**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

| x                                                      | **Annual report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934.**     |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                   |                                                                                                     |
| **For the fiscal year ended September 30,  2007** |
|                                                   |                                                                                                     |
| **OR**                                                 |
|                                                   |                                                                                                     |
| **o**                                                  | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934.** |

 

**COMMISSION FILE NUMBER 0001229899**

 

**LITTLE SIOUXCORN PROCESSORS, L.L.C.**

(Exact name of registrant as specified in itscharter)

 

| **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**                                                                                    |
| (Registrant’s telephone  number, including area code)                                            |
|                                                                                                  |       |                                      |
| Securities registered pursuant to Section 12(b) of  the Exchange Act: **None**              |
|                                                                                                  |
| Securities registered pursuant to  Section 12(g) of the Exchange Act: **Membership  Units** |

 

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

 

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

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.     x Yes    o No

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained in this form, and nodisclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K.   x

 

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

 

| Large Accelerated  Filer o |   | Accelerated Filer o |   | Non-Accelerated Filer x |
|---------------------------------|--------|--------------------------|--------|------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct).  o Yes     x No

 

Theaggregate market value of the membership units held by non-affiliates of theregistrant at December 31, 2007, was $105,525,945.  There is no established public trading marketfor our membership units.  The aggregatemarket value was computed by reference to the average sale price of our Class Aunits recently on our qualified matching service.

 

As ofthe date of this filing, there are 164,115 membership units of the registrantoutstanding.

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

Pursuant to GeneralInstruction G (3), we omit Part III, Items 10, 11, 12, 13, and 14 andincorporate such items by reference to an amendment to this Annual Report on Form 10-Kor to a definitive proxy statement to be filed with the Securities and ExchangeCommission within 120 days after the close of the fiscal year covered by thisAnnual Report (September 30, 2007).

 

 

 

 

 

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**INDEX**

 

 
| **PART I.**                                                                                   | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------|
| ** **                                                                                         | ** ** | ** ** |
| **ITEM 1.  BUSINESS**                                                                              | ** ** | ** ** |
| **ITEM  1A. RISK FACTORS**                                                                         | ** ** | ** ** |
| **ITEM 2.  DESCRIPTION OF PROPERTY**                                                               | ** ** | ** ** |
| **ITEM  3. LEGAL PROCEEDINGS**                                                                     | ** ** | ** ** |
| **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS**                                   | ** ** | ** ** |
| ** **                                                                                         | ** ** | ** ** |
| **PART II**                                                                                   | ** ** | ** ** |
| ** **                                                                                         | ** ** | ** ** |
| **ITEM 5. MARKET FOR MEMBERSHIP UNITS AND RELATED MEMBER  MATTERS**                                | ** ** | ** ** |
| **ITEM 6. SELECTED FINANCIAL DATA**                                                                | ** ** | ** ** |
| **ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS AND  RESULTS OF OPERATION**                    | ** ** | ** ** |
| **ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK.**                          | ** ** | ** ** |
| **ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**                                            | ** ** | ** ** |
| **ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS  ON ACCOUNTING AND FINANCIAL DISCLOSURES** | ** ** | ** ** |
| **ITEM 9A. CONTROLS AND PROCEDURES.**                                                              | ** ** | ** ** |
| **ITEM  9B. OTHER INFORMATION.**                                                                   | ** ** | ** ** |
| ** **                                                                                         | ** ** | ** ** |
| **PART III**                                                                                  | ** ** | ** ** |
| ** **                                                                                         | ** ** | ** ** |
| **PART IV.**                                                                                  | ** ** | ** ** |
| ** **                                                                                         | ** ** | ** ** |
| **ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**                                               | ** ** | ** ** |
| ** **                                                                                         | ** ** | ** ** |
| **SIGNATURES**                                                                                     | ** ** | ** ** |
| ** **                                                                                         | ** ** | ** ** |
| **INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**                                                     | ** ** | ** ** |

** **

** **

 

 

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**CAUTIONARY STATEMENTS REGARDINGFORWARD-LOOKING STATEMENTS**

 

This report containshistorical information, as well as forward-looking statements.  These forward-looking statements include anystatements that involve known and unknown risks and relate to future events andour expectations regarding future performance or conditions.  Words such as “may,” “will,” “should,” “expect,”“plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,”“hope,” “predict,” “target,”“potential,” or “continue” or the negative of these terms or other similarexpressions are intended to identify forward-looking statements, but are notthe exclusive means of identifying such statements.  These forward-looking statements, and otherswe make from time to time, are subject to a number of risks and uncertainties.Many factors could cause actual results to differ materially from thoseprojected in forward-looking statements. While it is impossible to identify allsuch factors, factors that could cause actual results to differ materially fromthose estimated by us include, but are not limited to:

 

·                  Availability and costs of products and raw materials, particularly cornand natural gas;

·                  Projected growth, overcapacity or increased competition in the ethanolmarket in which we operate;

·                  Fluctuations in the price and market for ethanol and distillers grains;

·                  Changes in plant production capacity, variations in actual ethanol anddistillers grains production from expectations or technical difficulties inoperating the plant;

·                  Changes in our development plans for expanding, maintaining orcontracting our presence in the market in which we operate;

·                  Costs of construction and equipment;

·                  Changes in interest rates and the availability of credit to supportcapital improvements, development, expansion and operations;

·                  Changes in or elimination of governmental laws, tariffs, trade or othercontrols or enforcement practices;

·                  Fluctuations in US oil consumption and petroleum prices;

·                  Anticipated trends in our financial condition and results ofoperations;

·                  The availability and adequacy of our cash flow to meet ourrequirements; and

·                  Competition from alternative fuels and alternative fuel additives.

 

The cautionarystatements referred to in this section also should be considered in connectionwith any subsequent written or oral forward-looking statements that may beissued by us or persons acting on our behalf. We do not undertake any duty to update forward-looking statements afterthe date they are made or to conform them to actual results or to changes incircumstances or expectations. Furthermore, we cannot guarantee future results,events, levels of activity, performance, or achievements.  We caution you not to put undue reliance onany forward-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.

 

**PART I.**

 

**ITEM 1.                  BUSINESS.**

 

**Overview**

 

Little Sioux CornProcessors, L.L.C. (the “Company”) is an Iowa limited liability company thatowns the sole general partnership interest of LSCP, LLLP, (the “Partnership”)an Iowa limited liability limited partnership.  As general partner, wemanage the business and day-to-day operations of the Partnership’s 52 milliongallon per year (MGY) ethanol plant located near Marcus, Iowa in northwestIowa.  This plant is currently beingexpanded to a production capacity of 92 MGY.  We currently own a 60.15%ownership interest in the Partnership.  ThePartnership has two wholly owned subsidiaries, Akron Riverview Corn Processors,LLC (“Akron”) and Twin Rivers Management Co., LLC (“Twin Rivers”).  Akron is an Iowa limited liability companythat is developing a 100 MGY ethanol plant in Plymouth County, near Akron,Iowa, however, further development of this project is currently suspended.  Twin Rivers is an Iowa limited liabilitycompany that anticipates managing Akron’s ethanol plant.  The 

 

 

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Company, its subsidiary,its Partnership, and the Partnership’s subsidiaries are collectively referredto in this report as “LSCP,” “we,” or “us.”

 

Our revenues are derivedfrom the sale and distribution of our ethanol, distillers grains and corn oilthroughout the continental United States. In fiscal year 2007, we processed approximately 19.4 million bushels ofcorn into approximately 53.9 million gallons of ethanol, 266,000 tons ofdistillers grains and 7.3 million pounds of corn oil.  In fiscal year2008, we anticipate producing approximately 86.3 million gallons of ethanol,418,500 tons of distillers grains, and 12.2 million pounds of corn oil fromapproximately 30.8 million bushels of corn.  However, there is noguarantee that we will be able to continue operating at these productionlevels.

 

Corn is supplied to usprimarily from local agricultural producers and from purchases of corn on theopen market. After processing the corn, ethanol is sold to Archer DanielsMidland Co. (“ADM”), which subsequently markets and sells the ethanol togasoline blenders and refineries located throughout the continental UnitedStates.  On March 29, 2007 we entered into an Amended and RestatedEthanol Marketing Agreement with ADM for an initial term of four years, andunless the contract is terminated it will renew automatically for successiveadditional terms of one year each.  Therevenue we receive from the sale of ethanol to ADM is based upon the price thatADM receives from the sale to its customers, minus a marketing fee andcommission.  While we can obtain the final price for our ethanol from ADMon a daily basis, for administrative reasons, we settle the final price withADM on a monthly basis.

 

Some of our distillersgrains are sold directly to local farmers, and the remainder is sold throughour marketing agreement.  The marketingagreement was with Commodity Specialist Company (“CSC”) which markets and sellsthe product to livestock feeders.  On August 8, 2007 CSC and CHS, Inc.,a Minnesota cooperative corporation (“CHS”), entered into an assignment andassumption agreement, under which CSC assigned to CHS all of its right, titleand interest in and to our marketing agreement, subject to receiving consent tosuch assignment from us.  On August 17, 2007 we approved theassignment of the marketing agreement to CHS.  The Marketing Agreementcontinues to be in full force and effect and there were no other changes to theMarketing Agreement as a result of the assignment.  For our distillers grains, we receive apercentage of the selling price actually received by CHS in marketing thedistillers grains to its customers.

 

We directly market andsell our corn oil to regional wholesalers.  Presently, the end use of ourcorn oil is in the livestock industry.  In the long term, our corn oilcould be marketed for human consumption; however, the feasibility of market penetrationas human food is unknown at this time as corn oil extraction in dry milling isrelatively new and suitability for human consumption has not yet beendetermined.

 

We are subject toindustry-wide factors that affect our operating income and cost ofproduction.  Our operating results are largely driven by the prices atwhich we sell ethanol, distillers grain and corn oil and the costs related totheir production.  Historically, the price of ethanol tends to fluctuatein the same direction as the price of unleaded gasoline and other petroleumproducts.  However in 2005, the prices of ethanol and gasoline began asignificant divergence, with ethanol selling for much less than gasoline at thewholesale level, according to the National Corn Growers Association. Thegreatest effect on the price of ethanol is the supply and demand for ethanol inspecific markets. As MTBE is phased out due to its threat to groundwaterquality, the demand for ethanol has increased. Prices also vary according to location and the time of year. This isbecause summertime gasoline is controlled for evaporative emissions. Thus,summertime gasoline is more expensive to produce than winter gasoline. Ethanolblends are no different. Additionally, blending economics can vary from one regionof the country to another, creating significant difference in the pump priceeven though ethanol prices are similar in each region.

 

The price ofdistillers grains is generally influenced by supply and demand, the price ofsubstitute livestock feed, such as corn and soybean meal, and other animal feedproteins.  Surplus grain supplies also tend to put downward price pressureon distillers grains.

 

Our revenues arealso impacted by such factors as our dependence on one or a few major customerswho market and distribute our products; the intensely competitive nature of ourindustry; possible legislation at the federal, state, and/or local level; andchanges in federal ethanol tax incentives.

 

 

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Our two largestcosts of production are corn and natural gas.  The cost of corn isaffected primarily by factors over which lack any control such as cropproduction, carryout, exports, government policies and programs, riskmanagement and weather.  Natural gas prices fluctuate with the energycomplex in general.  Over the last few years, natural gas prices havetrended higher than average and it appears prices will continue to trend higherdue to the high price of alternative fuels such as fuel oil.  Our costs ofproduction are affected by the cost of complying with the extensiveenvironmental laws that regulate our industry.

 

**GeneralDevelopment of Business since October 1, 2006**

 

Little Sioux was formedas an Iowa limited liability company on September 28, 2000.  On March 6, 2002, we purchased the sole general partnership interest in LSCP, LP, an Iowa limitedpartnership.  On June 26, 2003,LSCP, LP elected to become an Iowa limited liability limited partnership andits legal name waschanged to LSCP, LLLP.  Our generalpartnership interest in LSCP represents 60.15% of the ownership interests ofLSCP and substantially all of our assets. The remaining minority interests are owned by various limited partners.  As general partner of LSCP, we manage andcontrol the affairs of LSCP which operates the ethanol plant.

 

Construction of theethanol plant was substantially completed and operations commenced in April 2003.  In July 2005, an expansion of the plant’sethanol production capacity was completed, increasing the plant’s annualname-plate production capacity from 40 MGY to 52 MGY.  Two new plant developments continued in2007.  In May 2006, construction was commenced at the plant in orderto expand our existing grain handling facilities and remodel our grainsilos.   Expansion of the grain handling facilities was completed in July 2007with remodeling of the grain silos to be completed in late 2007.  Bothconstruction projects are designed and built by McCormick Construction Company, Inc.

 

                In October 2006, we began additionalconstruction to expand the plant’s production capacity from 52 MGY to 92 MGYname-plate production capacity.   Weexpect that this expansion will increase the plant’s corn usage fromapproximately 18.3 million to approximately 35 million bushels annually.  The expansion was designed and is being builtby Fagen Inc., the same company that designed and built the originalplant.  The grain storage and processparts of the expansion are approximately 95% completed.  Final landgrading and rail siding work will be completed in the July to September 2008time period.  However, there is noassurance or guarantee that construction will stay on schedule or that we willbe able to operate at expanded production capacity by our anticipatedcompletion date.  Additional informationregarding our construction projects and plant expansion may be found at “**Item 7 — Management’s Discussion and Analysis ofFinancial Condition and Results of Operations — Plant Operations and Expansion**.”

 

In addition,during the 2007 fiscal year we also began the process of developing a secondethanol plant near Akron, Iowa in Plymouth County.  The Partnership created two subsidiaries as aresult of this development: Akron Riverview Corn Processors, LLC (“Akron”) andTwin Rivers Management Co., LLC (“Twin Rivers”).  Akron is the company developing the plant andTwin Rivers is the management company for the plant.  However, as of August 28, 2007 we havedecided to suspend development of this project due to market conditions.  Additional information regarding developmentof a second ethanol plant may be found at “**Item 7 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Plant Operations and Expansion**.”

 

**Available Information**

 

The public mayread and copy materials we file with the Securities and Exchange Commission atthe SEC’s Public Reference Room at 100 F Street NE, Washington, D.C.,20549.  Information on the operation of the Public Reference Room maybe obtained by calling the SEC at 1-800-SEC-0330.  In addition, the SECmaintains an Internet site that contains reports, proxy and informationstatements and other information regarding issuers that file electronicallywith the SEC.  Reports we file electronically with the SEC may be obtainedat *www.sec.gov*.

 

In addition,information about us is also available at our website at*www.littlesiouxcornprocessors.com*, andunder the link “SEC Compliance,” visitors to our site may access, free ofcharge, the reports we have filed with the Securities and Exchange Commission. These reports are made available on our website as soon as reasonably 

 

 

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practicable after weelectronically file such materials with, or furnish such materials to, theSecurities and Exchange Commission. The contents of our website are notincorporated by reference in this Annual Report on Form 10-K.

 

**Financial Information**

 

Please refer to “**Item 8 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations”** for information about our revenues, profit and loss measurementsand total assets.  Our consolidated financial statements andsupplementary data are included beginning at page F-1 of this Report.

 

**Principal Productsand Their Markets**

 

The principalproducts we produce at our plant are fuel grade ethanol, distillers grains andcorn oil.

 

***Ethanol***

 

Ethanolis ethyl alcohol, a fuel component made primarily from corn and various othergrains.   According to the RenewableFuels Association, approximately 85 percent of ethanol in the UnitedStates today is produced from corn, and approximately 90 percent ofethanol is produced from a corn and other input mix. Corn produces largequantities of carbohydrates, which convert into glucose more easily than mostother kinds of biomass. The Renewable Fuels Association (“RFA”) estimated that,as of October 30, 2007, domestic ethanol production capacity reached arecord seven billion gallons per year.

 

An ethanol plant isessentially a fermentation plant.  Groundcorn and water are mixed with enzymes and yeast to produce a substance called “beer,”which contains about 10% alcohol and 90% water. The “beer” is boiled to separate the water, resulting in ethyl alcohol,which is then dehydrated to increase the alcohol content.  This product is then mixed with a certifieddenaturant to make the product unfit for human consumption and commerciallysaleable.

 

Ethanolcan be used as: (i) an octane enhancer in fuels; (ii) an oxygenatedfuel additive for the purpose of reducing ozone and carbon monoxide vehicleemissions; and (iii) a non-petroleum-based gasoline substitute.  Approximately 95% of all ethanol is used inits primary form for blending with unleaded gasoline and other fuelproducts.  Used as a fuel oxygenate,ethanol provides a means to control carbon monoxide emissions in largemetropolitan areas.  The principalpurchasers of ethanol are petroleum terminals in the continental United States.

 

For our fiscal yearsended September 30, 2007, 2006 and 2005, revenues from sales of ethanolwere approximately 89%, 89% and 88% of total revenues respectively.

 

***Distillers Grains***

 

A principal co-product of the ethanolproduction process is distillers grains, a high protein, high-energy animalfeed supplement primarily marketed to the dairy and beef industry.  Distillers grains contain by-pass proteinthat is superior to other protein supplements such as cottonseed meal andsoybean meal.  By-pass proteins are moredigestible to the animal, thus generating greater lactation in milk cows andgreater weight gain in beef cattle.  Thedry mill ethanol processing used by the plant results in two forms of distillergrains: Distillers Modified Wet Grains (“DMWS”) and Distillers Dried Grainswith Solubles (“DDGS”).  DMWS isprocessed corn mash that has been dried to approximately 50% moisture.  DMWS have a shelf life of approximately tendays and are often sold to nearby markets. DDGS is processed corn mash that has been dried to 10% to 12%moisture.  DDGS has an almost indefiniteshelf life and may be sold and shipped to any market regardless of its vicinityto an ethanol plant.  At our plant, thecomposition of the distillers grains we produce is approximately 62.54% DMWSand 37.46% DDGS.

 

For our fiscal yearsended September 30, 2007, 2006 and 2005 revenues from sales of distillersgrains were approximately 10%, 10.5% and 12% of total revenues, respectively.

 

 

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***CornOil***

 

Cornoil can be produced as a co-product of ethanol production by installingequipment to separate the oil from the distillers grains during the productionprocess.  In October 2005, we completed installation of this equipmentand we began producing corn oil.  Priorto installation of the corn oil segregation unit, the corn oil had been sold asan energy component of our distillers grains.

 

Corn oil in its raw form can be used aslivestock feed, as a fuel under certain operating conditions, refined intobio-diesel fuel, or refined for human consumption.  We are currently marketing the unrefined cornoil to the animal feed and bio-diesel markets in order to assure that qualityspecifications can be maintained.  In thelong term, the corn oil co-product could be potentially marketed for humanconsumption.  Specific details regardingmarket penetration into human food are unknown at this time since corn oilextraction in a dry mill situation such as ours has not yet been proven, norhas its suitability for human consumption been determined.

 

For our fiscal year endedSeptember 30, 2007 and 2006, revenues from sales of corn oil wereapproximately 1.0% and 0.5% of total revenues, respectively. There were no cornoil sales in fiscal 2005.

 

**Marketingand Distribution of Principal Products**

 

Our ethanol plant is located near Marcus, Iowa in Cherokee County,in the northwestern section of Iowa.  Weselected the Marcus site because of its location to existing grain production,accessibility to road and rail transportation and its proximity to majorpopulation centers such as Minneapolis, Minnesota; Omaha, Nebraska; andChicago, Illinois.  Our plant is servedby the Canadian National Railroad Company.

 

Wesell and market the ethanol, distillers grains and corn oil produced at theplant through normal and established markets, including local, regional andnational markets.  We have entered into amarketing agreement with ADM, as a third party marketer for our ethanol.  Whether or not ethanol produced by our plantis sold in local markets will depend on decisions made by our marketer.  Local ethanol markets may be limited and mustbe evaluated on a case-by-case basis. We have also entered into a third partymarketing agreement with CHS for our distillers grains; however, we market mostof our distillers grains locally. Although local ethanol, distillers grains and corn oil markets will bethe easiest to service, they may be oversold, particularly in Iowa.  Oversold markets depress ethanol, distillersgrains and corn oil prices.

 

          ***Ethanol***

 

We have a marketing agreement with ADM forthe purposes of marketing and distributing all of the ethanol we produce at theplant.  Pursuant toour ethanol marketing agreement with ADM, the price ADM pays us for our ethanolis calculated by averaging the price ADM receives for all the ethanol it sellsoriginating from (i) our plant, (ii) ADM’s plant in Marshall,Minnesota and (iii) ADM’s plant in Columbus, Nebraska.  Inexchange for ADM’s marketing, sales, storage and transportation services, wepay ADM a percentage of the final average net sales price.  The initial term of themarketing agreement with ADM expired in April 2007, and on March 29,2007 we entered into an Amended and Restated Ethanol Marketing Agreement withADM for an initial term of four years. Unless the contract is terminated itwill renew automatically for successive additional terms of one year each.  The revenue we receive from the sale ofethanol to ADM is based upon the price that ADM receives from the sale to itscustomers, minus a marketing fee and commission.  While we can obtain thefinal price for our ethanol from ADM on a daily basis, for administrativereasons, we settle the final price with ADM on a monthly basis.

 

***DistillersGrains***

 

We have a marketing agreement with CHS,for the purpose of marketing and selling all the distillers grains we produce,except distillers grains we produce and sell directly to local farmers.  For our distillers grains marketed and soldby CHS, we receive a percentage of the selling price actually received by CHSreceives from its customers.  Through themarketing of CHS and our relationships with local farmers, we are not dependentupon one or a limited number of customers for our distillers grains sales.

 

 

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In fiscal year 2007, we marketed and soldmost of our distillers grains locally, primarily to nearby livestock producers,with the remaining of the distillers grains produced at the plant marketed andsold by CSC and CHS all over the continental United States.  As additional ethanol plants beginproduction, excess capacity could result in the local distillers grainsmarkets.  If excess capacity in the localmarkets occurs, we may be forced to dry more of our distillers grains formarketing by CHS rather than directly selling in the local markets.  As a result, our natural gas costs willlikely increase due to increased drying and our profits may decrease.

 

***CornOil***

 

                We marketand sell our corn oil directly to regional wholesalers.  Presently, the end use of our corn oil is inthe livestock and biofuel industries. Because of our ability to market our corn oil directly to regionalwholesalers, we are not dependent upon one or a limited number of customers forour corn oil sales.

 

**Dependence on One or a Few Major Customers**

 

Weare substantially dependent upon ADM for the purchase, marketing anddistribution of our ethanol. ADM purchases 100% of the ethanol produced at theplant, all of which is marketed and distributed to its customers.  Therefore, we are highlydependent on ADM for the successful marketing of our products.  As a large ethanol producer, ADM is also asource of competition.   In the eventthat our relationship with ADM is interrupted or terminated for any reason, webelieve that another entity to market the ethanol could be located. However, any interruption or termination of this relationship could temporarilydisrupt the sale of ethanol and adversely affect our business and operations.

 

**SeasonalFactors in Business**

 

In an effort toimprove air quality in regions where carbon monoxide and ozone are a problem, theFederal Oxygen Program of the Clean Air Act requires the sale of oxygenatedmotor fuels during the winter months in certain major metropolitan areas toreduce carbon monoxide pollution.  Gasoline that is blended with ethanol hashigher oxygen content than gasoline that does not contain ethanol.  As aresult, we expect fairly light seasonality with respect to our gross profitmargins on our ethanol allowing us to, potentially, be able to sell our ethanolat a slight premium during the mandated oxygenate period.  Conversely, weexpect our average sales price for fuel grade ethanol during the summer, whenfuel grade ethanol is primarily used as an octane enhancer or a fuel supplyextender, to be a little lower.

 

**F****inancial Informationabout Geographic Areas**

 

All of our operations aredomiciled in the United States.  All ofthe products sold to our customers for fiscal years 2007, 2006 and 2005 wereproduced in the United States and all of our long-lived assets are domiciled inthe United States.

 

**Sources and Availabilityof Raw Materials**

 

***CornFeedstock Supply***

 

The major rawmaterial required for our ethanol plant to produce ethanol, distillers grainand corn oil is corn.  To operate at a name-plate capacity of 52 MGY, theplant requires a supply of approximately 18 to 19 million bushels of cornannually.  Following completion of our second plant expansion, the plant’snew name-plate capacity of 92 MGY will require the supply of approximately 32to 34 million bushels of corn annually.  Wehave obtained a grain dealers license and have established our own grainsourcing staff to acquire the corn we need. We have also identified a number of grain dealers as potential sourcesof grain in northwestern Iowa for additional corn delivery.  The grain required for operation of the plantis readily available through our own grain sourcing staff, which purchases thecorn directly from local producers or from secondary markets.  During the fiscal year ending September 30, 2007,we purchased approximately $8,395,000 in corn from some of the Company’smembers who are local grain producers.

 

 

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An increase incorn exports as well as sustained domestic usage of corn for ethanol productionhas supported current high corn prices.  Very recent corn prices havetrended downward but are still significantly higher than in recent years,despite a very large corn crop for the 2007 growing season.  The USDAestimated the 2007 national corn crop at 13.3 billion bushels.  This is apreliminary estimate and the actual corn crop could be materiallydifferent.  However, increases in the supply of corn may be more thanoffset with larger increases in corn demand.  Management believes thatcorn prices will remain high into the near future.  While our surrounding areaproduces a significant amount of corn, our profitability may be negativelyimpacted if long-term corn prices remain high.

 

**                *Natural Gas***

 

Naturalgas is also an important input to our manufacturing process.  We estimatethat our current natural gas usage is approximately 110,000 million Britishthermal units (“MMBTU”) per month. Following completion of our second expansion, we anticipate that ournatural gas usage will increase to approximately 200,000 million Britishthermal units (“MMBTU”) per month.  We use natural gas to dry ourdistillers grains products to moisture contents at which they can be stored forlong periods and transported greater distances, so that we can market them tobroader livestock markets, including poultry and swine markets in thecontinental United States.  We contractwith various natural gas vendors to supply the natural gas necessary to operatethe plant. US Energy assists us with sourcing natural gas through variousvendors, which we believe to be more cost-efficient than using an exclusivesupplier.

 

**Federal Ethanol Supports**

 

Various federaland state laws, regulations, and programs have led to an increasing use ofethanol in fuel, including subsidies, tax credits, policies and other forms offinancial incentives.  Some of these laws provide economic incentives toproduce and blend ethanol and others mandate the use of ethanol.

 

Energy Independence and Security Act of 2007

 

On December 19, 2007, President Bush signedinto law the Energy Independence and Security Act of 2007, H.R. 6, whichexpands the existing RFS to require the use of 9 billion gallons of renewablefuel in 2008, increasing to 36 billion gallons of renewable fuel by 2022.  Only a portion of the renewable fuel used tosatisfy the expanded RFS may come from conventional corn-based ethanol. The actrequires that 600 million gallons of renewable fuel used in 2009 must come fromadvanced biofuels, such as ethanol derived from cellulose, sugar, or cropresidue and biomass-based diesel, increasing to 21 billion gallons in 2022. Theact further includes a requirement that 500 million gallons of biodiesel andbiomass-based diesel fuel be blended into the national diesel pool in 2009,gradually increasing to 1 billion gallons by 2012.

 

                Historically,ethanol sales have been favorably affected by the Clean Air Act amendments of1990, particularly the Federal Oxygen Program which became effective November 1,1992. The Federal Oxygen Program requires the sale of oxygenated motor fuelsduring the winter months in certain major metropolitan areas to reduce carbonmonoxide pollution. Ethanol use has increased due to a second Clean Air Actprogram, the Reformulated Gasoline Program. This program became effective January 1,1995, and requires the sale of reformulated gasoline in nine major urban areasto reduce pollutants, including those that contribute to ground level ozone,better known as smog.

 

The two major oxygenates added to reformulatedgasoline pursuant to these programs are Methyl Tertiary Butyl Ether (“MTBE”)and ethanol, however MTBE has caused groundwater contamination and has beenbanned from use by many states. The Energy Policy Act of 2005 did not impose anational ban of MTBE but it also did not include liability protection formanufacturers of MTBE. The failure to include liability protection formanufacturers of MTBE resulted in refiners and blenders using ethanol as anoxygenate rather than MTBE to satisfy the reformulated gasoline oxygenaterequirement. While this created increased ethanol demand in the short-term, wedo not believe that long-term demand will be impacted because the Act repealedthe Clean Air Act’s 2% oxygenate requirement for reformulated gasolineimmediately in California and 270 days after enactment elsewhere.  One remaining benefit for us is that the Actdid not repeal the 2.7% oxygenate requirement for carbon monoxide 

 

 

7

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nonattainment areas which are required to useoxygenated fuels in the winter months. While we expect ethanol to be theoxygenate of choice in these areas, there is no assurance that ethanol will infact be used.

 

          The useof ethanol as an alternative fuel source has been aided by federal tax policy,which directly benefits gasoline refiners and blenders, and increases demandfor ethanol. On October 22, 2004, President Bush signed H.R. 4520, whichcontained the Volumetric Ethanol Excise Tax Credit (“VEETC”) and amended thefederal excise tax structure effective as of January 1, 2005. The billcreates a new volumetric ethanol excise tax credit of 5.1 cents per gallon ofethanol blended at 10%. Based on volume, the VEETC is expected to allow muchgreater refinery flexibility in blending ethanol since it makes the tax creditavailable on all ethanol blended with all gasoline, diesel and ethyl tertiarybutyl ether (“ETBE”), including ethanol in E-85 and the E-20 in Minnesota. TheVEETC is scheduled to expire on December 31, 2010.

 

          TheEnergy Policy Act of 2005 expands who qualifies for the small ethanol producertax credit. Historically, small ethanol producers were allowed a10-cents-per-gallon production income tax credit on up to 15 million gallons ofproduction annually. The size of the plant eligible for the tax credit waslimited to 30 million gallons. Under the Energy Policy Act of 2005 the sizelimitation on the production capacity for small ethanol producers increasesfrom 30 million to 60 million gallons. The credit can be taken on the first 15million gallons of production. The tax credit is capped at $1.5 million per yearper producer. The small ethanol producer tax credit is set to expire December 31,2010.  However, upon completion of theexpansion of the plant, we do not anticipate qualifying for this tax credit asour anticipated annual production of 92 MGY will exceed the size limitation.

 

                The Energy Policy Act of 2005creates a new tax credit that permits taxpayers to claim a 30% credit (up to$30,000) for the cost of installing clean-fuel vehicle refueling equipment,such as an E85 fuel pump, to be used in a trade or business of the taxpayer orinstalled at the principal residence of the taxpayer. Under the provision,clean fuels are any fuel of at least 85% of the volume of which consists ofethanol, natural gas, compressed natural gas, liquefied natural gas, liquefiedpetroleum gas, and hydrogen and any mixture of diesel fuel and biodieselcontaining at least 20% biodiesel. The provision is effective for equipmentplaced in service after December 31, 2005 and before December 31,2010. While it is unclear how this credit will affect the demand for ethanol inthe short term, we expect it will help raise consumer awareness of alternativesources of fuel and could positively impact future demand for ethanol.

 

**Other Factors Affecting Demandand Supply**

 

                In addition to government supports that encourageproduction and the use of ethanol, demand for ethanol may increase as a resultof increased consumption of E85 fuel. E85 fuel is a blend of 70% to 85% ethanol and gasoline.  According to the Energy InformationAdministration, E85 consumption is projected to increase from a national totalof 11 million gallons in 2003 to 47 million gallons in 2025. The demand for E85is largely driven by flexible fuel vehicle penetration of the US vehicle fleet,the retail price of E85 compared to regular gasoline and the availability ofE85 at retail stations.  In the U.S.,there are currently about 6 million flexible fuel vehicles capable of operatingon E85 and automakers have indicated plans to produce an estimated 2 millionmore flexible fuel vehicles per year.  Inaddition, Ford and General Motors have recently begun national campaigns topromote ethanol and flexible fuel vehicles. Because flexible fuel vehicles can operate on both ethanol and gasoline,if the price of regular gasoline falls below E85, demand for E85 will decreaseas well. In addition, gasoline stations offering E85 are relativelyscarce.  According to the RFA, as ofearly 2007, there are more than 1,120 retail stations (out of 170,000 stationsnationwide), offering E85 across the country. The Energy Policy Act of 2005established a tax credit of 30% for infrastructure and equipment to dispenseE85.  This tax credit became effective in2006 and is expected to encourage more retailers to offer E85 as an alternativeto regular gasoline. The tax credit, unless renewed, will expire December 31,2010.

 

        On October 5, 2006, Underwriters Laboratories (“UL”)suspended authorization for manufacturers to use UL Markings on components forfuel-dispensing devices that specifically reference compatibility withalcohol-blended fuels that contain greater than 15% ethanol.  Published studies on ethanol indicate that,in higher concentrations, it may have significantly enhanced corrosive effectsversus traditional gasoline.  While therehave been no documented reports of corrosion for UL Listed or Recognizedcomponents used with E85, Underwriters Laboratories is suspending authorizationto use the UL Mark on components used in dispensing devices that will dispenseany alcohol-blended fuels containing over 15% alcohol until updatedcertification requirements are

 

 

 

8

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establishedand the effected components have been found to comply with them.  The lack of a UL seal for filling stationpumps carrying E85 means that some of these stations may be violating firecodes, and that new stations intending to install E85 systems may need waiversfrom local or state fire marshals.  It isthe decision of each authority having jurisdiction as to whether existing E85dispensing equipment is allowed to remain in service or is taken out of serviceuntil additional supporting information is received.  Underwriters Laboratories has not set adeadline for creating standards that could lead to certification, which couldresult in the closure of some existing E85 fueling stations and delay inopening others.

 

**OurCompetition**

 

                We are indirect competition with numerous other ethanol producers, many of whom havegreater resources than we do. We also expect that additional ethanol producerswill continue to enter the market if the demand for ethanol continues toincrease.  Ethanol is a commodityproduct, like corn, which means ourethanol plant competes with other ethanol producers on the basis of price and,to a lesser extent, delivery service.  Webelieve we compete favorably with other ethanol producers due to our proximityto ample grain supplies and multiple modes of transportation.  In addition, we believe our plant’s locationoffers an advantage over other ethanol producers in that it has ready access byrail to growing ethanol markets, which reduces our cost of sales.

 

Accordingto the RenewableFuels Association, the ethanol industry has grown to approximately 134production facilities in the United States with current estimates of domesticethanol production at approximately 7.23 billion gallons as of November 2007.  As reported by the Iowa Renewable FuelsAssociation, excluding our plant, Iowa currently has 26 ethanol plants with thecapacity to produce approximately 1.97 billion gallons annually.  Inaddition, there are 14 ethanol plants under construction or expansion in Iowathat will add approximately 1.41 billion gallons of annual capacity.  There are alsonumerous other producer and privately owned ethanol plants planned andoperating throughout the Midwest and elsewhere in the United States.  The largest ethanol producers include Archer DanielsMidland (ADM), Aventine Renewable Energy, Inc., Hawkeye Renewables, LLC,POET (formerly Broin), US BioEnergy Corp. and VeraSun Energy Corporation, eachof which is capable of producing more ethanol than we expect to produce.  ADM, our ethanol marketer, is currently thelargest ethanol producer in the U.S. and controls a significant portion of theethanol market.  Recently, VeraSun and USBioEnergy Corp. announced plans to merge, which would result in their companieshaving a combined ethanol production capacity of approximately 1.6 billiongallons.

 

Thefollowing table identifies most of the ethanol producers in the UnitedStates along with their production capacities.

 

**U.S. FUEL ETHANOL BIOREFINERIES ANDPRODUCTION CAPACITY**

**million gallons per year (mmgy)**

** **
| **COMPANY**             | ** ** | **LOCATION**   | ** ** | **FEEDSTOCK** | ** ** | **Current Capacity (mmgy)** | ** ** | **Under Construction/ Expansions (mmgy)** | ** ** |
|-------------------------|------------|----------------|------------|---------------|------------|-----------------------------|------------|-------------------------------------------|------------|
| Abengoa Bioenergy Corp. |       | York, NE       |       | Corn/milo     |       | 55                          |       |                                      |       |
|                    |       | Colwich, KS    |       |          |       | 25                          |       |                                      |       |
|                    |       | Portales, NM   |       |          |       | 30                          |       |                                      |       |
|                    |       | Ravenna, NE    |       |          |       | 88                          |       |                                      |       |
| Aberdeen Energy*        |       | Mina, SD       |       | Corn          |       |                        |       | 100                                       |       |
| Absolute Energy, LLC*   |       | St. Ansgar, IA |       | Corn          |       |                        |       | 100                                       |       |
| ACE Ethanol, LLC        |       | Stanley, WI    |       | Corn          |       | 41                          |       |                                      |       |
| Adkins Energy, LLC*     |       | Lena, IL       |       | Corn          |       | 40                          |       |                                      |       |
| Advanced Bioenergy      |       | Fairmont, NE   |       | Corn          |       |                        |       | 100                                       |       |
| AGP*                    |       | Hastings, NE   |       | Corn          |       | 52                          |       |                                      |       |
| Agri-Energy, LLC*       |       | Luverne, MN    |       | Corn          |       | 21                          |       |                                      |       |
| Al-Corn Clean Fuel*     |       | Claremont, MN  |       | Corn          |       | 35                          |       | 15                                        |       |
| Amaizing Energy, LLC*   |       | Denison, IA    |       | Corn          |       | 48                          |       |                                      |       |

 

 

9

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|                                          |   | Atlantic, IA        |   | Corn                |   |   |   | 110    |   |
|-----------------------------------------------|--------|---------------------|--------|---------------------|--------|--------|--------|--------|--------|
| Archer Daniels Midland                        |   | Decatur, IL         |   | Corn                |   | 1,070  |   | 550    |   |
|                                          |   | Cedar Rapids, IA    |   | Corn                |   |   |   |   |   |
|                                          |   | Clinton, IA         |   | Corn                |   |   |   |   |   |
|                                          |   | Columbus, NE        |   | Corn                |   |   |   |   |   |
|                                          |   | Marshall, MN        |   | Corn                |   |   |   |   |   |
|                                          |   | Peoria, IL          |   | Corn                |   |   |   |   |   |
|                                          |   | Wallhalla, ND       |   | Corn/barley         |   |   |   |   |   |
| Arkalon Energy, LLC                           |   | Liberal, KS         |   | Corn                |   |   |   | 110    |   |
| Aventine Renewable Energy, Inc.          |   | Pekin, IL           |   | Corn                |   | 207    |   | 226    |   |
|                                          |   | Aurora, NE          |   | Corn                |   |   |   |   |   |
|                                          |   | Mt. Vernon, IN      |   | Corn                |   |   |   |   |   |
| Badger State Ethanol, LLC*                    |   | Monroe, WI          |   | Corn                |   | 48     |   |   |   |
| Big River Resources, LLC*                     |   | West Burlington, IA |   | Corn                |   | 52     |   |   |   |
| BioFuel  Energy—PioneerTrail Energy LLC  |   | Wood River, NE      |   | Corn                |   |   |   | 115    |   |
| BioFuel Energy — Buffal  Lake Energy LLC |   | Fairmont, MN        |   | Corn                |   |   |   | 115    |   |
| Blue Flint Ethanol                            |   | Underwood, ND       |   | Corn                |   | 50     |   |   |   |
| Bonanza Energy, LLC                           |   | Garden City, KS     |   | Corn/milo           |   | 55     |   |   |   |
| Bushmills  Ethanol, Inc.*                |   | Atwater, MN         |   | Corn                |   | 40     |   |   |   |
| Cardinal Ethanol                              |   | Harrisville, IN     |   | Corn                |   |   |   | 100    |   |
| Cargill, Inc.                            |   | Blair, NE           |   | Corn                |   | 85     |   |   |   |
|                                          |   | Eddyville, IA       |   | Corn                |   | 35     |   |   |   |
| Cascade Grain                                 |   | Clatskanie, OR      |   | Corn                |   |   |   | 108    |   |
| Castle Rock Renewable  Fuels, LLC             |   | Necedah, WI         |   | Corn                |   |   |   | 50     |   |
| Celunol                                       |   | Jennings, LA        |   | Sugar  cane bagasse |   |   |   | 1.5    |   |
| Center Ethanol Company                        |   | Sauget, IL          |   | Corn                |   |   |   | 54     |   |
| Central Indiana Ethanol,  LLC                 |   | Marion, IN          |   | Corn                |   | 40     |   |   |   |
| Central Illinois Energy,  LLC                 |   | Canton, IL          |   | Corn                |   |   |   | 37     |   |
| Central MN Ethanol Coop*                      |   | Little Falls, MN    |   | Corn                |   | 21.5   |   |   |   |
| Chief Ethanol                                 |   | Hastings, NE        |   | Corn                |   | 62     |   |   |   |
| Chippewa Valley Ethanol  Co.*                 |   | Benson, MN          |   | Corn                |   | 45     |   |   |   |
| Cilion Ethanol                                |   | Keyes, CA           |   | Corn                |   | 50     |   |   |   |
| Commonwealth Agri-Energy,  LLC*               |   | Hopkinsville, KY    |   | Corn                |   | 33     |   |   |   |
| Corn, LP*                                     |   | Goldfield, IA       |   | Corn                |   | 50     |   |   |   |
| Cornhusker Energy  Lexington, LLC             |   | Lexington, NE       |   | Corn                |   | 40     |   |   |   |
| Corn Plus, LLP*                               |   | Winnebago, MN       |   | Corn                |   | 44     |   |   |   |
| Coshoctan Ethanol, OH                         |   | Coshoctan, OH       |   | Corn                |   |   |   | 60     |   |
| Dakota Ethanol, LLC*                          |   | Wentworth, SD       |   | Corn                |   | 50     |   |   |   |
| DENCO, LLC*                                   |   | Morris, MN          |   | Corn                |   | 21.5   |   |   |   |
| E Energy Adams, LLC                           |   | Adams, NE           |   | Corn                |   | 50     |   |   |   |
| E3 Biofuels                                   |   | Mead, NE            |   | Corn                |   | 24     |   |   |   |
| E Caruso (Goodland Energy  Center)            |   | Goodland, KS        |   | Corn                |   |   |   | 20     |   |
| East Kansas Agri-Energy,  LLC*                |   | Garnett, KS         |   | Corn                |   | 35     |   |   |   |
| Elkhorn Valley Ethanol,  LLC                  |   | Norfolk, NE         |   | Corn                |   | 40     |   |   |   |
| ESE Alcohol Inc.                              |   | Leoti, KS           |   | Seed  corn          |   | 1.5    |   |   |   |
| Ethanol Grain Processors,  LLC                |   | Obion, TN           |   | Corn                |   |   |   | 100    |   |
| First United Ethanol, LLC                     |   | Mitchell Co., GA    |   | Corn                |   |   |   | 100    |   |
| Front Range Energy, LLC                       |   | Windsor, CO         |   | Corn                |   | 40     |   |   |   |
| Gateway Ethanol                               |   | Pratt, KS           |   | Corn                |   | 55     |   |   |   |
| Glacial Lakes Energy, LLC*                    |   | Watertown, SD       |   | Corn                |   | 50     |   | 50     |   |
| Global Ethanol/Midwest  Grain Processors      |   | Lakota, IA          |   | Corn                |   | 95     |   |   |   |
|                                          |   | Riga, MI            |   | Corn                |   | 57     |   |   |   |

 

 

10

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| Golden Cheese Company of  California*  |   | Corona, CA        |   | Cheese  whey       |   | 5      |   |   |   |
|----------------------------------------|--------|-------------------|--------|--------------------|--------|--------|--------|--------|--------|
| Golden Grain Energy  L.L.C.*           |   | Mason City, IA    |   | Corn               |   | 110    |   | 50     |   |
| Golden Triangle Energy,  LLC*          |   | Craig, MO         |   | Corn               |   | 20     |   |   |   |
| Grand River Distribution               |   | Cambria, WI       |   | Corn               |   |   |   | 40     |   |
| Grain Processing Corp.                 |   | Muscatine, IA     |   | Corn               |   | 20     |   |   |   |
| Granite Falls Energy, LLC              |   | Granite Falls, MN |   | Corn               |   | 52     |   |   |   |
| Greater Ohio Ethanol, LLC              |   | Lima, OH          |   | Corn               |   |   |   | 54     |   |
| Green Plains Renewable  Energy         |   | Shenandoah, IA    |   | Corn               |   | 50     |   |   |   |
|                                   |   | Superior, IA      |   | Corn               |   |   |   | 50     |   |
| Hawkeye Renewables, LLC                |   | Iowa Falls, IA    |   | Corn               |   | 105    |   |   |   |
|                                   |   | Fairbank, IA      |   | Corn               |   | 115    |   |   |   |
|                                   |   | Menlo, IA         |   | Corn               |   |   |   | 100    |   |
|                                   |   | Shell Rock, IA    |   | Corn               |   |   |   | 110    |   |
| Heartland Corn Products*               |   | Winthrop, MN      |   | Corn               |   | 100    |   |   |   |
| Heartland Grain Fuels, LP*             |   | Aberdeen, SD      |   | Corn               |   | 9      |   |   |   |
|                                   |   | Huron, SD         |   | Corn               |   | 12     |   | 18     |   |
| Heron Lake BioEnergy, LLC              |   | Heron Lake, MN    |   | Corn               |   |   |   | 50     |   |
| Holt County Ethanol                    |   | O’Neill, NE  |   | Corn               |   |   |   | 100    |   |
| Husker Ag, LLC*                        |   | Plainview, NE     |   | Corn               |   | 26.5   |   |   |   |
| Idaho Ethanol Processing               |   | Caldwell, ID      |   | Potato  Waste      |   | 4      |   |   |   |
| Illinois River Energy, LLC             |   | Rochelle, IL      |   | Corn               |   | 50     |   |   |   |
| Indiana Bio-Energy                     |   | Bluffton, IN      |   | Corn               |   |   |   | 101    |   |
| Iroquois Bio-Energy  Company, LLC      |   | Rensselaer, IN    |   | Corn               |   | 40     |   |   |   |
| KAAPA Ethanol, LLC*                    |   | Minden, NE        |   | Corn               |   | 40     |   |   |   |
| Kansas Ethanol, LLC                    |   | Lyons, KS         |   | Corn               |   |   |   | 55     |   |
| Land O’ Lakes*                    |   | Melrose, MN       |   | Cheese  whey       |   | 2.6    |   |   |   |
| Levelland/Hockley County  Ethanol, LLC |   | Levelland, TX     |   | Corn               |   |   |   | 40     |   |
| Lifeline Foods, LLC                    |   | St. Joseph, MO    |   | Corn               |   | 40     |   |   |   |
| Lincolnland Agri-Energy,  LLC*         |   | Palestine, IL     |   | Corn               |   | 48     |   |   |   |
| Lincolnway Energy, LLC*                |   | Nevada, IA        |   | Corn               |   | 50     |   |   |   |
| Little Sioux Corn  Processors, LP*     |   | Marcus, IA        |   | Corn               |   | 52     |   |   |   |
| Marquis Energy, LLC                    |   | Hennepin, IL      |   | Corn               |   |   |   | 100    |   |
| Marysville Ethanol, LLC                |   | Marysville, MI    |   | Corn               |   |   |   | 50     |   |
| Merrick & Company             |   | Golden, CO        |   | Waste  beer        |   | 3      |   |   |   |
| MGP Ingredients, Inc.             |   | Pekin, IL         |   | Corn/wheat  starch |   | 78     |   |   |   |
|                                   |   | Atchison, KS      |   |               |   |   |   |   |   |
| Mid America Agri  Products/Wheatland   |   | Madrid, NE        |   | Corn               |   |   |   | 44     |   |
| Mid-Missouri  Energy, Inc.*       |   | Malta Bend, MO    |   | Corn               |   | 45     |   |   |   |
| Midwest Renewable Energy,  LLC         |   | Sutherland, NE    |   | Corn               |   | 25     |   |   |   |
| Millennium Ethanol                     |   | Marion, SD        |   | Corn               |   |   |   | 100    |   |
| Minnesota Energy*                      |   | Buffalo Lake, MN  |   | Corn               |   | 18     |   |   |   |
| NEDAK Ethanol                          |   | Atkinson, NE      |   | Corn               |   |   |   | 44     |   |
| New Energy Corp.                       |   | South Bend, IN    |   | Corn               |   | 102    |   |   |   |
| North Country Ethanol,  LLC*           |   | Rosholt, SD       |   | Corn               |   | 20     |   |   |   |
| Northeast Biofuels                     |   | Volney, NY        |   | Corn               |   |   |   | 114    |   |
| Northwest Renewable, LLC               |   | Longview, WA      |   | Corn               |   |   |   | 55     |   |
| Otter Tail Ag Enterprises              |   | Fergus Falls, MN  |   | Corn               |   |   |   | 57.5   |   |
| Pacific Ethanol                        |   | Madera, CA        |   | Corn               |   | 35     |   |   |   |
|                                   |   | Boardman, OR      |   | Corn               |   | 35     |   |   |   |
|                                   |   | Burley, ID        |   | Corn               |   |   |   | 50     |   |
|                                   |   | Stockton, CA      |   | Corn               |   |   |   | 50     |   |
|                                   |   | Imperial, CA      |   | Corn               |   |   |   | 50     |   |
| Panda Ethanol                          |   | Hereford, TX      |   | Corn/milo          |   |   |   | 115    |   |

 

 

11

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| Parallel Products                            |   | Louisville, KY         |   | Beverage  Waste |   | 5.4    |   |   |   |
|----------------------------------------------|--------|------------------------|--------|-----------------|--------|--------|--------|--------|--------|
|                                         |   | R. Cucamonga, CA       |   |            |   |   |   |   |   |
| Patriot Renewable Fuels,  LLC                |   | Annawan, IL            |   | Corn            |   |   |   | 100    |   |
| Penford Products                             |   | Ceder Rapids, IA       |   | Corn            |   |   |   | 45     |   |
| Phoenix Biofuels                             |   | Goshen, CA             |   | Corn            |   | 25     |   |   |   |
| Pinal Energy, LLC                            |   | Maricopa, AZ           |   | Corn            |   | 55     |   |   |   |
| Pine Lake Corn Processors,  LLC*             |   | Steamboat Rock, IA     |   | Corn            |   | 20     |   |   |   |
| Plainview BioEnergy, LLC                     |   | Plainview, TX          |   | Corn            |   |   |   | 100    |   |
| Platinum Ethanol, LLC                        |   | Arthur, IA             |   | Corn            |   |   |   | 110    |   |
| Plymouth Ethanol, LLC                        |   | Merrill, IA            |   | Corn            |   |   |   | 50     |   |
| POET                                         |   | Sioux Falls, SD        |   |            |   | 1,100  |   | 375    |   |
|                                         |   | Alexandria, IN         |   | Corn            |   |   |   | #      |   |
|                                         |   | Ashton, IA             |   | Corn            |   |   |   |   |   |
|                                         |   | Big Stone, SD          |   | Corn            |   |   |   |   |   |
|                                         |   | Bingham Lake, MN       |   | Corn            |   |   |   |   |   |
|                                         |   | Caro, MI               |   | Corn            |   |   |   |   |   |
|                                         |   | Chancellor, SD         |   | Corn            |   |   |   |   |   |
|                                         |   | Coon Rapids, IA        |   | Corn            |   |   |   |   |   |
|                                         |   | Corning, IA            |   | Corn            |   |   |   |   |   |
|                                         |   | Emmetsburg, IA         |   | Corn            |   |   |   |   |   |
|                                         |   | Fostoria, OH           |   | Corn            |   |   |   | #      |   |
|                                         |   | Glenville, MN          |   | Corn            |   |   |   |   |   |
|                                         |   | Gowrie, IA             |   | Corn            |   |   |   |   |   |
|                                         |   | Groton, SD             |   | Corn            |   |   |   |   |   |
|                                         |   | Hanlontown, IA         |   | Corn            |   |   |   |   |   |
|                                         |   | Hudson, SD             |   | Corn            |   |   |   |   |   |
|                                         |   | Jewell, IA             |   | Corn            |   |   |   |   |   |
|                                         |   | Laddonia, MO           |   | Corn            |   |   |   |   |   |
|                                         |   | Lake Crystal, MN       |   | Corn            |   |   |   |   |   |
|                                         |   | Leipsic, OH            |   | Corn            |   |   |   | #      |   |
|                                         |   | Macon, MO              |   | Corn            |   |   |   |   |   |
|                                         |   | Marion, OH             |   | Corn            |   |   |   | #      |   |
|                                         |   | Mitchell, SD           |   | Corn            |   |   |   |   |   |
|                                         |   | North Manchester, IN   |   | Corn            |   |   |   | #      |   |
|                                         |   | Portland, IN           |   | Corn            |   |   |   |   |   |
|                                         |   | Preston, MN            |   | Corn            |   |   |   |   |   |
|                                         |   | Scotland, SD           |   | Corn            |   |   |   |   |   |
| Prairie Horizon  Agri-Energy, LLC            |   | Phillipsburg, KS       |   | Corn            |   | 40     |   |   |   |
| Quad-County Corn  Processors*                |   | Galva, IA              |   | Corn            |   | 27     |   |   |   |
| Red Trail Energy, LLC                        |   | Richardton, ND         |   | Corn            |   | 50     |   |   |   |
| Redfield Energy, Inc.                   |   | Redfield, SD           |   | Corn            |   | 50     |   |   |   |
| Reeve Agri-Energy                            |   | Garden City, KS        |   | Corn/milo       |   | 12     |   |   |   |
| Renew Energy                                 |   | Jefferson Junction, WI |   | Corn            |   |   |   | 130    |   |
| Siouxland  Energy & Livestock Coop* |   | Sioux Center, IA       |   | Corn            |   | 25     |   | 35     |   |
| Siouxland Ethanol, LLC                       |   | Jackson, NE            |   | Corn            |   | 50     |   |   |   |
| Southwest Iowa Renewable  Energy, LLC*       |   | Council Bluffs, IA     |   | Corn            |   |   |   | 110    |   |
| Sterling Ethanol, LLC                        |   | Sterling, CO           |   | Corn            |   | 42     |   |   |   |
| Tate & Lyle                         |   | Loudon, TN             |   | Corn            |   | 67     |   | 38     |   |
|                                         |   | Ft. Dodge, IA          |   | Corn            |   |   |   | 105    |   |
| The Andersons Albion  Ethanol LLC            |   | Albion, MI             |   | Corn            |   | 55     |   |   |   |
| The Andersons Clymers  Ethanol, LLC          |   | Clymers, IN            |   | Corn            |   | 110    |   |   |   |
| The Andersons Marathon  Ethanol, LLC         |   | Greenville, OH         |   | Corn            |   |   |   | 110    |   |
| Tharaldson Ethanol                           |   | Casselton, ND          |   | Corn            |   |   |   | 110    |   |

 

 

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| Trenton Agri Products, LLC                               |   | Trenton, NE      |   | Corn               |       | 40           |       |        |       |
|----------------------------------------------------------|--------|------------------|--------|--------------------|------------|--------------|------------|-------------|------------|
| United Ethanol                                           |   | Milton, WI       |   | Corn               |       | 52           |       |        |       |
| United WI Grain Producers,  LLC*                         |   | Friesland, WI    |   | Corn               |       | 49           |       |        |       |
| US BioEnergy Corp.                                       |   | Albert City, IA  |   | Corn               |       | 300          |       | 400         |       |
|                                                     |   | Woodbury, MI     |   | Corn               |       |         |       |        |       |
|                                                     |   | Hankinson, ND    |   | Corn               |       |         |       | #           |       |
|                                                     |   | Central City, NE |   | Corn               |       |         |       | #           |       |
|                                                     |   | Ord, NE          |   | Corn               |       |         |       |        |       |
|                                                     |   | Dyersville, IA   |   | Corn               |       |         |       | #           |       |
|                                                     |   | Janesville, MN   |   | Corn               |       |         |       | #           |       |
|                                                     |   | Marion, SD       |   | Corn               |       |         |       |        |       |
| U.S. Energy Partners, LLC  (White Energy)                |   | Russell, KS      |   | Milo/wheat  starch |       | 48           |       |        |       |
| Utica Energy, LLC                                        |   | Oshkosh, WI      |   | Corn               |       | 48           |       |        |       |
| VeraSun Energy Corporation                               |   | Aurora, SD       |   | Corn               |       | 560          |       | 330         |       |
|                                                     |   | Ft. Dodge, IA    |   | Corn               |       |         |       |        |       |
|                                                     |   | Albion, NE       |   | Corn               |       |         |       |        |       |
|                                                     |   | Charles City, IA |   | Corn               |       |         |       |        |       |
|                                                     |   | Linden, IN       |   | Corn               |       |         |       |        |       |
|                                                     |   | Welcome, MN      |   | Corn               |       |         |       | #           |       |
|                                                     |   | Hartely, IA      |   | Corn               |       |         |       | #           |       |
|                                                     |   | Bloomingburg, OH |   | Corn               |       |         |       | #           |       |
| Western New York Energy,  LLC                            |   | Shelby, NY       |   | Corn               |       |         |       | 50          |       |
| Western Plains Energy,  LLC*                             |   | Campus, KS       |   | Corn               |       | 45           |       |        |       |
| Western Wisconsin Renewable  Energy, LLC*                |   | Boyceville, WI   |   | Corn               |       | 40           |       |        |       |
| White Energy                                             |   | Hereford, TX     |   | Corn/Milo          |       |         |       | 100         |       |
| Wind Gap Farms                                           |   | Baconton, GA     |   | Brewery  Waste     |       | 0.4          |       |        |       |
| Renova Energy                                            |   | Torrington, WY   |   | Corn               |       | 5            |       |        |       |
|                                                     |   | Hayburn, ID      |   | Corn               |       |         |       | 20          |       |
| Xethanol BioFuels, LLC                                   |   | Blairstown, IA   |   | Corn               |       | 5            |       |        |       |
| Yuma Ethanol                                             |   | Yuma, CO         |   | Corn               |       | 40           |       |        |       |
| **Total  Current Capacity at 134 ethanol biorefineries** |   |             |   |               | ** ** | **7,229.4**  | ** ** | ** **  | ** ** |
| **Total  Under Construction (67)/   Expansions (10)**    |   |             |   |               |       |         | ** ** | **6,216.9** | ** ** |
| **Total  Capacity**                                      |   |             |   |               | ** ** | **13,446.3** | ** ** | ** **  | ** ** |

----

| * locally-owned# plant under construction |   | Renewable Fuels AssociationUpdated: November 27, 2007 |
|-------------------------------------------|--------|------------------------------------------------------------|

 

***Competition from AlternativeEthanol Production Methods***

 

Alternative ethanolproduction methods are continually under development. New ethanol products ormethods of ethanol production developed by larger and better-financedcompetitors could provide them competitive advantages and harm our business.

 

Most ethanol is currentlyproduced from corn and other raw grains, such as milo or sorghum - especiallyin the Midwest. The current trend in ethanol production research is to developan efficient method of producing ethanol from cellulose-based biomass, such asagricultural waste, forest residue, municipal solid waste, and energy crops.This trend is driven by the fact that cellulose-based biomass is generallycheaper than corn, and producing ethanol from cellulose-based biomass wouldcreate opportunities to produce ethanol in areas which are unable to grow corn.Additionally, the enzymes used to produce cellulose-based ethanol have recentlybecome less expensive.   Furthermore, theDepartment of Energy and the President have recently announced support for thedevelopment of 

 

 

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cellulose-based ethanol, including a $160 millionDepartment of Energy program for pilot plants producing cellulose-basedethanol.  Several large companies,including Iogen Corporation, Abengoa, Royal Dutch Shell Group, Goldman SachsGroup, Dupont and Archer Daniels Midland, have all indicated that they areinterested in research and development in this area.  In addition, Xethanol Corporation has statedplans to convert a six million gallon per year plant in Blairstown, Iowa toimplement cellulose-based ethanol technologies after 2007.  Broin Companies has alsoannounced plans to expand Voyager Ethanol in Emmetsburg, Iowa to includecellulose to ethanol commercial production.

 

Although currenttechnology is not sufficiently efficient to be competitive on a large-scale, areport by the U.S. Department of Energy entitled “Outlook for Biomass EthanolProduction and Demand” indicates that new conversion technologies may bedeveloped in the future. If an efficient method of collecting biomass forethanol production and producing ethanol from cellulose-based biomass isdeveloped, we may not be able to compete effectively. We do not believe it willbe cost-effective to convert the plant into a plant which will usecellulose-based biomass to produce ethanol. As a result, it is possible we could be unable to produce ethanol ascost-effectively as cellulose-based producers.

 

***Competition withEthanol Imported from Other Countries***

 

Ethanol production isalso expanding internationally.  Brazilhas long been the world’s largest producer and exporter of ethanol; however,since 2005, U.S. ethanol production slightly exceeded Brazilian production.Ethanol is produced more cheaply in Brazil than in the United States because ofthe use of sugarcane, a less expensive raw material alternative to corn.However, in 1980, Congress imposed a tariff on foreignproduced ethanol to make it more expensive than domestic supplies derived fromcorn.  This tariff was designedto protect the benefits of the federal tax subsidies for United Statesfarmers.  In December 2006,legislation was passed in both the U.S. House of Representatives and U.S.Senate to extend the $0.54 per gallon tariff beyond its current expiration in December 2007through 2008. We do not know the extent to which the volume of imports wouldincrease or the effect on U.S. prices for ethanol if the tariff is not renewed.

 

Ethanolimports from 24 countries in Central America and the Caribbean Islands areexempted from this tariff under the Caribbean Basin Initiative. Under the termsof the Caribbean Basin Initiative, exports from member nations are capped at7.0% of the total United States production from the previous per year (withadditional exemptions from ethanol produced from feedstock in the Caribbeanregion over the 7.0% limit). However, as total production in the United States grows, the amount ofethanol produced from the Caribbean region and sold in the United States willalso grow, which could impact our ability to sell ethanol.

 

***Competitionfrom Alternative Fuels***

 

Our plant also competes with producers ofother gasoline additives having similar octane and oxygenate values as ethanol,such as producers of MTBE, a petrochemical derived from methanol that costsless to produce than ethanol.  Althoughcurrently the subject of several state bans, many major oil companies canproduce MTBE and because it is petroleum-based, its use is strongly supportedby major oil companies.

 

Alternative fuels,gasoline oxygenates and alternative ethanol production methods are alsocontinually under development by ethanol and oil companies with far greater resources. The major oilcompanies have significantly greater resources than we have to developalternative products and to influence legislation and public perception of MTBEandethanol.  Newethanol products or methods of ethanol production developed by larger andbetter-financed competitors could provide them competitive advantages and harmour business.

 

A number of automotive, industrial and powergeneration manufacturers are developing alternative clean power systems usingfuel cells or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technologicaloption to address increasing worldwide energy costs, the long-term availabilityof petroleum reserves and environmental concerns.  Fuel cells have emerged as a potential alternativeto certain existing power sources because of their higher efficiency, reducednoise and lower emissions. Fuel cell industry participants are currentlytargeting the transportation, stationary power and portable power markets inorder to decrease fuel costs, lessen dependence on crude oil and reduce harmfulemissions.  If the fuel cell and hydrogenindustries continue to expand and gain broad acceptance and hydrogen becomesreadily available to consumers for motor vehicle use, we may not 

 

 

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be able to compete effectively.  This additional competition could reduce thedemand for ethanol, which would negatively impact our profitability.

 

***Distillers Grains Competition***

 

Ethanolplants in the Midwest produce the majority of distillers grains and primarilycompete with other ethanol producers in the production and sales of distillersgrains.  The National Corn GrowersAssociation estimates that approximately 10 million metric tons of distillersgrains will be produced in the 2006/2007 crop year.  With the exception of our distillers grainsthat are marketed nationally by CSC and CHS, we took advantage of our proximityto local livestock producers by marketing the bulk of our distillers grainslocally in 2007.  However, the amount ofdistillers grains produced is expected to increase significantly as the numberof ethanol plants increase which will increase competition in the distillersgrains market in our area.  As a result, we may be forced to dry more of our distillers grains formarketing by CHS rather than directly selling in the local markets if excesscapacity in the local markets occurs. In addition, our distillers grains compete with other livestock feedproducts such as soybean meal, corn gluten feed, dry brewers grain and millfeeds.

 

**Research andDevelopment**

 

                Duringthe last three fiscal years, we have not conducted any material research anddevelopment activities associated with the development of technologies for usein producing ethanol, distillers grains or corn oil.  We are exploring the possibility of uses forvalue-added co-products that may be able to be derived from the fuel ethanolmanufacturing process, and we may conduct material research and development inthis area in the future.

 

**Costs and Effects ofCompliance with Environmental Laws**

 

We are subject to extensive air, water andother environmental regulations and we have been required to obtain a number ofenvironmental permits to construct and operate the plant.  We have obtained all of the necessary permitsto operate the plant including, air pollution construction permits, a pollutantdischarge elimination system general permit, storm water discharge permits, awater withdrawal permit, and an alcohol fuel producer’s permit.  In addition, we have completed a spillprevention control and countermeasures plan. In addition, prior to the anticipated start date ofconstruction for our plant expansion, we were required to obtain a Title Vemissions permit prior.  In September 2006,we received our Title V permit and we commenced construction of the plantexpansion in October 2006.  We arein the process of amending our water discharge permit and expect to receive theamended permit in December.  Although we have been successful in obtaining all of the permitscurrently required, any retroactive change in environmental regulations, eitherat the federal or state level, could require us to obtain additional or newpermits or spend considerable resources on complying with such regulations.

 

We are subject toongoing environmental regulations and testing.  The plant passed emissionstesting in December 2003 and we received renewed operating permits in April 2004. Final permitting was granted by the regulatory agency in November 2005. We are required by federal regulations to conduct a Relative Accuracy TestAudit (RATA) once per 12-month period.  We passed the RATA testing in February 2007. In 2007, our costs of environmental compliance were approximately $32,000.

 

We are subject to oversight activities bythe EPA.  There is always a risk that theEPA may enforce certain rules and regulations differently than Iowa’senvironmental administrators.  Iowa orEPA rules are subject to change, and any such changes could result ingreater regulatory burdens on plant operations. We could also be subject to environmental or nuisance claims fromadjacent property owners or residents in the area arising from possible foulsmells or other air or water discharges from the plant.  Such claims may result in an adverse resultin court if we are deemed to engage in a nuisance that substantially impairsthe fair use and enjoyment of real estate.

 

The government’s regulation of the environment changes constantly.  It is possible that more stringent federal orstate environmental rules or regulations could be adopted, which couldincrease our operating costs and expenses. It also is possible that federal or state environmental rules orregulations could be adopted that could have an adverse effect on the use of ethanol.  For example, changes in the environmentalregulations regarding the required oxygen content of automobile emissions couldhave an adverse effect on the ethanol industry. Furthermore, plant operations likely will be governed by theOccupational Safety and Health Administration 

 

 

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(“OSHA”).  OSHA regulations may change such that thecosts of the operation of the plant may increase.  Any of these regulatory factors may result inhigher costs or other materially adverse conditions affecting our operations,cash flows and financial performance.

 

**Employees**

 

As of September 30, 2007, we had a total of 45 full-time employees.  We have 38 full-time employees in ethanolproduction operations and 7 full-time employees in general management andadministration.

 

**ITEM 1A.               RISKFACTORS.**

 

*You should carefully read andconsider the risks and uncertainties below and the other information containedin this report.  The risks anduncertainties described below are not the only ones we may face.  The following risks, together with additionalrisks and uncertainties not currently known to us or that we currently deemimmaterial could impair our financial condition and results of operation.*

 

**RisksRelating to Our Business**

 

***We have a limited operating history and our business may not be assuccessful as we anticipate. ***We began our business in 2000 andcommenced production of ethanol at our plant in April 2003.  Accordingly, we have a limited operatinghistory from which you can evaluate our business and prospects.  Our operating results could fluctuatesignificantly in the future as a result of a variety of factors, includingthose discussed through out these risk factors. Many of these factors are outside our control.  As a result of these factors, our operatingresults may not be indicative of future operating results and you should notrely on them as indications of our future performance.  In addition, our prospects must beconsidered in light of the risks and uncertainties encountered by anearly-stage company and in rapidly evolving markets, such as the ethanolmarket, where supply and demand may change significantly in a short amount oftime.  Some of these risks relate to ourpotential inability to:

 

·                  effectivelymanage our business and operations;

 

·                  recruit andretain key personnel;

 

·                  successfullymaintain our low-cost structure as we expand the scale of our business;

 

·                  manage rapidgrowth in personnel and operations;

 

·                  develop newproducts that complement our existing business; and

 

·                  successfullyaddress the other risks described throughout this prospectus.

 

Ifwe cannot successfully address these risks, our business, future results ofoperations and financial condition may be materially adversely affected, and wemay continue to incur operating losses in the future.

 

***Our business is not diversified.***  Our successdepends largely upon our ability to profitably operate our ethanol plant.  We do not have any other lines of business orother sources of revenue if we are unable to operate our ethanol plant andmanufacture ethanol, distillers grains and corn oil.  If economic or political factors adverselyaffect the market for ethanol, we have no other line of business to fall backon if the ethanol business declines. Our business would also be significantlyharmed if our ethanol plant could not operate at full capacity for any extendedperiod of time.

 

***Increases in the price of corn would reduce ourprofitability.**** *Our resultsof operations and financial condition are significantly affected by the costand supply of corn. Changes in the price and supply of corn are subject to anddetermined by market forces over which we have no control.  The price atwhich we purchase corn has risen substantially in the last year and we expectthe price to continue to increase.  Increases in demand for corn from boththe world foodstuff markets and from increased production of ethanol havepushed up the price of corn.  We expect demand for corn from the ethanolindustry to continue to expand.

 

We expect the price wepay for corn to continue increasing if the demand for corn continues toincrease.   Since our revenues depend on the spread between the sellingprice of our ethanol and the price we pay for corn, increases in corn pricesnegatively affect our ability to generate a profit.

 

 

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*** ***

***                Our revenues willbe greatly affected by the price at which we can sell our ethanol anddistillers grains.*** These prices can be volatile as a result ofa number of factors. These factors include the overall supply and demand, theprice of gasoline, level of government support, and the availability and priceof competing products. For instance, the price of ethanol tends to increase asthe price of gasoline increases, and the price of ethanol tends to decrease asthe price of gasoline decreases. Any lowering of gasoline prices will likelyalso lead to lower prices for ethanol, which may decrease our ethanol sales andreduce revenues.

 

The price of ethanol hasrecently been higher than its 10-year average. We do not expect these prices tobe sustainable as supply from new and existing ethanol plants increases to meetincreased demand. Increased production of ethanol may lead to lower prices. Theincreased production of ethanol could have other adverse effects. For example,the increased production could lead to increased supplies of co-products fromthe production of ethanol, such as distillers grains. Those increased suppliescould outpace demand, which would lead to lower prices for those co-products.Also, the increased production of ethanol could result in increased demand forcorn. This could result in higher prices for corn and corn production loweringprofits.  There can be no assurance as tothe price of ethanol or distillers grains in the future. Any downward changesin the price of ethanol and/or distillers grains may result in less revenuewhich would decrease our income and profitability.

 

***Wesell all of the ethanol we produce to ADM in accordance with an ethanolmarketing agreement.***** **ADM, a significant competitor of ours and a relatedparty to us, is the sole buyer of all of our ethanol and we rely heavily on itsmarketing efforts to successfully sell our product.  Because ADM sells ethanol for itself and anumber of other producers, we have limited control over its sales efforts.  Our financial performance is dependent uponthe financial health of ADM, as a significant portion of our accountsreceivable are attributable to ADM.  IfADM breaches the ethanol marketing agreement or is not in the financialposition to purchase all of the ethanol we produce, we could experience amaterial loss and we may not have any readily available means to sell ourethanol and our financial performance will be adversely and materiallyaffected.  If our agreement with ADMterminates, we may seek other arrangements to sell our ethanol, includingselling our own product, but we give no assurance that our sales efforts wouldachieve results comparable to those achieved by ADM.

 

***We engage in hedging transactions which involverisks that can harm our business.***  We are exposed to market risk from changes incommodity prices.  Exposure to commodity price risk results from ourdependence on corn and natural gas in the ethanol production process.  Weseek to minimize the risks from fluctuations in the prices of corn and naturalgas through the use of hedging instruments.  The effectiveness of ourhedging strategies is dependent upon, the cost of corn and natural gas and ourability to sell sufficient products to use all of the corn and natural gas forwhich we have futures contracts.  Thereis no assurance that our hedging activities will successfully reduce the riskcaused by price fluctuation which may leave us vulnerable to high corn andnatural prices. Alternatively, we may choose not to engage in hedgingtransactions in the future.  As a result,our results of operations and financial conditions may also be adverselyaffected during periods in which corn and/or natural gas prices increase.

 

Hedging activitiesthemselves can result in costs because price movements in corn and natural gascontracts are highly volatile and are influenced by many factors that arebeyond our control.  There are severalvariables that could affect the extent to which our derivative instruments areimpacted by price fluctuations in the cost of corn or natural gas. However, it is likely that commodity cash prices will have the greatest impacton the derivatives instruments with delivery dates nearest the current cashprice.  We may incur such costs and theymay be significant.

 

***Operational difficulties at our ethanol plant could negatively impactour sales volumes and could cause us to incur substantial losses.**** *Our operations are subjectto labor disruptions, unscheduled downtime and other operational hazardsinherent in our industry, such as equipment failures, fires, explosions,abnormal pressures, blowouts, pipeline ruptures, transportation accidents andnatural disasters.  Some of theseoperational hazards may cause personal injury or loss of life, severe damage toor destruction of property and equipment or environmental damage, and mayresult in suspension of operations and the imposition of civil or criminalpenalties.  Our insurance may not beadequate to fully cover the potential operational hazards described above or wemay not be able to renew this insurance on commercially reasonable terms or atall.

 

Moreover, our plant may not operate as planned or expected. Our planthas a specified nameplate capacity which represents the production capacityspecified in the applicable design-build agreement.  We recently entered 

 

 

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intoan agreement with Fagen, Inc. to expand our name-plate capacity to 92MGY.  We expect Fagen, Inc. to testthe capacity of the plant following completion of the expansion.  But based on our prior experience, wegenerally expect our plant to produce in excess of its nameplate capacity.  The operation of our plant is and will be,however, subject to various uncertainties relating to our ability to implementthe necessary process improvements required to achieve these increasedproduction capacities. As a result, our plant may not produce ethanol anddistillers grains at the levels we expect. In the event our plant does not run at its nameplate or our increasedexpected capacity levels, our business, results of operations and financialcondition may be materially adversely affected.

 

***Disruptions to transportation or utilities infrastructure couldmaterially and adversely affect our business because we are extremely dependenton infrastructure for procurement of raw materials such as corn and natural gasand for marketing and distribution of our ethanol, distillers grains and cornoil.**** *Our businessis critically dependent on the continuing availability of rail, road, port,storage and distribution infrastructure. Any disruptions in this infrastructurenetwork, whether caused by labor difficulties, earthquakes, storms, othernatural disasters or human error or malfeasance or other reasons, could have amaterial adverse effect on our business. We rely upon third-parties to maintain the rail lines from our plants tothe national rail network, and any failure on their part to maintain the linescould impede our delivery of products, impose additional costs on us and couldhave a material adverse effect on our business, results of operations andfinancial condition.

 

Our business also depends on the continuing availability of rawmaterials, including fuel and natural gas. The production of ethanol, from theplanting of corn to the distribution of ethanol to refiners, is highlyenergy-intensive.  Significant amounts offuel and natural gas are required for the growing, fertilizing and harvestingof corn, as well as for the fermentation, distillation and transportation ofethanol and the drying of distillers grains. A serious disruption in supplies of fuel or natural gas, or significantincreases in the prices of fuel or natural gas, could significantly reduce theavailability of raw materials at our plant, increase our production costs andcould have a material adverse effect on our business, results of operations andfinancial condition.

 

Our plant also requires a significant and uninterrupted supply of waterof suitable quality to operate.  If thereis an interruption in the supply of water for any reason, we may be required tohalt production at our plant. If production is halted at our plant for anextended period of time, it could have a material adverse effect on ourbusiness, results of operations and financial condition.

 

***Competition for qualified personnel in the ethanol industry is intenseand we may not be able to hire and retain qualified personnel to operate ourplant.***  Oursuccess depends in part on our ability to attract and retain competentpersonnel, which can be challenging in a rural community. For the operation ofour plant, we have hired qualified managers, engineers, operations and otherpersonnel.  Competition for both managersand plant employees in the ethanol industry is intense, and we may not be ableto maintain qualified personnel.  If weare unable to maintain productive and competent personnel or hire qualifiedreplacement personnel, our operations may be adversely affected, the amount ofethanol we produce may decrease and we may not be able to efficiently operate ourplant and execute our business strategy.

 

***Technologicaladvances could significantly decrease the cost of producing ethanol or resultin the production of higher-quality ethanol, and if we are unable to adopt orincorporate technological advances into our operations, our plant could becomeless competitive or obsolete.*****We expect that technological advances in the processesand procedures for processing ethanol will continue to occur.  It is possible that those advances could makethe processes and procedures that we utilize at our plant less efficient orobsolete, or cause the ethanol we produce to be of a lesser quality.  Advances and changes in the technology ofethanol production are expected to occur. Such advances and changes may make the ethanol production technologyinstalled in our plant less desirable or obsolete.  These advances could also allow ourcompetitors to produce ethanol at a lower cost than us.  If we are unable to adopt or incorporatetechnological advances, our ethanol production methods and processes could beless efficient than our competitors, which could cause our plant to become lesscompetitive or completely obsolete.  Ifour competitors develop, obtain or license technology that is superior to oursor that makes our technology obsolete, we may be required to incur significantcosts to enhance or acquire new technology so that our ethanol productionremains competitive.  Alternatively, wemay be required to seek third-party licenses, which could also result insignificant expenditures.  We cannotguarantee or assure you that third-party licenses will be available or, onceobtained, will continue to be available on commercially reasonable terms, if atall.  These costs could negatively impactour financial performance by increasing our operating costs and reducing ournet income.

 

 

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**RisksRelated to Our Expansion Strategy**

 

***Our involvement with the development of an ethanol plant in Akron, Iowamay not be successful.***Akron has issued 15,000 units to the Partnership at aprice of $666.66 per unit and 12,500 units to the Partnership at a price of$800 per unit in exchange for initially capitalizing Akron.  Akron hasreceived total non-cash proceeds from the Partnership of approximately$6,037,000, consisting of approximately $890,000 in services and approximately$4,647,000 in costs associated with the land purchased, and $500,000 paid toFagen, Inc. by the Partnership on Akron’s behalf for its letter of intentpayment, plus a subscription receivable of approximately $13,962,000.  Development of the Akron project is currentlysuspended due to unfavorable market conditions and our investment in theproject may be lost of if the Akron plant is not completed. The failure tosuccessfully evaluate and otherwise adequately address the risks associatedwith development of the Akron project could have a material adverse effect onour business, results of operations and financial condition.

 

***We give no assurances that we will be able to implement ourexpansion strategy as planned or at all.**** *We are currentlyconstructing an expansion of our current production capacity of 52 MGY to 92MGY.  The cost of the expansion is expected to be approximately$73,000,000, which will be financed using both a portion of our cash andadditional debt to fully capitalize the expansion.  The use of cash tofinance these expenditures could impact our ability to make futuredistributions to our members.

 

Thereis no assurance that the expansion will reduce our operating costs or increaseour operating income.  Our expansion projections are based upon ourhistorical operating costs and historical revenues and there is no guarantee orassurance that our past financial performance can accurately predict future resultsespecially in connection with expansion.  In addition, the expansion maycost more and may present additional challenges and risks that negativelyimpact our future financial performance.

 

***If the plant expansion costs more than we expect, theexpansion may be unprofitable.**** *The total cost of the expansion projectis estimated to be approximately $73,000,000, of which we will pay Fagen, Inc.approximately $48,328,000 pursuant to our design-build agreement and changeorders with Fagen, Inc. for the design and construction of this expansion,subject to any mutually agreed-upon adjustments made in accordance with thegeneral conditions of the agreement and subject to a credit for any amountspreviously paid to Fagen Engineering, LLC for engineering performed pursuant tothe Phase I and Phase II Engineering Services Agreement. There is noassurance that there will not be design changes or cost overruns associatedwith the expansion of the plant. In addition, shortages of steel could affectthe final cost and final completion date of the project.  Any significantincrease in the estimated construction cost of the expansion may make theexpansion too expensive to complete or unprofitable to operate because ourrevenue stream may not be able to adequately support the increased cost andexpense attributable to increased construction costs.

 

***Construction delays could increase our costs.*** Construction of the expansion began in October 2006. The grain storage andprocess parts of the expansion are approximately 95% completed, as of December 15,2007.  Final land grading and rail siding work will be completed in the July toSeptember 2008 time period.  However, constructionprojects often involve construction delays due to weather conditions, or otherevents that delay the construction schedule. In addition, Fagen, Inc.’sinvolvement in the construction of a number of other plants while constructingour plant could cause delays in our construction schedule. Also, any changes ininterest rates or the credit environment or any changes in politicaladministrations at the federal, state or local level that result in policychange towards ethanol, could also cause construction and operation delays. Ifit takes longer to construct the expansion than we anticipate, it maysubstantially increase our costs, which could have a material adverse effect onour results of operations and financial condition.

 

***Defects in plant expansion construction could impair ourability to produce ethanol and its co-products.******* Thereis no assurance that defects in materials and/or workmanship in the plantexpansion will not occur.  Under the terms of the design-build agreementwith Fagen, Inc., Fagen, Inc. warrants that the material andequipment furnished to build the plant will be new, of good quality, and freefrom material defects in material or workmanship at the time of delivery. Though the expansion design-build agreement requires Fagen, Inc. tocorrect all defects in material or workmanship for a period of one year aftersubstantial completion of the expansion, material defects in material orworkmanship may still occur.  Suchdefects could significantly impair operations of the plant or cause us tointerrupt 

 

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ordiscontinue the plant’s operation. Interrupting or discontinuing plantoperations could materially affect our ability to generate sufficient cash flowto cover our costs and force us to terminate our business.

 

**RisksRelated to Ethanol Industry**

 

***Overcapacitywithin the ethanol industry could cause an oversupply of ethanol and a declinein ethanol prices. ***Excess capacity in the ethanol industrywould have an adverse impact on our results of operations, cash flows andgeneral financial condition.  Excesscapacity may also result or intensify from increases in production capacitycoupled with insufficient demand.  If the demand for ethanol does not growat the same pace as increases in supply, we would expect the price for ethanolto decline.  If excess capacityin the ethanol industry occurs, the market price of ethanol may decline to alevel that is inadequate to generate sufficient cash flow to cover our costs.

 

***We expect to operate in acompetitive industry******and compete with larger,better financed entities which could impact our ability to operate profitably.***  There issignificant competition among ethanol producers with numerous producer and privately owned ethanol plants planned andoperating throughout the United States.  The numberof ethanol plants being developed and constructed in the United Statescontinues to increase at a rapid pace. The largest ethanol producers includeAbengoa Bioenergy Corp., ADM, Aventine Renewable Energy, Inc., Cargill, Inc.,Hawkeye Renewables, POET (formerly Broin), US Bio Energy Corp. and VeraSunEnergy Corporation, all of which are each capable of producing more ethanolthan we expect to produce. Additionally, in November of 2007, VeraSun andUS Bio Energy Corp. announced that they entered into a merger agreement whichis expected to close during the first quarter of 2008.  The new entity will retain the VeraSun nameand, by the end of 2008, is expected to own 16 ethanol facilities with a totalproduction capacity of approximately 1.6 billion gallons per year, which wouldmake it one of the largest ethanol producers in the country.  If the demand for ethanol does not grow atthe same pace as increases in supply, we expect that lower prices for ethanolwill result which may adversely affect our ability to generate profits and ourfinancial condition.

 

Our ethanol plant alsocompetes with producers of other gasoline additives made from raw materialsother than corn having similar octane and oxygenate values as ethanol, such asproducers of methyl tertiary butyl ether (MTBE). MTBE is a petrochemicalderived from methanol which generally costs less to produce than ethanol. Manymajor oil companies produce MTBE and strongly favor its use because it ispetroleum-based. Alternative fuels, gasoline oxygenates and alternative ethanolproduction methods are also continually under development. The major oilcompanies have significantly greater resources than we have to market MTBE, todevelop alternative products, and to influence legislation and publicperception of MTBE and ethanol. These companies also have significant resourcesto begin production of ethanol should they choose to do so.

 

***Competition from the advancement of alternative fuels maylessen the demand for******ethanol.*** Alternative fuels, gasoline oxygenates and ethanol production methodsare continually under development. A number of automotive, industrial and powergeneration manufacturers are developing alternative clean power systems usingfuel cells or clean burning gaseous fuels. Like ethanol, the emerging fuel cellindustry offers a technological option to address increasing worldwide energycosts, the long-term availability of petroleum reserves and environmentalconcerns. Fuel cells have emerged as a potential alternative to certainexisting power sources because of their higher efficiency, reduced noise and loweremissions. Fuel cell industry participants are currently targeting thetransportation, stationary power and portable power markets in order todecrease fuel costs, lessen dependence on crude oil and reduce harmfulemissions. If the fuel cell and hydrogen industries continue to expand and gainbroad acceptance, and hydrogen becomes readily available to consumers for motorvehicle use, we may not be able to compete effectively. This additionalcompetition could reduce the demand for ethanol, resulting in lower ethanolprices that might adversely affect our results of operations and financialcondition.

 

*****Certain countries canexport ethanol to the United States duty-free, which may undermine the ethanolproduction industry in the United States*********.****  Imported ethanol is generally subject to a $0.54 pergallon tariff and a 2.5% ad valorem tax that was designed to offset the $0.51per gallon ethanol subsidy available under the federal excise tax incentiveprogram for refineries that blend ethanol in their fuel. There is a specialexemption from the tariff for ethanol imported from 24 countries in CentralAmerica and the Caribbean islands which is limited to a total of 7.0% of UnitedStates production per year. In December 2006, legislation was passed bythe U.S. House of Representatives and U.S. Senate to extend the $0.54 pergallon tariff beyond its current expiration in December 

 

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2007 through 2008. We donot know the extent to which the volume of imports would increase if the tariffis not renewed.

 

In addition the NorthAmerica Free Trade Agreement countries, Canada and Mexico, are exempt fromduty.  Imports from the exemptedcountries have increased in recent years and are expected to increase furtheras a result of new plants under development. In particular, the ethanolindustry has expressed concern with respect to a new plant under development byCargill, Inc., the fifth largest ethanol producer in the United States, inEl Salvador that would take the water out of Brazilian ethanol and then shipthe dehydrated ethanol from El Salvador to the United States duty-free. Brazilis currently the world’s second largest producer and largest exporter ofethanol. In Brazil, ethanol is produced primarily from sugarcane, which is alsoused to produce food-grade sugar.  Sinceproduction costs for ethanol in Brazil are estimated to be significantly lessthan what they are in the United States, the import of the Brazilian ethanolduty-free through El Salvador or another country exempted from the tariff maynegatively impact the demand for domestic ethanol and the price at which wesell our ethanol.

 

***Consumer resistanceto the use of ethanol based on the belief that ethanol is******expensive, adds to air pollution, harms engines andtakes more energy to**produce thatit contributes may affect the demand for ethanol.*** Certain individuals believe that use of ethanol will have a negativeimpact on gasoline prices at the pump. Many also believe that ethanol adds toair pollution and harms car and truck engines. Still other consumers believethat the process of producing ethanol actually uses more fossil energy, such asoil and natural gas, than the amount of ethanol that is produced. Theseconsumer beliefs could potentially be wide-spread. If consumers choose not tobuy ethanol, it would affect the demand for the ethanol we produce which couldlower demand for our product and negatively affect our profitability andfinancial condition.

 

***The expansion of domestic ethanol production in combinationwith state bans on MTBE and/or state renewable fuels standards may placestrains on related infrastructure such that our ethanol cannot be marketed andshipped to blending terminals that would otherwise provide us the best costadvantages.***** **If the volume of ethanol shipmentscontinues to increase and blenders switch from MTBE to ethanol, there may beweaknesses in infrastructure such that our ethanol cannot reach its targetmarkets. Substantial development of infrastructure by persons and entitiesoutside our control will be required for our operations, and the ethanolindustry generally, to grow.  Areas requiring expansion include, butare not limited to:

 

·                  additional rail capacity to meet theexpanding volume of ethanol shipments;

·                  additional storage facilities forethanol;

·                  increases in truck fleets capable oftransporting ethanol within localized markets;

·                  expansion of and/or improvements torefining and blending facilities to handle ethanol instead of MTBE;

·                  growth in the fleet of flexible fuelvehicles capable of using E85 fuel.

 

The expansion of the above infrastructure may notoccur on a timely basis, if at all, our operations could be adversely affectedby infrastructure disruptions.  Inaddition, lack of or delay in infrastructure expansion may result in an oversupplyof ethanol on the market, which could depress ethanol prices and negativelyimpact our financial performance.

 

**Risks Related to Regulation and GovernmentalAction**

 

***A change in government policies favorable to ethanol maycause demand for ethanol to decline.*******Growth and demand for ethanol may be drivenprimarily by federal and state government policies, such as state laws banningMTBE and the national renewable fuels standard. The continuation of thesepolicies is uncertain, which means that demand for ethanol may decline if thesepolicies change or are discontinued. A decline in the demand for ethanol islikely to cause lower ethanol prices which in turn will negatively affect ourresults of operations, financial condition and cash flows.

 

***Loss of or ineligibility for favorable tax benefits forethanol production could hinder our ability to operate at a profit and reducethe value of your investment in us.*******The ethanol industry and our business are assistedby various federal ethanol tax incentives. The elimination or reduction of taxincentives to the ethanol industry could reduce the market for ethanol, whichcould reduce prices and our revenues by making it more costly 

 

 

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ordifficult for us to produce and sell ethanol. If the federal tax incentives areeliminated or sharply curtailed, we believe that a decreased demand for ethanolwill result, which could depress ethanol prices and negatively impact our financial performance.

 

Anotherimportant provision involves an expansion in the definition of who qualifies asa small ethanol producer. Historically, small ethanol producers were allowed a10-cents per gallon production income tax credit on up to 15 milliongallons of production annually. The size of the plant eligible for the taxcredit was limited to 30 million gallons. Under the Energy Policy Act of2005 the size limitation on the production capacity for small ethanol producersincreases from 30 million to 60 million gallons. However, upon completion of the Plantexpansion, we do not anticipate qualifying for this tax credit as ouranticipated annual production of 92 million gallons will exceed the sizelimitation.

 

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

 

***Carbon dioxide may be regulated in the future by the EPA asan air pollutant requiring us to obtain additional permits and installadditional environmental mitigation equipment, which could adversely affect ourfinancial performance*****. **The SupremeCourt recently decided a case in which it ruled that carbon dioxide is an airpollutant under the Clean Air Act for the purposes of motor vehicleemissions.  The lawsuit sought to require the EPA to regulate carbondioxide in vehicle emissions.  Similar lawsuits have been filed seeking torequire the EPA to regulate carbon dioxide emissions from stationary sources suchas our ethanol plant under the Clean Air Act. Our plant produces a significantamount of carbon dioxide that we currently vent into the atmosphere. While there are currently no regulations applicable to us concerning carbondioxide, if the EPA or the State of Iowa regulate carbon dioxide emissions byplants such as ours, we may have to apply for additional permits or we may berequired to install carbon dioxide mitigation equipment or take other as yetunknown steps to comply with these potential regulations.  Compliance withany future regulation of carbon dioxide, if it occurs, could be costly and mayprevent us from operating the ethanol plant profitably which could decrease oreliminate the value of our units.

 
| **ITEM 2.** | ** ** | **PROPERTIES.** |
|-------------|------------|-----------------|

 

 

TheCompany owns the general partnership interest in thePartnership, which owns the plant.  Theplant is located on an approximately 80-acre rural site that is locatedapproximately two miles east of the City of Marcus, Iowa and approximately onemile north of Iowa State Highway 3.  Theplant’s address is 4808 F Avenue, Marcus, Iowa 51035.  The plant grinds approximately 18 million to19 million bushels of corn per year to produce approximately 52 million gallons ofethanol.  The original construction of the plant wascompleted in 2003 andconsists of the following buildings:

 

·                  Aprocessing building, which contains processing equipment, laboratories, controlroom and offices;

·                  Agrain receiving and shipping building, which contains a control room and 1stand 2nd level mezzanine;

·                  Amechanical building, which contains maintenance offices, storage and a weldingshop; and

·                  Anadministrative building, along with furniture and fixtures, office equipmentand computer and telephone systems.

 

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The plant includes a fermenter walkway, gas dryer, evaporator andstorage facilities for ethanol and distiller grains.  The site also contains improvements such asrail tracks and a rail spur, landscaping, drainage systems and paved accessroads.

 

In July 2005, wecompleted an expansion to the plant which enabled us to increase our ethanolproduction from 40 MGY to 52 MGY.  Thisplant expansion included an additional fermenter, slurry tank, additional watertreatment equipment, liquefaction tank, molecular sieves and additions to theprocess building, which will accommodate the additional fermenter and shoparea.  We also installed additional driercontrols and maintenance system software in fiscal year 2005.

 

Inaddition in October 2005, we completed the installation of a corn oilsegregation unit which separates corn oil from the distillersgrains during the ethanol production process. In May 2006, we commenced expansion of our grain handlingfacilities and remodeling of our existing grain silos.  On August 1, 2006, we purchased approximatelyeight acres of land west of the Marcus plant along the north side of therailroad tracks to accommodate the plant expansion.  In October 2006,we commenced construction of a second expansion of the plant’s productioncapacity which willenable us to increase our ethanol production to 92 MGY by adding 40 milliongallons annually.

 

In June 2006,the Partnership obtained the exclusive right and option to purchase two parcelsof land, consisting of approximately 300 acres of land (actual acreage will bedetermined by survey), in Plymouth County, Iowa.  The first option wasentered into on June 16, 2006 by the Partnership and the Mary FrancesWohlenberg Trust. The Partnership paid $15,000 for this option on a tract ofland in Plymouth County, Iowa.  The Partnership paid an additional $10,000in December 2006 to extend the option to June 19, 2007.  ThePartnership assigned the option to ARCP on March 22, 2007.  Thesecond option was entered into on June 19, 2006 between the Partnershipand Robert E. Lias and Margaret Lias. The Partnership paid $15,000 for thisoption on a tract of land in Plymouth County Iowa. LSCP, LLLP paid anadditional $10,000 in December 2006 to extend the option to June 19,2007.  The Partnership assigned the option to ARCP on March 22, 2007.On June 18, 2007, Akron provided notice to the landowners of our intent toexercise the option agreements and purchased the land in August 2007 forapproximately $4,647,000.

 

Allof our tangible and intangible property, real and personal, serves as thecollateral for the debt financing with First National Bank of Omaha, which isdescribed below under “**Item 7—Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Indebtedness**.”

 
| **ITEM 3.** | ** ** | **LEGAL PROCEEDINGS.** |
|-------------|------------|------------------------|

 

From time to time in the ordinary course of business,we or the Partnership may be named as a defendant in legal proceedings relatedto various issues, including without limitation, workers’ compensation claims,tort claims, or contractual disputes.  Weare not currently involved in any material legal proceedings, directly orindirectly, and we are not aware of any claims pending or threatened against us or any of the directors thatcould result in the commencement of legal proceedings.

 
| **ITEM 4.** | ** ** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.** |
|-------------|------------|----------------------------------------------------------|

 

We did not submitany matter to a vote of our unit holders through the solicitation of proxies orotherwise during the fourth quarter of 2007.

 

**PART II**

 
| **ITEM  5.** | ** ** | **MARKET  FOR MEMBERSHIP UNITS AND RELATED MEMBER MATTERS AND ISSUERPURCHASES OF  MEMBERSHIP UNITS.** |
|--------------|------------|-------------------------------------------------------------------------------------------------------|

 

 

**Market Information**

 

There is no establishedtrading market for our membership units.

 

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However, we have established a Unit Trading Bulletin Board, aprivate online matching service, in order to facilitate trading among ourmembers.  The Unit Trading Bulletin Board has been designed to comply with federaltax laws and IRS regulations establishing a “qualified matching service,” aswell as state and federal securities laws. Our Unit Trading Bulletin Board consists of an electronic bulletinboard that provides alist of interested buyers with a list of interested sellers, along with theirnon-firm price quotes.  The UnitTrading Bulletin Board doesnot automatically affect matches between potential sellers and buyers and it isthe sole responsibility of sellers and buyers to contact each other to make adetermination as to whether an agreement to transfer units may be reached.  We do not becomeinvolved in any purchase or sale negotiations arising from our Unit TradingBulletin Board and have no role in effecting the transactions beyond approval,as required under our operating agreement, and the issuance of newcertificates.  We do not give adviceregarding the merits or shortcomings of any particular transaction.  We do not receive, transfer or hold funds orsecurities as an incident of operating the Unit Trading Bulletin Board.  We do not receive any compensation for creatingor maintaining the Unit Trading Bulletin Board. In advertising our qualified matching service, we do not characterizeLittle Sioux as being a broker or dealer or an exchange.  We do not use the Unit Trading Bulletin Boardto offer to buy or sell securities other than in compliance with the securitieslaws, including any applicable registration requirements.

 

There are detailedtimelines that must be followed under the Unit TradingBulletin Board Rules andProcedures with respect to offers and sales of membership units.  All transactions must comply with the UnitTrading Bulletin Board Rules,our operating agreement, and are subject to approval by our board ofdirectors.  The UnitTrading Bulletin BoardRules are available on our website, *www.littlesiouxcornprocessors.com*.

 

The followingtable contains historical information by quarter for the past two yearsregarding the trading of units, as adjusted for the unit split:

 

| **Quarter**                     | ** ** | **Low Price** | ** ** | **High Price** | ** ** | **Average Price** | ** ** | **# of  Units Traded** | ** ** |
|---------------------------------|------------|---------------|------------|----------------|------------|-------------------|------------|------------------------|------------|
| July 1 - Sept 30 2007      |       | $             | 600        |           | $          | 800               |       | $                      | 643        |   | 225 |   |
| Apr 1 - June 30 2007       |       | $             | 567        |           | $          | 700               |       | $                      | 611        |   | 575 |   |
| Jan 1 - March 31 2007  (1) |       | $             | 600        |           | $          | 733               |       | $                      | 705        |   | 525 |   |
| Oct 1 - Dec 31 2006             |       | $             | 567        |           | $          | 733               |       | $                      | 661        |   | 960 |   |
| July 1 - Sept 30 2006      |       | $             | 433        |           | $          | 433               |       | $                      | 433        |   | 120 |   |
| Apr 1 - June 30 2006       |       | $             | 240        |           | $          | 424               |       | $                      | 350        |   | 375 |   |
| Jan 1 - March 31 2006      |       | $             | 217        |           | $          | 217               |       | $                      | 217        |   | 150 |   |
| Oct 1 - Dec 31 2005             |       | $             | 150        |           | $          | 150               |       | $                      | 150        |   | 150 |   |

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(1)On April 17,2007, we declared a fifteen-for-one membership unit split to be effected in theform of a unit distribution of fourteen membership units for each membershipunit outstanding. The record date for the membership unit split was February 1,2007.  We have retroactively restated thenumber of units and unit prices after the unit split for comparison purposes.

 

As a limitedliability company, Little Sioux is required to restrict the transfers of itsmembership units in order to preserve its partnership tax status.  Ourmembership units may not be traded on any established securities market orreadily trade on a secondary market (or the substantial equivalentthereof).  All transfers are subject to a determination that the transferwill not cause Little Sioux to be deemed a publicly traded partnership.

 

**Unit Holders**

 

As of the date of filing of this report,the Company had 164,115 Class A membership units issued and outstanding and a totalof 730 Class A membership unit holders. There is no other class of membership unit issued or outstanding.

 

**Distributions**

 

Distributionsare payable at the discretion of our board of directors, subject to theprovisions of the Iowa Limited Liability Company Act and our operatingagreement.  Distributions to our unit holders are also subject to 

 

 

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certain loan covenants and restrictionsthat require us to make additional loan payments based on excess cashflow.  These loan covenants andrestrictions are described in greater detail under “**Item 7—Management’s Discussion and Analysis of Financial Condition andResults of Operations****—Indebtedness.**”

 

LSCPmay distribute a portion of the net profits generated from plant operations to it owners.  As an owner of LSCP, we receive distributionsin proportion to our equity ownership in LSCP. We may distribute a portion of our net profits received from LSCP to our unit holders in proportion to the numberof units held by each unit holder.  Aunit holder’s distribution is determined by dividing the number of units ownedby such unit holder by the total number of units outstanding.  Our unit holdersare entitled to receive distributions of cash or property if and when adistribution is declared by our board of directors.  Our Class Adirectors have complete discretion over the timing and amount of distributionsto our unit holders, however, our operating agreement requires the Class Adirectors to endeavor to make cash distributions at such times and in suchamounts as will permit our unit holders to satisfy their income tax liabilityin a timely fashion.  However, there canbe no assurance as to the ability of Little Sioux to declare or paydistributions in the future or that past distributions (described below) willbe indicative of future distributions.

 

***2007Distributions***

 

On January 16,2007 the Company’s board of directors, acting as general partner of thePartnership, approved a cash distribution of approximately $14,718,000 to thePartnership’s partners of record as of January 16, 2007.  As a holderof 60.15% of the units of the Partnership, the Company received a cashdistribution of approximately $8,853,000.  On January 16, 2007, theCompany’s board of directors approved a cash distribution of $53.33 permembership unit (as calculated after the membership unit split) or a total ofapproximately $8,753,000 to its unit holders of record as of January 16, 2007.

 

On April 17,2007, the Company’s board of directors declared a fifteen-for-one membershipunit split to be effected in the form of a unit distribution of fourteenmembership units for each membership unit outstanding. The record date for themembership unit split was February 1, 2007.

 

On July 17,2007 the Company’s board of directors, acting as general partner of thePartnership, approved a cash distribution of approximately $9,381,000 to thePartnership’s partners of record as of July 17, 2007.  As a holder of60.15% of the units of the Partnership, the Company received a cashdistribution of approximately $5,643,000.  On July 17, 2007, theCompany’s board of directors approved a cash distribution of $33.45 permembership unit or a total of approximately $5,491,000 to its unit holders ofrecord as of July 17, 2007.

 

***2006Distributions***

 

On January 17,2006 the Company’s board of directors, acting as general partner of thePartnership, approved a total cash distribution of approximately $15,361,000 tothe Partnership’s limited partners of record as of January 17, 2006.  At January 17, 2006, we owned 60.15% ofthe partnership units of the Partnership. Accordingly, the Company received a cash distribution of approximately$9,240,000. The distribution was made in February 2006.  On January 18, 2006, the Company’s boardof directors approved a cash distribution of $56.15 per membership unit (ascalculated after the membership unit split) or a total of approximately$9,216,000 to the its unit holders of record as of January 17, 2006.

 

 

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| **ITEM 6.** | ** ** | **SELECTED FINANCIAL DATA.** |
|-------------|------------|------------------------------|

 

The following table sets forth selected consolidatedfinancial data of Little Sioux Corn Processors, LLC and our subsidiary, LSCP,LLLP for the periods indicated.  Theinformation for our fiscal year ended September 30, 2003 is excludedbecause we were not operating for a full fiscal year at that time. The auditedfinancial statements included in Item 8 of this report have been audited by ourindependent registered public accountants, Boulay, Heutmaker,Zibell & Co., P.L.L.P.

 
| **Statement  of Operations Data:**            | ** ** | **2007**   | ** **  | **2006**   | ** ** | **2005**    | ** ** | **2004** | ** ** |
|-----------------------------------------------|------------|------------|-------------|------------|------------|-------------|------------|----------|------------|
| Revenues                                      |       | $          | 130,730,336 |       | $          | 113,785,666 |       | $        | 95,881,420 |   | $ | 85,540,934 |   |
|                                          |       |       |        |       |       |        |       |     |       |
| Cost of Goods Sold                            |       | 87,060,524 |        | 73,678,035 |       | 65,257,086  |       |     | 74,649,569 |   |
|                                          |       |       |        |       |       |        |       |     |       |
| Gross Margin                                  |       | 43,669,812 |        | 40,107,631 |       | 30,624,334  |       |     | 10,891,365 |   |
|                                          |       |       |        |       |       |        |       |     |       |
| Selling, General and  Administrative Expenses |       | 5,439,374  |        | 3,001,254  |       | 6,542,308   |       |     | 2,733,993  |   |
|                                          |       |       |        |       |       |        |       |     |       |
| Operating Income                              |       | 38,230,438 |        | 37,106,377 |       | 24,082,026  |       |     | 8,157,372  |   |
|                                          |       |       |        |       |       |        |       |     |       |
| Other Income (Expense)                        |       | (267,363   | )           | (118,637   | )          | (561,560    | )          |     | 5,360,140  |   |
|                                          |       |       |        |       |       |        |       |     |       |
| Net Income Before Minority  Interest          |       | 38,497,801 |        | 36,987,740 |       | 23,520,466  |       |     | 13,517,512 |   |
|                                          |       |       |        |       |       |        |       |     |       |
| Minority Interest in  Subsidiary Income       |       | 15,434,801 |        | 14,775,906 |       | 9,421,765   |       |     | 5,663,681  |   |
|                                          |       |       |        |       |       |        |       |     |       |
| Net Income                                    |       | $          | 23,063,000  |       | $          | 22,211,834  |       | $        | 14,098,701 |   | $ | 7,853,831 |   |
|                                          |       |       |        |       |       |        |       |     |       |
| Average Units Outstanding  (1)                |       | 164,115    |        | 164,115    |       | 164,115     |       | 164,115  |       |
| Net Income Per Unit                           |       | $          | 140.53      |       | $          | 135.34      |       | $        | 85.91      |   | $ | 47.86 |   |
| Distributions Per Unit                        |       | $          | 86.78       |       | $          | 56.15       |       | $        | 30.54      |   | $ | 6.92 |   |

 
| **Balance Sheet Data:**        | ** ** | **2007** | ** **  | **2006** | ** ** | **2005**   | ** ** | **2004** | ** ** |
|--------------------------------|------------|----------|-------------|----------|------------|------------|------------|----------|------------|
| Cash &  Equivalents   |       | $        | 17,503,176  |     | $          | 10,133,691 |       | $        | 14,135,954 |   | $ | 3,907,380 |   |
| Current Assets                 |       | $        | 26,497,760  |     | $          | 39,374,286 |       | $        | 26,748,278 |   | $ | 11,946,926 |   |
| Property &  Equipment |       | $        | 103,878,289 |     | $          | 51,747,859 |       | $        | 50,128,437 |   | $ | 47,536,127 |   |
| Total Assets                   |       | $        | 136,412,043 |     | $          | 91,556,615 |       | $        | 77,162,356 |   | $ | 59,828,204 |   |
| Current Liabilities            |       | $        | 23,988,427  |     | $          | 6,023,396  |       | $        | 10,692,316 |   | $ | 4,966,448 |   |
| Long Term Debt                 |       | $        | 25,743,072  |     | $          | 13,504,582 |       | $        | 16,092,315 |   | $ | 19,572,989 |   |
| Minority Interest              |       | $        | 34,697,010  |     | $          | 28,864,721 |       | $        | 20,209,574 |   | $ | 14,207,003 |   |
| Members’ Equity           |       | $        | 51,983,534  |     | $          | 43,163,916 |       | $        | 30,168,151 |   | $ | 21,081,764 |   |
| Book Value Per Unit (1)        |       | $        | 316.75      |     | $          | 263.01     |       | $        | 183.82     |   | $ | 128.46 |   |

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(1)  On April 17,2007, we declared a fifteen-for-one membership unit split to be effected in theform of a unit distribution of fourteen membership units for each membershipunit outstanding. The record date for the membership unit split was February 1,2007.  We have retroactively restated thenumber of units and unit prices prior to unit split for comparison purposes.

 
| **ITEM 7.** | ** ** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATION.** |
|-------------|------------|-------------------------------------------------------------------------------------------------|

 

Except for the historicalinformation, the following discussion contains forward-looking statements thatare subject to risks and uncertainties.  We caution you not to put unduereliance on any forward-looking statements,

 

 

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whichspeak only as of the date of this report.  Our actual results or actionsmay differ materially from these forward-looking statements for many reasons,including the risks described in “**Item 1A—RiskFactors**” and elsewhere in this annual report.  Our discussionand analysis of our financial condition and results of operations should beread in conjunction with the financial statements and related notes and withthe understanding that our actual future results may be materially differentfrom what we currently expect.

 

**Overview**

 

Asgeneral partner, the Company manages the business and day-to-day operations ofthe Partnership’s 52 million gallon per year (MGY) ethanol plant located nearMarcus, Iowa in northwest Iowa.  We currently own a 60.15% ownership interestin the Partnership.  The Partnership has two wholly owned subsidiaries,Akron and Twin Rivers.  Akron is an Iowa limited liability company that isdeveloping a 100 MGY ethanol plant in Plymouth County, near Akron, Iowa,however, this project is currently suspended.  Twin Rivers is an Iowalimited liability company that anticipates managing Akron’s ethanol plant.

 

Ourrevenues are derived from the sale and distribution of our ethanol, distillersgrains and corn oil throughout the continental United States.  Corn issupplied to us primarily from local agricultural producers and from purchasesof corn on the open market. After processing the corn, ethanol is sold toArcher Daniels Midland Co. (“ADM”), a party related to us, which subsequentlymarkets and sells the ethanol to gasoline blenders and refineries locatedthroughout the continental United States.

 

Someof our distillers grains are sold directly to local farmers through ourmarketing agreement with CHS. For our distillers grains, we receive a percentageof the selling price actually received by CHS in marketing the distillersgrains to its customers.

 

Wemarket and sell our corn oil to regional wholesalers.  Presently, the enduse of our corn oil is in the livestock industry.  In the long term, ourcorn oil could be marketed for human consumption, however, the feasibility ofmarket penetration as human food is unknown at this time as corn oil extractionin dry milling is relatively new and suitability for human consumption has notyet been determined.

 

Weare subject to industry-wide factors that affect our operating income and costof production.  Our operating results are largely driven by the prices atwhich we sell ethanol, distillers grain and corn oil and the costs related totheir production.  Historically, the price of ethanol tends to fluctuatein the same direction as the price of unleaded gasoline and other petroleumproducts.  Surplus ethanol supplies also tend to put downward pricepressure on ethanol.  In addition, the price of ethanol is generallyinfluenced by factors such as general economic conditions, the weather, andgovernment policies and programs.  The price of distillers grains isgenerally influenced by supply and demand, the price of substitute livestockfeed, such as corn and soybean meal, and other animal feed proteins. Surplus grain supplies also tend to put downward price pressure on distillersgrains.  In addition, our revenues are also impacted by such factors asour dependence on one or a few major customers who market and distribute ourproducts; the intensely competitive nature of our industry; possiblelegislation at the federal, state, and/or local level; and changes in federalethanol tax incentives.

 

Our two largest costs ofproduction are corn and natural gas.  The cost of corn is affectedprimarily by supply and demand factors such as crop production, carryout,exports, government policies and programs, risk management and weather, overmuch of which we have no control.  Natural gas prices fluctuate with theenergy complex in general.  Over the last few years, natural gas priceshave trended higher than average and it appears prices will continue to trendhigher due to the high price of alternative fuels such as fuel oil.  Ourcosts of production are affected by the cost of complying with the extensiveenvironmental laws that regulate our industry.

 

#### **Results ofOperations**

#### ** **

***Comparison of Fiscal Years Ended******September 30,2007 and 2006*****.**

 

The followingtable shows the results of our operations and the percentage of revenues, costof goods sold, operating expenses and other items to total revenues in ourconsolidated statements of operations for the fiscal years ended September 30,2007 and 2006:

 

27

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|                                    |       | **2007**   |        | **2006** |       |
|-----------------------------------------|------------|------------|-------------|----------|------------|
| **Income  Statement Data**              | ** ** | **Amount** | ** **  | **%**    | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                                |       | $          | 130,730,336 |     | 100.0      |   | $ | 113,785,666 |   | 100.0 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Cost of Goods Sold                      |       | 87,060,524 |        | 66.6     |       | 73,678,035 |   | 64.8 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Gross Margin                            |       | 43,669,812 |        | 33.4     |       | 40,107,631 |   | 35.2 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Operating Expenses                      |       | 5,439,374  |        | 4.2      |       | 3,001,254 |   | 2.6 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Operating Income                        |       | 38,230,438 |        | 29.2     |       | 37,106,377 |   | 32.6 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Other Income (Expense)                  |       | 267,363    |        | 0.2      |       | (118,637 | ) | (0.1 | ) |
|                                    |       |       |        |     |       |   |   |   |   |
| Net Income Before Minority  Interest    |       | 38,497,801 |        | 29.4     |       | 36,987,740 |   | 32.5 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Minority Interest in  Subsidiary Income |       | 15,434,801 |        | 11.8     |       | 14,775,906 |   | 13.0 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Net Income                              | ** ** | $          | 23,063,000  |     | 17.6       |   | $ | 22,211,834 |   | 19.5 |   |

 

*Revenues*

 

The increase in revenuesfrom fiscal year 2007 compared to fiscal year 2006 is due primarily to anincrease in the price we received for our ethanol.  Net gallons ofdenatured ethanol sold in fiscal 2007 increased approximately 1% over fiscal2006.  The average per gallon price we received for our ethanol sold for2007 increased approximately 13% compared to the twelve months ended September 30,2006.  Sales of co-products increased by approximately 17% in 2007compared to co-products sales in 2006 due to increased sales of corn oil.  Ethanol related derivatives reduced ourrevenues by approximately $2,102,000 in our fiscal year ended September 30,2007.

 

Due to a number offactors, including the higher price of petroleum gasoline and seasonal demand,ethanol prices remained high during the period covered by this report. Webelieve the favorable prices are primarily due to strong demand for ethanol,created by a number of factors, including the declining use of MTBE as anoxygenate, the high price of gasoline, which encourages voluntary blending, andthe growing recognition of ethanol as an alternative energy source. Ethanolprices tend to track with the price of petroleum gasoline, therefore, webelieve this trend will continue so long as petroleum gasoline prices remainhigh, a factor over which we have no control. However in 2005, the prices ofethanol and gasoline began a significant divergence, with ethanol selling formuch less than gasoline at the wholesale level, according to the National CornGrowers Association. The greatest effect on the price of ethanol is the supplyand demand for ethanol in specific markets. As MTBE is phased out due to itsthreat to groundwater quality, the demand for ethanol has increased.  Prices also vary according to location andthe time of year. This is because summertime gasoline is controlled forevaporative emissions. Thus, summertime gasoline is more expensive to producethan winter gasoline. Ethanol blends are no different. Additionally, blendingeconomics can vary from one region of the country to another, creatingsignificant difference in the pump price even though ethanol prices are similarin each region.  Ethanol prices are stillhigher than the 10-year average. However, we cannot guarantee that the price ofethanol will not significantly decrease due to factors beyond our control.

 

A greater supplyof ethanol on the market from additional plants and plant expansions couldreduce the price we are able to charge for our ethanol, especially if supplyoutpaces demand. As of November 2007, the Renewable Fuels Associationreports that there were 134 ethanol plants in operation nationwide with thecapacity to produce 7.23 billion gallons annually, with approximately 26ethanol plants under construction and 14 planned expansions, expanding totalethanol production capacity by an additional 3.38 billion gallons. Accordingly,the price of ethanol may trend downward if supply exceeds demand, which wouldnegatively impact our earnings.

 

28

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With respect toco-products, we are exploring new ways to market and utilize our corn oil andwe believe this will result in the continued increase of our sales for ourco-products.

 

*Cost of Goods Sold*

 

Our cost of goodssold as a percentage of revenues were 66.6% and 64.8% for the twelve monthsended September 30, 2007 and 2006, respectively.  The increase in ourcost of goods sold as a percentage of revenues from period to period isprimarily due increase in the price of corn. This effect was partially offset by gains from corn derivatives.  The average price paid for corn, net ofderivative gains, increased approximately 41% in 2007 compared to the twelvemonths ended September 30, 2006.

 

This increasedcost was partially offset by our decreased natural gas costs.  For the twelve months ended September 30,2007, our natural gas costs, net of derivative gains, decreased approximately35% compared to the twelve months ended September 30, 2006.  However, the impact of decreased natural gascosts in less than the impact of adverse changes to the corn costs.

 

The increase inour cost of goods sold was impacted by changes in the fair value of ourderivative instruments.  Our cost ofgoods sold includes a gain of approximately $15,059,000 for fiscal year 2007related to our derivative instruments, compared to a gain of approximately $1,311,000for fiscal year 2006.  We recognize thegains or losses that result from the changes in the value of our derivativeinstruments in cost of goods sold as the changes occur.  As corn and natural gas prices fluctuate, thevalue of our derivative instruments are impacted, which affects our financialperformance.  We anticipate continuedvolatility in our cost of goods sold due to the timing of the changes in valueof the derivative instruments relative to the cost and use of the commoditybeing hedged.

 

Corn costs significantlyimpact our cost of goods sold.  As of November 9, 2006, United StatesDepartment of Agriculture’s National Agricultural Statistics Service projectedthe 2006 national corn production at approximately 10.7 billion bushels, whichwould be the third largest corn crop on record, and Iowa production at 2.0billion bushels.  However, despite thelarge 2006 corn crop, corn prices have increased sharply since August 2006.  Additionally, due to increased exposure ofethanol, corn is now being viewed as an “energy commodity” as opposed tostrictly a “grain commodity,” contributing to the upward pressure on cornprices.  A recent USDA report entitled “WorldAgricultural Supply and Demand Estimates” (December 11, 2007), projectU.S. corn prices for the season average to be at $3.35 to $3.95 per bushel. Forthe 12 months ended September 30, 2006, we paid a weighted average of$1.90 per bushel of corn.  For the 12months ended September 30, 2007, we paid a weighted average of $3.45 perbushel of corn.  This trajectory ofincreasing prices suggest the USDA prediction that 2007 corn prices could reach$3.95 per bushel or more is a reasonable expectation.

 

Natural gas has recentlybeen available only at prices exceeding historical averages. Historically,natural gas prices in the $5/mmbtu range were considered high.  These prices are continuing to increase our costs of production.  For the12 months ended September 30, 2006, we paid a weighted average of $10.80per mmbtu.  For the 12 months ended September 30,2007, we paid a weighted average of $7.48 per mmbtu.  The prices we paid during the last two fiscalyears support our statements that the natural gas market has increasing pricesand an unpredictable market situation.

 

*OperatingExpenses*

 

Our operating expenses,as a percentage of revenue, increased by approximately 4.2% and 2.6% for fiscalyear 2007 and 2006 respectively. This increase resulted from increased costsassociated with the Sarbanes Oxley 404 implementation, costs from thePartnership’s subsidiary, Akron, increased marketing fees, and businessinterruption insurance.  Although we cangive no assurances, the plant expansion may increase our operating efficiency,which would maintain or lower our operating expenses as percentage of revenues.

 

*OperatingIncome*

 

Our income fromoperations for fiscal year 2007 totaled approximately $38,230,000****comparedto $37,106,000 for fiscal year 2006.  This was a result of the increase insales revenue for fiscal year 2007 partially offset by the increase in cost ofgoods sold as a percentage of revenues for the same period.

 

29

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*Other Income and Expense*

 

Our other income andexpense for the twelve months ended September 30, 2007 was income ofapproximately $267,000 compared to an expense of approximately $119,000 for thetwelve months ended September 30, 2006. In fiscal 2007 our interest income increased 11.4% over fiscal2006.  In addition, our interest expensedecreased as interest is being capitalized during the construction period.  We capitalized approximately $1,389,000during our fiscal year ended September 30, 2007.

 

***Comparison of Fiscal Years Ended******September 30,2006 and 2005*****.**

 

The following table shows the results of ouroperations and the percentage of revenues, cost of goods sold, operatingexpenses and other items to total revenues in our consolidated statements ofoperations for the fiscal years ended September 30, 2006 and 2005:

 
| ** **                              | ** ** | **2006**   | ** **  | **2005** | ** ** |
|-----------------------------------------|------------|------------|-------------|----------|------------|
| **Income  Statement Data**              | ** ** | **Amount** | ** **  | **%**    | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                                |       | $          | 113,785,666 |     | 100.0      |   | $ | 95,881,420 |   | 100.0 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Cost of Goods Sold                      |       | 73,678,035 |        | 64.8     |       | 65,257,086 |   | 68.1 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Gross Margin                            |       | 40,107,631 |        | 35.2     |       | 30,624,334 |   | 31.9 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Operating Expenses                      |       | 3,001,254  |        | 2.6      |       | 6,542,308 |   | 6.8 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Operating Income                        |       | 37,106,377 |        | 32.6     |       | 24,082,026 |   | 25.1 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Other Income (Expense)                  |       | (118,637   | )           | (0.1     | )          | (561,560 | ) | (0.6 | ) |
|                                    |       |       |        |     |       |   |   |   |   |
| Net Income Before Minority  Interest    |       | 36,987,740 |        | 32.5     |       | 23,520,466 |   | 24.5 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Minority Interest in  Subsidiary Income |       | 14,775,906 |        | 13.0     |       | 9,421,765 |   | 9.8 |   |
|                                    |       |       |        |     |       |   |   |   |   |
| Net Income                              |       | $          | 22,211,834  |     | 19.5       |   | $ | 14,098,701 |   | 14.7 |   |

 

*Revenues*

 

The increase in revenuesfrom fiscal year 2006 compared to fiscal year 2005 is due primarily to anincrease in the price we received for our ethanol.  Net gallons ofdenatured ethanol sold in fiscal 2006 increased approximately 8% over fiscal2005.  The average per gallon price we received for our ethanol sold for2006 increased approximately 14% compared to the twelve months ended September 30,2005.  Sales of co-products decreased by approximately 4% in 2006compared to co-products sales in 2005 due to a reduction in the average sellingprice for these co-products.

 

*Cost of Goods Sold*

 

Our cost of goods sold asa percentage of revenues were 64.8% and 68.1% for the twelve months ended September 30,2006 and 2005, respectively.  The decrease in our cost of goods sold as apercentage of revenues from period to period is primarily due to the increasein revenue during a stable corn market. Revenues increased approximately 18.7% for the twelve months ended September 30,2006 compared to the twelve months ended September 30, 2005, however, ourcorn costs increased only approximately 6.3% for this same time period. This benefit was partially offset by our increased natural gas costs.  For the twelve months ended September 30,2006, our natural gas costs increased approximately 88.4% compared to thetwelve months ended September 30, 2006. However, the impact of the increased natural gas costs is less than theimpact of adverse changes to ethanol prices and corn costs.

 

30

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The increase inour cost of goods sold was impacted by changes in the fair value of ourderivative instruments.  Our cost of goods sold includes a gain ofapproximately $1,311,000 for fiscal year 2006 related to our derivativeinstruments, compared to a loss of approximately $2,697,000 for fiscal year2005.  We recognize the gains or losses that result from the changes inthe value of our derivative instruments in cost of goods sold as the changesoccur.  As corn and natural gas prices fluctuate, the value of ourderivative instruments are impacted, which affects our financial performance.

 

*Operating Expenses*

 

Our operating expenses,as a percentage of revenue, remained consistent at approximately 2.6% and 2.7%for fiscal year 2006 and 2005 respectively. Our operating expense amounts have remained fairly level from period toperiod.  Although we can give noassurances, the plant expansion may increase our operating efficiency whichwould maintain or lower our operating expenses as a percentage of our revenues.

 

At September 30,2005 and during the first fiscal quarter of 2006, we were involved in a disputewith ADM regarding the actual price ADM is required to pay for all the ethanolit purchased from LSCP under the ethanol marketing agreement.  The dispute arose over ADM’s claimed failureto include its gains and losses from gasoline index hedges in calculating theprice ADM is to pay to LSCP, which resulted in an overpayment for all theethanol purchased by ADM from LSCP since the inception of the ethanol marketingagreement through September 30, 2005. After engaging independentaccountants to review ADM’s claimed overpayment, on February 17, 2006, weentered into a settlement agreement with ADM in resolution of this dispute.Under the terms of the settlement agreement, both parties agreed to release anddischarge each other from any and all claims relating to the inclusion of gainsand losses from gasoline index hedges in calculating the price ADM is to payLSCP under the ethanol marketing agreement through September 30,2005.  In addition, as consideration forthe release of claims by ADM, we agreed to pay a single cash payment ofapproximately $3.9 million to ADM upon execution of the settlement agreement.

 

*OperatingIncome*

 

Our income fromoperations for fiscal year 2006 totaled approximately $37,106,000 compared toapproximately $27,989,500 for fiscal year 2005.  This was a result of theincrease in sales revenue for fiscal year 2006 combined with the decrease incost of goods sold as a percentage of revenues for the same period.  We expect the additionalexpansion of our plant’s production capacity by an additional 40 milliongallons annually will increase our annual operating income as a result ofincreases in revenue and operating efficiency.  There is no assurance,however, that theexpansionwill reduce our operating costs or increase our operating income.  Ourexpansion projections are based upon our historical operating costs and historicalrevenues and there is no guarantee or assurance that our past financialperformance can accurately predict future results especially in connection withexpansion.  In addition, the expansion may present additional challengesand risks that negatively impact our future financial performance.

 

*Other Income and Expense*

 

Our other income andexpense for the twelve months ended September 30, 2006 was an expense ofapproximately $118,600 compared to an expense of approximately $4,469,066 forthe twelve months ended September 30, 2005.  This reduction inexpenses was a resulted from a settlement of a dispute with ADM that wasrecorded in fiscal 2005.

 

OurCCC Bioenergy payments were approximately $93,000 for the twelve months ended September 30,2006 compared to approximately $173,000 for the twelve months ended September 30,2005.  Income from the United States Department ofAgriculture’s Commodity Credit Corporation Bioenergy Program during 2006 wassignificantly less than the amount we were eligible for based on our increasesin production.  This reduction was attributed to increased participationby ethanol producers, decreased funding, and a termination of the program on June 30,2006.

 

We previously classifiedour ADM settlement, discussed above, as other expense, however, in the currentfinancial statements we reclassified the settlement as operating expenses.

 

 

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**Strategies:Expansion**

 

***Marcus Plant Expansion***

 

Duringfiscal year 2006, we commenced a plant expansion which when completed, willincrease the ethanol production capacity of our plant by 40 million gallons to92 million gallons annually. We expect the expansion to be substantiallycomplete early in the 2008 calendar year and that the total cost of theexpansion project will be approximately $73,000,000. The completion date andcost of the expansion project is a preliminary estimate and we expect it willchange as we continue to gather information relating to the expansion. The grain storage and process parts of the expansion are approximately 95%completed.  Final land grading and rail siding work will be completed inthe July to September 2008 time period.

 

 Weexpect to finance the 40 million per year expansion using both a portion of ourcash and additional debt to finance the required capital expenditures.  Wedo not expect to seek additional equity from our members to fund thisexpansion.  On April 5, 2007, we entered into an Amended and RestatedConstruction Loan Agreement (the “Amended Agreement”) with First National Bankof Omaha, N.A. (“FNBO”).  Under the Amended Agreement, FNBO has agreed toloan us up to $73,000,000 (the “Construction Loan”) for the purpose ofpartially funding the construction of the 40 million gallon per year expansionof our facility and the subsequent replacement of the Construction Loan with anamount of up to $82,278,227 (the “Term Loan”), together with a $5,000,000operating line of credit and letter of credit facility (the “Operating Loan”)and swap contracts.  For additional information regarding our expansiondebt financing commitment, see “**Item 2—Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Indebtedness, *Expansion Debt Financing***.”

 

Managementanticipates that the plant will continue to operate at or above name-platecapacity of 52 million gallons per year until the expansion is completed, atwhich time the name-plate capacity will increase to 92 million gallons peryear.  We estimate that the plant will start operating at 92 milliongallons per year in early 2008, although tangential work on the expansionproject, such as rail siding, road work and landscaping, will continue untilthe project is fully complete in mid 2008.  This current expansion will becompleted while the current facility remains in production.  However, theplant may be shut down from time to time to incorporate expansion improvements.

 

Weexpect to have sufficient cash from cash flow generated by continuingoperations, additional debt financing secured to fund plant expansion, currentlines of credit through our revolving promissory note, and cash reserves tocover the costs of expansion as well as our usual operating costs over the next12 months, which consist primarily of corn supply, natural gas supply, staffing,office, audit, legal, compliance, working capital costs and debt serviceobligations.

 

Aftercompletion of this expansion, our total operating costs are expected toincrease because of the increase in our production capacity.  We expect tooffset the increase in operating costs by increased ethanol revenues, however,a variety of market factors can affect both operating costs and revenues. These factors include:

 

| · | Changes in the availability and price of corn;                                          |
|--------|-----------------------------------------------------------------------------------------|
|   |                                                                                    |
| · | Changes in the environmental regulations that apply to our plant  operations;           |
|   |                                                                                    |
| · | Increased competition in the ethanol and oil industries;                                |
|   |                                                                                    |
| · | Changes in interest rates or the availability of credit;                                |
|   |                                                                                    |
| · | Changes in our business strategy, capital improvements or development  plans;           |
|   |                                                                                    |
| · | Changes in plant production capacity or technical difficulties in  operating the plant; |

 

32

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| · | Changes in general economic conditions or the occurrence of certain  events causing an economic impact in the agriculture, oil or automobile  industries; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                      |
| · | Changes in the availability and price of natural gas and the market  for distillers grains; and                                                           |
|   |                                                                                                                                                      |
| · | Changes in federal and/or state laws (including the elimination of  any federal and/or state ethanol tax incentives).                                     |

 

***Development of Akron Ethanol Plant***

 

Inaddition to expansion of the plant, we executed a subscription agreement topurchase 27,500 Class A units in Akron, our wholly owned subsidiary. Akron is an Iowa limited liability company organized for the purpose ofdeveloping and constructing a 100 million gallon per year ethanol plant inPlymouth County near Akron, Iowa.  We have initially capitalized Akron bycommitting to contribute $9,999,900 in exchange for 15,000 Class A unitsat the price of $666.66 per unit and $10,000,000 in exchange for 12,500 Class Aunits at a price of $800 per unit.  In connection with our subscription, Akronhas received total non-cash proceeds from the Partnership of approximately $6,037,000consisting of approximately $890,000 in services, approximately $4,647,000 incosts associated with the land purchased and $500,000 paid to Fagen, Inc. bythe Partnership on Akron’s behalf for its letter of intent payment, plus asubscription receivable of approximately $13,962,000.  We will pay Akronthe entire amount due under the subscription receivable within twenty days ofreceiving notice from Akron that it is due.  On March 20, 2007, weassigned two real estate options to Akron for the site of its proposed plantand on June 15, 2007, Akron exercised the two real estate options. On August 10, 2007 Akron closed on the purchase of the two real estateparcels.  In addition, on May 30, 2007, Akron entered into amanagement and operational services agreement with Twin Rivers.  Akron andTwin Rivers are our wholly owned subsidiaries. On August 28, 2007 we decided to suspend development of the Akronproject, due to unfavorable market conditions. We did, however, enter into an amended and extended letter of intentwith Fagen, Inc. on November 9, 2007 to extend the termination dateof June 1, 2008. There is no assurance that our involvement with the Akronplant, or the project, will be successful. The market conditions will be continually evaluated to determine thefeasibility of restarting the Akron project.

 

**Critical Accounting Policies and Estimates**

 

This discussion and analysis of financial conditionand results of operations are based on our financial statements, which havebeen prepared in accordance with accounting principles generally accepted inthe United States.  Note 2 to our auditedconsolidated financial statements contain summaries of our accounting policies,many of which require management to make estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  On an on-going basis,management evaluates its estimates and judgments, including those related toaccrued expenses, financing operations, and contingencies and litigation.  Management bases its estimates and judgments onhistorical experience and on various other factors that it believes to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying value of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.  We do notcurrently deem any of our accounting estimates described in the notes to ourconsolidated financial statements to be critical.

 

**Liquidity and Capital Resources**

 

***Comparison of Fiscal Years Ended******September 30,2007 and 2006*****.**

 
| ** **                              | ** ** | **Year ended September 30,** | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|
| ** **                              | ** ** | **2007**                          | ** ** | **2006** | ** ** |
| Net cash from operating  activities     |       | $                                 | 49,738,138 |   | $ | 32,957,631 |   |
| Net cash used for  investing activities |       | (39,894,514                       | )          | (18,423,815 | ) |
| Net cash used for  financing activities |       | (2,474,139                        | )          | (18,536,079 | ) |
|                                         |            |                                   |            |  |  |  |  |

 

 

*CashFlow From Operations**. *The net cash flow provided from operatingactivities increased by 51% between 2007 and 2006 due to changes in derivativeinstruments, accounts payable and accrued expenses.  Our capital needs arebeing adequately met through cash from our operating activities and our currentcredit facilities.

 

The increaseresulting from improved net income was partially improved by changes inderivative instruments.  Because we donot use hedge accounting, we expect large fluctuations in the values of ourderivative instruments.  For the fiscalyear ended September 30, 2007 we benefited from our derivatives, and withdrewcash of approximately $5,600,000 against our derivatives.  In addition, we also increased the amount ofderivative instruments we entered into during this period of time.  This was a business decision made in anticipationof greater 

 

33

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volatility in the cornand natural gas markets and is intended to reduce the effect of adverse pricechanges for corn and natural gas purchases. We anticipate the value of our derivative instruments to continue tofluctuate.

 

The increaseresulting from improved net income was a result of the timing of interestpayments to our lender for the construction note, higher receivables, higherinventory and restricted cash increases. Our inventory is up mostly because ofhigher corn costs. Our receivables increased largely due to increased sales inSeptember 2007 of our co-products. The increase in accrued payments and accruedexpenses increased our cash flow because we have not yet had to pay theseamounts related to our expansion debt.

 

The increaseresulting from improved net income was also partially due to increased accountspayable.  This change was a result of increasedcorn costs as well as costs associated with our expansion.

 

*CashFlow From Investing Activities**. *We used cash provided primarily byoperating activities and paid additional amounts of capital expenditures whichtotaled approximately $53,807,000 for fiscal 2007 compared to approximately$6,439,000 for fiscal 2006.   Thiswas partially offset by proceeds from short term investments.  No short term investments were purchased infiscal 2007, compared to approximately $18,727,000 for fiscal year ended September 30,2006.

 

In addition, theCompany purchased land associated with the Akron project for approximately$4,457,000, less previous amounts paid.

 

Managementestimates that approximately $1,000,000 in capital expenditures will be made inthe next twelve months for general improvements to the plant, all of which areexpected to be financed from a portion of cash flows from operations and fromcash flows from financing.

 

In October 2006, wecommenced construction of a 40 million gallon per year expansion to ourplant.  The cost of the expansion isexpected to be approximately $73,000,000, which will be financed using both aportion of our cash and additional debt to finance the required capitalexpenditure.  Our expansion projectionsare based upon our historical operating costs and historical revenues and thereis no guarantee or assurance that our past financial performance can accuratelypredict future results especially in connection with expansion.  In addition, the expansion may cost more andmay present additional challenges and risks that negatively impact our futurefinancial performance.  The grain storageand process parts of the expansion are approximately 95% completed.  Finalland grading and rail siding work will be completed in the July to September 2008time period.

 

*CashFlow From Financing Activities**.*We used cash to pay down our debt by approximately$3,316,000 in fiscal 2007 compared to approximately $3,199,000 in fiscal2006.  Additionally, the total amount of cash we distributed to partnersand members totaled approximately $23,846,000 in 2007 compared to approximately$15,337,000 in 2006.  This was offset byproceeds from the construction loan which totaled approximately $25,420,000 infiscal 2007.  No cash was received fromthe construction loan in fiscal 2006.

 

***Comparison of Fiscal Years Ended******September 30,2006 and 2005*****.**

 

| ** **                              | ** ** | **Year ended September 30,** | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|
| ** **                              | ** ** | **2006**                          | ** ** | **2005** | ** ** |
| Net cash from operating  activities     |       | $                                 | 32,957,631 |   | $ | 34,093,417 |   |
| Net cash used for  investing activities |       | (18,423,815                       | )          | (7,409,870 | ) |
| Net cash used for  financing activities |       | (18,536,079                       | )          | (16,454,973 | ) |
|                                         |            |                                   |            |  |  |  |  |

 

*CashFlow From Operations**. *The decrease in net cash flow providedfrom operating activities between 2006 and 2005 was primarily due to changes inderivative instruments, accounts payables and accrued expenses.  Theincrease resulting from improved net income was partially offset by changes inderivative instruments.  Because we donot use hedge accounting we expect large fluctuations in the values of ourderivative instruments.  Therefore, thechange in derivative instruments was more a result of an accounting method thana strategic business decision.  Inaddition, we also increased the amount of derivative instruments we enteredinto during this period of time.  This wasa business decision made in anticipation of greater volatility in the corn andnatural gas markets and is intended to reduce the effect of adverse pricechanges for corn and natural gas purchases. We anticipate the value of our derivative instruments to continue tofluctuate.

 

The increase resultingfrom improved net income was also partially offset by changes in accruedexpenses.  The decrease in accruedexpenses from fiscal year 2005 to fiscal year 2006 was a result of oursettlement payment to ADM.  This paymentwas for $3.9 million and recorded as of September 30, 2005.  This payment was outside our normal operatingexpenses and, therefore, there was no correlating accrual in fiscal year 2006,which resulted in the 

 

34

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large decrease in accruedexpenses for fiscal year 2006.  Becausethis payment released us from any further obligation under this claim, ouraccrued expenses should stay more stable in the future and not have significantmedium or long term effects.  Thesettlement payment was a strategic business decision made by us that increasedexpenses from a settlement payment would be justified.  While our opinion was that we were under nocontractual obligation to pay ADM additional sums, we wished to avoid prolongedand costly litigation and to maintain our relationship with ADM.

 

The increase resultingfrom improved net income was also partially offset by changes in accountspayable.  The decrease in accountspayable was a result of a regular maintenance plant shut down in September 2006,compared to October 2005 in the previous year.  We had either paid for much of our inventoryon hand and other costs to run the plant or had delayed purchasing these itemsat the time of the shutdown.  This eventdecreased our accounts payable in fiscal year 2006 and we did not have a correlatingevent occur in fiscal year 2005.

 

*CashFlow From Investing Activities**. *We used cash provided by operatingactivities for capital expenditures which totaled approximately $6,064,600,related to the initial plant expansion costs and expansion of the grainhandling and storage facilities, for fiscal 2006 compared to fiscal year 2005,and for the purchase of short term investments which increased approximately$11,739,400 in fiscal 2006 compared to fiscal 2005.

 

*CashFlow From Financing Activities**.*We used cash to pay down our debt by approximately$3,199,000 in fiscal 2006 compared to approximately $8,023,000 in fiscal2005.  Additionally, the total amount of cash we distributed to partnersand members totaled approximately $15,336,800 in 2006 compared to approximately$8,431,500 in 2005.

 

**Indebtedness**

 

### ***Short-Term Debt Sources***.We maintain a line of creditwith First National Bank of Omaha through March 2008 to finance short-termworking capital requirements. Under the line of credit, we may borrow up to$5,000,000 under a revolving promissory note. The interest payable on therevolving promissory note is due monthly at the one-month LIBOR plus 2.80%. Wepay a commitment fee of 0.125% on the unused portion of the line. There was nooutstanding balance as of September 30, 2007. The maximum available creditunder this note is based on receivable and inventory balances. Our currentreceivable and inventory balances are not sufficient to allow us to use themaximum amount of the operating line of credit. The operating line of credit issubject to protective covenants requiring us to maintain various financialratios and is secured by all of our business assets.

### ** **

*Long-TermDebt Sources*.We have long-term debt financing consisting of three term notes held by FirstNational Bank of Omaha and referred to as Term Notes 2, 3, and 4. At September 30,2007, the principal balance on Term Note 2 was $9,824,449. Term Note 2 ispayable in quarterly installments. Interest on Term Note 2 is at thethree-month LIBOR plus 2.80%, which totaled 8.38% as of September 30,2007. Term Note 2 is payable in full on June 1, 2008. In order to achievea fixed interest rate on Term Note 2, we entered into an interest rate swapwhich helps protect our exposure to increases in interest rates and the swapeffectively fixes the interest rate on Term Note 2 at 5.79% until June 1,2008.

 

At September 30,2007, the principal balance on Term Note 3 was $3,434,778. Term Note 3 ispayable in quarterly installments. Interest on Term Note 3 is at the three-monthLIBOR plus 2.80%, which totaled 8.38% as of September 30, 2007. Term Note3 is payable in full on June 1, 2008. As part of the financing agreement,we have agreed to pay an annual servicing fee of $50,000.  However, under our commitment letter withFirst National Bank of Omaha for our expansion debt financing, this annualservicing fee will be reduced to $30,000.

 

At September 30,2007, there was no principal balance on Term Note 4.  Interest on TermNote 4 is at the one-month LIBOR plus 2.80%. Term Note 4 is payable in full on June 1,2008. Term Note 4 allows borrowings up to the original principal of $5,000,000to the extent of principal payments made until maturity.

 

We have aconstruction note for up to $73,000,000 for the partial funding of the 40 MMGYexpansion to the Marcus facility.  The principal balance on this note was$25,419,785 as of September 30, 2007 and will convert into term notes atthe completion of the construction.  Interest on the construction note isat the one-month LIBOR plus 3.10%, which totaled 8.77% as of September 30,2007.

 

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At September 30,2007 the aggregate indebtedness represented by Term Notes #2, #3, #4, and theConstruction Loan was $38,679,012.

 

We have a capitallease obligation in the amount of $39,524 on which we pay monthly installmentstotaling $6,658, with an implicit interest rate of 3.67%. This obligation issecured by the leased equipment and runs through March 1, 2008.

 

We have a note inthe amount of $55,555 payable to the Iowa Energy Center on which we pay monthlyinstallments of $3,472 without interest. This note is secured by real estate,but is subordinated to the term notes. It matures on January 29, 2009.

 

Wehave a note with Farmers State Bank of Marcus, Iowa in the amount of $63,709 onwhich we pay monthly installments of $5,921, including interest at 6%. Thisnote is secured by real estate, but is subordinated to the term notes. Itmatures on January 29, 2009.

 

Wehave a note totaling $164,500 payable to the Iowa Department of EconomicDevelopment on which we pay monthly installments of $1,167 without interest.This note is secured by all equipment and matures on July 1, 2009.

 

*Expansion Debt Financing**.*On April 5, 2007, we entered into anAmended and Restated Construction Loan Agreement (the “Amended Agreement”) withFirst National Bank of Omaha, N.A. (“FNBO”).  Under the Amended Agreement,FNBO has agreed to loan us up to $73,000,000 (the “Construction Loan”) for thepurpose of partially funding the construction of the 40 million gallon per yearexpansion of our facility and the subsequent replacement of the ConstructionLoan with an amount of up to $82,278,227 (the “Term Loan”), together with a$5,000,000 operating line of credit and letter of credit facility (the “OperatingLoan”) and swap contracts.  The principal balance on this note was$25,419,785 as of September 30, 2007.  In order to achieve a fixedinterest rate on portions of our expansion debt, we entered into an interestrate swap which helps protect our exposure to increases in interest rates. Theswap fixes the interest rate on $36,500,000 of debt related to the expansionfinancing at 7.68% for the period of March 1, 2008 to March 1, 2013.The note will convert into term notes at the completion of construction. Interest on the construction notes is at the one-month LIBOR plus 3.10%, whichtotaled 8.77% as of September 30, 2007.

 

Under the AmendedAgreement, the existing swap note and a business credit card loan are subjectto the same terms and conditions, including interest rate, interest period,repayment terms, as our previous credit facility with FNBO.  In addition,through the Construction Loan termination date, the existing variable rate noteand the existing long term revolving note will continue to be subject to thesame terms and conditions, including interest rate, interest period, repaymentterms, as our existing credit facility; provided, however, interest shallaccrue on the existing variable rate note and the existing long term revolvingnote at a variable rate equal to the applicable LIBOR Rate set forth in suchnotes, plus (a) 2.80% prior to acceleration or maturity, and (b) anadditional 6.00% after maturity, whether by acceleration or otherwise.  Onthe construction loan termination date, the existing variable rate note and theexisting long term revolving note will be converted with the construction loaninto the term loan described below.

 

The AmendedAgreement also provides for refinancing of our existing operating note. Under the refinanced operating loan (the “Operating Loan”) FNBO will loan us anamount up to $5,000,000, which shall provide both operating line of creditfinancing and FNBO will issue letters of credit at our request.  Theaggregate amount of any letter of credit at the time of issuance shall notexceed $1,000,000 and unless otherwise agreed to by FNBO, no letter of creditshall have an expiration date more than one (1) year from the date ofissuance. We may borrow, repay and re-borrow under the Operating Loan, withoutpenalty or premium, either the full amount of the Long Term Revolving Loan orany lesser sum.

 

During theconstruction period interest on the Construction Loan will be payable on aquarterly basis on the outstanding principal amount at a variable rate equal tothe one-month LIBOR Rate, in effect from time to time, plus (a) 3.10%prior to acceleration or maturity, and (b) an additional 6.00% aftermaturity, whether by acceleration or otherwise.  On the Construction Loantermination date, the Construction Loan will be converted into the Term Loanand replaced by the following term notes:

 

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(a)          The Swap Note. A loan in the maximum amount of $36,500,000. Interest on the Swap Note shall accrue at a variable rate equal to thethree-month LIBOR Rate, in effect from time to time, plus (a) 2.60% priorto acceleration or maturity, and (b) an additional 600 basis points aftermaturity, whether by acceleration or otherwise.  The Swap Note will matureand terminate on the fifth anniversary of the Construction Loan terminationdate.

 

(b)          The Variable Rate Note.  A loan in the maximum amount of$35,778,227 representing the principal balance of the Construction Note plusthe entire principal amount and all accrued and unpaid interest under theexisting variable rate note, if any, less the Swap Note and less $5,000,000 ofthe Long Term Revolving Loan.  Interest on the Variable Rate Note shallaccrue at a variable rate equal to the three-month LIBOR Rate, in effect fromtime to time, plus (a) 3.00% prior to acceleration or maturity, and (b) anadditional 600% after maturity, whether by acceleration or otherwise. TheVariable Rate Note will mature and terminate on the fifth anniversary of theConstruction Loan termination date.

 

(c)          The Long Term Revolving Note.  A loan in the maximum amount of$10,000,000 representing the entire principal amount and all accrued and unpaidinterest under the existing long term revolving note, if any, and $5,000,000converted from the Construction Loan on the Construction Loan terminationdate.  Interest on the Long Term Revolving Note shall accrue at a variablerate equal to the three-month LIBOR Rate, in effect from time to time, plus (a) 3.00%prior to acceleration or maturity, and (b) an additional 6.00% aftermaturity, whether by acceleration or otherwise.  We may borrow, repay andre-borrow under the Long Term Revolving Loan, without penalty or premium,either the full amount of the Long Term Revolving Loan or any lesser sum untiltermination of the Long Term Revolving Note. The Long Term Revolving Note willmature and terminate on the fifth anniversary of the Construction Loantermination date.

 

We are obligatedto repay the Term Loan as follows:

 

(a)                                  We will make quarterly principal paymentson the Swap Note ranging from approximately $612,000 to $859,000 plus accruedinterest commencing on the first day of the first quarter immediately followingthe Construction Loan termination date. A final balloon payment ofapproximately $23,000,000 will be due on the termination date of the Swap Note.

 

(b)                                 We will make quarterly payments of$1,362,429 beginning the first day of the first quarter immediately followingthe Construction Loan termination date which shall be allocated asfollows:  (i) first to accrued and unpaid interest on the Long TermRevolving Note, (ii) next to accrued and unpaid interest on the VariableRate Note, and (iii) next to principal on the Variable Rate Note.

 

(c)                                  After the Variable Rate Note has beenfully paid, such quarterly payments shall be allocated first to accrued andunpaid interest on the Long Term Revolving Note, and then to principal on theLong Term Revolving Note, with reductions in the availability thereof .

 

(d)                                 At the end of each fiscal year, we mustapply an amount equal to 25% of our excess cash flow but not to exceed$5,000,000 to the term notes.  Excess cash flow is determined as EBITDAless capital expenditures, taxes and allowable distributions, required paymentsto FNBO and subordinated debt.

 

(e)                                  Notwithstanding the foregoing, all unpaidprincipal and accrued and unpaid interest for all Term Notes shall be due andpayable on their respective termination dates, if not sooner paid.

 

In connection withthe Amended Agreement, we executed a mortgage in favor of FNBO creating a firstlien on our real estate and plant and a security interest in all personalproperty located on our property.  In addition, we assigned, in favor ofFNBO, all rents and leases to our property, the design/build contract, ourmarketing contracts, risk management services contract and lease agreement.

 

As a condition toFNBO making loans under the Amended Agreement, we were required to collaterallyassign to FNBO all of our right, title and interest in and to any and allmembership or other equity interest in Akron

 

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in exchange for its consentto our making an equity contribution in the aggregate amount of approximately$20,000,000 to Akron.  In addition, we will also be subject to certainfinancial loan covenants consisting of minimum working capital, minimum debtcoverage, and minimum tangible net worth.  After the construction phase,we will only be allowed to make annual capital expenditures up to $1,000,000annually without prior approval.  We will also be prohibited from makingdistributions to our members of greater than 40% of the net income for suchfiscal year if our leverage ratio (combined total liabilities to net worth) isgreater than or equal to 1.0:1.0.  If our leverage ratio is less than1.0:1.0, we may make distributions up to 65% of our net income.  We mustbe in compliance with all financial ratio requirements and loan covenantsbefore and after any distributions to our members.  Our failure to complywith the protective loan covenants or maintain the required financial ratiosmay cause acceleration of the outstanding principal balances on the revolvingpromissory note and terms notes and/or the imposition of fees, charges orpenalties.  Any acceleration of the debt financing or imposition ofsignificant fees, charges or penalties may restrict or limit our access to thecapital resources necessary to continue plant operations.

 

Upon an occurrenceof an event of default or an event which will lead to our default, FNBO mayupon notice terminate its commitment to loan funds and declare the entireunpaid principal balance of the loans, plus accrued interest, immediately dueand payable.   An event of default includes, but is not limited to,our failure to make payments when due, insolvency, any material adverse changein our financial condition or our breach of any of the covenants,representations or warranties we have given in connection with the transaction.

 

***Contractual Obligations and Commercial Commitments***

 

In addition to ourlong-term debt obligations, we have certain other contractual cash obligationsand commitments.  The following tables provide information regarding ourconsolidated contractual obligations and commitments as of September 30,2007:

 
| ** **                          | ** ** | **Payment Due By Period** | ** ** |
|-------------------------------------|------------|---------------------------|------------|
| **Contractual Cash Obligations**    | ** ** | **Total**                 | ** ** | **Less than  One Year** | ** ** | **One to  Three  Years** | ** ** | **Three to  Five  Years** | ** ** | **Greater  than Five  Years** | ** ** |
|                                |       |                      |       |   |   |   |   |   |   |   |   |
| Long-Term Debt  Obligations(1)      |       | $                         | 49,037,116 |   | $ | 17,873,291 |   | $ | 8,997,039 |   | $ | 22,166,766 |   | $ | — |   |
| Operating Lease  Obligations        |       | 2,379,600                 |       | 406,014 |   | 539,480 |   | 475,920 |   | 1,189,800 |   |
| Purchase Obligations(2)             |       | 30,605,933                |       | 30,564,614 |   | 785,692 |   | — |   | — |   |
| Other Long-Term  Liabilities        |       | —                    |       | — |   | — |   | — |   | — |   |
| Total Contractual Cash  Obligations |       | $                         | 83,615,302 |   | $ | 69,356,694 |   | $ | 14,258,608 |   | $ | 22,642,686 |   | $ | 1,189,800 |   |

----

| **(1)** |   | Long Term Debt Obligations include estimated  interest and interest on unused debt.                                                                         |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(2)** |   | Purchase obligations primarily include forward  contracts for corn, natural gas, and denaturant as well as remaining amounts  for construction in progress. |

 

**Off-BalanceSheet Arrangements.**

 

We do not have anyoff-balance sheet arrangements.

 

**ITEM 7A.****                                           ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK.**

 

Weare exposed to the impact of market fluctuations associated with interest ratesand commodity prices as discussed below. We have no exposure to foreigncurrency risk as all of our business is conducted in U.S. Dollars. We usederivative financial instruments as part of an overall strategy to managemarket risk. We use cash, futures and option contracts to hedge changes to thecommodity prices of corn and natural gas. We do not enter into these derivativefinancial instruments for trading or speculative purposes, nor do we designatethese contracts as hedges for accounting purposes pursuant to the requirementsof SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities*.

 

**InterestRate Risk**

 

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Weare exposed to market risk from changes in interest rates. Exposure to interestrate risk results primarily from holding a revolving promissory note, aconstruction note and three term notes which bear variable interestrates.  Specifically, we have approximately $28,855,000 outstanding invariable rate debt as of September 30, 2007. The specifics of each noteare discussed in greater detail in “**Item 7 — Management’s Discussion andAnalysis of Financial Condition and Results of Operations — Indebtedness**.”

 

Inorder to achieve a fixed interest rate on portions of our debt, we entered intointerest rate swaps which help protect our exposure to increases in interestrates and the swaps fix the interest rate on Term Note 2 at 5.79% until June 1,2008, and fixes the interest rate on $36,500,000 of debt, related to theexpansion financing, at 7.68% for the period of March 1, 2008 to March 1,2013.  When the three-month LIBOR plus 2.80% exceeds the fixed rate of5.79% or 7.68%, we receive payments for the difference between the market rateand the swap rate.  Conversely, when the three-month LIBOR plus 2.80% isbelow 5.79% or 7.68%, we make payments for the difference between the marketrate and the swap rate.  While our exposure is now greatly reduced, therecan be no assurance that the interest rate swap agreement will provide us withprotection in all scenarios.  For example, if interest rates were to fallbelow 5.79% or 7.68%, as applicable, we would still be obligated pay interestat the fixed rate.

 

**CommodityPrice Risk**

 

Weare also exposed to market risk from changes in commodity prices. Exposure tocommodity price risk results from our dependence on corn and natural gas in theethanol production process. We seek to minimize the risks from fluctuations inthe prices of corn and natural gas through the use of derivative instruments.In practice, as markets move, we actively manage our risk and adjust hedgingstrategies as appropriate. Although we believe our hedge positions accomplishan economic hedge against our future purchases, they are not designated as suchfor hedge accounting purposes, which would match the gain or loss on our hedgepositions to the specific commodity purchase being hedged. We are marking tomarket our hedge positions, which means as the current market price of ourhedge positions changes, the gains and losses are immediately recognized in ourcost of goods sold.

 

Theimmediate recognition of hedging gains and losses can cause net income to bevolatile from quarter to quarter due to the timing of the change in value ofthe derivative instruments relative to the cost and use of the commodity beinghedged. At September 30, 2007 and September 30, 2006, the fair valueof our derivative instruments for corn, natural gas, and gasoline is asset inthe amount of approximately $9,426,000 and an asset in the amount ofapproximately $7,956,000, respectively. There are several variables that couldaffect the extent to which our derivative instruments are impacted by pricefluctuations in the cost of corn or natural gas. However, it is likely thatcommodity cash prices will have the greatest impact on the derivativesinstruments with delivery dates nearest the current cash price.

 

Tomanage our corn price risk, our hedging strategy is designed to establish aprice ceiling and floor for our corn purchases. We have taken a net longposition on our exchange traded futures and options contracts, which allows usto offset increases or decreases in the market price of corn. The upper limitof loss on our futures contracts is the difference between the contract priceand the cash market price of corn at the time of the execution of the contract.The upper limit of loss on our exchange traded and over-the-counter optioncontracts is limited to the amount of the premium we paid for the option.

 

Weestimate that our expected corn usage is approximately 19 million bushels peryear for the production of 52 million gallons of ethanol. We have price protectionin place for a portion of our expected corn usage for fiscal year 2008 usingforward contracts, CBOT futures and options and Over-the-Counter optioncontracts. As corn prices move in reaction to market trends and information,our income statement will be affected, depending on the impact such marketmovements have on the value of our derivative instruments. As we move forward,additional price protection may be required to solidify our margins in thecurrent and future fiscal years. Depending on market movements, crop prospectsand weather, these price protection positions may cause immediate adverseeffects, but are expected to produce long-term positive growth for us.

 

Tomanage our natural gas price risk, we entered into a natural gas purchaseagreement with our supplier to supply us with natural gas. This purchaseagreement fixes the price at which we purchase natural gas. We estimate we havepurchased a portion of our 2008 natural gas requirements utilizing both cash,futures and options contracts. We may also purchase additional natural gasrequirements for the 2008 calendar years as we attempt to further 

 

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reduceour susceptibility to price increases. We recently entered into gasolinederivative instruments to hedge the variability of ethanol prices. While notperfectly correlated, we have found that ethanol and gasoline prices tend tomove in tandem. Therefore, the gasoline contracts we have entered into areintended to offset cash decreases in the price of ethanol we receive.

 

Asensitivity analysis has been prepared to estimate our exposure to corn,gasoline and natural gas price risk. The table presents the net fair value ofour derivative instruments as of September 30, 2007 and September 30,2006 and the potential loss in fair value resulting from a hypothetical 10%adverse change in such prices. The fair value of the positions is a summationof the fair values calculated by valuing each net position at quoted marketprices as of the applicable date. The results of this analysis, which maydiffer from actual results, are as follows:

 
| ** **              | ** ** | ** ** | **Fair Value** | ** ** | **Effect of Hypothetical  Adverse Change —  Market Risk** | ** ** |
|-------------------------|------------|------------|---------------------|------------|-----------------------------------------------------------------------------------------|------------|
| September 30, 2007 |       |       | $                   | 9,426,000  |                                                                                    | $          | 942,600 | ** ** |
| September 30, 2006 |       |       | $                   | 7,956,000  |                                                                                    | $          | 795,600 |   |

 

**ITEM 8.****                                                        ****FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA.**

 

Our consolidatedfinancial statements and supplementary data are included beginning at page F-1of this Report.

 

**ITEM 9.****                                                        ****CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.**

 

Boulay, Heutmaker, Zibell & Co.,P.L.L.P. has been our independent registered public accountants since theCompany’s inception and is the Company’s independent auditor at the presenttime.  The Company has had nodisagreements with its auditors.

 

**ITEM 9A.****                                               ****CONTROLS ANDPROCEDURES.**

 

Our management, with the participation of ourChief Executive Officer and Chief Financial Officer, has evaluated theeffectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) as of the end of the period covered by this report. Based on thatevaluation, our Chief Executive Officer and Chief Financial Officer haveconcluded that, as of the end of such period, our disclosure controls andprocedures were not effective because of the material weakness discussed below.

 

There were adjustments to our financial statementsand other factors during the course of the 2007 audit which impacted ourclosing process and delayed the preparation of our consolidated financialstatements, including all required disclosures, in a timely manner. The auditadjustments to our original trial balance impacted a number of balance sheetand income accounts. In addition, several of these adjustments were notidentified until after our year end. These deficiencies constituted a materialweakness in our financial close process.

 

**CHANGES IN INTERNAL CONTROLS OVERFINANCIAL REPORTING**

 

We are in the process of upgrading our systems,implementing additional financial and management controls, and reportingsystems and procedures.  We are currentlyundergoing a comprehensive effort in preparation for compliance with Section 404of the Sarbanes-Oxley Act of 2002. This effort, under the direction of seniormanagement, includes documentation, and testing of our general computercontrols and business processes. We are currently in the process of formalizingan internal audit plan that includes performing a risk assessment, establishinga reporting methodology and testing internal controls and procedures overfinancial reporting.

 

In connection with the material weakness describedabove, our auditors recommended that we continue to create and refine astructure in which critical accounting policies and estimates are identified,and together with 

 

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othercomplex areas, are subject to multiple reviews by accounting personnel. Ourauditors further recommended that we enhance and test our year-end financial closeprocess

 

Except as described above, there has been nochange in our internal control over financial reporting (as defined in Rule 13a-15(f) underthe Exchange Act) that occurred in fiscal year ended September 30, 2007that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

**ITEM 9B.               OTHERINFORMATION.**

 

                None.

 

**PART III****.**

 

Pursuant toGeneral Instruction G (3), we omit Part III, Items 10, 11, 12, 13, and 14and incorporate such items by reference to an amendment to this Annual Reporton Form 10-K or to a definitive proxy statement to be filed with theSecurities and Exchange Commission within 120 days after the close of thefiscal year covered by this Annual Report (September 30, 2007).

 

**PART IV.**

 

**ITEM 15.****                                                 ****EXHIBITS****, FINANCIAL STATEMENT SCHEDULES****.**

 

        The following exhibits and financialstatements are filed as part of, or are incorporated by reference into, thisreport:

 

**(1)****                                  ****Financial Statements**

 

An index to the financial statements included in thisreport appears at page F-1. The financial statements appear beginning at page F-2of this Report.

 

**(2)****                                  ****Financial StatementSchedules**

 

All supplemental schedules are omitted as the requiredinformation is inapplicable or the information is presented in the consolidatedfinancial statements or related notes.

 

**(3)****                                  ****Exhibits**

 

| **Exhibit No.** | ** **                                                                                                                                             | **Exhibit** | ** ** | **Filed Herewith** | ** **                                                                                                                                         | **Incorporated by Reference** |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|------------|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------|
| 3.1             | First Amendment to the Third Amended and Restated Operating Agreement  of Little Sioux Corn Processors, LLC dated March 22, 2007.                      |        |       |               | Incorporated by reference to the exhibit of the same number on Form  10-Q for quarter ended March 31, 2007 and filed with the SEC on May 15, 2007. |
|            |                                                                                                                                                   |        |       |               |                                                                                                                                               |
| 3.2             | Articles of Organization of the registrant.                                                                                                            |        |       |               | Incorporated by reference to Exhibit 3.1 to the registrant’s  registration statement on Form 10-SB filed with the SEC on May 1, 2003.         |
|            |                                                                                                                                                   |        |       |               |                                                                                                                                               |
| 3.3             | Third Amended and Restated Operating Agreement of the registrant.                                                                                      |        |       |               | Incorporated by reference to Exhibit 3.2 on Form 10-K for fiscal year  ended September 30, 2006 and filed with the SEC on December 29, 2006.       |
|            |                                                                                                                                                   |        |       |               |                                                                                                                                               |
| 3.4             | Certificate of Limited Partnership                                                                                                                     |        |       |               | Incorporated by reference to Exhibit 2.3 to the registrant’s  registration statement on Form 10-SB filed with the SEC on May 1, 2003.         |
|            |                                                                                                                                                   |        |       |               |                                                                                                                                               |
| 3.5             | Limited Partnership Agreement                                                                                                                          |        |       |               | Incorporated by reference to Exhibit 2.4 to the registrant’s  registration statement on Form 10-SB filed with the SEC on May 1, 2003.         |
|            |                                                                                                                                                   |        |       |               |                                                                                                                                               |
| 10.1            | Phase I and II Engineering Services Agreement dated March 21, 2007  between Akron Riverview Corn Processors, LLC and Fagen Engineering, LLC. +

  |        |       |               | Incorporated by reference to the exhibit of the same number on Form  10-Q for quarter ended March 31, 2007 and filed with the SEC on May 15, 2007. |

 

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| 10.2   | Amended and Restated Ethanol Marketing Agreement dated March 29, 2007  between LSCP, LLLP and Archer Daniels Midland. +                                    |   |   |   | Incorporated by reference to the exhibit of the same number on Form  10-Q for quarter ended March 31, 2007 and filed with the SEC on May 15, 2007.                                                                  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.3   | Distillers Grain Marketing Agreement dated March 20, 2007 between  Akron Riverview Corn Processors, LLC and Commodity Specialist Corporation.              |   |   |   | Incorporated by reference to the exhibit of the same number on Form  10-Q for quarter ended March 31, 2007 and filed with the SEC on May 15, 2007.                                                                  |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.4   | Amended and Restated Construction Loan Agreement dated April 5, 2007  between LSCP, LLLP and First National Bank of Omaha.                                 |   |   |   | Incorporated by reference to the exhibit of the same number on Form  10-Q for quarter ended March 31, 2007 and filed with the SEC on May 15, 2007.                                                                  |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.5   | Letter  of Intent dated March 7, 2007 between Akron Riverview Corn Processors and  Fagen, Inc.+                                                            |   |   |   | Incorporated  by reference to Exhibit 10.1 on Akron Riverview Corn Processors, LLC’s  Registration Statement on Form SB-2, No. 333-141528, originally filed on  March 23, 2007.                                |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.6   | Assignment of Real Estate Option Agreement dated March 20, 2007  between Akron Riverview Corn Processors, LLC and LSCP, LLLP.                              |   |   |   | Incorporated by reference to the exhibit of the same number on Akron  Riverview Corn Processors, LLC’s Registration Statement on Form SB-2, No.  333-141528, originally filed on March 23, 2007.               |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.7   | Assignment of Real Estate Option Agreement dated March 20, 2007  between Akron Riverview Corn Processors, LLC and LSCP, LLLP.                              |   |   |   | Incorporated by reference to the exhibit of the same number on Akron  Riverview Corn Processors, LLC’s Registration Statement on Form SB-2, No.  333-141528, originally filed on March 23, 2007.               |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.8   | Management and Operational Services Agreement dated May 30, 2007  between Akron Riverview Corn Processors, LLC and Twin Rivers Management Co.              |   |   |   | Incorporated by reference to Exhibit 10.12 on Akron Riverview Corn  Processors, LLC’s Pre-Effective Amendment No. 1 to Registration Statement on  Form SB-2, No. 333-141528, originally filed on June 4, 2007. |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.9   | Award Letter from Iowa Department of  Economic Development dated February 22, 2007 regarding Financial Assistance  Program Awards.                         |   |   |   | Incorporated by reference to Exhibit 10.2 on Akron Riverview Corn  Processors, LLC’s Pre-Effective Amendment No. 1 to Registration Statement on  Form SB-2, No. 333-141528, originally filed on June 4, 2007.  |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.10  | Letter of Proposal for Environmental  Permitting Support for Iowa Air Permits dated November 30, 2006 from Air  Resource Specialists.                      |   |   |   | Incorporated by reference to Exhibit 10.3 on Akron Riverview Corn  Processors, LLC’s Registration Statement on Form SB-2, No. 333-141528,  originally filed on March 23, 2007.                                 |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.11  | Letter of Proposal for Environmental  Permitting Support for Storm Water and Waste Water Discharge dated December  6, 2006 from Air Resources Specialists. |   |   |   | Incorporated by reference to Exhibit 10.4 on Akron Riverview Corn  Processors, LLC’s Pre-Effective Amendment No. 1 to Registration Statement on  Form SB-2, No. 333-141528, originally filed on June 4, 2007.  |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.12  | Letter Agreement dated October 23, 2006  between Certified Testing Services, Inc.                                                                          |   |   |   | Incorporated by reference to Exhibit 10.5 on Akron Riverview Corn  Processors, LLC’s Registration Statement on Form SB-2, No. 333-141528,  originally filed on March 23, 2007.                                 |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.13  | Letter of Proposal for Professional  Services accepted March 27, 2007 between Akron Riverview Corn Processors, LLC  and Yaggy Colby Associates.            |   |   |   | Incorporated by reference to Exhibit 10.10 on Akron Riverview Corn  Processors, LLC’s Pre-Effective Amendment No. 1 to Registration Statement on  Form SB-2, No. 333-141528, originally filed on June 4, 2007. |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.14  | Work Cancellation Form dated April 25, 2007  between Akron Riverview Corn Processors, LLC and Air Resources Specialists,  Inc.                             |   |   |   | Incorporated by reference to Exhibit 10.11 on Akron Riverview Corn  Processors, LLC’s Pre-Effective Amendment No. 1 to Registration Statement on  Form SB-2, No. 333-141528, originally filed on June 4, 2007. |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.15  | Consent to Assignment and Assumption of Marketing Agreement dated  August 17, 2007 with CHS, Inc. and LSCP, LLLP.                                          |   | *      |   |                                                                                                                                                                                                                |
|   |                                                                                                                                                       |   |   |   |                                                                                                                                                                                                                |
| 10.16  | Consent to Assignment and Assumption of  Marketing Agreement dated August 17, 2007  with CHS, Inc. and Akron Riverview Corn Processors, LLC.          |   | *      |   |                                                                                                                                                                                                                |

 

42

----

 

| 10.17  | Second Amendment and Extension to Letter of Intent dated November 9,  2007 with Fagen, Inc. |   | *      |   |                                                                                                                 |
|--------|---------------------------------------------------------------------------------------------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------|
|   |                                                                                        |   |   |   |                                                                                                                 |
| 14.1   | Code of Ethics of the registrant adopted  December 18, 2003.                                |   |   |   | Incorporated by reference to the exhibit of the same number on Form  10-KSB filed with the SEC on December 29, 2003. |
|   |                                                                                        |   |   |   |                                                                                                                 |
| 21.1   | Subsidiaries of the registrant                                                              |   | *      |   |                                                                                                                 |
|   |                                                                                        |   |   |   |                                                                                                                 |
| 24.1   | Power of Attorney                                                                           |   | *      |   |                                                                                                                 |
|   |                                                                                        |   |   |   |                                                                                                                 |
| 31.1   | Certificate Pursuant to 17 CFR  240.13a-14(a)                                               |   | *      |   |                                                                                                                 |
|   |                                                                                        |   |   |   |                                                                                                                 |
| 31.2   | Certificate Pursuant to 17 CFR  240.13a-14(a)                                               |   | *      |   |                                                                                                                 |
|   |                                                                                        |   |   |   |                                                                                                                 |
| 32.1   | Certificate Pursuant to 18 U.S.C. Section  1350                                             |   | *      |   |                                                                                                                 |
|   |                                                                                        |   |   |   |                                                                                                                 |
| 32.2   | Certificate Pursuant to 18 U.S.C. Section  1350                                             |   | *      |   |                                                                                                                 |

 

 

                 +              Portions of the exhibit have been omitted andfiled separately with the Securities and Exchange Commission pursuant to arequest for confidential treatment under Rule 406 of the Securities Act of1933, as amended.

 

**SIGNATURES**

 

                Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant duly caused this                 reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 
|   |   |                    |   | LITTLE  SIOUX CORN PROCESSORS, L.L.C.         |
|--------|--------|-------------------------|--------|-----------------------------------------------|
|   |   |                    |   |                                          |
|   |   |                    |   |                                          |
| Date:  |   | December 31,  2007 |   | /s/  Stephen Roe                              |   |
|   |   |                    |   | Stephen  Roe                                  |
|   |   |                    |   | President  and Chief Executive Officer        |
|   |   |                    |   | (Principal  Executive Officer)                |
|   |   |                    |   |                                          |
|   |   |                    |   |                                          |
|   |   |                    |   |                                          |
| Date:  |   | December 31, 2007  |   | /s/  Gary Grotjohn                            |   |
|   |   |                    |   | Gary  Grotjohn                                |
|   |   |                    |   | Chief  Financial Officer                      |
|   |   |                    |   | (Principal  Financial and Accounting Officer) |
|        |        |                         |        |                                               |  |  |

** **

Pursuant to therequirements of the Securities Exchange Act, this report has been signed belowby the following persons on behalf of the registrant and in the capacities andon the dates indicated.

 

 
| Date:  December 31, 2007 |   | /s/  Vince Davis**                        |
|-------------------------------|--------|-------------------------------------------|
|                          |   | Vince  Davis, Director                    |
|                          |   |                                      |
| Date:  December 31, 2007 |   | /s/  Daryl Haack**                        |
|                          |   | Daryl  Haack, Director                    |
|                          |   |                                      |
| Date:  December 31, 2007 |   | /s/  Doug Lansink                         |
|                          |   | Doug  Lansink, Director                   |
|                          |   |                                      |
| Date:  December 31, 2007 |   | /s/  Ron Wetherell                        |
|                          |   | Ron  Wetherell, Chairman and Director     |
|                          |   |                                      |
| Date:  December 31, 2007 |   | /s/  Darrell Downs**                      |
|                          |   | Darrell  Downs, Director                  |
|                          |   |                                      |
| Date:  December 31, 2007 |   | /s/  Myron Pingel**                       |
|                          |   | Myron  Pingel, Vice Chairman and Director |
|                          |   |                                      |
| Date:  December 31, 2007 |   | /s/  Tim Ohlson**                         |
|                          |   | Tim  Ohlson, Secretary and Director       |

 

43

----

 
| Date:  December 31, 2007 |   | /s/  Verdell Johnson**     |
|-------------------------------|--------|----------------------------|
|                          |   | Verdell  Johnson, Director |
|                          |   |                       |
|                          |   |                       |
| Date:  December 31, 2007 |   | /s/  Dale Arends**         |
|                          |   | Dale  Arends, Director     |
|                          |   |                       |

 
| **By:  |   | /s/ Ron Wetherell Ron Wetherell  |
|--------|--------|---------------------------------------|
|   |   | Attorney-in-Fact                      |
|   |   | pursuant to a power of attorney       |
|   |   |                                  |
|   |   | /s/ Doug Lansink                      |
|   |   | Doug  Lansink                         |
|   |   | Attorney-in-Fact                      |
|   |   | pursuant to a power of attorney       |

 

44

----

 

 

**INDEX TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| ** **                                                                                              | ** ** | **Page  No.** |
|---------------------------------------------------------------------------------------------------------|------------|---------------|
| Report  of Independent Registered Public Accounting Firm                                                |       | F-2           |
| Consolidated Financial  Statements                                                                      |       |          |
| Consolidated  Balance Sheets as of September 30, 2007 and 2006                                     |       | F-3           |
| Consolidated Statements of Operations for the years  ended September 30, 2007, 2006 and 2005       |       | F-5           |
| Consolidated Statements of Members’ Equity for the  years ended September 30, 2007, 2006, and 2005 |       | F-6           |
| Consolidated Statements of Cash Flows for the years  ended September 30, 2007, 2006 and 2005            |       | F-7           |
| Notes to Consolidated Financial Statements                                                              |       | F-8           |

 

F-1

----

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors

Little Sioux Corn Processors, LLC and Subsidiary

Marcus, Iowa

 

We have audited the accompanying consolidated balancesheets of Little Sioux Corn Processors, LLC and Subsidiary as of September 30,2007 and 2006, and the related consolidated statements of operations, changesin members’ equity, and cash flows for the years ended September 30, 2007,2006, and 2005.  These consolidatedfinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financial statementsbased on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the consolidated financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of Little Sioux Corn Processors, LLC and Subsidiary as ofSeptember 30, 2007 and 2006, and the results of their operations and theircash flows for the years ended September 30, 2007, 2006, and 2005, inconformity with U.S. generally accepted accounting principles.

 
|                   |                                             |
|------------------------|--------------------------------------------------|
|                   |                                             |
| Minneapolis, Minnesota | /s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P. |
| December 31, 2007      | Certified Public Accountants                     |

 

 

F-2

----

 
| **LITTLE  SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY** | ** ** |
|-------------------------------------------------------|------------|
|                                                  |       |   |   |   |   |
| Consolidated  Balance Sheets                          |       |
|                                                  |       |   |   |   |   |
|                                                  |       | September 30, |   | September 30, |   |
| **ASSETS**                                            |       | 2007 |   | 2006 |   |
| ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Current Assets**                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and equivalents                                  |       | $ | 17,503,176 |   | $ | 10,133,691 |   |
| Restricted cash                                       |       | 576,446 |   | — |   |
| Short-term investments                                |       | — |   | 18,726,834 |   |
| Accounts receivable                                   |       | 691,615 |   | 419,263 |   |
| Accounts receivable - related party                   |       | 2,584,017 |   | 2,236,191 |   |
| Inventory                                             |       | 3,309,333 |   | 2,200,290 |   |
| Derivative instruments                                |       | — |   | 4,356,698 |   |
| Prepaid expenses                                      |       | 1,833,173 |   | 1,301,319 |   |
| Total current assets                                  |       | 26,497,760 |   | 39,374,286 |   |
|                                                  |       |   |   |   |   |
| **Property and Equipment**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land and improvements                                 |       | 2,929,516 |   | 2,826,839 |   |
| Plant buildings and equipment                         |       | 58,196,355 |   | 57,971,654 |   |
| Office buildings and equipment                        |       | 358,450 |   | 213,928 |   |
|                                                  |       | 61,484,321 |   | 61,012,421 |   |
| Less accumulated depreciation                         |       | 18,544,654 |   | 13,649,392 |   |
|                                                  |       | 42,939,667 |   | 47,363,029 |   |
| Construction in progress                              |       | 60,938,622 |   | 4,384,830 |   |
| Net property and equipment                            |       | 103,878,289 |   | 51,747,859 |   |
|                                                  |       |   |   |   |   |
| **Other Assets**                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Long-term investments                                 |       | 157,717 |   | 103,742 |   |
| Land costs and other                                  |       | 4,646,636 |   | 189,616 |   |
| Deferred offering costs                               |       | 184,267 |   | — |   |
| Construction commitment cost                          |       | 500,000 |   | — |   |
| Deferred loan costs, net of accumulated amortization  |       | 547,374 |   | 141,112 |   |
| Total other assets                                    |       | 6,035,994 |   | 434,470 |   |
| ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total Assets**                                      |       | $ | 136,412,043 |   | $ | 91,556,615 |   |
|                                                  |       |   |   |   |   |
| See Notes to Consolidated Financial Statements        |       |   |   |   |   |
|                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

F-3

----

 
| **LITTLE  SIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**           | ** ** |
|-----------------------------------------------------------------|------------|
|                                                            |       |   |   |   |   |
| Consolidated  Balance Sheets                                    |       |
|                                                            |       |   |   |   |   |
| ** **                                                      |       | September 30, |   | September 30, |   |
| **LIABILITIES AND MEMBERS’ EQUITY**                        |       | 2007 |   | 2006 |   |
| ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Current Liabilities**                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current maturities of long-term debt                            |       | $ | 13,259,228 |   | $ | 3,394,196 |   |
| Accounts payable                                                |       | 7,967,325 |   | 1,927,582 |   |
| Accounts payable - related party                                |       | 1,414,774 |   | 137,000 |   |
| Accrued expenses                                                |       | 1,126,516 |   | 564,618 |   |
| Derivative instruments                                          |       | 220,584 |   | — |   |
| Total current liabilities                                       |       | 23,988,427 |   | 6,023,396 |   |
|                                                            |       |   |   |   |   |
| **Long-Term Debt,**net of current maturities                    |       | 25,743,072 |   | 13,504,582 |   |
|                                                            |       |   |   |   |   |
| **Minority Interest**                                           |       | 34,697,010 |   | 28,864,721 |   |
|                                                            |       |   |   |   |   |
| **Members’ Equity, 164,115 units issued and  outstanding** |       | 51,983,534 |   | 43,163,916 |   |
|                                                            |       |   |   |   |   |
| **Total Liabilities and Members’ Equity**                  |       | $ | 136,412,043 |   | $ | 91,556,615 |   |
|                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                            |       |   |   |   |   |
| See Notes to Consolidated Financial Statements                  |       |   |   |   |   |
|                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

F-4

----

 

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

 

Consolidated Statements ofOperations

 

 
| ** **                                                  | ** ** | **Year Ended   September 30,  2007** | ** **  | **Year Ended   September 30,  2006** | ** ** | **Year Ended   Septemeber 30,   2005** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------|-------------|------------------------------------------------|------------|----------------------------------------|------------|
|                                                        |       |                                           |        |                                           |       |                                   |       |
| **Revenues  - primarily related party**                     |       | $                                              | 130,730,336 |                                           | $          | 113,785,666                            |       | $ | 95,881,420 |   |
|                                                        |       |                                           |        |                                           |       |                                   |       |
| **Cost of  Goods Sold**                                     |       | 87,060,524                                     |        | 73,678,035                                     |       | 65,257,086                             |       |
|                                                        |       |                                           |        |                                           |       |                                   |       |
| **Gross  Margin**                                           |       | 43,669,812                                     |        | 40,107,631                                     |       | 30,624,334                             |       |
|                                                        |       |                                           |        |                                           |       |                                   |       |
| **Selling,  General, and Administrative Expenses**          |       | 5,439,374                                      |        | 3,001,254                                      |       | 6,542,308                              |       |
| ** **                                                  | ** ** | ** **                                     | ** **  | ** **                                     | ** ** | ** **                             | ** ** |
| **Operating  Income**                                       |       | 38,230,438                                     |        | 37,106,377                                     |       | 24,082,026                             |       |
|                                                        |       |                                           |        |                                           |       |                                   |       |
| **Other  Income (Expense)**                                 | ** ** | ** **                                     | ** **  | ** **                                     | ** ** | ** **                             | ** ** |
| Interest income                                             |       | 930,972                                        |        | 835,980                                        |       | 158,761                                |       |
| Interest expense                                            |       | (317,368                                       | )           | (1,286,265                                     | )          | (1,126,101                             | )          |
| Other income (expense)                                      |       | (346,241                                       | )           | 331,648                                        |       | 405,780                                |       |
| Total other income (expense)                                |       | 267,363                                        |        | (118,637                                       | )          | (561,560                               | )          |
|                                                        |       |                                           |        |                                           |       |                                   |       |
| **Net  Income Before Minority Interest**                    |       | 38,497,801                                     |        | 36,987,740                                     |       | 23,520,466                             |       |
| ** **                                                  | ** ** | ** **                                     | ** **  | ** **                                     | ** ** | ** **                             | ** ** |
| **Minority  Interest in Subsidiary Income**                 |       | 15,434,801                                     |        | 14,775,906                                     |       | 9,421,765                              |       |
| ** **                                                  | ** ** | ** **                                     | ** **  | ** **                                     | ** ** | ** **                             | ** ** |
| **Net  Income**                                             |       | $                                              | 23,063,000  |                                           | $          | 22,211,834                             |       | $ | 14,098,701 |   |
| ** **                                                  | ** ** | ** **                                     | ** **  | ** **                                     | ** ** | ** **                             | ** ** |
| **Net  Income Per Unit - Basic and Diluted**                |       | $                                              | 140.53      |                                           | $          | 135.34                                 |       | $ | 85.91 |   |
|                                                        |       |                                           |        |                                           |       |                                   |       |
| **Distributions  Per Unit - Basic and Diluted**             |       | $                                              | 86.78       |                                           | $          | 56.16                                  |       | $ | 30.54 |   |
|                                                        |       |                                           |        |                                           |       |                                   |       |
| **Weighted  Average Units Outstanding - Basic and Diluted** |       | 164,115                                        |        | 164,115                                        |       | 164,115                                |       |

 

SeeNotes to Consolidated Financial Statements

 

 

 

F-5

----

 

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

 

Consolidated Statements ofChanges in Members’ Equity

 
| ** **                             | ** ** | **Member   Contributions** | ** ** | **Retained  Earnings** | ** ** |
|----------------------------------------|------------|----------------------------|------------|-----------------------------|------------|
|                                   |       |                       |       |                        |       |
| **Balance -  October 1, 2004**         |       | $                          | 10,842,237 |                        | $          | 10,239,527 |   |
|                                   |       |                       |       |                        |       |
| Net income                             |       |                       |       | 14,098,701                  |       |
|                                   |       |                       |       |                        |       |
| Distributions                          |       |                       |       | (5,012,314                  | )          |
|                                   |       |                       |       |                        |       |
| **Balance -  September 30, 2005** |       | $                          | 10,842,237 |                        | $          | 19,325,914 |   |
|                                   |       |                       |       |                        |       |
| Net income                             |       |                       |       | 22,211,834                  |       |
|                                   |       |                       |       |                        |       |
| Distributions                          |       |                       |       | (9,216,069                  | )          |
|                                   |       |                       |       |                        |       |
| **Balance -  September 30, 2006** |       | $                          | 10,842,237 |                        | $          | 32,321,679 |   |
|                                   |       |                       |       |                        |       |
| Net income                             |       |                       |       | 23,063,000                  |       |
|                                   |       |                       |       |                        |       |
| Distributions                          |       |                       |       | (14,243,382                 | )          |
|                                   |       |                       |       |                        |       |
| **Balance -  September 30, 2007** |       | $                          | 10,842,237 |                        | $          | 41,141,297 |   |

 

SeeNotes to Consolidated Financial Statements

 

 

 

F-6

----

 

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

 

Consolidated Statements ofCash Flows

 
| ** **                                                                         | ** ** | **Year Ended September 30,   2007** | ** ** | **Year Ended September 30,   2006** | ** ** | **Year Ended September 30,   2005** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
|                                                                               |       |                                     |       |                                     |       |                                     |       |
| **Operating  Activities**                                                          | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| Net income                                                                         |       | $                                        | 23,063,000 |                                     | $          | 22,211,834                               |       | $ | 14,098,701 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                                     |       |                                     |       |                                     |       |
| Depreciation and amortization                                                      |       | 5,193,418                                |       | 4,916,150                                |       | 3,885,651                                |       |
| Minority interest in subsidiary’s income                                      |       | 15,434,801                               |       | 14,775,906                               |       | 9,421,765                                |       |
| Change in fair value of derivative instruments                                     |       | (1,032,113                               | )          | (7,389,115                               | )          | (748,188                                 | )          |
| Loss on disposal of property and equipment                                         |       | 66,494                                   |       | —                                   |       | —                                   |       |
| Other                                                                              |       | —                                   |       | (20,000                                  | )          |                                     |       |
| Change in operating assets and liabilities:                                        |       |                                     |       |                                     |       |                                     |       |
| Restricted cash                                                                    |       | (576,446                                 | )          | —                                   |       | 2,730,481                                |       |
| Accounts recievables                                                               |       | (620,178                                 | )          | 67,870                                   |       | 32,252                                   |       |
| Inventory                                                                          |       | (1,109,043                               | )          | (320,178                                 | )          | 738,387                                  |       |
| Derivative instruments                                                             |       | 5,609,395                                |       | 3,599,026                                |       | —                                   |       |
| Prepaid expenses                                                                   |       | (531,854                                 | )          | (826,460                                 | )          | (519,869                                 | )          |
| Accounts payable                                                                   |       | 3,678,766                                |       | (239,704                                 | )          | 363,135                                  |       |
| Accrued expenses                                                                   |       | 561,898                                  |       | (3,817,698                               | )          | 4,091,103                                |       |
| Net cash provided by operating activities                                          |       | 49,738,138                               |       | 32,957,631                               |       | 34,093,417                               |       |
|                                                                               |       |                                     |       |                                     |       |                                     |       |
| **Investing  Activities**                                                          | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| Proceeds from investments                                                          |       | 18,726,834                               |       | 10,869,891                               |       | —                                   |       |
| Payments for investments                                                           |       | (53,975                                  | )          | (22,665,047                              | )          | (7,035,420                               | )          |
| Capital expenditures                                                               |       | (53,806,853                              | )          | (6,439,043                               | )          | (374,450                                 | )          |
| Proceeds from disposals of property and equipment                                  |       | 196,500                                  |       | —                                   |       | —                                   |       |
| Payments for land options and other                                                |       | (4,457,020                               | )          | (189,616                                 | )          | —                                   |       |
| Construction commitment costs                                                      |       | (500,000                                 | )          | —                                   |       | —                                   |       |
| Net cash used in investing activities                                              |       | (39,894,514                              | )          | (18,423,815                              | )          | (7,409,870                               | )          |
| ** **                                                                         | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| **Financing  Activities**                                                          | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| Payments of short-term debt                                                        |       | —                                   |       | —                                   |       | (38,829                                  | )          |
| Payments of long-term debt                                                         |       | (3,316,263                               | )          | (3,199,251                               | )          | (7,984,636                               | )          |
| Proceeds from issuance of long-term debt                                           |       | 25,419,785                               |       | —                                   |       | —                                   |       |
| Loan costs                                                                         |       | (547,500                                 | )          | —                                   |       | —                                   |       |
| Deferred offering cost                                                             |       | (184,267                                 | )          | —                                   |       | —                                   |       |
| Distribution to minority interest                                                  |       | (9,602,512                               | )          | (6,120,759                               | )          | (3,419,194                               | )          |
| Distribution to members                                                            |       | (14,243,382                              | )          | (9,216,069                               | )          | (5,012,314                               | )          |
| Net cash used in financing activities                                              |       | (2,474,139                               | )          | (18,536,079                              | )          | (16,454,973                              | )          |
| ** **                                                                         | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| **Net  increase (decrease) in cash and equivalents**                               |       | 7,369,485                                |       | (4,002,263                               | )          | 10,228,574                               |       |
| ** **                                                                         | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| **Cash and  Equivalents**— Beginning of Period                                |       | 10,133,691                               |       | 14,135,954                               |       | 3,907,380                                |       |
| ** **                                                                         | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| **Cash and  Equivalents**— End of Period                                      |       | $                                        | 17,503,176 |                                     | $          | 10,133,691                               |       | $ | 14,135,954 |   |
|                                                                               | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| **Supplemental  Cash Flow Information**                                            | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| Interest expense paid                                                              |       | $                                        | 317,368    |                                     | $          | 1,255,615                                |       | $ | 1,102,945 |   |
| Interest capitalized paid                                                          |       |                                     | 913,554    |                                     |       | —                                   |       |   | — |   |
| Total interest paid                                                                |       | $                                        | 1,230,922  |                                     | $          | 1,255,615                                |       | $ | 1,102,945 |   |
|                                                                               |       |                                     |       |                                     |       |                                     |       |
| **Supplemental  Disclosure of Noncash Investing and Financing Activities**         | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** **                               | ** ** |
| Capital expenditures in accounts payable                                           |       | $                                        | 4,488,684  |                                     | $          | 849,933                                  |       | $ | 596,000 |   |
| Deferred loan costs capitalized with construction in progress                      |       | $                                        | 56,147     |                                     | $          | —                                   |       | $ | — |   |
| Equipment acquired through construction note                                       |       | $                                        | —     |                                     | $          | —                                   |       | $ | 5,400,000 |   |

 

SeeNotes to Consolidated Financial Statements

 

 

F-7

----

 

 

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes to Consolidated Financial Statements

 

September 30,2007 and 2006

 

**Note1:  Nature of Operations**

 

The Company representsLittle Sioux Corn Processors, LLC (LLC) and its subsidiary LSCP, LLLP (LLLP).  The Company operates a 52 million gallonethanol plant, located near Marcus, Iowa.  The plant commenced operationsin April 2003.   The Company iscurrently in the process of expanding the plant from a 52 million gallons peryear (MGY) plant to a 92 MGY plant.  TheCompany sells its production of ethanol, distiller’s grains and solubles,modified wet distillers grains with solubles, and corn oil in the ContinentalUnited States.

 

**Note2:  Summary of Significant Accounting Policies**

 

**Principlesof Consolidation**

 

The consolidatedfinancial statements include the accounts of the LLC, its 60.15% ownedsubsidiary, LLLP and its wholly owned subsidiaries Akron Riverview CornProcessors, LLC (ARCP) and Twin Rivers Management Co., LLC.  All significant inter-company transactionsand balances have been eliminated in consolidation.

 

**MinorityInterest**

 

Amounts recorded asminority interest on the balance sheet relate to the net investment by limitedpartners in LSCP plus or minus any allocation of income or loss and distributions. After giving effect to certain special allocations, income and losses of LSCPare allocated to the partners based upon their respective percentage ofpartnership units held.  The minority interest share of the net income forthe fiscal years ending September 30, 2007, 2006, and 2005, isapproximately $15,435,000, $14,776,000, and $9,422,000, respectively.

 

Minority interest hasbeen classified on the accompanying balance sheet to reflect it as a separateline item rather than including it as part of equity.  This classificationhas no impact on net income or earnings per unit.

 

**Use ofEstimates**

 

The preparation of theseconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expenses duringthe reporting period.  Actual resultscould differ from those estimates.

 

**RevenueRecognition**

 

The Company generallysells ethanol and related products pursuant to marketing agreements. Revenues are recognized when the marketing company (the “customer”) has takentitle and assumed the risks and rewards of ownership, prices are fixed ordeterminable and collectability is reasonably assured.  The marketingagreement with ADM provides that an initial price per gallon of ethanol isestablished upon shipment.  ADM knows the final price of ethanol purchasedby the end of each day, and the Company can obtain directly from ADM, the finalprice on a daily basis.  The Company settles the final price with ADM on amonthly basis, even though the daily sales amounts have been determined as thisis administratively easier.  The Company typically receives the relatedpaperwork from ADM within five days of month end.  Therefore, the Companybelieves that all sales of ethanol during a month are recorded at a price thatis both fixed and determinable and that there are no ethanol sales, during anygiven month, that should be considered contingent and recorded as deferredrevenue.  The Company’s products are generally shipped FOB shipping point.

 

In accordance with theCompany’s agreements for the marketing and sale of ethanol and relatedproducts, marketing fees and commissions due to the marketers are deducted fromthe gross sales price at the time payment is remitted to the Company. However, because the Company is the primary obligor and receives anidentifiable benefit in the sales arrangement with the customer, 

 

 

F-8

----

** **

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 

these marketing fees andcommissions are recorded in selling, general and administrative expenses in theaccompanying statements of operations.

 

**Cash andEquivalents**

 

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

 

The Company maintains itsaccounts primarily at two financial institutions.  At times throughout theyear, the Company’s cash and equivalents balances, which include money marketfunds and debt instrument with an original maturity of less than three months,may exceed amounts insured by the Federal Deposit Insurance Corporation. At September 30, 2007, and September 30, 2006, such money marketfunds and debt instruments approximately $12,790,000 and $4,124,000,respectively.  The Company does notbelieve it is exposed to any significant credit risk on cash and equivalents.

 

**RestrictedCash**

 

The Company isperiodically required to maintain cash balances at its broker related toderivative instrument positions.

 

**Investments**

 

The Company maintainsmarketable securities as part of the deferred compensation plan and classifiesamounts as long-term investments.  Accordingly, a corresponding liabilityhas been recorded in deferred compensation. Investments are carried at their estimated fair market value based onquoted mark prices.

 

**TradeAccounts Receivable**

 

Credit terms are extendedto customers in the normal course of business. The Company performs ongoing credit evaluations of its customers’ financialcondition and, generally, requires no collateral.

 

Trade accounts receivableare recorded at their estimated net realizable value.  Accounts are considered past due if paymentis not made on a timely basis in accordance with the Company’s credit terms.  Accounts considered uncollectible are writtenoff.  The Company’s estimate of theallowance for doubtful accounts is based on historical experience, itsevaluation of the amounts status of receivables, and unusual circumstances, ifany.  At September 30, 2007 and2006, the Company was of the belief that such amounts would be collectable.

 

**Inventory**

 

Inventory consists of rawmaterials, supplies, work in process, and finished goods.  Corn is the primary raw material and, alongwith other raw materials and supplies, is stated at the lower of average costor market.  Finished goods consist ofethanol produced and DDGS, MWDGS, and Corn Oil, and are stated at the lower offirst-in, first-out, (FIFO method) cost or market.

 

**DerivativeInstruments**

 

TheCompany accounts for derivatives in accordance with Statement of FinancialAccounting Standards (SFAS) No. 133, “Accounting for DerivativeInstruments and Hedging Activities”. SFAS No. 133 requires the recognitionof derivatives in the balance sheet and the measurement of these instruments atfair value.

 

Inorder for a derivative to qualify as a hedge, specific criteria must be met andappropriate documentation maintained. Gains and losses from derivatives thatare do not qualify as hedges, or are undesignated, must be recognizedimmediately in earnings. If the derivative does qualify as a hedge, dependingon the nature of the hedge, changes in the fair value of the derivative will beeither offset against the change in fair value of the hedged assets, 

 

 

F-9

----

** **

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 

liabilities,or firm commitments through earnings or recognized in other comprehensiveincome until the hedged item is recognized in earnings.  Changes in the fair value of undesignatedderivatives are recorded in the statement of operations along with items beinghedged.

 

Additionally,SFAS No. 133 requires a company to evaluate its contracts to determinewhether the contracts are derivatives. Certain contracts that literally meetthe definition of a derivative may be exempted as “normal purchases or normalsales”. Normal purchases and normal sales are contracts that provide for thepurchase or sale of something other than a financial instrument or derivativeinstrument that will be delivered in quantities expected to be used or soldover a reasonable period in the normal course of business. Contracts that meetthe requirements of normal are documented as normal and exempted from theaccounting and reporting requirements of SFAS No. 133, and therefore, arenot marked to market in our financial statements.

 

Inorder to reduce the risk caused by market fluctuations, the Company hedges itsanticipated corn and natural gas purchases, ethanol sales and interest rates byentering into options, futures contracts, and swap agreements. These contractsare used with the intention to fix the purchase price of our anticipatedrequirements of corn and natural gas in production activities, the sales priceof ethanol and limit exposure to increased interest rates. The fair value ofthese contracts is based on quoted prices in active exchange-traded orover-the-counter markets. The fair value of the derivatives is continuallysubject to change due to changing market conditions. The Company does notformally designate these instruments as hedges and, therefore, record inearnings adjustments caused from marking these instruments to market on amonthly basis. The Company records withdrawals and payments against the tradeequity of derivative instruments as a reduction or increase in the value of thederivative instruments.

 

**Propertyand Equipment**

 

Property and equipmentare stated at the lower of cost or estimated fair value.  Depreciation is computed by the straight—linemethod over the following estimated useful lives:

 

| **Asset Description**             | ** ** | **Years**   |
|-----------------------------------|------------|-------------|
|                              |       |        |
| Land improvements                 |       | 5 — 40 |
| Buildings and  improvements       |       | 7 — 40 |
| Machinery and equipment           |       | 3 — 20 |
| Office equipment and  furnishings |       | 3 — 10 |

 

Maintenance and repairsare expensed as incurred; major improvements and betterments arecapitalized.  The present value ofcapital lease obligations are classified as long-term debt and the relatedassets are included in equipment. Amortization of equipment under capital lease is included indepreciation expense.

 

**Long-lived Assets**

 

TheCompany reviews property and equipment and other long-lived assets forimpairment in accordance with Statement of Financial Accounting Standards No. 144(SFAS No. 144), *Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of*.  Long-lived assets are reviewed for impairmentwhenever events or changes in circumstances indicate the carrying amount of anasset may not be recoverable. Recoverability of these assets is measured bycomparison of its carrying amount to future undiscounted cash flows the assetsare expected to generate. If property and equipment and certain identifiableintangibles are considered to be impaired, the impairment to be recognizedequals the amount by which the carrying value of the assets exceeds its fairmarket value.  The Company has notrecognized any long-lived asset impairment charges as of September 30,2007 and 2006.

 

 

F-10

----

** **

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 

**Deferred Loan Costs**

 

Costsassociated with long-term debt discussed in Note 9 are recorded as deferredloan costs, net of accumulated amortization. Loan costs are amortized to operations over the life of the relatedloans using the effective interest method.

 

**DeferredOffering Costs**

 

The Company defers thecosts incurred to raise equity until it occurs.  At such time that theissuance of new equity occurs, these costs will be netted against the proceedsreceived; or if the subscription does not occur, they will be expensed. ARCPincurred offering costs associated with its plans to raise equity to build anethanol plant near Akron, IA as described in Note 14. ARCP suspended efforts toraise equity in August 2007 while it monitors conditions in the equitymarkets.

 

**BenefitPlans**

 

The Company has a 401(k) plancovering substantially all employees who meet specified age and servicerequirements.  Under this plan, the Company makes a matching contributionof up to 4% of the participants’ eligible wages.

 

The Company has adeferred compensation plan for certain employees providing supplementalbenefits.  The Board may annually grant a discretionary deferred bonusunder the plan to each participant in an amount up to twenty percent of eachparticipant’s base salary for the prior calendar year.  Costs of the planare recognized during the employee’s service period for the Company so that thebenefits are accrued when payments begin.  Participants are fully vestedsix years after the grant date provided that the participant is employedfull-time.

 

**Researchand Development**

 

TheCompany incurs research and development costs related to the development of newproducts.   The Company incurredapproximately $203,000 in research and development costs for fiscal 2007.  The Company did not incur any research anddevelopment costs in fiscal 2006 or 2005.

 

**IncomeTaxes**

 

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 income or losses are includedin the income tax returns of the members and partners.  Accordingly, no provision or liability forfederal or state income taxes has been included in these financialstatements.  Differences betweenconsolidated financial statement basis of assets and tax basis of assets isrelated to capitalization and amortization of organization and start-up costsfor tax purposes, whereas these costs are expensed for financial statementpurposes.  In addition, the Company usesthe modified accelerated cost recovery system method (MACRS) for taxdepreciation instead of the straight-line method that is used for bookdepreciation, which also causes temporary differences.

 

**FairValue of Financial Instruments**

 

The carrying value ofcash and equivalents and restricted cash approximates their fair value.

 

The Company believes the carryingamount of derivative instruments and investments approximates fair value basedon quoted market prices.

 

It is not currentlypracticable to estimate fair value of the line of credit and notes payable tothe lending institution,  because theseagreements contain certain unique terms, conditions, covenants, andrestrictions, as discussed in Notes 8 and 9, there are no readily determinablesimilar instruments on which to base an estimate of fair value.

 

 

F-11

----

 

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 

**EnvironmentalLiabilities**

 

The Company’s operationsare subject to environmental laws and regulations adopted by various governmentalentities in the jurisdiction in which it operates.  These laws require theCompany to investigate and remediate the effects of the release or disposal ofmaterials at its location.  Accordingly, the Company has adopted policies,practices, and procedures in the areas of pollution control, occupationalhealth, and the production, handling, storage and use of hazardous materials toprevent material environmental or other damage, and to limit the financialliability, which could result from such events.  Environmental liabilitiesare recorded when the liability is probable and the costs can reasonablyestimated. No liabilities were recorded at September 30, 2007 or 2006.

 

**Reclassifications**

 

The consolidated balancesheet at September 30, 2006 has changed to reclassify supplies fromprepaid expenses to inventory of approximately $534,000 in the consolidatedbalance sheets to conform to classifications used at September 30,2007.  The consolidated statements ofoperations have changed in fiscal 2005 to reclassify the settlement claim ofapproximately $3,900,000 with ADM described in Note 13 to selling, general, andadministrative expenses from other expenses. The consolidated statements ofcash flows have changed in fiscal 2006 and 2005 to reclassify amounts relatedto derivative instruments to conform to the classifications used in fiscal2007.  These reclassifications had noeffect on consolidated members’ equity, net income, or cash flows previouslyreported.

 

**RecentlyIssued Accounting Pronouncements**

 

InSeptember 2006, the FASB issued Statement of Financial AccountingStandards No. 157 (“SFAS 157”), *FairValue Measurements*.  SFAS 157 defines fair value, establishes aframework for measuring fair value, and expands disclosures about fair valuemeasurements. Thestatement is effective for financial assets and liabilities in financialstatements issued for fiscal years beginning after November 15, 2007. Itis effective for non-financial assets and liabilities in financial statementsissued for fiscal years beginning after November 15, 2008. The Company iscurrently evaluating the effect that the adoption of SFAS 157 will have, ifany, on its results of operations, financial position and related disclosures,but does not expect it to have a material impact on the financial statements.

 

InFebruary 2007, the FASB issued Statement of Financial Accounting Standards No.159, (“SFAS 159”), *The Fair Value Option forFinancial Assets and Financial Liabilities,*which included anamendment to FASB 115. This statement provides companies with an option toreport selected financial assets and liabilities at fair value. This statementis effective for fiscal years beginning after November 15, 2007 with earlyadoption permitted. The Company is in the process of evaluating the effect, ifany, that the adoption of SFAS No.159 will have on its consolidated results ofoperations and financial position.

 

In December 2007,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards No. 160 (SFAS 160),*Noncontrolling Interests in Consolidated Financial Statements — an amendment ofARB No. 51(Consolidated Financial Statements)*. SFAS 160establishes accounting and reporting standards for a noncontrolling interest ina subsidiary and for the deconsolidation of a subsidiary. In addition, SFAS 160requires certain consolidation procedures for consistency with the requirementsof SFAS 141,*Business Combinations*.SFAS 160 is effective for fiscal years, and interim periods within those fiscalyears, beginning on or after December 15, 2008 with earlier adoptionprohibited. The Company is evaluating the effect, if any, that the adoption ofSFAS 160 will have on its results of operations, financial position, andrelated disclosures.

 

**Note 3. Investments**

 

The cost and fair value ofthe Company’s investments are as follows at September 30:

 

 

F-12

----

** **

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 
| ** **                                              | ** ** | **2007**             | ** ** |
|---------------------------------------------------------|------------|----------------------|------------|
| ** **                                              | ** ** | **Amortized   Cost** | ** ** | **Fair   Value** | ** ** |
|                                                    |       |                 |       |   |   |
| Long-term investments                                   |       |                 |       |   |   |
| Marketable securities — government notes and bonds |       | $                    | 157,727    |   | $ | 157,717 |   |
|                                                    |       |                 |       |   |   |
| Total investments                                       |       | $                    | 157,717    |   | $ | 157,717 |   |

 
| ** **                                              | ** ** | **2006**             | ** ** |
|---------------------------------------------------------|------------|----------------------|------------|
| ** **                                              | ** ** | **Amortized   Cost** | ** ** | **Fair   Value** | ** ** |
|                                                    |       |                 |       |   |   |
| Short-term investments                                  |       |                 |       |   |   |
| Certificates of deposit                                 |       | $                    | 1,000,000  |   | $ | 1,000,000 |   |
| Marketable securities — government notes and bonds |       | 17,726,834           |       | 17,726,834 |   |
| Total                                                   |       | 18,726,834           |       | 18,726,834 |   |
|                                                    |       |                 |       |   |   |
| Long-term investments                                   |       |                 |       |   |   |
| Marketable securities — government notes and bonds |       | 103,742              |       | 103,742 |   |
|                                                    |       |                 |       |   |   |
| Total investments                                       |       | $                    | 18,830,576 |   | $ | 18,830,576 |   |

 

There were no material realized or unrealizedgains or losses related to these investments for fiscal 2007, 2006, or 2005.

 

Shown below are the amortized cost and estimated fair value ofsecurities with fixed maturities at September 30, 2007, by contractualmaturity dates.  Actual maturities maydiffer from contractual maturities because certain securities may retain earlycall or prepayment rights.

 
| ** **                                | ** ** | **Amortized   Cost** | ** ** | **Fair   Value** | ** ** |
|-------------------------------------------|------------|----------------------|------------|------------------|------------|
| ** **                                | ** ** | ** **           | ** ** | ** **       | ** ** |
| Due within one year                       |       | $                    | 9,984      |             | $          | 9,984 |   |
| Due after one year but  within five years |       | 147,733              |       | 147,733          |       |
|                                      |       |                 |       |             |       |
| Total investments                         |       | $                    | 157,717    |             | $          | 157,717 |   |

 

**Note4:  Inventory**

 

Inventories are comprisedof the following at September 30:

 

 
| ** **      | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
|            |       |     |       |     |       |
| Raw materials   |       | $        | 1,487,691  |     | $          | 1,001,783 |   |
| Supplies        |       | 867,896  |       | 533,895  |       |
| Work in process |       | 344,601  |       | 364,036  |       |
| Finished goods  |       | 609,145  |       | 300,576  |       |
| Totals          |       | $        | 3,309,333  |     | $          | 2,200,290 |   |

 

 

F-13

----

 

 

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30,2007 and 2006

 

**Note 5: Derivative Instruments**

 

At September 30,2007 and 2006, the Company recorded a liability and an asset for derivativeinstruments of approximately $221,000 and $4,357,000, respectively.  None of the positions open at September 30,2007 and 2006 are designated as cash flow or fair value hedges.  Theliability of approximately $221,000 in derivative instruments at September 30,2007 includes a liability for the interest rate swap of approximately $439,000described below and an asset for corn, natural gas, and ethanol options andfutures positions of approximately $218,000. The gross value of corn, natural gas, and ethanol derivative instrumentpositions at September 30, 2007 is approximately $9,426,000 less cashwithdrawn against the equity of these positions of approximately $9,208,000resulting in a net asset for these positions of approximately $218,000.  The asset for derivative instruments at September 30,2006 of approximately $4,357,000 includes the gross value of corn and naturalgas options and futures positions of approximately $7,956,000 less cashwithdrawn against the equity of these positions of approximately $3,599,000.

 

The Company has recordeda gain of approximately $15,059,000 and $1,311,000 in cost of goods sold forfiscal years 2007 and 2006, respectively. The Company has recorded a loss ofapproximately $2,697,000 in cost of goods sold for fiscal year 2005.  The Company offset revenues with losses ofapproximately $2,102,000 for fiscal year 2007. There were no correspondinggains or losses for fiscal 2006 or 2005.

 

In April 2007, theCompany entered into an interest rate swap to limit increased interest expenseon a portion of the construction loans upon conversion into term notes. Theinterest rate swap fixes the interest rate on $36,500,000 of debt at 7.68%beginning March 1, 2008 until March 1, 2013.  The Company hasincluded the liability for the interest rate swap of approximately $439,000with derivative instruments at September 30, 2007 and recognizedapproximately $439,000 in other income for fiscal 2007.

 

During fiscal 2006 and2005, the Company had an interest rate cap, which expired on June 1,2006.  The interest rate cap was not designated as a cash flow or fairvalue hedge.  The Company offset interest expense with a loss ofapproximately $70,000 in fiscal 2006 and a gain of approximately $39,000 infiscal 2005.

 

**Note 6:Construction in Progress**

 

The Company continues tomake payments for the expansion to a 92 MGY plant.  The Company anticipates the expansion willcost approximately $73,000,000 with approximately $14,042,000 remaining at September 30,2007.  The Company capitalized interestof approximately $1,389,000, including amounts accrued, in fiscal 2007.

 

**Note 7:Deferred Loan Costs**

 

The Company had deferredloan costs of approximately $1,035,000 and $487,000 at September 30, 2007and 2006, respectively.  Accumulatedamortization at September 30, 2007 and 2006 was approximately $487,000 and$346,000, respectively.  The amortizationexpense related to the deferred loan costs for fiscal years 2007, 2006, and2005 was approximately $85,000, $97,000, and $108,000, respectively.  The Company capitalized certain loan costs aspart of the expansion in fiscal 2007 of approximately $56,000.

 

**Note8:  Revolving Promissory Note**

 

Under the terms of thefinancing agreement with the lending institution, the Company has a revolvingpromissory note for up to $5,000,000, subject to borrowing base limitationsbased on the amended and restated debt agreement in April 2007. Therevolving promissory note incurs interest monthly at the one-month LIBOR plus2.80% and is payable in full in March 2008.  The Company pays a commitmentfee of 0.25% on the unused portion of the revolving promissory note. There were no balances outstanding on the revolving promissory note at September 30,2007 or 2006.  The revolving promissory note as well as the term notes andconstruction loan described in Note 9 are subject to protective covenants undera common financing agreement requiring the Company to maintain variousfinancial ratios, including debt service coverage, minimum net worth andworking capital requirements, and excess cash flow payments and secured by allbusiness assets.

 

 

F-14

----

 

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 

**Note 9:Long-Term Debt**

 

Long-termdebt consists of the following at September 30:

 

| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **2007**   | ** ** | **2006**  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| Term note 2 has fixed  principal payments due quarterly with interest at the three month LIBOR plus  2.80%, which totaled 8.38% and 8.20% at September 30, 2007 and 2006,  respectively, payable in full on June 1, 2008.  As part of the  financing agreement, the Company accepted a fixed rate option on term note 2  by entering into an interest rate swap which effectively fixes the interest  rate on this term note at 5.79% until this term note is repaid on  June 1, 2008. The Company did not designate the interest rate swap as a  cash flow or fair value hedge. The value of the interest rate swap is not  significant.                                                                                                                                                          | ** ** | $          | 9,824,449  |      | $          | 11,308,363 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| Term note 3 bears interest  at the three month LIBOR plus 2.80%, which totaled 8.38% and 8.20% at  September 30, 2007 and 2006, respectively.  Term note 3 is payable  in full on June 1, 2008.  The Company is required to make quarterly  payments of $506,588 applied first to accrued interest on term note 4.   The remaining amount is applied to accrued interest on term note 3 and then  to principal until this note is paid in full or until maturity.  After  term note 3 is repaid, payments are applied first to accrued interest and  then to principal until this note is paid in full or until maturity.   After term note 3 is repaid, payments are applied first to accrued interest  and then to principal on term note 4 until paid in full or until maturity. |       | 3,434,778  |       | 5,090,129 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| Term note 4 bears interest  at the one month LIBOR plus 2.80%.  Term note 4 is payable in full on  June 1, 2008. Term note 4 allows subsequent borrowings up to the  original $5,000,000 to the extent of principal payments made until maturity  and requires a commitment fee of .25% on any used portion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **_**      |       | _         |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ** ** | ** ** |       |      |       |
| Construction note — see  terms below                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | 25,419,785 |       |      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | 55,555     |       | 97,222    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | 63,709     |       | 108,136   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| Note payable to Iowa  Department of Economic Development, due in monthly installments of $1,167  without interest, payable in full on July 1, 2009, secured by all  equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 164,500    |       | 178,500   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| Capital lease obligation,  due in monthly installments initially totaling $6,658 including implicit  interest at 3.67% through March 1, 2008, secured by leased equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 39,524     |       | 116,428   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | $          | 39,002,300 |      | $          | 16,898,778 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| Less amounts due within  one year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 13,259,228 |       | 3,394,196 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       |       |       |      |       |
| Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | $          | 25,743,072 |      | $          | 13,504,582 |   |

 

In April 2007, the Companyobtained a construction loan for approximately $73,000,000 for the partialfunding of the 40 MGY expansion to the Marcus, Iowa ethanol plant.  The construction loan bears interest at theone-month LIBOR plus 3.10%, which totaled 8.77% at September 30,2007.  Upon the earlier of July 20,2008 or completion of construction, the construction loan converts into threeseparate notes for up to approximately $82,278,000.  The first loan, known as the Swap Note, isfor a maximum amount of $36,500,000.  TheSwap Note will be due in quarterly principal payments initially totalingapproximately $612,000, increasing to approximately $859,000, with a finalballoon payment of approximately $22,725,000 on the fifth anniversary of theconstruction loan termination date. Interest will accrue at the three-month LIBOR plus 2.60% due quarterly.The Company entered into an interest rate swap to limit increased interestexpense on the Swap Note. The interest rate swap fixed the interest rate at7.68% beginning March 1, 2008 until March 1, 2013.

 

 

F-15

----

 

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 

The second loan, known asthe Variable Rate Note, is for up to approximately $35,778,000 which includesany remaining amounts outstanding on the term note 3, less any amountsoutstanding on term note 2.  The VariableRate Note will accrue interest at the three-month LIBOR plus 3.00%.  The third loan, known as the Long TermRevolving Note, is for up to $10,000,000. The Long Term Revolving Note will accrue interest at the three-monthLIBOR plus 3.00%.  The Variable Rate Noteand the Long Term Revolving Note require quarterly payments of approximately$1,362,000, which is applied first to accrued interest on the Long TermRevolving Note, then to accrued interest and principal on the Variable RateNote.  Once the Variable Rate Note hasbeen repaid, these payments will be applied to accrued interest and principalon the Long Term Revolving Note.  Boththe Variable Rate Note and the Long Term Revolving Note mature on the fifthanniversary of the construction termination date.  The Long Term Revolving Note allowssubsequent borrowings up to the original $10,000,000 until maturity.    The Long Term Revolving Note requires acommitment fee of 0.25% on any unused portion.

 

As part of the financingagreement, the premium above the LIBOR on the Variable Rate Note, the Long TermRevolving Note, and the Revolving Promissory Note may be reduced based on afinancial ratio after the construction termination date.  The construction loan, the existing termnotes, and the revolving promissory note are under a common financing agreementdescribed in Note 8.

 

The estimated maturitiesof long-term liabilities at September 30, 2007 are as follows:

 

| 2008                        |   | $          | 13,259,288 |   |
|-----------------------------|--------|------------|------------|--------|
| 2009                        |   | 2,722,900  |       |
| 2010                        |   | 2,541,976  |       |
| 2011                        |   | 2,541,976  |       |
| 2012                        |   | 2,541,976  |       |
| 2013                        |   | 13,345,399 |       |
| Total long-term liabilities |   | $          | 39,002,300 |   |

 

**Note 10:Leases**

 

The Company leases equipmentunder operating and capital leases through 2112.  The Company is generallyresponsible for maintenance, taxes, and utilities for leased equipment. Equipment under operating leases includes rail cars and various otherequipment.  Rent expense for operating leases was approximately $166,000,$187,000, and $229,000, for the fiscal years 2007, 2006, and 2005,respectively.  During the fiscal 2007, 2006, and 2005, the Company rentedrail cars on a month-to-month basis and recognized approximately $9,000,$60,000, and $89,000, respectively, in other income.  During fiscal 2005,the Company recorded income of approximately $90,000 on the permanent transferof 30 rail cars of a 50 rail car lease to a third party.  This transfer indemnified the Company fromany liability and, as a result, the Company transferred all rights andprivileges related to the 30 rail cars.

 

Equipment under capitalleases is as follows at September 30:

 

| ** **               | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|
|                     |       |     |       |     |       |
| Equipment                |       | $        | 451,437    |     | $          | 451,437 |   |
| Accumulated Amortization |       | 135,307  |       | 105,212  |       |
|                     |       |     |       |     |       |
| Total                    |       | $        | 316,130    |     | $          | 346,225 |   |

 

 

F-16

----

 

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 

At September 30, 2007,the Company had the following minimum commitments, which at inception hadnon-cancelable terms of more than one year:

 

| ** **                                                                                    | ** ** | **Operating  Lease** | ** ** | **Capital  Lease** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------|------------|--------------------|------------|
|                                                                                          |       |                 |       |               |       |
| 2008                                                                                          |       | $                    | 406,014    |               | $          | 39,946 |   |
| 2009                                                                                          |       | 301,520              |       |               |       |
| 2010                                                                                          |       | 237,960              |       | ——       |       |
| 2011                                                                                          |       | 237,960              |       |               |       |
| 2012                                                                                          |       | 237,960              |       | ——       |       |
| After 2012                                                                                    |       | 1,189,800            |       |               |       |
| Total minimum lease commitments                                                               |       | $                    | 2,611,214  |               | 39,946     |   |
| Less amount representing interest                                                             |       |                 |       | 422                |       |
|                                                                                          |       |                 |       |               |       |
| Present value of minimum lease commitments; included in the  proceeding long-term liabilities |       |                 |       | $                  | 39,524     |   |

 

**Note 11:  Members’Equity**

 

In April 2007, theLLC declared a unit distribution of 14 units per unit held by members. After the unit distribution, there are 164,115 units outstanding.  Unitamounts in this statement have been adjusted to reflect this unit split.

 

In January 2007, LSCP declared adistribution of approximately $14,718,000 from LSCP to the partners, which waspaid in February 2007.  The LLCreceived approximately $8,853,000 of this distribution.  In February 2007, the LLC paid $53.33per unit to the LLC unit holders.

 

In July 2007, LSCP declared adistribution of approximately $9,381,000 from LSCP to the partners, which waspaid in August 2007.  The LLCreceived approximately $5,643,000 of this distribution.  In August, 2007, the LLC paid $33.45 per unitto the LLC unit holders.

 

In January 2006,LSCP declared a distribution of approximately $15,361,000 from LSCP to thepartners, which was paid in February 2006.  The LLC receivedapproximately $9,240,000 of this distribution. In February 2006, the LLC paid $56.16 per unit to the LLC unitholders.

 

In January 2005 LSCPdeclared a distribution of approximately $4,000,000 from LSCP to the partners,which was paid in February 2005. The LLC received approximately $2,406,000 of this distribution.  In February 2005, the LLC paid $14.66per unit to the LLC unit holders.

 

In March 2005, LSCPdeclared a distribution of approximately $3,000,000 from LSCP to the partners,which was paid in April 2005.  TheLLC received approximately $1,805,000 of this distribution.  In April 2005, the LLC paid $10.66 perunit to the LLC unit holders.

 

In September 2005,LSCP declared a distribution of approximately $1,581,000 to the partners, whichwas paid in September 2005.  The LLCreceived approximately $951,000 of this distribution.  In September 2005, the LLC paid $5.22per unit to the LLC unit holders.

 

**Note12:  Employee Benefit Plans**

 

Company contributions tothe 401(k) plan were approximately $58,000, $53,000, and $33,000 in fiscalyear 2007, 2006, and 2005, respectively.

 

 

 

F-17

----

 

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 

Compensation expenserelated to the deferred compensation plan was approximately $74,000, $28,000,and $48,000 in fiscal year 2007, 2006, and 2005, respectively.

 

**Note13:  Related Party Transactions**

 

The Company has balancesand transactions in the normal course of business with various relatedparties.  Revenues from related parties,including ADM, who is an investor in LSCP, were approximately $117,911,000,$101,069,000, and $82,549,000 for fiscal 2007, 2006, and 2005,respectively.  The Company has incurredexpenses from related parties for corn purchase and distribution costs ofapproximately $16,242,000, $13,589,000, and $11,196,000 for fiscal 2007, 2006,and 2005, respectively, included in cost of goods sold.  The Company incurred approximately $835,000,$532,000, and $476,000 in marketing fees paid to ADM for fiscal 2007, 2006, and2005, respectively, including in selling, general, and administrativeexpenses.  The Company was involved in adispute with ADM in fiscal 2005 involving the ethanol marketingagreement.  Subsequent to September 30, 2005, the Company settled theclaim by agreeing to pay ADM approximately $3,900,000, which the Companyrecorded as of September 30, 2005 in selling, general, and administrativeexpenses.

 

The Company incurredapproximately $45,438,000 in costs related to expansion of the plant through September 30,2007 with Fagen, Inc. (Fagen), who is an investor in LSCP.  In addition, ARCP paid a constructioncommitment fee of $500,000 to Fagen as part of the Letter of Intent for theAkron project described in Note 14.

 

**Note 14:Akron Riverview Corn Processors, LLC (ARCP)**

 

**ProjectInformation**

 

ARCP was formed as anIowa Limited Liability Company, November 27, 2006, for the purpose ofdeveloping a project to build a 100 million gallon dry mill corn-processingethanol plant expected to be located in Plymouth County, Iowa near Akron.  ARCP is a development stage company with noprior operating history.  ARCP does notexpect to generate any revenue until the plant operations begin.

 

**Suspensionof Project Development**

 

ARCP in August 2007elected to suspend project development and the preparation of its registrationstatement for the sale of its securities due to market conditions. ARCP intends to monitor market conditions and will proceed with thepreparation of its registration statement and further project development at alater date if it deems it appropriate and advantageous.

 

**ProjectFunding**

 

On February 27,2007, ARCP entered into a subscription agreement with the LLLP, in which ARCPaccepted a subscription agreement for $19,999,900 in exchange for 15,000 Class Aunits at $666.66 per unit and 12,500 Class A units at $800 per unit,totaling 27,500 Class A units.   ARCP has two classes ofmembership units, Class A and B, with each unit representing a pro rataownership interest in the ARCP’s capital, profits and losses, anddistributions.  Class B unit holders will not be able to elect boardmembers of the ARCP unless the Class B unit holder holds at least 15,000units. The ARCP’s Board is currently identical to the Boards of LSCP, LLLP andLittle Sioux Corn Processors, LLC.

 

ARCP was in the processof filing a Form SB-2 Registration Statement with the Securities andExchange Commission (SEC) before the project was suspended in August 2007.

 

**Letterof Intent and Extension**

 

ARCP signed a letter ofintent in March 2007 with Fagen, pursuant to which ARCP and Fagenanticipated entering into an agreement for Fagen’s design and construction ofAkron’s proposed ethanol plant.  On November 15, 2007 

 

 

F-18

----

 

**LITTLESIOUX CORN PROCESSORS, LLC AND SUBSIDIARY**

 

Notes toConsolidated Financial Statements

 

September 30, 2007 and 2006

 

Akron and Fagen enteredinto an amendment to the letter of intent to extend the term of the letter ofintent to June 1, 2008 (the “Agreement”).  Prior to June 1,2008, the basic size and design of the plant must be determined and mutuallyagreed upon by the parties; a specific site or sites must have been determinedand mutually agreed upon by the parties; and at least 10% of the necessaryequity for the project must be raised.  If these conditions are not met,the Agreement will terminate.  Either ARCP or Fagen may terminate theAgreement if the parties have not entered into a design-build agreement or haveexecuted all documents necessary to complete the project by June 1,2008.  Moreover, if ARCP has not issued a notice to proceed to Fagen by June 1,2008, Fagen may terminate any design-build agreement the parties have enteredinto.  In addition to the extension of the term of the letter of intent,the Agreement also increased the contract price to $134,074,050, subject todeviations from Fagen’s standard design.  The contract price is alsosubject to changes based on corresponding changes to the Construction CostIndex (CCI) and a 0.50% surcharge for each calendar month that has passedbetween January 2007 and the month in which ARCP issues a valid notice toproceed.  The total increase due to changes caused by the CCI and the0.50% surcharge is limited to 7%.  The contract price, however, shall notbe more than Fagen’s stated current price for 100 million gallon ethanolfacilities on the date the notice to proceed is issued.

 

A non-refundableconstruction commitment fee of $500,000 has been paid with the signing of the March 2007letter of intent which will be credited towards the contract price should theARCP choose to execute the design build agreement.  The general contractoris an investor in LSCP, LLLP.

 

ARCP entered into a PhaseI and Phase II engineering services agreement with an affiliate of the generalcontractor.  In exchange for the performance of certain engineering anddesign services, ARCP has agreed to pay $185,000, which will be creditedagainst the total design-build cost.  ARCP will also be required to paycertain reimbursable expenses per the agreement.

 

**Land**

 

ARCP purchasedapproximately 306 acres of land for the intended site of the ethanol plant nearAkron, Iowa for approximately $4,647,000 in August 2007.

 

**ManagementAgreement**

 

In May 2007, ARCPentered into a management agreement with LLLP to operate and manage theplant.  The agreement requires an annual management fee of $420,000 and anannual incentive bonus of 3% of the ARCP’s net income up to $1,500,000. The management fee is negotiable six months after operations commence andyearly thereafter.  The agreement begins when ARCP hires a plant managerwhich cannot be earlier than 180 days prior to commencement of operations andcontinues for five years with an automatic renewal for an additional five yearterm unless terminated by either party.

 

**Note15:  Income Taxes**

 

The differences betweenconsolidated financial statement basis and tax basis of assets are as followsat September 30:

 

| ** **                                                                                  | ** ** | **2007**    | ** **  | **2006**    | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
|                                                                                        |       |        |        |        |       |
| Consolidated financial  statement basis of assets                                           |       | $           | 136,412,043 |        | $          | 91,556,615 |   |
| Plus: organization and start-up costs capitalized, net                                      |       | 79,258      |        | 238,211     |       |
| Plus: deferred compensation amounts                                                         |       | 153,906     |        | 74,247      |       |
| Plus: unrealized derivative instrument gains                                                |       | (8,987,838  | )           | (7,901,011  | )          |
| Less: accumulated tax depreciation and amortization greater than  financial statement basis |       | (17,081,093 | )           | (17,954,460 | )          |
| Income tax basis of assets                                                                  |       | $           | 110,576,276 |        | $          | 66,013,602 |   |

 

 

 

F-19

----

 

There were no differences between the consolidatedfinancial statement basis and tax basis of the Company’s liabilities.

 

**Note16:**  **Commitments,and Contingencies**

 

**ContractualObligations**

 

The followingtable provides information regarding the consolidated contractual obligationsof the Company as of September 30, 2007:

 
| ** **                     | ** ** | **Total**   | ** ** | **Less than One Year** | ** ** | **One to Three Years** | ** ** | **Three to Five Years** | ** ** | **Greater Than Five Years** | ** ** |
|--------------------------------|------------|-------------|------------|------------------------|------------|------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Long-Term Debt Obligations (1) |       | $49,037,116 |       | $17,873,291            |       | $8,997,059             |       | $22,166,766             |       | $—                     |       |
| Operating Lease Obligations    |       | 2,379,600   |       | 406,014                |       | 539,480                |       | 475,920                 |       | 1,189,800                   |       |
| Purchase Obligations (2)       |       | 30,605,933  |       | 30,564,614             |       | 785,692                |       | —                  |       | —                      |       |
| Total Contractual Obligations  |       | $82,022,649 |       | $48,099,546            |       | $10,313,151            |       | $22,642,686             |       | $1,189,800                  |       |

----

(1)           Long-TermDebt Obligations include estimated interest and interest on unused debt.

 

(2)           Purchaseobligations primarily include forward contracts for corn, natural gas, anddenaturant as well as remaining amounts for construction in progress.

 

**Expansion Contract**

 

The Company entered into a Design-Build Contract with Fagen, a relatedparty, for the construction of the 40 MGY expansion to the Company’s currentplant in Marcus, lowa. The contract value is approximately $48,328,000,including change orders.

 

**Forward Contracts**

 

The Company has forward contract commitments to selldistillers grains for approximately $16,196,000 in fiscal 2008 which representsapproximately 75% of anticipated distiller grains sales.

 

**MarketingAgreements**

 

In March 2007, the Companyand ADM, a related party, amended the marketing agreement for the sale ofethanol to ADM. The new agreement is for an initial term of four years withrenewal terms thereafter in one year increments. The Company agrees to pay ADMa certain percentage of the sales price as a marketing fee.

 

In August 2007, the Companyapproved the assignment of the distillers marketing agreement from CommoditySpecialist Company to its sucessor, CHS, Inc. The Company receives a percentageof the selling price actually received by CHS in marketing the distiller grainsto its customers. The marketing agreement is terminable by either party with120 days notice.

 

**Note17:  Quarterly Financial Data (Unaudited)**

 

Summary quarterly results are as follows:

 
| ** **                                | ** ** | **First**

**Quarter** | ** ** | **Second**

**Quarter** | ** ** | **Third**

**Quarter** | ** ** | **Fourth**

**Quarter** | ** ** |
|-------------------------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|-------------------------|------------|
| Fiscal year ended September 30, 2007 |       |                   |       |                    |       |                   |       |                    |       |
| Revenues                                  |       | $                      | 33,605,049 |                    | $          | 33,074,991             |       | $                       | 33,213,669 |   | $ | 30,836,627 |   |
| Gross profit                              |       | 21,561,358             |       | 12,382,194              |       | 872,403                |       | 8,853,857               |       |
| Operating income                          |       | 20,779,535             |       | 10,635,292              |       | (327,803               | )          | 7,143,414               |       |
| Income before minority interest           |       | 20,769,079             |       | 10,847,890              |       | 347,956                |       | 6,532,876               |       |
| Minority interest in subsidiary income    |       | 8,278,461              |       | 4,354,791               |       | 167,068                |       | 2,643,481               |       |
| Net income                                |       | 12,490,618             |       | 6,493,099               |       | 180,888                |       | 3,898,395               |       |
| Basic and diluted earnings per unit       |       | $                      | 76.11      |                    | $          | 39.56                  |       | $                       | 1.10       |   | $ | 23.75 |   |
|                                      |       |                   |       |                    |       |                   |       |                    |       |
|                                           |            |                        |            |                         |            |                        |            |                         |            |  |  |  |  |  |  |  |  |

 
| ** **                                | ** ** | **First**

**Quarter** | ** ** | **Second**

**Quarter** | ** ** | **Third**

**Quarter** | ** ** | **Fourth**

**Quarter** | ** ** |
|-------------------------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|-------------------------|------------|
| Fiscal year ended September 30, 2006 |       |                   |       |                    |       |                   |       |                    |       |
| Revenues                                  |       | $                      | 23,141,931 |                    | $          | 27,498,079             |       | $                       | 31,146,507 |   | $ | 31,999,149 |   |
| Gross profit                              |       | 7,770,477              |       | 7,562,173               |       | 11,401,189             |       | 13,373,792              |       |
| Operating income                          |       | 7,095,713              |       | 6,712,372               |       | 10,646,392             |       | 12,651,900              |       |
| Income before minority interest           |       | 6,993,492              |       | 6,654,834               |       | 10,646,950             |       | 12,692,464              |       |
| Minority interest in subsidiary income    |       | 2,787,012              |       | 2,659,079               |       | 4,250,481              |       | 5,079,334               |       |
| Net income                                |       | 4,206,480              |       | 3,995,755               |       | 6,396,469              |       | 7,613,130               |       |
| Basic and diluted earnings per unit       |       | $                      | 25.63      |                    | $          | 24.35                  |       | $                       | 38.98      |   | $ | 46.38 |   |
|                                      |       |                   |       |                    |       |                   |       |                    |       |
|                                           |            |                        |            |                         |            |                        |            |                         |            |  |  |  |  |  |  |  |  |

 

F-20

----

 
| ** **                                | ** ** | **First**

**Quarter** | ** ** | **Second**

**Quarter** | ** ** | **Third**

**Quarter** | ** ** | **Fourth**

**Quarter** | ** ** |
|-------------------------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|-------------------------|------------|
| Fiscal year ended September 30, 2005 |       |                   |       |                    |       |                   |       |                    |       |
| Revenues                                  |       | $                      | 22,975,735 |                    | $          | 23,835,684             |       | $                       | 23,101,306 |   | $ | 25,968,695 |   |
| Gross profit                              |       | 5,907,410              |       | 8,135,674               |       | 7,887,907              |       | 8,693,343               |       |
| Operating income                          |       | 5,211,539              |       | 7,470,042               |       | 7,279,454              |       | 4,120,991               |       |
| Income before minority interest           |       | 4,993,564              |       | 7,375,228               |       | 7,146,738              |       | 4,004,936               |       |
| Minority interest in subsidiary income    |       | 1,992,348              |       | 2,965,331               |       | 2,858,942              |       | 1,605,144               |       |
| Net income                                |       | 3,001,216              |       | 4,409,897               |       | 4,287,796              |       | 2,399,792               |       |
| Basic and diluted earnings per unit       |       | $                      | 18.29      |                    | $          | 26.87                  |       | $                       | 26.13      |   | $ | 14.62 |   |
|                                      |       |                   |       |                    |       |                   |       |                    |       |
|                                           |            |                        |            |                         |            |                        |            |                         |            |  |  |  |  |  |  |  |  |

 

The above quarterly financial data is unaudited, butin the opinion of management, all adjustments necessary for a fair presentationof the selected data for these periods presented have been included.

 

 

F-21

----