one industry segment foraccounting purposes.  We commencedproduction of ethanol in January 2004. Prior to that date, we were considered to be in the development stagefor accounting purposes.

 

**Results of Operations for the Year Ended September 30, 2008compared to September 30, 2007**

 

*Overview*.  Table 1 below highlights certain of ouroperating results for the years ended September 30, 2008, 2007 and 2006:

 

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**Table 1**

 
| ** **                                 | ** ** | **Fiscal Year Ended  September 30, 2008** | ** **  | **Fiscal Year Ended  September 30, 2007** | ** ** | **Fiscal Year Ended  September 30, 2006** | ** ** |
|--------------------------------------------|------------|---------------------------------------------------------------|-------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| Revenue                                    |       | $                                                             | 119,228,676 |                                                          | $          | 108,761,200                                                   |       | $ | 108,044,168 |   |
| Cost of sales                              |       | 107,404,082                                                   |        | 84,457,974                                                    |       | 55,377,115                                                    |       |
| Gross profit                               |       | 11,824,594                                                    |        | 24,303,226                                                    |       | 52,667,053                                                    |       |
| General & administrative expenses |       | 2,443,180                                                     |        | 2,835,635                                                     |       | 2,235,393                                                     |       |
| Income from operations                     |       | 3,015,988                                                     |        | 15,568,216                                                    |       | 44,746,901                                                    |       |
| Other income                               |       | 654,419                                                       |        | 1,088,060                                                     |       | 1,149,066                                                     |       |
| Interest expense                           |       | 115,879                                                       |        | 110,092                                                       |       | 241,950                                                       |       |
| Net income                                 |       | 3,670,407                                                     |        | 16,656,276                                                    |       | 45,895,967                                                    |       |
| Net income per unit(1)                     |       | 129                                                           |        | 583                                                           |       | 1,607                                                         |       |
|                                            |            |                                                               |             |                                                               |            |                                                               |            |  |  |  |

 

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(1) – Adjusted to reflect seven-for-one forwardsplit effective March 10, 2008.

 

Table2 sets forth information regarding our ethanol production and raw materialusage and the average price we received for our ethanol and paid for our rawmaterials for the years ended September 30, 2008, 2007 and 2006:

 

**Table 2**

 
| ** **                          | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Gallons ethanol sold                |       | 48,315,577 |       | 45,877,856 |       | 45,535,291 |       |
| Average price per gallon ethanol    |       | $          | 2.11       |       | $          | 1.98       |       | $ | 2.12 |   |
| DDGS sold  (tons)                   |       | 3,661      |       | 65         |       | 33,195     |       |
| Average  price DDGS per ton         |       | $          | 158.00     |       | $          | 96.56      |       | $ | 81.60 |   |
| WDGS sold  (tons)                   |       | 428,634    |       | 395,773    |       | 300,983    |       |
| Average  price WDGS per ton         |       | $          | 45.94      |       | $          | 45.76      |       | $ | 29.00 |   |
| Bushels grain used in production    |       | 17,667,175 |       | 16,775,696 |       | 16,307,527 |       |
| Average price per bushel grain      |       | $          | 4.99       |       | $          | 4.04       |       | $ | 2.21 |   |
| Natural gas used MMBTU              |       | 955,422    |       | 969,954    |       | 1,040,460  |       |
| Average price per MMBTU natural gas |       | $          | 8.16       |       | $          | 7.31       |       | $ | 8.80 |   |

 

Asshown in Table 1, our operating results continued to decline from 2007 to2008.  This is primarily attributable tohigher grain prices and stagnant ethanol prices in 2008 as compared to 2007 asshown in Table 2.  Although the demandfor fuel grade ethanol remained high during the calendar year 2008, theindustry expanded at a rapid rate during the past two years and we are nowseeing some of our fellow producers beginning to shut-in productioncapacity.  We anticipate that U.S.ethanol producers will likely produce ethanol in excess of demand in the comingfiscal year, which will continue to exert downward price pressure on ethanol.

 

*Net Income*.  Net income decreased$12,985,869, or approximately 78% in 2008 from 2007.  We attribute this decrease to higher rawmaterials costs, especially corn.

 

Operatingincome for the 2008 fiscal year decreased by $12,552,228, or approximately 81%,from 2007.  This decrease results fromthe substantial increase in cost of sales from higher grain costs.  Operating income excludes the effect of otherincome or expense, which primarily includes government grants and subsidies.

 

*Revenue*.  Revenue for the 2008 fiscalyear increased $10,467,476, or approximately 10%, from 2007.  As shown in Table 2, production volumeincreased during fiscal 2008 by 1,901,184 

 

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gallonsof ethanol, reflecting certain improvements in our production process werefined during fiscal 2008.  The averageprice we received for sale of ethanol was slightly higher in fiscal 2008 andthe sales volume increased by 2,437,721 gallons or approximately 5%.  Revenue consisted of approximately 83% inethanol sales and 17% from the sale of distillers grains, which is consistentwith fiscal 2007 results.  Total revenuederived from the sale of ethanol increased $8,231,844, or approximately 9%,from fiscal 2007, while revenue derived from the sale of distillers grainsincreased $2,235,632, or approximately 12%, from fiscal 2007.  We expect ethanol prices to declinemoderately and distillers grain prices to follow grain prices in fiscal 2009.

 

*Costs of Goods Sold*.  Ourcost of goods sold for the 2008 fiscal year equaled 90% of revenue, resultingin a gross profit margin of 10%. This represents a substantial decline inprofit margin from 22% in 2007. We attribute the decline to several factorsincluding:

 

·                  Anincrease in the price and quantity of grain used;

·                  Anincrease in the price of chemicals; and

·                  An increase innatural gas costs.

 

Grainprices, which represent the significant majority of our cost of goods sold,increased dramatically in 2008.  Priceswere driven by a rapid increase in demand globally and speculation.  Additionally, global weather conditionsadversely affected the production of grains, which caused increased demand forU.S. grain in the global market.  Asshown in Table 2, the average price we paid for grain increased approximately24% in 2008 as compared to 2007.  Coincidentalwith the end of our fiscal year and continuing into the months approaching the2008 harvest, grain prices have declined sharply.  We anticipate that grain prices will continueto decline in the first quarter of the 2009 fiscal year.

 

Ourincreased grain storage capacity helps us manage our grain costs by enabling usto purchase grain when costs are lower. As costs rise, we anticipate we will reduce grain inventory and try toavoid purchasing grain at market prices higher than the price paid for thegrain in storage.

 

Webelieve we continue to improve the efficiency with which we operate our plantbased on a year-over-year basis.  As aresult, our production costs (exclusive of commodity costs and increased costsfor necessary chemicals) continue to decrease.

 

Energycosts, representing the second largest component of our costs of goods sold,saw a steady increase during our 2008 fiscal year.  Natural gas prices stabilized during thesummer months of 2008 and we expect prices to ease somewhat during fiscal 2009.

 

Wecontinue to believe that hedging is an integral part of our business as a meansof risk management.  Our strategy is tomitigate the impact of large adverse price changes in costs, such as naturalgas and grain, as well as the products we sell. Our operating results include both realized and unrealized gains or lossesin these hedging activities. For the 2008 fiscal year, we realized $1,449,529in losses to operations relating to grain futures contracts and $540,160  in realized losses from natural gas futurescontracts, which amounts are included in costs of goods sold.  In addition, we recorded an unrealized losson grain hedging contracts of $658,043 at September 30, 2008.

 

*General and Administrative Expenses*. During fiscal 2008, general and administrative expenses decreased$392,455 or approximately 14% from fiscal 2007. Significant components of theseexpenses include salaries, professional fees and insurance. Salaries decreasedapproximately 

 

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26%,primarily due to a decrease in health insurance costs and reduction in bonusespaid during fiscal 2008.  Professionalfees decreased 58% from 2007 to 2008 due to fees incurred in fiscal 2007related to exploration of a business combination which were not repeated infiscal 2008.

 

*Depreciation and Amortization.* Amortization remained constant during the 2008 fiscal year from2007.  During that time, depreciationexpenses increased approximately 8%. This increase is primarily attributable to the additional depreciationrelated to the grain storage facility we placed in service during 2007 and thenew grain bins, hammermill, and conveyor systems completed and placed inservice during fiscal 2008.

 

*Other Income.*  Otherincome for the 2008 fiscal year decreased $433,641, or approximately 40%, fromthe year ended September 30, 2007. A significant portion of that decrease represents reduced grants andsubsidies received from the state government, which fell $393,826 in fiscal2008, or approximately 35%.  The amountwe received in grants and subsidies decreased as a result of additional ethanolplants participating in the state production incentive program since the stateis required to prorate total program payments among eligible producers.

 

**Results of Operations for the Year Ended September 30,2007 compared to September 30, 2006**

 

*Overview*.  Our operating results declinedconsiderably from 2006 to 2007.  Theresults are primarily attributable to ethanol prices retreating from historichighs while grain prices increased significantly.  While demand for fuel grade ethanol generallyremained high during 2007, the market price for ethanol decreased as comparedto 2006.  The rapid increase in grainprices during fiscal 2007 along with the moderate decrease in ethanol pricesdramatically reduced our profitability in 2007 as compared to 2006.

 

*Net Income*.  Net income for the 2007 fiscalyear decreased $29,239,691, or approximately 64%, from fiscal 2006.  We attribute this decrease primarily to asignificant increase in cost of goods sold as a result of at-or-near 10-yearhigh grain prices experienced during fiscal 2007.

 

*Revenue*.  Revenue for the 2007 fiscalyear was substantially similar to 2006, increasing $717,032, or approximately0.7%, from 2006.  The revenue wegenerated was comprised of approximately 83% ethanol sales and 17% distillersgrains sales, a decrease of approximately 7% from 2006 relative to the amountof revenue derived from ethanol sales.

 

Weattribute the increase in revenue for the 2007 fiscal year compared to 2006 toan increase in the amount of ethanol produced and sold as well as an increasein the price received for distillers grains. The average price that we received for our ethanol remained relativelythe same, while the prices for distillers grains increased approximately 59%during fiscal 2007 compared to 2006, accounting for the modest increase inrevenue. While we produced significantly less DDGS in 2007 as compared to 2006,we increased the amount of WDGS produced in 2007 compared to 2006. Theincreased sales of WDGS in 2007 helped off-set a decline in revenueattributable to the lower amount of DDGS sold in 2007.

 

*Costs of Goods Sold*.  Ourcost of goods sold for the 2007 fiscal year totaled 77.7% of revenue, resultingin a gross profit margin of 22.3%.  Thisrepresents a substantial decline from 2006, when our profit margin was49%.  The dramatic increase in the costof grain was the major factor contributing to this decrease.

 

Grainprices, which represent the significant majority of our cost of goods sold,increased dramatically during the second half of fiscal 2006 and reached10-year highs during fiscal 2007.  Ourcost of grain, net of hedging activity, increased approximately 83% in fiscal2007 as compared to fiscal 2006.

 

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Energycosts saw a steady decrease during our 2007 fiscal year compared to 2006.  Our average cost of natural gas per MMBTUdecreased approximately 17%, net of hedging activity, for fiscal 2007 ascompared to fiscal 2006.  We believehurricane-related price increases we experienced during 2006 declined during 2007thus causing our natural gas costs to decrease.

 

Forthe 2007 fiscal year, we realized $1,311,604 in losses to operations relatingto grain and natural gas futures contracts as compared to $800,662 for fiscal2006, which amounts are included in cost of goods sold.  In addition, we recorded unrealized losses ongrain and natural gas hedging contracts of $2,236,677 at September 30,2007 as compared to $63,481 at September 30, 2006.

 

*General and Administrative Expenses.* General and administrative expenses for the 2007 fiscal year increased$600,242, or approximately 27% from 2006. Significant components of these expenses include salaries, professionalfees and insurance.  We attribute aportion of the increase in administrative expenses to an increase in the costof professional fees related to a potential strategic transaction we exploredduring fiscal 2007, an increase in training expenses related to****ongoing process training in the plant, and an increase indirectors’ fees.

 

*Depreciation and Amortization.* Amortization remained constant from the fiscal year ended September 30,2006 through the 2007 fiscal year. Depreciation expenses increased approximately 4%. We attribute thisincrease to the purchase and construction of the additional grain storage.

 

*Other Income.*  Otherincome for the 2007 fiscal year decreased by $61,006 from 2006, orapproximately 5%.  That decrease isattributable to a decrease in state and federal government grant and subsidyincome, which decreased by $224,630, or approximately 17%, partially offset bya net difference in other income and expense of $138,338.  The largest factor contributing to thedecrease in grants and subsidies was the cessation of the federal BioenergyProgram, administered by the United States Department of Agriculture’sCommodity Credit Corporation.  Thatprogram paid subsidies to eligible participants for year-over-year increases inethanol production.  This program wasdiscontinued in June of 2006.  Wewere awarded the maximum amount of $1,125,000 from the State of Kansas as partof its state ethanol support program in both 2007 and 2006. Interest incomedecreased due to lower average cash balances on deposit which was offset by adecrease in interest expense.

 

**Trends that may Impact our Future Operating Results**

 

*Prices for Ethanol. *Demand for andthe price of ethanol can vary significantly over time and a decrease in theprice of ethanol will adversely affect our profitability.  The price of ethanol tends to fluctuate withthe price of petroleum gasoline.  Sincegasoline prices have fallen drastically in the first quarter in fiscal 2009, weexpect ethanol prices to continue to erode during the early part of fiscal2009.  Presently, ethanol is trading at apremium to petroleum gasoline which means that using ethanol for blending withpetroleum has become uneconomical, particularly where blending is permissiverather than mandatory.  We believe thismay decrease the demand for ethanol which in turn will continue to put downwardpressure on ethanol prices.  Anotherfactor that may affect the price of ethanol is the increased supply anticipatedas a result of the expansion of present plants and construction of new plantscoming on-line; however, we believe this trend may be less noticeable in 2009as excess capacity is leveling off due to decreased demand and/or delays inplant start-ups scheduled in the future. The increase in

 

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productioncapacity will increase the supply of ethanol, which will tend to reduce theprice for ethanol if demand does not also increase.

 

*Supply and price of grain.* Although grain prices remained high during fiscal 2008, we have seenprices fall during the first quarter of fiscal 2009, though not as dramaticallyas ethanol prices.  The grain market isdependent upon a variety of factors unrelated to the ethanol market.  The price of grain is generally dependentupon regional and international grain supplies, which can be veryvolatile.  In addition, the recentcollapse in the stock market, decreasing prices for oil and increasing value ofthe dollar has put downward pressure on the grain market.  Grain supplies and the resultant prices arealso affected by weather, governmental policy, disease and otherconditions.  Grain markets were relativelyvolatile during 2008 as well as 2007; however we believe our cost of grain willbe substantially less in fiscal 2009 as compared to fiscal 2008.

 

*Government supports.*  Asdiscussed elsewhere in this report, current federal law is favorable to ethanolbecause it mandates certain oxygenate blending. In addition, as noted above inthe section titled “**Item 1.****Business**,” the RFS established by the Energy Policy Act of2005 mandates that fuel refiners use a certain minimum amount of ethanol andother renewable fuels, which was subsequently increased by the enactment of theEnergy Independence and Security Act of 2007. While the RFS may not have an immediate impact on the ethanol marketsince current national ethanol production capacity exceeds the 2008 RFSrequirement of 9 billion gallons, it is likely that the newly increased RFSrequirement of 36 billion gallons of renewable fuel by 2022 will continue tosupport the ethanol industry in the long-term. It is also possible that cessation of supports and incentives mayadversely affect price and demand.

 

*Production of ethanol.*  As notedabove, with the new ethanol plants and plant expansions currently underconstruction along with new construction expected in the near future, thenationwide production capacity for ethanol is expected to increase in the nearterm. At a minimum, this increased capacity creates some uncertainty for theethanol industry. Although we believe that there will be an increase in thedemand for ethanol as a result of the phase out of MTBE and the increased usemandated under the RFS, capacity in excess of the allowable 10% fuel blend andthe negative economics associated with ethanol prices compared to petroleumprices will cause downward price pressure for ethanol in fiscal 2009.  If the production of ethanol exceeds eitherthe demand for ethanol or the petroleum industry’s ability to economicallyblend ethanol with gasoline, then the price of ethanol would be expected tofall, and the decrease in ethanol prices could be significant.  In that case, our revenues would decreaseaccordingly.  However, we believe thatour lack of significant long-term debt positions us favorably to weather lowerethanol prices compared to some of our competitors.

 

**Liquidity and CapitalResources**

 

*Overview*.  The following table highlightscertain information relating to our liquidity and capital resources at September 30,2008 and 2007:

 
| ** **           | ** ** | **September 30, 2008** | ** ** | **September 30, 2007** | ** ** |
|----------------------|------------|----------------------------------|------------|----------------------------------|------------|
| Working Capital      |       | $                                | 9,624,681  |                             | $          | 7,413,269 |   |
| Current Assets       |       | 15,753,880                       |       | 11,486,108                       |       |
| Current Liabilities  |       | 6,129,199                        |       | 4,072,839                        |       |
| Long-term Debt       |       | —                           |       | 9,021                            |       |
| Members’ Equity |       | 31,135,383                       |       | 33,705,018                       |       |
|                      |            |                                  |            |                                  |            |  |  |

 

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Ourworking capital at September 30, 2008 increased by $2,211,412, orapproximately 30%, from September 30, 2007.  Current assets increased $4,267,772, orapproximately 37%, while current liabilities increased $2,056,360, orapproximately 50.5%.  We attribute theincrease in current assets and working capital to several factors.  Available cash increased as a result ofreduced investment in property, plant and equipment, a decrease in net margincalls for commodity contracts, and a substantial reduction in member distributionsduring fiscal 2008. These were partially offset by the reduction in net incomeand increase in accounts receivable at September 30, 2008 as compared to September 30,2007.

 

Workingcapital was reduced subsequent to the fiscal year end as the result of a cashdistribution paid to our members in the amount of $1,421,000.  However, we believe we have sufficientliquidity and capital for the foreseeable future.

 

Underthe terms of our Operating Agreement, we are required to make an annualdistribution of cash to our members of a minimum of 20% of the net cash we earnfrom operations, as defined in that agreement, as long as net cash fromoperations exceeds $500,000 for that year. Additional distributions may be made in the sole discretion of our Boardof Managers.  However, we are prohibitedfrom making any distribution that would violate or cause a default under any ofthe terms of our credit facilities or debt instruments.  Distributions to members decreasedsubstantially during fiscal 2008 due to the tightening of margins experiencedby our entire industry.  We foresee thispressure on margins to continue during fiscal 2009; however, we believe we arein a financially sound position as we enter the new fiscal year and wouldexpect to continue a distribution program proportionate to our profitability.

 

Ourcapital resources consist of:  (i) cashfrom operations; (ii) permanent financing, in the form of capitalcontributions by our members; (iii) a revolving line of credit; and (iv) industrialdevelopment bonds.  At September 30,2008, we believe the mix of our capital resources was appropriate and adequatefor the foreseeable future.  Other thanfinancing continuing operations, additional capital would be necessary shouldwe decide to further expand our plant or pursue acquisitions of additional property,plant or equipment.

 

*Cash Flow.*  Net cash generated during the2008 fiscal year was $1,875,847, compared to net cash used of $14,364,727 infiscal 2007.  The biggest factors causingthe increase in cash flow in 2008 was the decrease in distributions to members,net reduction in our commodities trading account, decrease in purchases ofplant and equipment, decreased inventory and increase in accounts payablebalances at September 30, 2008. This was tempered somewhat with a significant increase in our accountsreceivable balance at September 30, 2008, as compared to September 30,2007, primarily as a result of a shorter collection cycle in 2007 whichproduced a lower than average balance at September 30, 2007.

 

Thecash used for our investing activities during fiscal 2008 decreased by$4,700,780 from fiscal 2007.  We invested$1,575,358 in property, plant and equipment in fiscal 2008 compared to$4,433,862 in fiscal 2007.  The bulk ofthese additions were related to grain storage and handling facilitates whichwere completed in fiscal 2008.

 

Cashused in financing activities decreased by $21,176,196 in fiscal 2008 comparedto 2007.  The decrease primarily reflectsthe reduction of member distributions. We acquired membership units during fiscal 2008 and made payments on ourline of credit which contributed to the amount of cash used in financingactivities.

 

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*Equity Financing.*  Ourmembers have contributed $19,801,035 in equity financing, primarily from ourinitial public offering completed in 2003. We do not anticipate that any additional equity financing will benecessary in the foreseeable future. During the 2008 fiscal year, our members’ equity decreased $2,569,635,or approximately 8%, as a result of distributions paid to members during theperiod and the acquisition of membership units.

 

*Debt Financing.*  Underour arrangement with AgCountry, our principal lender, we borrowed $22,000,000under a construction loan in 2003.  Theproceeds of that loan were used by us to complete construction of the plant andto commence operations.  In August 2004,we converted the loan to permanent financing in the form of a $16,000,000 termloan and a line of credit in the amount of $5,000,000.  At that time, we paid AgCountry $5,000,000 toreduce the loan, all of which was used to create the line of credit.  We paid the AgCountry term loan in full in June 2006and continue to maintain the line of credit. Pursuant to the Fifth Amendment to the Credit Agreement dated July 29,2003, which was effective May 2, 2007, the amount available on the line ofcredit was increased to $8,000,000 with variable interest at LIBOR plus 2.0%. Thereis no balance outstanding on this line of credit at September 30, 2008.

 

Ourknown obligations at fiscal year end are set forth in the table below:

 
| **Contractual Obligations** | ** ** | **Total** | ** ** | **Less than 1  year** | ** ** | **1-3  years** | ** ** | **3-5  years** | ** ** | **More than 5  years** | ** ** |
|----------------------------------|------------|-----------|------------|---------------------------------|------------|----------------|------------|----------------|------------|----------------------------------|------------|
| Capital lease(1)                 |       | $         | 32,000,000 |                            | $          | —         |       | $              | —     |                             | $          | — |   | $ | 32,000,000 |   |
| Vehicle purchase                 |       | 8,119     |       | 8,119                           |       | —         |       | —         |       | —                           |       |
| Energy Services obligation       |       | 78,600    |       | 78,600                          |       | —         |       | —         |       | —                           |       |
| Total                            |       | $         | 32,086,119 |                            | $          | 86,719         |       | $              | —     |                             | $          | — |   | $ | 32,000,000 |   |

 

----

(1)               Includes a $32,000,000 lease obligationrelated to our sale and leaseback transaction with Gove County.   We sold our property and facilities to GoveCounty in exchange for industrial revenue bonds.  The amount of our lease obligation is offsetby the amount of interest we receive on the bonds.

 

Ourexisting repayment obligations under the credit agreement with AgCountry aresecured by all of our tangible and intangible real and personal property.  In addition, the bonds acquired from GoveCounty have been pledged to AgCountry to secure our borrowing.  As part of the credit agreement, we agreed tocertain affirmative, negative and financial covenants which potentially affectour operations, including, but not limited to, the following:

 

·                  Wemust provide AgCountry with audited annual and unaudited quarterly financialstatements, annual budgetary and business plan information, and a notice of theoccurrence of an event of default and other material events;

 

·                  Wemust permit AgCountry representatives to visit and inspect our properties,conduct audits of the collateral, examine our books and records and reviewdocuments related to construction of our plant;

 

·                  Withcertain exceptions, we may not incur additional indebtedness, allow our real orpersonal properties to be used as collateral for any other obligations or makeany other investments of any kind;

 

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·                  Wecan distribute up to 75% of our net income to our members.  If we maintain a leverage ratio of 0.60:1.00and working capital greater than $5 million (each as reported in auditedyear-end financial statements prepared in accordance with generally acceptedaccounting principles), we can distribute 100% of our net income to ourmembers.

 

·                  Wemust maintain certain financial ratios, beginning at various times, including afixed charge coverage ratio and current ratio and we must meet a minimum networth requirement of $25,000,000.  Wealso may not, after completion of construction of the plant, make any capitalexpenditures in excess of $2,500,000 during any fiscal year without AgCountry’sprior written approval.

 

AtSeptember 30, 2008, we believe we satisfied all of the covenants under theloan agreement.

 

**Critical Accounting Policies and Estimates**

 

*Use of Estimates*.  Preparation of our financial statementsnecessarily requires estimates and judgments to be made that affect the amountsof assets, liabilities, revenues and expenses reported. Such decisions includethe selection of the appropriate accounting principles to be applied and theassumptions on which to base accounting estimates. Our management continuallyevaluates these estimates based on assumptions it believes to be reasonableunder the circumstances.

 

Thedifficulty in applying these policies arises from the assumptions, estimatesand judgments that must be made currently about matters that are inherentlyuncertain, such as future economic conditions, operating results andvaluations, as well as management intentions. As the uncertainty increases, thelevel of precision decreases, meaning that actual results can, and probablywill be, different from those currently estimated.

 

Ofthe significant accounting policies described in the notes to the financialstatements, we believe that the following may involve a higher degree ofestimates, judgments and complexity:

 

*Revenue Recognition. *Revenue fromthe production of ethanol and related products is recorded upon delivery tocustomers. Interest income is recognized as earned.  Income from government grant programs isrecognized as costs are incurred. Government subsidies are recognized based on fulfillment of programcriteria, completion of application and determination of available funding.

 

*Derivatives and Financial Instruments. *We account for derivatives in accordance with Statement of FinancialAccounting Standards (SFAS) No. 133, “Accounting for DerivativeInstruments and Hedging Activities”. SFAS No. 133 requires the recognitionof derivatives in the balance sheet and the measurement of these instruments atfair value. Changes in the fair value of derivatives are recorded as acomponent of Cost of Sales unless the normal purchase or sale exception appliesor hedge accounting is elected.

 

Weenter into derivative instruments including future contracts and swapagreements and purchased options to fix prices for a portion of future rawmaterial requirements. We have designated, documented and assessed for hedgerelationships, which mostly resulted in cash flow hedges that require us torecord the derivative assets and liabilities at their fair value on the balancesheet with an offset in other comprehensive income. Amounts are removed fromother comprehensive income as the underlying transactions occur and realizedgains or losses are 

 

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recorded.   We have included in its cost of sales anaggregate of $1,449,529 of losses on completed contracts related to its hedgingactivities for corn and natural gas and have recorded an aggregate of $658,043of unrealized losses for the year ended September 30, 2008, as a charge tocomprehensive income as compared to $1,311,604 losses on contracts and$2,236,677 of unrealized losses for the period ended September 30,2007.  At September 30, 2008, theCommodities trading account-futures and options contracts amounted to $2,332,214,representing the lower of the cost or fair market value of the futures andoptions contracts recorded on the balance sheet.

 

*Commitments and Contingencies. *Contingencies, by their nature, relate to uncertainties that requiremanagement to exercise judgment both in assessing the likelihood that aliability has been incurred, as well as in estimating the amount of thepotential expense. In conformity with accounting principles generally acceptedin the United States, we accrue an expense when it is probable that a liabilityhas been incurred and the amount can be reasonably estimated.

 

*Long-Lived Assets. *Depreciationand amortization of our property, plant and equipment is applied on thestraight-line method by charges to operations at rates based upon the expecteduseful lives of individual or groups of assets placed in service. Economiccircumstances or other factors may cause management’s estimates of expecteduseful lives to differ from the actual useful lives. Differences betweenestimated lives and actual lives may be significant, but management does notexpect events that occur during the normal operation of our plant related toestimated useful lives to have a significant effect on results of operations.

 

Long-livedassets, including property, plant and equipment and investments, are evaluatedfor impairment on the basis of undiscounted cash flows whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. 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.

 

**Recent Accounting Pronouncements**

 

On February 15, 2007, the FinancialAccounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair ValueOption for Financial Assets and Financial Liabilities” (SFAS No. 159).SFAS No. 159 permits entities to choose to measure many financialinstruments and other items at fair value. The objective is to improve financialreporting by providing entities with the opportunity to mitigate volatility inreported earnings caused by measuring related assets and liabilitiesdifferently, without having to apply complex hedge accounting procedures. SFAS No. 159also establishes presentation and disclosure requirements designed tofacilitate comparisons between companies that choose different measurementattributes for similar types of assets and liabilities. The Statement isexpected to expand the use of fair value measurements, which is consistent withthe Board’s long-term measurement objectives for accounting for financialinstruments. SFAS No. 159 will be effective for our 2009 fiscal year andwill be required to be adopted by us effective October 1, 2008. Managementat this time has not evaluated the impact, if any, of adopting SFAS No. 159on its financial statements.

 

InDecember 2007, the FASB issued SFAS No. 160 Non-controlling Interestsin Consolidated Financial Statements—an amendment of ARB No. 51. SFAS 160establishes accounting and reporting standards for the non-controlling interestin a subsidiary and for the 

 

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deconsolidationof a subsidiary. The guidance will become effective as of the beginning of ourfiscal year beginning after December 15, 2008. Management believes theadoption of this pronouncement will not have a material impact on ourconsolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 141R“Business Combinations (revised 2007)”. This statement replaces SFAS 141,Business Combinations. The statement provides guidance for how the acquirerrecognizes and measures the identifiable assets acquired, liabilities assumedand any non-controlling interest in the acquiree.  SFAS 141R provides for how the acquirerrecognizes and measures the goodwill acquired in the business combination or again from a bargain purchase.  Thestatement determines what information to disclose to enable users to be able toevaluate the nature and financial effects of the business combination.  The provisions of SFAS 141R will be effectivefor our fiscal year beginning October 1, 2009, and do not allow earlyadoption.  Management is currentlyevaluating the impact of adopting this statement.

 

InFebruary 2008, FASB Staff Position (FSP) No. 157-2, “Effective Dateof FASB Statement No. 157”  wasissued.  FSP No. 157-2 defers theeffective date of SFAS No. 157 to fiscal years  beginning  after  December 15,2008, and interim periods within those fiscal years, or all non-financialassets  and liabilities,  except those that are recognized or disclosedat fair value in the financial statements on a recurring basis (at least annually).  Examples of items within the scope of FSP No. 157-2are non-financial assets and non financial liabilities initially measured atfair value in a business combination (but not measured at fair value insubsequent periods), and long-lived assets, such as property,  plant andequipment and intangible  assets measuredat fair value for an impairment assessment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Thepartial adoption of SFAS No. 157 on January 1, 2008, with respect tofinancial assets and financial liabilities recognized or disclosed at fairvalue in the financial statements on a recurring basis is not expected to havea material effect on our consolidated financial statements.  We are currently assessing the impact, ifany, of SFAS No. 157 relating to the planned October 1, 2009,adoption of the remainder of the standard.

 

InMarch 2008, the FASB issued SFAS No. 161, “Disclosures aboutDerivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133,”which becomes effective on November 15, 2008. This standard changes thedisclosure requirements for derivative instruments and hedging activities.  Entities are required to provide enhanceddisclosures about (a) how and why an entity uses derivative instruments, (b) howderivative instruments and related hedged items are accounted for under SFAS133 and its related interpretations, and (c) how derivative instrumentsand related hedged items affect an entity’s financial position, financialperformance, and cash flows.  Managementis currently evaluating the impact of adopting this statement.

 

InApril 2008, the FASB issued FSP 142-3, “Determination of the Useful Lifeof Intangible Assets.” This FSP amends the factors that should be considered indeveloping renewal or extension assumptions used to determine the useful lifeof a recognized intangible asset under FASB Statement No. 142, “Goodwilland Other Intangible Assets.” The intent of this FSP is to improve theconsistency between the useful life of a recognized intangible asset underStatement 142 and the period of expected cash flows used to measure the fairvalue of the asset under FASB Statement No. 141 (Revised 2007), “BusinessCombinations,” and other U.S. generally accepted accounting principles(GAAP).  This FSP is effective forfinancial statements issued for fiscal years beginning after December 15,2008, and interim periods within those fiscal years. Early adoption isprohibited.  We do not expect the adoption of FAS 142-3 to have a materialeffect on our results of operations and financial condition.

 

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InMay 2008, the FASB issued FSP APB 14-1 “Accounting for Convertible DebtInstruments That May Be Settled in Cash upon Conversion (Including PartialCash Settlement)” . FSP APB 14-1 requires the issuer of certainconvertible debt instruments that may be settled in cash (or other assets) onconversion to separately account for the liability (debt) and equity(conversion option) components of the instrument in a manner that reflects theissuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effectivefor fiscal years beginning after December 15, 2008, on a retroactive basisand we will adopt it in the first quarter of fiscal 2009. We do not expect theadoption of FSP APB 14-1 to have a material effect on our results of operationsand financial condition.

 

InMay 2008, the FASB issued SFAS No. 162, “The Hierarchy ofGenerally Accepted Accounting Principles,” which becomes effective uponapproval by the SEC. This standard sets forth the sources of accountingprinciples and provides entities with a framework for selecting the principlesused in the preparation of financial statements that are presented inconformity with GAAP.  It is not expectedto change any of our current accounting principles or practices and therefore,is not expected to have a material impact on our financial statements.

 

**Forward-Looking Statements**

 

This report contains orincorporates by reference “forward-looking statements,” as that term is used infederal securities laws, about our financial condition, results of operationsand business.  These statements include,among others:

 

·                  statements concerning the benefits that weexpect will result from our business activities and certain transactions thatwe have completed, such as increased revenues, decreased expenses and avoidedexpenses and expenditures; and

·                  statements of our expectations, beliefs,future plans and strategies, anticipated developments and other matters thatare not historical facts.

 

Thesestatements may be made expressly in this document or may be incorporated byreference to other documents that we will file with the SEC.  You can find many of these statements bylooking for words such as “believes,” “expects,” “anticipates,” “estimates” orsimilar expressions used in this report or incorporated by reference in thisreport.

 

Theseforward-looking statements are subject to numerous assumptions, risks anduncertainties that may cause our actual results to be materially different fromany future results expressed or implied by us in those statements.  Because the statements are subject to risksand uncertainties, actual results may differ materially from those expressed orimplied.  We caution you not to put unduereliance on these statements, which speak only as of the date of thisreport.  Further, the informationcontained in this document or incorporated herein by reference is a statementof our present intention, is based on present facts and assumptions and maychange at any time and without notice based on changes in such facts orassumptions.

 

Afew of the uncertainties that could affect the accuracy of forward-lookingstatements, besides the specific “Risk Factors” identified above, include:

 

·                  The state of the United States economy andhow it affects the desire for automobile travel;

·                  The relative price of gasoline and othercompeting fuels;

 

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·                  Changes in government regulations for air andwater quality or subsidies for production of ethanol and other fossil fuelalternatives;

·                  Technological advances in the process forproducing ethanol; and

·                  Drought and other environmental conditions.

 

**Item 7A.  Quantitative andQualitative Disclosures About Market Risk.**

 

Weare exposed to the impact of market fluctuations associated with interest ratesand commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business isconducted in U.S. Dollars. We use derivative financial instruments as part ofan overall strategy to manage market risk. We use cash, futures and optioncontracts to hedge changes to the commodity prices of corn and natural gas. Wedo not enter into these derivative financial instruments for trading orspeculative purposes, nor do we designate these contracts as hedges foraccounting purposes pursuant to the requirements of SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*.

 

**Interest Rate Risk**

 

Weare exposed to market risk from changes in interest rates. Exposure to interestrate risk results from holding a revolving promissory note which bears avariable interest rate.  At September 30,2008 there was no outstanding balance on this note.  We are subject to interest at the rate ofLIBOR plus 2.0% on the outstanding balance.

 

**Commodity Price Risk**

 

Weare also exposed to market risk from changes in commodity prices.  Exposure to commodity price risk results fromour dependence on grain and natural gas in the ethanol production process.  We seek to minimize the risks fromfluctuations in the prices of grain and natural gas through the use of hedginginstruments.  In practice, as markets move,we actively manage our risk and adjust hedging strategies as we believeappropriate.  Although we believe ourhedge positions accomplish an economic hedge against our future purchases, theyare not designated as such for hedge accounting purposes, which would match thegain or loss on our hedge positions to the specific commodity purchase beinghedged.  We are marking to market ourhedge positions, which means as the current market price of our hedge positionschanges, the gains and losses are immediately recognized in our cost of goodssold.  For example, it is likely and wewould generally expect that a 10% increase in the cash price of grain andnatural gas would produce an increase in the fair value of our derivativeinstruments equal to approximately $233,221 based on our positions at September 30,2008.

 

Theimmediate recognition of hedging gains and losses can cause net income to bevolatile from quarter to quarter due to the timing of the change in value ofthe derivative instruments relative to the cost and use of the commodity beinghedged.  As of September 30, 2008,the fair value of our derivative instruments for grain is an asset in theamount of $2,332,214.  We recorded a lossin the amount of $658,043 for the fiscal year ended September 30,2008.  There are several variables thatcould affect the extent to which our derivative instruments are impacted byprice fluctuations in the cost of grain or natural gas.  However, it is likely that commodity cashprices will have the greatest impact on the derivatives instruments withdelivery dates nearest the current cash price.

 

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Tomanage our grain price risk, our hedging strategy is designed to establish aprice ceiling and floor for our purchases. We have taken a net long position on our exchange traded futures andoptions contracts, which allows us to offset increases or decreases in themarket price of grain.  The upper limitof loss on our futures contracts is the difference between the contract priceand the cash market price of corn and milo at the time of the execution of thecontract. The upper limit of loss on our exchange traded and over-the-counteroption contracts is limited to the amount of the premium we paid for theoption.

 

Weestimate that our expected grain usage is approximately 17 million bushels peryear for the production of 48 million gallons of ethanol.  We have no price protection in place for ourexpected grain usage for fiscal year ending September 30, 2009.  If we determine that obtaining priceprotection would be beneficial as we go further into 2009, we would likely doso using CBOT futures and options and over the counter option contracts.  As grain prices move in reaction to markettrends and information, our income statement may be affected depending on theimpact such market movements have on the value of our derivative instruments.  Depending on market movements, crop prospectsand weather, price protection positions may cause immediate adverse effects,but are expected to produce long-term positive growth for us.

 

Tomanage our natural gas price risk, we entered into a natural gas purchaseagreement with our natural gas supplier. This purchase agreement fixes the price at which we purchase naturalgas.  We estimate that we have forwardcontracts in place for approximately 15% of our total natural gas needs forfiscal 2009. We expect to acquire additional fiscal 2009 contracts for gasduring August 2008 which is historically the month when the lowest annualprices occur.

 

Atthe time we purchased price protection for natural gas, the market wasexperiencing a great deal of price uncertainty. Due to this uncertainty, we purchased amounts of gas for most of theplant’s needs and implemented derivative instruments on a portion of ourrequirements to allow us to benefit in the event natural gas pricesdeclined.  Energy sector prices haveincreased and natural gas, as a portion of the total energy market, hasresponded with higher prices to be cost competitive with its alternatives. Inthe future, we may not be able to secure natural gas for prices less thancurrent market price and we may not recover high costs of production resultingfrom high natural gas prices, which may raise our costs of production.

 

Asensitivity analysis has been prepared to estimate our exposure to grain andnatural gas price risk. The table presents the fair value of our derivativeinstruments as of September 30, 2008 and September 30, 2007 and thepotential loss in fair value resulting from a hypothetical 10% adverse changein such prices. The fair value of the positions is a summation of the fairvalues calculated by valuing each net position at quoted market prices as ofthe applicable date. The results of this analysis, which may differ from actualresults, are as follows:

 
| **Period Ended**   | ** ** | **Fair Value** | ** ** | **Effect of   Hypothetical Adverse   Change - Market Risk** | ** ** |
|-------------------------|------------|---------------------|------------|------------------------------------------------------------------------------------------------|------------|
| September 30, 2008 |       | $                   | 2,332,214  |                                                                                           | $          | 233,221 |   |
| September 30, 2007 |       | 2,188,278           |       | 218,828                                                                                        |       |
|                         |            |                     |            |                                                                                                |            |  |  |

 

Weare also exposed to market risk from changes in ethanol prices. These pricefluctuations are minimized in part by advanced contract pricing of our ethanol,which is designed to establish a price floor for our ethanol sales. Currently,we have entered into priced contracts for the entire amount of our anticipatedethanol production through the first three months of fiscal 2009.  We 

 

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havenot contracted for any of our anticipated production through the second andthird quarter of fiscal 2009, respectively. We will continue to advance contract for ethanol sales in fiscal 2009 toattempt to further reduce our risk related to price decreases. While thisstrategy minimizes the risk associated with downward price fluctuations ofethanol, it may also prevent us from realizing the full benefit of upward pricemovements. Although using priced contracts makes our revenue more predictable,we cannot predict the extent to which other factors such as inflation,government regulation or changing prices may affect our financial performance.

 

**Item 8.  Financial Statements andSupplementary Data.**

 

Ourfinancial statements and supplementary data are included on pages F-1 toF-20 of this report.

 

**Item 9.****          ****Changes in and Disagreements withAccountants on Accounting and Financial Disclosure.**

 

Therehas been no change in our independent accountants since 2003.  Stark Winter Schenkein & Co., LLPhas been our independent registered accounting firm since that time.

 

**Item 9A(T).  Controls andProcedures.**

 

(a)                                  Our management supervised and participated inan evaluation of the effectiveness of the design and operation of ourdisclosure controls and procedures as of September 30, 2008.  Based on that evaluation, our management,including our principal executive officer and principal financial officer,concluded that our disclosure controls and procedures were effective to ensurethat information required to be disclosed in the reports filed or submitted bythe company under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized and communicated to our management, including our principalexecutive officer and principal financial officer, as appropriate, to allowtimely decisions regarding required disclosure within the time periodsspecified in the SEC’s rules and forms.

 

Thisreport does not include an attestation report of our independent registeredpublic accounting firm regarding internal control over financialreporting.  Management’s report, which isincluded in Item 8 above, was not subject to attestation by our registeredpublic accounting firm pursuant to temporary rules of the SEC that permitus to provide only management’s report in this annual report.

 

(b)                                 There were no changes in our internal controlover financial reporting during the quarter ended September 30, 2008 thatmaterially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.

 

**Item 9B.  Other Information.**

 

None.

 

**PART III**

 

Pursuant to General Instruction G of Form 10-K,the information contained in Part III of this report (Items 10, 11, 12, 13and 14) is incorporated by reference to our Definitive Proxy Statement, whichis expected to be filed with the SEC on or before January 28, 2009.

 

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**PART IV**

 

**Item 15.  Exhibits, FinancialStatement Schedules.**

 

SeeExhibit Index following financial statements in this report for a listingof exhibits filed with, or incorporated by reference into, this report.

 

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this Report to be signed on itsbehalf by the undersigned thereunto duly authorized in Oakley, Kansas on December24, 2008.

 
|   | WESTERN  PLAINS ENERGY, L.L.C. |
|--------|--------------------------------|
|   |                           |
|   |                           |
|   | By:                            | /s/  Steven R. McNinch |
|   |                           | Steven  R. McNinch, Chief Executive Officer |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this Report hasbeen signed by the following persons in the capacities and on the datesindicated.

 
| **Signature**          | ** ** | **Title**                   | ** ** | **Date**                |
|------------------------|------------|-----------------------------|------------|-------------------------|
|                   |       |                        |       |                    |
| /s/  Steven R. McNinch |       | Chief  Executive Officer    |       | December 24,  2008 |
| Steven  R. McNinch     |       |                        |       |                    |
|                   |       |                        |       |                    |
| /s/  Curt V. Sheldon   |       | Chief  Accounting Officer   |       | December 24,  2008 |
| Curt  V. Sheldon       |       |                        |       |                    |
|                   |       |                        |       |                    |
| /s/  Richard Sterrett  |       | Vice  President, Chief      |       | December 24,  2008 |
| Richard  Sterrett      |       | Financial  Officer, Manager |       |                    |
|                   |       |                        |       |                    |
| /s/  Jeff Torluemke    |       | President,  Manager         |       | December 24,  2008 |
| Jeff  Torluemke        |       |                        |       |                    |
|                   |       |                        |       |                    |
| /s/  Brian Baalman     |       | Manager                     |       | December 24,  2008 |
| Brian  Baalman         |       |                        |       |                    |
|                   |       |                        |       |                    |
| /s/  Ronald Blaesi     |       | Manager                     |       | December 24,  2008 |
| Ronald  Blaesi         |       |                        |       |                    |
|                   |       |                        |       |                    |
| /s/  Ben Dickman       |       | Manager                     |       | December 24,  2008 |
| Ben  Dickman           |       |                        |       |                    |
|                   |       |                        |       |                    |
| /s/  David Mann        |       | Manager                     |       | December 24,  2008 |
| David  Mann            |       |                        |       |                    |
|                   |       |                        |       |                    |
| /s/  Scott Foote       |       | Manager                     |       | December 24,  2008 |
| Scott  Foote           |       |                        |       |                    |
|                   |       |                        |       |                    |
| /s/  Gary Johnson      |       | Manager                     |       | December 24,  2008 |
| Gary  Johnson          |       |                        |       |                    |

 

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****WESTERN PLAINSENERGY, L.L.C.****

 

****Index toFinancial Statements****

 
| Management’s Report on Internal Controls  Over Financial Reporting                                               | F-2    |
|-----------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                  |   |
| Report of Independent Registered Public  Accounting Firm                                                              | F-3    |
|                                                                                                                  |   |
| Balance Sheets at September 30, 2008 and 2007                                                                    | F-4    |
|                                                                                                                  |   |
| Statements of Income for the Fiscal Years  Ended September 30, 2008, 2007 and 2006                     | F-5    |
|                                                                                                                  |   |
| Statement of  Changes in Members’ Equity for the Fiscal Years Ended September 30,  2008, 2007 and 2006 | F-6    |
|                                                                                                                  |   |
| Statements of Cash Flows for the Fiscal  Years Ended September 30, 2008, 2007 and 2006                 | F-7    |
|                                                                                                                  |   |
| Notes to  Financial Statements                                                                                        | F-8    |

 

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**WESTERN PLAINS ENERGY L.L.C.**

**MANAGEMENT’SREPORT ON INTERNAL CONTROLS OVER FINANCIAL**

**REPORTING**

 

Ourmanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting.

 

TheSecurities Exchange Act of 1934 defines internal control over financialreporting in Rules 13a-15(f) and 15d-15(f) as a process designedto provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles and includes thosepolicies and procedures that:

 

·                  Pertain to the maintenance of records that inreasonable detail accurately and fairly reflect the transactions anddisposition of assets;

 

·                  Provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat our receipts and expenditures are being made only in accordance withauthorizations of management and our directors; and

 

·                  Provide reasonable assurance regardingprevention and timely detection of unauthorized acquisition, use or dispositionof our assets that could have a material effect on our financial statements.

 

Internalcontrol systems, no matter how well designed, have inherent limitations.  Therefore, even those systems that aredetermined to be effective provide only reasonable assurance with respect tofinancial statement preparation and presentation.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Managementassessed the effectiveness of our internal control over financial reportingbased on criteria for effective internal control over financial reportingdescribed in Internal Control – Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission.

 

Basedon its assessment, management concluded that we maintained effective internalcontrol over financial reporting as of September 30, 2008.

 

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REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Members and Board of Managers

Western Plains Energy, L.L.C.

 

We have audited the accompanying balancesheets of Western Plains Energy, L.L.C. as of September 30, 2008 and 2007,and the related statements of income, changes in members’ equity, and cashflows for the years ended September 30, 2008, 2007, and 2006. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates by management, 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 statements referred to above presentfairly, in all material respects, the financial position of Western PlainsEnergy, L.L.C. as of September 30, 2008 and 2007, and the results of itsoperations, and its cash flows for the years ended September 30, 2008,2007, and 2006 in conformity with accounting principles generally accepted inthe United States of America.

 

 
| /s/ Stark Winter Schenkein & Co.,  LLP |   |
|-------------------------------------------------|--------|
|                                            |
| Denver, Colorado                                |
| December 12, 2008                          |

 

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

**BALANCE SHEETS**

**SEPTEMBER30, 2008 AND 2007**

 
| ** **                                                  | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|-------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ** **                                                  | ** ** | ** **  | ** ** | ** **  | ** ** |
| **ASSETS**                                                  | ** ** | ** **  | ** ** | ** **  | ** ** |
| ** **                                                  | ** ** | ** **  | ** ** | ** **  | ** ** |
| **CURRENT ASSETS**                                          |       |        |       |        |       |
| Cash                                                        |       | $           | 2,501,358  |        | $          | 625,511 |   |
| Accounts receivable                                         |       | 6,143,322   |       | 3,219,078   |       |
| Accounts receivable - government subsidies                  |       | 371,919     |       | 246,889     |       |
| Inventory                                                   |       | 4,197,096   |       | 5,003,137   |       |
| Prepaid expense                                             |       | 207,971     |       | 203,215     |       |
| Commodities trading account- futures and  options contracts |       | 2,332,214   |       | 2,188,278   |       |
| **Total current assets**                                    |       | 15,753,880  |       | 11,486,108  |       |
|                                                        |       |        |       |        |       |
| **PROPERTY AND EQUIPMENT**                                  |       |        |       |        |       |
| Land                                                        |       | 701,872     |       | 701,872     |       |
| Water rights                                                |       | 340,408     |       | 340,408     |       |
| Land improvements                                           |       | 1,148,566   |       | 766,586     |       |
| Manufacturing equipment                                     |       | 38,811,073  |       | 38,282,030  |       |
| Buildings                                                   |       | 2,960,664   |       | 1,679,925   |       |
| Vehicles                                                    |       | 490,599     |       | 490,599     |       |
| Grain handling and other equipment                          |       | 3,742,557   |       | 1,183,763   |       |
| Office equipment, furniture, fixtures                       |       | 178,640     |       | 174,803     |       |
| Construction-in-progress                                    |       | —      |       | 3,488,767   |       |
| Spare parts                                                 |       | 712,425     |       | 402,693     |       |
|                                                        |       | 49,086,804  |       | 47,511,446  |       |
| Less: Accumulated depreciation                              |       | (28,037,844 | )          | (21,712,858 | )          |
|                                                        |       | 21,048,960  |       | 25,798,588  |       |
|                                                        |       |        |       |        |       |
| **OTHER ASSETS**                                            |       |        |       |        |       |
| Investment in industrial development  revenue bonds         |       | 32,000,000  |       | 32,000,000  |       |
| Loan origination fees, net                                  |       | 196,655     |       | 230,363     |       |
| Financing fees, net                                         |       | 167,253     |       | 173,985     |       |
| Deposits                                                    |       | 97,834      |       | 97,834      |       |
|                                                        |       | 32,461,742  |       | 32,502,182  |       |
|                                                        |       |        |       |        |       |
| **TOTAL ASSETS**                                            |       | $           | 69,264,582 |        | $          | 69,786,878 |   |
|                                                        |       |        |       |        |       |
| **LIABILITIES AND MEMBERS’ EQUITY**                    |       |        |       |        |       |
|                                                        |       |        |       |        |       |
| **CURRENT LIABILITIES**                                     |       |        |       |        |       |
| Accounts payable and accrued expenses                       |       | $           | 6,116,316  |        | $          | 3,129,432 |   |
| Accrued interest                                            |       | 4,765       |       | 8,582       |       |
| Current portion of long term debt                           |       | 8,119       |       | 934,825     |       |
| **Total current liabilities**                               |       | 6,129,199   |       | 4,072,839   |       |
|                                                        |       |        |       |        |       |
| **LONG TERM DEBT**                                          |       | —      |       | 9,021       |       |
|                                                        |       |        |       |        |       |
| **LEASE OBLIGATION**                                        |       | 32,000,000  |       | 32,000,000  |       |
|                                                        |       |        |       |        |       |
| **COMMITMENTS AND CONTINGENCIES**                           |       |        |       |        |       |
|                                                        |       |        |       |        |       |
| **MEMBERS’ EQUITY**                                    |       |        |       |        |       |
| Class A Capital Units, 16,002 issued                   |       | 10,910,140  |       | 10,910,140  |       |
| Class B Capital Units, 12,068 issued                   |       | 7,940,895   |       | 8,640,895   |       |
| Class C Capital Units, 350 issued                      |       | 250,000     |       | 250,000     |       |
| Membership distributions                                    |       | (70,610,800 | )          | (65,728,800 | )          |
| Accumulated comprehensive (loss)                            |       | (2,990,013  | )          | (2,331,970  | )          |
| Retained earnings                                           |       | 85,635,160  |       | 81,964,753  |       |
| **Total members’ equity**                              |       | 31,135,382  |       | 33,705,018  |       |
| .                                                           |       | .           |       |        |       |
| **TOTAL LIABILITIES AND MEMBERS’ EQUITY**              |       | $           | 69,264,582 |        | $          | 69,786,878 |   |

 

Please refer to accompanying notes to financialstatements

 

F-4

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Tableof Contents

 

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

**STATEMENTS OF INCOME**

**FORTHE FISCAL YEARS ENDED SEPTEMBER 30, 2008, 2007, AND 2006**

 
| ** **                                          | ** ** | **2008**    | ** **  | **2007**   | ** ** | **2006**    | ** ** |
|-----------------------------------------------------|------------|-------------|-------------|------------|------------|-------------|------------|
|                                                |       |        |        |       |       |        |       |
| **REVENUE**                                         |       | $           | 119,228,676 |       | $          | 108,761,200 |       | $ | 108,044,168 |   |
| **COST OF SALES**                                   |       | 107,404,082 |        | 84,457,974 |       | 55,377,115  |       |
| **GROSS PROFIT**                                    |       | 11,824,594  |        | 24,303,226 |       | 52,667,053  |       |
|                                                |       |        |        |       |       |        |       |
| **EXPENSES**                                        |       |        |        |       |       |        |       |
| General and administrative expenses                 |       | 2,443,180   |        | 2,835,635  |       | 2,235,393   |       |
| Depreciation expense                                |       | 6,324,986   |        | 5,858,935  |       | 5,644,319   |       |
| Amortization expense                                |       | 40,440      |        | 40,440     |       | 40,440      |       |
| **Total expenses**                                  |       | 8,808,606   |        | 8,735,010  |       | 7,920,152   |       |
|                                                |       |        |        |       |       |        |       |
| **Income from operations**                          |       | 3,015,988   |        | 15,568,216 |       | 44,746,901  |       |
|                                                |       |        |        |       |       |        |       |
| **Other income (expense)**                          |       |        |        |       |       |        |       |
| Interest expense                                    |       | (115,879    | )           | (110,092   | )          | (241,950    | )          |
| Interest income                                     |       | 25,954      |        | 57,480     |       | 164,052     |       |
| Interest from industrial development  revenue bonds |       | 1,120,000   |        | 1,120,000  |       | 1,120,000   |       |
| Plant lease expense                                 |       | (1,120,000  | )           | (1,120,000 | )          | (1,120,000  | )          |
| Grant and subsidy income                            |       | 731,174     |        | 1,125,000  |       | 1,349,630   |       |
| Other income (expense)                              |       | 13,170      |        | 15,672     |       | (122,666    | )          |
|                                                |       |        |        |       |       |        |       |
| **Total other income**                              |       | 654,419     |        | 1,088,060  |       | 1,149,066   |       |
|                                                |       |        |        |       |       |        |       |
| **NET INCOME**                                      |       | 3,670,407   |        | 16,656,276 |       | 45,895,967  |       |
|                                                |       |        |        |       |       |        |       |
| **Unrealized losses on grain contracts**            |       | (658,043    | )           | (2,236,677 | )          | (63,481     | )          |
|                                                |       |        |        |       |       |        |       |
| **COMPREHENSIVE INCOME**                            |       | $           | 3,012,365   |       | $          | 14,419,599  |       | $ | 45,832,486 |   |
|                                                |       |        |        |       |       |        |       |
| **NET INCOME PER UNIT**                             |       |        |        |       |       |        |       |
| **BASIC AND DILUTED**                               |       | $           | 129.15      |       | $          | 583.10      |       | $ | 1,606.99 |   |
|                                                |       |        |        |       |       |        |       |
| **DISTRIBUTIONS PER UNIT**                          |       | $           | 171.43      |       | $          | 1,000.00    |       | $ | 1,000.00 |   |
| **WEIGHTED AVERAGE UNITS OUTSTANDING**              |       |        |        |       |       |        |       |
| **BASIC AND DILUTED**                               |       | 28,420      |        | 28,560     |       | 28,560      |       |

 

Please refer to accompanying notes tofinancial statements.

 

F-5

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Table of Contents

 

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

**STATEMENT OF CHANGES IN MEMBERS’ EQUITY**

**FOR THE FISCAL YEARS ENDED SEPTEMBER 30,  2006, 2007 and 2008**

 
| ** **                       | ** ** | **Class A** | ** ** | **Class B** | ** ** | **Class C** | ** ** | **Membership** | ** ** | **Retained** | ** ** | **Accumulated** | ** ** | ** **        | ** ** |
|----------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|----------------|------------|--------------|------------|-----------------|------------|-------------------|------------|
| ** **                       | ** ** | **Units**        | ** ** | **Amount**       | ** ** | **Units**        | ** ** | **Amount**     | ** ** | **Units**    | ** ** | **Amount**      | ** ** | **Distributions** | ** ** | **Earnings** | ** ** | **Comprehensive** | ** ** | **Total** | ** ** |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Balance  September 30, 2005 |       | 16,002           |       | 10,910,140       |       | 12,208           |       | 8,640,895      |       | 350          |       | 250,000         |       | (8,608,800        | )          | 19,412,510 |   | (31,812 | ) | 30,572,933 |   |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Distributions to  members        |       | —           |       | —           |       | —           |       | —         |       | —       |       | —          |       | (28,560,000       | )          | — |   | — |   | (28,560,000 | ) |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Change in grain  hedge contracts |       | —           |       | —           |       | —           |       | —         |       | —       |       | —          |       | —            |       | — |   | (63,481 | ) | (63,481 | ) |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Net income                       |       | —           |       | —           |       | —           |       | —         |       | —       |       | —          |       | —            |       | 45,895,967 |   | — |   | 45,895,967 |   |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Balance  September 30, 2006 |       | 16,002           |       | 10,910,140       |       | 12,208           |       | 8,640,895      |       | 350          |       | 250,000         |       | (37,168,800       | )          | 65,308,477 |   | (95,293 | ) | 47,845,419 |   |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Distributions to  members        |       | —           |       | —           |       | —           |       | —         |       | —       |       | —          |       | (28,560,000       | )          | — |   | — |   | (28,560,000 | ) |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Change in grain  hedge contracts |       | —           |       | —           |       | —           |       | —         |       | —       |       | —          |       | —            |       | — |   | (2,236,677 | ) | (2,236,677 | ) |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Net income                       |       | —           |       | —           |       | —           |       | —         |       | —       |       | —          |       | —            |       | 16,656,276 |   | — |   | 16,656,276 |   |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Balance  September 30, 2007 |       | 16,002           |       | $                | 10,910,140 |             | 12,208     |           | $          | 8,640,895    |       | 350             |       | $                 | 250,000    |   | $ | (65,728,800 | ) | $ | 81,964,753 |   | $ | (2,331,970 | ) | $ | 33,705,018 |   |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Distributions to  members        |       |             |       |             |       |             |       |           |       |         |       |            |       | (4,882,000        | )          |   |   |   |   | (4,882,000 | ) |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Redemption of 140  units class B |       |             |       |             |       | (140             | )          | (700,000       | )          |         |       |            |       |              |       |   |   |   |   | (700,000 | ) |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Change in grain  hedge contracts |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   | (658,043 | ) | (658,043 | ) |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Net income                       |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       | 3,670,407 |   |   |   | 3,670,407 |   |
|                             |       |             |       |             |       |             |       |           |       |         |       |            |       |              |       |   |   |   |   |   |   |
| Balance  September 30, 2008 |       | 16,002           |       | $                | 10,910,140 |             | 12,068     |           | $          | 7,940,895    |       | 350             |       | $                 | 250,000    |   | $ | (70,610,800 | ) | $ | 85,635,160 |   | $ | (2,990,013 | ) | $ | 31,135,383 |   |

 

Note:  Membership unit balances reflect the 7:1stock split effective March 10, 2008.

 

Please refer to accompanying notes to financial statements.

 

F-6

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Table of Contents

 

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

**STATEMENTS OF CASH FLOWS**

**FORTHE FISCAL YEARS ENDED SEPTEMBER 30, 2008, 2007, AND 2006**

 
| ** **                                              | ** ** | **2008**    | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|---------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                                              | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** |
| **OPERATING ACTIVITIES**                           | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** |
| Net income                                              |       | $           | 3,670,407  |        | $          | 16,656,276  |       | $ | 45,895,967 |   |
| Depreciation                                            |       | 6,324,986   |       | 5,858,935   |       | 5,644,319   |       |
| Amortization                                            |       | 40,440      |       | 40,440      |       | 40,440      |       |
| Gain on disposal of equipment                           |       | —      |       | (5,473      | )          | —      |       |
| Change in unrealized losses on grain hedging  contracts |       | (658,043    | )          | (2,236,677  | )          | (63,481     | )          |
| Changes in assets and liabilities                       |       |        |       |        |       |        |       |
| Accounts receivable                                     |       | (2,924,244  | )          | 2,405,541   |       | (2,033,752  | )          |
| Accounts receivable - Government Subsidies              |       | (125,030    | )          | (24,825     | )          | 268,808     |       |
| Inventory                                               |       | 806,041     |       | (3,546,673  | )          | 57,796      |       |
| Prepaid expenses                                        |       | (4,756      | )          | (155,211    | )          | (15,614     | )          |
| Accounts payable and accrued expenses                   |       | 2,986,883   |       | 750,717     |       | 407,551     |       |
| Accrued interest                                        |       | (3,817      | )          | 6,219       |       | (3,695      | )          |
| **NET CASH PROVIDED BY OPERATING ACTIVITIES**           |       | 10,112,868  |       | 19,749,270  |       | 50,198,340  |       |
|                                                    |       |        |       |        |       |        |       |
| **INVESTING ACTIVITIES**                                |       |        |       |        |       |        |       |
| Purchase of property, plant and equipment               |       | (1,575,358  | )          | (4,433,862  | )          | (1,908,675  | )          |
| Investment in commodity trading accounts                |       | (27,830,037 | )          | (21,319,616 | )          | (1,107,098  | )          |
| Withdrawals from commodity trading accounts             |       | 27,686,101  |       | 19,333,404  |       | 1,225,000   |       |
| **NET CASH (USED IN) INVESTING ACTIVITIES**             |       | (1,719,294  | )          | (6,420,074  | )          | (1,790,773  | )          |
|                                                    |       |        |       |        |       |        |       |
| **FINANCING ACTIVITIES**                                |       |        |       |        |       |        |       |
| Distributions to members                                |       | (4,882,000  | )          | (28,560,000 | )          | (28,560,000 | )          |
| Proceeds from notes payable                             |       | 20,000,000  |       | 20,850,000  |       | 80,475      |       |
| Payment of notes payable                                |       | (20,935,727 | )          | (19,983,923 | )          | (6,183,706  | )          |
| Acquisition of membership units                         |       | (700,000    | )          | —      |       | —      |       |
| **NET CASH (USED IN) FINANCING ACTIVITIES**             |       | (6,517,727  | )          | (27,693,923 | )          | (34,663,231 | )          |
|                                                    |       |        |       |        |       |        |       |
| **NET INCREASE (DECREASE) IN CASH**                     |       | 1,875,847   |       | (14,364,727 | )          | 13,744,335  |       |
|                                                    |       |        |       |        |       |        |       |
| **CASH - BEGINNING OF PERIOD**                          |       | 625,511     |       | 14,990,238  |       | 1,245,903   |       |
|                                                    |       |        |       |        |       |        |       |
| **CASH - END OF PERIOD**                                |       | $           | 2,501,358  |        | $          | 625,511     |       | $ | 14,990,238 |   |
|                                                    |       |        |       |        |       |        |       |
| **SUPPLEMENTAL CASH FLOW INFORMATION**                  |       |        |       |        |       |        |       |
|                                                    |       |        |       |        |       |        |       |
| Cash paid for income taxes                              |       | $           | —     |        | $          | —      |       | $ | — |   |
| Cash paid for interest                                  |       | $           | 119,696    |        | $          | 103,872     |       | $ | 245,647 |   |

 

Please refer to accompanying notes tofinancial statements.

 

F-7

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Tableof Contents

 

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

**NOTESTO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

**NOTE 1 - NATURE OF OPERATIONS**

 

*Principal Business Activity*

 

Western Plains Energy, L.L.C. (a Kansas limited liability company withits principal place of business in Gove County, Kansas) owns and operates a 40million gallon nameplate capacity ethanol plant. Western Plains Energy, L.L.C.(the “Company”) was organized on July 10, 2001.  The Company began its principal operations inJanuary 2004.

 

**NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

*Revenue Recognition*

 

Revenue from the production of ethanol andrelated products is recorded upon delivery to customers. Interest incomeis recognized as earned.  Income fromgovernment grant programs is recognized as costs are incurred.  Government subsidies are recognized based onfulfillment of program criteria, completion of application and determination ofavailable funding.

 

*Derivatives and Financial Instruments*

 

The Company accounts for derivatives in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 133, “Accounting forDerivative Instruments and Hedging Activities”. SFAS No. 133 requires therecognition of derivatives in the balance sheet and the measurement of theseinstruments at fair value. Changes in the fair value of derivatives arerecorded as a component of Cost of Sales unless the normal purchase or saleexception applies or hedge accounting is elected.

 

The Company enters into derivative instruments including futurecontracts, swap agreements and options to fix prices for a portion of futureraw material requirements. The Company has designated, documented and assessedfor hedge relationships, which mostly resulted in cash flow hedges that requirethe Company to record the derivative assets and liabilities at their fair valueon the balance sheet with an offset in other comprehensive income. Amounts areremoved from other comprehensive income as the underlying transactions occurand realized gains or losses are recorded.  The Company has included in its cost of sales an aggregate of $1,989,689of losses on completed contracts related to its hedging activities and hasrecorded an aggregate of $658,043 of unrealized losses as a charge tocomprehensive income for the year ended September 30, 2008.  This compares to losses on contracts of$1,311,604 and $800,662, and unrealized losses of $2,236,677 and $63,481 forthe years ended September 30, 2007 and 2006, respectively.  At September 30, 2008, the commoditiestrading account-futures and options contracts amounted to $2,332,214, comparedto $2,188,278 at September 30, 2007, which represents the lower of thecost or fair market value of the futures and options contracts recorded on thebalance sheet.

 

F-8

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Tableof Contents

 

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

*Cash and Cash Equivalents*

 

The Company considers all highly liquidinvestments with an original maturity of three months or less to be cashequivalents.

 

*Property and Equipment*

* *

Property and equipment are recorded at cost. Depreciation of assets iscomputed using the straight-line method over the following estimated usefullives:

 
| Building and manufacturing equipment |   | 5 - 31.5 years |   |
|--------------------------------------|--------|----------------|--------|
| Land improvements                    |   | 15 years       |   |
| Vehicles                             |   | 7 years        |   |
| Office equipment and furniture       |   | 7 years        |   |

 

Depreciation expense for the years ended September 30, 2008 and2007 amounted to $6,324,986 and $5,858,935, respectively. For the year ended September 30,2006, depreciation expense amounted to $5,644,319.

 

*Long-Lived Assets*

 

The Company reviews the value of its non-current assets for impairmentwhenever events indicate that the carrying amount of the asset may not berecoverable. An impairment loss is recorded if the sum of the estimated futurecash flows is less than the carrying amount of the asset. The amount of theloss is determined by comparing the estimated fair market value of the asset tothe carrying amount of the asset. Such assessments did not result in anyadjustment to the value of non-current assets.

 

*Use of Estimates*

 

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

 

*Concentrationof Credit Risk*

* *

The Company’s cash balances are maintained in bank depositories andperiodically exceed federally insured limits. At September 30, 2008, the Company’s balances exceeded insuredlimits by $2,618,856.

 

F-9

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Table of Contents

** **

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

*Fair Value of Financial Instruments*

 

Fair value estimates discussed herein are based upon certain marketassumptions and pertinent information available to management as of September 30,2008. The respective carrying value of certain on-balance-sheet financialinstruments approximated their fair values. These financial instruments includecash, accounts receivable, accounts payable, accrued liabilities, and long-termdebt. Fair values were assumed to approximate carrying values for thesefinancial instruments other than long term debt because they are short term innature and their carrying amounts approximate fair values. The carrying valueof the Company’s long-term debt approximated fair value based on the currentmarket conditions for similar debt instruments.

 

*Income Taxes*

 

The Company is organized as a limited liability company under statelaw. As a limited liability company that has elected to be taxed as apartnership, the Company’s earnings pass through to the members and are taxedat the member level. Accordingly, no income tax provision has been included inthese financial statements.

 

*Earnings Per Capital Unit*

 

For purposes of calculating basic earnings per capital unit, capitalunits subscribed for and issued by the Company are considered outstanding onthe effective date of issuance.  TheCompany has no potentially dilutive securities outstanding.

 

*Segment Information*

 

The Company follows SFAS 130, “Disclosures about Segments of anEnterprise and Related Information”. Certain information is disclosed, per SFAS130, based on the way management organizes financial information for makingoperating decisions and assessing performance. The Company currently operatesin a single segment and will evaluate additional segment disclosurerequirements if it expands its operations.

 

*Comprehensive Income*

 

The Company reports comprehensive income inaccordance with SFAS 131, “Reporting Comprehensive Income,” which requires thereporting of all changes in equity during a period, except those resulting frominvestment by owners and distribution to owners, in a financial statement forthe period in which they are recognized.  This encompasses unrealizedgains and losses from available-for-sale securities held. The Company recordedcomprehensive losses of $658,043 and $2,236,677 for the fiscal years ended September 30,2008 and September 30, 2007, respectively, and a $63,481 comprehensiveloss for the year ended September 30, 2006, which recognized a decrease inthe fair value of unfulfilled future purchase contracts for raw materials atthose dates.

 

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

*Accounts Receivable*

* *

The Company’s accountsreceivable are due from distributors in the ethanol and livestock feedindustries. Credit is extended based on evaluation of a customer’s financialcondition and collateral is not required. Accounts receivable are due within 30days and are stated at amounts due from customers net of an allowance fordoubtful accounts. Accounts outstanding longer than the contractual paymentterms are considered past due. The Company determines its allowance byconsidering a number of factors, including the length of time trade accountsreceivable are past due, the Company’s previous loss history, the customer’scurrent ability to pay its obligation to the Company, and the condition of thegeneral economy and the industry as a whole. The Company writes-off accountsreceivable when they become uncollectible, and payments subsequently receivedon such receivables are credited to the allowance for doubtful accounts. Therewas no allowance for doubtful accounts at September 30, 2008 or 2007.

 

*Inventories*

* *

Inventories are stated atthe lower of cost or market, determined on a first-in, first-out basis.Inventory reserves are established for obsolescence based on expiration datingof perishable products and excess levels of inventory on hand. Inventories at September 30,2008 and 2007 consist of the following:

 
| ** **      | ** ** | **2008**  | ** ** | **2007** | ** ** |
|-----------------|------------|-----------|------------|----------|------------|
| Raw materials   |       | $         | 2,115,341  |     | $          | 3,247,008 |   |
| Work-in-process |       | 1,502,208 |       | 894,381  |       |
| Finished goods  |       | 579,547   |       | 861,748  |       |
| Total           |       | $         | 4,197,096  |     | $          | 5,003,137 |   |

 

*Shipping and Handling*

* *

The cost of shippingproducts to customers is included in cost of goods sold.  Amounts billed to a customer in a saletransaction related to shipping and handling is classified as revenue.

 

*Recent Accounting Pronouncements*

* *

On February 15, 2007, the Financial Accounting Standards Board (“FASB”)issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities” (SFAS No. 159). SFAS No. 159 permits entitiesto choose to measure many financial instruments and other items at fair value.The objective is to improve financial reporting by providing entities with theopportunity to mitigate volatility in reported earnings caused by measuringrelated assets and liabilities differently, without having to apply complexhedge accounting procedures. SFAS No. 159 also establishes presentationand disclosure requirements designed to facilitate 

 

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

comparisons between companies that choose different measurementattributes for similar types of assets and liabilities. The Statement isexpected to expand the use of fair value measurements, which is consistent withthe Board’s long-term measurement objectives for accounting for financialinstruments. SFAS No. 159 will be effective for the Company’s 2009 fiscalyear and was required to be adopted by the Company effective October 1,2008. Management at this time has not evaluated the impact, if any, of adoptingSFAS No. 159 on its financial statements.

 

In December 2007, the FASB issued SFAS No. 160 “Non-controlling Interestsin Consolidated Financial Statements—an amendment of ARB No. 51.” SFAS 160establishes accounting and reporting standards for the non-controlling interestin a subsidiary and for the deconsolidation of a subsidiary. The guidance willbecome effective as of the beginning of our fiscal year beginning afterDecember 15, 2008. Management believes the adoption of this pronouncement willnot have a material impact on our consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 141R “BusinessCombinations (revised 2007).” This statement replaces SFAS 141, BusinessCombinations. The statement provides guidance for how the acquirer recognizesand measures the identifiable assets acquired, liabilities assumed and anynon-controlling interest in the acquiree. SFAS 141R provides for how theacquirer recognizes and measures the goodwill acquired in the businesscombination or a gain from a bargain purchase. The statement determines whatinformation to disclose to enable users to be able to evaluate the nature andfinancial effects of the business combination. The provisions of SFAS 141R willbe effective for our fiscal year beginning October 1, 2009, and do notallow early adoption. Management is currently evaluating the impact of adoptingthis statement.

 

In February 2008, FASB Staff Position (FSP) No. 157-2, “EffectiveDate of FASB Statement No. 157” was issued. FSP No. 157-2 defers theeffective date of SFAS No. 157 to fiscal years beginning after December 15,2008, and interim periods within those fiscal years, or all non-financialassets and liabilities, except those that are recognized or disclosed at fairvalue in the financial statements on a recurring basis (at least annually).Examples of items within the scope of FSP No. 157-2 are non-financialassets and non-financial liabilities initially measured at fair value in abusiness combination (but not measured at fair value in subsequent periods),and long-lived assets, such as property, plant and equipment and intangibleassets measured at fair value for an impairment assessment under SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.” The partialadoption of SFAS 157 on January 1, 2008, with respect to financial assetsand financial liabilities recognized or disclosed at fair value in thefinancial statements on a recurring basis, is not expected to have a materialeffect on the Company’s consolidated financial statements. The Company iscurrently assessing the impact, if any, of SFAS No. 157 relating to itsplanned October 1, 2009, adoption of the remainder of the standard.

 

In March 2008, the FASB issued SFAS No. 161, “Disclosuresabout Derivative Instruments and Hedging Activities-an Amendment of FASBStatement No. 133”, which became effective on November 15, 2008. Thisstandard changed the disclosure requirements for derivative instruments andhedging activities.  Entities arerequired to provide enhanced disclosures about (a) how and why an entityuses derivative instruments, (b) how derivative instruments and relatedhedged items are accounted for under SFAS 133 and its related interpretations,and (c) how derivative instruments and related hedging items affect anentity’s financial position, financial performance, and cash flows. Managementis currently evaluating the impact of the adopting this statement.

 

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

In April 2008, the FASB issued FASB Staff Position (FSP) FSP142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amendsthe factors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder FASB Statement No. 142, “Goodwill and Other Intangible Assets.” Theintent of this FSP if to improve the consistency between the useful life of arecognized intangible asset under Statement 142 and the period of expected cashflows to measure the fair value of the asset under FASB Statement No. 141(Revised 2007), “Business Combinations,” and other U.S. generally acceptedaccounting principles (GAAP). This FSP is effective for financial statementsissued for fiscal years beginning after December 15, 2008, and interimperiods within those fiscal years. Early adoption is prohibited. The Companydoes not expect the adoption of FAS 142-3 to have a material effect on itsresults of operations and financial condition.

 

In May 2008, the FASB issued FASB Staff Position (FSP) No. APB14-1 “Accounting for Convertible Debt Instruments That May Be Settled inCash upon Conversion (Including Partial Cash Settlement)”. FSP APB 14-1requires the issuer of certain convertible debt instruments that may be settledin cash (or other assets) on conversion to separately account for the liability(debt) and equity (conversion option) components of the instrument in a mannerthat reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 iseffective for fiscal years beginning after December 15, 2008, on aretroactive basis and will be adopted by the Company in the first quarter offiscal 2009. The Company does not expect the adoption of FSP APB 14-1 to have amaterial effect on its results of operations and financial condition.

 

In May 2008, the FASB issued SFAB No. 162, “The Hierarchy ofGenerally Accepted Accounting Principles,” which becomes effective uponapproval by the SEC. the standard sets forth the sources of accountingprinciples and provides entities with a framework for selecting the principlesused in the preparation of financial statements that are presented inconformity with GAAP. It is not expected to change any of our currentaccounting principles or practices and therefore, is not expected to have amaterial impact on our financial statements.

 

**NOTE 3 – MEMBERS’ EQUITY**

 

As specified in the Company’s Third Amended and Restated OperatingAgreement, the Company has four classes of membership capital units: Class A,B, C and D. Capital units of each class were issued in denominations of $5,000.

 

Class A and Class B capital units were offered for sale inthe public offering.  A total of 27,769 Class A and B capital unitswere offered at a price of $714.29 per unit (adjusted to reflect the split)pursuant to a registration statement filed with the Securities and ExchangeCommission, with a minimum of $15,735,000 and a maximum of $19,835,000 proceedsfrom such offering of units.

 

The Company’s Class A capital units were offered only to producersof agricultural products, with a minimum purchase of two (2) Class ACapital Units per investor.  The Company also 

 

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** **

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

offered to sell Class B capital units with a minimum purchase ofseven (7) Class B capital units per investor.

 

The Offering was completed in 2003 with 14,840 Class A and 12,208 Class Bunits sold for gross proceeds of $19,330,000.

 

For Class C capital units subscribed in a private placement priorto the public offering, 10% of the offering price was due upon subscriptionwith the remaining amount executed as a promissory note due at the call of theBoard of Managers. In 2003, the Company closed the sale of 350 Class CUnits, totaling $250,000, from Ethanol Products, LLC.

 

Class D capital units were offered for sale prior to the publicoffering at a price of $5,000 per unit to the members of the Board of Managersand certain others. Total equity raised from the sale of Class D units was$415,000 during the year ended December 31, 2001. Upon completion of thepublic offering, which occurred in March 2003, 581 Class D unitsautomatically converted into 1,162 Class A capital units.  The Company must approve all transfers orother dispositions of capital units.

 

On February 29, 2008, the Board of Managers announced thateffective March 10, 2008, our units of membership interest would be spliton a seven to one (7:1) basis.  All unitsand per unit disclosures reflect the effect of the 7:1 split.  Subsequent to the split, the Companypurchased 140 Class B units from a member. The resulting outstanding units at September 30, 2008 are asfollows:

 
| Class A units |   | 16,002 |   |
|--------------------|--------|--------|--------|
| Class B units |   | 12,068 |   |
| Class C units |   | 350    |   |
| Total units        |   | 28,420 |   |

 

Voting rights are one vote per member for Class A capital units,and one vote per unit for Class B and Class C capital units. Members elect the Board of Managers, and members must approve any merger orconsolidation with another business entity, sale of substantially all of theCompany’s assets or voluntary dissolution.  The Board of Managers decidesall other matters regarding operation and management of the Company, includingamendment of the Operating Agreement.

 

Income and losses are allocated to members based on their respectivepercentage of membership interest. Distributions to members must be no lessthan 20% of net cash from operations, as defined in the Operating Agreement, ifnet cash from operations exceeds $500,000 on an annual basis, provided that anysuch distribution does not constitute or cause a default under any of theCompany’s loan documents or credit facilities.

 

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

Upon dissolution of the Company, and after the payment of all debts andliabilities of the Company, the assets shall be distributed to the unit holdersratably in proportion to the credit balances in their respective capitalaccounts for all classes of units.

 

The Company made distributions to its membersof $4,882,000 during the fiscal year ended September 30, 2008. In thefiscal years ended September 30, 2007 and 2006, distributions totaling$28,560,000 were paid in each fiscal year.

 

**NOTE 4 -**** FINANCINGARRANGEMENTS**

 

*Construction and permanent financing*

 

During July 2003, the Company entered into a credit agreement (“CreditAgreement”) with Ag Country Farm Credit Services, FLCA (“AgCountry”) thatestablished a $22,000,000 (or 55% of construction costs, whichever is less)multiple-advance, non-revolving construction loan for construction of theethanol plant. The construction note expired August 1, 2004, with theamount outstanding converted into a permanent term loan to be amortized over a10 year period. This loan was paid in full June 30, 2006. $5,000,000 ofthis note was converted to a revolving credit facility to reduce interest costsand to aid cash management. During the construction period, interest-onlypayments equal to the London Interbank Offered Rate (LIBOR) plus 4% were duemonthly.

 

During August 2004, the Company converted the construction loaninto a term loan, which was repaid in quarterly principal payments of $425,000plus accrued interest based on the 30 day LIBOR indexed rate of LIBOR plus4.00%, and a $5,000,000 credit line (the “Revolving Loan”). The Revolving Loanwas paid in full during September 2004. In addition, the Company enteredinto an agreement with Ag Country in October 2004 that established a$3,500,000 expansion loan to fund a portion of a plant expansion to increaseethanol production to 40,000,000 gallons per year nameplate capacity. This notewas paid in full prior to September 30, 2005.

 

The term loan was subject to certain restrictive covenants, andrequired payment of origination, participation and other fees totaling $337,107and an annual administrative fee of $25,000. The $362,107 of financing costsare being amortized over the life of the loan (10 years), commencing with theloan’s conversion into a permanent loan in August 2004. Of that amount,$40,440 was amortized and expensed in each of the years ended September 30,2008, 2007, and 2006. In the fiscal year ended September 30, 2005, $41,005was amortized and $10,669 was amortized over the nine months ended September 30,2004. The annual administrative fee is amortized over 12 months.

 

The Third Amendment to the Credit Agreementwas executed on March 7, 2006, which increased allowable dividends to upto 75% of net income with distributions up to 100% of net income, so long asthe Company maintains working capital that exceeds $5,000,000 and a 

 

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** **

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

defined leverage ratio of 0.60:1. TheAmendment also waived certain compliance requirements for dividends paid inprior periods.

 

The Fourth Amendment to the Credit Agreement wasentered into on October 2, 2006, which reduced the variable interest rateapplicable to the Revolving Loan to LIBOR plus 2.50%. In addition, the annualadministration fee was suspended and the quarterly “unused commitment fee” wasreduced from 0.5% to 0.25% of the unused Revolving Loan balance during thequarter. The Capital Expenditure section was deleted and replaced with arequirement for pre-approval of capital expenditures in excess of $2,500,000for any fiscal year. Written approval is required for capital expenditureswhich exceed this limit.

 

The Fifth Amendment to the Credit Agreementwas entered into on May 2, 2007, which increased the Revolving Loan limitto $8,000,000 and reduced the variable interest rate from LIBOR plus 2.50% toLIBOR plus 2.00%.

 

There was no outstanding balance on theRevolving Loan at September 30, 2008.

 

During the period ended September 30, 2004, the Company enteredinto two irrevocable standby letters of credit (the “Letters of Credit”) for$120,000 and $500,000, respectively.  TheLetters of Credit are for the benefit of the Company’s utility provider.  The Letters of Credit expire on December 31,2011.

 

The Company purchased a new vehicle on June 30, 2006. The purchasewas financed partially by the value of a vehicle traded-in ($11,133), and thebalance of $34,825 was financed by an offer from GMAC financing for a term of36 months with no interest. The monthly payment is $902 and the balance of thenote on September 30, 2008 was $8,119.

 

In December 2005, the Company purchased 80 acres of land for$96,000. The terms of the agreement required the Company to pay $24,000 priorto December 31, 2005, and an additional $24,000 prior to January 31,2006. All payments were made in a timely manner. The balance of $24,000 waspaid in January 2008 plus accrued interest at the rate of 6.0% per annum.

 

At September 30, 2008, the current portion of long term debtconsisted of $8,119 of the GMAC financing agreement, discussed above and at September 30,2007, the balance of $934,825 included $900,000 outstanding under the RevolvingLoan Agreement with AgCounty Farm Credit, $24,000 related to the 80 acre landpurchase, also discussed above, and $10,825 of the GMAC financingagreement.  The long-term portionconsisted of $9,021 due under the GMAC financing agreement.

 

**NOTE 5 - COMMITMENTS, CONTINGENCIES ANDAGREEMENTS**

 

The Company has entered into various agreements regarding itsformation, operation and management. Significant agreements are as follows:

 

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

*Employee 401(k) Plan*

 

The Company established a 401(k) retirement plan on November 1,2004 for its employees. The Company matches employee contributions to the planup to 5% of each eligible employee’s gross compensation. The amount contributedby the Company is vested 25% per year on behalf of the employee. The Companycontributed $64,924, $99,033, and $88,421 for fiscal years ended September 30,2008, 2007 and 2006, respectively.

 

*Energy Management Services*

 

The Company has entered into an agreement with U.S. Energy Service, Inc.for energy management and engineering services.  The initial term of theagreement expired on August 31, 2003, and is renewable for one-year termsunless terminated by either party with 30 days advance notice.  Theagreement provides for fees of $2,800 per month.   The agreement was renewed through August 31,2008, and again through August 31, 2009.

 

*Sales Service Agreement*

 

The Company has entered into an agreement with United Bio Energy, LLC (“UBE”)(see Notes 7 and 10) for the sale of the bulk feed grade products (distillersgrains) produced from the plant.  The agreement expired September 30,2008, and was automatically renewed for a one-year term pursuant to the termsof the agreement.  Under the terms of the agreement, UBE purchases allproducts at a price equal to 98% or 97.5% of the selling price depending onwhether it is wet or dry grains, less applicable freight.  If the productis sold to members of the Company, UBE will pay an additional 0.5% to themembers, less applicable freight.  UBE is responsible for billing andaccount servicing of the product sales and for losses related to non-paymentunless such non-payment relates to substandard products.

 

 *Marketing Agreement*

 

The Company entered into an agreement on October 31, 2001 withEthanol Products, LLC (see Notes 7 and 10) for the marketing of the Company’sethanol and certain administrative services.  The agreement as amended on October 18,2002, has a term of five years and commenced upon start of ethanol production,with a fee of $0.01 per gallon of ethanol produced.  On November 24,2008, the Company entered into a new five (5) year marketing agreementwith Ethanol Products, LLC dba POET Ethanol Products. The commencement date ofthe new agreement will be February 1, 2009 for a five (5) year term,and will automatically renew for an additional five (5) year period unlessterminated by either party ninety (90) days prior to the end of the term. TheMarketing and Service Fee rendered by the marketer shall be one percent (1%) ofthe net-back sales price per gallon of our ethanol sold.

 

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

*Storage Expansion Contract*

 

The Company entered into a contract to construct two 250,000 bushelgrain bins, two hammer mills, and all the required conveyance and otherinfrastructure to connect the storage facility, the new bins, and the ethanolplant. The total contract price is $2,961,105 plus change orders and upgradestotaling $247,144 during the fiscal year ended September 30, 2007, and$372,916 during fiscal year ended September 30, 2008. All payment requestswere paid prior to September 30, 2008, pursuant to the terms of thecontract.

 

*Back-up Transformer*

 

The Company contracted with its energy supplier to purchase a back-uptransformer capable of supplying the entire facility in the event that theexisting transformer fails. The Company paid $124,730 upon execution of thecontract and the balance of $96,176 was paid during the fiscal year ended September 30,2008, upon delivery of the transformer to its facility.

 

**NOTE 6 - RELATED PARTY TRANSACTIONS**

 

The Company has reimbursed members of the Board of Managers for certainexpenses incurred by the Company and paid by the members of the Board ofManagers including attending Board meetings. Expense reimbursements for theyears ended September 30, 2008, 2007, and 2006, totaled $53,796, $43,035and $29,944, respectively.

 

Ethanol Products, LLC, the exclusive marketer of our ethanol, owns all350 Class C capital units, purchased for $250,000.  Revenues were concentrated in EthanolProducts which purchases denatured ethanol, while United Bio Energy, LLC, aformer affiliate of ICM, Inc. (the general contractor and builder of ourplant), purchases distillers grain from the Company on a delivered basis. The followingtable displays amounts of product purchased by the Company’s marketers with therelated marketing fees paid:

 
| ** **                  | ** ** | **2008** | ** ** | **2007** | ** ** | **2006**   | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|------------|------------|
| Ethanol Products            |       |     |       |     |       |       |       |
| Revenue (including freight) |       | $        | 99,514,563 |     | $          | 91,189,858 |       | $ | 97,066,671 |   |
| Marketing fees paid         |       | (555,631 | )          | (462,771 | )          | (455,353   | )          |
| United Bio Energy           |       |     |       |     |       |       |       |
| Revenue (including Freight) |       | $        | 20,807,356 |     | $          | 18,510,882 |       | $ | 11,728,308 |   |
| Marketing fees paid         |       | (537,612 | )          | (476,769 | )          | (295,458   | )          |

###### ** **

###### **NOTE 7 – INCENTIVE PAYMENTS**

###### ** **

During the fiscal years ended September 30, 2008, and 2007, theCompany received no federal incentive payments for its ethanol production.During the fiscal year ended September 30, 2006, the Company received$224,630 as incentive payments pursuant to a United States Department 

 

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

of Agriculture Bio-Energy program. This program was terminated by theU.S.D.A. on June 30, 2006. Additionally, the Company qualifies for additional production incentivepayments under a State of Kansas program. The Kansas program is limited to an amount of $1,125,000 per year foreach producer in excess of five million gallons per year at the rate of $0.075per gallon. During the year ended September 30, 2008, the Company recordedrevenue of $731,174, received an aggregate of $359,255, and recorded areceivable of $371,919 from the Kansas incentive program.  The Company qualified for the maximum paymentof $1,125,000 and recorded this amount of income during the fiscal years ended September 30,2007, and  2006. The reduction inrecorded income for the fiscal year ended September 30, 2008 is due toadditional ethanol plants qualifying for the program which caused a prorationof payments received by all participants in the program.

 

**NOTE 8 – SALE / LEASEBACK TRANSACTION**

 

On October 3, 2003, the Company completed an industrial revenuebond financing with Gove County, Kansas that will provide property tax savingsfor 10 years on the plant site.  As part of the financing, title to theplant site and improvements have been transferred to Gove County, as securityfor the repayment of the bonds, and the Company is leasing back the site for anamount that is equal to the amount of interest to be paid on the Gove Countybonds.  AgCountry consented to this transaction, and the bonds have beenpledged to AgCountry as security for any obligations under the AgCountry CreditAgreement.  As part of the financing, the Company paid the bondunderwriter, W.R. Taylor, $160,000 and agreed to pay an additional $40,000 onlyif the bonds are converted to a variable rate and remarketed by W.R. Taylor. The maximum principal amount of the bonds is $32,000,000.

 

The $160,000 of financing fees paid to the bond underwriter and $42,040of legal and other cost associated with the bond closing are being amortizedover the 30-year life of the bonds. A total of $ 6,732 of amortization expensewas recognized during each of the years ended September 30, 2008, 2007 and2006.

 

The Company, as holder of the industrial revenue bonds, is due interestat 3.5% per annum with interest payable semi-annually on March 1stand September 1st.  Thisinterest income is directly offset by the lease payments on the plant.  Both the bond and the corresponding leasehave terms of 30 years.  The leasequalifies as a capital lease. Interest income recognized on the IndustrialRevenue Bonds for the periods ended September 30, 2008, 2007 and 2006 were$1,120,000 per year. This amount is equal to the lease expense of the plant ineach respective period.

 

**NOTE 9 – CONCENTRATION OF CUSTOMERS**

 

The Company sells essentially all of its products to two marketers,which in turn sell to other purchasers. The Company has executed an exclusive marketing agreement with EthanolProducts LLC (“Ethanol Products”) of Wichita, Kansas (see Notes 6 and 7) tomarket the ethanol produced at its plant. The agreement is effective for an initial term of five years beginning 

 

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

**NOTES TO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2008 AND 2007**

 

January 2004.  A newagreement with Ethanol Products will commence effective February 1, 2009and is automatically renewable for subsequent five-year terms unless terminatedby either party prior to expiration.  EthanolProducts has agreed to purchase all of the ethanol that is produced at theplant.  Ethanol Products is solelyresponsible for determining the price and terms at which the ethanol acquiredfrom the plant is sold and to whom it is sold.

 

The Company also has executed an exclusive agreement with UBE to marketall of the distillers grains produced at the plant.  The initial term of the agreement with UBEexpired September 30, 2006 and has automatically renewed for successiveone-year terms.  The agreement isautomatically renewed each year unless terminated by the Company or UBEfollowing 90 days advance written notice.

 

**NOTE 10 - REGULATION**

 

The construction of the plant required various state and local permitsto comply with existing governmental regulations designed to protect theenvironment and worker safety.  While theCompany is subject to regulations on emissions by the United StatesEnvironmental Protection Agency (“EPA”), current EPA rules do not requirethe Company to obtain any permits or approvals in connection with theconstruction of the plant or operation of the Company’s business.  However, state and federal rules can anddo change and such changes could result in greater regulatory burdens on theCompany.

 

The ethanol production will require theCompany to emit a significant amount of carbon dioxide into the air.  Current Kansas law regulating emissions doesnot restrict or prevent the Company from emitting carbon dioxide gas into theair, but this could change in the future.

 

The Company obtained what is believed to beall the necessary air and water permits to operate the plant, including apermit to discharge wastewater from the plant.

 

In addition to the foregoing regulations affecting air and waterquality, the Company is subject to regulation for fuel storage tanks.  If the Company is found to have violatedfederal, state or local environmental regulations in the future, the Companycould incur liability for clean-up costs, damage claims from third parties andcivil or criminal penalties that could adversely affect its business.

 

**NOTE 11 - SUBSEQUENT EVENTS**

 

Based on the Company’s financial results forthe quarter ended September 30, 2008, the Board of Managers declared adistribution to members equal to $50 per unit totaling $1,421,000. Thisdistribution was paid December 10, 2008.

 

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**EXHIBITINDEX**

 
| **Exhibit   No.** | ** ** | **Description**                                                                          | ** ** | **Incorporated by Reference From**                                                                                                            |
|------------------------|------------|------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1(i)                 |       | Articles  of Organization                                                                |       | Appendix  A of our prospectus filed with the Commission pursuant to  Rule 424(b)(3) on June 11, 2002 (File No. 333-74982) |
|                   |       |                                                                                     |       |                                                                                                                                          |
| 3.1(ii)                |       | Third  Amended and Restated Operating Agreement                                          |       | Exhibit 3  to our Form 10-QSB for the quarter ended June 30, 2003                                                              |
|                   |       |                                                                                     |       |                                                                                                                                          |
| 4.1                    |       | Form of  Class A Capital Unit Certificate                                      |       | Exhibit 4.1  to our 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 our 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 our Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                        |
|                   |       |                                                                                     |       |                                                                                                                                          |
| 10.1                   |       | Credit  Agreement with AgCountry Farm Credit Services, FLCA dated July 29, 2003     |       | Exhibit 10.1  to our Quarterly Report on Form 10-QSB for the quarter ended  June 30, 2003 (File No. 333-74982)            |
|                   |       |                                                                                     |       |                                                                                                                                          |
| 10.2                   |       | DDGS/SWGS  Marketing Agreement with ICM Marketing, Inc., dated October 1, 2001 |       | Exhibit 10.5  to our Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                       |
|                   |       |                                                                                     |       |                                                                                                                                          |
| 10.3                   |       | Land  Exchange Agreement, dated November 23, 2001                                   |       | Exhibit 10.9  to our Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                       |
|                   |       |                                                                                     |       |                                                                                                                                          |
| 10.4                   |       | Real  Estate Purchase Agreement, dated December 21, 2001                            |       | Exhibit   10.10 to our Form SB-2 filed with the Commission on May 1, 2002  (File No. 333-74982)                           |
|                   |       |                                                                                     |       |                                                                                                                                          |
| 10.5                   |       | Well  Construction and Pumping Agreement, dated November 19, 2001                   |       | Exhibit 10.11  to our Form SB-2 filed with the Commission on December 12, 2001  (File No. 333-74982)                      |
|                   |       |                                                                                     |       |                                                                                                                                          |
| 10.6                   |       | Design/Build  Agreement with ICM Inc., dated April 4, 2002                          |       | Exhibit 10.12  to our Form SB-2 filed with the Commission on May 1, 2002 (File  No. 333-74982)                            |

 

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| 10.7   |   | Agreement  between the Company and ICM, Inc. dated August 26, 2004 for  expansion of our plant |   | Exhibit 10.7  to our Annual Report on Form10-KSB for the fiscal year ended September 30, 2004 (File  No. 0-50714)        |
|--------|--------|----------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                     |   |                                                                                                                                    |
| 10.8   |   | Agreement  between the Company and United Bio Energy Ingredients, LLC, dated  August 2, 2004        |   | Exhibit 10.8  to our Annual Report on Form 10-KSB for the fiscal year ended  September 30, 2004(File  No. 0-50714)  |
|   |   |                                                                                                     |   |                                                                                                                                    |
| 10.9   |   | Form of  Second Amendment to the Credit Agreement with AgCountry dated  July 29, 2004     |   | Exhibit 10.9  to our Annual Report on Form 10-KSB for the fiscal year ended  September 30, 2004(File  No. 0-50714)  |
|   |   |                                                                                                     |   |                                                                                                                                    |
| 10.10  |   | Promissory  Note/Loan Agreement with AgCountry dated November 16, 2004                              |   | Exhibit 10.10  to our Annual Report on Form 10-KSB for the fiscal year ended  September 30, 2004(File  No. 0-50714) |
|   |   |                                                                                                     |   |                                                                                                                                    |
| 10.11  |   | Third  Amendment to Credit Agreement with AgCountry dated March 7, 2006                             |   | Exhibit 10.1  to our Report on Form 8-K dated March 27, 2006 (File  No. 0-50714)                                    |
|   |   |                                                                                                     |   |                                                                                                                                    |
| 10.12  |   | Fourth  Amendment to Credit Agreement with AgCountry dated October 2, 2006                          |   | Exhibit 10.12  to our Annual Report on Form 10-K for the fiscal year ended  September 30, 2007(File  No. 0-50714)   |
|   |   |                                                                                                     |   |                                                                                                                                    |
| 10.13  |   | Employment  Agreement with Steven McNinch effective January 25, 2007                                |   | Exhibit 10.1  to our Report on Form 8-K dated April 17, 2007 (File  No. 0-50714)                                    |
|   |   |                                                                                                     |   |                                                                                                                                    |
| 10.14  |   | Fifth  Amendment to Credit Agreement with AgCountry dated May 2, 2007                               |   | Exhibit 10.1  to our Quarterly Report on Form 10-Q for the quarter ended June 30,  2007(File  No. 0-50714)          |
|   |   |                                                                                                     |   |                                                                                                                                    |
| 10.15  |   | Ethanol  Marketing Agreement with Ethanol Products, L.L.C. d/b/a POET Ethanol                            |   | Exhibit 10.1  to our Report on Form 8-K dated November 24, 2008 (File  No. 0-50714)                                 |
|   |   |                                                                                                     |   |                                                                                                                                    |
| 14.1   |   | Western  Plains Energy, L.L.C. Code of Ethics for Principal Executive and Senior  Financial Officers     |   | Exhibit 14.1  to our Annual Report on Form 10-KSB for the fiscal year ended  September  30, 2005(File  No. 0-50714) |

 

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| 31.1*  |   | Certifications  pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities  Exchange Act of 1934                   |   |   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                |   |   |
| 31.2*  |   | Certifications  pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities  Exchange Act of 1934, as amended       |   |   |
|   |   |                                                                                                                                |   |   |
| 32*    |   | Certifications  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |   |   |

 

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*Filed herewith

 

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