10QSB 1 a03-1163_110qsb.htm 10QSB

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 


 

FORM 10-QSB

 

(Mark One)

 

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACTION OF 1934

 

For the quarterly period ended June 30, 2003

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from               to               

 

COMMISSION FILE NO. 333-66552

 

LAKE AREA CORN PROCESSORS, LLC

(Exact name of small business issuer as specified in its charter)

 

SOUTH DAKOTA

 

46-0460790

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

46269 SD Hwy. 34, P.O. Box 100, Wentworth, South Dakota 57075

(Address of principal executive offices)

 

(605) 483-2676

(Issuer’s telephone number)

 

(Former name, former address and former fiscal year, if changed since last report)

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.  Yes o  No o

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

 

On August 6, 2003, the issuer had 29,620,000 Class A capital units outstanding.

 

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

 

 



 

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

LAKE AREA CORN PROCESSORS, LLC

 

CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002

 

2



 

 

LAKE AREA CORN PROCESSORS, LLC

 

Table of Contents

 

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Balance Sheet

Statements of Operations

Statements of Cash Flows

Notes to Financial Statements

 

3



 

LAKE AREA CORN PROCESSORS, LLC

CONSOLIDATED BALANCE SHEET (UNAUDITED)

JUNE 30, 2003

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

Receivables

 

 

 

Ethanol - related party

 

$

3,230,355

 

Distillers grains (net of allowance for doubtful accounts of $33,000)

 

497,482

 

Incentives

 

1,116,887

 

Interest and other

 

144,398

 

Inventory

 

 

 

Raw materials

 

1,657,982

 

Finished goods

 

768,102

 

Parts inventory

 

401,895

 

Work in process

 

363,290

 

Margin deposit

 

119,023

 

Prepaid expenses

 

129,080

 

Total current assets

 

8,428,494

 

 

 

 

 

PROPERTY AND EQUIPMENT

 

 

 

Land

 

106,394

 

Land improvements

 

2,217,724

 

Buildings

 

7,224,153

 

Equipment

 

31,146,356

 

 

 

40,694,627

 

Less accumulated depreciation

 

(3,806,110

)

Net property and equipment

 

36,888,517

 

 

 

 

 

OTHER ASSETS

 

 

 

Financing costs, net of accumulated amoritzation of $118,260

 

184,515

 

Investment in Ethanol Products, LLC

 

221,667

 

 

 

406,182

 

 

 

 

 

 

 

$

45,723,193

 

 

(continued on next page)

 

4



 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

Outstanding checks in excess of bank balance

 

$

1,909,736

 

Accounts payable

 

3,158,601

 

Accounts payable - related party

 

72,359

 

Accounts payable - construction - related party

 

63,574

 

Accrued liabilities

 

231,851

 

Current portion of notes payable

 

2,486,365

 

Total current liabilities

 

7,922,486

 

 

 

 

 

LONG-TERM NOTES PAYABLE

 

15,030,295

 

 

 

 

 

MINORITY INTEREST

 

2,708,287

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

MEMBERS’ EQUITY

 

 

 

Capital units, $0.50 stated value, 29,620,000 issued and outstanding

 

14,810,000

 

Additional paid-in capital

 

96,400

 

Retained earnings

 

5,155,725

 

Total members’ equity

 

20,062,125

 

 

 

 

 

 

 

$

45,723,193

 

 

See Notes to Unaudited Consolidated Financial Statements

 

5



 

LAKE AREA CORN PROCESSORS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

Six
Months
Ended
June 30,
2003

 

Six
Months
Ended
June 30,
2002

 

Three
Months
Ended
June 30,
2003

 

Three
Months
Ended
June 30,
2002

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

Sales

 

$

32,647,127

 

$

28,724,931

 

$

15,366,492

 

$

14,020,082

 

Incentive revenue

 

1,047,139

 

5,375,875

 

175,655

 

2,315,186

 

Total revenues

 

33,694,266

 

34,100,806

 

15,542,147

 

16,335,268

 

 

 

 

 

 

 

 

 

 

 

COST OF REVENUES

 

29,412,974

 

22,949,688

 

14,568,557

 

11,554,804

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

4,281,292

 

11,151,118

 

973,590

 

4,780,464

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

General and administrative

 

2,117,458

 

2,268,053

 

1,008,127

 

1,196,933

 

Total expenses

 

2,117,458

 

2,268,053

 

1,008,127

 

1,196,933

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

2,163,834

 

8,883,065

 

(34,537

)

3,583,531

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

Gain from Ethanol Products, LLC

 

29,847

 

17,441

 

7,604

 

1,740

 

Interest and other income

 

27,883

 

64,036

 

11,688

 

35,564

 

Interest expense

 

(751,887

)

(1,112,733

)

(361,438

)

(523,175

)

Total other income (expense)

 

(694,157

)

(1,031,256

)

(342,146

)

(485,871

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) BEFORE MINORITY INTEREST

 

1,469,677

 

7,851,809

 

(376,683

)

3,097,660

 

 

 

 

 

 

 

 

 

 

 

MINORITY INTEREST IN SUBSIDIARY

 

(189,334

)

(963,541

)

42,341

 

(381,386

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

1,280,343

 

$

6,888,268

 

$

(334,342

)

$

2,716,274

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED EARNINGS (LOSS) PER UNIT

 

$

0.04

 

$

0.23

 

$

(0.01

)

$

0.09

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE UNITS OF EQUITY STOCK OUTSTANDING FOR THE CALCULATION OF BASIC AND DILUTED EARNINGS (LOSS) PER UNIT

 

29,620,000

 

29,620,000

 

29,620,000

 

29,620,000

 

 

See Notes to Unaudited Consolidated Financial Statements

 

6



 

LAKE AREA CORN PROCESSORS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2003 AND 2002

 

 

 

2003

 

2002

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

1,280,343

 

$

6,888,268

 

Changes to income not affecting cash

 

 

 

 

 

Depreciation

 

1,077,365

 

1,001,594

 

Amortization

 

42,552

 

31,261

 

Minority interest in subsidiary

 

189,334

 

963,541

 

Gain on investment in Ethanol Products, LLC

 

(34,847

)

(18,201

)

(Increase) decrease in

 

 

 

 

 

Receivables

 

(330,569

)

1,817,145

 

Inventory

 

(383,557

)

8,321

 

Prepaid expenses

 

(90,665

)

27,030

 

Margin deposit

 

293,710

 

(536,157

)

Increase (decrease) in

 

 

 

 

 

Accounts payable

 

(889,717

)

(879,248

)

Accrued liabilities

 

(107,488

)

(438,365

)

 

 

 

 

 

 

NET CASH FROM OPERATING ACTIVITIES

 

1,046,461

 

8,865,189

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Distribution from Ethanol Products, LLC

 

65,429

 

61,397

 

Purchase of property and equipment

 

(170,704

)

(1,402,358

)

 

 

 

 

 

 

NET CASH USED FOR INVESTING ACTIVITIES

 

(105,275

)

(1,340,961

)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Outstanding checks in excess of bank balance

 

1,333,934

 

 

Notes payable issued

 

1,230,000

 

 

Principal payments on notes payable

 

(1,815,911

)

(2,452,098

)

Additional paid in capital received

 

 

 

400

 

Distributions paid to minority member

 

(208,209

)

(606,782

)

Distributions paid to LACP members

 

(1,481,000

)

(4,072,755

)

 

 

 

 

 

 

NET CASH USED FOR FINANCING ACTIVITIES

 

(941,186

)

(7,131,235

)

 

 

 

 

 

 

NET INCREASE IN CASH

 

 

392,991

 

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

 

6,079,625

 

 

 

 

 

 

 

CASH AT END OF PERIOD

 

$

 

$

6,472,616

 

 

(continued on next page)

 

7



 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) — page 2

 

 

 

2003

 

2002

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION

 

 

 

 

 

Cash paid during the period for interest, net of capitalized interest

 

$

751,887

 

$

1,112,733

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING AND
FINANCING INFORMATION

 

 

 

 

 

Accrued interest incurred and capitalized

 

$

 

$

43,059

 

 

See Notes to Unaudited Consolidated Financial Statements

 

8



 

LAKE AREA CORN PROCESSORS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 -    NATURE OF OPERATIONS

 

Principal Business Activity

 

Lake Area Corn Processors, LLC (LACP or the Company), formerly Lake Area Corn Processors Cooperative (Cooperative), is a South Dakota limited liability company located near Wentworth, South Dakota. The Company was originally organized by investors as a South Dakota cooperative to hold a majority interest and provide a portion of the corn supply for a 40 million-gallon (annual capacity) ethanol plant near Wentworth called Dakota Ethanol, LLC (Dakota Ethanol).

 

On April 2, 2001, the Cooperative formed the Company for the purpose of reorganizing the Cooperative into a limited liability company. On August 20, 2002, the members of the Cooperative approved the reorganization which became effective as of the close of business on August 31, 2002. The transaction included an exchange of interests whereby the assets and liabilities of the Cooperative were transferred for capital units of the Company originally named Lake Area Ethanol, LLC. For financial statement purposes, no gain or loss was recorded as a result of the exchange transaction.

 

As a result of the exchange, the Cooperative was dissolved, with the Company’s capital units distributed to the stockholders of the Cooperative at a rate of one Company capital unit for each share of equity stock and all voting stock of the Cooperative surrendered and retired. In connection with the reorganization, the Company changed its name to Lake Area Corn Processors, LLC. A minimum of 5,000 capital units is required for ownership of the Company. Such units are subject to certain transfer restrictions, including approval by the Board of Managers of the Company. The Company also retains the right to redeem the units at $.20 per unit in the event a member attempts to dispose of the units in a manner not in conformity with the Operating Agreement, if a member becomes a holder of less than 5,000 units, if a member breaches their corn delivery agreement or becomes a bankrupt member. The Company’s Operating Agreement also includes provisions whereby cash flow in excess of $200,000 will be distributed to unit holders subject to limitations imposed by a super majority vote of the Board of Managers or restrictions imposed by loan covenants.

 

NOTE 2 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The unaudited financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America.

 

In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying financial statements.

 

These financial statements should be read in conjunction with the financial statements and notes included in the Company’s financial statements for the year ended December 31, 2002.

 

As a result of the reorganization mentioned above, the financial statements of the prior periods have been restated to reflect the comparative basis of the Company as a limited liability company versus the Cooperative.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its 88% owned subsidiary, Dakota Ethanol. All significant inter-company transactions and balances have been eliminated in consolidation.

 

(continued on next page)

 

9



 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Earnings Per Unit

 

For purposes of calculating basic earnings per unit, units issued are considered outstanding on the effective date of issuance. Diluted earnings per unit are calculated by including dilutive potential equity units in the denominator.

 

On November 1, 2002, LACP effected a 4 for 1 capital unit split. To effect this split, 22,215,000 additional capital units were authorized and issued. Prior period financial statements have been restated to reflect the capital unit split.

 

Income Taxes

 

On August 20, 2002, the members approved a plan of reorganization to convert the Cooperative’s structure from an exempt cooperative organization to a limited liability company effective August 31, 2002. The Cooperative’s board approved allocating the tax gain related to the reorganization to the members. There were no income taxes paid by the Company as a result of the reorganization.

 

LACP is taxed as a limited liability company under the Internal Revenue Code. The income of LACP flows through to the members to be taxed at the individual level rather than the corporate level. Accordingly, LACP will have no tax liability.

 

The subsidiary company, Dakota Ethanol, is organized as a limited liability company under state law. Dakota Ethanol has elected to be taxed as a partnership, and income and expense pass through to LACP and the minority owner.

 

Environmental Liabilities

 

Dakota Ethanol’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require Dakota Ethanol to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, Dakota Ethanol has adopted policies, practices and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when Dakota Ethanol’s liability is probable and the costs can be reasonably estimated.

 

Recently Issued Accounting Pronouncements

 

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

 

(continued on next page)

 

10



 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The FASB has issued Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.  The Statement establishes standards for how an issuer classifies and measures certain financial instruments.

 

The FASB has issued Interpretation No. 45 regarding Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.  This Interpretation elaborates on disclosures made by a guarantor and recognition of liabilities related to guarantees of liabilities of others.

 

Management does not expect the implementation of these pronouncements to have a significant effect on the Company’s financial statements.

 

NOTE 3 -    LONG-TERM NOTES PAYABLE

 

Dakota Ethanol originally had a $26,600,000 note payable to First National Bank, Omaha, Nebraska (Bank) for the construction and permanent financing of the plant (Term Note 1). During construction, interest was due on a quarterly basis. Payments of principal were amortized over ten years with payments of principal and interest due quarterly, with the first payment due January 1, 2002, and a final maturity on September 1, 2011. Interest during construction was accrued at a variable rate. Effective September 1, 2001, and throughout the remaining term of the loan, the interest rate was 9 percent.

 

As part of the note payable agreement, Dakota Ethanol is subject to certain restrictive covenants establishing minimum reporting requirements, ratios, working capital, and net worth requirements. Dakota Ethanol was in compliance with the covenants as of June 30, 2003. The note also includes terms whereby 10% of Dakota Ethanol’s excess cash flow is payable annually to reduce the principal balance on the note, with no more than 80% of excess cash flow available for distribution to Dakota Ethanol’s members without prior approval of the bank. The note is collateralized by the ethanol plant, which had a net book value of approximately $36,900,000 as of June 30, 2003. The note is subject to prepayment penalties based on the cost incurred by the Bank to break its fixed interest rate commitment.

 

On July 29, 2002, Dakota Ethanol amended the construction loan agreement to create two term notes from its original Term Note 1, creating Term Notes 2 and 3, and then subsequently converted Term Note 3 into Term Notes 4 and 5 on November 1, 2002.

 

The balance of Term Note 2 is due and payable in quarterly installments of $581,690 commencing October 1, 2002, through September 1, 2011. Interest on outstanding principal balances will accrue at a rate of 9 percent. The other terms and conditions of Term Note 1 remain in effect.

 

The balance of Term Note 3 was originally due and payable in quarterly installments of $329,777 commencing October 1, 2002, through September 1, 2011. Interest on outstanding principal balances accrued at 50 basis points above the lender’s rate. This rate was subject to various adjustments based on various levels of indebtedness to net worth, as defined by the agreement. Dakota Ethanol could elect to borrow any principal amount repaid on Term Note 3 up to $5,000,000 subject to an unused commitment fee of 3/8 percent on the unused portion of the $5,000,000 availability and other terms of the agreement. On November 1, 2002, Dakota Ethanol amended the construction loan agreement to create two term notes from Term Note 3. Except as set forth below, the original terms and conditions of Term Note 1 apply to Term Notes 4 and 5.

 

(continued on next page)

 

11



 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The balance of Term Note 4 is due and payable in quarterly installments of $329,777 commencing January 1, 2003, through September 1, 2011. The installment will first be applied to the accrued interest on Term Note 5, and the remainder will be applied to accrued interest and principal of Term Note 4. Interest on outstanding principal balances will accrue at 50 basis points above the lender’s rate (5.0 percent at June 30, 2003). This rate is subject to various adjustments based on various levels of indebtedness to net worth, as defined by the agreement.

 

The balance of Term Note 5 is due and payable in quarterly installments of interest only commencing January 1, 2003, through September 1, 2011. Interest on outstanding principal balances will accrue at 50 basis points above the lender’s rate (5.0 percent at June 30, 2003). This rate is subject to various adjustments based on various levels of indebtedness to net worth, as defined by the agreement. Dakota Ethanol may elect to borrow any principal amount repaid on Term Note 5 up to $5,000,000 subject to the terms of the agreement. Should Dakota Ethanol elect to utilize this feature, the Bank will assess an unused commitment fee of 3/8 percent on the unused portion of the $5,000,000 availability. In addition, the Bank draws the checking account balance to a minimum balance on a daily basis. The excess cash pays down or the shortfall is drawn upon Term Note 5 as needed.

 

Dakota Ethanol also incurred a note payable related to the extension of utility lines to the plant. The loan is payable over ten years, beginning on October 1, 2001 with an effective interest rate of approximately 9 percent, and a final maturity of September 1, 2011.

 

The balance of the notes payable are as follows:

 

 

 

June 30,
2003

 

 

 

(unaudited)

 

 

 

 

 

Notes payable to First National Bank, Omaha, Nebraska

 

 

 

Term Note 2

 

$

12,926,949

 

Term Note 4

 

3,284,096

 

Term Note 5

 

1,230,000

 

Utility line extension note

 

75,615

 

 

 

17,516,660

 

Less current portion

 

(2,486,365

)

 

 

 

 

 

 

$

15,030,295

 

 

Minimum principal payments for the next five years are as follows:

 

Twelve Months Ended June 30,

 

Amount

 

 

 

 

 

2004

 

$

2,486,365

 

2005

 

2,492,232

 

2006

 

2,675,055

 

2007

 

2,578,327

 

2008

 

1,724,933

 

 

Minimum principal payments for the twelve months ending June 30, 2004 include approximately $163,000 related to the calculation of additional principal to the Bank based on excess cash flow.

 

Interest capitalized totaled $0 and $43,059 for the six months ended June 30, 2003 and 2002, respectively.

 

(continued on next page)

 

12



 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 -    COMMITMENTS, CONTINGENCIES AND AGREEMENTS

 

The Company and Dakota Ethanol have entered into contracts and agreements regarding the operation and management of the ethanol plant. The following are items of significance that have been updated during the three months ended June 30, 2003.

 

During the six months ended June 30, 2003, the Company assigned its rail car lease to Dakota Commodities. As part of the arrangement, the Company has agreed to lease the rail cars for a flat rate per car per shipment. The agreement may be terminated with 90 days notice by either party.

 

Minimum payments related to commitments and agreements for electricity and with related parties for management and other services are summarized in the following table:

 

Twelve Months Ending June 30,

 

Electricity
Agreement

 

Related Party
Agreements

 

Total

 

 

 

 

 

 

 

 

 

2004

 

$

290,400

 

$

572,000

 

$

862,400

 

2005

 

290,400

 

553,000

 

843,400

 

2006

 

297,000

 

200,000

 

497,000

 

2007

 

303,600

 

 

303,600

 

2008

 

306,000

 

 

306,000

 

2009-2012

 

976,600

 

 

976,600

 

 

 

 

 

 

 

 

 

Total

 

$

2,464,000

 

$

1,325,000

 

$

3,789,000

 

 

Dakota Ethanol receives an incentive payment from the United States Department of Agriculture (USDA) for the use of corn to produce ethanol. In accordance with the terms of this arrangement, revenue is recorded based on incremental production of ethanol compared to the prior year. The USDA has set the annual maximum not to exceed $7,500,000 for each eligible producer. The incentive is calculated on the USDA fiscal year of October 1 to September 30. Revenue of $1,033,554 has been earned for the USDA program year ended September 30, 2003. Incentive revenue of $569,083 and $92,322 was recorded for the six and three months ended June 30, 2003. Incentive revenue of $4,782,799 and $2,069,882 was recorded for the six and three months ended June 30, 2002.

 

Dakota Ethanol also receives an incentive payment from the State of South Dakota to produce ethanol. In accordance with the terms of this arrangement, revenue is recorded based on ethanol sold. The State of South Dakota has set a maximum of up to $1,000,000 per year for this program per qualifying producer. Incentive revenue of $478,056 and $83,333 was recorded for the six and three months ended June 30, 2003. Incentive revenue of $593,077 and $245,305 was recorded for the six and three months ended June 30, 2002. Dakota Ethanol earned its maximum allocation during February of 2003 for the program year ended June 30, 2003.

 

Environmental – During 2002, management became aware that the ethanol plant may have exceeded certain emission levels allowed by their operating permit. The Company has disclosed the situation to the appropriate state regulatory agency and has taken steps to reduce the emissions to acceptable levels. Management has not accrued a liability for environmental remediation costs since the costs, if any, cannot be estimated.

 

13



 

Item 2.  Management’s Discussion and Analysis of Results of Operations

 

You should read the following discussion along with our financial statements, the notes to our financial statements included elsewhere in this report and our audited financial statements for our most recently completed fiscal year included in our annual report on Form 10-KSB.  The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions.  Our actual results, performance and achievements may differ materially from those expressed in, or implied by, these forward-looking statements.  See “Cautionary Statement Regarding Forward-Looking Information.”

 

Overview

 

Lake Area Corn Processors, LLC (LACP) is a South Dakota limited liability company that owns and manages an 88% interest in Dakota Ethanol, LLC, which built and operates a 40 million gallon ethanol plant near Wentworth, South Dakota. Dakota Ethanol produces ethanol and distiller’s dried grains with solubles, or DDGS. LACP’s members are primarily local agricultural producers and they supply a significant portion of the plant’s corn requirements.

 

                LACP was originally formed as a South Dakota cooperative and then reorganized into a South Dakota limited liability company effective August 31, 2002. The following discussion relates to financial data of LACP and the predecessor cooperative for the periods indicated.

 

Results of Operations

 

Lake Area Corn Processors reported a net loss of $334,000 for the three months ended June 30, 2003, consisting of $35,000 of operating loss, $361,000 of interest expense, $42,000 of loss allocated to the minority interest in Dakota Ethanol offset by $19,000 of other income.  Net income for Lake Area Corn Processors for the three months ended June 30, 2002 was $2,716,000, consisting of $3,583,000 of operating income and $37,000 of other income offset by $523,000 of interest expense and $381,000 of income allocated to the minority interest in Dakota Ethanol.  The net loss for the second quarter of 2003, as compared to net income for the second quarter of 2002, was primarily a result of increased corn and natural gas costs and decreased incentive income.  Net income for Lake Area Corn Processors for the six months ended June 30, 2003 was $1,280,000, consisting of $2,164,000 of operating income and $60,000 of other income offset by $752,000 of interest expense, and $189,000 of income allocated to the minority interest in Dakota Ethanol. Net income for the six-month period ended June 30, 2002 was $6,890,000. The decrease in net income for the six months ended 2003, as compared to the six months ended 2002, was primarily the result of increased corn and natural gas costs and decreased incentive income.

 

Net sales for the three months ended June 30, 2003 were approximately $15.4 million, consisting of $12.8 million in sales of ethanol (83 %) and $2.6 million in sales of DDGS (17 %).  Net sales for the three months ended June 30, 2002 were approximately $14.0 million, consisting of $11.8 million in sales of ethanol (84 %) and $2.3 million in sales of DDGS (16 %). The increase in net sales of ethanol was due primarily to increased ethanol prices.  The average sales price of ethanol per gallon was approximately 10% higher for the three months ended June 30, 2003 than for the three months ended June 30, 2002.  Net sales for the six months ended June 30, 2003 were approximately $32.6 million, consisting of $27.2 million in sales of ethanol (83 %) and $5.5 million in sales of DDGS (17 %).  Net sales for the six months ended June 30, 2002 were approximately $28.7 million, consisting of $24.0 million in sales of ethanol (84 %) and $4.7 million in sales of DDGS (16 %).  The increase in net sales of ethanol for the six months ended 2003, as compared to the six months ended 2002, was primarily the result of increased sales volume and increased ethanol prices.

 

In addition to sales revenue, Dakota Ethanol recorded incentive revenue of approximately $176,000 during the three months ended June 30, 2003 and approximately $2.3 million during the three months ended June 30, 2002.  Incentive revenue consists of income received from federal and state governments in connection with Dakota Ethanol’s ethanol production.  For the three-month period ended June 30, 2003, Dakota Ethanol recorded $92,000 of incentive income from the United States Department of Agriculture’s Commodity Credit Corporation under its Bioenergy Program compared to approximately

 

14



 

$2.1 million for the same period in 2002.  For the six-month period ended June 30, 2003, Dakota Ethanol recorded $569,000 of incentive revenue under the Bioenergy Program, compared to $4.8 million for the six-month period ended June 30, 2002. The significant decreases between the three and sixth month periods from 2003 to 2002 results from the fact that the incentive payments are based on the increase in gallons of ethanol produced when compared to the same quarter of the prior year.  Therefore, Dakota Ethanol received lower payments under this program in the period ended June 30, 2003 because the increase in its production of ethanol was less than the same period for its first period of production ending June 30, 2002.  Management anticipates that it may continue to receive less incentive income under the Bioenergy Program because it will not experience the large increases in gallons of ethanol produced compared to the plant’s initial year of operations unless the plant’s production capacity is expanded.

 

Dakota Ethanol recorded incentive income of approximately $83,000 from the State of South Dakota for the three-month period ended June 30, 2003 and approximately $245,000 for the three-month period ended June 30, 2002.  Dakota Ethanol received approximately $478,000 from the State of South Dakota for the six-month period ended June 30, 2003 and approximately $593,000 for the six-month period ended June 30, 2002. Dakota Ethanol’s maximum allocation per program year under the South Dakota program is $1.0 million, and Dakota Ethanol had earned its maximum allocation for the 2002-2003 program year ended June 30, 2003 by February 2003.

 

In addition to the limits on the Bioenergy Program incentive revenue discussed above, the incentive programs may not have sufficient funds to cover the allocations to eligible producers in future years.  Management is currently unable to predict whether there may be a funding shortfall and what the effect on Dakota Ethanol’s allocation will be as a result.  Furthermore, although the federal government has extended the Bioenergy Program an additional five years, it is currently scheduled to expire September 30, 2007.

 

Interest income consists of income earned on cash on hand and short-term investments generated from operations. For the three months ended June 30, 2003, Dakota Ethanol and Lake Area Corn Processors had $11,688 of interest income compared to $35,564 of interest income in the same period of 2002. For the six-month period ended June 30, 2003, Dakota Ethanol and Lake Area Corn Processors had $27,883 of interest income compared to $64,036 of interest income in the same period of 2002.

 

In 2000, Dakota Ethanol invested $250,000 in Ethanol Products, LLC in exchange for 200,000 capital units.  Of this amount, $50,000 was related to contract rights which are amortized over the initial five-year term of the ethanol marketing agreement.  For the three-month period ended June 30, 2003, Dakota Ethanol recorded additional income of $7,604 as a result of allocation of earnings from Ethanol Products of $10,104 net of amortization of contract rights of $2,500.  For the three months ended June 30, 2002, Dakota Ethanol recorded additional income of $1,740 as a result of allocation of earnings from Ethanol Products of $4,240 net of amortization of contract rights of $2,500. For the six-month period ended June 30, 2003, Dakota Ethanol recorded $29,847 of income as a result of allocation of earnings from Ethanol Products compared to $17,441 for the period ending June 30, 2002.

 

Dakota Ethanol’s cost of revenues for the three-month period ended June 30, 2003 was approximately $14.6 million (95% of sales) compared to $11.6 million (82% of sales) for the same period in 2002.  The increase in cost of revenues resulted primarily from higher prices paid for corn and natural gas.  The average price per bushel of corn was approximately 19% higher for the three months ended June 30, 2003 than for the three months ended June 30, 2002.  The average cost of natural gas was approximately 68% higher for the three months ended June 30, 2003 than for the three months ended June 30, 2002.  The difference in the cost of corn was largely the result of price fluctuations due to lower crop production and reduced carryout.  The increase in natural gas cost was a result of production shortages experienced in the natural gas industry and a decrease in the amount of natural gas in storage.

 

Dakota Ethanol’s cost of revenues for the six-month period ended June 30, 2003 was approximately $29.4 million (90% of sales), as compared to $23.0 million (80% of sales) for the six-month period ended June 30, 2002.  The increase in cost of revenues as a percentage of sales resulted primarily

 

15



 

from higher prices paid for corn and natural gas.  The average price per bushel of corn was approximately 22% higher for the six months ended June 30, 2003 than for the six months ended June 30, 2002.  The average cost of natural gas was approximately 48% higher for the six months ended June 30, 2003 than for the six months ended June 30, 2002.  The difference in the cost of corn was largely the result of price fluctuations due to lower crop production and reduced carryout.  The increase in natural gas cost was a result of production shortages in the natural gas industry and a decrease in the amount of natural gas in storage.  Management anticipates that the price of natural gas will continue to remain high in the foreseeable future which, until the production shortfall and storage deficiency is corrected, will have an adverse effect on Dakota Ethanol’s cost of revenues and therefore gross profit.

 

Dakota Ethanol incurred general and administrative expense of approximately $1.0 million and recorded interest expense of $361,000 on its long-term debt for the three months ended June 30, 2003, compared to general and administrative expense of approximately $1.2 million and interest expense of $523,000 on its long-term debt for the three months ended June 30, 2002.  Dakota Ethanol incurred general and administrative expense of approximately $2.1 million and recorded interest expense of $752,000 on its long-term debt for the six months ended June 30, 2003, compared to general and administrative expense of approximately $2.3 million and interest expense of $1.1 million on its long-term debt for the six months ended June 30, 2002. The decrease in general and administrative expense between the quarter and year-to-date periods of 2003 and 2002 was primarily due to paying a lower management incentive fee as the result of Dakota Ethanol’s reduction in net income.  The decrease in interest expense on the long-term debt between periods was due to paying a lower interest rate and a decrease in principal outstanding on the variable rate notes.

 

Dakota Ethanol expects to continue operating its plant at, or above, name-plate capacity for the next twelve months.  Dakota Ethanol expects to have sufficient cash from operations to cover its operating and administrative costs and intends to fund working capital, capital expenditures, and debt service obligations for the next twelve months primarily through cash flows generated from its operating activities.

 

On July 17, 2003, the United States Court of Appeals for the Ninth Circuit vacated the U.S. Environmental Protection Agency’s decision of June 2001 which denied the state of California’s request for waiver from the oxygenated fuel requirement of the 1990 Clean Air Act Amendments. The court, in its decision, remanded the matter to the EPA to reconsider California’s request for waiver from the oxygenated requirements. The oxygenated requirement resulted from the 1990 Clean Air Act Amendments when Congress required the use of a reformulated gasoline in certain high smog-ozone areas in the United States. Congress required that the reformulated gasoline contain at least 2% oxygen by weight, the two primary choices of oxygenates being ethanol and methyl tertiary butyl ether (“MTBE”). In April 1999, California requested that the EPA waive the oxygen requirement for California, asserting that it could comply with air emission requirements of the Clean Air Act without a mandatory oxygen content through the use of a non-ethanol based reformulated gasoline called CaRFG3. In June 2001, however, the EPA denied California’s request for waiver from the oxygenated requirement. In addition, after determining that MTBE was a public health threat, California decided to ban MTBE entirely by January 1, 2004, consequently resulting in ethanol being the primary means to meet the two percent oxygenated fuel requirement. In anticipation of the MTBE ban in California and as a result of the EPA’s denial of California’s waiver request, many refineries in California have been incorporating ethanol into the refinery process to comply with the oxygenated fuel requirement. If the EPA reverses its June 2001 decision, it is uncertain whether refineries would switch to or commence using CaRFG3 in California or continue to incorporate and use ethanol.  If the EPA reverses its decision and a significantly large number of refineries did indeed switch to or commence using CaRFG3 in California, it would likely harm Dakota Ethanol’s and the ethanol industry’s efforts to expand the sales of ethanol.

 

Liquidity and Capital Resources

 

Cash Flow From Operations.  The net cash flow from operating activities was approximately $1.0 million for the six-month period ended June 30, 2003 compared to $8.9 million for the same period in 2002.   For the six-month period ended June 30, 2003, the cash flow from operations consisted of net income of $1.3 million and net non-cash expenses of $1.3 million, which were offset by increased working

 

16



 

capital requirements of $1.5 million.  The change in working capital requirements was primarily a result of increased inventories and decreased payables. For the six-month period ended June 30, 2002, the cash flow from operations consisted of net income of $6.9 million and net non-cash expenses of $2.0 million.

 

Cash Flow From Investing Activities.  The net cash used for investing activities was $105,000 for the six-month period ended June 30, 2003 as compared to approximately $1.3 million for the same period in 2002.  Dakota Ethanol spent $170,000 for investing activities during the six-month period ended June 30, 2003 to purchase various pieces of production equipment.  This expenditure was offset by approximately $65,000 of distributions that Dakota Ethanol received on its investment in Ethanol Products, LLC for the six months ended June 30, 2003.

 

During the six-month period ended June 30, 2002, Dakota Ethanol spent approximately $1.4 million for investing activities to install a thermal oxidizer for the ethanol plant. The expenditures were offset by approximately $60,000 of distributions that Dakota Ethanol received on its investment in Ethanol Products for the six months ended June 30, 2002.

 

Cash Flow From Financing Activities.  Net cash used for financing activities was $940,000 for the six-month period ended June 30, 2003, consisting of $1.8 million for repayment of principal on long-term debt, a $1.5 million cash distribution to Lake Area Corn Processors’ members, and a $200,000 cash distribution to the minority members of Dakota Ethanol.  These payments were offset by Dakota Ethanol’s receipt of $1.2 million of advances on its notes payable interest with First National Bank of Omaha and $1.3 million of outstanding checks drawn in excess of bank balances.  Net cash used for financing activities for the six months ended June 30, 2002 was $7.1 million, consisting of $2.5 million for repayment of principal on long-term debt, a $4.1 million cash dividend distribution to Lake Area Corn Processors’ members and a $600,000 cash distribution to the minority members of Dakota Ethanol.

 

First National Bank of Omaha is Dakota Ethanol’s primary lender.  Dakota Ethanol entered into a Construction Loan Agreement and Construction Note with First National Bank of Omaha as of September 25, 2000, for up to $26.6 million in debt financing to fund the balance of the construction costs for the ethanol plant.  Until construction of the ethanol plant was completed, Dakota Ethanol paid interest at First National’s national base rate plus 3% and made quarterly interest only payments to First National Bank of Omaha.  After construction was completed, the outstanding principal and interest was amortized over a ten-year period at 9% interest annually.  On July 29, 2002, Dakota Ethanol refinanced its Construction Note with First National Bank into an approximately $9.6 million variable rate note and an approximately $14.5 million fixed rate note, and on November 1, 2002, Dakota Ethanol refinanced the approximately $9.4 million outstanding balance on its variable rate note into two variable notes with balances of approximately $4.4 million and $5 million, in order to facilitate use of First National Bank’s cash management services. The fixed rate note bears 9% interest annually and is due on September 1, 2011.  The variable rate notes bear interest at .50% over the national base rate set by First National Bank of Omaha, which may be reduced if Dakota Ethanol’s ratio of indebtedness to net worth improves, with a minimum interest rate of 5% annually.  As of June 30, 2003, Dakota Ethanol’s variable rate was 5.0%.  Until July 29, 2005, Dakota Ethanol has the option to fix the variable rate notes at 2.5% over the rate published by the Federal Home Loan Bank of Topeka, Kansas at the time the note is fixed.  The $5 million variable rate note is set up as a revolving line of credit that allows Dakota Ethanol to reborrow up to $5 million of any repaid principal on a revolving basis, subject to a 0.375% annual commitment fee assessed quarterly on any funds not borrowed.  There is also a prepayment penalty on both variable rate notes if Dakota Ethanol prepays in full before July 29, 2005.   Principal payments of $989,702 were made on the fixed rate note and $823,455 on the variable rate note during the six months ended June 30, 2003.  In addition, $1,230,000 was outstanding on the revolving line of credit as of June 30, 2003.

 

Dakota Ethanol incurred approximately $750,000 in interest expense for the six months ended June 30, 2003, and approximately $1.1 million in interest expense for the six months ended June, 2002, with the decrease being attributed to paying a lower interest rate and a decrease in principal outstanding on the variable rate notes.  In addition, for the six months ended June 30, 2002, Dakota Ethanol capitalized $43,000 of interest on its construction loan.

 

17



 

The notes from First National are secured by Dakota Ethanol’s real property, personal property (including general intangibles), an assignment of its interest in the Design/Build Contract with Broin and an assignment of all rents and leases in favor of First National.  The Construction Loan Agreement contains debt service coverage ratio, working capital, net worth and other standard negative and affirmative covenants.  On November 1, 2002, First National agreed to amend the Construction Loan Agreement to revise the method for calculating working capital and to include the unused amount of the revolving note in evaluating Dakota Ethanol’s compliance with the financial covenants.  In addition to the regular payments on the notes, the Construction Loan Agreement provides that 10% of Dakota Ethanol’s excess cash flow, as defined in the Construction Loan Agreement, must be paid annually on the unpaid principal amount.  If an event of default occurs, First National may terminate the Construction Loan Agreement and declare the entire amount immediately due and owing.  Events of default under the Agreement generally include failure to make payments when due or violation of one or more of the Agreement’s covenants.

 

Dakota Ethanol also has a note payable to Sioux Valley Southwestern Energy for $85,000 related to the extension of utility lines to the plant.  The loan is payable over ten years, beginning on October 1, 2001, with an effective interest rate of approximately 9%.  Principal payments of $2,754 were made in the six-month period ended June 30, 2003, compared to the payment of $3,282 for the six-month period ended June 30, 2002.

 

The following table summarizes amounts due pursuant to our consolidated contractual obligations as of June 30, 2003:

 

 

 

 

 

Payment Due By Period

 

 

 

Total

 

Less than
One Year

 

One to
Three
Years

 

Four to
Five
Years

 

After Five
Years

 

Long-Term Debt

 

$

17,516,660

 

$

2,486,365

 

$

7,745,614

 

$

3,612,321

 

$

3,672,360

 

Electricity Purchase Commitments

 

2,464,000

 

290,400

 

891,000

 

614,400

 

668,200

 

Related Party Agreements

 

1,324,164

 

571,665

 

752,499

 

 

 

Total Contractual Cash Obligations

 

$

21,304,824

 

$

3,348,430

 

$

9,389,113

 

$

4,226,721

 

$

4,340,560

 

 

Lease Commitment

 

In March of 2003, Dakota Ethanol assigned its railcar lease agreement to Dakota Commodities, a division of Broin Enterprises, Inc. As part of the arrangement, Dakota Ethanol has agreed to lease the railcars from Broin Enterprises for a flat rate per car per shipment. The agreement may be terminated with 90 days notice by either party.

 

Recent Accounting Pronouncements

 

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

 

The FASB has issued Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The Statement establishes standards for how an issuer classifies and measures certain financial instruments.

 

The FASB has issued Interpretation No. 45 regarding Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtness of Others. This Interpretation elaborates on disclosures made by a guarantor and recognition of liabilities related to guarantees of liabilities of others.

 

Management does not anticipate the implementation of these pronouncements to have a significant effect on the financial statements.

 

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Critical Accounting Policies and Estimates

 

Preparation of our financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported.  Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates.  Management continually evaluates these estimates based on historical experience and other assumptions we believe to be reasonable under the circumstances.

 

The difficulty in applying these policies arises from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions.  As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.

 

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

 

Commitments and Contingencies

 

Contingencies, by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred, as well as in estimating the amount of the potential expense.  In conformity with accounting principles generally accepted in the United States, we accrue an expense when it is probable that a liability has been incurred and the amount can be reasonably estimated.

 

Inventory Valuation

 

Dakota Ethanol accounts for its corn inventory at estimated net realizable market value.  Corn is an agricultural commodity that is freely traded, has quoted market prices, may be sold without significant further processing and has predictable and insignificant costs of disposal.  Dakota Ethanol derives its estimates from local market prices determined by grain terminals in its area.  Change in the market value of corn inventory is recognized as a component of cost of revenues.  Ethanol and DDGS inventories are stated at net realizable value.  Work-in-process, supplies, parts and chemical inventory are stated at the lower of cost or market on the first-in, first-out method.

 

Long-Lived Assets

 

Depreciation and amortization of Dakota Ethanol’s property, plant and equipment is provided on the straight-line method by charges to operations at rates based upon the expected useful lives of individual or groups of assets.  Economic circumstances or other factors may cause management’s estimates of expected useful lives to differ from actual.

 

Long-lived assets, including property, plant and equipment and investments are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  An impaired asset is written down to its estimated fair market value based on the best information available.  Considerable management judgment is necessary to estimate future cash flows and may differ from actual.

 

Accounting for Derivative Instruments and Hedging Activities

 

Dakota Ethanol minimizes the effects of changes in the price of agricultural commodities by engaging Broin Management, LLC to use exchange-traded futures and options contracts to minimize its net positions in these inventories and contracts.  Dakota Ethanol accounts for changes in market value on exchange-traded futures and option contracts at exchange values. Dakota Ethanol also accounts for changes in value of forward purchase and sales contracts at local market prices determined by grain terminals in its

 

19



 

area.  Changes in the market value of all these contracts are recognized in earnings as a component of cost of revenues.

 

Item 3.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Lake Area Corn Processors’ chief executive officer and chief financial officer, after evaluating the effectiveness of Lake Area Corn Processors’ “disclosure controls and procedures” (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this report (the “Evaluation Date”), have concluded that the disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that Lake Area Corn Processors files with the Securities and Exchange Commission.

 

Changes in Internal Controls

 

There were no significant changes in Lake Area Corn Processors’ or Dakota Ethanol’s internal controls or, to the knowledge of our management, in other factors that could significantly affect these controls subsequent to the Evaluation Date.

 

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION

 

This report contains forward-looking statements involving future events, future business and other conditions, our future performance, and our expected operations.  These statements are based on management’s beliefs and expectations and on information currently available to management. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions.

 

Forward-looking statements involve numerous assumptions, risks and uncertainties.  Lake Area Corn Processors’ and Dakota Ethanol’s actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements.  While Lake Area Corn Processors believes that these statements are accurate, its business is dependent upon general economic conditions and various conditions specific to its industry and future trends and these factors could cause actual results to differ materially from the forward looking statements that have been made.  In particular,

 

                  Although management anticipates that Dakota Ethanol will sell all of the products it produces, its operating income may be adversely impacted by a decrease in available government subsidies and incentive payments.

 

                  Although management expects demand for ethanol to increase, demand is largely driven by federal and state environmental regulations, which are often subject to change.

 

                  Any lowering of gasoline prices will likely also lead to lower prices for ethanol and adversely affect Dakota Ethanol’s operating results.

 

                  The ethanol industry and Dakota Ethanol’s business is sensitive to corn prices.  When corn prices increase, Dakota Ethanol’s operating results may suffer.

 

                  The ethanol industry and Dakota Ethanol’s business is sensitive to natural gas prices.  When natural gas prices increase, as they have recently, Dakota Ethanol’s operating results may suffer.

 

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                  The ethanol industry and Dakota Ethanol may be subject to additional regulation, such as environmental restrictions, or regulatory action, which could include fines, penalties, or injunctive relief as a result of any potential excessive emissions, which could increase costs.

 

                  Dakota Ethanol is dependent upon Broin Management, LLC to manage the day-to-day activities of the plant and upon Broin-related entities to market the ethanol and DDGS produced at the plant.  If any of these entities cease providing services to Dakota Ethanol, the plant’s operations may be adversely affected.

 

Lake Area Corn Processors is not under any duty to update the forward-looking statements contained in this report.  Lake Area Corn Processors cannot guarantee future results or performance, or what future business conditions will be like.  Lake Area Corn Processors cautions you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.

 

PART II – OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

None.

 

Item 2.  Changes in Securities and Use of Proceeds

 

None.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

Item 4.  Submission of Matters to a Vote of Security Holders

 

At Lake Area Corn Processors’ annual meeting of members held on April 8, 2003 in Madison, South Dakota at the Dakota Prairie Playhouse, a new board of managers was elected to fill seven of seven open seats. Prior to the Annual Meeting, the board of managers of Lake Area Corn Processors elected to reduce the size of the board from twelve to seven members.

 

At the Annual Meeting, the following persons were elected to the board of managers by the members: Ronald Alverson, Todd Brown, Dale Schut, Dale Thompson, Douglas Van Duyn, Gregory Van Zanten, and Brian Woldt.  All of the nominees and newly elected managers had previously served on the board of managers for Lake Area Corn Processors prior to the Annual Meeting.

 

The nominees and voting results of the Annual Meeting were as follows:

 

Class A Nominees

 

Term
Expires

 

For

 

Elected

 

Ronald Alverson

 

2006

 

309

 

Yes

 

Todd Brown

 

2005

 

219

 

Yes

 

Dale Bunkers

 

 

151

 

No

 

Doyle Paul

 

 

166

 

No

 

Dale Schut

 

2004

 

181

 

Yes

 

Dale Thompson

 

2005

 

263

 

Yes

 

Douglas Van Duyn

 

2004

 

249

 

Yes

 

Gregory Van Zanten

 

2006

 

271

 

Yes

 

Brian Woldt

 

2005

 

259

 

Yes

 

 

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Item 5.  Other Information

 

None.

 

Item 6.  Exhibits and Reports on Form 8-K

 

(a)                                  Exhibits.  See Exhibit Index following the signature page to this report.

 

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

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

LAKE AREA CORN PROCESSORS, LLC

 

 

Dated:  August 14, 2003

 

 

By

/s/ Douglas Van Duyn

 

 

 

Douglas Van Duyn

 

 

Chief Executive Officer

 

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EXHIBIT INDEX
TO
FORM 10-QSB
OF
LAKE AREA CORN PROCESSORS, LLC

 

Exhibit
Number

 

Description

2.1

 

Plan of Reorganization(1)

3.1(i)

 

Articles of Organization(2)

3.1(ii)

 

Operating Agreement, as adopted on September 1, 2002(2)

3.1(iii)

 

Articles of Amendment to Articles of Organization(4)

3.2

 

Amendment to Operating Agreement

4.1

 

Form of Class A Unit Certificate(3)

31

 

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

 

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 


(1)  Incorporated by reference from Appendix A to the information statement/prospectus filed as a part of the issuer’s Registration Statement on Form S-4 (File No. 333-66552).

(2)  Incorporated by reference from Appendix B to the information statement/prospectus filed as a part of the issuer’s Registration Statement on Form S-4 (File No. 333-66552).

(3)  Incorporated by reference from the same numbered exhibit to the issuer’s Registration Statement on Form S-4 (File No. 333-66552).

(4)  Incorporated by reference from the same numbered exhibit to the issuer’s Form 10-QSB filed with the Commission on November 14, 2002.

 

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