**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-KSB/A**

 

| **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 51035**                              |
| (Address  of principal executive offices)                          |
|                                                               |
| **(712) 376-2800**                                                 |
| (Issuer’s  telephone number)                                  |

 

Check whether theissuer:  (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90days.          ý  Yes          o  No

 

Check if there is nodisclosure of delinquent filers in response to Item 405 of Regulation S-B isnot contained in this form, and no disclosure will be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB.  o

 

Stateissuer’s revenues for its most recent fiscal year.  $31,814,299

 

Asof September 30, 2003, the aggregate market value of the membership unitsheld by non-affiliates (computed by reference to the book value of such memberunits) was $14,146,824.

 

Asof December 26, 2003, there were 10,941 membership units outstanding.

 

DOCUMENTSINCORPORATED BY REFERENCE    **None.**

 

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

 

 

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**Explanatory Note Regarding Amendment No. 1**

 

This Amendment No. 1 to the Annual Report on Form 10-KSB/A of LittleSioux Corn Processors, LLC (the “Company”) for the year endedSeptember 30, 2003, is being filed for the purpose of clarifying Item 4regarding the Company’s fourth quarter of fiscal year ended September 30,2003; clarifying the inclusion of Energy Information Administration estimatesinto the Company’s budget; and reclassifying minority interest as an itemseparate from equity.  In accordance withRule 12b-15 under the Securities and Exchange Act of 1934, the complete text ofsuch Items, as amended, are set forth herein. In addition to the filing of this Amendment No. 1 and pursuant to Rule12b-15, the Company is including certain currently dated certifications.  The remainder of the Company’s Form 10-KSB/Ais unchanged.  This report speaks as ofthe original filing date of the Form 10-KSB and has not been updated to reflectevents occurring subsequent to the original reporting date.

 

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**PART I.**

 

**ITEM 4.****                 ****SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS.**

 

Nomatters were submitted to a vote of members during the fourth quarter of ourfiscal year January 1, 2003 to September 30, 2003.

 

**ITEM 6.****                 ****MANAGEMENT’S DISCUSSION ANDANALYSIS.**

 

Thisreport contains forward-looking statements that involve future events, ourfuture performance and our expected future operations and actions.  Insome cases you can identify forward-looking statements by the use of words suchas “may,” “will,” “should,” “anticipate,” “believe,” “expect,” “plan,”“future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,”“continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerousassumptions, risks and uncertainties.  Our actual results or actions may differmaterially from these forward-looking statements for many reasons, includingthe reasons described in this report.  We are not under any duty to updatethe forward-looking statements contained in this report.  We cannotguarantee future results, levels of activity, performance orachievements.  We caution you not to put undue reliance on anyforward-looking statements, which speak only as of the date of thisreport.  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 qualify all of our forward-lookingstatements by these cautionary statements.

 

**Applicationof Critical Accounting Policies**

 

Managementuses estimates and assumptions in preparing our consolidated financialstatements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities, and thereported revenues and expenses.  Of the significant accounting policiesdescribed in the notes to our consolidated financial statements, we believethat the following are the most critical:

 

*Derivative Instruments*

 

Weenter into derivative instruments to hedge the variability of expected futurecash flows related to forecasted corn and natural gas purchases, forwardpurchase contracts, and interest rates.  We do not typically enter intoderivative instruments other than for hedging purposes.  All derivativeinstruments are recognized on our September 30, 2003 and December 31,2002 balance sheet at their fair market value.  On the date the derivativeinstrument is entered into, we will designate the derivative as either a hedgeof the variability of cash flows of a forecasted transaction or will notdesignate the derivative as a hedge.  Changes in the fair value of aderivative that is designated as, and meets all of the required criteria for, acash flow hedge are recorded in accumulated other comprehensive income andreclassified into earnings as the hedged items affect earnings. Changes in thefair value of a derivative that is not designated as a hedge are recorded incurrent period earnings.  Although certain derivative instruments may notbe designated as, and accounted for, as a cash flow hedge, they are effectiveeconomic hedges of specified risks.

 

Duringthe nine month fiscal year ended September 30, 2003, we dedesignated ascash flow hedges our option contract positions, although they continue to beeffective economic hedges of specified risks.  At September 30, 2003,we had recorded an asset for derivative instruments related to corn and naturalgas long call option positions with a fair value of $316,726 for forecastedpurchases during fiscal 2004.  At September 30, 2003, accumulatedother comprehensive income included $371,440 in realized losses on exitedoption contracts, which will be reclassified into earnings as the underlying hedgeditems affect earnings.  This will occur when the corn and natural gas thatis being hedged has been used to

 

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produce ethanol and the sale of that ethanol is recognized.  Wehave recorded in cost of goods sold $648,714 related to our loss on derivativeinstruments for the nine month fiscal year ended September 30, 2003. The loss of $648,714 includes the reclassification from accumulated othercomprehensive income of $456,788 recorded at December 31, 2002 and therelated gain in fiscal 2003 of $77,724 on these positions.  In addition,as a result of the dedesignation of our derivative instruments, we recognized again on these remaining positions of $104,222 in the third quarter of fiscal2003 and a loss of $373,872 on positions entered into during the third quarterof fiscal 2003 not designated as cash flow hedges, but acting as economichedges.

 

AtDecember 31, 2002, we had recorded a liability for our derivativeinstruments outstanding of $529,561 which consisted of a group of short putoptions and a group of long put options that coincided with purchases of cornbeginning in March 2003 and continuing until 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.  During fiscal 2002, realized losses fromoption contracts exited totaled $242,520 were included in other comprehensiveloss and reclassified into operations in fiscal 2003 as inventory wassold.  During the twelve month fiscal year ended December 31, 2002,we had not recorded any expense related to our option position in operations,but had recorded a total unrealized loss of $748,581 in other comprehensive loss.

 

AtSeptember 30, 2003, we had an interest rate cap, as described in note 6 inthe notes to our financial statements, with a fair value of $81,224 recorded asan asset with derivative instruments.  The interest rate cap was notdesignated as a cash flow hedge.  We offset interest expense with the gainon the interest rate cap for the nine month fiscal year endingSeptember 30, 2003.

 

**Overview**

 

LittleSioux Corn Processors, L.L.C. was formed as an Iowa limited liability companyon September 28, 2000, for the purpose of constructing and operating a 40million gallon per year ethanol plant in northwest Iowa.  We raised equityby registering our Class A membership units with the State of Iowa.  Theoffering commenced on March 6, 2001 and ended on March 6, 2002. During the offering period, we sold 10,002 of our Class A membership units andreceived aggregate sales proceeds of $10,226,000.

 

Wecontributed our unit sales proceeds to LSCP, LP, an Iowa limited partnership,in exchange for the sole general partnership interest.  In 2002, ourproject engineer and general contractor invested $500,000 and $1,750,000,respectively in LSCP, LP.  LSCP, LP, has constructed and currentlyoperates the ethanol plant.  We control the business and day-to-dayoperations of the ethanol plant through our sole general partnership interestin LSCP, LP.  On June 26, 2003, our members voted to elect limitedliability status for LSCP, LP.  As of July 31, 2003, LSCP, LP,converted to LSCP, LLLP, an Iowa limited liability limited partnership. We currently own a 58.5% ownership interest in LSCP, LLLP.

 

InApril 2003, we substantially completed construction of a 40 million-gallonper year ethanol plant near Marcus, Iowa and commenced plant operations. During the months of May and June, we were engaged in preliminary testingof plant operations and start-up production.  The plant satisfied allpreliminary testing.  As of June 30, 2003, construction of the plantwas complete.  We are currently engaged in the production of ethanol anddistillers grains at our plant.  Since commencement of plant operations,the plant’s production capacity has consistently exceeded the 40 million gallonproduction guarantee provided by the general contractor.  We sell anddistribute our ethanol and distillers grains nationwide.

 

**Plan ofOperations for the Next 12 Months**

 

Weexpect to spend the next 12 months continuing to operate the ethanol plant. We have completed landscaping, drainage systems and access roads. We may still pave certain access roads.  Certain design improvements willbe installed as they are developed.  The plant may be shut down from timeto time over the next 12 months to incorporate these design improvements.

 

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Wehave an outstanding balance of $250,000 on our design-build contract, which weanticipate paying off within the next 6 months, pending satisfactory completionof certain performance guarantees provided under our design-buildcontract.  As of September 30, 2003, final construction costs, includingthe outstanding balance of $250,000, are approximately $45.5 million. Final construction costs only include amounts due to our general contractor anddo not include other costs incurred in connection with construction of theplant such as the cost of land, expenses for landscaping, drainage systems,access roads and rail switches, which in total approximate $4.9 million.

 

Theplant’s emissions standards must be tested within six months of start-upproduction.  We conducted emissions testing in September 2003, butelected to retest in December 2003 in an effort to allow the plant tooperate at higher production levels while satisfying, by an increased margin,the requirements for emissions standards.  The plant passed theDecember emissions testing by an increased margin while operating athigher production levels.  We expect to be re-tested within the next sixmonth in compliance with standard environmental regulations.  We expect toinstall a regenerative thermal oxidizer and additional centrifuge within thenext 12 months.  We are installing the regenerative thermal oxidizer andan additional centrifuge in order to allow the plant to continue producing inexcess of 40 million gallons of ethanol per year while continuing to satisfycertain emissions standards.

 

Weexpect to have sufficient cash available to cover our costs over the next 12months, including completion of construction, corn and natural gas supplies,staffing, office, audit, legal, compliance and working capital costs.  Thefollowing is our estimate of our 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 |   |

 

Theestimates in the table set forth above are based upon our limited operationalexperience and that of our general contractor with other ethanol plants similarto ours.  These are only estimates and our actual expenses and costs couldbe much higher due to a variety of factors outside our control, such as:

 

•      Changes in the availability and price ofcorn;

•      Changes in federal ethanol tax incentives;

•      Changes in the environmental regulations that apply to our plantoperations;

•      Increased competition in the ethanol industry;

•      Changes in interest rates or the availability of credit;

•      Changes in our business strategy, capital improvements or developmentplans;

•      Changes in plant production capacity or technicaldifficulties in operating the plant;

•      Changes in general economic conditions or theoccurrence of certain events causing an economic impact in the agriculture, oilor automobile industries; and

•      Changes in the availability and price of natural gas and the market forwet and modified wet distillers grains.

 

Asof November 1, 2003, Iowa’s 2003 corn harvest was forecast to yield anaverage of 159.0 bushels per acre and an aggregate of 1.91 billionbushels.  The Iowa production estimates, if realized, would make the 2003Iowa corn harvest the third highest corn crop on record.  National cornproduction was forecast on November 1, 2003 to average 143.2 bushels peracre with total production estimated at 10.3 billion bushels.  Ifrealized, these national production estimates would make the national 2003 cornharvest the largest on record.  We expect the large corn harvest to ensureadequate corn supply at

 

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reasonable prices, however, changes in demand and actual productionnumbers may impact the actual availability and price of corn.  We haveentered into commodity option contracts in order to minimize the price risk ofthe corn we need to purchase to operate our plant.

 

Naturalgas is an important input to out manufacturing process.  We use naturalgas to dry our distillers grains products to moisture contents at which theycan be stored for long periods, transported greater distances, and desired bybroader livestock markets, including poultry and swine.  Natural gas hasrecently been available only at prices exceeding historical averages. These prices are increasing our costs of production.  We expect naturalgas prices to remain high or increase at least through the 2003-2004 wintermonths.  We purchased options to purchase natural gas at affordable ratesin order to protect a sustainable level of operating revenues.  Lowerprices than expected for other inputs, increased operating efficiencies, andsales of our wet distillers grains products also help protect our operatingprofits.  Nonetheless, we may not recover high costs of productionresulting from high natural gas prices.

 

Weuse commodity 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.  We enter into option contracts forhedging purposes only.  We purchase our option contracts based upon the specificvolumes of corn and natural gas we expect to use in our manufacturingprocess.  Quotes listed on regulated commodity exchanges primarilydetermine the fair value of the option contracts.  In order to protect ourcost of corn, we expect that we will hedge approximately 50% of our corn supplyneeds for the next 12 months through option contracts.  Similarly, due tovolatility in the market for natural gas, we expect that we will hedge aportion of our natural gas supply needs for the next 12 months through optioncontracts.  We have entered into a risk management agreement with aconsulting firm that provides assistance to us with our risk managementstrategies, including price protection of our corn and natural gassupplies.  During the next 12 months, we expect to continue using theservices of the consulting firm with respect to our risk management strategies.

 

Weanticipate spending approximately $54.9 million over the next twelvemonths.  We have projected to spend approximately $51.7 million on directcost of goods sold and production costs.  We also expect to incurapproximately $3.2 million for general and administrative costs.  Ourproduction costs could rise, however, if the cost of natural gasincreases.  According to the Energy Information Administration, the costof natural gas could double this winter, resulting in higher costs ofproduction that may not be recovered.  Inpreparing an estimate of our natural gas expenses over the next 12 months, weconsidered the possibility of an increase in the price of natural gas.  However, because we have price protection inplace for 100% of the winter months, the Energy Information Administrationestimates had an insignificant impact on our budget.

 

Weexpect to fund our costs and expenditures for the next 12 months using cashflow from continuing operations, lines of credit through our revolvingpromissory note and cash reserves.  Based upon our expected sources offunds, we do not anticipate a need to raise additional funds within the next 12months.

 

Wecurrently have 31 full-time employees to operate the ethanol facility.  Wehave 25 full-time employees in ethanol production operations and 6 full-timeemployees in general management and administration.  We do not expect tohire a significant number of additional employees during the next 12 months.

 

Weexpect to continue using Archer Daniels Midland Company to market anddistribute our ethanol for at least the next 12 months.  We expect tocontinue using Commodity Specialist Company to market and sell our distillersgrains for at least the next 12 months.

 

**Liquidityand Capital Resources**

 

Asof September 30, 2003, we had the following consolidated assets: cash of$536,483, current assets of $8,048,340 and total assets of $57,308,872. As of September 30, 2003, we had consolidated

 

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current liabilities of $4,951,852.  Our members’ contributions,net of costs related to capital contributions, was $10,842,237.  Ourmembers’ equity was $14,146,824 and consisted of accumulated othercomprehensive loss of $217,441 and retained earnings of $3,522,028.  Theequity of the minority interest was $10,052,753, for a total members’ equity of$24,199,577.

 

InApril 2003 we substantially completed construction of our ethanol plant andbegan operations.  For the nine months ended September 30, 2003, cashprovided by operating activities was $2,197,583.  Cash provided byoperating activities was used for $293,274 of capital expenditures and a net$1,636,988 pay down of our debt.

 

Wehave a revolving promissory note of up to $3,500,000 with First National Bankof Omaha renewable annually through July 2004.  On June 23,2003, we amended the terms of the revolving promissory note in connection withconversion of the construction loan to term notes.  The interest payableon the revolving promissory note was payable monthly at 1% plus the primerate.  Upon conversion, interest is due monthly at the one month LIBORplus 3.8%, which totaled 4.92% at September 30, 2003.  The revolvingpromissory note is our operating line of credit.  We pay a commitment feeof 0.125% on the unused portion of the line.  The outstanding balance asof September 30, 2003, was $775,165.  The maximum available amount ofthis note is based on receivable and inventory balances.  Our currentreceivable and inventory balances are in excess of the minimum required underthe terms of the revolving promissory note, which allows us to use the maximumavailable line of credit under the note.  As the balances in theseaccounts fluctuate, the amount of available credit on this note may be reduced.The operating line of credit is subject to protective covenants requiring us tomaintain various financial ratios.  The operating line of credit issecured by all business assets.

 

OnJune 23, 2003, we converted the construction note to three termnotes.  First National Bank of Omaha holds the term notes and refers tothe notes as Term Notes #2, #3 and #4.  At conversion, Term Note #2 was inthe principal amount of $15,732,500.  At September 30, 2003, theprincipal balance on Term Note #2 is $15,409,002.  Term Note #2 is payablein quarterly installments, which began on September 1, 2003. Interest on Term Note #2 is at the three month 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 achieve a fixed interest rate on Term Note#2, we entered into an interest rate swap which helps protect our exposure toincreases in interest rates.  Our interest rate swap effectively fixes theinterest rate on Term Note #2 at 5.79% until June 1, 2008.

 

Atconversion, Term Note #3 was in the principal amount of $10,732,500.  AtSeptember 30, 2003, the principal balance on Term Note #3 is$10,374,165.  Term Note #3 is payable in quarterly installments whichbegan on September 1, 2003.  Interest on Term Note #3 is at the threemonth 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 protectour interest rate exposure on Term Note #3, we entered into an interest ratecap agreement based on a principal amount of $10,000,000.  Our interestrate is capped at 6.8% for Term Note #3 until June 1, 2006.

 

Atconversion, Term Note #4 was in the principal amount of $5,000,000.  AtSeptember 30, 2003, the principal balance on Term Note #4 is$2,795,692.  Term Note #4 is payable in quarterly installments which beganon September 1, 2003.  Interest on Term Note #4 is at the one monthLIBOR plus 3.8%, which totaled 4.92% as of September 30, 2003.  TermNote #4 is payable in full on June 1, 2008.  Term Note #4 allowsborrowings up to the original principal of $5,000,000 to the extent ofprincipal payments made until maturity and requires a commitment fee of 0.375%on any unused portion.  At conversion, the aggregate indebtednessrepresented by Term Notes #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.

 

Therevolving promissory note as well as Term Notes #2, #3 and #4 are subject toprotective covenants requiring us to maintain various financial ratios, aresecured by all business assets, require additional loan payments based onexcess cash flow and restrict the payment of distributions.  Specifically,we must maintain a minimum consolidated net worth of not less than $19,000,000on an annual basis plus the greater of $250,000 or the amount of undistributedearnings during the current fiscal year.  In addition,

 

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at the end of each fiscal year, we must apply 20% of our excess cashflow to the term notes.  Excess cash flow is determined as EBITDA lessrequired payments to our lender, or subordinated debt, less state and federalincentive payments and authorized expenditures.  We must also maintainminimum working capital of $1,000,000 during the first year of operations,$1,500,000 for months 13 through 24 and $2,000,000 thereafter.  Ourfailure to comply with the protective loan covenants or maintain the requiredfinancial ratios may cause acceleration of the outstanding principal balanceson the revolving promissory note and terms notes and/or the imposition of fees,charges or penalties.  Any acceleration of the debt financing orimposition of significant fees, charges or penalties may restrict or limit ouraccess to the capital resources necessary to continue plant operations. For each of the term notes, the premium above the LIBOR may be reduced basedupon our achievement and maintenance of certain financial ratios.

 

Weexpect our interest rate swap and cap agreement to adequately protect us in theevent of changes in interest rates.  However, we may not be fullyprotected in the event of large movements in interest rates.  Any loss weexperience as a result of discontinuance of our interest rate swap or cap willbe reclassified into earnings.  We have not experienced any loss inconnection with our interest rate swap or cap during the nine months endedSeptember 30, 2003.

 

Wehave a note payable to Farmers State Bank of Marcus, Iowa, in the amount of$150,000, with principal and interest due and payable on demand or onMarch 4, 2004.  Interest is charged at the rate of 7% per annum andthe note is secured by real estate subordinated to the Term Notes.  Wehave a note payable to the Iowa Corn Promotion Board in the amount of $50,000,with principal and interest due and payable on July 30, 2004.  Nointerest is charged as long as the note is repaid by June 30, 2004 andinterest will retroactively accrue at the prime rate.  We expect that wewill pay off the note in full by June 30, 2004.

 

Wehave a note payable to Fagen, Inc., in the amount of $1,250,000, with principaland interest due and payable on July 25, 2007.  Interest is chargedat the rate of 1% plus the base rate, adjusted quarterly, announced andpublished by First National Bank of Omaha, which was 5% at September 30,2003, and the note is secured by real estate subordinated to the Term Notes.

 

Wehave capital lease obligations in the amount of $337,094, due in monthlyinstallments initially totaling $6,768 commencing April 1, 2003, andincluding implicit interest between 7.4% and 17.4% through March 1,2008.  The capital lease obligations are secured by leased equipment.

 

Wehave a note in the amount of $222,222 payable to the Iowa Energy Center due inmonthly installments of $3,472 without interest, maturing on January 29,2009.  The note is secured by real estate subordinated to the TermNotes.  We have a note with Farmers State Bank of Marcus, Iowa, in theamount of $226,535 payable in monthly payments of $5,921, including interest at6%, maturing on January 29, 2009.  The note is secured by real estatesubordinated to the Term Notes.  We have a note in the amount of $300,000payable to the Iowa Department of Economic Development due in 60 monthlyinstallments beginning August 1, 2004 in the amount of $1,667 withoutinterest.  The note matures on July 1, 2009.  The note has a$90,000 portion subject to forgiveness if we meet certain qualifications. The note is secured by all equipment.

 

Thenotes payable to Farmers State Bank of Marcus, Iowa and Fagen, Inc., requireadditional loan payments based on excess cash flow generated by paymentsreceived from the USDA’s Commodity Credit Corporation, as discussed below.

 

Wehave 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 Corporationwill reimburse eligible ethanol producers of less than 65 million gallons ofbioenergy in the amount of one bushel of corn for every two and one-halfbushels of corn used for the increased production of ethanol.  No eligibleproducer may receive more than $7.5 million annually under the program. Because we are an eligible producer and expect to annually utilize 15 millionbushels of corn in the increased production of ethanol, we expect to potentiallyreceive the maximum award of $7.5 million.  However, the Commodity CreditCorporation may award only $150 million annually fiscal years 2003 through2006, and any award

 

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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 in national ethanol production capacity of 426 milliongallons per year.  Based upon the recent increase in national ethanol production,we anticipate a pro rata reduction in aggregate payments to all eligibleproducers.  We anticipate the pro rata reduction to be in the range of 20%to 25%.  Therefore, we may not receive the maximum award of $7.5million.  We expect to be eligible to receive an award under the programonly once during the life of our project; however, due to timing differencesbetween our fiscal year and the fiscal year of the federal government, or, ifwe increase our production capacity at some point in the future and during thelife of the grant program, we may become eligible to receive more than $7.5million or we may become eligible more than once for this award.  We havereceived 81% of the eligible payments under the program as ofSeptember 30, 2003.

 

**Off-BalanceSheet Arrangements**

 

Wedo not have any off-balance sheet arrangements.

 

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**ITEM 7.****                 ****FINANCIAL STATEMENTS.**

 

REPORT OF INDEPENDENT AUDITORS

 

Board of Directors

Little Sioux Corn Processors, LLC and Subsidiary

Marcus, Iowa

 

We have audited theaccompanying consolidated balance sheet of Little Sioux Corn Processors, LLCand Subsidiary, previously a development stage company, as ofSeptember 30, 2003 and December 31, 2002, and the relatedconsolidated 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.  Theseconsolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits 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 LittleSioux Corn Processors, LLC and Subsidiary, previously a development stagecompany, as of September 30, 2003 and December 31, 2002, and theresults of their operations and their cash flows for the nine month fiscal yearended September 30, 2003 and twelve month fiscal year endedDecember 31, 2002, in conformity with accounting principles generallyaccepted in the United States of America.

 

As more fully described in Note 13, the minority interest wasreclassified on the balance sheet.

 

 
|   |                         | /s/   Boulay, Heutmaker, Zibell & Co. P.L.L.P. |   |
|--------|------------------------------|---------------------------------------------------------|--------|
|   |                         |
|   | Certified Public Accountants |

 

Minneapolis, Minnesota

October 31, 2003, except for Note 13, asto which thedate is July 21, 2004

 

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**LITTLE SIOUXCORN PROCESSORS, LLC AND SUBSIDIARY**

 

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 Statementsare an integral part of this Statement.

 

11

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**LITTLE SIOUX CORN PROCESSORS, LLCAND SUBSIDIARY**

 

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**                                                                                                                    |       | ** **                  |           |                       |       |
|                                                                                                                                                  |       | ** **                  |           |                       |       |
| **Minority Interest**                                                                                                                                 |       | **10,052,753**              |           | 6,975,752                  |       |
|                                                                                                                                                  |       | ** **                  |           |                       |       |
| **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                   | )          |
| Total members’ equity                                                                                                                            |       | **14,146,824**              |           | 9,854,805                  |       |
|                                                                                                                                                  |       | ** **                  |           |                       |       |
| **Total Liabilities and  Members’ Equity**                                                                                                       |       | **$**                       | **57,308,872** |                       | $          | 44,446,075 |   |

 

Notes to Consolidated Financial Statementsare an integral part of this Statement.

 

12

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**LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

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 Statementsare an integral part of this Statement.

 

13

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**LITTLE SIOUXCORN PROCESSORS, LLC AND SUBSIDIARY**

 

Consolidated Statement ofChanges in Members’ Equity and Accumulated Other Comprehensive Income

 
| ** **                                                               | ** ** | **Member  Contributions** | ** ** | **Retained  Earnings** | ** ** | **Comprehensive  Income (Loss)** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------------------------|------------|------------------------------------------------------|------------|
|                                                                     |       |                      |       |                   |       |                             |       |                                                 |       |
| **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                  | )          |                   |       |                             |       |                                                 |       |
|                                                                     |       |                      |       |                   |       |                             |       |                                                 |       |
| Capital reallocation upon investment in  units of LSCP, LLLP             |       | 309,613                   |       |                   |       |                             |       |                                                 |       |
|                                                                     |       |                      |       |                   |       |                             |       |                                                 |       |
| Net loss                                                                 |       |                      |       | (214,656               | )          | $                                | (214,656   | )                                                    |       |   |
|                                                                     |       |                      |       |                   |       |                             |       |                                                 |       |
| Other comprehensive loss:                                                |       |                      |       |                   |       |                             |       |                                                 |       |
| Unrealized loss on derivative contracts                                  |       |                      |       |                   |       | (438,257                         | )          | $                                                    | (438,257   | ) |
|                                                                     |       |                      |       |                   |       |                             |       |                                                 |       |
| Comprehensive loss                                                       |       |                      |       |                   |       | $                                | (652,913   | )                                                    |       |   |
|                                                                     |       |                      |       |                   |       |                             |       |                                                 |       |
| **Balance -  December 31, 2002**                                    |       | 10,842,237                |       | (549,175               | )          |                             |       | (438,257                                             | )          |
|                                                                     |       |                      |       |                   |       |                             |       |                                                 |       |
| Net income                                                               |       |                      |       | 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     |       |                      |       |                   |       | 300,463                          |       |                                                 |       |
|                                                                     |       |                      |       |                   |       | 220,816                          |       | 220,816                                              |       |
|                                                                     |       |                      |       |                   |       |                             |       |                                                 |       |
| Comprehensive income                                                     |       |                      |       |                   |       | $                                | 4,292,019  |                                                 |       |   |
|                                                                     |       |                      |       |                   |       |                             |       |                                                 |       |
| **Balance -  September 30, 2003**                                   |       | $                         | 10,842,237 |                   | $          | 3,522,028                        |       |                                                 |       | $ | (217,441 | ) |

 

Notes toConsolidated Financial Statements are an integral part of this Statement.

 

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**LITTLE SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

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                                    |       | **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 |   |
|                                                                        |       |                                                       |          |                                                        |       |
| **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 toConsolidated Financial Statements are an integral part of this Statement.

 

15

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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 SIGNIFICANTACCOUNTING POLICIES**

 

*Principles of Consolidation*

 

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 are eliminated inconsolidation.

 

*MinorityInterest*

 

Amounts recorded as minority interest on thebalance sheet relate to the net investment by limited partners in LSCP plus orminus any allocation of income or loss of LSCP. After giving effect to certain special allocations, income and losses ofLSCP will be allocated to the partners based upon their respective percentageof partnership units held.  The minorityinterest share of the comprehensive income for the nine month fiscal yearending September 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 organizedto pool investors, some of whom provide a corn supply, for a 40 million gallonethanol plant, located near Marcus, Iowa, with distribution to upper Midweststates. In addition, the Company produces and sells distillers dried grainswith solubles (DDGS) as a co-product of ethanol production.

 

On October 16, 2001,the LLC formed LSCP, LP, a limited partnership of which the LLC is the generalpartner.  LSCP owns the plant on whichconstruction began in 2001 and all of the LLC’s operations are conductedthrough LSCP.  Prior to commencingoperations in April 2003, the Company was a development stagecompany.  On June 26, 2003, the membersof the LLC approved an election by LSCP, LP to convert to an Iowa limitedliability limited partnership, LSCP, LLLP.

 

*Fiscal Reporting Period*

 

On June 26, 2003, the Company adopted a fiscal yearending September 30 for reporting financial operations.  Prior to that, the Company had a fiscal yearending December 31 for reporting financial operations.

 

16

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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 Credit Corporation Bioenergy Program*

 

During fiscal 2003, the Companyenrolled in the Commodity Credit Corporation Bioenergy Program (CCC), adepartment of the United States Department of Agriculture.  This program enables the Company to receivepayments based on increases in production of ethanol over the previous year ofup to $7,500,000 per year.  Newproduction is eligible and is considered increased production.  Payments under the program are subject to prorata reduction if aggregate payments to all producers in any fiscal year exceedthe maximum annual funding of the program. During the nine month fiscal year ended September 30, 2003, theCompany recorded $5,535,733 as other income from the CCC and atSeptember 30, 2003 had $3,331,425 recorded in other receivables.  As required by provisions of the term notesdescribed in Note 6, all payments collected from the CCC totaling $2,204,308were remitted to the lending institution during the nine month fiscal yearended September 30, 2003.

 

17

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*Shipping Costs*

 

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

 

*Cash*

 

TheCompany maintains its accounts primarily at two financial institutions.  At times throughout the year, the Company’scash balances may exceed amounts insured by the Federal Deposit InsuranceCorporation.

 

*Restricted Cash*

 

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

 

*Trade Accounts Receivable*

 

Credit terms are extended to customers in the normal course ofbusiness.  The Company performs ongoingcredit evaluations of its customers’ financial condition and, generally,requires no collateral.

 

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 all materialrespects and thus an allowance is not necessary. Accounts are considered pastdue if payment is not made on a timely basis in accordance with the Company’scredit terms.  Accounts considereduncollectible 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.

 

18

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# *Property and Equipment*

 

Property and equipment are stated at the lower of costor estimated fair value.  Depreciation iscomputed over estimated useful lives by use of the straight-line method.  Maintenance and repairs are expensed asincurred; major improvements and betterments are capitalized.  The present value of capital leaseobligations are classified as long-term debt and the related assets areincluded in equipment.  Amortization ofequipment under capital lease is included in depreciation expense.

 

The Company reviews its property and equipment for impairment wheneverevents indicate that the carrying amount of the asset may not be recoverable.  An impairment loss is recorded when the sumof the future cash flows is less than the carrying amount of the asset.  An impairment loss is measured as the amountby which the carrying amount of the asset exceeds its fair value.

 

*Deferred Loan Costs*

 

Costs associated with the issuance of the constructionloan discussed in Note 6 are recorded as deferred loan costs, net ofaccumulated amortization.  Loan costs areamortized to operations over the life of term note #2 using the effectiveinterest method.  The construction loanwas converted to term notes on June 23, 2003, at which point the Companybegan amortizing the related loan costs using the effective interest method.

 

*Derivative Instruments*

 

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 of a derivativethat is not 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 ended September 30, 2003, theCompany dedesignated as cash flow hedges its option contract positions, althoughthey continue to be effective

 

19

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economic hedges of specified risks. At September 30, 2003, the Company had recorded an asset forderivative instruments related to corn and natural gas long call optionpositions with a fair value of $316,726 for forecasted purchases during fiscal2004.  At September 30, 2003,accumulated other comprehensive income included $371,440 in realized losses onexited option contracts, which will be reclassified into earnings as theunderlying hedged items affect earnings. The Company has recorded in cost of goods sold $648,714 related to itsloss on derivative instruments for the nine month fiscal year endedSeptember 30, 2003.  The loss of$648,714 includes the reclassification from accumulated other comprehensiveincome of $456,788 recorded at December 31, 2002 and the related gain infiscal 2003 of $77,724 on these positions. In addition, as a result of the dedesignation of the Company’sderivative instruments, the Company recognized a gain on these remainingpositions of $104,222 and a loss of $373,872 on positions not designated ascash flow hedges but acting as economic hedges, in the third quarter of fiscal2003.

 

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 until December 2003.  At December 31, 2002, the short putoptions had an unrealized loss of $468,957 and the long put options have anunrealized loss of $37,104, net of premiums received of $23,500.  During fiscal 2002, realized losses fromoption contracts exited totaled $242,520 were included in other comprehensiveloss and reclassified into operations in fiscal 2003 as inventory wassold.  During the twelve month fiscalyear ended December 31, 2002, the Company had not recorded any expenserelated 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 thegain on the interest rate cap for the nine month fiscal year endingSeptember 30, 2003.

 

*Income Taxes*

 

Little Sioux CornProcessors, LLC and LSCP, LLLP are treated as partnerships for federal andstate income tax purposes and generally do not incur income taxes.  Instead, their earnings and losses areincluded in the income tax returns of the members/partners. Therefore, noprovision or liability for federal or state income taxes has been included inthese financial statements.  Differencesbetween consolidated financial statement basis of assets and tax basis ofassets is related to capitalization and amortization of organization andstart-up costs for tax purposes, whereas these costs are expensed for financialstatement purposes.  In addition, theCompany uses the modified accelerated cost

 

20

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recovery system method(MACRS) for tax depreciation instead of the straight line method that is usedfor book depreciation, which also causes temporary differences.

 

*Fair Value of Financial 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 agreements contain certainunique terms, conditions, covenants, and restrictions, as discussed in Notes 5and 6, there are no readily determinable similar instruments on which to basean estimate of fair value.

 

*Recently Issued Accounting Pronouncements*

 

The Financial Accounting Standards Board (FASB) has issued StatementNo. 149, *Amendment of Statement 133 on DerivativeInstruments and Hedging Activities*. The Statement amends and clarifies accounting for derivativeinstruments, including certain derivative instruments embedded in other contracts,and for hedging activities under Statement No. 133.

 

The Financial Accounting Standards Board (FASB) has issued StatementNo. 150, *Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity*.  The Statement establishes standards for howan issuer classifies and measures certain financial instruments withcharacteristics 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 consolidatedstatement of cash flows for 2002 has been changed to conform to theclassifications used in the nine month fiscal year ended September 30,2003.  These reclassifications had noeffect on net income as previously reported.

 

21

----

 

**2.  INVENTORY**

 

Inventory consists of the following atSeptember 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.

 

22

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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 thefinancing agreement with the lending institution, the Company has a revolvingpromissory note of up to $3,500,000, subject to borrowing base limitations,maturing in July 2004, renewable annually thereafter.  Upon conversion of the construction loan toterm notes as described in Note 6, the revolving promissory note was amendedwhereby interest is due monthly at the one month London Interbank Offered Rate(LIBOR) plus 380 basis points which totaled 4.92% at September 30,2003.  Prior to this amendment, interestwas due monthly at 1.0% plus the prime rate. The Company pays a commitment fee of .125% on the unused portion of therevolving promissory note.  Theoutstanding balance at September 30, 2003 was $775,165.  The revolving promissory note as well as theterm notes described in Note 6 are subject to protective covenants under acommon financing agreement requiring the Company to maintain various financialratios, including debt service coverage, minimum net worth and working capitalrequirements, restrictions on distributions, secured by all business assets,and require additional loan payments based on excess cash flow.

 

**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 |   |
|                                                                                                                                                                                                                                                                                                                                                                      |       | ** **                 |           |                       |       |
| Totals brought forward                                                                                                                                                                                                                                                                                                                                                    |       | **$**                      | **30,028,859** |                       | $          | 21,227,003 |   |

 

23

----

 
| ** **                                                                                                                                                                                                                                                    | ** ** | **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 |   |

 

24

----

 
| ** **                                                                                                                                                                                              | ** ** | **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 fixed principal payments due quarterly, which began September 1, 2003,and with interest at the three month LIBOR plus 280 basis

 

25

----

 

points, which totaled 3.95% at September 30, 2003, payable in fullon June 1, 2008.  As part of thefinancing agreement, the Company accepted a fixed rate option on term note #2by entering into an interest rate swap which effectively fixes the interestrate on this term note at 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.

 

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 annualservicing fee of $50,000 for five years. As described in Note 1, the Company entered into an interest rate capagreement to reduce the risk of increases in interest rates.  The interest rate cap agreement is based on anotional amount of $10,000,000 and caps increases in interest rates at 6.8% onthis amount until June 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 |   |

 

26

----

 

**7.  LEASES**

 

The Company leases equipmentunder operating and capital leases through 2008.  The Company is generally responsible formaintenance, taxes, and utilities for leased equipment.  Equipment under operating leases includesrail cars and various loading and moving vehicles.  In addition, the rail car lease agreementrequires additional fees to be paid by the Company for excess usage and forregulatory modifications.  Rent expense foroperating leases was approximately $172,000 for the nine month fiscal yearended September 30, 2003.  There wasno rent expense in 2002.

 

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 minimum commitments,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 authorizedto issue 28,000 membership units. The LLC raised $10,226,000 in 2002 by issuing10,002 units of the LLC through an initial public

 

27

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offering.  The LLC received a$309,613 contribution of equity from the limited partners in LSCP viaallocation 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.

 

**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 Griend, 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 the engineerand 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, the Company had accrued interest related to the note payable to Fagen asdescribed in 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 a matchingcontribution 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.

 

28

----

 

**11.  INCOME TAXES**

 

The differences between consolidated financial statementbasis and tax basis 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 ANDCONTINGENCIES**

 

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 of theagreement, 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 initial estimatedmonthly payment is $6,667.  The agreementbegan in 2002 and continued until July 15, 2003.  This agreement has been extended and is monthto month until terminated by either party. During the nine month fiscal year ending September 30, 2003, theCompany incurred costs of approximately $40,000 under this agreement.

 

At September 30, 2003,the Company has forward contracts to purchase approximately 368,000 millionBritish thermal units (MMBTU) of natural gas during October,

 

29

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November, andDecember 2003 at $4.90 per MMBTU for a total of $1,803,200 less a depositpaid of $184,000 in September 2003.

 

**13.  RECLASSIFICATION OF MINORITY INTEREST**

 

The minority interest has been reclassified on the accompanying balancesheet to reflect it as a separate line item rather than including it as part ofequity at September 30, 2003 and December 31, 2002.  This reclassification has no impact of netincome or earnings per unit as previously reported.

 

30

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| **Item 13.** | **Exhibits  and Reports on Form 8-K.** |                                         |
|--------------|----------------------------------------|----------------------------------------------|
|         |                                   |                                         |
|         | (a)                                    | The following exhibits are  included herein. |
|         |                                   |                                         |
|         |                                   | 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. § 1350 |
|         |                                   | 32.2                                         | Certificate pursuant to 18  U.S.C. § 1350 |
|         |                                   |
|         | (b)                                    | Reports on Form 8-K.                         |
|         |                                   |                                         |
|         |                                   | None.                                        |   |
|              |                                        |                                              |  |  |  |

 

31

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**SIGNATURES**

 

Inaccordance with Section 13 or 15(d) of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|   |                 | LITTLE SIOUX CORN  PROCESSORS, L.L.C.  |
|--------|----------------------|----------------------------------------|
|   |                 |                                   |
|   |                 |                                   |
| Date:  | August 13, 2004 |                                   | /s/ Stephen Roe |
|   |                 | Stephen Roe                            |
|   |                 | President and Chief  Executive Officer |
|   |                 |                                   |
|   |                 |                                   |
| Date:  | August 13, 2004 |                                   | /s/ Gary Grotjohn |
|   |                 | Gary Grotjohn                          |
|   |                 | Chief Financial Officer                |

 

Inaccordance with the Exchange Act, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

 
| Date: August 13, 2004 | /s/ Vince Davis                           |
|----------------------------|-------------------------------------------|
|                       | Vince Davis, Director                     |
|                       |                                      |
|                       |                                      |
| Date: August 13, 2004 |                                      |
|                       | Daryl Haack, Director                     |
|                       |                                      |
|                       |                                      |
| Date: August 13, 2004 |                                      |
|                       | Doug Lansink, Director                    |
|                       |                                      |
|                       |                                      |
| Date: August 13, 2004 | /s/ Tim Ohlson                            |
|                       | Tim Ohlson, Secretary and  Director       |
|                       |                                      |
|                       |                                      |
| Date: August 13, 2004 | /s/ Ron Wetherell                         |
|                       | Ron Wetherell, Chairman  and Director     |
|                       |                                      |
|                       |                                      |
| Date: August 13, 2004 | /s/ Myron Pingel                          |
|                       | Myron Pingel,  Vice-Chairman and Director |
|                       |                                      |
|                       |                                      |
| Date: August 13, 2004 | /s/ Darrell Downs                         |
|                       | Darrell Downs, Director                   |
|                       |                                      |
|                       |                                      |
| Date: August 13, 2004 |                                      |
|                       | Roland Schmidt, Director                  |
|                       |                                      |
|                       |                                      |
| Date: August 13, 2004 | /s/ Verdell Johnson                       |
|                       | Verdell Johnson, Director                 |

 

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