**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-KSB**

 

| **o**                                                                                     |   | **Annual  report under Section 13 or 15(d) of the Securities Exchange Act of 1934.** |
|-------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|
|                                                                                      |
| **For the fiscal year ended  September 30, 2003**                                    |
|                                                                                      |
| **OR**                                                                                    |
|                                                                                      |
| **ý**                                                                                |   | **Transition  report under Section 13 or 15(d) of the Exchange Act.**                |
|                                                                                      |
| **For the transition period from  January 1, 2003 to September 30, 2003.** |
|                                                                                      |
| **COMMISSION FILE NUMBER 0001229899**                                                     |

 

| **LITTLE SIOUX CORN PROCESSORS, L.L.C.**                           |
|--------------------------------------------------------------------|
| (Exact name of small business issuer as  specified in its charter) |
|                                                               |
| **Iowa**                                                           |   | **42-1510421** |
| (State or other jurisdiction of  incorporation or organization)    |   | (I.R.S. Employer Identification No.) |
|                                                               |
| **4808 F Avenue, Marcus, Iowa 50135**                              |
| (Address of principal executive offices)                           |
|                                                               |
| **(712) 376-2800**                                                 |
| (Issuer’s telephone number)                                   |

 

Check whether the issuer:  (1)filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90days.          ý  Yes          o  No

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B is not contained in this form, and no disclosurewill be contained, to the best of registrant’s knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB.  o

 

State issuer’s revenues for its most recent fiscalyear.  $31,814,299

 

As of September 30, 2003, the aggregate market value of themembership units held by non-affiliates (computed by reference to the bookvalue of such member units) was $14,146,824. 

 

As of December 26, 2003, there were 10,941 membership unitsoutstanding.

 

DOCUMENTS INCORPORATED BYREFERENCE    None.

 
| Transitional Small Business Disclosure Format (Check one): |   | o  Yes |   | ý  No |
|------------------------------------------------------------|--------|------------------|--------|----------------------|

 

 

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**INDEX**

 
| **PART I**     |         |
|----------------|--------------|
|           |         |
|           | **ITEM 1.**  | **DESCRIPTION OF BUSINESS** |   |
|           | **ITEM 2.**  | **DESCRIPTION OF PROPERTY** |   |
|           | **ITEM 3.**  | **LEGAL PROCEEDINGS** |   |
|           | **ITEM 4.**  | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS** |   |
|           |         |   |   |
| **PART II**    |         |
|           |         |
|           | **ITEM 5.**  | **MARKET FOR MEMBERSHIP UNITS AND RELATED  MEMBER MATTERS** |   |
|           | **ITEM 6.**  | **MANAGEMENT’S DISCUSSION AND ANALYSIS OR  PLAN OF OPERATION** |   |
|           | **ITEM 7.**  | **FINANCIAL STATEMENTS** |   |
|           | **ITEM 8.**  | **CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES** |   |
|           | **ITEM 8A.** | **CONTROLS AND PROCEDURES** |   |
|           |         |   |   |
| **PART  III**  |         |
|           |         |
|           | **ITEM  9.** | **DIRECTORS,  EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES; COMPLIANCE WITH  SECTION 16(a) OF THE EXCHANGE ACT** |   |
|           | **ITEM 10.** | **EXECUTIVE COMPENSATION** |   |
|           | **ITEM 11.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL  OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS** |   |
|           | **ITEM 12.** | **CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS** |   |
|           | **ITEM 13.** | **EXHIBITS AND REPORTS ON FORM 8-K** |   |
|           |         |   |   |
| **SIGNATURES** |         |

 

2

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**PARTI.**

 

**ITEM 1.****                                                     DESCRIPTIONOF BUSINESS.**

** **

Little Sioux Corn Processors, L.L.C., was formed as an Iowa limitedliability company on September 28, 2000. References to “we”, “us”, “our” and the “Company” refer to Little SiouxCorn Processors, L.L.C.  

 

On March 6, 2002, the Company purchased the sole general partnership interest in anIowa limited partnership, LSCP, LP.  OnJune 26, 2003, LSCP, LP elected to become a limited liability limitedpartnership and is referred to as “LSCP, LLLP” or the “Limited Partnership.”  During 2002, we raised $10,226,000 byissuing 10,002 of our units to investors. We purchased our general partnership interest in LSCP, LLLP bycontributing these proceeds and our net assets to the Limited Partnership.  As of December 31, 2002, we had 10,941units issued and outstanding and a total of 647 unit-holders.  As of December 31, 2002, we had assetsexceeding $10 million.  Because we hadassets exceeding $10 million and 647 unit-holders as of the end of our lastfiscal year (December 31, 2002) on April 30, 2003, we registered ourunits with the U.S. Securities and Exchange Commission on Form 10-SBRegistration Statement pursuant to Section 12(g) of the SecuritiesExchange Act of 1934.

 

Our general partnershipinterest in the Limited Partnership represents substantially all of our assets.  The Limited Partnership has completeddevelopment and construction and now operates a 40 million-gallon per yearethanol plant near Marcus, Iowa.  Thefollowing diagram illustrates the relationship between Little Sioux CornProcessors, L.L.C. and LSCP, LLLP:  

 

**DIAGRAM OF THE REGISTRANT’S RELATIONSHIP TOLSCP, LLLP**

 

 

LSCP, LLLP consists of theCompany, which is the sole general partner, and various limited partners, whichown the limited partnership interests. There are six classes of limited partnership interests.  Four classes of limited partnershipinterests are currently outstanding and owned by various limited partners.  The other two classes of limited partnershipinterests have not been issued and may not be issued.  Limited partnership interests are designated in units.  

 

The financial statementsof the Limited Partnership have been consolidated with the Company since theLimited Partnership was formed on October 16, 2001.  The Limited Partnership did not have anyassets until the partners of the Limited Partnership contributed assets.  The net assets contributed by the Companywere less than the proportional limited partnership interest received in returnas compared to the net assets contributed by the other partners in the LimitedPartnership.  The other limited partnerscontributed a total of $7,750,000 in return for 1,550

 

3

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units in the LimitedPartnership ($5,000 per unit).  TheCompany contributed all of its net assets, approximately $10,198,000, in returnfor 2,189 units in the Limited Partnership ($4,658 per unit).  Due to the Company’s previous efforts tobegin the ethanol plant, the Company was given credit for value in addition tothe net assets transferred. 

 

As general partner of LSCP,LLLP, we have complete and exclusive power to manage and control the affairs ofthe Limited Partnership including the day-to-day business and operations of theethanol plant.  As general partner of alimited liability limited partnership, we have limited liability for thepayment of debts and liabilities of LSCP, LLLP.  Under the limited partnership agreement, we can only be removedas general partner if a court has determined that we have been grosslynegligent in performing our duties as general partner and the holders of atleast sixty-six and two thirds percent (66 2/3%) of the outstanding limitedpartnership units vote to remove us.

 

The limited partnershipagreement allows each class of limited partnership interests the right toappoint one director to our board of directors.  This means that the four classes of limited partnership interestscan elect four of the thirteen directors on our board.  Our board of directors is divided into twoclasses known as Class A and Class B. Class A directors are elected by the Company’s members.  Class B directors are elected by the limitedpartners of the Limited Partnership. Both Class A and Class B directors can take action with respect to anymatters relating to the ownership and operation of the ethanol plant.  However, only Class A directors can takeaction with respect to any matters relating to the Company and not alsodirectly relating to the ethanol plant. For example, Class B directors may not vote on a motion regarding anydistributions we may make to our members. No limited partner or class of limited partnership interests has theright to appoint a majority of the Company’s directors or control the businessof the Limited Partnership.

 

Our power to manage LSCP,LLLP is restricted in three cases.  First,we cannot dispose of or encumber substantially all of the assets of the LimitedPartnership without first obtaining the consent of the holders of a majority ofthe limited partnership interests. Second, we cannot remove or appoint a general manager responsible formanaging the Limited Partnership’s business without first obtaining the consentof the holders of a majority of the limited partnership interests.  Finally, we cannot admit additional generalor limited partners without first obtaining the approval of the holders of atleast 75 percent of the limited partnership units.

 

Under the limitedpartnership agreement, distributions of the Limited Partnership’s revenues (asdefined below) are made to the general and limited partners in proportion to theunits held, however, distributions are also limited by loan covenants containedin our loan agreements executed with our lenders.  For example, our loan agreements require us to maintain variousfinancial ratios and make additional loan payments based on excess cash flow,including payments received from the USDA’s Commodity Credit Corporation, asdiscussed below in “Liquidity and Capital Resources.”

 

The Limited Partnership’srevenues are defined by the limited partnership agreement as “net cash flow” meaningthe gross cash proceeds of the Limited Partnership less the amount of proceedsused for expenses, debt payments, capital improvements, replacements,contingencies and reserves, all as reasonably determined by the Company, asgeneral partner.  Distributions are madein proportion to the units held by the general and limited partners, whichmeans that a partner’s distribution is calculated based on the number of unitssuch partner owns in proportion to the number of total units outstanding.  For example, the Company currently owns2,189 limited partnership units and there are 3,739 limited partnership unitsoutstanding.  Therefore, the Company isentitled to distributions equaling 58.5% of the Limited Partnership’s net cashflow (2,189 units divided by 3,739 units). No partner is entitled to a minimum distribution amount.  However, the limited partnership agreementprovides that the Company, as general partner, will endeavor to provide forcash distributions at the times and amounts necessary to allow the partners tomake timely payment of income taxes. Distributions are not prioritized among the partners.

 

After giving effect tocertain special allocations, such as adjustments for partners who bear the riskof economic loss for certain partnership debts, profits and losses aregenerally allocated to the partners based on the number of units owned by apartner in proportion to the number of total units outstanding.  As general partner, the Company owns 2,189limited partnership units or 58.5% of the outstanding limited partnershipunits.  The limited partners own anaggregate of 1,550 limited partnership units or 41.5% of the outstandinglimited partnership units.  Therefore, theCompany is generally allocated 58.5% of the Limited Partnership’s profits andlosses and the limited partners are generally allocated 41.5% of the LimitedPartnership’s profits and losses. 

 

4

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The limited partnershipagreement can only be amended if the amendment is approved by our board ofdirectors and is approved by holders of a majority of the limited partnershipinterests.

 

**PrincipalProducts and Markets**

 

We have constructed theethanol plant near Marcus, Iowa in Cherokee County, in the northwesternsection of Iowa.  The project siteis located approximately two miles east of Marcus and one mile north of IowaState Highway 3.  We selected the Marcussite because of its location to existing grain production, accessibility toroad and rail transportation and its proximity to major populationcenters.  It is also served by theCanadian National Railroad Company.  Itis in close proximity to major highways that connect to major populationcenters such as Minneapolis, Minnesota; Omaha, Nebraska; and Chicago, Illinois.

 

The principal products weproduce at the ethanol plant are ethanol and distiller grains.  Ethanol is ethyl alcohol, a fuel componentmade primarily from corn and various other grains, and can be used as: (i) anoctane enhancer in fuels; (ii) an oxygenated fuel additive for the purpose ofreducing ozone and carbon monoxide vehicle emissions; and (iii) anon-petroleum-based gasoline substitute. Approximately 95% of all ethanol isused in its primary form for blending with unleaded gasoline and other fuelproducts. The implementation of the Federal Clean Air act has made ethanolfuels an important domestic renewable fuel additive. Used as a fuel oxygenate,ethanol provides a means to control carbon monoxide emissions in largemetropolitan areas. The principal purchasers of ethanol are generally thewholesale gasoline marketer or blender. The principal markets for our ethanol are petroleum terminals in theIowa and upper Midwest area. 

 

A principal by-product ofthe ethanol production process is distiller grains, a high protein, high-energyanimal feed supplement primarily marketed to the dairy and beef industry.Distiller grains contain by-pass protein that is superior to other proteinsupplements such as cottonseed meal and soybean meal. By-pass proteins are moredigestible to the animal, thus generating greater lactation in milk cows andgreater weight gain in beef cattle. Dry mill ethanol processing creates threeforms of distiller grains: Distillers Wet Grains (“DWS”), Distillers ModifiedWet Grains (“DMWS”) and Distillers Dried Grains with Solubles (“DDGS”). DWS isprocessed corn mash that contains approximately 70% moisture. DWS has a shelflife of approximately three days and can be sold only to farms within theimmediate vicinity of an ethanol plant. DMWS is DWS that has been dried toapproximately 50% moisture. DMWS have a slightly longer shelf life ofapproximately ten days and are often sold to nearby markets. DDGS is DWS thathas been dried to 10% to 12% moisture. DDGS have an almost indefinite shelflife and may be sold and shipped to any market regardless of its vicinity to anethanol plant.

 

**DistributionMethods**

** **

As general partner of thelimited partnership, we entered into a marketing agreement with Minnesota CornProcessors, L.L.C., (“MCP”) for the purposes of marketing and distributing ourethanol.  This marketing agreement wassubsequently assigned by MCP to Archer Daniels Midland Company (“ADM”)following ADM’s acquisition of MCP.  Inexchange for ADM’s marketing, sales, storage and transportation services, we payADM a fixed price per gallon of ethanol sold. The initial term of the marketing agreement with ADM is four years andthe agreement is automatically renewed for successive one-year periods at theend of the four-year term unless the parties agree otherwise.  

 

As general partner of thelimited partnership, we have entered into a marketing agreement with CommoditySpecialist Company, (“CSC”) a Delaware corporation, for the purpose ofmarketing and selling all the distiller grains we produce, except distillergrains we produce and sell directly to local farmers. For our distiller grains,we receive a percentage of the selling price actually received by CSC inmarketing the distillers grains to its customers.

 

**Competition**

 

We are in directcompetition with other ethanol producers, many of whom have greater resourcesthan we do.  We expect that additionalethanol producers will enter the market as the demand for ethanol increases. 

 

Our ethanol plant competeswith other ethanol producers on the basis of price and, to a lesser extent,delivery service. We believe we compete favorably with other ethanol producersdue to our proximity to ample grain

 

5

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supplies and multiplemodes of transportation.  We believe ourplant’s location offers an advantage over other ethanol producers in that ithas ready access by rail to growing ethanol markets, which reduces our cost ofsales. 

 

Currently, Iowa has elevenother planned and operating producer owned ethanol plants.  Plants near Coon Rapids and Lakota produceapproximately 40 million gallons per year. Plants near Sioux Center and Galva produce approximately 15 milliongallons per year.  Planned producer andprivately owned ethanol plants near Hanlantown, Ashton, Denison, Mason City,and Burlington are expected to produce 40 million gallons per year.  Planned ethanol plants near Steamboat Rockand Manchester are expected to produce 20 million gallons per year and 15million gallons per year, respectively. A planned ethanol plant near Hudson, South Dakota is expected to producenear 40 million gallons per year.  Thereare also numerous other producer and privately owned ethanol plants planned andoperating throughout the Midwest and elsewhere in the United States.

 

The largest ethanolproducers include Archer Daniels Midland, Cargill, Midwest Grain, WilliamsEnergy Service, New Energy Corporation and High Plains Corporation, all ofwhich are capable of producing many times the amount of ethanol we produce. Inaddition, there are several regional entities recently formed, or in theprocess of formation, of a similar size and with similar resources to us. 

 

The ethanol industry hasgrown to over 59 production facilities in the United States.  Industry authorities estimate that thesefacilities are capable of producing approximately 3.0 billion gallons ofethanol per year.  Plans to constructnew plants or to expand existing plans have been announced which would increasecapacity by approximately 587 million gallons per year.  We cannot determine the effect of this typeof an increase upon the demand or price of ethanol.  The following table sets forth the current and planned majorethanol production facilities in the United States, according to the RenewableFuels Association, U.S. Fuel Ethanol Production Capacity October 2003Report.  

 

**U.S. FUEL ETHANOL PRODUCTION CAPACITY**

million gallons per year (mmgy)

 
| **COMPANY**                             |       | **LOCATION**        |       | **FEEDSTOCK**          |       | **Current  Capacity  (mmgy)** |   | **Under  Construction/  Expansions  (mmgy)** |   |
|-----------------------------------------|------------|---------------------|------------|------------------------|------------|-------------------------------|--------|----------------------------------------------|--------|
| Abengoa Bioenergy Corp.                 |       | York, NE            |       | Corn/milo              |       | 50                            |   |                                         |   |
|                                    |       | Colwich, KS         |       |                   |       | 20                            |   |                                         |   |
|                                    |       | Portales, NM        |       |                   |       | 15                            |   |                                         |   |
| ACE Ethanol                             |       | Stanley, WI         |       | Corn                   |       | 15                            |   |                                         |   |
| Adkins Energy, LLC*                     |       | Lena, IL            |       | Corn                   |       | 40                            |   |                                         |   |
| A. E. Stanley                           |       | Loudon, TN          |       | Corn                   |       | 65                            |   |                                         |   |
| AGP*                                    |       | Hastings, NE        |       | Corn                   |       | 52                            |   |                                         |   |
| Agra Resources Coop. d/b/a EXOL*        |       | Albert Lea, MN      |       | Corn                   |       | 37                            |   |                                         |   |
| Agri-Energy, LLC*                       |       | Luverne, MN         |       | Corn                   |       | 21                            |   |                                         |   |
| Alchem Ltd. LLLP                        |       | Grafton, ND         |       | Corn                   |       | 10.5                          |   |                                         |   |
| AL-Corn Clean Fuel*                     |       | Claremont, MN       |       | Corn                   |       | 30                            |   |                                         |   |
| Archer Daniels Midland                  |       | Decatur, IL         |       | Corn                   |       | 1070                          |   |                                         |   |
|                                    |       | Cedar Rapids, IA    |       | Corn                   |       |                          |   |                                         |   |
|                                    |       | Clinton, IA         |       | Corn                   |       |                          |   |                                         |   |
|                                    |       | Columbus, NE        |       | Corn                   |       |                          |   |                                         |   |
|                                    |       | Marshall, MN        |       | Corn                   |       |                          |   |                                         |   |
|                                    |       | Peoria, IL          |       | Corn                   |       |                          |   |                                         |   |
|                                    |       | Wallhalla, ND       |       | Corn/barley            |       |                          |   |                                         |   |
| Aventine Renewable Energy, Inc.         |       | Pekin, IL           |       | Corn                   |       | 100                           |   |                                         |   |
|                                    |       | Aurora, NE          |       | Corn                   |       | 35                            |   |                                         |   |
| Badger State Ethanol, LLC*              |       | Monroe, WI          |       | Corn                   |       | 40                            |   |                                         |   |
| Big River Resources, LLC*^              |       | West Burlington, IA |       | Corn                   |       |                          |   | 40                                           |   |
| Broin Enterprises, Inc.                 |       | Scotland, SD        |       | Corn                   |       | 9                             |   |                                         |   |
| Cargill, Inc.                           |       | Blair, NE           |       | Corn                   |       | 83                            |   |                                         |   |
|                                    |       | Eddyville, IA       |       | Corn                   |       | 35                            |   |                                         |   |
| Central Illinois Energy Cooperative*^   |       | Canton, IL          |       | Corn                   |       |                          |   | 30                                           |   |
| Central MN Ethanol Coop*                |       | Little Falls, MN    |       | Corn                   |       | 20                            |   |                                         |   |
| Central Wisconsin Alcohol               |       | Plover, WI          |       | Seed corn              |       | 4                             |   |                                         |   |
| Chief Ethanol                           |       | Hastings, NE        |       | Corn                   |       | 62                            |   |                                         |   |
| Chippewa Valley Ethanol Co.*            |       | Benson, MN          |       | Corn                   |       | 42                            |   |                                         |   |
| Commonwealth Agri-Energy, LLC*^         |       | Hopkinsville, KY    |       | Corn                   |       |                          |   | 20                                           |   |
| Cornhusker Energy Lexington, LLC*^      |       | Lexington, NE       |       | Corn                   |       |                          |   | 42                                           |   |
| Corn Plus*                              |       | Winnebago, MN       |       | Corn                   |       | 44                            |   |                                         |   |
| Dakota Ethanol, LLC*                    |       | Wentworth, SD       |       | Corn                   |       | 47                            |   |                                         |   |
| DENCO, LLC*                             |       | Morris, MN          |       | Corn                   |       | 20                            |   |                                         |   |
| ESE Alcohol Inc.                        |       | Leoti, KS           |       | Seed Corn              |       | 1.5                           |   |                                         |   |
| Ethanol2000, LLP*                       |       | Bingham Lake, MN    |       | Corn                   |       | 30                            |   |                                         |   |
| Glacial Lakes Energy, LLC*              |       | Watertown, SD       |       | Corn                   |       | 45                            |   |                                         |   |
| Golden Cheese Company of California*    |       | Corona, CA          |       | Cheese whey            |       | 5                             |   |                                         |   |
| Golden Grain Energy, LLC*^              |       | Mason City, IA      |       | Corn                   |       |                          |   | 40                                           |   |
| Golden Triangle Energy, LLC*            |       | Craig, MO           |       | Corn                   |       | 20                            |   |                                         |   |
| Gopher State Ethanol                    |       | St. Paul, MN        |       | Corn                   |       | 15                            |   |                                         |   |
| Grain Processing Corp.                  |       | Muscatine, IA       |       | Corn                   |       | 10                            |   |                                         |   |
| Great Plains Ethanol, LLC*              |       | Chancellor, SD      |       | Corn                   |       | 40                            |   |                                         |   |
| Heartland Corn Products*                |       | Winthrop, MN        |       | Corn                   |       | 35                            |   |                                         |   |
| Heartland Grain Fuels, LP*              |       | Aberdeen, SD        |       | Corn                   |       | 8                             |   |                                         |   |
|                                    |       | Huron, SD           |       | Corn                   |       | 14                            |   |                                         |   |
| Husker Ag, LLC*                         |       | Plainview, NE       |       | Corn                   |       | 20                            |   |                                         |   |
| Iowa Ethanol, LLC*^                     |       | Hanlontown, IA      |       | Corn                   |       |                          |   | 45                                           |   |
| James Valley Ethanol, LLC               |       | Groton, SD          |       | Corn                   |       | 45                            |   |                                         |   |
| J.R. Simplot                            |       | Caldwell, ID        |       | Potato waste           |       | 6                             |   |                                         |   |
|                                    |       | Heyburn, ID         |       |                   |       |                          |   |                                         |   |
| KAAPA Ethanol, LLC*^                    |       | Axtell, NE          |       | Corn                   |       |                          |   | 40                                           |   |
| Land O’ Lakes*                     |       | Melrose, MN         |       | Cheese whey            |       | 2.6                           |   |                                         |   |
| Lincolnland Agri-Energy, LLC*^          |       | Robinson, IL        |       | Corn                   |       |                          |   | 40                                           |   |
| Little Sioux Corn Processors, LP*       |       | Marcus, IA          |       | Corn                   |       | 40                            |   |                                         |   |
| Manildra Energy Corp.                   |       | Hamburg, IA         |       | Corn/milo/wheat starch |       | 8                             |   |                                         |   |
| Merrick/Coors                           |       | Golden, CO          |       | Waste beer             |       | 1.5                           |   |                                         |   |
| Michigan Ethanol, LLC                   |       | Caro, MI            |       | Corn                   |       | 45                            |   |                                         |   |
| MGP Ingredients, Inc.                   |       | Pekin, IL           |       | Corn/wheat starch      |       | 78                            |   |                                         |   |
|                                    |       | Atchison, KS        |       |                   |       |                          |   |                                         |   |
| Mid-Missouri Energy, LLC*^              |       | Malta Bend, MO      |       | Corn                   |       |                          |   | 40                                           |   |
| Midwest Grain Processors*               |       | Lakota, IA          |       | Corn                   |       | 45                            |   |                                         |   |
| Miller Brewing Co.                      |       | Olympia, WA         |       | Brewery waste          |       | 0.7                           |   |                                         |   |
| Minnesota Energy*                       |       | Buffalo Lake, MN    |       | Corn                   |       | 18                            |   |                                         |   |
| New Energy Corp.                        |       | South Bend, IN      |       | Corn                   |       | 95                            |   |                                         |   |
| Northeast Missouri Grain, LLC*          |       | Macon, MO           |       | Corn                   |       | 40                            |   |                                         |   |
| Northern Lights Ethanol, LLC*           |       | Big Stone City, SD  |       | Corn                   |       | 45                            |   |                                         |   |
| Otter Creek Ethanol, LLC*^              |       | Ashton, IA          |       | Corn                   |       |                          |   | 45                                           |   |
| Parallel Products                       |       | Louisville, KY      |       | Beverage waste         |       | 4                             |   |                                         |   |
|                                    |       | Bartow, FL          |       |                   |       | 4                             |   |                                         |   |
|                                    |       | R. Cucamonga, CA    |       |                   |       | 4                             |   |                                         |   |
| Permeate Refining                       |       | Hopkinton, IA       |       | Sugars & starches  |       | 1.5                           |   |                                         |   |
| Pine Lake Corn Processors, LLC*^        |       | Steamboat Rock, IA  |       | Corn                   |       |                          |   | 20                                           |   |
| Platte Valley Fuel Ethanol, LLC^        |       | Central City, NE    |       | Corn                   |       |                          |   | 40                                           |   |
| Pro-Corn, LLC*                          |       | Preston, MN         |       | Corn                   |       | 40                            |   |                                         |   |
| Quad-County Corn Processors*            |       | Galva, IA           |       | Corn                   |       | 18                            |   |                                         |   |
| Reeve Agri-Energy                       |       | Garden City, KS     |       | Corn/milo              |       | 12                            |   |                                         |   |
| 78th Street Ethanol, LLC                |       | Blairstown, IA      |       | Corn                   |       | 5.5                           |   |                                         |   |
| Siouxland Energy & Livestock Coop*  |       | Sioux Center, IA    |       | Corn                   |       | 18                            |   |                                         |   |
| Sioux River Ethanol, LLC*^              |       | Hudson, SD          |       | Corn                   |       |                          |   | 45                                           |   |
| Tall Corn Ethanol, LLC*                 |       | Coon Rapids, IA     |       | Corn                   |       | 45                            |   |                                         |   |
| Trenton Agri Products, LLC^             |       | Trenton, NE         |       | Corn                   |       |                          |   | 30                                           |   |
| Tri-State Ethanol Co, LLC*              |       | Rosholt, SD         |       | Corn                   |       | 18                            |   |                                         |   |
| United Wisconsin Grain Producers, LLC*^ |       | Columbus, WI        |       | Corn                   |       |                          |   | 40                                           |   |
| U.S. Energy Partners, LLC               |       | Russell, KS         |       | Milo/wheat starch      |       | 40                            |   |                                         |   |
| Utica Energy, LLC                       |       | Oshkosh, WI         |       | Corn                   |       | 20                            |   |                                         |   |
| VeraSun Energy Corporation              |       | Aurora, SD          |       | Corn                   |       | 100                           |   |                                         |   |
| Western Plains Energy, LLC*^            |       | Campus, KS          |       | Corn                   |       |                          |   | 30                                           |   |
| Wyoming Ethanol                         |       | Torrington, WY      |       | Corn                   |       | 5                             |   |                                         |   |
| **Total Existing Capacity**             | ** ** | **3014.8**          | ** ** |                   | ** ** |
| **Total Under Construction/Expansions** | ** ** |                | ** ** | **587.0**              | ** ** |
| **TOTAL CAPACITY**                      | ** ** | **3601.8**          | ** ** |                   | ** ** |
|                                         |            |                     |            |                        |            |                               |        |                                              |        |  |  |  |  |  |  |  |  |

 

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* farmer-owned

 

^ under construction

 

Last Updated: October 2003

 

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The ethanol industry isvery competitive.  While the ethanolindustry has been growing, there is significant competition among ethanolproducers. Nationally, ethanol production is concentrated in a few largecompanies. Our ethanol plant faces a competitive challenge from largerfactories, from plants that can produce a wider range of products than ourplant, and from other plants similar to our ethanol plant. 

 

Our ethanol plant is indirect competition with other ethanol producers, many of which have greaterresources than we currently have or will have in the future.  Large ethanol producers such as ArcherDaniels Midland and Cargill, among others, are capable of producingsignificantly greater quantities than the amount of ethanol we produce. In addition,there are several Minnesota, Iowa and other midwestern regional ethanolproducers, as well as others on the east and west coasts and the south, thathave recently formed, are in the process of forming, or are underconsideration, which are or would be of a similar size and have similarresources to us. In light of such competition, there is no assurance that wecan continue to successfully operate the ethanol plant. 

 

Our ethanol plant alsocompetes with producers of other gasoline additives having similar octane andoxygenate values as ethanol, such as producers of MTBE, a petrochemical derivedfrom methanol that costs less to produce than ethanol. Although currently thesubject of a federal ban, many major oil companies can produce MTBE and becauseit is petroleum-based, its use is strongly supported by major oil companies.Alternative fuels, gasoline oxygenates and alternative ethanol productionmethods are also continually under development. The major oil companies havesignificantly greater resources than we have to market MTBE and otheradditives, to develop alternative products, and to influence legislation andpublic perception of MTBE and ethanol. These companies also have sufficientresources to begin production of ethanol should they choose to do so. 

 

Alternative fuels,gasoline oxygenates and ethanol production methods are continually underdevelopment by ethanol and oil companies with far greater resources that wehave. New products or methods of ethanol production developed by larger better-financedcompetitors could provide them competitive advantages over us and harm ourbusiness. 

 

**Sourcesof Raw Materials  - Corn FeedstockSupply**

 

We have obtained a graindealers license and have established our own grain sourcing staff to acquirethe corn we need. We have also identified a number of elevators as potentialsources of grain in northwestern Iowa for additional corn delivery.  The grain required for operation of theethanol plant is readily available both through our own grain sourcing staffand local grain elevators.  

 

**Dependenceon One or a Few Major Customers**

** **

As discussed above, wehave entered into marketing agreements with ADM and CSC for the purposes ofmarketing and distributing our principal products, ethanol and distillergrains.  We rely on ADM and CSC for thesale and distribution of almost all of our products, except for those distillergrains that we market locally. Therefore, we are highly dependent on ADM and CSC for the successfulmarketing of our products.  As a largeethanol producer, ADM is also a source of competition.  

 

**Effect ofGovernmental Regulation**

 

Ethanol has importantapplications, primarily as a high quality octane enhancer and an oxygenatecapable of reducing air pollution and improving automobile performance. Theethanol industry is heavily dependent, however, on several economic incentivesto produce ethanol, including federal ethanol supports. 

 

Ethanol sales have beenfavorably affected by the Clean Air Act amendments of 1990, particularly theFederal Oxygen Program which became effective November 1, 1992. TheFederal Oxygen Program requires the sale of oxygenated motor fuels during thewinter months in certain major metropolitan areas to reduce carbon monoxidepollution. Ethanol use has increased due to a second Clean Air Act program, theReformulated Gasoline Program. This program became effective January 1,1995, and requires the sale of reformulated gasoline in nine major urban areasto reduce pollutants, including those that contribute to ground level ozone,better known as smog. Increasingly

 

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stricter EPA regulationsare expected to increase the number of metropolitan areas deemed innon-compliance with Clean Air Standards, which could increase the demand forethanol. 

 

The use of ethanol as anoxygenate to blend with fuel to comply with federal mandates also has beenaided by federal tax policy. The Energy Tax Act of 1978 exempted ethanolblended gasoline from the federal gas tax as a means of stimulating thedevelopment of a domestic ethanol industry and mitigating the country’sdependence on foreign oil. As amended, the federal tax exemption currentlyallows the market price of ethanol to compete with the price of domesticgasoline. The exemption for a 10% ethanol blend is the equivalent of providinga per gallon “equalization” payment that allows blenders to pay more forethanol than the wholesale price of gasoline and still retain profit marginsequal to those received upon the sale of gasoline that is not blended withethanol. Under current legislation, the federal gasoline tax is $0.184 pergallon and the tax on a 10% ethanol blend is $0.131 per gallon, providing a$0.053 difference. The exemption will gradually drop to 5.1 cents in 2005. Thisfederal tax exemption is scheduled to expire in 2007.

 

A bill (S. 791, 108thCong.) including provisions known as the Renewable Fuels Standard has beenintroduced in the United States Senate. It would revise the current method in which fuel ethanol use is required.  The proposed legislation would determine thespecific volume of ethanol to be used in gasoline on a nationwide basis.  The anticipated volumes would begin in theyear 2004 at 2.3 billion gallons and grow at a rate of approximately 300million gallons per year to a volume of 5 billion gallons in 2012.  However, the bill has been postponed.

 

The ethanol industry andour business depend upon continuation of the federal ethanol supports discussedabove.  These incentives have supporteda market for ethanol that might disappear without the incentives.  Alternatively, the incentives may becontinued at lower levels than at which they currently exist.  The elimination or reduction of such federalethanol supports would make it more costly for us to produce and sell ourethanol.

 

**Costs andEffects of Compliance with Environmental Laws**

 

We are subject toextensive air, water and other environmental regulations and we have beenrequired to obtain a number of environmental permits to construct and operatethe plant.  We have obtained all of thenecessary permits to begin plant operations including, air pollutionconstruction permits, a pollutant discharge elimination system general permit,storm water discharge permits, a water withdrawal permit, and an alcohol fuelproducer’s permit.  In addition, we havecompleted a spill prevention control and countermeasures plan.  As of September 30, 2003, we hadincurred expenses of approximately $200,000 in complying with environmentallaws, including the cost of obtaining permits. Although we have been successful in obtaining all of the permitscurrently required, any retroactive change in environmental regulations, eitherat the federal or state level, could require us to obtain additional or newpermits or spend considerable resources on complying with such regulations.

** **

We are subject tooversight activities by the EPA. There is always a risk that the EPA mayenforce certain rules and regulations differently than Iowa’s environmentaladministrators. Iowa or EPA rules are subject to change, and any such changescould result in greater regulatory burdens on plant operations.  We could also be subject to environmental ornuisance claims from adjacent property owners or residents in the area arisingfrom possible foul smells or other air or water discharges from the plant.  Such claims may result in an adverse resultin court if we are deemed to engage in a nuisance that substantially impairsthe fair use and enjoyment of real estate.

 

**Employees**

 

As of September 30,2003, we had a total of 31 full-time employees.  We have 25 full-time employees in ethanolproduction operations and 6 full-time employees in general management andadministration.  We do not expect tohire a significant number of additional employees during the next 12 months.

 

**ITEM 2.****                                                     DESCRIPTIONOF PROPERTY.**

** **

We own the generalpartnership interest in the limited partnership that owns the ethanolplant.  The ethanol plant is located onan approximately 80 acre rural site that is located approximately two miles eastof the City of Marcus, Iowa and approximately one mile north of Iowa StateHighway 3.  The plant’s address is 4808F Avenue,

 

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Marcus, Iowa 50135.  The plant grinds approximately 15 millionbushels of corn per year to produce approximately 40 million gallons ofethanol.  Construction of the plant wascompleted by June 30, 2003.  Theethanol plant consists of the following buildings: 

 

•                  A processing building, whichcontains processing equipment, laboratories, control room and offices;

•                  A grain receiving and shippingbuilding, which contains a control room and 1st and 2nd level mezzanine;

•                  A mechanical building, whichcontains maintenance offices, storage and a welding shop; and

•                  An administrative building, alongwith furniture and fixtures, office equipment and computer and telephonesystems. 

 

In addition, the plantincludes a fermenter walkway, gas dryer, evaporator and storage facilities forethanol and distiller grains.  The sitealso contains improvements such as rail tracks and a rail spur.  In the fall of 2003, we completed thelandscaping, drainage systems and access roads.  Some of the access roads still need to be paved.

 

On July 25, 2002, weexecuted a mortgage in favor of First National Bank of Omaha, N.A. of Omaha,Nebraska, creating a first lien on our real estate and ethanol plant and asecurity interest in all personal property located on our property.  The mortgage and security interest securethe construction loan, which was converted on June 23, 2003, into threeterm notes in the aggregate amount of $31,465,000.

 

**ITEM 3.****                                                     LEGALPROCEEDINGS.**

** **

None.

 

**ITEM 4.****                                                     SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

 

Because the fiscal year ran from January 1, 2003 toSeptember 30, 2003, we did not have a fourth quarter for the fiscal yearended September 30, 2003. Accordingly, no matters were submitted to a vote of members during thefourth quarter.  

 

**PART II**

 

**ITEM 5.****                                                     MARKETFOR MEMBERSHIP UNITS AND RELATED MEMBER MATTERS.**

** **

In 2000 and 2001, we sold a total of 939 Class A membership units toour seed capital investors at a price of $500 per unit and received aggregateproceeds of $469,500.  In 2002, we solda total of 10,002 Class A membership units, which were registered and offeredin the State of Iowa, to residents of the State of Iowa.  We sold 7,812 Class A membership units at aprice of $1,000 per unit and we sold 2,190 Class A membership units for a priceof $1,100 per unit.  From our 2002 ClassA membership unit sales we received total aggregate proceeds of approximately$10,226,000.  

 

We claimed exemption from federal registration with respect to ourClass A membership unit sales due to the application of Section 3(a)(11)of the Securities Act of 1933 (regarding intra-state offerings), and stateregistration due to application of Iowa Code Section 502.203(9) regardingsmall issuers.  The recipients ofsecurities in each such transaction represented their intention to acquire thesecurities for investment only and not with a view to, or for sale inconnection with, any distribution thereof, and appropriate legends were affixedto unit certificates and instruments issued in such transactions.  All recipients had adequate access throughtheir relationships with us, to information about us.  We have no Class B membership units outstanding.  Because we had assets exceeding $10 million and 647 unit-holdersas of the end of our last fiscal year (December 31, 2002) onApril 30, 2003, we registered our units with the U.S. Securities andExchange Commission on Form 10-SB Registration Statement pursuant toSection 12(g) of the Securities Exchange Act of 1934.

 

There is no public tradingmarket for our units.  We have created aprivate qualified online matching service in order to facilitate trading amongour members.  Our online matchingservice consists of an electronic bulletin board that provides information toprospective sellers and buyers of our units. We do not receive any compensation for creating or maintaining thematching service.  We do not becomeinvolved in any purchase or sale

 

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negotiations arising fromour qualified matching service.  Inadvertising our qualified matching service, we do not characterize the Companyas being a broker or dealer or an exchange. We do not give advice regarding the merits or shortcomings of anyparticular transaction. We do not receive, transfer or hold funds or securitiesas an incident of operating the online matching service.  We do not use the bulletin board to offer tobuy or sell securities other than in compliance with the securities laws,including any applicable registration requirements.  We have no role in effecting the transactions beyond approval, asrequired under our operating agreement and the issuance of newcertificates.  So long as we remain aSection 12 registration and a publicly reporting company, informationabout the Company will be publicly available through the SEC’s filing system.  However, if at any time we cease to be aSection 12 registrant or publicly reporting company, we will continue tomake information about the Company publicly available on our website.  

 

As of September 30,2003, the Company had 10,941 Class A Units issued and outstanding and a totalof 649 Class A unit-holders.  As ofSeptember 30, 2003, we had not made any distributions to our Class Aunit-holders.  Distributions to our unitholders are subject to certain loan covenants and restrictions that require usto make additional loan payments based on excess cash flow.  These loan covenants and restrictions aredescribed in greater detail under “MANAGEMENT’S DISCUSSION AND ANALYSIS –Liquidity and Capital Resources.” Therefore, distributions to our unit holders may be reduced during theperiod of time in which we make these additional loan payments. Revenuesgenerated from plant operations will be distributed by the limited partnershipto us in proportion to our equity ownership in the limited partnership.  Our receipt of revenues from the LimitedPartnership will in turn be distributed to our unit holders.  Now that we have commenced plant operations,we expect to make distributions to our unit holders in proportion to the numberof units held by each unit holder.  Aunit holder’s distribution is determined by dividing the number of units ownedby such unit holder by the total number of units outstanding.  Our Class A directors have completediscretion over the timing and amount of distributions to our unit holders,however, our operating agreement requires the Class A directors to endeavor tomake cash distributions at such times and in such amounts as will permit ourunit holders to satisfy their income tax liability in a timely fashion. 

 

**ITEM 6.****                                                     MANAGEMENT’SDISCUSSION AND ANALYSIS.**

 

This report contains forward-looking statements that involve futureevents, our future performance and our expected future operations andactions.  In some cases you can identifyforward-looking statements by the use of words such as “may,” “will,” “should,”“anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,”“estimate,” “predict,” “hope,” “potential,” “continue,” or the negative ofthese terms or other similar expressions. These forward-looking statements are only our predictions and involvenumerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from theseforward-looking statements for many reasons, including the reasons described inthis report.  We are not under any dutyto update the forward-looking statements contained in this report.  We cannot guarantee future results, levelsof activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements,which speak only as of the date of this report.  You should read this report and the documents that we referencein this report and have filed as exhibits, completely and with theunderstanding that our actual future results may be materially different fromwhat we currently expect.  We qualifyall of our forward-looking statements by these cautionary statements.

 

**Application of Critical Accounting Policies**

** **

Management uses estimates and assumptions in preparing our consolidatedfinancial statements in accordance with generally accepted accountingprinciples.  These estimates andassumptions affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities, and the reported revenues andexpenses.  Of the significant accountingpolicies described in the notes to our consolidated financial statements, webelieve that the following are the most critical:

 

*Derivative Instruments*

* *

We enter into derivative instruments to hedge the variability ofexpected future cash flows related to forecasted corn and natural gaspurchases, forward purchase contracts, and interest rates.  We do not typically enter into derivativeinstruments other than for hedging purposes. All derivative instruments are recognized on our September 30, 2003and December 31, 2002 balance sheet at their fair market value.  On the date the derivative

 

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instrument is entered into, we will designate the derivative as eithera hedge of the variability of cash flows of a forecasted transaction or willnot designate the derivative as a hedge. Changes in the fair value of a derivative that is designated as, andmeets all of the required criteria for, a cash flow hedge are recorded inaccumulated other comprehensive income and reclassified into earnings as thehedged items affect earnings. Changes in the fair value of a derivative that isnot designated as a hedge are recorded in current period earnings.  Although certain derivative instruments maynot be designated as, and accounted for, as a cash flow hedge, they areeffective economic hedges of specified risks.

 

During the nine month fiscal year endedSeptember 30, 2003, we dedesignated as cash flow hedges our optioncontract positions, although they continue to be effective economic hedges ofspecified risks.  At September 30,2003, we had recorded an asset for derivative instruments related to corn andnatural gas long call option positions with a fair value of $316,726 forforecasted purchases during fiscal 2004. At September 30, 2003, accumulated other comprehensive incomeincluded $371,440 in realized losses on exited option contracts, which will bereclassified into earnings as the underlying hedged items affect earnings.  This will occur when the corn and naturalgas that is being hedged has been used to produce ethanol and the sale of thatethanol is recognized.  We have recordedin cost of goods sold $648,714 related to our loss on derivative instrumentsfor the nine month fiscal year ended September 30, 2003.  The loss of $648,714 includes thereclassification from accumulated other comprehensive income of $456,788recorded at December 31, 2002 and the related gain in fiscal 2003 of$77,724 on these positions.  Inaddition, as a result of the dedesignation of our derivative instruments, werecognized a gain on these remaining positions of $104,222 in the third quarterof fiscal 2003 and a loss of $373,872 on positions entered into during thethird quarter of fiscal 2003 not designated as cash flow hedges, but acting aseconomic hedges.

 

At December 31, 2002, we had recorded aliability for our derivative instruments outstanding of $529,561 whichconsisted of a group of short put options and a group of long put options thatcoincided with purchases of corn beginning in March 2003 and continuinguntil December 2003.  AtDecember 31, 2002, the short put options had an unrealized loss of$468,957 and the long put options have an unrealized loss of $37,104, net ofpremiums received of $23,500.  Duringfiscal 2002, realized losses from option contracts exited totaled $242,520 wereincluded in other comprehensive loss and reclassified into operations in fiscal2003 as inventory was sold.  During thetwelve month fiscal year ended December 31, 2002, we had not recorded anyexpense related to our option position in operations, but had recorded a totalunrealized loss of $748,581 in other comprehensive loss.

 

At September 30, 2003, we had aninterest rate cap, as described in note 6 in the notes to our financialstatements, with a fair value of $81,224 recorded as an asset with derivativeinstruments.  The interest rate cap wasnot designated as a cash flow hedge.  Weoffset interest expense with the gain on the interest rate cap for the ninemonth fiscal year ending September 30, 2003.

 

**Overview**

 

Little Sioux Corn Processors, L.L.C. was formed as an Iowa limitedliability company on September 28, 2000, for the purpose of constructingand operating a 40 million gallon per year ethanol plant in northwestIowa.  We raised equity by registeringour Class A membership units with the State of Iowa.  The offering commenced on March 6, 2001 and ended onMarch 6, 2002.  During the offeringperiod, we sold 10,002 of our Class A membership units and received aggregatesales proceeds of $10,226,000.

 

We contributed our unit sales proceeds to LSCP, LP, an Iowa limitedpartnership, in exchange for the sole general partnership interest.  In 2002, our project engineer and generalcontractor invested $500,000 and $1,750,000, respectively in LSCP, LP.  LSCP, LP, has constructed and currentlyoperates the ethanol plant.  We controlthe business and day-to-day operations of the ethanol plant through our solegeneral partnership interest in LSCP, LP. On June 26, 2003, our members voted to elect limited liabilitystatus for LSCP, LP.  As ofJuly 31, 2003, LSCP, LP, converted to LSCP, LLLP, an Iowa limitedliability limited partnership.  Wecurrently own a 58.5% ownership interest in LSCP, LLLP.

 

In April 2003, wesubstantially completed construction of a 40 million-gallon per year ethanolplant near Marcus, Iowa and commenced plant operations.  During the months of May and June, wewere engaged in preliminary testing of plant operations and start-upproduction.  The plant satisfied all preliminarytesting.  As of

 

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June 30, 2003,construction of the plant was complete. We are currently engaged in the production of ethanol and distillersgrains at our plant.  Since commencementof plant operations, the plant’s production capacity has consistently exceededthe 40 million gallon production guarantee provided by the generalcontractor.  We sell and distribute ourethanol and distillers grains nationwide.

 

**Plan of Operations for the Next 12 Months**

 

We expect to spend the next 12 months continuing to operate the ethanolplant.  We have completed landscaping,drainage systems and access roads.  Wemay still pave certain access roads. Certain design improvements will be installed as they aredeveloped.  The plant may be shut downfrom time to time over the next 12 months to incorporate these designimprovements.

 

We have an outstanding balance of $250,000 on our design-buildcontract, which we anticipate paying off within the next 6 months, pendingsatisfactory completion of certain performance guarantees provided under ourdesign-build contract.  As ofSeptember 30, 2003, final construction costs, including the outstandingbalance of $250,000, are approximately $45.5 million.  Final construction costs only include amounts due to our generalcontractor and do not include other costs incurred in connection withconstruction of the plant such as the cost of land, expenses for landscaping,drainage systems, access roads and rail switches, which in total approximate$4.9 million.

 

The plant’s emissions standards must be tested within six months ofstart-up production.  We conductedemissions testing in September 2003, but elected to retest inDecember 2003 in an effort to allow the plant to operate at higherproduction levels while satisfying, by an increased margin, the requirementsfor emissions standards.  The plantpassed the December emissions testing by an increased margin whileoperating at higher production levels. We expect to be re-tested within the next six month in compliance withstandard environmental regulations.  Weexpect to install a regenerative thermal oxidizer and additional centrifugewithin the next 12 months.  We areinstalling the regenerative thermal oxidizer and an additional centrifuge inorder to allow the plant to continue producing in excess of 40 million gallonsof ethanol per year while continuing to satisfy certain emissions standards.

 

We expect to have sufficient cash available to cover our costs over thenext 12 months, including completion of construction, corn and natural gassupplies, staffing, office, audit, legal, compliance and working capitalcosts.  The following is our estimate ofour costs and expenditures for the next 12 months:

 
| Operating Costs:                 |   |      |       |
|----------------------------------|--------|-----------|------------|
| Corn Costs                       |   | $         | 36,167,000 |   |
| General and administrative costs |   | 3,224,000 |       |
| Natural Gas Costs                |   | 6,962,000 |       |
| Chemical Costs                   |   | 4,501,000 |       |
| Other Production Costs           |   | 4,049,000 |       |
|                             |   |      |       |
| Total operating costs            |   | $         | 54,903,000 |   |

 

The estimates in the table set forth above are based upon our limitedoperational experience and that of our general contractor with other ethanolplants similar to ours.  These are onlyestimates and our actual expenses and costs could be much higher due to avariety of factors outside our control, such as:

 

•                  Changes in theavailability and price of corn;

•                  Changes infederal ethanol tax incentives;

•                  Changes in theenvironmental regulations that apply to our plant operations; 

•                  Increasedcompetition in the ethanol industry;

•                  Changes ininterest rates or the availability of credit;

•                  Changes in ourbusiness strategy, capital improvements or development plans;

•                  Changes in plantproduction capacity or technical difficulties in operating the plant;

 

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•                  Changes ingeneral economic conditions or the occurrence of certain events causing aneconomic impact in the agriculture, oil or automobile industries; and

•                  Changes in theavailability and price of natural gas and the market for wet and modified wetdistillers grains.

 

As of November 1, 2003, Iowa’s 2003 corn harvest was forecast toyield an average of 159.0 bushels per acre and an aggregate of 1.91 billionbushels.  The Iowa production estimates,if realized, would make the 2003 Iowa corn harvest the third highest corn cropon record.  National corn production wasforecast on November 1, 2003 to average 143.2 bushels per acre with totalproduction estimated at 10.3 billion bushels. If realized, these national production estimates would make the national2003 corn harvest the largest on record. We expect the large corn harvest to ensure adequate corn supply atreasonable prices, however, changes in demand and actual production numbers mayimpact the actual availability and price of corn.  We have entered into commodity option contracts in order tominimize the price risk of the corn we need to purchase to operate our plant. 

 

Natural gas is an important input to out manufacturing process.  We use natural gas to dry our distillersgrains products to moisture contents at which they can be stored for longperiods, transported greater distances, and desired by broader livestockmarkets, including poultry and swine. Natural gas has recently been available only at prices exceedinghistorical averages.  These prices areincreasing our costs of production.  Weexpect natural gas prices to remain high or increase at least through the2003-2004 winter months.  We purchasedoptions to purchase natural gas at affordable rates in order to protect asustainable level of operating revenues. Lower prices than expected for other inputs, increased operatingefficiencies, and sales of our wet distillers grains products also help protectour operating profits.  Nonetheless, wemay not recover high costs of production resulting from high natural gasprices.

 

We usecommodity option contracts, which are purchased and sold through regulatedcommodity exchanges, such as the Chicago Board of Trade, and over-the-counterexchanges to manage our price risk exposure relating to the corn supplynecessary for plant operations.  Weenter into option contracts for hedging purposes only.  We purchase our option contracts based uponthe specific volumes of corn and natural gas we expect to use in ourmanufacturing process.  Quotes listed onregulated commodity exchanges primarily determine the fair value of the optioncontracts.  In order to protect our costof corn, we expect that we will hedge approximately 50% of our corn supplyneeds for the next 12 months through option contracts.  Similarly, due to volatility in the marketfor natural gas, we expect that we will hedge a portion of our natural gassupply needs for the next 12 months through option contracts.  We have entered into a risk managementagreement with a consulting firm that provides assistance to us with our riskmanagement strategies, including price protection of our corn and natural gassupplies.  During the next 12 months, weexpect to continue using the services of the consulting firm with respect toour risk management strategies.

 

We anticipate spending approximately $54.9 million over the next twelvemonths.  We have projected to spendapproximately $51.7 million on direct cost of goods sold and productioncosts.  We also expect to incurapproximately $3.2 million for general and administrative costs.  Our production costs could rise, however, ifthe cost of natural gas increases. According to the Energy Information Administration, the cost of naturalgas could double this winter, resulting in higher costs of production that maynot be recovered.

 

We expect to fund our costs and expenditures for the next 12 monthsusing cash flow from continuing operations, lines of credit through ourrevolving promissory note and cash reserves. Based upon our expected sources of funds, we do not anticipate a need toraise additional funds within the next 12 months.

 

We currently have 31 full-time employees to operate the ethanolfacility.  We have 25 full-timeemployees in ethanol production operations and 6 full-time employees in generalmanagement and administration.  We donot expect to hire a significant number of additional employees during the next12 months.

 

We expect to continue using Archer Daniels Midland Company to marketand distribute our ethanol for at least the next 12 months.  We expect to continue using CommoditySpecialist Company to market and sell our distillers grains for at least thenext 12 months.

 

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**Liquidity and Capital Resources**

 

As of September 30, 2003, we had thefollowing consolidated assets: cash of $536,483, current assets of $8,048,340and total assets of $57,308,872.  As ofSeptember 30, 2003, we had consolidated current liabilities of$4,951,852.  Our members’ contributions,net of costs related to capital contributions, was $10,842,237.  Our members’ equity was $14,146,824 andconsisted of accumulated other comprehensive loss of $217,441 and retainedearnings of $3,522,028.  The equity ofthe minority interest was $10,052,753, for a total members’ equity of$24,199,577.  

 

In April 2003 we substantially completed construction of our ethanolplant and began operations.  For thenine months ended September 30, 2003, cash provided by operatingactivities was $2,197,583.  Cashprovided by operating activities was used for $293,274 of capital expendituresand a net $1,636,988 pay down of our debt.

 

We have a revolving promissory note of up to $3,500,000 with FirstNational Bank of Omaha renewable annually through July 2004.  On June 23, 2003, we amended the termsof the revolving promissory note in connection with conversion of theconstruction loan to term notes.  Theinterest payable on the revolving promissory note was payable monthly at 1%plus the prime rate.  Upon conversion,interest is due monthly at the one month LIBOR plus 3.8%, which totaled 4.92%at September 30, 2003.  Therevolving promissory note is our operating line of credit.  We pay a commitment fee of 0.125% on theunused portion of the line.  Theoutstanding balance as of September 30, 2003, was $775,165.  The maximum available amount of this note isbased on receivable and inventory balances. Our current receivable and inventory balances are in excess of theminimum required under the terms of the revolving promissory note, which allowsus to use the maximum available line of credit under the note.  As the balances in these accounts fluctuate,the amount of available credit on this note may be reduced. The operating lineof credit is subject to protective covenants requiring us to maintain variousfinancial ratios.  The operating line ofcredit is secured by all business assets. 

 

On June 23, 2003, we converted the construction note to three termnotes.  First National Bank of Omahaholds the term notes and refers to the notes as Term Notes #2, #3 and #4.  At conversion, Term Note #2 was in theprincipal amount of $15,732,500.  AtSeptember 30, 2003, the principal balance on Term Note #2 is$15,409,002.  Term Note #2 is payable inquarterly installments, which began on September 1, 2003.  Interest on Term Note #2 is at the threemonth LIBOR plus 2.8%, which totaled 3.95% as of September 30, 2003.  Term Note #2 is payable in full onJune 1, 2008.  In order to achievea fixed interest rate on Term Note #2, we entered into an interest rate swapwhich helps protect our exposure to increases in interest rates.  Our interest rate swap effectively fixes theinterest rate on Term Note #2 at 5.79% until June 1, 2008.  

 

At conversion, Term Note #3 was in the principal amount of$10,732,500.  At September 30,2003, the principal balance on Term Note #3 is $10,374,165.  Term Note #3 is payable in quarterlyinstallments which began on September 1, 2003.  Interest on Term Note #3 is at the three month LIBOR plus 3.8%,which totaled 4.95% as of September 30, 2003.  Term Note #3 is payable in full on June 1, 2008.  In order to protect our interest rateexposure on Term Note #3, we entered into an interest rate cap agreement basedon a principal amount of $10,000,000. Our interest rate is capped at 6.8% for Term Note #3 until June 1,2006.  

 

At conversion, Term Note #4 was in the principal amount of$5,000,000.  At September 30, 2003,the principal balance on Term Note #4 is $2,795,692.  Term Note #4 is payable in quarterly installments which began onSeptember 1, 2003.  Interest onTerm Note #4 is at the one month LIBOR plus 3.8%, which totaled 4.92% as ofSeptember 30, 2003.  Term Note #4is payable in full on June 1, 2008. Term Note #4 allows borrowings up to the original principal of$5,000,000 to the extent of principal payments made until maturity and requiresa commitment fee of 0.375% on any unused portion.  At conversion, the aggregate indebtedness represented by TermNotes #2, #3 and #4 was $31,465,500.  AtSeptember 30, 2003, the aggregate indebtedness represented by Term Notes#2, #3 and #4 was $28,578,859.  

 

The revolving promissory note as well as Term Notes #2, #3 and #4 aresubject to protective covenants requiring us to maintain various financialratios, are secured by all business assets, require additional loan paymentsbased on excess cash flow and restrict the payment of distributions.  Specifically, we must maintain a minimumconsolidated net worth of not less than $19,000,000 on an annual basis plus thegreater of $250,000 or the amount of

 

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undistributed earnings during the current fiscal year.  In addition, at the end of each fiscal year,we must apply 20% of our excess cash flow to the term notes.  Excess cash flow is determined as EBITDAless required payments to our lender, or subordinated debt, less state andfederal incentive payments and authorized expenditures.  We must also maintain minimum workingcapital of $1,000,000 during the first year of operations, $1,500,000 formonths 13 through 24 and $2,000,000 thereafter.  Our failure to comply with the protective loan covenants ormaintain the required financial ratios may cause acceleration of theoutstanding principal balances on the revolving promissory note and terms notesand/or the imposition of fees, charges or penalties.  Any acceleration of the debt financing or imposition ofsignificant fees, charges or penalties may restrict or limit our access to thecapital resources necessary to continue plant operations.  For each of the term notes, the premiumabove the LIBOR may be reduced based upon our achievement and maintenance ofcertain financial ratios.  

 

We expect our interest rate swap and cap agreement to adequatelyprotect us in the event of changes in interest rates.  However, we may not be fully protected in the event of largemovements in interest rates.  Any losswe experience as a result of discontinuance of our interest rate swap or capwill be reclassified into earnings.  Wehave not experienced any loss in connection with our interest rate swap or capduring the nine months ended September 30, 2003.

 

We have a note payable to Farmers State Bank of Marcus, Iowa, in theamount of $150,000, with principal and interest due and payable on demand or onMarch 4, 2004.  Interest is chargedat the rate of 7% per annum and the note is secured by real estate subordinatedto the Term Notes.  We have a notepayable to the Iowa Corn Promotion Board in the amount of $50,000, withprincipal and interest due and payable on July 30, 2004.  No interest is charged as long as the noteis repaid by June 30, 2004 and interest will retroactively accrue at theprime rate.  We expect that we will payoff the note in full by June 30, 2004. 

 

We have a note payable to Fagen, Inc., in the amount of $1,250,000,with principal and interest due and payable on July 25, 2007.  Interest is charged at the rate of 1% plusthe base rate, adjusted quarterly, announced and published by First NationalBank of Omaha, which was 5% at September 30, 2003, and the note is securedby real estate subordinated to the Term Notes.

 

We have capital lease obligations in the amount of $337,094, due inmonthly installments initially totaling $6,768 commencing April 1, 2003,and including implicit interest between 7.4% and 17.4% through March 1,2008.  The capital lease obligations aresecured by leased equipment.

 

We have a note in the amount of $222,222 payable to the Iowa EnergyCenter due in monthly installments of $3,472 without interest, maturing onJanuary 29, 2009.  The note issecured by real estate subordinated to the Term Notes.  We have a note with Farmers State Bank ofMarcus, Iowa, in the amount of $226,535 payable in monthly payments of $5,921,including interest at 6%, maturing on January 29, 2009.  The note is secured by real estatesubordinated to the Term Notes.  We havea note in the amount of $300,000 payable to the Iowa Department of EconomicDevelopment due in 60 monthly installments beginning August 1, 2004 in theamount of $1,667 without interest.  Thenote matures on July 1, 2009.  Thenote has a $90,000 portion subject to forgiveness if we meet certainqualifications.  The note is secured byall equipment.  

 

The notes payable to Farmers State Bank of Marcus, Iowa and Fagen,Inc., require additional loan payments based on excess cash flow generated bypayments received from the USDA’s Commodity Credit Corporation, as discussedbelow.

 

We have enrolled in the USDA’s Commodity Credit Corporation BioenergyProgram.  During the nine month fiscal year ended September 30, 2003,the Company recorded $5,535,733 as other income from the Commodity CreditCorporation.  Under the grant program,the Commodity Credit Corporation will reimburse eligible ethanol producers ofless than 65 million gallons of bioenergy in the amount of one bushel of cornfor every two and one-half bushels of corn used for the increased production ofethanol.  No eligible producer may receive more than $7.5 million annuallyunder the program.  Because we are aneligible producer and expect to annually utilize 15 million bushels of corn inthe increased production of ethanol, we expect to potentially receive themaximum award of $7.5 million.  However, the Commodity Credit Corporationmay award only $150 million annually fiscal years 2003 through 2006, and anyaward we received may be reduced based upon the volume of applications fromother eligible producers.  The estimated maximum award of $7.5 million isbased upon an increase

 

15

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in national ethanol production capacity of 426 million gallons peryear.  Based upon the recent increase innational ethanol production, we anticipate a pro rata reduction in aggregatepayments to all eligible producers.  Weanticipate the pro rata reduction to be in the range of 20% to 25%.  Therefore, we may not receive the maximumaward of $7.5 million.  We expect to beeligible to receive an award under the program only once during the life of ourproject; however, due to timing differences between our fiscal year and thefiscal year of the federal government, or, if we increase our productioncapacity at some point in the future and during the life of the grant program,we may become eligible to receive more than $7.5 million or we may becomeeligible more than once for this award.  We have received 81% of theeligible payments under the program as of September 30, 2003.  

 

**Off-Balance Sheet Arrangements**

** **

We do not have any off-balance sheet arrangements.

 

16

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**ITEM 7.****                                                     FINANCIALSTATEMENTS.**

** **

REPORT OF INDEPENDENT AUDITORS

 

Board of Directors

Little Sioux Corn Processors, LLC and Subsidiary

Marcus, Iowa

 

We have audited the accompanying consolidated balance sheet of LittleSioux Corn Processors, LLC and Subsidiary, previously a development stagecompany, as of September 30, 2003 and December 31, 2002, and therelated consolidated statements of operations, changes in members’ equity andaccumulated other comprehensive income, and cash flows for the nine monthfiscal year ended September 30, 2003 and the twelve month fiscal yearended December 31, 2002.  These consolidatedfinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

 

We conducted our audits in accordance withauditing standards generally accepted in the United States of America.  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidatedfinancial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of Little SiouxCorn Processors, LLC and Subsidiary, previously a development stage company, asof September 30, 2003 and December 31, 2002, and the results of theiroperations and their cash flows for the nine month fiscal year endedSeptember 30, 2003 and twelve month fiscal year ended December 31,2002, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

 
|                   | /s/   Boulay, Heutmaker, Zibell & Co. P.L.L.P. |   |
|------------------------|---------------------------------------------------------|--------|
|                   |                                                    |   |
|                   | Certified Public Accountants                            |   |
|                   |                                                    |
| Minneapolis, Minnesota |                                                    |
| October 31, 2003  |                                                    |

 

17

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**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Consolidated Balance Sheet

 
|                          |   | **September 30  2003** |           | **December 31  2002** |   |
|-------------------------------|--------|-----------------------------|----------------|----------------------------|--------|
| **ASSETS**                    |   |                        |           |                       |   |
| **Current  Assets**           |   |                        |           |                       |   |
| Cash                          |   | **$**                       | **536,483**    |                       | $      | 269,162 |   |
| Restricted cash               |   | **12,902**                  |           | 268,195                    |   |
| Trade accounts receivable     |   | **1,753,362**               |           |                       |   |
| Other receivables             |   | **3,362,970**               |           | 8,454                      |   |
| Inventory                     |   | **1,386,571**               |           |                       |   |
| Derivative instruments        |   | **397,950**                 |           |                       |   |
| Prepaid expenses              |   | **598,102**                 |           | 17,487                     |   |
| Total current assets          |   | **8,048,340**               |           | 563,298                    |   |
|                          |   |                        |           |                       |   |
| **Property  and Equipment**   |   |                        |           |                       |   |
| Land and improvements         |   | **2,377,832**               |           | 1,575,584                  |   |
| Buildings                     |   | **15,147,828**              |           |                       |   |
| Processing equipment          |   | **26,476,854**              |           |                       |   |
| Grain handling equipment      |   | **5,084,206**               |           |                       |   |
| Rail and other equipment      |   | **1,204,791**               |           |                       |   |
| Furniture and fixtures        |   | **156,178**                 |           | 33,606                     |   |
| Construction in progress      |   |                        |           | 41,800,320                 |   |
|                          |   | **50,447,689**              |           | 43,409,510                 |   |
| Less accumulated depreciation |   | **1,650,348**               |           | 4,607                      |   |
| Net property and equipment    |   | **48,797,341**              |           | 43,404,903                 |   |
|                          |   |                        |           |                       |   |
| **Other  Assets**             |   |                        |           |                       |   |
| Deferred loan costs, net      |   | **463,191**                 |           | 477,874                    |   |
|                          |   | **463,191**                 |           | 477,874                    |   |
|                          |   |                        |           |                       |   |
| **Total  Assets**             |   | **$**                       | **57,308,872** |                       | $      | 44,446,075 |   |

 

Notes to Consolidated Financial Statements are an integral part of thisStatement.

 

18

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**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Consolidated Balance Sheet

 
|                                                                                                                                                  |   | **September 30  2003** |           | **December 31  2002** |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|----------------|----------------------------|---------|
| **LIABILITIES AND MEMBERS’ EQUITY**                                                                                                              |   |                        |           |                       |    |
|                                                                                                                                                  |   |                        |           |                       |    |
| **Current  Liabilities**                                                                                                                              |   |                        |           |                       |    |
| Bank overdraft                                                                                                                                        |   |                        |           | $                          | 220,354 |   |
| Revolving promissory note                                                                                                                             |   | **$**                       | **775,165**    |                       |    |   |
| Current maturities of long-term debt                                                                                                                  |   | **2,957,267**               |           | 1,743,201                  |    |
| Accounts payable                                                                                                                                      |   |                        |           |                       |    |
| Trade                                                                                                                                                 |   | **509,241**                 |           | 12,269                     |    |
| Construction                                                                                                                                          |   | **250,000**                 |           |                       |    |
| Derivative instruments                                                                                                                                |   |                        |           | 529,561                    |    |
| Accrued liabilities                                                                                                                                   |   | **460,179**                 |           | 50,916                     |    |
| Total current liabilities                                                                                                                             |   | **4,951,852**               |           | 2,556,301                  |    |
|                                                                                                                                                  |   |                        |           |                       |    |
| **Long-Term  Debt,**net of current maturities                                                                                                         |   | **28,157,443**              |           | 25,059,217                 |    |
|                                                                                                                                                  |   |                        |           |                       |    |
| **Commitments  and Contingencies**                                                                                                                    |   |                        |           |                       |    |
|                                                                                                                                                  |   |                        |           |                       |    |
| **Members’  Equity**                                                                                                                             |   |                        |           |                       |    |
| Member contributions, net of costs related  to capital contributions, 10,941 units outstanding at September 30, 2003  and December 31, 2002 |   | **10,842,237**              |           | 10,842,237                 |    |
| Accumulated other comprehensive loss; net  unrealized loss on derivative instruments                                                                  |   | **(217,441**                | **)**          | (438,257                   | )       |
| Retained earnings                                                                                                                                     |   | **3,522,028**               |           | (549,175                   | )       |
|                                                                                                                                                  |   | **14,146,824**              |           | 9,854,805                  |    |
| Minority interest                                                                                                                                     |   | **10,052,753**              |           | 6,975,752                  |    |
| Total members’ equity                                                                                                                            |   | **24,199,577**              |           | 16,830,557                 |    |
|                                                                                                                                                  |   |                        |           |                       |    |
| **Total  Liabilities and Members’ Equity**                                                                                                       |   | **$**                       | **57,308,872** |                       | $       | 44,446,075 |   |

 

Notes to Consolidated Financial Statements are an integral part of thisStatement.

 

19

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**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Consolidated Statement of Operations

 
|                                               |   | **Nine Month  Fiscal Year Ended  September 30, 2003** |           | **Twelve Month  Fiscal Year Ended  December 31, 2002** | ** ** |
|----------------------------------------------------|--------|------------------------------------------------------------|----------------|-------------------------------------------------------------|------------|
|                                               |   |                                                       | ** **     |                                                        |       |
| **Revenues**                                       |   | **$**                                                      | **31,814,299** | ** **                                                  |       | ** ** |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Cost of  Goods Sold**                            |   | **27,462,227**                                             | ** **     |                                                        |       |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Gross  Profit**                                  |   | **4,352,072**                                              | ** **     |                                                        |       |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Operating  Expenses**                            |   | **2,660,909**                                              | ** **     | $                                                           | 496,111    |   |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Operating  Income (Loss)**                       |   | **1,691,163**                                              | ** **     | (496,111                                                    | )          |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Other Income/Expense**                           |   |                                                       | ** **     |                                                        |       |
| Interest income                                    |   |                                                       | ** **     | 35,581                                                      |       |
| Interest expense                                   |   | **(847,223**                                               | **)**          |                                                        |       |
| CCC Bioenergy income                               |   | **5,535,733**                                              | ** **     |                                                        |       |
| Grants and other income                            |   | **612,206**                                                | ** **     | 91,563                                                      |       |
| Total other income                                 |   | **5,300,716**                                              | ** **     | 127,144                                                     |       |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Net  Income (Loss) Before Minority Interest**    |   | **6,991,879**                                              | ** **     | (368,967                                                    | )          |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Minority  Interest in Subsidiary Income (Loss)** |   | **2,920,676**                                              | ** **     | (154,311                                                    | )          |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Net  Income (Loss)**                             |   | **$**                                                      | **4,071,203**  | ** **                                                  | $          | (214,656 | ) |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Weighted  Average Units Outstanding**            |   | **10,941**                                                 | ** **     | 6,146                                                       |       |
|                                               |   |                                                       | ** **     |                                                        |       |
| **Net  Income (Loss) Per Unit**                    |   | **$**                                                      | **372.11**     | ** **                                                  | $          | (34.93 | ) |

 

Notes to Consolidated Financial Statements are an integral part of thisStatement.

 

20

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**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Consolidated Statement of Changes in Members’ Equity and AccumulatedOther Comprehensive Income

 
|                                                                     |   | **Member  Contributions** |       | **Retained  Earnings** | ** ** | **Comprehensive  Income (Loss)** |      | **Accumulated  Other  Comprehensive  Income (Loss)** |     | **Minority  Interest** | ** ** |
|--------------------------------------------------------------------------|--------|---------------------------|------------|------------------------|------------|----------------------------------|-----------|------------------------------------------------------|----------|------------------------|------------|
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| **Balance  - December 31, 2001**                                    |   | $                         | 463,248    |                   | $          | (334,519                         | )         |                                                 |     |                   |       |   |   |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Initial public offering, June 24, 2002  for 10,002 membership units |   | 10,226,000                |       |                   |       |                             |      |                                                 |     |                   |       |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Costs related to capital contributions                                   |   | (156,624                  | )          |                   |       |                             |      |                                                 |     |                   |       |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Minority interest capital contribution                                   |   |                      |       |                   |       |                             |      |                                                 |     | $                      | 7,750,000  |   |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Capital reallocation upon investment in  units of LSCP, LLLP             |   | 309,613                   |       |                   |       |                             |      |                                                 |     | (309,613               | )          |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Comprehensive loss                                                       |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Net loss                                                                 |   |                      |       | (368,967               | )          |                             |      |                                                 |     |                   |       |
| Minority interest in net loss                                            |   |                      |       | 154,311                |       |                             |      |                                                 |     | (154,311               | )          |
|                                                                     |   |                      |       | (214,656               | )          | $                                | (214,656  | )                                                    |     |                   |       |   |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Other comprehensive loss:                                                |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Unrealized loss on derivative contracts                                  |   |                      |       |                   |       | (748,581                         | )         |                                                 |     |                   |       |
| Minority interest in loss on derivative  contracts                       |   |                      |       |                   |       | 310,324                          |      |                                                 |     | (310,324               | )          |
|                                                                     |   |                      |       |                   |       | (438,257                         | )         | $                                                    | (438,257 | )                      |       |   |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Comprehensive loss                                                       |   |                      |       |                   |       | $                                | (652,913  | )                                                    |     |                   |       |   |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| **Balance  - December 31, 2002**                                    |   | 10,842,237                |       | (549,175               | )          |                             |      | (438,257                                             | )        | 6,975,752              |       |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Net income                                                               |   |                      |       | 6,991,879              |       |                             |      |                                                 |     |                   |       |
| Minority interest in net income                                          |   |                      |       | (2,920,676             | )          |                             |      |                                                 |     | 2,920,676              |       |
|                                                                     |   |                      |       | 4,071,203              |       | $                                | 4,071,203 |                                                 |     |                   |       |   |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Other comprehensive income:                                              |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Unrealized loss on derivative instruments                                |   |                      |       |                   |       | (79,647                          | )         |                                                 |     |                   |       |
| Less: reclassification adjustment for  losses included in net income     |   |                      |       |                   |       | 456,788                          |      |                                                 |     |                   |       |
| Minority interest in loss on derivative  instruments                     |   |                      |       |                   |       | (156,325                         | )         |                                                 |     | 156,325                |       |
|                                                                     |   |                      |       |                   |       | 220,816                          |      | 220,816                                              |     |                   |       |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| Comprehensive income                                                     |   |                      |       |                   |       | $                                | 4,292,019 |                                                 |     |                   |       |   |
|                                                                     |   |                      |       |                   |       |                             |      |                                                 |     |                   |       |
| **Balance  - September 30, 2003**                                   |   | $                         | 10,842,237 |                   | $          | 3,522,028                        |      |                                                 |     | $                      | (217,441   | ) | $ | 10,052,753 |   |

 

Notes to Consolidated Financial Statements are an integral part of thisStatement.

 

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**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Consolidated Statement of Cash Flows

 
|                                                                     |   | **Nine Month  Fiscal Year Ended  September 30, 2003** |          | **Twelve Month  Fiscal Year Ended  December 31, 2002** | ** ** |
|--------------------------------------------------------------------------|--------|------------------------------------------------------------|---------------|-------------------------------------------------------------|------------|
|                                                                     |   |                                                       | ** **    |                                                        |       |
| **Cash  Flows from Operating Activities**                                |   |                                                       | ** **    |                                                        |       |
| Net income (loss)                                                        |   | **$**                                                      | **4,071,203** | ** **                                                  | $          | (214,656 | ) |
| Adjustments to reconcile net income (loss)  to net cash from operations: |   |                                                       | ** **    |                                                        |       |
| Depreciation and amortization                                            |   | **1,669,610**                                              | ** **    | 4,607                                                       |       |
| Minority interest in subsidiary’s loss                              |   | **2,920,676**                                              | ** **    | (154,311                                                    | )          |
| Loss on derivative instruments                                           |   | **567,490**                                                | ** **    |                                                        |       |
| Change in assets and liabilities:                                        |   |                                                       | ** **    |                                                        |       |
| Receivables                                                              |   | **(5,107,878**                                             | **)**         | (8,454                                                      | )          |
| Restricted cash                                                          |   | **255,293**                                                | ** **    | (268,195                                                    | )          |
| Inventory                                                                |   | **(1,386,571**                                             | **)**         | (219,020                                                    | )          |
| Derivative instruments                                                   |   | **(1,117,860**                                             | **)**         |                                                        |       |
| Prepaid expenses                                                         |   | **(580,615**                                               | **)**         | (16,216                                                     | )          |
| Accounts payable                                                         |   | **496,972**                                                | ** **    | (51,977                                                     | )          |
| Accrued liabilities                                                      |   | **409,263**                                                | ** **    | 34,132                                                      |       |
| Net cash provided by (used in) operating  activities                     |   | **2,197,583**                                              | ** **    | (894,090                                                    | )          |
|                                                                     |   |                                                       | ** **    |                                                        |       |
| **Cash  Flows from Investing Activities**                                |   |                                                       | ** **    |                                                        |       |
| Capital expenditures                                                     |   | **(293,274**                                               | **)**         | (18,417,357                                                 | )          |
| Net cash used in investing activities                                    |   | **(293,274**                                               | **)**         | (18,417,357                                                 | )          |
|                                                                     |   |                                                       | ** **    |                                                        |       |
| **Cash  Flows from Financing Activities**                                |   |                                                       | ** **    |                                                        |       |
| Bank overdraft                                                           |   | **(220,354**                                               | **)**         | 220,354                                                     |       |
| Proceeds from short-term debt                                            |   | **775,165**                                                | ** **    |                                                        |       |
| Proceeds from issuance of long-term debt                                 |   | **1,383,924**                                              | ** **    | 2,274,000                                                   |       |
| Payments of long-term debt                                               |   | **(3,566,537**                                             | **)**         | (385,724                                                    | )          |
| Member contributions                                                     |   |                                                       |          | 10,226,000                                                  |       |
| Minority investment                                                      |   |                                                       |          | 7,750,000                                                   |       |
| Payments for costs of raising capital                                    |   |                                                       |          | (26,496                                                     | )          |
| Loan costs                                                               |   | **(9,186**                                                 | **)**         | (477,874                                                    | )          |
| Net cash from (used in) financing  activities                            |   | **(1,636,988**                                             | **)**         | 19,580,260                                                  |       |
|                                                                     |   |                                                       | ** **    |                                                        |       |
| **Net  Increase in Cash**                                                |   | **267,321**                                                | ** **    | 268,813                                                     |       |
|                                                                     |   |                                                       | ** **    |                                                        |       |
| **Cash –**  Beginning of Period                                     |   | **269,162**                                                | ** **    | 349                                                         |       |
|                                                                     |   |                                                       | ** **    |                                                        |       |
| **Cash –**  End of Period                                           |   | **$**                                                      | **536,483**   | ** **                                                  | $          | 269,162 |   |

 

Notes to Consolidated Financial Statements are an integral part of thisStatement.

 

22

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|                                                                        |   | **Nine Month  Fiscal Year Ended  September 30, 2003** |          | **Twelve Month  Fiscal Year Ended  December 31, 2002** | ** ** |
|-----------------------------------------------------------------------------|--------|------------------------------------------------------------|---------------|-------------------------------------------------------------|------------|
| **Supplemental  Cash Flow Information**                                     |   |                                                       |          |                                                        |       |
| Cash paid during the year for:                                              |   |                                                       |          |                                                        |       |
| Interest                                                                    |   | **$**                                                      | **1,022,668** |                                                        | $          | 358,339 |   |
|                                                                        |   |                                                       |          |                                                        |       |
| **Supplemental  Disclosure of Noncash Investing and Financing Activities**  |   |                                                       |          |                                                        |       |
| Construction in progress included in  accounts payable                      |   | **$**                                                      | **250,000**   |                                                        |       |   |
| Capital lease obligations incurred                                          |   | **$**                                                      | **4,337**     |                                                        | $          | 358,916 |   |
| Property and equipment financed with note  payable and construction payable |   | **$**                                                      | **6,490,568** |                                                        | $          | 24,390,508 |   |
| Reallocation of capital                                                     |   |                                                       |          | $                                                           | 309,613    |   |
| Costs of raising capital reclassified from  deferred offering costs         |   |                                                       |          | $                                                           | 130,128    |   |

 

Notes to Consolidated Financial Statements are an integral part of thisStatement.

 

23

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**LITTLE SIOUX CORN PROCESSORS, LLC ANDSUBSIDIARY**

 

Notes to Consolidated Financial Statements

 

September 30, 2003 and December 31,2002

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

*Principles ofConsolidation*

 

The consolidated financial statements include the accounts of LittleSioux Corn Processors, LLC (the “LLC”) and its 58.5% owned subsidiary, LSCP,LLLP (the “LSCP”), collectively, the “Company.”  All significant intercompany balances and transactions areeliminated in consolidation.

 

*Minority Interest*

 

Amounts recorded as minority interest on the balance sheet relate tothe net investment by limited partners in LSCP plus or minus any allocation ofincome or loss of LSCP.  After givingeffect to certain special allocations, income and losses of LSCP will beallocated to the partners based upon their respective percentage of partnershipunits held.  The minority interest shareof the comprehensive income for the nine month fiscal year endingSeptember 30, 2003 is $3,077,001. The minority interest share of the comprehensive loss for the twelvemonth fiscal year ending December 31, 2002 is $464,635.

 

*Nature of Business*

 

The Company was organized to pool investors, some of whom provide acorn supply, for a 40 million gallon ethanol plant, located near Marcus, Iowa,with distribution to upper Midwest states. In addition, the Company producesand sells distillers dried grains with solubles (DDGS) as a co-product ofethanol production.

 

On October 16, 2001, the LLC formed LSCP, LP, a limitedpartnership of which the LLC is the general partner.  LSCP owns the plant on which construction began in 2001 and allof the LLC’s operations are conducted through LSCP.  Prior to commencing operations in April 2003, the Companywas a development stage company.  OnJune 26, 2003, the members of the LLC approved an election by LSCP, LP toconvert to an Iowa limited liability limited partnership, LSCP, LLLP.

 

*Fiscal ReportingPeriod*

 

On June 26, 2003, the Company adopted a fiscal year endingSeptember 30 for reporting financial operations.  Prior to that, the Company had a fiscal year endingDecember 31 for reporting financial operations.

 

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*Accounting Estimates*

 

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

 

*Revenue Recognition*

 

Revenue from the sale of the Company’s products is recognized at thetime title to the goods and all risks of ownership transfer to thecustomers.  This generally occurs uponshipment to the customer or when the customer picks up the goods.

 

The Company records revenue from federal and state incentive programsrelated to the production of ethanol when the Company has sold the ethanol andcompleted all the requirements of the applicable incentive program.

 

*Grants*

 

The Company recognizes grant income as other income for reimbursementof expenses incurred upon complying with the conditions of the grant.  For reimbursements of capital expenditures,the grants are recognized as a reduction of the basis of the asset uponcomplying with the conditions of the grant. During fiscal 2003, the Companyreceived two grants totaling approximately $605,000 for beginning workingcapital and employee training.  TheCompany recognized the grants in other income as all of the conditions forthese grants have been met.

 

*Commodity CreditCorporation Bioenergy Program*

 

During fiscal 2003, the Company enrolled in the Commodity CreditCorporation Bioenergy Program (CCC), a department of the United StatesDepartment of Agriculture.  This programenables the Company to receive payments based on increases in production ofethanol over the previous year of up to $7,500,000 per year.  New production is eligible and is consideredincreased production.  Payments underthe program are subject to pro rata reduction if aggregate payments to allproducers in any fiscal year exceed the maximum annual funding of theprogram.  During the nine month fiscalyear ended September 30, 2003, the Company recorded $5,535,733 as otherincome from the CCC and at September 30, 2003 had $3,331,425 recorded inother receivables.  As required byprovisions of the term notes described in Note 6, all payments collected fromthe CCC totaling $2,204,308 were remitted to the lending institution during thenine month fiscal year ended September 30, 2003.  

 

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*Shipping Costs*

 

The Company includes costs of shipping products to customers in cost ofsales.

 

*Cash*

 

The Company maintains its accounts primarily at two financialinstitutions.  At times throughout theyear, the Company’s cash balances may exceed amounts insured by the FederalDeposit Insurance Corporation.

 

*Restricted Cash*

 

The Company is required to maintain cash balances at its broker relatedto derivative instrument positions.

 

*Trade AccountsReceivable*

 

Credit terms are extended to customers in the normal course of business.  The Company performs ongoing creditevaluations of its customers’ financial condition and, generally, requires nocollateral.

 

Trade accounts receivable are recorded at their estimated netrealizable value.  The Company follows apolicy of providing an allowance for doubtful accounts; however, based onhistorical experience, and its evaluation of the current status of receivables,the Company is of the belief that such accounts will be collectible in allmaterial respects and thus an allowance is not necessary. Accounts areconsidered past due if payment is not made on a timely basis in accordance withthe Company’s credit terms. Accounts considered uncollectible are written off.

 

For the nine month fiscal year ending September 30, 2003, revenuesfrom the sale of ethanol to the marketing agent as described in Note 12 wereapproximately $26,313,000 or 83% of total revenue. For the nine month fiscalyear ending September 30, 2003, revenues from the sale of DDGS and otherco-products were approximately $5,501,000 or 17% of total revenue.  One customer purchased approximately$2,798,000 of DDGS and other co-products under the grain and solubles marketingagreement as described in Note 12.

 

*Inventory*

 

Inventory consists of raw materials, work in process, and finishedgoods.  Corn is the primary raw materialand, along with other raw materials, is stated at the lower of average cost ormarket.  Finished goods consist ofethanol produced and DDGS, and are stated at the lower of first-in, first-out,(FIFO method) cost or market.

 

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*Property andEquipment*

 

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

 

The Company reviews its property and equipment for impairment wheneverevents indicate that the carrying amount of the asset may not berecoverable.  An impairment loss isrecorded when the sum of the future cash flows is less than the carrying amountof the asset.  An impairment loss ismeasured as the amount by which the carrying amount of the asset exceeds itsfair value.

 

*Deferred Loan Costs*

 

Costs associated with the issuance of the construction loan discussedin Note 6 are recorded as deferred loan costs, net of accumulatedamortization.  Loan costs are amortizedto operations over the life of term note #2 using the effective interest method.  The construction loan was converted to termnotes on June 23, 2003, at which point the Company began amortizing therelated loan costs using the effective interest method.

 

*DerivativeInstruments*

 

The Company enters into derivative instruments to hedge the variabilityof expected future cash flows related to forecasted corn and natural gaspurchases, forward purchase contracts, and interest rates.  The Company does not typically enter intoderivative instruments other than for hedging purposes.  All derivative instruments are recognized onthe September 30, 2003 and December 31, 2002 balance sheet at theirfair market value.  On the date thederivative instrument is entered into, the Company will designate thederivative as either a hedge of the variability of cash flows of a forecastedtransaction or will not designate the derivative as a hedge.  Changes in the fair value of a derivativethat is designated as, and meets all of the required criteria for, a cash flowhedge are recorded in accumulated other comprehensive income and reclassifiedinto earnings as the hedged items affect earnings. Changes in the fair value ofa derivative that is not designated as a hedge are recorded in current periodearnings.  Although certain derivativeinstruments may not be designated as, and accounted for, as a cash flow hedge,they are effective economic hedges of specified risks.

 

During the nine month fiscal year ended September 30, 2003, theCompany dedesignated as cash flow hedges its option contract positions,although they continue to be effective economic hedges of specified risks.  At September 30, 2003, the Company hadrecorded an asset for derivative instruments related to corn and natural gaslong call option positions with a fair value of $316,726 for forecastedpurchases during fiscal 2004.  At September 30,2003, accumulated other comprehensive income

 

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included $371,440 in realized losses on exited option contracts, whichwill be reclassified into earnings as the underlying hedged items affect earnings.  The Company has recorded in cost of goodssold $648,714 related to its loss on derivative instruments for the nine monthfiscal year ended September 30, 2003. The loss of $648,714 includes the reclassification from accumulatedother comprehensive income of $456,788 recorded at December 31, 2002 andthe related gain in fiscal 2003 of $77,724 on these positions.  In addition, as a result of thededesignation of the Company’s derivative instruments, the Company recognized again on these remaining positions of $104,222 and a loss of $373,872 onpositions not designated as cash flow hedges but acting as economic hedges, inthe third quarter of fiscal 2003.

 

At December 31, 2002, the Company had recorded a liability for itsderivative instruments outstanding of $529,561 which consisted of a group ofshort put options and a group of long put options that coincided with purchasesof corn beginning in March 2003 and continuing untilDecember 2003.  At December 31,2002, the short put options had an unrealized loss of $468,957 and the long putoptions have an unrealized loss of $37,104, net of premiums received of$23,500.  During fiscal 2002, realizedlosses from option contracts exited totaled $242,520 were included in othercomprehensive loss and reclassified into operations in fiscal 2003 as inventorywas sold.  During the twelve monthfiscal year ended December 31, 2002, the Company had not recorded anyexpense related to its option positions in operations, but had recorded a totalunrealized loss of $748,581 in other comprehensive loss.

 

At September 30, 2003, the Company had an interest rate cap, asdescribed in Note 6, with a fair value of $81,224 recorded as an asset withderivative instruments.  The interestrate cap was not designated as a cash flow hedge.  The Company offset interest expense with the gain on the interestrate cap for the nine month fiscal year ending September 30, 2003.

 

*Income Taxes*

 

Little Sioux Corn Processors, LLC and LSCP, LLLP are treated aspartnerships for federal and state income tax purposes and generally do notincur income taxes.  Instead, theirearnings and losses are included in the income tax returns of themembers/partners. Therefore, no provision or liability for federal or stateincome taxes has been included in these financial statements.  Differences between consolidated financialstatement basis of assets and tax basis of assets is related to capitalizationand amortization of organization and start-up costs for tax purposes, whereasthese costs are expensed for financial statement purposes.  In addition, the Company uses the modifiedaccelerated cost recovery system method (MACRS) for tax depreciation instead ofthe straight line method that is used for book depreciation, which also causestemporary differences.

 

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*Fair Value ofFinancial Instruments*

 

The carrying value of cash and restricted cash approximates their fairvalue.

 

The Company believes the carrying amount of derivative instrumentsapproximates fair value based on current market prices.

 

It is not currently practicable to estimate fair value of the line ofcredit and notes payable to the lending institution. Because these agreementscontain certain unique terms, conditions, covenants, and restrictions, as discussedin Notes 5 and 6, there are no readily determinable similar instruments onwhich to base an estimate of fair value.

 

*Recently IssuedAccounting Pronouncements*

 

The Financial Accounting Standards Board (FASB) has issued StatementNo. 149, *Amendmentof Statement 133 on Derivative Instruments and Hedging Activities*.  The Statement amends and clarifiesaccounting for derivative instruments, including certain derivative instrumentsembedded in other contracts, and for hedging activities under Statement No.133.

 

The Financial Accounting Standards Board (FASB) has issued StatementNo. 150, *Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity*.  The Statementestablishes standards for how an issuer classifies and measures certainfinancial instruments with characteristics of both liabilities and equity.

 

Management does not expect the implementation of these pronouncementsto have a significant effect on the Company’s consolidated financialstatements.

 

*Reclassifications*

 

The presentation of certain items in the consolidated statement of cashflows for 2002 has been changed to conform to the classifications used in thenine month fiscal year ended September 30, 2003.  These reclassifications had no effect on net income as previouslyreported.

 

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**2. INVENTORY**

 

Inventory consists of the following at September 30, 2003:

 
| Raw materials   |   | $       | 561,381   |   |
|-----------------|--------|---------|-----------|--------|
| Work in process |   | 335,501 |      |
| Finished goods  |   | 489,689 |      |
|            |   |    |      |
| Total           |   | $       | 1,386,571 |   |

 

There was no inventory at December 31, 2002.

 

**3. CONSTRUCTION IN PROGRESS**

 

Amounts included in construction in progress as of December 31,2002 are as follows:

 
| Construction costs        |   | $       | 41,349,796 |   |
|---------------------------|--------|---------|------------|--------|
| Capitalized interest      |   | 391,695 |       |
| Insurance and other costs |   | 58,829  |       |
|                      |   |    |       |
| Total                     |   | $       | 41,800,320 |   |

 

The Company capitalized interest during the construction period of$356,071 during fiscal 2003 and a total of $747,766 in interest incurred priorto completion was capitalized.  Allamounts included in construction in progress have been placed in service duringfiscal 2003 when operations commenced.

 

**4. DEFERRED LOAN COSTS**

 

The Company has deferred loan costs of $487,060 with accumulatedamortization of $23,869 at September 30, 2003. At December 31, 2002the Company had deferred loan costs of $477,874. The amortization expenserelated to the deferred loan costs for the nine month fiscal year endedSeptember 30, 2003 was $23,869. There was no amortization of loan costs in2002, as the construction note did not convert into a term note until 2003, atwhich point the Company began amortizing the costs.

 

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Estimated future amortization expense by year for the next five yearsis as follows at September 30, 2003:

 
| 2004   |   | $       | 118,040 |   |
|--------|--------|---------|---------|--------|
| 2005   |   | 107,510 |    |
| 2006   |   | 96,530  |    |
| 2007   |   | 85,089  |    |
| 2008   |   | 56,022  |    |
|   |   |    |    |
| Total  |   | $       | 463,191 |   |

 

**5. REVOLVING PROMISSORY NOTE**

 

Under the terms of the financing agreement with the lendinginstitution, the Company has a revolving promissory note of up to $3,500,000,subject to borrowing base limitations, maturing in July 2004, renewableannually thereafter.  Upon conversion ofthe construction loan to term notes as described in Note 6, the revolvingpromissory note was amended whereby interest is due monthly at the one monthLondon Interbank Offered Rate (LIBOR) plus 380 basis points which totaled 4.92%at September 30, 2003.  Prior tothis amendment, interest was due monthly at 1.0% plus the prime rate.  The Company pays a commitment fee of .125%on the unused portion of the revolving promissory note.  The outstanding balance atSeptember 30, 2003 was $775,165. The revolving promissory note as well as the term notes described inNote 6 are subject to protective covenants under a common financing agreementrequiring the Company to maintain various financial ratios, including debtservice coverage, minimum net worth and working capital requirements,restrictions on distributions, secured by all business assets, and requireadditional loan payments based on excess cash flow.

 

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**6. LONG–TERM DEBT**

 

Long-term debt consists of the following:

 
|                                                                                                                                                                                                                                                                                                                                                                      |   | **September 30  2003** |           | **December 31  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|----------------|----------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                      |   |                        |           |                       |   |
| Note payable to bank, principal and  interest are due and payable on demand or March 4, 2004, interest is  charged at 7.00%, secured by real estate, subordinate to the term notes                                                                                                                                                                                   |   | **$**                       | **150,000**    |                       | $      | 150,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                        |           |                       |   |
| Note payable to Iowa Corn Promotion Board,  principal and interest are due and payable on July 30, 2004, no interest  rate is charged as long as the note is repaid by June 30, 2004.  Thereafter, interest will retroactively accrue at the prime rate, secured by  a general security agreement covering substantially all assets, subordinate  to term notes |   | **50,000**                  |           | 50,000                     |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                        |           |                       |   |
| Note payable to limited partner and general  contractor, principal and interest are due and payable on July 25, 2007,  interest is charged at prime plus 1% (5.00% at September 30, 2003 and  5.25% at December 31, 2002), secured by real estate, subordinate to term  notes                                                                              |   | **1,250,000**               |           | 1,250,000                  |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                        |           |                       |   |
| Construction note payable to lending  institution, converted to term notes as described below                                                                                                                                                                                                                                                                             |   |                        |           | 19,777,003                 |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                        |           |                       |   |
| Term note #2 payable to lending  institution, see terms below                                                                                                                                                                                                                                                                                                             |   | **15,409,002**              |           |                       |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                        |           |                       |   |
| Term note #3 payable to lending  institution, see terms below                                                                                                                                                                                                                                                                                                             |   | **10,374,165**              |           |                       |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                        |           |                       |   |
| Term note #4 payable to lending  institution, see terms below                                                                                                                                                                                                                                                                                                             |   | **2,795,692**               |           |                       |   |
|                                                                                                                                                                                                                                                                                                                                                                      |   |                        |           |                       |   |
| Totals carried forward                                                                                                                                                                                                                                                                                                                                                    |   | **$**                       | **30,028,859** |                       | $      | 21,227,003 |   |

 

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|                                                                                                                                                                                                                                                          |   | **September 30  2003** |           | **December 31  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|----------------|----------------------------|--------|
|                                                                                                                                                                                                                                                          |   |                        |           |                       |   |
| Totals brought forward                                                                                                                                                                                                                                        |   | **$**                       | **30,028,859** |                       | $      | 21,227,003 |   |
|                                                                                                                                                                                                                                                          |   |                        |           |                       |   |
| Note payable to Iowa Energy Center, due in  monthly payments of $3,472 without interest, maturing on January 29,  2009, secured by real estate, subordinated to term notes                                                                               |   | **222,222**                 |           |                       |   |
|                                                                                                                                                                                                                                                          |   |                        |           |                       |   |
| Note payable to bank due in monthly  payments of $5,921 including interest at 6% maturing on January 29,  2009, secured by real estate, subordinated to term notes                                                                                       |   | **226,535**                 |           |                       |   |
|                                                                                                                                                                                                                                                          |   |                        |           |                       |   |
| Note payable to Iowa Department of Economic  Development, due in sixty monthly installments beginning August 1, 2004  of $1,167 without interest, payable in full on July 1, 2009, secured by  all equipment                                        |   | **210,000**                 |           |                       |   |
|                                                                                                                                                                                                                                                          |   |                        |           |                       |   |
| Note payable to Iowa Department of Economic  Development, forgivable upon completion of the ethanol plant and the sale of  40 million gallons of ethanol, otherwise due with interest at 8.25% from  July 1, 2006 through 2009, secured by all equipment |   | **90,000**                  |           |                       |   |
|                                                                                                                                                                                                                                                          |   |                        |           |                       |   |
| Capital lease obligations, due in monthly  installments initially totaling $6,768 commencing April 1, 2003  including implicit interest between 7.4% and 17.4% through March 1,  2008, secured by leased equipment (see Note 7)                     |   | **337,094**                 |           | 361,910                    |   |
|                                                                                                                                                                                                                                                          |   |                        |           |                       |   |
| Construction payable periodically paid by  draws from the construction note payable                                                                                                                                                                           |   |                        |           | 4,613,505                  |   |
|                                                                                                                                                                                                                                                          |   |                        |           |                       |   |
| Totals carried forward                                                                                                                                                                                                                                        |   | **$**                       | **31,114,710** |                       | $      | 26,202,418 |   |

 

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|                                                                                                                                                                                                    |   | **September 30  2003** |           | **December 31  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|----------------|----------------------------|--------|
|                                                                                                                                                                                                    |   |                        |           |                       |   |
| Totals brought forward                                                                                                                                                                                  |   | **$**                       | **31,114,710** |                       | $      | 26,202,418 |   |
|                                                                                                                                                                                                    |   |                        |           |                       |   |
| Note payable to bank, principal and  interest are due and payable on demand or July 30, 2003, interest is  charged at 7.00%, secured by real estate, subordinate to the term note,  repaid in 2003 |   |                        |           | 600,000                    |   |
| Totals                                                                                                                                                                                                  |   | **31,114,710**              |           | 26,802,418                 |   |
| Less amounts due within one year                                                                                                                                                                        |   | **2,957,267**               |           | 1,743,201                  |   |
|                                                                                                                                                                                                    |   |                        |           |                       |   |
| Totals                                                                                                                                                                                                  |   | **$**                       | **28,157,443** |                       | $      | 25,059,217 |   |

 

The Company obtained debt financing from a lending institution in theform of a construction and term loan and a revolving promissory note.  The construction loan provided the lesser of60% of the total cost of the project or $31,465,000 with a variable rate duringthe construction period of 1.0% plus the prime rate, which at December 31,2002 totaled 5.25%.  The constructionloan was converted to three term notes on June 23, 2003, referred to bythe lending institution as term notes #2, #3, and #4.  Term note #2 totaled $15,732,500 at conversion, has fixedprincipal payments due quarterly, which began September 1, 2003, and withinterest at the three month LIBOR plus 280 basis points, which totaled 3.95% atSeptember 30, 2003, payable in full on June 1, 2008.  As part of the financing agreement, theCompany accepted a fixed rate option on term note #2 by entering into aninterest rate swap which effectively fixes the interest rate on this term noteat 5.79% until this term note is repaid on June 1, 2008.

 

Term notes #3 and #4 totaled $10,732,500 and $5,000,000, respectively,at conversion with term note #3 bearing interest at the three month LIBOR plus380 basis points and term note #4 bearing interest at the one month LIBOR plus380 basis points, which totaled 4.95% and 4.92%, respectively, atSeptember 30, 2003, both payable in full on June 1, 2008.  The Company is required to make quarterlypayments of $506,588 which began on September 1, 2003.  The quarterly payments are applied first toaccrued interest on term note #4.  Theremaining amount is applied to accrued interest on the term note #3 and then toprincipal until this note is repaid in full or until maturity.  After term note #3 is repaid, payments areapplied first to accrued interest and then to principal on the term note #4until paid in full or until maturity. Term note #4 allows subsequent borrowings up to the original $5,000,000to the extent of principal payments made until maturity and requires acommitment fee of .375% on any used portion.

 

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As part of the financing agreement, the premium above the LIBOR on theterm notes may be reduced based on a financial ratio.  The financing agreement requires an annual servicing fee of$50,000 for five years.  As described inNote 1, the Company entered into an interest rate cap agreement to reduce therisk of increases in interest rates. The interest rate cap agreement is based on a notional amount of$10,000,000 and caps increases in interest rates at 6.8% on this amount untilJune 1, 2006.

 

In addition to the terms notes, the subordinated notes payable to thebank and related party require additional cash flow anticipated to be receivedfrom the CCC to be split pro rata between the subordinated debtors asadditional payments on the notes.

 

The estimated maturities of long-term debt at September 30, 2003,by fiscal year, are as follows:

 
| 2004                 |   | $          | 2,957,267  |   |
|----------------------|--------|------------|------------|--------|
| 2005                 |   | 2,904,175  |       |
| 2006                 |   | 3,135,003  |       |
| 2007                 |   | 3,195,708  |       |
| 2008                 |   | 18,740,473 |       |
| After 2008           |   | 182,084    |       |
|                 |   |       |       |
| Total long-term debt |   | $          | 31,114,710 |   |

 

**7. LEASES**

 

The Company leases equipment under operating and capital leases through2008.  The Company is generallyresponsible for maintenance, taxes, and utilities for leased equipment.  Equipment under operating leases includesrail cars and various loading and moving vehicles.  In addition, the rail car lease agreement requires additionalfees to be paid by the Company for excess usage and for regulatorymodifications.  Rent expense foroperating leases was approximately $172,000 for the nine month fiscal yearended September 30, 2003.  Therewas no rent expense in 2002.

 

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Equipment under capital leases, including installation costs expendedoutside of the capital lease, are as follows:

 
|                               |   | **September 30  2003** |        | **December 31  2002** |   |
|------------------------------------|--------|-----------------------------|-------------|----------------------------|--------|
| Equipment                          |   | **$**                       | **460,275** |                       | $      | 363,416 |   |
| Accumulated amortization           |   | **15,844**                  |        | 750                        |   |
|                               |   |                        |        |                       |   |
| Net equipment under capital leases |   | **$**                       | **444,431** |                       | $      | 362,666 |   |

 

At September 30, 2003, the Company had the following minimumcommitments, which at inception had non-cancelable terms of more than one year:

 
|                                                                                  |   | **Operating  Lease** |      | **Capital  Leases** |    |
|---------------------------------------------------------------------------------------|--------|----------------------|-----------|---------------------|---------|
| 2004                                                                                  |   | $                    | 351,345   |                | $       | 83,180 |   |
| 2005                                                                                  |   | 351,345              |      | 82,788              |    |
| 2006                                                                                  |   | 351,345              |      | 80,107              |    |
| 2007                                                                                  |   | 351,345              |      | 79,892              |    |
| 2008                                                                                  |   | 197,473              |      | 39,946              |    |
| Total minimum lease commitments                                                       |   | $                    | 1,602,853 |                | 365,913 |   |
| Less amount representing interest                                                     |   |                 |      | 28,819              |    |
|                                                                                  |   |                 |      |                |    |
| Present value of minimum lease commitments;  included in the preceding long-term debt |   |                 |      | $                   | 337,094 |   |

 

**8. MEMBERS’ EQUITY**

 

As specified in the LLC’s operating agreement, the LLC has one class ofmembership units. The LLC is authorized to issue 28,000 membership units. TheLLC raised $10,226,000 in 2002 by issuing 10,002 units of the LLC through aninitial public offering.  The LLCreceived a $309,613 contribution of equity from the limited partners in LSCPvia allocation of units in excess of net assets contributed by the LLC.  The limited partners agreed to thisallocation in recognition of efforts and funds previously expended for thedevelopment of the plant.

 

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**9. RELATED PARTY TRANSACTIONS**

 

In addition to the related party transactions described previously, theCompany also had the following related party transactions:

 

The minority investors in LSCP include Archer Daniels Midland Company(ADM), through MCP Holdings Co., LLC, which owns 800 units of LSCP, Fagen, Inc.(Fagen), the general contractor, which owns 350 units, Indeck Energy Services,LLC, which owns 300 units, and David Vander Greind, the owner of ICM, theengineering firm for LSCP, who owns 100 units. LSCP had 3,739 units outstanding at September 30, 2003 andDecember 31, 2002, of which the LLC owned 2,189 units as of each periodend.

 

At September 30, 2003 and December 31, 2002, the Company hadconstruction costs payable to Fagen of $250,000 and $4,037,006,respectively.  Total fees to theengineer and Fagen related to the construction of the plant were approximately$9,795,000 during the nine month fiscal year ended September 30, 2003 andapproximately $35,712,000 during the fiscal year ended December 31,2002.  At December 31, 2002, theCompany had incurred site preparation costs of $493,945 recorded in aconstruction note payable to a member of the LLC.  At September 30, 2003 and December 31, 2002, theCompany had accrued interest related to the note payable to Fagen as describedin Note 6 of approximately $82,000 and $21,000, respectively.  ADM markets all of the ethanol sold by LSCPas described in Note 12 and received approximately $205,000 as a marketing feeduring the nine month fiscal year ended September 30, 2003.

 

LSCP purchased approximately $2,504,000 in corn from members of the LLCduring fiscal 2003.

 

**10. EMPLOYEE BENEFIT PLAN**

 

During fiscal 2003, the Company began a 401(k) retirement and profitsharing plan for all eligible employees. Participation in the plan is based on attaining certain age and servicerequirements.  The Company makes amatching contribution of 3% of the participants’ eligible wages.  The employees vest in the Company matchevenly over four years.  Profit sharingexpense was $569 for the nine month fiscal year ended September 30, 2003.

 

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**11. INCOME TAXES**

 

The differences between consolidated financial statement basis and taxbasis of assets are as follows:

 
|                                                                              |   | **September 30  2003** |           | **December 31  2002** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------|----------------|----------------------------|--------|
| Consolidated financial statement basis of  assets                                 |   | **$**                       | **57,308,872** |                       | $      | 44,446,075 |   |
| Plus: organization and start-up costs  capitalized                                |   | **714,384**                 |           | 458,093                    |   |
| Less: accumulated tax depreciation and  amortization greater than financial basis |   | **(12,287,693**             | **)**          |                       |   |
|                                                                              |   |                        |           |                       |   |
| Income tax basis of assets                                                        |   | **$**                       | **45,735,563** |                       | $      | 44,904,168 |   |

 

There were no differences between the consolidated financial statementbasis and tax basis of the Company’s liabilities.

 

**12. COMMITMENTS AND CONTINGENCIES**

 

As discussed in Notes 1 and 9, the Company has entered into an ethanolmarketing agreement with ADM.  TheCompany agrees to pay ADM a fixed price per gallon for every gallon of ethanolproduced by the Company and sold to ADM. The initial term is until April 2007 with renewal optionsthereafter in one year increments.

 

The Company has entered into a marketing agreement whereby the Companyagrees to sell certain grains and solubles. In return, the buyer agrees to pay the Company a percentage of theselling price for grains and a fixed dollar amount per ton of solubles.  The agreement commences when the Companybegins selling certain grains and solubles and continues for a year initiallyand terminable thereafter by either party.

 

The Company has entered into a risk management agreement for itsderivative activity with a consulting firm. The consulting firm agrees to provide the Company advice, assistance andrisk management services.  As part ofthe agreement, the Company agrees to pay the consulting firm a fee of $.002 pergallon of ethanol produced during the term beginning the day of the month afterproduction begins.  The initialestimated monthly payment is $6,667. The agreement began in 2002 and continued until July 15, 2003.  This agreement has been extended and ismonth to month until terminated by either party.  During the nine month fiscal year ending September 30, 2003,the Company incurred costs of approximately $40,000 under this agreement.

 

38

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At September 30, 2003, the Company has forward contracts topurchase approximately 368,000 million British thermal units (MMBTU) of naturalgas during October, November, and December 2003 at $4.90 per MMBTU for atotal of $1,803,200 less a deposit paid of $184,000 in September 2003.

 

39

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**ITEM 8.****                                                     CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.**

 

Boulay, Heutmaker, Zibell& Co., P.L.L.P. has been our independent auditor since the Company’sinception and is the Company’s independent auditor at the present time.  The Company has had no disagreements withits auditors.

 

**ITEM 8A.****                                            CONTROLSAND PROCEDURES.**

** **

Our management, including our President (the principal executiveofficer), Daryl Haack, and our Treasurer (the principal financial officer),Doug Lansink, have reviewed and evaluated the effectiveness of our disclosurecontrols and procedures as of the end of the period covered by thisreport.  Based upon this review andevaluation, these officers believe that our disclosure controls and proceduresare effective in ensuring that material information related to us is recorded,processed, summarized and reported within the time periods required by theforms and rules of the Securities and Exchange Commission.

 

Our management, including our principal executive officer and principalfinancial officer, have reviewed and evaluated any changes in our internalcontrol over financial reporting that occurred as of the end of the periodcovered by this report and there has been no change that has materiallyaffected or is reasonably likely to materially affect our internal control overfinancial reporting.  

 

**PART III**

** **

**ITEM 9.****                                                     DIRECTORS****, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES; COMPLIANCE WITHSECTION 16(a) OF THE EXCHANGE ACT.**

** **

**Identification of Directors, Executive Officers and SignificantEmployees**

** **

*Daryl Haack, Chairman, President and Class A Director – Age 59*

*** ***

Mr. Haack has served on the board of the Company since itsinception.  He previously held thepositions of vice-chairman and vice-president. For the past five years, Mr. Haack has farmed approximately nine hundredcrop acres in O’Brien County generally dedicated to corn and soybeans.  In addition, Mr. Haack is one of eighteenshareholders in a swine-finishing corporation and serves as the corporation’sboard chairman.  The swine-finishingcorporation is not a publicly reporting company.  Mr. Haack is serving his fifth year as a member of the Iowa CornPromotion Board, currently serves as its secretary, was a delegate to theNational Corn Grower Association’s Corn Congress, and is member of the U.S.Feed Grains Council.  

 

40

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Mr. Haack currently serves as the Company’s Chairman and President.  Pursuant to our operating agreement, Mr.Haack will serve as a Class A Director of the Company until the annual meetingof members in 2004, and until a successor is elected and qualified, or untilthe earlier death, resignation, removal or disqualification of suchdirector.  

 

*Ron Wetherell, Vice-Chairman, Vice-President and Class A Director – Age58*

*** ***

Mr. Wetherell has served on the board of the Company since itsinception.  For the past five years, Mr.Wetherell has owned and operated a number of Cherokee County businessesincluding a repair shop that has grown into Wetherell Manufacturing Co., adesigner and manufacturer of farm implements, hydraulic cylinders, and truckutility bodies, and Wetherell Cable TV which services seven separate communitiesin northwest Iowa.  In 1992, he waselected to the Cherokee County Board of Supervisors and was recently elected tohis third term.  

 

Mr. Wetherell currently serves as Vice-Chairman and Vice-President ofthe Company.  Pursuant to our operatingagreement, Mr. Wetherell will serve as a Class A Director of the Company untilthe annual meeting of members in 2004, and until a successor is elected andqualified, or until the earlier death, resignation, removal or disqualificationof such director.

 

*Tim Ohlson, Secretary and Class A Director – Age 52*

*** ***

Mr. Ohlson has served on the board of the Company since itsinception.  For the past five years, Mr.Ohlson has operated a grain and livestock farm north of Meriden.  He currently serves as president of the CherokeeCounty Farm Bureau.  He has been a boardmember of CML Telephone board for twelve years and currently serves as itssecretary.

 

Mr. Ohlson currently serves as Secretary for the Company.  Pursuant to our operating agreement, Mr.Ohlson will serve as a Class A Director of the Company until the annual meetingof members in 2004, and until a successor is elected and qualified, or untilthe earlier death, resignation, removal or disqualification of suchdirector.  

 

*Doug Lansink, Treasurer and Class A Director – Age 45*

*** ***

Mr. Lansink has served on the board of the Company since itsinception.  For the past five years, Mr.Lansink has operated a livestock and grain farm in Ida County.  

 

Mr. Lansink currently serves as the Company’s Treasurer.  Pursuant to our operating agreement, Mr.Lansink will serve as a Class A Director of the Company until the annualmeeting of members in 2004, and until a successor is elected and qualified, oruntil the earlier death, resignation, removal or disqualification of such director.

* *

*Verdell Johnson, Class A Director – Age 66*

*** ***

Mr. Johnson has served on the board of the Company since itsinception.  He previously served assecretary of the Company.  For the pastfive years, Mr. Johnson has owned and operated a livestock and grain farm inCherokee County.  He is a currentCherokee County Farm Bureau director.  

 

Pursuant to our operating agreement, Mr. Johnson will serve as a ClassA Director of the Company until the annual meeting of members in 2004, anduntil a successor is elected and qualified, or until the earlier death,resignation, removal or disqualification of such director.

 

*Myron Pingel, Class A Director – Age 63*

*** ***

Mr. Pingel has served on the board of the Company since itsinception.  For the past five years, Mr.Pingel has farmed north of Aurelia and operated a grain and livestockfarm.  He currently serves as chairmanof the Maple Valley Mutual Insurance Company, and chairman of Twin ValleyProducers Network farrowing group. Neither entity is a public reporting company.  

 

41

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Pursuant to our operating agreement, Mr. Pingel will serve as a Class ADirector of the Company until the annual meeting of members in 2004, and untila successor is elected and qualified, or until the earlier death, resignation,removal or disqualification of such director. 

 

*Darrell Downs, Class A Director – Age 65*

*** ***

Mr. Downs has served on the board of the Company since itsinception.  For the past five years Mr.Downs has been employed as a marketing manager by a regional seed company.  He currently serves as the mayor of Marcus,Iowa.  

 

Pursuant to our operating agreement, Mr. Downs will serve as a Class ADirector of the Company until the annual meeting of members in 2004, and untila successor is elected and qualified, or until the earlier death, resignation,removal or disqualification of such director. 

 

*Roland Schmidt, Class A Director – Age 53*

*** ***

Mr. Schmidt has served on the board of the Company since itsinception.  For the past five years hehas operated a grain and livestock farm in Sac County, and owned an interest ina partnership that finish feeds 5,000 to 6,000 head of hogs annually.  He is currently serving his second term asSac County Farm Bureau president, having previously served as vice presidentand chairman of several county committees. 

 

Pursuant to our operating agreement, Mr. Schmidt will serve as a ClassA Director of the Company until the annual meeting of members in 2004, anduntil a successor is elected and qualified, or until the earlier death,resignation, removal or disqualification of such director. 

 

*Vincent Davis, Class A Director – Age 51*

 

Mr. Davis has served on the board since its inception and served on itspredecessor steering committee.  Hecurrently serves as Iowa Farm Bureau Federation regional manager in region 10,which encompasses five counties in west central Iowa.  Prior to serving as the IFBF regional manager, he served as IowaSoybean Association field representative for over 10 years.

 

Pursuant to our operating agreement, Mr. Davis will serve as a Class ADirector of the Company until the annual meeting of members in 2004, and untila successor is elected and qualified, or until the earlier death, resignation,removal or disqualification of such director. 

 

*Jeff Coale, Class B Director - Age 38*

* *

Mr. Coale was appointed to the board in March, 2002 by Indeck EnergyServices, Inc., as a limited partner in the partnership.  For the past five years, Mr. Coale has beenemployed by Indeck Power Equipment Company as vice-president of sales where hehas been responsible for business development efforts on steam generationrelated projects.

 

Pursuant to our operating agreement, Mr. Coale will serve as a Class BDirector of the Company at the discretion of the appointing class of limitedpartners of the limited partnership until the next annual meeting of partners,or until his successors is elected and qualified.

 

*Steve Core, Class B Director — Age 53*

 

Mr. Core was appointed tothe board in March 2002 by Fagen, Inc., as a limited partner in thelimited partnership.  From 1994 through2002, Mr. Core served as general manager of Corn Plus, a Winnebago, Minnesotaethanol producer, where he supervised a staff of 34 employees that operated aplant producing 44 million gallons of ethanol annually.  Since 2002, Mr. Core has served as aconsultant to Fagen, Inc., with respect to new ethanol plant construction.  He is a member of the Minnesota EthanolCoalition, a director of the Renewable Fuels Association and Corn GrowersAssociation.

 

42

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Pursuant to our operating agreement, Mr. Core will serve as a Class BDirector of the Company at the discretion of the appointing class of limitedpartners of the limited partnership until the next annual meeting of partners,or until his successor is elected and qualified.

 

*Dave Vander Griend, Class B Director – Age 50*

 

Mr. Vander Griend is alimited partner in the limited partnership and appointed himself to the boardin March 2002.  He ispresident and CEO of ICM, Inc., the company that provided the process designtechnology for our ethanol plant.  Hehas worked in the ethanol industry since 1978 and has extensive experience.  His work in the industry began by designingand installing a small test ethanol dehydration system for South Dakota StateUniversity in Brookings, South Dakota. This distillation system was used as a demonstration project on the mallin Washington, DC in 1979 and numerous other places throughout the UnitedStates during the initial development of the fuel ethanol industry.  In 1980 Dave formed a company called ArlonIndustries.  This company manufactureddistillation equipment for fuel ethanol plants on a small scale.  Dave continued that business until 1985, atwhich time, he joined High Plains Corporation in Wichita, KS.  At High Plains, Dave was Vice-President ofoperations responsible for operating a 10 million gallon per year ethanol plantin Colwich, KS.  While at High Plains,Dave expanded the Colwich Plant from 10 million gallons per year production to20 million gallons per year.  In 1992 hebegan design on a 30 million gallon plant in York, Nebraska.  The plant was built and commissioned in 1994and was operating at capacity in January of 1995.  In January of 1995, Dave resigned fromHigh Plains Corporation and formed ICM, Inc. ICM started out as a manufacturer of distillers grain dryers for thefuel ethanol industry and as a consultant to fuel ethanol plants currently inoperation throughout the Midwest.  ICMcurrently has approximately 130 employees and has designed and built numerousfuel ethanol plants throughout the Midwest. 

 

Pursuant to our operating agreement, Mr. Vander Griend will serve as aClass B Director of the Company at his own discretion until the next annualmeeting of partners, or until his successor is elected and qualified.

 

*Marty Lyons, Class B Director – Age 45*

* *

Mr. Lyons was appointed tothe board in March, 2002, by MCP Holding Company, LLC, as a limited partner inthe limited partnership.  For the pastfive years, Mr. Lyons has been employed by Archer Daniels Midland Company andis currently the vice-president and director of ADM’s Ethanol Sales group,which includes management of ADM’s domestic and international fuel, beverageand industrial ethanol marketing and sales efforts.

 

Pursuant to our operating agreement, Mr. Lyons will serve as a Class BDirector of the Company at the discretion of the appointing class of limitedpartners of the limited partnership until the next annual meeting of partners,or until his successor is elected and qualified.

 

*Steve Roe, General Manager – Age 50*

* *

Mr. Roe was hired as General Manager of our ethanol plant onMay 20, 2002.  Since then, Mr. Roehas held the position of General Manager. Mr. Roe will serve as General Manager of the plant until he resigns oris removed by the Board of Directors with the consent of a majority of theholders of limited partnership units of the Limited Partnership and theapproval of our primary lender.  

 

*Gary Grotjohn, Controller – Age 53*

* *

Mr. Grotjohn was hired as Controller for the Company onFebruary 24, 2003.  Since then, Mr.Grotjohn has held the position of Controller. Mr. Grotjohn will serve as Controller of the Company until he resigns oris removed by the Board of Directors.

 

43

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**Compliance with Section 16(a) of the Exchange Act.**

 
| **Reporting Person**                                               |   | **Late Form 3 (2003)** |   | **Late Form 4 (2003)** |   | **Late Form 5 (2003)** |   |
|--------------------------------------------------------------------|--------|------------------------|--------|------------------------|--------|------------------------|--------|
| Vince Davis, Class A Director                                      |   | 1                      |   |                   |   | 1                      |   |
| Darrell Downs, Class A Director                                    |   | 1                      |   |                   |   | 1                      |   |
| Daryl Haack, Chairman, President and Class  A Director             |   | 1                      |   |                   |   | 1                      |   |
| Verdell Johnson, Class A Director                                  |   | 1                      |   |                   |   | 1                      |   |
| Doug Lansink, Treasurer and Class A  Director                      |   | 1                      |   |                   |   | 1                      |   |
| Tim Ohlson, Secretary and Class A Director                         |   | 1                      |   | 1                      |   | 1                      |   |
| Myron Pingel, Class A Director                                     |   | 1                      |   |                   |   | 1                      |   |
| Roland Schmidt, Class A Director                                   |   | 1                      |   |                   |   | 1                      |   |
| Ron Wetherell, Vice-Chairman,  Vice-President and Class A Director |   | 1                      |   |                   |   | 1                      |   |

 

On July 31, 2003, Tim Ohlson, our Secretary and a director on ourBoard of Directors, transferred a total of 16 membership units to relatedparties for no consideration. As set forth above, Mr. Ohlson did not file aForm 4 reporting the decrease in his beneficial ownership of membership unitsas a result of this transfer.

** **

**Adoption of Code of Ethics**

** **

On December 18, 2003, our Board of Directors adopted a code ofethics that applies to our principal executive officer, Daryl Haack, ourprincipal financial officer, Doug Lansink, and members of management, Steve Roeand Gary Grotjohn.  Each of theseindividuals signed an acknowledgment of his receipt of our code of ethics.  We are filing a copy of our code of ethicswith the Securities and Exchange Commission by including the code of ethics asExhibit 14.1 to this report.  

 

**Identification of Audit Committee**

** **

In May 2003 the Board of Directors appointed an Audit Committeeconsisting of Doug Lansink, Ron Wetherell, Daryl Haack and Vince Davis.  

** **

**ITEM 10.****                                              EXECUTIVECOMPENSATION.**

 

In fiscal year 2002, ourPresident and Chief Executive Officer, Daryl Haack, was compensated a total of$2,725.  In fiscal year 2003, ourPresident and Chief Executive Officer, Daryl Haack, was compensated a total of$775.  We reimburse our officers forexpenses incurred relating to services rendered on the Company’s behalf.  We do not have any employment agreementswith any officer or director.

 

**ITEM 11.****                                              SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND****RELATED STOCKHOLDER MATTERS.**

 

None of our officers,directors or unit holders, directly or beneficially, owns more than fivepercent of our issued and outstanding units. 

 

44

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As of September 30,2003, members of our board of directors own units as follows:

 
| **(1) Title of Class**    |   | **(2)  Name and Address  of Beneficial Owner** |       | **(3) Amount and  Nature of Beneficial  Ownership** |   | **(4) Percent of  Class** |   |
|---------------------------|--------|-----------------------------------------------------|------------|-----------------------------------------------------|--------|---------------------------|--------|
| Class  A Membership Units |   | Vince Davis                                         |       | 24 Units                                            |   | 0.21%                     |   |
| Class  A Membership Units |   | Darrell Downs                                       |       | 32 Units                                            |   | 0.29%                     |   |
| Class  A Membership Units |   | Daryl Haack                                         |       | 20 Units                                            |   | 0.18%                     |   |
| Class  A Membership Units |   | Verdell Johnson                                     |       | 100 Units                                           |   | 0.91%                     |   |
| Class  A Membership Units |   | Doug Lansink                                        |       | 28 Units                                            |   | 0.26%                     |   |
| Class  A Membership Units |   | Tim Ohlson                                          |       | 68 Units                                            |   | 0.62%                     |   |
| Class  A Membership Units |   | Myron Pingel                                        |       | 84 Units                                            |   | 0.77%                     |   |
| Class  A Membership Units |   | Roland Schmidt                                      |       | 20 Units                                            |   | 0.18%                     |   |
| Class  A Membership Units |   | Ron Wetherell                                       |       | 100 Units                                           |   | 0.91%                     |   |
| **TOTAL :**               |   |                                                | ** ** | **476  Units**                                      |   | **4.33%**                 |   |

 

** **

The following table setsforth the ownership of the limited partners in LSCP, LLLP, as ofSeptember 30, 2003:

 
| **(1) Title of Class**                           |   | **(2) Name and  Address  of Beneficial Owner**                                                            |   | **(3) Amount and  Nature of Beneficial  Ownership** |   | **(4) Percent of  Class** |   |
|--------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|---------------------------|--------|
| Class  B Limited Partnership Units of LSCP, LLLP |   | Fagen, Inc.  501 W. Hwy. 212  P.O. Box 159  Granite Falls, MN  56241                                 |   | 350 Units                                           |   | 100.0%                    |   |
| Class  C Limited Partnership Units of LSCP, LLLP |   | David J. Vander Griend*  310 N. First Street  P.O. Box 397  Colwich, KS  67030                       |   | 100 Units                                           |   | 100.0%                    |   |
| Class  D Limited Partnership Units in LSCP, LLLP |   | Indeck Energy Services,  Inc.  600 N.  Buffalo Grove  Rd., Suite 300  Buffalo Grove,  IL  60089 |   | 300 Units                                           |   | 100.0%                    |   |
| Class  E Limited Partnership Units in LSCP, LLLP |   | Archer Daniels Midland  Company**  4666 Faries Parkway  Decatur, IL  62526                           |   | 800 Units                                           |   | 100.0%                    |   |
| **TOTAL:**                                       |   |                                                                                                      |   | **1,550  Units**                                    |   |                      |   |

** **

----

*****David J. Vander Griend is a Class Bdirector on the Registrant’s Board of Directors.

**Archer Daniels MidlandCompany owns the 800 Class E Limited Partnership Units in LSCP, LLLP throughits wholly-owned subsidiary, MCP Holding Company, L.L.C.

 

The limited partnerscollectively own 1,550 of the 3,739 total outstanding limited partnership unitsin LSCP, LLLP, for a total ownership of 41.5%.

 

45

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**ITEM 12.****                                              CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.**

 

Since our inception, wehave engaged in several transactions with related parties. 

 

*Fagen, Inc.*

 

Fagen, Inc., owns 350 ofthe 3,739 total outstanding limited partnership units in LSCP, LLLP.  This means that Fagen, Inc., owns a 9.3%limited partnership interest in the Limited Partnership.  Of the 1,550 limited partnership unitsrepresenting the limited partners, Fagen, Inc.’s ownership of 350 units meansthat it owns 22.6% of the limited partnership units held by the limitedpartners.  Fagen, Inc.,’s ownership ofits limited partnership interest entitles it to join with its class of limitedpartnership interests in electing one director to our board.  Fagen, Inc., has elected Steve Core to ourboard.  In addition, Fagen, Inc., haspurchased approximately $1,250,000 of the limited partnership’s subordinateddebt.  Fagen, Inc.,’s purchase of thisdebt is for investment purposes and is subject to terms and conditions commonto subordinated debt.  We entered into adesign-build contract with Fagen, Inc., for the purpose of providing design,development and construction services to us in connection with our ethanolplant.  Pursuant to the design-buildcontract, Fagen, Inc., agreed to design, develop and construct a 40 milliongallon per year ethanol plant for an amount not to exceed approximately$45,500,00, subject to change orders approved by us.  Fagen, Inc., has provided design, development and constructionservices for our ethanol plant in accordance with the design/build contract andconstruction was substantially completed in April, 2003.  The amount we paid Fagen, Inc., forconstruction of the ethanol plant is comparable to that of an arms-lengthtransaction.

 

*Indeck Energy Services, Inc.*

* *

Indeck Energy Services,Inc., owns 300 of the 3,739 total outstanding limited partnership units inLSCP, LLLP.  This means that IndeckEnergy Services, Inc., owns an 8.1% limited partnership interest in the LimitedPartnership.  Of the 1,550 limitedpartnership units representing the limited partners, Indeck Energy Services,Inc.’s ownership of 300 units means that it owns 19.4% of the total number ofunits held by the limited partners. Indeck Energy Services, Inc.’s ownership of its limited partnershipinterest entitles it to join with its class of limited partnership interests inelecting one director to our board. Indeck Energy Services, Inc., has electedJeff Coale to our board.  Indeck EnergyServices, Inc., as a subcontractor under the design-build contract, hasprovided a thermal oxidizer to us in connection with the development andconstruction of our ethanol plant.  Weexpect the thermal oxidizer to decrease our emission of any volatile organiccompounds and ease our regulatory compliance. The cost of the thermal oxidizer was $1,825,000 and was included in thedesign-build contract price of $45,500,000. The amount we paid Indeck Energy Services, Inc., for the thermaloxidizer for our ethanol plant is comparable to that of an arms-lengthtransaction.

 

*MCP Holding Company, L.L.C.*

* *

MCP Holding Company,L.L.C., purchased 800 of the 3,739 total outstanding limited partnership unitsin LSCP, LLLP.  ADM acquired MCP HoldingCompany, L.L.C.  This means that ADM nowowns 800 of the 3,739 total outstanding limited partnership units in LSCP, LLLPor a 21.3% limited partnership interest in the Limited Partnership.  Of the 1,550 limited partnership unitsrepresenting the limited partners, ADM’s ownership of 800 units means that itowns 51.6% of the total number of limited partnership units held by the limitedpartners.  ADM’s ownership of itslimited partnership interest entitles it to join with its class of limitedpartnership interests in electing one director to our board.  ADM has elected Marty Lyons to ourboard.  ADM provides marketing servicesto our ethanol plant pursuant to the marketing agreement assigned by MCP toADM.  In 2003 we paid ADM approximately$205,000 as a marketing fee.  The amountwe pay ADM for marketing services is comparable to that of an arms-length transaction.

 

*Dave Vander Griend*

* *

Dave Vander Griend owns 100 of the 3,739total outstanding limited partnership units in LSCP, LLLP.  This means that Mr. Vander Griend owns a2.8% limited partnership interest in the Limited Partnership.  Of the 1,550 limited partnership unitsrepresenting the limited partners, Mr. Vander Griend’s ownership of 100 unitsmeans that he owns 6.4% of the total number of limited partnership units heldby the limited partners.  Dave VanderGriend’s ownership of his limited partnership interest entitles him to joinwith his class of limited partnership interests in electing one director to ourboard.  Mr. Vander Griend has electedhimself to serve on our board.  Mr.Vander Griend is the president and owner of ICM, Inc.  ICM, Inc., as a subcontractor under the design-build

 

46

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contract, provided theprocess design engineering for the development and construction of our ethanolplant.  The cost of the process designengineering provided by ICM, Inc. was included in the design-build contractprice of $45,500,000.  The amount wepaid ICM, Inc., for process design services is comparable to that of anarms-length transaction.

 

*CornPurchased from Members*

* *

We have made cornpurchases of approximately $2,504,000 from our members.  The purchase price for corn purchased fromour members is comparable to that of an arms-length transaction.

 

**ITEM 13.****                                             ****EXHIBITS AND REPORTS ON FORM 8-K.**

** **

(a)                                  The following exhibits are included herein:

 

**Exhibits Filed as Part of this Report andExhibits Incorporated by Reference.**

 

The following exhibits are filed as part of this report.  Exhibits previously filed are incorporatedby reference, as noted.

 
| **Exhibit No.** |   | **Exhibit**                                                                                                                                                                                                                                                                                                                   |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1             |   | Articles of Organization of registrant.  Filed as Exhibit 2.1 to the registrant’s registration statement  on Form 10-SB (Commission File 0001229899) and incorporated by reference  herein.                                                                                                                         |
|            |   |                                                                                                                                                                                                                                                                                                                          |
| 3.2             |   | Second Amended and Restated Operating Agreement of the  registrant.  Filed as Exhibit 2.2 to  the registrant’s registrations statement on Form 10-SB (Commission File  0001229899) and incorporated by reference herein.                                                                                            |
|            |   |                                                                                                                                                                                                                                                                                                                          |
| 3.3             |   | Certificate of Limited Partnership.   Filed as Exhibit 2.3 to the registrant’s registration statement on  Form 10-SB (Commission File 0001229899) and incorporated by reference herein.                                                                                                                             |
|            |   |                                                                                                                                                                                                                                                                                                                          |
| 3.4             |   | Limited Partnership Agreement.   Filed as Exhibit 2.4 to the registrant’s registration statement on  Form 10-SB (Commission File 0001229899) and incorporated by reference herein.                                                                                                                                  |
|            |   |                                                                                                                                                                                                                                                                                                                          |
| 10.1            |   | Ethanol Marketing Agreement between Little Sioux Corn Processors,  L.P. and Minnesota Corn Processors, L.L.C.*   Filed as Exhibit 6.1 to the registrant’s registration statement on  Form 10-SB (Commission File 0001229899) and incorporated by reference herein.                                                  |
|            |   |                                                                                                                                                                                                                                                                                                                          |
| 10.2            |   | Assignment of Ethanol Marketing Agreement between Little Sioux Corn  Processors, L.P. and Minnesota Corn Processors, L.L.C. to Archer Daniels  Midland Company.  Filed as Exhibit 6.2  to the registrant’s registration statement on Form 10-SB (Commission File  0001229899) and incorporated by reference herein. |
|            |   |                                                                                                                                                                                                                                                                                                                          |
| 10.3            |   | Distillers Grain Marketing Agreement between Little Sioux Corn  Processors, L.P. and Commodity Specialist Company*.  Filed as Exhibit 6.3 to the registrant’s registration statement  on Form 10-SB (Commission File 0001229899) and incorporated by reference  herein.                                             |
|            |   |                                                                                                                                                                                                                                                                                                                          |
| 10.4            |   | Design/Build Contract between Little Sioux Corn Processors, L.P. and  Fagen, Inc.*  Filed as Exhibit 6.4 to  the registrant’s registration statement on Form 10-SB (Commission File  0001229899) and incorporated by reference herein.                                                                              |
|            |   |                                                                                                                                                                                                                                                                                                                          |
| 10.5            |   | Construction Loan Agreement dated July 25, 2002 by and between  LSCP, L.P. and First National Bank of Omaha.                                                                                                                                                                                                             |

 

47

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| 10.6   |   | First Amendment to Construction Loan Agreement dated April 29,  2003 by and between LSCP, L.P. and First National Bank of Omaha. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                  |
| 10.7   |   | Second Amendment to Construction Loan Agreement dated June 1,  2003 by and between LCSP, L.P. and First National Bank of Omaha.  |
|   |   |                                                                                                                                  |
| 10.8   |   | Third Amendment to Construction Loan Agreement dated June 23,  2003 by and between LCSP, L.P. and First National Bank of Omaha.  |
|   |   |                                                                                                                                  |
| 10.9   |   | Revolving Promissory Note dated June 23, 2003 between LSCP, L.P.  and First National Bank of Omaha.                              |
|   |   |                                                                                                                                  |
| 10.10  |   | Term Note #2 dated June 23, 2003 between LSCP, L.P. and First  National Bank of Omaha.                                           |
|   |   |                                                                                                                                  |
| 10.11  |   | Term Note #3 dated June 23, 2003 between LSCP, L.P. and First  National Bank of Omaha.                                           |
|   |   |                                                                                                                                  |
| 10.12  |   | Term Note #4 dated June 23, 2003 between LSCP, L.P. and First  National Bank of Omaha.                                           |
|   |   |                                                                                                                                  |
| 14.1   |   | Code of Ethics of Little Sioux Corn Processors, L.L.C. adopted  December 18, 2003.                                               |
|   |   |                                                                                                                                  |
| 31.1   |   | Certificate Pursuant to 17 CFR 240.13a-14(a)                                                                                          |
|   |   |                                                                                                                                  |
| 31.2   |   | Certificate Pursuant to 17 CFR 240.13a-14(a)                                                                                          |
|   |   |                                                                                                                                  |
| 32.1   |   | Certificate Pursuant to 18 U.S.C. Section 1350                                                                                   |
|   |   |                                                                                                                                  |
| 32.2   |   | Certificate Pursuant to 18 U.S.C. Section 1350                                                                                   |

 

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*Material has been omitted pursuant to a request for confidentialtreatment and such materials have been filed separately with the Securities andExchange Commission.

 

(b)                                 Reportson Form 8-K.

 

On July 11, 2003, we filed Form 8-K reporting the change in ourfiscal year from January 1 through December 31 to October 1through September 30, effective as of June 26, 2003.  

 

48

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**SIGNATURES**

 

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

 

 
|   | LITTLE SIOUX CORN PROCESSORS, L.L.C.                    |
|--------|---------------------------------------------------------|
|   |
|   |
| Date:  | December 29, 2003                                  |   | /s/ Daryl Haack |   |
|   | Daryl Haack                                             |
|   | President  (Principal Executive Officer)                |
|   |
|   |
| Date:  | December 29, 2003                                  |   | /s/ Doug Lansink |   |
|   | Doug Lansink                                            |
|   | Treasurer  (Principal Financial and Accounting Officer) |

 

In accordance with the Exchange Act, this report has been signed belowby the following persons on behalf of the registrant and in the capacities andon the dates indicated.

 

 
| Date: December 29, 2003 | /s/ Vince Davis                            |   |
|------------------------------|--------------------------------------------|--------|
|                         | Vince Davis, Director                      |
|                         |
|                         |
| Date: December 29, 2003 | /s/ Daryl Haack                            |   |
|                         | Daryl Haack, President and Director        |
|                         |
|                         |
| Date: December 29, 2003 | /s/ Doug Lansink                           |   |
|                         | Doug Lansink, Treasurer and Director       |
|                         |
|                         |
| Date: December 29, 2003 | /s/ Tim Ohlson                             |   |
|                         | Tim Ohlson, Secretary and Director         |
|                         |
|                         |
| Date: December 29, 2003 | /s/ Ron Wetherell                          |   |
|                         | Ron Wetherell, Vice-President and Director |

 

49

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