UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
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. 333-97215

 

NORTHERN GROWERS, LLC

(Exact name of registrant as specified in its charter)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý   No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes o   No ý

 

 

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 2, 2004, the issuer had 6,328,500 Class A capital units outstanding.

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

2

 

NORTHERN GROWERS, LLC

 

UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

JUNE 30, 2004 AND 2003

 

 

NORTHERN GROWERS, LLC

 

Table of Contents

 

CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)
Consolidated Statements of Operations (Unaudited)
Consolidated Statements of Cash Flows (Unaudited)
Notes to Unaudited Consolidated Financial Statements

 

 

NORTHERN GROWERS, LLC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

		June 30, 2004			December 31, 2003*
ASSETS
CURRENT ASSETS
Cash		$	30,990		$	2,865,310
Accounts receivable
Trade related party		4,552,142			3,590,952
Trade		420,459			500,885
Other		87,355			302,546
Other - related party		148,234			—
Inventory		3,434,353			4,300,904
Prepaid expenses		189,806			99,587
Investment in commodity contracts		393,647			184,622
Total current assets		9,256,986			11,844,806
PROPERTY AND EQUIPMENT
Land improvements		3,629,321			3,520,698
Equipment		33,993,077			33,710,785
Buildings		8,117,709			8,124,155
		45,740,107			45,355,638
Less accumulated depreciation		(4,859,354		)	(3,619,905		)
Net property and equipment		40,880,753			41,735,733
OTHER ASSETS
Financing costs		154,238			205,662
Total other assets		154,238			205,662
		$	50,291,977		$	53,786,201

 

* Derived from audited financial statements

 

See Notes to Unaudited Consolidated Financial Statements

 

1

NORTHERN GROWERS, LLC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

		June 30, 2004			December 31, 2003*
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Checks in excess of bank balance		$	581,750		$	—
Accounts payable - trade		1,320,834			1,339,505
Accounts payable - corn		2,044,732			4,179,050
Accounts payable - related party		53,541			204,220
Accounts payable - construction - related party		—			476,216
Other accrued liabilities		514,347			501,574
Accrued interest		8,798			10,119
Distribution payable - Northern Growers		—			1,343,224
Distributions payable - Minority member		—			456,800
Notes payable - due upon demand		5,000			5,000
Current portion of long-term notes payable		3,127,282			3,134,922
Total current liabilities		7,656,284			11,650,630
LONG-TERM NOTES PAYABLE		18,542,142			20,053,377
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST		5,499,516			5,014,499
MEMBERS’ EQUITY
Capital units, $2.00 stated value, 12,000,000 units authorized; 6,328,500 units issued and outstanding		12,657,000			12,657,000
Additional paid-in capital		64,900			64,900
Retained earnings		5,872,135			4,345,795
Total members’ equity		18,594,035			17,067,695
		$	50,291,977		$	53,786,201

 

* Derived from audited financial statements

 

See Notes to Unaudited Consolidated Financial Statements

 

2

 

NORTHERN GROWERS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

		Three Months Ended June 30,						Six months Ended June 30,
		2004			2003			2004			2003
REVENUES
Sales related party		$	16,998,201		$	12,456,027		$	33,357,666		$	24,859,681
Sales		4,000,453			3,597,653			8,388,566			6,839,336
Incentive		(39,959		)	1,188,035			920,346			4,666,453
Total revenues		20,958,695			17,241,715			42,666,578			36,365,470
COST OF REVENUES		22,881,539			15,657,094			38,646,860			30,353,268
GROSS (LOSS) PROFIT		(1,922,844		)	1,584,621			4,019,718			6,012,202
EXPENSES
General and administrative		421,454			574,309			1,279,797			1,308,406
Total operating expenses		421,454			574,309			1,279,797			1,308,406
(LOSS) INCOME FROM OPERATIONS		(2,344,298		)	1,010,312			2,739,921			4,703,796
OTHER INCOME (EXPENSES)
Interest income		1,954			—			4,092			—
Interest expense		(370,273		)	(491,152		)	(755,478		)	(987,485		)
Other		12,608			11,719			22,822			12,568
Total other income (expenses)		(355,711		)	(479,433		)	(728,564		)	(974,917		)
(LOSS) INCOME BEFORE MINORITY INTEREST		(2,700,009		)	530,879			2,011,357			3,728,879
MINORITY INTEREST IN SUBSIDIARY (INCOME) LOSS		607,565			(133,773		)	(485,017		)	(895,168		)
NET (LOSS) INCOME		$	(2,092,444	)	$	397,106		$	1,526,340		$	2,833,711
BASIC AND DILUTED (LOSS) EARNINGS PER UNIT		$	(0.33	)	$	0.06		$	0.24		$	0.45
BASIC AND DILUTED WEIGHTED AVERAGE UNITS OUTSTANDING		6,328,500			6,328,450			6,328,500			6,328,450
DISTRIBUTIONS PER UNIT DECLARED		$	—		$	—		$	—		$	0.29
DISTRIBUTIONS PER UNIT PAID		$	—		$	0.17		$	0.21		$	0.17

 

See Notes to Unaudited Consolidated Financial Statements

 

3

 

NORTHERN GROWERS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

 

		2004			2003
OPERATING ACTIVITIES
Net income		$	1,526,340		$	2,833,711
Changes to net income not affecting cash
Depreciation		1,243,008			1,214,656
Amortization of loan fees		51,424			51,423
Minority interest in subsidiary’s earnings		485,017			895,168
Decrease (increase) in current assets
Accounts receivable		(813,807		)	(4,661,162		)
Inventory		866,551			1,057,666
Prepaid expenses		(90,219		)	(211,376		)
Investment in commodity contracts		(209,025		)	(39,543		)
Increase (decrease) in current liabilities
Accounts payable		(2,303,668		)	(1,166,799		)
Accrued liabilities		12,773			73,265
Accrued interest		(1,321		)	(160,885		)
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES		767,073			(113,876		)
INVESTING ACTIVITIES
Purchase of property and equipment		(864,244		)	(1,000,438		)
NET CASH USED FOR INVESTING ACTIVITIES		(864,244		)	(1,000,438		)
FINANCING ACTIVITIES
Notes payable issued		––			1,500,000
Change in short-term notes payable		––			(1,000,000		)
Principal paid on long-term notes payable		(1,518,875		)	(2,428,106		)
Distributions paid - Northern Growers		(1,343,224		)	(1,100,020		)
Distributions paid - Minority member		(456,800		)	(399,691		)
Financing costs paid		––			(4,208		)
Checks in excess of bank balances		581,750			––
NET CASH USED FOR FINANCING ACTIVITIES		(2,737,149		)	(3,432,025		)
NET DECREASE IN CASH		(2,834,320		)	(4,546,339		)
CASH AT BEGINNING OF PERIOD		2,865,310			4,577,457
CASH AT END OF PERIOD		$	30,990		$	31,118
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest, net of capitalized interest		$	705,310		$	1,093,674

 

See Notes to Unaudited Consolidated Financial Statements

 

4

 

NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004 AND 2003

 

NOTE 1 - NATURE OF OPERATIONS

 

Principal Business Activity

 

Northern Growers, LLC or the Company, (formerly Northern Growers Cooperative or the Cooperative) is a South Dakota limited liability company located near Big Stone City, South Dakota. The Company was organized to pool investors and provide a portion of the corn supply for a 40 million gallon (annual capacity) ethanol plant owned by Northern Lights Ethanol, LLC (Northern Lights). Northern Lights was formed on February 14, 2001. On June 26, 2002, the plant began grinding corn and on July 5, 2002, the ethanol plant commenced its principal operations.

 

On April 1, 2002, Whetstone Ethanol, LLC (Whetstone) was formed. The initial member of Whetstone was the Cooperative. Whetstone was formed for the purpose of acquiring the assets and liabilities of the Cooperative. On April 10, 2002, the Board of Directors of the Cooperative approved a plan of reorganization related to an exchange whereby Whetstone would acquire the assets and liabilities of the Cooperative. On March 27, 2003, the members of the Cooperative approved the plan of reorganization. The effective date of the reorganization was April l, 2003. The transaction was an exchange of interests whereby the assets and liabilities of the Cooperative were transferred for capital units of Whetstone. 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 Whetstone’s capital units distributed to the members of the Cooperative at a rate of one Whetstone capital unit for each share of equity common stock and all voting common stock of the Cooperative surrendered and retired. In connection with the reorganization, Whetstone changed its name to Northern Growers, 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 capital 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 member agreement or becomes a bankrupt member. The Operating Agreement of the Company 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. All such adjustments are of a normal, recurring nature. The results of operations for the three and six month period ended June 30, 2004 and 2003 are not necessarily indicative of the results to be expected for a full year.

 

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, 2003.

 

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.

 

5

 

NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004 AND 2003

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its 77.16% owned subsidiary, Northern Lights. All significant inter-company transactions and balances have been eliminated in consolidation.

 

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.

 

Reclassifications

 

Certain amounts on the 2003 financial statements have been reclassified to conform to the current year classification. Such reclassifications had no effect on previously reported net income.

 

NOTE 3 - INVENTORY

 

Inventory consisted of the following:

 

 

* Derived from audited financial statements.

 

NOTE 4 - LONG-TERM NOTES PAYABLE

 

Long-term notes payable with US Bank consisted of the following:

 

 

* Derived from audited financial statements

 

6

 

NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004 AND 2003

 

Northern Lights is subject to certain restrictive covenants establishing minimum reporting requirements, ratios, working capital and net worth requirements. Annually, the financing arrangements with US Bank include terms whereby Northern Lights makes an additional principal payment equal to 15% of Northern Lights’ excess cash flow (as defined by the agreement), not to exceed 20% of the outstanding principal balance. In conjunction with Northern Lights’ dividend distributions on February 10, 2004, additional excess cash flow payments of $335,664 were made on the fixed rate loan. In addition, no more than 80% of net income of Northern Lights can be distributed to its owners.

 

Minimum principal payments for each of the next four years are as follows:

 

Twelve Months Ending June 30,		Amount
2005		$	3,127,282
2006		3,126,958
2007		3,348,593
2008		12,066,591
		$	21,669,424

 

Minimum principal payments for the twelve months ending June 30, 2004, include approximately $206,000 related to the calculation of additional principal due based on excess cash flow as required by the financing arrangements.

 

The availability under the variable rate revolving loan was $4,792,440 at June 30, 2004 and $5,000,000 at December 31, 2003.

 

NOTE 5 - COMMITMENTS, CONTINGENCIES AND AGREEMENTS

 

The Company or Northern Lights has entered into contracts and agreements regarding the construction, operation and management of the ethanol plant. The following are items of significance that have been updated through June 30, 2004.

 

Northern Lights 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 $816,410, $7,500,000 and $3,224,280 has been earned for the USDA program years ended September 30, 2004, 2003 and 2002, respectively. Incentive revenue of $753,679, and $3,982,018 was recorded for the six months ended June 30, 2004 and 2003, respectively, for this program.

 

Northern Lights 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. Revenue of $666,667 and $1,000,000 has been earned for the South Dakota program years ended June 30, 2004 and 2003, respectively. Incentive revenue of $166,667 and $684,436 was recorded for the six months ended June 30, 2004 and 2003, respectively, for this program.

 

7

 

NORTHERN GROWERS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004 AND 2003

 

NOTE 6 - DISTRIBUTIONS

 

During February 2004, Northern Lights distributed $2,000,000 of cash to its members. The Company received $1,543,200, and the minority member received $456,800. In conjunction with this cash distribution, the Company paid a distribution to its members of $1,343,224. The above distributions were recorded as a liability as of December 31, 2003.

 

8

 

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

 

Northern Growers, LLC is a South Dakota limited liability company that owns and manages a 77.16% interest in Northern Lights Ethanol, LLC. Broin Investments I, LLC owns the remaining minority interest. Northern Lights built and operates an ethanol plant near Big Stone City, South Dakota which produces ethanol and distiller’s dried grains with solubles, or DDGS.  The plant has the name-plate capacity to produce 40 million gallons of ethanol and 120,000 tons of DDGS on an annual basis. Northern Lights began grinding corn on June 26, 2002 and the first ethanol was produced on July 5, 2002.  Northern Growers’ members are primarily local agricultural producers and they supply a significant portion of the plant’s corn requirements.

 

Northern Lights Ethanol’s operating and financial performance are largely driven by the prices at which it sells ethanol and DDGS and the costs related to production. The price of ethanol and DDGS is influenced by factors such as supply and demand, prices of unleaded gasoline, soybean meal and other animal feed protein markets, weather, and government policies and programs. Although federal and state government incentive programs have been a significant source of revenue and income since Northern Lights began production, the programs are less significant today because of the means by which the programs structure, fund, and condition the payments. With respect to the various costs in the production process, the two most significant are typically the costs of corn and natural gas. The cost of natural gas and corn is impacted by factors such as supply and demand, weather, government policies and programs, and the risk management strategy implemented to protect against the price volatility of these commodities. In the second quarter of 2004, our cost of revenues was adversely affected by the cost of corn, which impacted our results of operations and financial performance.

 

RESULTS OF OPERATIONS

 

Comparison of the three months ended June 30, 2004 and 2003

 

The following table presents, for the periods indicated, the relative composition of selected income data:

 

9

 

		Quarter Ended June 30,
		2004						2003
		$			% of Revenue			$			% of Revenue
Revenue:
Ethanol		16,998,201			81	%		12,456,027			72	%
DDGS		4,000,453			19	%		3,597,653			21	%
Incentive		(39,959		)	0	%		1,188,035			7	%
Total		20,958,695			100	%		17,241,715			100	%
Cost of Revenues		22,881,539			109	%		15,657,094			91	%
General and Administrative Expense		421,454			2	%		574,309			3	%
Other Operating Income (Expense)		(355,711		)	(2	)%		(479,433		)	(3	)%
Minority Interest in Subsidiary		607,565			3	%		(133,773		)	(1	)%
Net Income (Loss)		$	(2,092,444	)	(10	)%		$	397,106		2	%

 

Revenues- Revenue from the sale of ethanol increased approximately 36% from the three months ended June 30, 2003 to the three months ended June 30, 2004.  The increase is due primarily to a 35% increase in the average sales price per gallon of ethanol. The increase in the price of ethanol is due primarily to the continuation of relatively strong demand for ethanol and higher prices of unleaded gasoline.

 

Revenue from the sale of DDGS increased approximately 11% from the three months ended June 30, 2003 to the three months ended June 30, 2004. The increase in DDGS revenue is due primarily to a 9% increase in the volume of DDGS sold.

 

In addition, the total incentive revenues from federal and state government incentive programs decreased by 103% from the three months ended June 30, 2003 to the three months ended June 30, 2004. The incentive revenue from the United States Department of Agriculture’s Commodity Credit Corporation Bioenergy Program decreased $934,700 or 112% to ($123,000) for the quarter ended June 30, 2004 from $1,058,000 for the second quarter of 2003.  There are several reasons for this decrease: First, the payments under the Bioenergy Program are based in part on a plant’s increase in production from the previous year’s corresponding quarter.  Northern Lights had a decrease in production for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003.  Therefore, no incentive revenue was recorded for the second quarter of 2004.  Second, management overestimated the amount of revenue earned and to be paid under the program during the three months ended March 31, 2004. During the three months ended March 31, 2004, management estimated that 75% of the amount Northern Lights was eligible for in terms of allocation under the program would actually be paid to Northern Lights.  However, for the three months ended March 31, 2004, the program

 

10

 

paid Northern Lights 63% of the amount it was eligible for under the program because the total number of payment requests during this period exceeded available funding under the program. The overestimate resulted in an adjustment and recording of ($118,000) in incentive revenue for the three months ended June 30, 2004.  Finally, Northern Lights revised its applications for payment under the program for the quarters ended March 31, 2004 and December 31, 2003 by restating and reducing the number of ethanol gallons produced for these periods.  This resulted in a further adjustment and recording of ($5,000) in incentive revenue for the three months ended June 30, 2004.

 

Incentive revenue from the state of South Dakota decreased $47,000 or 36% to $83,000 for the three months ended June 30, 2004, from $130,000 for the three months ended June 30, 2003. The decrease between quarters is primarily attributed to a change in payment formula and the availability of funds under the program. For the 2003 program year beginning on July 1, 2002, which includes the three months ended June 30, 2003, South Dakota’s incentive payment program was based on the actual number of gallons of ethanol sold and the total amount of payment requests received from ethanol plants located in South Dakota. Consequently, the amount received in terms of payment varied on a monthly basis. But starting with the new 2004 program year on July 1, 2003, South Dakota began allocating to each plant, monthly incentive income based on a formula of 1/12^th of $1 million, or $83,333 per month. The decrease was also caused by an increase in the number of ethanol plants operating in South Dakota between the second quarter of 2003 and second quarter of 2004. With more plants operating in South Dakota and requesting payments in the 2004 program year, all of the available funds under the program were depleted in full by January 2004. Hence, no incentive revenue was recorded for the remainder of the 2004 program year ending June 30, 2004. Northern Lights did however record incentive revenue for the month of June, the payment to be made from 2005 program year funding.  Management anticipates that payments under this program will resume after July 1, 2004 with the start of the new 2005 program year, although it is uncertain how long payments will be made and whether funding under the program will be adequate to cover the requests for payment from plants in South Dakota.

 

Cost of Revenues-Cost of revenues increased $7.2 million or 46% to $22.9 million for the three months ended June 30, 2004 from $15.7 million for the three months ended June 30, 2003. The increase in the cost of revenues occurred primarily because of an increase in the cost of corn. Other energy costs, including the cost of natural gas, remained relatively the same between the second quarter of 2003 and 2004. While the cost of revenues as a dollar amount increased 46% between quarters, the cost of revenues as a percentage of total sales revenue increased by only 11% from the second quarter of 2003 to the second quarter of 2004. The 11% increase in cost of revenues as a percentage of sales revenues is principally due to an increase in corn costs at a time of rising sales revenues.

 

The increase in the cost of corn is attributed to the impact of low world corn carryout prior to the 2004 growing season, projections about the quantity of corn to be harvested and demand for corn nationally and globally, weather, and the corn price risk management strategy implemented during the second quarter of 2004 based on the use of

 

11

 

futures, options and forward cash contracts. Management believes the price of corn may continue to be subject to extreme volatility in the next three to four months because of possible inclement weather, projections about the quantity of corn to be harvested, actual quantity of corn harvested, or increases in demand for corn nationally or globally. Yet, management does not expect a recurrence in the next three to four months of such a high cost of corn, similar to that experienced during the three months ended June 30, 2004.

 

General and Administrative Expenses-General and administrative expenses decreased  $153,000 or 27% to $421,000 for the quarter ended June 30, 2004 from $574,000 for the second quarter of 2003. The decrease was due primarily to lower management incentive fees resulting from a net loss, as incentive fees vary directly on the amount of net income or loss.

 

Interest Expense-Interest expense decreased $120,900 or 25% to $370,300  for the quarter ended June 30, 2004 from $491,200 for the second quarter of 2003.  The decrease in interest expense was primarily due to an $8.5 million reduction in outstanding debt from June 30, 2003 to June 30, 2004.  Of the $8.5 million reduction, $4.8 million of that reduction was made on the $5 million variable-rate, revolving note.

 

Net Income-Net income decreased $2.5 million to a net loss of ($2.1 million) for the second quarter of 2004 from a net profit of $397,000 for the second quarter of 2003.  This change was caused primarily by increase in the cost of corn and a decrease in incentive revenue, all of which is discussed above.

 

Comparison of the six months ended June 30, 2004 and 2003

 

		Six Months Ended June 30, 2004						Six Months Ended June 30, 2003
		$			% of Revenue			$			% of Revenue
Revenue:
Ethanol		33,357,666			78	%		24,859,681			68	%
DDGS		8,388,566			20	%		6,839,336			19	%
Incentive		920,346			2	%		4,666,453			13	%
Total		42,666,578			100	%		36,365,470			100	%
Cost of Revenues		38,646,860			91	%		30,353,268			83	%
General and Administrative Expense		1,279,797			3	%		1,308,406			4	%
Other Operating Income (Expense)		(728,564		)	(2	)%		(974,917		)	(3	)%
Minority Interest in Subsidiary		(485,017		)	(1	)%		(895,168		)	(2	)%
Net Income		$	1,526,340		4	%		$	2,833,711		8	%

 

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Revenue-Revenue for Northern Lights Ethanol increased $6.3 million or 17% to $42.7 million for the six months ended June 30, 2004 from $36.4 million for the six months ended June 30, 2003. The change in revenue is due to an increase in both ethanol and DDGS sales revenue, offset by a decrease in incentive revenue.

 

Revenue from the sale of ethanol increased approximately 34% from the six months ended June 30, 2003 to the six months ended June 30, 2004.  The increase during the six months ended June 30, 2004 is attributed to a 10% increase in volume of ethanol sold, along with a 23% increase in the sales price of ethanol.  The increase in volume sold is due to a 13% increase in the volume of ethanol produced, which was created by an improvement in plant efficiencies, and the relatively strong demand for ethanol.  The 23% increase in price of ethanol is similarly attributed to the relatively strong demand for ethanol and a higher price for unleaded gasoline.

 

Revenue from the sale of DDGS increased approximately 23% from the six months ended June 30, 2003 to the six months ended June 30, 2004. The increase in DDGS sales is due primarily to a 19% increase in volume sold during the period.

 

The incentive revenue from the United States Department of Agriculture’s Commodity Credit Corporation Bioenergy Program decreased $3.2 million or 81% to $753,700 for the six months ended June 30, 2004 from $4.0 million for the six months ended June 30, 2003.  This decrease is attributed to payments under the Bioenergy Program being based in part on a plant’s increase in production from the previous year’s corresponding quarter. Since Northern Lights did not commence production until July 2002, the difference in production between the first six months of 2002 and the first six months of 2003 reflected the largest increase in production and, therefore, the largest amount of incentive revenue earned.  Because there was significantly less increase in production from the six months ended 2003 to the six months ended 2004, there was, accordingly, less incentive revenue earned in 2004.

 

Incentive revenue from the state of South Dakota decreased $517,700 or 76% to $166,700 for the six months ended June 30, 2004, from $684,400 for the six months ended June 30, 2003. The decrease between periods is primarily attributed to a change in payment formula and an earlier than anticipated depletion of funding during the 2004 program year.

 

Cost of Revenues-Cost of revenues increased $8.3 million or 27% to $38.6 million for the six months ended June 30, 2004 from $30.3 million for the six months ended June 30, 2003. The increase in the cost of revenues occurred primarily because of an increase in the cost of corn.  Energy costs decreased by 12% from the six months ended June 30, 2003 to six months ended June 30, 2004 due to a 3% reduction in the average price of natural gas.  In addition, the decrease in energy costs was due in part to the realization of newly improved efficiencies resulting from a 25% increase in the use of steam from the adjacent Big Stone Power Plant.  During the first six months of 2003, the transfer and use

 

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of steam in the production process from the Big Stone Power Plant was not yet fully operational, resulting in a greater reliance on natural gas for the production process and, therefore, higher energy costs compared to first six months of 2004.

 

Corn costs increased 30% from the six months ended 2003 to the six months ended 2004 because of the impact of low world corn carryout prior to the growing season, projections about the quantity of corn to be harvested and demand for corn nationally and globally, weather, and the corn price risk management strategy in place during the second quarter of 2004.

 

General and Administrative Expenses-General and administrative expenses decreased approximately $29,000 or 2% to $1.279 million for the six months ended June 30, 2004, from $1.308 million for the six months ended June 30, 2003.

 

Interest Expense-Interest expense decreased $232,000 or 23% to $755,000 for the six months ended June 30, 2004 from $987,000 for the six months ended June 30, 2003.  The decrease in interest expense is due to an $8.5 million reduction in outstanding debt from June 30, 2003 to June 30, 2004.  Of the $8.5 million reduction, $4.8 million of that debt reduction was made on the $5 million variable-rate, revolving note.

 

Net Income-Net income decreased $1.3 million or 46% to $1.5 million for the six months ended June 30, 2004 from $2.8 million for the six months ended June 30, 2003.  This change was caused by, as discussed above, increases in the cost of corn and decreases in incentive revenue.

 

Liquidity and Capital Resources

 

The following table shows the cash flows between the six months ended June 30, 2004 and six months ended June 30, 2003:

 

		Six Months Ended June 30,
		2004 $		2003 $
Net cash from (used for) operating activities		767,073		(113,876	)
Net cash (used for) investing activities		(864,244	)	(1,000,438	)
Net cash (used for) financing activities		(2,737,149	)	(3,432,025	)

 

Cash Flow From Operating Activities-The increase of approximately $881,000 in net cash flow provided for between 2003 and 2004 is due to a less amount being outstanding for accounts receivable and accounts payable between 2004 and 2003, in addition to a decrease in net income between periods. In 2003, accounts receivables increased by $4.6 million because of an increase in receivables from state and federal incentive programs. In contrast, incentive programs provided less cash in 2004 because of the means by which the programs condition the payments.  Accounts payables decreased

 

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in 2004 principally because of a reduction in corn payables during this period, as more producers delivering corn to the plant in late 2003 elected to defer payment until 2004 and were subsequently paid after the end of the year.

 

Cash Flow From Investing Activities-The decrease of approximately $136,000 in net cash flow used for investing activities from June 30, 2003 to June 30, 2004 is attributed to more cash being used to pay for final construction costs during the six months ended June 30, 2003 compared to in 2004.

 

Management estimates that at least $900,000 in capital expenditures will be made in the next six to nine months for general improvements to the plant, specifically to the dryers, electrical and storage units at the plant. These improvements are expected to be financed from cash flow from operations.

 

Cash Flow From Financing Activities-The decrease of approximately $695,000 in net cash flow from financing activities from June 30, 2003 to June 30, 2004 is due principally to a greater use of cash management services and less payment being made to U.S. Bank in terms of excess cash flow payments under the Loan Agreement.

 

U.S. Bank National Association, Sioux Falls, South Dakota, is Northern Lights’ primary lender.  On July 11, 2001 Northern Lights entered into a Loan Agreement and Note with U.S. Bank for up to $31.1 million in debt financing to fund the balance of the construction costs and other start-up expenses for the ethanol plant. Northern Lights subsequently refinanced the outstanding balance on its Construction Note with U.S. Bank into a $11.1 million variable-rate, non-revolving note; a $15 million fixed-rate note; and a $5 million variable-rate, revolving note.

 

The $15 million fixed-rate note bears 6.95% interest annually and requires equal quarterly payments of approximately $521,000 with a balloon payment due on December 31, 2007.  There is a prepayment penalty if Northern Lights prepays the loan prior to its maturity by any means other than the mandated prepayments calculated based on Northern Lights’ excess cash flow under the Loan Agreement.  Under the Loan Agreement, Northern Lights is required to prepay U.S. Bank a portion of the principal of the loan by May 1 of each year in an amount equal to 15% of the excess cash flow but not more than 20% of the outstanding principal balance of the loan. An excess cash flow payment of $335,664 was made for the six months ended June 30, 2004 compared to a payment of $1,010,000 for the six months ended June 30, 2003.  In addition to the excess cash flow payments, a total of $320,894 in principal payments was made on the fixed rate note during the three months ended June 30, 2004, compared to principal payments of $1,286,060 during the three months ended June 30, 2003. The outstanding principal balance on this note is $11,206,558 as of June 30, 2004.

 

The $11.1 million variable-rate, non-revolving note bears interest at 1.00% over U.S. Bank’s prime rate.  This note requires quarterly payments of interest and amortized principal on the basis of a ten-year term.  This note is due on December 31, 2007.  As of June 30, 2004, Northern Lights’ variable rate was 5.25%.  Principal payments of

 

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$618,036, were made on the variable-rate note during the six months ended June 30, 2004, compared to principal payments of $576,366 made in the six months ended June 30, 2003. The outstanding principal balance on this note is $9,329,232 as of June 30, 2004.

 

The $5 million variable-rate, revolving note bears interest at 1.00% over U.S. Bank’s prime rate, requires quarterly interest only payments, and is due on December 31, 2007.  The revolving feature permits Northern Lights to re-borrow in multiples of $100,000 on a revolving basis, the difference between the outstanding principal amount on the note and $5 million. Northern Lights pays an unused commitment fee of 0.5% per year that is assessed quarterly on any funds not borrowed under the note.  As of June 30, 2004, the outstanding principal balance on the note was $207,560, and the variable rate was 5.25%, compared to the outstanding principal balance of $5,000,000 as of June 30, 2003.

 

The Loan Agreement requires that Northern Lights provide U.S. Bank with audited annual and unaudited quarterly financial statements.  In addition, it contains minimum debt service coverage ratios, minimum working capital, minimum tangible net worth, a maximum capital expenditure limitation and other standard negative and affirmative covenants. Under an amendment to the Loan Agreement dated June 22, 2004, the calculation of minimum working capital includes the amount U.S. Bank is allowed to loan Northern Lights under the $5 million variable rate, revolving loan. If an event of default occurs, as defined in the Loan Agreement, U.S. Bank may terminate the Loan Agreement and declare the entire amount immediately due and owing.  Events of default under the Agreement include failure to make payments when due or violation of one or more of the Agreement’s covenants. Management believes that Northern Lights is currently in compliance with all covenants and restrictions under the Loan Agreement.

 

Northern Lights makes quarterly principal and interest payments of $84,406 on a $1.2 million promissory note issued to U.S. Bank. The note was issued in consideration of a loan to acquire and install two regenerative thermal oxidizers, pollution control devices designed to reduce emissions. Northern Lights pays interest on the outstanding balance at a fixed rate of 5.70% and final payment is due on May 1, 2007. The note is secured by the regenerative thermal oxidizers and a lien on all payments that Northern Lights receives or is entitled to receive under the Bioenergy Program. Northern Lights made $139,099 in principal payments for the six months ended June 30, 2004, compared to $300,000 in principal payments for the six months ended June 30, 2003.  The $300,000 principal payment was made in conjunction with a refinancing that occurred in 2003.  The outstanding principal balance on this note is $926,074 as of June 30, 2004.

 

Management anticipates that the plant will continue to operate at or above name-plate capacity for the next twelve months. Management also expects in the next twelve months to have sufficient cash flow from operations and its U.S. Bank variable rate, revolving note to cover operating and administrative costs, capital expenditures and debt service obligations.

 

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The following table provides information regarding the consolidated contractual obligations of Northern Growers as of June 30, 2004:

 

		Total			Less than One Year		One to Three Years		Four to Five Years		After Five Years
Long-Term Debt Obligations		$	21,669,424		3,127,282		6,475,551		12,066,591		0
Land Lease		388,315			2,400		4,980		5,040		375,895
Management Agreements		377,021			377,021
Unconditional Purchase Obligations		1,718,550			217,080		434,160		434,160		633,150
Total Contractual Cash Obligations		$	24,153,310		3,723,783		6,914,691		12,505,791		1,009,045

 

Off-Balance Sheet Arrangements

 

We do not use or have any off-balance sheet arrangements.

 

Recent Accounting Pronouncements

 

None.

 

Critical Accounting Policies and Estimates

 

Preparation of our financial statements require 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.

 

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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, expenses are accrued when it is probable that a liability has been incurred and the amount can be reasonably estimated.

 

Inventory Valuation

 

Northern Lights 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.  Northern Lights derives its estimates from local market prices determined by grain terminals in its area.  Changes in the market values of corn inventory are 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 an average cost method.

 

Revenue Recognition.

 

 Revenue from the production of ethanol and related products is recorded when title transfers to customers, net of allowances for estimated returns.  Generally, ethanol and related products are shipped FOB shipping point.  Interest income is recognized when earned.

 

Revenue from federal and state incentive programs is recorded when we have produced or sold the ethanol and satisfied the reporting requirements under each applicable program.  When it is uncertain that we will receive full allocation and payment due under the federal incentive program, we derive an estimate of the incentive revenue for therelevant period based on various factors including the most recently used payment factor applied to the program.  The estimate is subject to change as management becomes aware of increases or decreases in the amount of funding available under the federal incentive program or other factors that affect funding or allocation of funds under such program.

 

Long-Lived Assets

 

Depreciation and amortization of Northern Lights’ 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.

 

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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

 

Northern Lights 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.  Northern Lights accounts for changes in market value on exchange-traded futures and option contracts at exchange values. Northern Lights also accounts for changes in value of forward purchase and sales contracts at local market prices determined by grain terminals in its area.  Changes in the market value of all these contracts are recognized in earnings as a component of cost of revenues.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Northern Lights is exposed to the impact of market fluctuations associated with commodity prices and interest rates as discussed below. Northern Lights has no exposure to foreign currency risk as all of its business is conducted in U.S. dollars.

 

Commodity Price Risk

 

Northern Lights produces ethanol and its co-product, distiller’s dried grains with solubles (DDGS), from corn, and as such is sensitive to changes in the price of corn. The price of corn is subject to fluctuations due to unpredictable factors such as weather, total corn planted and harvested acreage, changes in national and global supply and demand, and government programs and policies. Northern Lights also uses natural gas in the ethanol and DDGS production process, and as such is sensitive to changes in the price of natural gas.  The price of natural gas is influenced by such weather factors as extreme heat or cold in the summer and winter, in addition to the threat of hurricanes in the spring, summer and fall. Other natural gas price factors include the U.S. domestic onshore and offshore rig count, and the amount of U.S. natural gas in underground storage during both the injection (April 1st – November 7th) and withdrawal (November 14th – March 31st) seasons.

 

Northern Lights attempts to reduce the market risk associated with fluctuations in the price of corn and natural gas by employing a variety of risk management strategies.  Strategies include the use of derivative financial instruments such as futures and options initiated on the Chicago Board of Trade and/or the New York Mercantile Exchange, as well as the daily cash management of Northern Lights’ total corn and natural gas ownership relative to its monthly demand for each commodity, which may incorporate the use of forward cash contracts or basis contracts.

 

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Corn is hedged with derivative instruments including futures and options contracts offered through the Chicago Board of Trade. Forward cash corn and basis contracts are also utilized to minimize future price risk.  Similarly, natural gas is hedged with futures and options contracts offered through the New York Mercantile Exchange.  Basis contracts are likewise utilized to minimize future price risk.

 

Unrealized gains and losses on futures and options contracts used as economic hedges of corn inventory, as well as on forward cash corn and basis contracts, are recognized as a component of cost of revenues for financial reporting on a monthly basis using month-end settlement prices for corn futures on the Chicago Board of Trade.  Corn inventories are marked to fair value using market based prices so that gains or losses on the derivative contracts, as well as forward cash corn and basis contracts, are offset by gains or losses on inventories during the same accounting period.

 

Unrealized gains and losses on futures and options contracts used as economic hedges of natural gas, as well as basis contracts, are recognized as a component of cost of revenues for financial reporting on a monthly basis using month-end settlement prices for natural gas futures on the New York Mercantile Exchange.  The natural gas inventories hedged with these derivatives or basis contracts are valued at the spot price of natural gas, plus or minus the gain or loss on the futures or options positions relative to the month-end settlement price on the New York Mercantile Exchange.

 

While Northern Lights’ hedging activities may have a material effect on future operating results or liquidity in a specific quarter, particularly during the first and second quarter of its fiscal year, management does not anticipate that such activities will have a material effect on future operating results or liquidity over the course of a year or long term.

 

Interest Rate Risk

 

Northern Lights’ interest rate risk exposure pertains primarily to its variable rate, long-term debt. Specifically, Northern Lights has $9,536,792 outstanding in variable rate, long-term debt as of June 30, 2004.  The interest rate on the variable rate, long-term debt is 1.0% over U.S. Bank’s prime rate, which was 5.25% as of June 30, 2004. Northern Lights manages its interest rate risk by monitoring the effects of market changes on the interest rates and using fixed rate debt.  Northern Lights has $12,132,632 outstanding in fixed rate, long-term debt as of June 30, 2004, of which $11,206,558 is subject to an interest rate of 6.95% and $926,074 is subject to an interest rate of 5.7%.

 

Item 4.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Northern Growers’ chief executive officer and chief financial officer, after evaluating the effectiveness of Northern Growers’ “disclosure controls and procedures” (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended) as

 

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of the end of the period covered by this quarterly report, has concluded that the disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission.

 

Changes in Internal Controls

 

There were no significant changes in Northern Growers’ or Northern Lights’ internal controls or, to the knowledge of our management, in other factors that could significantly affect these controls subsequent to the end of the period covered by this report.

 

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.  Northern Growers’ and Northern Lights’ actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements.  While Northern Growers 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,

 

•        While it is expected that the emissions control equipment and technology installed will eliminate any potentially dangerous emissions from the ethanol production process and allow Northern Lights to comply with existing environmental regulations, there is no guarantee that it will.

 

•  The ethanol industry and Northern Lights’ business is sensitive to natural gas prices. When natural gas prices increase, Northern Lights’ operating results may suffer.

 

•  Any lowering of gasoline prices will likely also lead to lower prices for ethanol and adversely affect Northern Lights’ operating results.

 

•  The ethanol industry and Northern Lights’ business is sensitive to corn prices.  When corn prices increase, Northern Lights’ operating results may suffer.

 

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•        Northern Lights’ operating income may be adversely affected by a decrease or potential short fall on available governmental subsidy and incentive payments.

 

•  The ethanol industry and Northern Lights 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.

 

•  Northern Lights 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 Northern Lights, the plant’s operations may be adversely affected.

 

Northern Growers is not under any duty to update the forward-looking statements contained in this report.  Northern Growers cannot guarantee future results or performance, or what future business conditions will be like.  Northern Growers 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

 

On June 16, 2004, Northern Lights Ethanol was a party to a hearing before the South Dakota Board of Minerals and Environment in Pierre, South Dakota. The Board of Minerals and Environment is a nine person citizen board that serves a quasi-judicial and legislative role in matters involving South Dakota’s air quality laws.  The Board of Minerals and Environment is authorized to hear petitions regarding the application of South Dakota Department of Environment and Natural Resources’ (DENR) rules governing air quality. The hearing was initiated on December 29, 2003 when Northern Lights, five other ethanol plants from South Dakota, and Broin Management, LLC, filed a petition with the Board of Minerals and Environment requesting that the Board of Minerals and Environment bar the DENR from using and applying a new method for quantifying emissions from ethanol plants known as the Midwest Scaling Method or “multiplier.” The petition alleged that the DENR’s intended use of the multiplier for quantifying emissions was inappropriate and unlawful because South Dakota and federal environmental regulations, and Northern Lights’ Title V Air Quality Operating Permit, do not require or permit the use of the multiplier as a testing method.

 

The Board of Minerals and Environment ruled on June 16, 2004 that the multiplier is not contained in state or federal emission test methods or regulations. The effect of the ruling is that the DENR cannot use or require use of the multiplier to measure emissions from Northern Lights’ plant.  However, a final order by the Board of Minerals and Environment will not be entered until the petitioners, including Northern

 

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Lights, submit their proposed findings of fact and conclusions of law and a hearing is held, if necessary, to resolve any objections to those findings and conclusions.

 

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

 

On April 26, 2004, Northern Growers held its annual meeting of members in Milbank, South Dakota, at which time the following members were elected to the board of managers to fill five open seats: Dennis Flemming, Robert Metz, Jeff Olson, Ronald Olson and Steve Street. The nominees and voting results of the annual meeting for the election of the five open seats to the board of managers were as follows:

 

Board of Manager Nominees		Term Expires		District One or Two		Vote For
Dennis Flemming		2007		One		43
Aaron Johnson		2007		One		21
Robert Metz		2007		One		55
Jeff Olson		2007		Two		Unanimous
Ronald Olson		2007		One		55
Steve Street		2007		One		53

 

Following the annual meeting and election, the board of managers for Northern Growers, LLC consists of the following persons and their respective term of office:

 

Current Board of Managers		Term Expires		District One or Two
Ronald Anderson		2006		One
Glenn Berdan		2006		Two
Dennis Flemming		2007		One
Lars Herseth		2006		One
Mark Lounsbery		2005		One
Robert Metz		2007		One
Robert Narem		2006		One
Jeff Olson		2007		Two
Ronald Olson		2007		One
James Peterson		2006		One
Delton Strasser		2006		One
Steve Street		2007		One
Greg Toben		2005		One
Robert Wittnebel		2005		Two
Bill Whipple		2005		One

 

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The members also voted at the annual meeting to ratify an amendment to section 8.4(b) of the Operating Agreement to allow non-members of the board of managers of Northern Growers or non-members of Northern Growers in general to serve on committees appointed by the board of managers. The members voting in favor of the amendment, the voting results as follows:

 

		Vote For		Vote Against		Abstain
Amendment to Operating Agreement		62		2		1

 

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.

 

	NORTHERN GROWERS, LLC
Dated:  August 16, 2004
	By	/s/ Robert Narem
		Robert Narem
		Chief Executive Officer and Chief Financial Officer

 

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EXHIBIT INDEX

TO

FORM 10-Q

OF

NORTHERN GROWERS, LLC

 

 

		Exhibit Number		Description
		2.1		Plan of Reorganization(1)
		3.1		Articles of Organization(2)
		3.2		Operating Agreement, as adopted on April 1, 2003(3)
		3.3		Amendment and Addendum to Operating Agreement dated July 16, 2003 (4)
		3.4		Articles of Amendment to Articles of Organization(3)
		4.1		Form of Class A Unit Certificate(5)
		10.1		Amendment to Loan Agreement dated June 22, 2004
		31		Rule 13a-14(a)/15d-14(a) Certification
		32		Section 1350 Certification

 

(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. 333-97215).

(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. 333-97215).

(3) Incorporated by reference from Appendix B to the issuer’s information statement/prospectus filed as part of the issuer’s Registration Statement on S-4 (File No. 333-97215).

(4) Incorporated by reference from the same numbered exhibit to the issuer’s Form 10-KSB filed on March 30, 2004 (File No. 333-97215).

(5) Incorporated by reference from the same numbered exhibit to the issuer’s information statement/prospectus filed as part of the issuer’s Registration Statement on Form S-4 (File No. 333-97215).

 

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