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 September 30, 2005

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. 0-50254

LAKE AREA CORN PROCESSORS, LLC

(Exact name of registrant as specified in its charter)

SOUTH DAKOTA		46-0460790
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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)

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 November 1, 2005 the issuer had 29,620,000 Class A capital units outstanding.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

LAKE AREA CORN PROCESSORS, LLC

CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005 AND 2004

LAKE AREA CORN PROCESSORS, LLC

Table of Contents

	Page

CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets	2
Statements of Operations	4
Statements of Cash Flows	5
Notes to Financial Statements	6

LAKE AREA CORN PROCESSORS, LLC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30,			December 31,
	2005			2004 *
ASSETS

CURRENT ASSETS
Cash	$	148,740		$	2,207,504
Receivables
Ethanol - related party	4,148,162			4,037,263
Distillers grains	324,246			501,501
Incentives	126,885			244,867
Inventory
Raw materials	266,555			613,521
Finished goods	1,183,219			940,132
Parts inventory	1,008,961			611,736
Work in process	291,454			358,489
Investment in commodity contracts	1,575,140			749,832
Prepaid expenses	142,155			89,022
Total current assets	9,215,517			10,353,867

PROPERTY AND EQUIPMENT
Land	106,394			106,394
Land improvements	2,280,805			2,280,805
Buildings	7,439,179			7,439,179
Equipment	32,926,804			31,539,548
Construction in progess	—			580,853
	42,753,182			41,946,779
Less accumulated depreciation	(8,768,903		)	(7,083,923		)
Net property and equipment	33,984,279			34,862,856

OTHER ASSETS
Guarantee premium	383,345			455,762
Other	89,331			392,955
Total other assets	472,676			848,717

	$	43,672,472		$	46,065,440

* Derived from audited financial statements

See Notes to Unaudited Consolidated Financial Statements

LAKE AREA CORN PROCESSORS, LLC

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	September 30,		December 31,
	2005		2004 *
LIABILITIES AND MEMBERS’ EQUITY

CURRENT LIABILITIES
Outstanding checks in excess of bank balance	$	704,054	$	—
Accounts payable	2,772,582		4,545,911
Accounts payable - related party	217,285		299,384
Accounts payable - construction - related party	—		270,028
Corn contract liability	1,396,479		—
Distributions payable	—		2,073,400
Distributions payable - minority interest	—		280,000
Accrued liabilities	476,975		301,935
Contract termination liability	667,900		—
Current portion of guarantee payable	62,692		62,692
Current portion of notes payable	2,179,730		2,666,308
Total current liabilities	8,477,697		10,499,658

LONG-TERM LIABILITIES
Guarantee payable	455,046		448,429
Notes payable	8,611,863		9,434,350
Total long-term liabilities	9,066,909		9,882,779

MINORITY INTEREST	3,094,409		3,055,597

COMMITMENTS AND CONTINGENCIES

MEMBERS’ EQUITY
Capital units, $0.50 stated value, 29,620,000 units issued and outstanding	14,810,000		14,810,000
Additional paid-in capital	96,400		96,400
Retained earnings	8,127,057		7,721,006
Total members’ equity	23,033,457		22,627,406

	$	43,672,472	$	46,065,440

* Derived from audited financial statements

See Notes to Unaudited Consolidated Financial Statements

LAKE AREA CORN PROCESSORS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
	2005			2004			2005			2004

REVENUES
Sales - related party	$	16,354,595		$	17,896,385		$	50,088,733		$	51,921,028
Sales	2,307,107			2,821,314			7,119,235			8,969,148
Incentive income	210,114			350,482			405,699			684,673
Total revenues	18,871,816			21,068,181			57,613,667			61,574,849

COST OF REVENUES	16,076,597			19,745,423			46,271,842			56,220,181

GROSS PROFIT	2,795,219			1,322,758			11,341,825			5,354,668

EXPENSES
General and administrative	1,017,075			643,693			2,790,534			2,065,568

INCOME FROM OPERATIONS	1,778,144			679,065			8,551,291			3,289,100

OTHER INCOME (EXPENSE)
Interest and other income	80,555			52,202			153,432			146,934
Interest expense	(279,784		)	(312,132		)	(828,483		)	(959,225		)
Total other income (expense)	(199,229		)	(259,930		)	(675,051		)	(812,291		)

NET INCOME BEFORE MINORITY INTEREST	1,578,915			419,135			7,876,240			2,476,809

MINORITY INTEREST IN SUBSIDIARY	(188,041		)	(50,276		)	(953,789		)	(309,379		)

NET INCOME	$	1,390,874		$	368,859		$	6,922,451		$	2,167,430

BASIC AND DILUTED EARNINGS PER UNIT	$	0.05		$	0.01		$	0.23		$	0.07

WEIGHTED AVERAGE UNITS OF EQUITY STOCK OUTSTANDING FOR THE CALCULATION OF BASIC AND DILUTED EARNINGS PER UNIT	29,620,000			29,620,000			29,620,000			29,620,000

DISTRIBUTIONS PER UNIT	$	0.06		$	0.09		$	0.22		$	0.14

See Notes to Unaudited Consolidated Financial Statements

LAKE AREA CORN PROCESSORS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

	2005			2004

OPERATING ACTIVITIES
Net income	$	6,922,451		$	2,167,430
Changes to income not affecting cash
Depreciation	1,699,980			1,643,010
Amortization	105,315			120,936
Minority interest in subsidiary	953,789			309,379
Other	57,711			(143,702		)
(Increase) decrease in
Receivables	184,338			(1,195,248		)
Inventory	(226,311		)	1,067,889
Prepaid expenses	(53,133		)	(40,596		)
Investment in commodity contracts	(825,308		)	(861		)
Increase (decrease) in
Accounts payable	(1,850,578		)	(2,155,635		)
Accrued liabilities	2,246,036			1,200,571
NET CASH FROM OPERATING ACTIVITIES	9,214,290			2,973,173

INVESTING ACTIVITIES
Change in other assets	213,015			202,690
Purchase of property and equipment	(1,096,282		)	(709,185		)
NET CASH USED FOR INVESTING ACTIVITIES	(883,267		)	(506,495		)

FINANCING ACTIVITIES
Outstanding checks in excess of bank balance	704,054			1,112,422
Advances on revolving promissory note	—			3,000,000
Notes payable issued	—			469,000
Principal payments on notes payable	(1,309,065		)	(2,364,855		)
Distributions paid to minority member	(1,194,976		)	(565,140		)
Distributions paid to LACP members	(8,589,800		)	(4,146,800		)
NET CASH USED FOR FINANCING ACTIVITIES	(10,389,787		)	(2,495,373		)

NET INCREASE (DECREASE) IN CASH	(2,058,764		)	(28,695		)

CASH AT BEGINNING OF PERIOD	2,207,504			96,816
CASH AT END OF PERIOD	$	148,740		$	68,121

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for interest	$	568,203		$	959,225

See Notes to Unaudited Consolidated Financial Statements

LAKE AREA CORN PROCESSORS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005 AND 2004

NOTE 1 - NATURE OF OPERATIONS

Principal Business Activity

Lake Area Corn Processors, LLC (the Company) is a South Dakota limited liability company located in Wentworth, South Dakota. The Company was organized by investors to provide a portion of the corn supply for a 40 million-gallon (annual capacity) ethanol plant, owned by Dakota Ethanol, LLC (Dakota Ethanol). On September 4, 2001, the ethanol plant commenced its principal operations. The Company sells ethanol and related products to customers located in North America.

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. The results of operations for the nine and three months ended Sept 30, 2005 and 2004 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, 2004.

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.

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, based on written contract terms between Dakota Ethanol and it customers. Collectibility of revenue is reasonably assured based on historical evidence of collectibility between Dakota Ethanol and its customers. Interest income is recognized as earned.

Cost of Revenues

The primary components of cost of revenues from the production of ethanol and related co-product are corn expense, energy expense (natural gas and electricity), raw materials expense (chemicals and denaturant), shipping costs on sales, and direct labor costs.

Shipping costs incurred by Dakota Ethanol in the sale of ethanol are recorded as a component of cost of revenues. Shipping costs incurred in the sale of distiller’s grains, however, are deducted from the gross sales price and are not included in the cost of revenues. Accordingly, revenue for the sale of distiller’s grains is recorded based on the net selling price reported to Dakota Ethanol by the marketer. The shipping costs for the sale of distiller’s grains are recorded as a reduction from the gross sales prices and revenues. Shipping costs on distiller’s grains were $2,640,634 and $877,770 for the nine and three months ended Sept 30, 2005, respectively. Shipping costs on distiller’s grains were $2,185,408 and $724,730 for the nine and three months ended Sept 30, 2004, respectively.

LAKE AREA CORN PROCESSORS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005 AND 2004

General and Administrative Expenses

The primary components of general and administrative expenses are management fee expenses, professional fee expenses (legal and audit), and insurance expenses.

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities

SFAS No. 133 requires a company to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted from SFAS No. 133 as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal are documented as normal and exempted from the accounting and reporting requirements of SFAS No. 133.

Dakota Ethanol enters into short-term cash grain, option and futures contracts as a means of securing corn for the ethanol plant and managing exposure to changes in commodity prices. All of Dakota Ethanol’s derivatives are designated as non-hedge derivatives. Although the contracts are effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

As part of its trading activity, Dakota Ethanol uses futures and option contracts offered through regulated commodity exchanges to reduce risk and is exposed to risk of loss in the market value of inventories. To reduce that risk, Dakota Ethanol generally takes positions using cash and futures contracts and options.

Unrealized gains and losses related to derivative contracts are included as a component of cost of revenues in the accompanying consolidated financial statements. Inventories are recorded at net realizable value so that gains and losses on derivative contracts are offset by gains and losses on inventories and reflected in earnings currently. For the statement of cash flows, such contract transactions are classified as operating activities.

Dakota Ethanol has recorded a decrease to cost of revenues of $1,147,308 and $713,450 related to derivative contracts for the nine and three months ended Sept 30, 2005, respectively. Dakota Ethanol has recorded an increase to cost of revenues of $4,090,139 and $1,893,720 related to derivative contracts for the nine and three months ended September 30, 2004, respectively.

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.

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.

LAKE AREA CORN PROCESSORS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005 AND 2004

NOTE 3 - REVOLVING PROMISSORY NOTE

On April 22, 2005, Dakota Ethanol renewed a revolving promissory note from First National Bank of Omaha in the amount of $3,000,000. The note expires on April 21, 2006 and the amount available is subject to certain financial ratios. Interest on the outstanding principal balances accrues at 50 basis points above the bank’s base rate (6.75 percent at September 30, 2005). This rate is subject to adjustments based on various levels of indebtedness to net worth, as defined by the agreement. There is a commitment fee of 3/8 percent on the unused portion of the $3,000,000 availability. The note is collateralized by the ethanol plant, its accounts receivable and inventories. On September 30, 2005, Dakota Ethanol had $0 outstanding and $3,000,000 available to be drawn on the revolving promissory note.

NOTE 4 - LONG-TERM NOTES PAYABLE

The balance of the notes payable are as follows:

	Sept 30,			December 31,
	2005			2004 *
	(unaudited)

Note payable to First National Bank of Omaha
Term Note 2	$	10,068,424		$	10,752,883
Term Note 4	723,169			1,347,775
Term Note 5	—			—
	10,791,593			12,100,658

Less current portion	(2,179,730		)	(2,666,308		)

	$	8,611,863		$	9,434,350

* Derived from audited financial statements

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

Twelve Months Ended Sept 30,	Amount

2006	$	2,179,730
2007	1,594,089
2008	1,743,027
2009	1,909,180
2010	2,089,445

Dakota Ethanol had the ability to draw upon the entire $5,000,000 available balance on Term Note 5 at Sept 30, 2005 and December 31, 2004, respectively.

NOTE 5 - COMMITMENTS, CONTINGENCIES AND AGREEMENTS

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. Incentive expense of $45,950 and $39,887 was

LAKE AREA CORN PROCESSORS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005 AND 2004

recorded for the nine and three months ended Sept 30, 2005, respectively, as ethanol production decreased compared to the same period in the prior year and a refund of incentives received earlier in the program year was owed. Incentive revenue of $268,007 and $100,481 was recorded for the nine and three months ended Sept 30, 2004, respectively. It is uncertain if there is enough funding for the program to pay fully all applications during the year.

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. Incentive revenue of $451,648 and $250,000 was recorded for the nine and three months ended Sept 30, 2005, respectively. Incentive revenue of $416,667 and $250,000 was recorded for the nine and three months ended Sept 30, 2004, respectively. Dakota Ethanol earned its final allocation in February 2005 for the program year ended June 30, 2005. Dakota Ethanol did not receive the annual maximum for the 2005 program year due to budget constraints on the State of South Dakota program and will not likely receive the annual maximum under the 2006 program year.

Environmental – During the year ended December 31, 2002, management became aware that the ethanol plant may have exceeded certain emission levels allowed by their operating permit. Dakota Ethanol 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.

Other - On June 6, 2005, Dakota Ethanol, LLC elected not to renew its Management Agreement with Broin Management, LLC, its Ethanol Marketing Contract with Ethanol Products, LLC, its Distiller’s Grains Marketing Contract with Broin Enterprises, Inc. d/b/a Dakota Gold Marketing, and its Corn Price Risk Management Contract with Broin Management, LLC. Following this election Dakota Ethanol and Broin Management, Ethanol Products and Broin Enterprises entered into negotiations on the effective termination dates of these contracts prior to the expiration dates set forth in each of the contracts. Pursuant to the terms of the contracts, the Management Agreement expires on December 31, 2005, the Corn Price Management Agreement expires on December 31, 2005, and the Ethanol Marketing Contract and Distiller’s Grains Marketing Contract expire on September 1, 2006.

On September 29, 2005, Dakota Ethanol and Broin Management concluded negotiations on the Management Agreement and Corn Price Risk Management Agreement. Under the Management Agreement, Dakota Ethanol agreed to release Broin Management from its contractual obligation of providing any management services from September 30, 2005 through December 31, 2005. Dakota Ethanol, however, will continue to pay Broin Management the fee set forth in the agreement for services that would have been provided until December 31, 2005, which is not to be less than $218,311 but may be more based on the formula for the incentive fee. Dakota Ethanol has accrued a liability for the minimum amount due to Broin Management and adjusted general and administrative costs accordingly.

Under the Corn Price Risk Management Contract, Dakota Ethanol agreed to release Broin Management from its contractual obligation of providing any risk management (hedging) services from September 30, 2005 through December 31, 2005. Dakota Ethanol will pay Broin Management a sum of $12,500, which is equal to the amount that would have been earned by Broin Management if risk management services had been provided through December 31, 2005.

On November 4, 2005, Dakota Ethanol concluded negotiations with Ethanol Products and Broin Enterprises to terminate the marketing agreements with each entity.

Under the terms of the agreement with Ethanol Products, the Ethanol Marketing Contract will expire on December 31, 2005. Pursuant to the terms of the agreement, Dakota Ethanol agreed to pay Ethanol Products $435,050, of which Dakota Ethanol will receive a credit of $200,000 for the redemption of its class B membership

LAKE AREA CORN PROCESSORS, LLC

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005 AND 2004

interest in Ethanol Products. The $235,050 balance will be paid to Ethanol Products on or before December 31, 2005. Dakota Ethanol has accrued a liability for the total amount due to Ethanol Products and adjusted cost of revenues accordingly.

Under the terms of the agreement with Broin Enterprises, the Distiller’s Grains Marketing Contract will expire on November 30, 2005. Pursuant to the terms of the agreement, Dakota Ethanol agreed to pay Broin Enterprises $214,539 on or before November 30, 2005. Dakota Ethanol has accrued a liability for the amount due to Broin Enterprises and adjusted cost of revenues accordingly.

In addition, if the five Broin family members elect to sell their minority interest in Dakota Ethanol, the Company may elect to purchase their interests. The price for the purchase of the minority interest is uncertain at this time.

Item 2. Management’s Discussion and Analysis of Financial Condition and 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-K. This report contains forward-looking statements, including, but not limited to, those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Liquidity and Capital Resources,” 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. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. While we believe that these statements are accurate, this business is dependent upon general economic conditions and various conditions specific to this 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,

• Demand for ethanol is largely driven by federal and state regulations, which are often subject to change. The ethanol industry is increasingly competitive, with additional plants in operation, under construction and in the planning stages. With additional plants coming on line in the near future, the supply of ethanol will increase which, if the demand does not grow accordingly or is unaided by government policies and programs, could adversely impact the price of ethanol and Dakota Ethanol’s operating results.

• 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 are sensitive to corn and natural gas prices. Corn and natural gas prices fluctuate based on various seasonal and other factors outside the control of Dakota Ethanol. When corn and natural gas prices increase, Dakota Ethanol’s operating results may suffer. When corn and natural gas prices fluctuate significantly, Dakota Ethanol’s cost of revenues and operating results may be adversely affected by the use of hedging instruments under the risk management program.

• The ethanol industry and Dakota Ethanol’s operating income may be adversely impacted by a decrease in or termination of government subsidies and other forms of financial incentives; a termination of government environmental and tax policies that encourage the production and use of ethanol; or, the prevention or delay of new government policies and programs that encourage the use of ethanol.

• 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.

• Since the commencement of plant operations in 2001, Dakota Ethanol has been substantially dependent upon Broin Management, LLC to manage the day-to-day activities of the plant and upon two Broin-related entities to market the ethanol and distiller’s grains produced at the plant. After December 31, 2005, however, Broin Management and the two Broin-related entities will no longer provide services to Dakota Ethanol. As a result of this change, Dakota Ethanol’s results of operations could be adversely affected.

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

Lake Area Corn Processors’ Profile

Lake Area Corn Processors, LLC (also referred to as “we,” “our,” or “us”) is a South Dakota limited liability company that owns and manages an 88% interest in Dakota Ethanol, LLC, an ethanol plant located near Wentworth, South Dakota. Five members of the Broin family own the remaining 12% minority interest in Dakota Ethanol. We currently have 979 members, many of whom supply corn to Dakota Ethanol.

Overview

Dakota Ethanol is engaged in the production of fuel-grade ethanol and distiller’s grains. Corn is supplied to Dakota Ethanol from our members who are primarily local agricultural producers and from purchases of corn on the open market. Dakota Ethanol’s operating and financial performance is largely driven by the prices at which it sells ethanol and distiller’s grains and the costs related to production. Federal and state government incentive programs, unlike in prior years, are no longer a material source of revenue and income because of the means by which the programs structure, fund, and condition the payments. The price of ethanol is generally influenced by factors such as supply and demand, prices of unleaded gasoline, weather, and government policies and programs. The price of distiller’s grains is generally influenced by supply and demand, prices of corn and soybean meal, and prices of other animal feed proteins. The two largest costs of production are corn and natural gas. The cost of corn and natural gas is impacted by factors such as supply and demand, weather, government policies and programs, and the risk management strategy used to protect against the price volatility of these commodities.

Earnings increased 329% from a third quarter profit of $400,000 in 2004 to a third quarter profit of $1.4 million in 2005. This change was caused primarily by a 40% reduction in corn costs between quarters, offset by a reduction in revenues from the sale of ethanol and distiller’s grains. Corn costs decreased as the result of low and stable corn prices during the third quarter of 2005, compared to high and volatile corn prices during the third quarter of 2004. Revenue from sale of ethanol decreased approximately 6% between quarters, primarily due to a decrease in the price of ethanol caused by an excess supply in the market.

Management is less optimistic about earnings’ potential for the remaining quarter of 2005 and the beginning of 2006. Because a large portion of Dakota Ethanol’s ethanol production for the fourth quarter has been pre-sold at prices below current market rates, Dakota Ethanol will not capture the existing elevated prices of ethanol. In addition, a large supply of ethanol is expected to enter the market as more ethanol plants commence or expand production. Approximately 350 million gallons of ethanol are expected to enter the market in 2005 and another 900 million gallons are expected to enter in 2006. Unless the new supply is met equally with demand, the new supply could put downward pressure on ethanol prices. If ethanol prices start to decline, Dakota Ethanol’s earnings will be adversely affected in the process, especially if corn costs fail to remain low and stable. The new federal energy bill signed into law on August 8, 2005, which contains a renewable fuels standard requiring 4.0 billion gallons of ethanol and biodiesel be used in motor vehicles in 2006 and 7.5 billion gallons of ethanol and biodiesel be used in motor vehicles by 2012, is expected to have a positive impact on the supply situation, but it is uncertain as to when its impact will begin. Recent increases in the energy markets, particularly an increase in natural gas prices to record highs, will also adversely affect Dakota Ethanol’s earnings.

Finally, Dakota Ethanol recently changed its mode of operations from both a management and product marketing standpoint, which could also affect earnings. Since commencement of operations in 2001, Dakota Ethanol’s day-to-day operations have been managed exclusively by Broin Management, LLC. Moreover, all marketing and risk management services relating to the sale of ethanol and distiller’s grains have been provided by Broin-related entities, namely Broin Management, Ethanol Products, LLC and Broin Enterprises, Inc. d/b/a Dakota Gold Marketing. Beginning on January 1, 2006, however, these entities will no longer provide any management or marketing services to Dakota Ethanol. Rather, Dakota Ethanol’s day-to-day operations will be managed by an employee of Dakota Ethanol who will report directly to Dakota Ethanol’s board of managers. Dakota Ethanol’s ethanol, distiller’s grains and risk management services will be also provided by third-party companies unrelated to the Broin-related entities.

Results of Operations

Comparison of the three months ended September 30, 2005 and 2004

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

	Quarter Ended September 30, 2005			Quarter Ended September 30, 2004
	$		% of Revenue	$		% of Revenue

Revenue:
Ethanol	16,354,595		87	17,896,385		85
Distiller’s Grains	2,307,107		12	2,821,314		13
Incentive	210,114		1	350,482		2
Total	18,871,816		100	21,068,181		100

Cost of Revenues	16,076,597		85	19,745,423		94

General and Administrative Expenses	1,017,075		5	643,693		3

Other Income (Expense)	(199,229	)	(1)	(259,930	)	(1)

Net Income	1,390,874		7	368,859		2

Revenue-Revenue decreased $2.2 million, or 10%, from the three months ended September 30, 2004 to the three months ended September 30, 2005. The change was due to a decrease in the price of ethanol and distiller’s grains and a decrease in production and sales volume between periods.

Revenue from the sale of ethanol decreased approximately 9% from the three months ended September 30, 2004 to the three months ended September 30, 2005. The change was attributed to a 6% decrease in price and a 2% decrease in production and sales volume. Prices decreased due to an excess supply of ethanol in the market, while production volume slowed due to additional plant downtime for general maintenance work. Although ethanol prices in the industry have increased gradually since January 2005 and are expected to remain at elevated levels for the fourth quarter, Dakota Ethanol’s ethanol revenues for the fourth quarter will not increase accordingly. Approximately 85% of Dakota Ethanol’s ethanol production for the fourth quarter has been pre-sold at fixed prices that are lower than the current market rates. While the remaining 15% of Dakota Ethanol’s ethanol production will capture the increased ethanol values, it will not materially improve ethanol revenues.

Revenue from the sale of distiller’s grains decreased approximately 18% from the three months ended September 30, 2004 to the three months ended September 30, 2005. The change in distiller’s grains revenue was due to a 3% decrease in production and a 14% decrease in price. The price change was primarily caused by a decrease in the price of corn and soybeans, which are the feed components of distiller’s grains’ principal competition. The sales volume of distiller’s grains decreased 3% due to, as mentioned above, a decrease in production at the plant. Management anticipates that until the price of corn and soybean meal increases, the price of distiller’s grains will remain at its current low levels.

Total incentive revenue from federal and state government incentive programs decreased 40% from the three months ended September 30, 2004 to the three months ended September 30, 2005. The incentive revenue from the United States Department of Agriculture’s Commodity Credit Bioenergy Program decreased $140,000 to an expense of $40,000 for the three months ended September 30, 2005 from a revenue of $100,000 for the three months ended September 30, 2004. This change was attributed to a decrease in production during 2005 compared to 2004. In contrast, incentive revenue from the State of South Dakota was constant at $250,000 for the three months ended September 30, 2005 and 2004. Similar to the occurrence in 2005, management expects funding under the South Dakota program to be depleted in full prior to the end of the 2006 program year.

Cost of Revenues-Cost of revenues decreased $3.6 million, or 19%, to $16.1 million for the three months ended September 30, 2005 from $19.7 million for the three months ended September 30, 2004. This change occurred primarily because of a decrease in corn costs, offset by an increase in natural gas costs.

Corn costs decreased $5.0 million, or 40%, from the three months ended September 30, 2004 to the three months ended September 30, 2005. Corn costs include gains and losses from the use of forward cash contracts and other hedging instruments such as futures and options. Gains and losses that result from a change in value of the instruments are recognized in cost of revenues as the changes occur. The change in the

cost of corn was attributed primarily to an 18% decrease in the price of corn from the three months ended September 30, 2004 to the three months ended September 30, 2005 and a difference in risk management strategies relative to the market price of corn between quarters. The price of corn decreased primarily due to a record corn harvest in 2004 and large corn carryout into 2005.

The difference in risk management strategies relative to the corn market between quarters resulted in a loss of $1.7 million from the use of hedging instruments for the three months ended September 30, 2004, compared to a gain of $1.2 million for the three months ended September 30, 2005. Losses that result from a change in the value of the forward and hedging contracts are recognized as an increase in cost of revenues, while gains resulting from a change in the value of forward and hedging contracts are recognized as a decrease in cost of revenues. During the first quarter of 2004, in anticipation of significant price volatility of corn heading into the spring and early summer months, particularly an expectation of rising prices, Dakota Ethanol implemented a strategy by heavily using forward cash contracts, futures and options. While the price of corn did rise to near record levels during the first quarter of 2004, it peaked early in the second quarter and fell considerably by the end of the third quarter. This decrease, coupled with the previous positions taken on forward cash contracts and futures, caused Dakota Ethanol to sustain a $1.7 million loss on its hedging positions during the third quarter of 2004. This loss was then recorded as an increase in cost of corn and cost of revenues.

In contrast, Dakota Ethanol’s risk management strategy relative to the corn market for the three months ended September 30, 2005 was substantially different. In anticipation of a stable and low-priced corn market in the spring and early summer months, Dakota Ethanol relied substantially less on the use of hedging instruments as management believed it was less necessary to protect against potential future price increases or fluctuation. Thus, the use of forward and hedging contracts during the three months ended September 30, 2005 had no material adverse impact on corn costs and cost of revenues like in 2004. Accordingly, Dakota Ethanol’s corn costs were primarily related to the cash price of corn, which was 18% lower and relatively stable during the quarter.

Natural gas costs increased $1.2 million, or 44%, from $2.8 million for the three months ended September 30, 2004 to $4.0 million for the three months ended September 30, 2005. The change in natural gas costs was due to an increase in the price of natural gas, which reached record levels. Natural gas prices increased due to a loss of production in the Gulf of Mexico stemming from an overly-active hurricane season, a decrease in supply nationwide because of overly-hot temperatures in the United States during the summer, and an increase in the price of crude oil and the energy markets in general. Management anticipates that natural gas prices will remain high and could increase further during the ensuing winter months.

General and Administrative Expenses-General and administrative expenses increased approximately $400,000, or 58%, to $1.0 million for the three months ended

September 30, 2005, from $650,000 for the three months ended September 30, 2004. The change in general and administrative expenses was primarily due to an increase in the management incentive fee owed to Broin Management, LLC, the fee based directly on Dakota Ethanol’s net income. As net income increased, management incentive fees increased accordingly. The increase was also attributed to recording a payment to be made to Broin Management relating to the termination of the management contract. On September 29, 2005, Dakota Ethanol agreed to release Broin Management from the obligation of providing any future service from September 30, 2005 to the termination date of the management contract, or December 31, 2005, but agreed to pay Broin Management a fee of $218,311 representing the minimum fee that would have been earned by Broin Management if such services were provided through the termination date of the contract.

Interest Expense-Interest expense decreased $30,000, or 10%, to $280,000 for the three months ended September 30, 2005 from $310,000 for the three months ended September 30, 2004. The reduction to interest expense was due to a reduction in the principal balance on the loans outstanding with Dakota Ethanol’s primary lender, First National Bank of Omaha.

Net Income-Net income increased $1.0 million to $1.4 million for the three months ended September 30, 2005 from $400,000 for the three months ended September 30, 2004. This change in net income was primarily due to, as discussed above, decreased corn costs, offset by a decrease in ethanol and distiller’s grains revenues and an increase in natural gas costs.

Comparison of the nine months ended September 30, 2005 and 2004

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

	Nine Months Ended September 30, 2005			Nine Months Ended September 30, 2004
	$		% of Revenue	$		% of Revenue

Revenue:
Ethanol	50,088,733		87	51,921,028		84
Distiller’s Grains	7,119,235		12	8,969,148		15
Incentive	405,699		1	684.673		1
Total	57,613,667			61,574,849

Cost of Revenues	46,271,842		80	56,220,181		91

General and Administrative Expenses	2,790,534		5	2,065,568		3

Other Income (Expense)	(675,051	)	(1)	(812,291	)	(1)

Net Income	6,922,451		12	2,167,430		4

Revenue-Revenue decreased $3.9 million, or 6%, from the nine months ended September 30, 2004 to the nine months ended September 30, 2005. The change was primarily due to a decrease in revenue from the sale of ethanol and distiller’s grains.

Revenue from the sale of ethanol decreased approximately 4% from the nine months ended September 30, 2004 to the nine months ended September 30, 2005. The change was attributed to a 2% decrease in the price of ethanol and a 2% decrease in production and sales volume. Ethanol prices were down from 2004 levels because of the excess supply of ethanol in the market during the first and second quarter of 2005. Sales volume was down due to a decrease in production at the plant in 2005, as the plant was shut down more in 2005 than in 2004 for general maintenance work.

Revenue from the sale of distiller’s grains decreased approximately 21% from the nine months ended September 30, 2004 to the nine months ended September 30, 2005. The change in distiller’s grains revenue was due to a 19% decrease in the price of distiller’s grains and a 3% decrease in production and sales volume. The price of distiller’s grains continued to be impacted by the depressed prices of corn and soybean meal.

In addition, the incentive revenue from federal government incentive programs continued to decrease. Incentive revenue from the United States Department of Agriculture’s Commodity Credit Bioenergy Program decreased $313,000, or 117%, to an expense of $45,000 for the nine months ended September 30, 2005 compared to a revenue of $268,000 for the nine months ended September 30, 2004. This change was attributed to a decrease in ethanol production from the same period in the prior year, as payments under the program are based in part on a plant’s increase in production from the previous year’s corresponding quarter. In contrast, incentive revenue from the state of South Dakota increased slightly by $35,000, or 8%, to $452,000 for the nine months ended September 30, 2005 from $417,000 for the nine months ended September 30, 2004.

Cost of Revenues-Cost of revenues decreased $9.9 million, or 18%, to $46.3 million for the nine months ended September 30, 2005 from $56.2 million for the nine months ended September 30, 2004. This change occurred primarily because of a decrease in the overall cost of corn, offset by an increase in the cost of natural gas. Corn costs decreased 34% from the nine months ended September 30, 2004 to the nine months ended September 30, 2005. The decrease in the cost of corn was attributed to a 22% reduction in the price of corn from the nine months ended September 30, 2004 to the nine months ended September 30, 2005 and a difference in risk management strategy relative to the market price of corn between periods, particularly the impact of such strategy during the second and third quarters of 2004.

Risk management and the change in the corn market generated a loss of $5.7 million from the use of forward and hedging contracts for the nine months ended September 30, 2004, compared to a gain of $400,000 for the nine months ended September 30, 2005. Losses that result from a change in the value of the forward and hedging contracts are recognized as an increase in cost of revenues, while gains resulting from a change in the value of forward and hedging contracts are recognized as a decrease in cost of revenues. The loss from the use of forward and hedging contracts during the nine months ended September 30, 2004 was primarily attributed to the significant market fluctuation of corn during the nine months ended September 30, 2004. For the nine months ended September 30, 2005, however, there was not a similar impact from risk management because substantially fewer forward and hedging contract positions were taken in anticipation of a stable and lower-priced corn market going into the spring and summer months. When the corn market turned out in fact to be stable and low priced during these months, corn costs were in turn based primarily on the cash price of corn, which was 22% lower for the nine months ended September 30, 2005 than for the nine months ended September 30, 2004.

Natural gas costs increased $1.8 million, or 23%, from $7.8 million for the nine months ended September 30, 2004 to $9.6 for the nine months ended September 30, 2005. The change in natural gas costs was primarily due to an increase in natural gas prices caused by a loss of nation-wide production and supply and higher crude oil prices.

General and Administrative Expenses-General and administrative expenses increased approximately $700,000, or 35%, to $2.8 million for the nine months ended September 30, 2005, from $2.1 million for the nine months ended September 30, 2004. The change in general and administrative expenses was primarily due to an increase in the management incentive fee owed to Broin Management, the fee based directly on Dakota Ethanol’s net income. As net income increased, management fees increased by 72% for the nine months ended September 30, 2005 as compared to the same period of 2004.

Interest Expense-Interest expense decreased $130,000, or 14%, to $830,000 for the nine months ended September 30, 2005 from $960,000 for the nine months ended September 30, 2004. The reduction to interest expense was due to a reduction in the principal balance on the loans outstanding with Dakota Ethanol’s primary lender, First National Bank of Omaha.

Net Income-Net income increased $4.7 million, or 219%, to $6.9 million for the nine months ended September 30, 2005 from a net income of $2.2 million for the nine months ended September 30, 2004. This change in net income was primarily due to a decrease in corn costs, offset by a decrease in revenue from the sale of ethanol and distiller’s grains.

Liquidity and Capital Resources

The following table shows the cash flows between the nine months ended September 30, 2005 and the nine months ended September 30, 2004:

	Nine Months Ended September 30,
	2005		2004
	$		$
Net cash from operating activities	9,214,290		2,973,173
Net cash used for investing activities	(883,267	)	(506,495	)
Net cash used for financing activities	(10,389,787	)	(2,495,373	)

Cash Flow From Operating Activities-Operating activities generated $9.2 million for the nine months ended September 30, 2005, compared to $3.0 million for the nine months ended September 30, 2004. The increase in cash provided was primarily caused by an increase of $4.7 million in net income and a $500,000 decrease in working capital requirements. The change in working capital requirements consisted primarily of an increase in cash provided from accounts receivable, a decrease in cash required to satisfy accounts payable, and an increase in cash required for inventories and investments in commodity contracts.

Cash Flow Used for Investing Activities-Investing activities used $883,000 for the nine months ended September 30, 2005, compared to using $506,000 for the nine months ended September 30, 2004. The primary change from 2004 to 2005 was the amount of cash used for the purchase of property and equipment. An additional $300,000 in cash was used in 2005 to modify the distiller’s grains’ drying system.

Cash Flow From Financing Activities-Financing activities used $10.4 million for the nine months ended September 30, 2005, compared to using $2.5 million for the nine months ended September 30, 2004. The primary reason for the increase in cash used was due to distributions made to members, namely our members and the minority members of Dakota Ethanol. Distributions of $8.6 million and $1.2 million were made to our members and the minority members, respectively, during the nine months ended 2005, compared to $4.1 million and $600,000, respectively, during the same period in 2004.

Management anticipates sufficient cash flow from operating activities and revolving debt to cover debt service obligations, operations and planned capital expenditures for the next 12 months. Payments to Broin Management and the Broin-related entities for the termination of the management and service contracts will be paid from cash flows, while any payment for the purchase of the Broin family members’ minority interest in Dakota Ethanol, if sold, is expected to be financed with new debt (see “Recent Developments” below for further information).

Indebtedness

First National Bank of Omaha is Dakota Ethanol’s primary lender. Dakota Ethanol has four notes outstanding with First National Bank pursuant to a Construction Loan Agreement and Construction Note dated September 25, 2000 and amendments dated July 29, 2002, November 1, 2002 and April 23, 2004: a $14.5 million fixed rate note, a $4.4 million variable-rate note, a $5.0 million variable-rate, revolving note, and a $3.0 million variable-rate, revolving note.

Principal payments made on the fixed rate note were $345,000 and $685,000 for three months and nine months ended September 30, 2005, respectively, compared to payments of $320,000 and $1,272,000 for the three months and nine months ended September 30, 2004, respectively. The payments decreased for the three and nine months ended in 2005 compared to 2004 due to First National’s waiver of the excess cash flow recapture covenant under the Loan Agreement during the first quarter of 2005 and a change during the second quarter of the payment mechanism used to make quarterly installments. The waiver of the excess cash flow covenant eliminated the additional payment applied to the outstanding principal, which was $336,000 in 2004. The payment mechanism changed to an automated service, such service requiring the principal payment to be made on the first business day of the quarter starting on July 1, 2005. The principal balance outstanding on this note was $10.1 million as of September 30, 2005, compared to $11.1 million as of September 30, 2004.

Principal payments of $314,000 and $625,000 were made on the $4.4 million variable rate note during the three months and nine months ended September 30, 2005, respectively, compared to principal payments of $304,000 and $1.1 million during the three months and nine months ended September 30, 2004, respectively. The payments decreased for the three and nine months ended due to the waiver of the excess cash flow recapture loan covenant during the first quarter and a change during the second quarter of the payment mechanism used to make the quarterly installments. The waiver of the excess cash flow covenant eliminated the additional payment that was applied to the outstanding principal, which was $208,000 in 2004. The payment mechanism, like with the fixed-rate note, changed to an automated service, such service requiring the principal payment to be made on the first business day of the quarter starting on July 1, 2005. The principal balance outstanding on the variable note was $723,000 as of September 30, 2005, compared to $1.7 million as of September 30, 2004. The variable rate was 6.75% as of September 30, 2005.

The $5 million variable-rate note is set up as a revolving loan that allows Dakota Ethanol to borrow up to the available amount ($5.0 million as of September 30, 2005) of any repaid principal on a revolving basis, subject to a 0.375% annual commitment fee assessed quarterly on any funds not borrowed. There was no principal balance outstanding as of September 30, 2005, compared to $469,000 as of September 30, 2004. The variable interest rate on the note was 6.75% as of September 30, 2005.

The $3 million variable-rate note is set up as a revolving line of credit. The primary purpose of the line of credit is for working capital. The maximum amount available under the line of credit is $3 million, Dakota Ethanol being able to borrow up to the maximum

amount available and pay down without penalty whenever excess cash is available. Once paid down, the amount available to borrow under the line of credit increases back to the maximum. On April 22, 2005, the line of credit was renewed under the original terms except for a new maturity of April 21, 2006. Interest payments of $21,000 were made on the line for the nine months ended September 30, 2005, compared to payments of $35,000 for the nine months ended September 30, 2004. There was no unpaid principal balance outstanding as of September 30, 2005, compared to an unpaid principal balance of $3 million as of September 30, 2004. The variable interest rate on the note was 6.75% as of September 30, 2005.

Additional indebtedness may be incurred in the next 12 months if we purchase the Broin family members’ minority interest in Dakota Ethanol. Please see “Recent Developments” below for additional information.

Recent Developments

Since June 6, 2006, Dakota Ethanol has undergone a significant change in its mode of operations. On June 6, 2005, Dakota Ethanol elected not to renew its Management Agreement with Broin Management, LLC, its Ethanol Marketing Contract with Ethanol Products, LLC, its Distiller’s Grains Marketing Contract with Broin Enterprises, Inc. d/b/a Dakota Gold Marketing, and its Corn Price Risk Management Agreement with Broin Management, LLC. Between June 6, 2005 and November 4, 2005, Dakota Ethanol and these Broin-related entities negotiated a final termination of these contracts and the transition to new management and marketing service providers.

On September 29, 2005, Dakota Ethanol and Broin Management concluded negotiations on the Management Agreement and Corn Price Risk Management Agreement. With respect to the Management Agreement, Dakota Ethanol released Broin Management from its obligation of providing any management services from September 30, 2005 through the termination of the Management Agreement, or December 31, 2005. Dakota Ethanol, however, will continue to pay Broin Management the fee set forth in the agreement for services that would have been provided until December 31, 2005, which will not be less than $218,311. Starting on January 1, 2006, Dakota Ethanol’s new general manager will be Mr. Scott A. Mundt, who will be an employee of Dakota Ethanol and who will report directly to Dakota Ethanol’s board of managers.

Under the Corn Price Risk Management Agreement, Dakota Ethanol released Broin Management from its contractual obligation of providing any risk management (hedging) services from September 30, 2005 through December 31, 2005. To facilitate this termination prior to the expiration of the contract’s term, Dakota Ethanol paid Broin Management a sum of $12,500, which is equal to the amount that would have been earned by Broin Management if it would have provided risk management services until December 31, 2005. On or before January

1, 2006, all risk management services are expected to be assumed by FC Stone, LLC of Des Moines, Iowa under a new risk management contract.

On November 4, 2005, Dakota Ethanol, Ethanol Products and Broin Enterprise concluded negotiations on the Ethanol and Distiller’s Grains Marketing Contracts. With respect to the Ethanol Marketing Contract, Dakota Ethanol and Ethanol Products agreed to a termination date of December 31, 2005. In exchange for terminating the contract and ethanol marketing services prior to the scheduled expiration date of September 1, 2006, Dakota Ethanol agreed to pay Ethanol Products a sum of $435,050. Of this sum, Dakota Ethanol will receive a credit of $200,000 toward the payment, the credit representing the amount Ethanol Products will pay Dakota Ethanol for redeeming Dakota Ethanol’s Class B Membership Interest in Ethanol Products under a separate redemption agreement. The balance, or $235,000, is required to be paid on or before December 31, 2005. On or before January 1, 2006, all ethanol marketing service are expected to be assumed by Renewable Products Marketing Group of Belle Plaine, Minnesota under a new marketing contract.

With respect to the Distiller’s Grain Marketing Contract, Dakota Ethanol and Broin Enterprises agreed to a termination date of December 1, 2005. In exchange for terminating the contract and distiller’s grains services prior to the scheduled expiration date of September 1, 2006, Dakota Ethanol agreed to pay Broin Enterprises a sum of $214,539, payable no later than November 30, 2005. On or before December 1, 2005, all distiller’s grains marketing services are expected to be assumed by Commodity Specialists Company of Minneapolis, Minnesota under a new marketing contract.

Finally, we may purchase in the foreseeable future the five Broin family members’ 12% minority interest in Dakota Ethanol. Negotiations involving this purchase commenced after June 6, 2005 but have since subsided. If the Broin family members choose to sell their interests in Dakota Ethanol and we decide to purchase their interests, the purchase price is expected to be at a level where we will need additional debt financing. Debt financing will require us to dedicate an additional portion of cash flows for payments on this debt, thus reducing the ability to use cash flow to fund working capital, capital expenditures and distributions to members.

Off-Balance Sheet Transactions

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 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 it believes 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 distiller’s grains 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.

Revenue Recognition

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 whether we will receive full allocation and payment due under the federal incentive program, we derive an estimate of the incentive

revenue for the relevant 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 our 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 discounted future cash flows and may differ from actual.

Accounting for Derivative Instruments and Hedging Activities

Dakota Ethanol enters into derivative instruments to hedge its exposure to price risk related to forecasted corn and natural gas purchases, forward corn purchase contracts and forecasted ethanol sales. Dakota Ethanol does not typically enter into derivative instruments other than for hedging purposes. All derivative contracts are recognized on the September 30, 2005 and December 31, 2004 balance sheets at their fair market value. Currently, none of the derivative instruments are classified as cash-flow hedges for accounting purposes.

On the date the derivative instrument is entered into, Dakota Ethanol will designate the derivative as either (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge) or (3) will not designate the derivative as a hedge. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income and reclassified into earnings as the underlying hedged item affects earnings. Changes in the fair value of a derivative that is not designated as a hedge are recorded in current period earnings.

Item 3. Quantitative and Qualitative Disclosures About Market Risks.

Dakota Ethanol is exposed to the impact of market fluctuations associated with commodity prices and interest rates as discussed below. Dakota Ethanol has no exposure to foreign currency risk as all of its business is conducted in U.S. Dollars. Dakota Ethanol uses derivative financial instruments as part of an overall strategy to manage market risk. It uses forward, futures and option contracts to hedge changes to the commodity prices of corn and natural gas. It does not enter into these derivative financial instruments for trading or speculative purposes, nor does it designate these contracts as hedges for accounting purposes pursuant to the requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities.

Commodity Price Risk

Dakota Ethanol produces ethanol and its co-product, distiller’s grain, 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. Dakota Ethanol also uses natural gas in the ethanol and distiller’s grains 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 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 domestic onshore and offshore rig count, and the amount of natural gas in underground storage during both the injection (April 1st – November 7th) and withdrawal (November 14th – March 31st) seasons.

Dakota Ethanol 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 Dakota Ethanol’s 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.

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.

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.

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.

A sensitivity analysis has been prepared to estimate Dakota Ethanol’s exposure to commodity price risk. The table presents the fair value of corn inventory, forward purchase contract position and open futures and option positions for corn and natural gas as of September 30, 2005 and September 30, 2004 and the potential loss in fair value resulting from a hypothetical 10% adverse change in corn and natural gas prices. The fair value of the positions is a summation of the fair values calculated by valuing each net position at quoted market prices as of the applicable date. The results of this analysis, which may differ from actual results, are as follows:

Quarter Ended	Fair Value		Effect of Hypothetical Adverse Change— Market Risk
September 30, 2005	$	4,178,995	$	417,899
September 30, 2004	$	8,639,658	$	863,966

Interest Rate Risk

Dakota Ethanol’s interest rate risk exposure pertains primarily to its long-term, variable rate debt. Specifically, Dakota Ethanol has $723,000 outstanding in variable rate, long-term debt as of September 30, 2005. The interest rate on the variable rate, long-term debt is 0.50% over the base rate set by First National Bank of Omaha, which was 6.75% as of September 30, 2005. Dakota Ethanol manages its interest rate risk by monitoring the effects of market changes on interest rates and using fixed rate debt.

Item 4. 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-15(e) and 15d-15(e) 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 have been no changes in Lake Area Corn Processors’ or Dakota Ethanol’s internal controls over financial reporting that occurred during the third fiscal quarter ended September 30, 2005, that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

See Exhibit Index following the signature page to this report.

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: November 14, 2005	By	/s/ Douglas Van Duyn
		Douglas Van Duyn
		Chief Executive Officer

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

Exhibit Number		Description
2.1		Plan of Reorganization(1)
3.1(i)		Articles of Organization(2)
31.1(iii)		Articles of Amendment to Articles of Organization(3)
3.2		Amended and Restated Operating Agreement dated February 17, 2005 (4)
4.1		Form of Class A Unit Certificate(5)
10.1		Ethanol Marketing Contract Termination dated November 4, 2005
10.2		Redemption Agreement dated November 4, 2005
10.3		DDGS Marketing Contract Termination dated November 4, 2005
31.1		Rule 13a-14(a)/15d-14(a) Certification
31.2		Rule 13a-14(a)/15d-14(a) Certification
32.1		Section 1350 Certification
32.2		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 filed with the Commission on August 2, 2001.

(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 filed with the Commission on August 8, 2001.

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

(4) Incorporated by reference from Exhibit 3.6 to the issuer’s Form 10-K filed with the Commission on March 31, 2005

(5) Incorporated by reference from the same number exhibit to the issuer’s Registration Statement on Form S-4 filed with the Commission on August 8, 2001.

LAKE AREA CORN PROCESSORS LLC - Quarter Report: 2005 September (Form 10-Q)

LAKE AREA CORN PROCESSORS, LLC

Environmental Liabilities

Commitments and Contingencies

Inventory Valuation

Long-Lived Assets

Accounting for Derivative Instruments and Hedging Activities