UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ~~Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~ ~~For the fiscal year ended December 31, 2007~~ o ~~Transition Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934~~	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934

Commission file number 0-50711

Northern Growers, LLC

(Exact name of registrant as specified in its charter)

South Dakota		77-0589881
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

48416 144th Street
P.O. Box 356
Big Stone City SD 57216
605-862-7902

(Address of Principal Executive Offices) (Zip Code)

(605) 862-7902

(Issuer’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Class A Capital Units

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

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

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. þx Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K þx

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

o Large Accelerated Filer	þo Accelerated Filer	o Non-Accelerated Filer	x Smaller Reporting Company
	(do not check if a smaller ~~reporting company)~~
	o ~~Smaller Reporting Company~~reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o Yes þx No

The aggregate market value of the registrant’s common stock held by non-affiliates at June 30, ~~2007~~2009 was approximately ~~$157,131,000.~~$43,543,200. The aggregate market value was computed by reference to the last sales price during the registrant’s most recently completed second fiscal quarter.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of the date of this filing, there were 50,628,000 Class A capital units of the registrant ~~outstanding~~.outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

~~Part III of Form 10-K - - Portions of the Information Statement for the 2008 Annual Meeting of Members.~~None.

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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K and other reports issued by Northern Growers, LLC (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contain “forward-looking statements” that deal with future results, expectations, plans and performance. 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. These forward-looking statements are made based on our expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this report. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” and elsewhere in this report. As stated elsewhere in this report such factors include, among others:

·		Excess ~~growth,~~ production capacity and supply in the ethanol industry;

·		The price volatility and uncertainty of ~~raw materials used in the production process, particularly~~ corn, natural gas, steam, ethanol, unleaded gasoline, oil, distillers grains and ~~steam;~~other commodities prices;

·		Changes in the weather or general economic conditions impacting the availability and price of commodities, particularly corn and natural gas;

·	Limitations on the demand for ethanol resulting from the “blend wall” which limits the amount of ethanol blended into the national gasoline pool based on current 10 percent blend rate in standard vehicles;

·		The results of our risk management or hedging strategies;

·		Competition from alternative fuels and alternative fuel additives;

·		Fluctuations in U.S. oil consumption and petroleum prices;

·		Changes in plant production capacity due to variations in steam supply provided by the adjacent power plant;

·	Changes in the availability of credit and interest rates;

·		The availability of additional capital to support capital improvements and development;

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

·	Changes in or elimination of federal and/or state laws (including the elimination of any federal and/or state ethanol tax incentives and supports);
	~~Changes or developments in laws, regulations or taxes in the ethanol, agricultural or energy industries;~~

Damage to or loss of our plant due to casualty, weather, mechanical failure or any extended or extraordinary maintenance or inspection that may be required;

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·	Changes in the environmental regulations or in our ability to comply with the environmental regulations that apply to our plant’s operations; and

·		~~An increase in environmental regulation and scrutiny from federal and state governments; and~~

·		Other factors discussed below under the item entitled “Risk Factors.”

We are not under any duty to update the forward-looking statements contained in this report, nor do we guarantee future results or performance orof 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.

PART I

Item 1. Business.

Overview

Northern Growers, LLC (“Northern Growers”) is a South Dakota limited liability company, consisting of ~~950~~960 members who principally reside in South Dakota and the upper Midwest. Northern Growers owns and manages a 77.16% interest in its subsidiary, ~~POET™~~POET® Biorefining - - Big Stone (“Big Stone”), an ethanol and distillers grains plant (the “plant” or “our plant”) located near the city of Big Stone City, South Dakota. (Northern Growers and Big Stone are referred to collectively in this report as “we,” “our,” or “us”). ~~Our plant is built with an annual name-plate capacity of 75 million gallons of ethanol.~~

Our revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the U.S. Corn for our plant’s production process is supplied primarily from local agricultural producers and from purchases on the open market. After processing the corn into ethanol, ethanol is sold to ~~POET™~~POET® Ethanol Products, LLC, ~~(f/k/a Ethanol Products, LLC),~~ which subsequently markets and sells the ethanol to gasoline blenders and refineries located throughout the continental U.S. All of our distillers grains are sold through our marketing agent, ~~POET™~~POET® Nutrition, Inc. ~~(f/k/a Dakota Gold Marketing)~~, which markets and sells the product to livestock feeders primarily located in the continental U.S. The day-to-day operations of our plant are managed by ~~POET™~~POET® Plant Management, LLC, of Sioux Falls, South Dakota.

Our operating results are largely driven by the prices at which we sell ethanol and distillers grains and the costs related to their production. Historically, the price of ethanol tends to fluctuate in the same direction as the price of unleaded gasoline and other petroleum ~~products, although in 2005 the prices of ethanol and gasoline began a divergence, with ethanol selling for less than gasoline at the wholesale level.~~products. The greatest effect on the price of ethanol is the supply and demand for ethanol in the U.S. markets. Our two largest costs of production are corn and natural gas, although our use of natural gas is offset by the use of steam supplied directly from the adjacent energy power plant called Big Stone Plant. The price of distillers grains is generally influenced by supply and demand, the price of substitute livestock feed, such as corn and soybean meal, and other animal feed proteins. ~~Surplus grain supplies tend to put downward price pressure on distillers grains.~~

General Developments of Business

Northern Growers was originally organized in 2000 as a South Dakota cooperative for the purpose of owning and managing its interest in Big Stone and providing a major source of corn supply to the plant. Northern Growers was subsequently reorganized in 2003 as a South Dakota limited liability company at which time it became subject to the reporting requirements under the Securities Act of 1933 and Securities Exchange Act of 1934. Northern Growers is taxed as a partnership for federal income tax purposes, meaning that all of its income is subject to single-level, pass through tax treatment at the member level rather than at the company ~~level~~.level.

Construction of our plant was completed and operations commenced in July 2002. Our plant was originally built with an annual name-plate production capacity of 40 million gallons of ~~ethanol. Since~~ethanol, but since that time we have made significant capital improvements. In March 2006, we completed a rail expansion project, which ~~provides~~provided our plant with additional capacity to store rail cars for the shipment of products. In October 2006, we completed construction for the incorporation of BPX™ technology into the production process. In addition to reducing energy costs,, BPX™ releases additional starch content, increases the protein content and quality of by-products and decreases plant emissions. In May 2007, ~~we completed the construction on~~ our plant expansion was completed, increasing its annual name-plate capacity from 40 million to 75 million

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gallons of ~~ethanol~~ethanol. In October 2007, we increased our grain storage capacity by adding two grain ~~bins with a storage capacity of 569,000 bushels of corn.~~bins. The design and construction of the BPX™, grain storage and expansion projects was completed by ~~POET™~~POET® Design and Construction, Inc. ~~(f/k/a Broin and Associates, Inc.)~~, of Sioux Falls, South Dakota.

Since 2008, the ethanol industry has experienced significant change. In 2008, the industry was marked by volatility and unprofitability. An increase in production capacity caused by new and expanding plants drove ethanol prices lower and corn prices higher. Corn prices were significantly higher than in prior years which adversely affected costs of production. Similarly, ethanol prices were significantly lower than in prior years which adversely impacted revenues. In addition, U.S. financial markets experienced a severe downturn in the latter part of 2008 and all of 2009. Businesses across many sectors experienced a lack of access to credit causing a series of liquidity crises.

In 2009, the ethanol industry began to stabilize and profitability returned to much of the industry. The decrease in ethanol prices in 2008 caused many plants in the U.S. to slow production or shut down which consequently decreased supply nationwide. The decrease in supply contributed to an increase in ethanol prices and revenues. At the same time, corn prices decreased due to a large carryout from 2008 and a favorable harvest forecast in 2009. Energy prices, especially natural gas and steam prices, also decreased. Whether the current trend continues into 2010 is uncertain due to the lasting effects of the financial crisis, potential excess capacity in the ethanol industry and lack of demand growth, and volatility historically associated with corn and ethanol prices.

Principal Products

The principal products produced at our plant are fuel grade ethanol and distillers grains.

Ethanol

Ethanol is ethyl alcohol. Ethanol is produced from starch or sugar-based feed products such as corn, potatoes, wheat, and sorghum, as well as from agricultural waste products including sugar, rice straw, cheese whey, beverage wastes and forestry and paper wastes. Historically, corn has been the primary source of producing ethanol because of its relatively low cost, wide availability and ability to produce large quantities of carbohydrates that convert into glucose more easily than other products. Today, approximately 90% of the ethanol produced in the U.S. is produced from corn.

Ethanol is used for three primary purposes: 1) as an oxygenated fuel additive; 2) as an octane enhancer in fuels; and 3) as a non-petroleum based gas substitute. Approximately 95% of all ethanol is used for blending with unleaded gasoline and other fuel products. Ethanol has been utilized as a fuel additive since the late 1970s when its value as a product extender for gasoline was discovered during the OPEC oil embargo crisis. In the 1980s, ethanol began to see widespread use as an octane enhancer, replacing other environmentally harmful components in gasoline such as lead and benzene. Ethanol’s use as an oxygenate continued to increase with the passage of the Clean Air Act Amendments of 1990, which required the addition of oxygenates to gasoline in the nation’s most polluted areas. Because ethanol contains approximately 35% oxygen, its combination with gasoline increases the percentage of oxygen in gasoline. As a result, the gasoline burns cleaner and releases less carbon monoxide and other exhaust emissions into the atmosphere.

~~For fiscal years ended December 31, 2007, 2006 and 2005, our revenues from sales of ethanol were approximately 84.0%, 86.1% and 81.0% of total revenues, respectively.~~

Distillers Grains

A principal by-product of the ethanol production process is distillers grains. Distillers grains are a high protein, high energy feed supplement marketed primarily to the dairy, beef, sheep, swine, and poultry industries. It is a popular animal feed supplement, with millions of tons produced in North America annually. Most of the distillers grains produced in the U.S. are sold for use in animal feeds within the continental U.S., although a growing percentage is exported to countries such as Canada and Mexico and countries in Asia and Europe.

Dry mill ethanol processing produces, generally, three forms of distillers grains, all of which differ in moisture content and shelf life: 1) dried distillers grains with solubles, ~~(DDGS);~~otherwise known as DDGS; 2) distillers wet grains or “wet cake”; and 3) modified distillers grains. Distillers wet grains are processed corn mash that does not go through a drying process and contains approximately 70% moisture content. Distillers wet grains have a short shelf life of approximately three days and can be sold only to livestock producers within the immediate vicinity of ~~the~~a plant. Modified distillers grains

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are distillers wet grains that are dried to a 50% moisture content. Modified distillers grains have a slightly longer shelf life and are often sold to nearby livestock producers. DDGS is distillers wet grains that are dried to an 8-10% moisture content. DDGS have an almost indefinite shelf life and may be sold and shipped to any market regardless of its vicinity to ~~the~~a plant.

~~For fiscal years ended December 31, 2007, 2006 and 2005, our revenues from sales of distillers grains were approximately 15.5%, 13.3%, and 18.2% of total revenues, respectively.~~

Marketing and Distribution

Ethanol

The ethanol produced at our plant is sold to ~~POET™~~POET® Ethanol Products, LLC, ~~(f/k/a Ethanol Products, LLC),~~ the terms of which are governed by an ethanol marketing agreement. After purchasing the ethanol from us, ~~POET™~~POET® Ethanol Products markets and sells the ethanol to major, multi-national oil companies with blending and refinery facilities located throughout the continental U.S. The price that we receive from the sale to ~~POET™~~POET® Ethanol Products is based upon various contracts between ~~POET™~~POET® Ethanol Products and its customers, and is fixed upon the transfer of title to ~~POET™~~POET® Ethanol ~~Products~~.Products.

The ethanol produced at our plant is shipped by ~~POET™~~POET® Ethanol Products using rail cars operated by ~~POET™~~POET® Ethanol Products or trucks supplied by companies with which ~~POET™~~POET® Ethanol Products contracts. Transfer of title and risk of loss shifts to ~~POET™~~POET® Ethanol Products upon the loading of ethanol onto railcars and trucks at the plant. Our plant is served by rail facilities and connections to the Burlington Northern Santa Fe railroad system, which ~~facilitate~~facilitates the transportation of ethanol to ~~the~~ customers’ terminals, and by multiple South Dakota state highways and Interstate Highway 29, which provide transportation links in all directions.

The marketing agreement with ~~POET™~~ POET®Ethanol Products is in effect until July 2012, renewing automatically for five-year terms unless either party provides at least ninety days written notice of termination prior to the end of the term. ~~POET™~~POET® Ethanol Products charges us a marketing and service fee based upon each gallon of ethanol sold. ~~POET™~~POET® Ethanol Products also charges us a fee for each gallon of ethanol to which renewable identification numbers, or RINS, are assigned, which is necessary for complying with the federal renewable fuels standard and the U.S. Environmental Protection Agency’s enforcement of such standard. Shipping costs relating to the transportation of ethanol are borne by us and are included in our gross revenues and cost of revenues. In the event that the contractual relationship with ~~POET™~~ POET®Ethanol Products is interrupted for any reason, we believe that another entity or entities to purchase or market the ethanol could be located. Any interruption, however, could temporarily disrupt the sale of ethanol and adversely affect our business and operations.

Distillers Grains

The distillers grains produced at our plant are sold through ~~POET™~~POET® Nutrition, Inc. ~~(f/k/a Dakota Gold Marketing)~~, the terms of which are governed by a distillers grains marketing agreement. As our exclusive marketing agent, ~~POET™~~POET® Nutrition markets and sells the distillers grains to customers. By marketing through POET™ Nutrition, we are not dependent upon one or a limited number of customers. The price received from the sale of distillers grain is the price received from the customers with which ~~POET™~~POET® Nutrition has negotiated and entered into a contract for sale.

We produce ~~at our plant~~ three variations of distillers grains which are marketed through ~~POET™~~POET® Nutrition: 1) DDGS; 2) Dakota Gold™; and 3) distillers wet grains. Dakota ~~Gold™~~Gold® is DDGS which ~~is certified by POET™~~POET® Nutrition ~~indicating that DDGS meet~~certifies to as meeting certain quality standards and specifications.

~~POET™~~POET® Nutrition markets distillers grains to local, regional, national and international markets. We sell and ship a substantial majority of our distillers grains to customers in the southwestern and western parts of the U.S., the remainder of which is shipped to other areas of the U.S. and to Mexico. Shipments to national and international markets are primarily completed by the use of rail due to a longer shelf life, whereas shipments to local or regional markets are primarily completed by truck. We also contract with ~~POET™~~POET® Nutrition for the use of railcars in the shipping of DDGS and Dakota ~~Gold™~~Gold®, paying ~~POET™~~POET® Nutrition a flat fee per railcar in connection with each shipment. ~~By marketing through POET™ Nutrition, we are not dependent upon one or a limited number of customers.~~

The marketing agreement with ~~POET™~~ POET®Nutrition is in effect until March 2012, renewing automatically for additional five-year terms unless discontinued by either party upon at least three months prior written notice. ~~POET™~~ POET®

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Nutrition charges us a marketing fee based upon a percentage of gross monthly sales of distillers grains less shipping costs. All shipping costs associated with the transportation of distillers grains are borne by us and are included in our gross revenues and cost of revenues, and ~~POET™~~POET® Nutrition is responsible for invoicing all loads and receiving payments from the customers, the payment of which is remitted to us.

Risk Management

Due to fluctuations in the price of corn and natural gas, we use a risk management orprogram, including hedging strategies, to minimize our commodity risk. Hedging is a means of protecting the price at which corn and natural gas is bought in the future. All of the commodity risk management services relating to corn and natural gas are provided by ~~POET™ Plant~~POET® Risk Management in accordance with a corn and natural gas price risk management agreement. Under the agreement, we pay ~~POET™ Plant~~POET® Risk Management an annual flat fee. The agreement is in effect until January 2012, renewing automatically for additional five-year terms unless discontinued by either party upon written notice prior to the expiration of the term.

Dependence Upon a Single or Few Customers

We, as discussed above, are substantially dependent upon ~~POET™~~POET® Ethanol Products for the purchase, marketing and distribution of ethanol. ~~POET™~~POET® Ethanol Products purchases 100% of the ethanol produced at our plant, all of which is marketed and distributed to its customers.

~~Financial Information about Geographic Areas~~

All of our operations are domiciled in the U.S. All of the products sold to our customers for fiscal years 2007, 2006 and 2005 were produced in the U.S., and all of our long-lived assets are domiciled in the U.S. In addition, 98% of our total revenues were derived from sales to customers in the U.S., whereas 2% were derived from sales to customers in Mexico.

Sources and Availability of Raw Materials

Corn. Our major raw material for the production process is corn. To operate our plant at full name-plate capacity, we require the supply of approximately 27 million bushels of corn annually. ~~All~~We purchase a majority of our corn ~~requirements are purchased on the open market~~ from ~~local~~ producers in northeastern South Dakota and ~~storage elevators. In 2008, we expect~~western Minnesota. We believe that corn producers in proximity to our plant will continue to provide a sufficient supply ~~of corn to be available to meet our plant’s bushel requirement.~~for the foreseeable future.

Steam. Our production process requires a constant supply of steam. Steam is used for the cooking, evaporation, and distillation processes. While the production of steam in the ethanol production process is generally received from an ethanol plant’s on-site boilers, our plant receives a substantial portion of its steam from Big Stone Plant, a coal fired, electrical generating facility located immediately adjacent to our plant. Big Stone Plant is co-owned by three utilities, namely, Otter Tail Corporation, Montana-Dakota Utilities and NorthWestern Corporation. The benefit of a steam supply from Big Stone Plant is that it reduces our dependence on natural gas for operations. In ~~2007,~~2009, for example, ~~39%~~37% of our natural gas requirements for operations were replaced directly with steam from Big Stone Plant, compared to ~~48%~~41% of our requirements in ~~2006.~~2008.

Big Stone Plant generally provides us with a consistent supply of steam to meet our requirements except during its semi-annual maintenance shutdowns. When Big Stone Plant shuts down for any prolonged period of time, or if the transfer of steam is unexpectedly diminished or interrupted, we use two on-site boilers powered by natural gas to generate steam. However, as discussed below under “Natural Gas,” when we are required to rely on our on-site boilers to generate steam, our natural gas supply ~~prevents~~can prevent us from generating a sufficient volume of steam to operate at full name-plate production capacity.

The purchase of steam is governed by a steam sale agreement between us and Big Stone Plant. The rate is set at a fixed rate based on specified volume used, above which it is set at a market rate as determined by Big Stone Plant. The agreement’s ten year term ends on June 1, 2012, but automatically renews for two additional five-year terms unless terminated by either party by providing 12 months advance notice.

Natural Gas. Our production process requires a constant supply of natural gas. Natural gas is the primary energy source for the drying of distillers grains. It is primarily responsible for powering the two on-site boilers for the generation of steam in the event that additional steam is necessary or the supply of steam from Big Stone Plant is unexpectedly diminished or interrupted. We contract with CenterPoint Energy Services, Inc., of Houston, Texas, for the supply and distribution of natural gas to the plant. ~~In April 2007, Centerpoint purchased from our previous supplier, NorthWestern Public Service, our natural gas supply agreement.~~ The agreement with CenterPoint ~~is for a term of ten years ending~~terminates in 2012.

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Prior to the completion of our expansion in May 2007, we did not experience any interruption or shortage of natural gas supply. ~~However,~~But since completion ~~of expansion,~~ we have experienced ~~shortages.~~a shortage of supply at times. When our plant’s supply of steam from Big Stone Plant is interrupted for any prolonged period of time, such as during Big Stone Plant’s general maintenance shut downs, our plant’s natural gas capacity is insufficient to allow ~~our~~the plant to operate at its full 75 million gallon name-plate production capacity. ~~Consequently,~~In such instances, our plant is required to scale back production, ~~during~~typically based in proportion to the capacity of our natural gas supply. To avoid this ~~period. In~~problem in the ~~fourth quarter of 2007, for example,~~future, we ~~were required to scale back production by approximately 30% for six weeks because Big Stone Plant was shut down for maintenance. We~~ are currently exploring options to increase our natural gas ~~supply in order to allow us to operate at full name-plate production when Big Stone Plant is shut down.~~supply.

Electricity. Our production process requires a constant supply of electricity. Electricity is necessary to generate lighting and to power the machinery and equipment at the plant. We contract with Otter Tail Power Company of Otter Tail, Minnesota, to provide us with all of our electric power requirements. The agreement automatically renews for one year terms unless terminated by either party by providing 12 months advance written notice. Since operations were commenced, we have not had interruptions or shortages in the supply of electricity.

Water. The production process requires a constant supply of water. Water is necessary for the slurry and cooking processes, cooling towers and boiler operations. We contract with the city of Big Stone City and Big Stone Plant to supply our plant with water for the production process. The agreement with the city of Big Stone City is in effect until 2012, and automatically renews for two, five-year terms unless terminated by either party with 12 months advance written notice. Since operations were commenced, the city of Big Stone City and Big Stone Plant have provided us with an ample and consistent supply of water to meet operational requirements.

Research and Development

We do not conduct any research and development ~~of our own~~ relating to the production of ethanol and distillers grains. Instead, we rely on ~~POET™~~POET® Research, Inc., of Sioux Falls, South Dakota, to research and develop new technologies in order to improve the production process and end products. ~~POET™~~POET® Research provides us this technology through a license agreement, where we pay ~~POET™~~POET® Research a licensing fee ~~quarterly. The license~~on a quarterly basis. This agreement terminates on June 30, 2015.

Competition

~~Domestic~~

We are in direct competition with numerous ~~other~~ ethanol ~~and distillers grains~~ producers, many of ~~which~~whom have ~~significantly~~ greater ~~resources. Additional~~resources than we do. Following the significant growth in the ethanol industry during 2005 and 2006, the ethanol industry has grown at a much slower pace. The rapid growth during 2005 and 2006 is attributed to a favorable spread between the price of ethanol and ~~distillers grains~~the cost of the raw materials to produce ethanol. We believe that currently there is excessive ethanol supply capacity in the industry. This has resulted in some ethanol producers reducing production of ethanol or ceasing operations altogether. As a result of this overcapacity, the ethanol industry has become increasingly competitive. Since ethanol is a commodity product, competition in the industry is predominantly based on price. We anticipate that without an increase in the amount of ethanol that can be blended into gasoline for use in conventional automobiles, ethanol demand may not significantly increase which may result in ethanol supply capacity exceeding ethanol demand for the foreseeable future.

The U.S. Environmental Protection Agency is currently reviewing whether to allow the increase of ethanol that can be blended for use in conventional automobiles from 10% to 15%. The EPA, however, has delayed its decision on whether to allow a higher blend percentage until the middle of 2010. We believe that increasing ethanol blends to a higher blend percentage for use in conventional automobiles will increase demand for ethanol and would likely positively impact ethanol prices. Yet, this may result in companies building new ethanol plants or expanding their current ethanol plants, which could lead to further overcapacity in the ethanol industry.

Many of the current ethanol production incentives are designed to encourage the production of renewable fuels using raw materials other than corn. One type of ethanol production feedstock that is being explored is cellulose. Cellulose is the main component of plant cell walls and is the most common organic compound on earth. Cellulose is found in wood chips, corn stalks, rice, straw, amongst other common plants. Cellulosic ethanol is ethanol produced from cellulose. Currently, cellulosic ethanol production technology is not sufficiently advanced to produce cellulosic ethanol on

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a commercial scale; however, due to these new government incentives, we anticipate that commercially viable cellulosic ethanol technology will be developed in the near future. Several companies and researchers have commenced pilot projects to study the feasibility of commercially producing cellulosic ethanol. If this technology can be profitably employed on a commercial scale, it could potentially lead to ethanol that is less expensive to produce than corn based ethanol, especially if corn prices are high. Cellulosic ethanol may also ~~continue~~capture more government subsidies and assistance than corn based ethanol. This could decrease demand for our product or result in competitive disadvantages for our ethanol production process.

At the end of 2008, VeraSun Energy filed for Chapter 11 bankruptcy following significant losses. VeraSun’s ethanol plants were auctioned during the bankruptcy process and a significant number of these plants were purchased by Valero Energy Corporation, a major gasoline refining company. The purchase by Valero Energy represents the first major oil company that has taken a stake in ethanol production infrastructure. In addition, Valero Energy controls its own supply of ethanol that can be used to ~~enter~~blend at its gasoline refineries. If other oil companies become involved in the ~~market. As~~ethanol industry, it may be increasingly difficult for us to compete.

According to the Renewable Fuels Association, as of ~~February 2008,~~March 2, 2010, the ethanol industry has grown to ~~141~~201 production facilities in the U.S., compared to 113 production facilities as of February 2007. The largest ethanol producers include Archer Daniels Midland, Aventine Renewable Energy, Cargill, and VeraSun Energy Corporation, all of which are capable of producing more ethanol than we do. There are ~~numerous~~

ten new plants currently under construction along with four plant expansions. The Renewable Fuels Association currently estimates that the U.S. ethanol ~~plants~~industry has capacity to produce more than 13.5 billion gallons of ~~a similar size to our plant located in the Midwest region. In addition, at least 59~~ethanol per year. The new ethanol plants ~~and seven expanding plants,~~under construction along with ~~a combined annual~~the plant expansions under construction could push U.S. production ~~capacity~~ of ~~over 5.4~~fuel ethanol in the near future to more than 14.5 billion gallons ~~annually, are set to come into production in the next 18 months, which will increase the ethanol production capacity of competitors.~~per year. In South Dakota, excluding our plant, there are currently 1314 plants in full production, ~~and one under construction,~~ all of which have a combined production capacity of approximately ~~759~~960 million gallons. ~~We believe that, despite this concentration and growth, we will continue to compete favorably with other~~The largest ethanol and distillers grains’ producers because of our plant’s existing efficiencies, the use of new technology from POET™ Research, and the marketing arrangements with the companies owned by POET™, LLC.

~~The following table identifies most of the~~ producers in the U.S. ~~along with their production capacities.~~

Under

Current

Construction/

Capacity

Expansions

Company

Location

Feedstock

(mgy)

(mgy)

Abengoa Bioenergy Corp.

York, NE

Corn/milo

55

Colwich, KS

25

Portales, NM

30

Ravenna, NE

88

Aberdeen Energy*

Mina, SD

Corn

100

Absolute Energy, LLC*

St. Ansgar, IA

Corn

100

ACE Ethanol, LLC

Stanley, WI

Corn

41

Adkins Energy, LLC*

Lena, IL

Corn

40

Advanced Bioenergy

Fairmont, NE

Corn

100

AGP*

Hastings, NE

Corn

52

Agri-Energy, LLC*

Luverne, MN

Corn

21

Al-Corn Clean Fuel*

Claremont, MN

Corn

35

15

Amaizing Energy, LLC*

Denison, IA

Corn

48

Atlantic, IA

Corn

110

Archer Daniels Midland

Decatur, IL

Corn

1,070

550

Cedar Rapids, IA

Corn

Clinton, IA

Corn

Columbus, NE

Corn

Marshall, MN

Corn

Peoria, IL

Corn

Wallhalla, ND

Corn/barley

Arkalon Energy, LLC

Liberal, KS

Corn

110

Aventine Renewable Energy, LLC

Pekin, IL

Corn

207

226

Aurora, NE

Corn

Mt. Vernon, IN

Corn

Badger State Ethanol, LLC*

Monroe, WI

Corn

48

Big River Resources, LLC*

West Burlington, IA

Corn

52

BioFuel Energy - Pioneer Trail Energy, LLC

Wood River, NE

Corn

115

BioFuel Energy - Buffalo Lake Energy, LLC

Fairmont, MN

Corn

115

Blue Flint Ethanol

Underwood, ND

Corn

50

Bonanza Energy, LLC

Garden City, KS

Corn/milo

55

Bushmills Ethanol, Inc.*

Atwater, MN

Corn

40

Calgren

Pixley, CA

Corn

55

Cardinal Ethanol

Harrisville, IN

Corn

100

Cargill, Inc.

Blair, NE

Corn

85

Eddyville, IA

Corn

35

Cascade Grain

Clatskanie, OR

Corn

108

Castle Rock Renewable Fuels, LLC

Necedah, WI

Corn

50

Celunol

Jennings, LA

Sugar cane bagasse

1.5

Center Ethanol Company

Sauget, IL

Corn

54

Central Indiana Ethanol, LLC

Marion, IN

Corn

40

Central MN Ethanol Coop*

Little Falls, MN

Corn

21.5

Chief Ethanol

Hastings, NE

Corn

62

Chippewa Valley Ethanol Co.*

Benson, MN

Corn

45

Cilion Ethanol

Keyes, CA

Corn

50

Commonwealth Agri-Energy, LLC*

Hopkinsville, KY

Corn

33

Corn, LP*

Goldfield, IA

Corn

50

Cornhusker Energy Lexington, LLC

Lexington, NE

Corn

40

Corn Plus, LLP*

Winnebago, MN

Corn

44

Coshoctan Ethanol, OH

Coshoctan, OH

Corn

60

Dakota Ethanol, LLC*

Wentworth, SD

Corn

50

DENCO, LLC

Morris, MN

Corn

21.5

E Energy Adams, LLC

Adams, NE

Corn

50

E Caruso (Goodland Energy Center)

Goodland, KS

Corn

20

East Kansas Agri-Energy, LLC*

Garnett, KS

Corn

35

Elkhorn Valley Ethanol, LLC

Norfolk, NE

Corn

40

ESE Alcohol Inc.

Leoti, KS

Seed corn

1.5

Ethanol Grain Processors, LLC

Obion, TN

Corn

100

First United Ethanol, LLC (FUEL)

Mitchell Co., GA

Corn

100

Front Range Energy, LLC

Windsor, CO

Corn

40

Gateway Ethanol

Pratt, KS

Corn

55

Glacial Lakes Energy, LLC*

Watertown, SD

Corn

100

Global Ethanol/Midwest Grain Processors

Lakota, IA

Corn

95

Riga, MI

Corn

57

Golden Cheese Company of California*

Corona, CA

Cheese whey

5

Golden Grain Energy, LLC*

Mason City, IA

Corn

110

50

Golden Triangle Energy, LLC*

Craig, MO

Corn

20

Grand River Distribution

Cambria, WI

Corn

40

Grain Processing Corp.

Muscatine, IA

Corn

20

Granite Falls Energy, LLC*

Granite Falls, MN

Corn

52

Greater Ohio Ethanol, LLC

Lima, OH

Corn

54

Green Plains Renewable Energy

Shenandoah, IA

Corn

50

Superior, IA

Corn

50

Hawkeye Renewables, LLC

Iowa Falls, IA

Corn

105

Fairbank, IA

Corn

115

Menlo, IA

Corn

100

Shell Rock, IA

Corn

110

Heartland Corn Products*

Winthrop, MN

Corn

100

Heartland Grain Fuels, LP*

Aberdeen, SD

Corn

9

Huron, SD

Corn

12

18

Heron Lake BioEnergy, LLC

Heron Lake, MN

Corn

50

Holt County Ethanol

O’Neill, NE

Corn

100

Husker Ag, LLC*

Plainview, NE

Corn

26.5

Idaho Ethanol Processing

Caldwell, ID

Potato Waste

4

Illinois River Energy, LLC

Rochelle, IL

Corn

50

Indiana Bio-Energy

Bluffton, IN

Corn

101

Iroquois Bio-Energy Company, LLC

Rensselaer, IN

Corn

40

KAAPA Ethanol, LLC*

Minden, NE

Corn

40

Kansas Ethanol, LLC

Lyons, KS

Corn

55

KL Process Design Group

Upton, WY

Wood waste

1.5

Land O’ Lakes*

Melrose, MN

Cheese whey

2.6

Levelland/Hockley County Ethanol, LLC

Levelland, TX

Corn

40

Lifeline Foods, LLC

St. Joseph, MO

Corn

40

Lincolnland Agri-Energy, LLC*

Palestine, IL

Corn

48

Lincolnway Energy, LLC*

Nevada, IA

Corn

50

Little Sioux Corn Processors, LP*

Marcus, IA

Corn

52

Marquis Energy, LLC

Hennepin, IL

Corn

100

Marysville Ethanol, LLC

Marysville, MI

Corn

50

Merrick & Company

Golden, CO

Waste beer

3

MGP Ingredients, Inc.

Pekin, IL

Corn/wheat starch

78

Atchison, KS

Mid America Agri Products/Wheatland

Madrid, NE

Corn

44

Mid America Agri Products/Horizon

Cambridge, NE

Corn

44

Mid-Missouri Energy, Inc.*

Malta Bend, MO

Corn

45

Midwest Renewable Energy, LLC

Sutherland, NE

Corn

25

Minnesota Energy*

Buffalo Lake, MN

Corn

18

NEDAK Ethanol

Atkinson, NE

Corn

44

New Energy Corp.

South Bend, IN

Corn

102

North Country Ethanol, LLC*

Rosholt, SD

Corn

20

Northeast Biofuels

Volney, NY

Corn

114

Northwest Renewable, LLC

Longview, WA

Corn

55

Otter Tail Ag Enterprises

Fergus Falls, MN

Corn

57.5

Pacific Ethanol

Madera, CA

Corn

40

Boardman, OR

Corn

40

Burley, ID

Corn

50

Stockton, CA

Corn

50

Panda Ethanol

Hereford, TX

Corn/milo

115

Parallel Products

Louisville, KY

Beverage waste

5.4

R. Cucamonga, CA

Patriot Renewable Fuels, LLC

Annawan, IL

Corn

100

Penford Products

Cedar Rapids, IA

Corn

45

Phoenix Biofuels

Goshen, CA

Corn

25

Pinal Energy, LLC

Maricopa, AZ

Corn

55

Pine Lake Corn Processors, LLC*

Steamboat Rock, IA

Corn

20

Plainview BioEnergy, LLC

Plainview, TX

Corn

100

Platinum Ethanol, LLC*

Arthur, IA

Corn

110

Plymouth Ethanol, LLC*

Merrill, IA

Corn

50

POET™

Sioux Falls, SD

1,208

327

Alexandria, IN

Corn

#

Ashton, IA

Corn

Big Stone, SD

Corn

Bingham Lake, MN

Corn

Caro, MI

Corn

Chancellor, SD

Corn

Coon Rapids, IA

Corn

Corning, IA

Corn

Emmetsburg, IA

Corn

Fostoria, OH

Corn

#

Glenville, MN

Corn

Gowrie, IA

Corn

Groton, SD

Corn

Hanlontown, IA

Corn

Hudson, SD

Corn

Jewell, IA

Corn

Laddonia, MO

Corn

Lake Crystal, MN

Corn

Leipsic, OH

Corn

Macon, MO

Corn

Marion, OH

Corn

#

Mitchell, SD

Corn

North Manchester, IN

Corn

#

Portland, IN

Corn

Preston, MN

Corn

Scotland, SD

Corn

Prairie Horizon Agri-Energy, LLC

Phillipsburg, KS

Corn

40

Quad-County Corn Processors*

Galva, IA

Corn

27

Range Fuels

Soperton, GA

Wood waste

20

Red Trail Energy, LLC

Richardton, ND

Corn

50

Redfield Energy, LLC*

Redfield, SD

Corn

50

Reeve Agri-Energy

Garden City, KS

Corn/milo

12

Renew Energy

Jefferson Junction, WI

Corn

130

Siouxland Energy & Livestock Coop*

Sioux Center, IA

Corn

60

Siouxland Ethanol, LLC

Jackson, NE

Corn

50

Southwest Iowa Renewable Energy, LLC*

Council Bluffs, IA

Corn

110

Sterling Ethanol, LLC

Sterling, CO

Corn

42

Tate & Lyle

Loudon, TN

Corn

67

38

Ft. Dodge, IA

Corn

105

The Andersons Albion Ethanol LLC

Albion, MI

Corn

55

The Andersons Clymers Ethanol, LLC

Clymers, IN

Corn

110

The Andersons Marathon Ethanol, LLC

Greenville, OH

Corn

110

Tharaldson Ethanol

Casselton, ND

Corn

110

Trenton Agri Products, LLC

Trenton, NE

Corn

40

United Ethanol

Milton, WI

Corn

52

United WI Grain Producers, LLC*

Friesland, WI

Corn

49

US BioEnergy Corp.

Albert City, IA

Corn

310

440

Woodbury, MI

Corn

Hankinson, ND

Corn

#

Central City , NE

Corn

#

Ord, NE

Corn

Dyersville, IA

Corn

#

Janesville, MN

Corn

#

Marion, SD

Corn

Utica Energy, LLC

Oshkosh, WI

Corn

48

VeraSun Energy Corporation

Aurora, SD

Corn

560

330

Ft. Dodge, IA

Corn

Albion, NE

Corn

Charles City, IA

Corn

Linden, IN

Corn

Welcome, MN

Corn

#

Hartely, IA

Corn

#

Bloomingburg, OH

Corn

#

Western New York Energy, LLC

Shelby, NY

Corn

50

Western Plains Energy, LLC*

Campus, KS

Corn

45

Western Wisconsin Renewable Energy, LLC*

Boyceville, WI

Corn

40

White Energy

Hereford, TX

Corn/Milo

100

Russell, KS

Milo/wheat starch

48

Wind Gap Farms

Baconton, GA

Brewery waste

0.4

Renova Energy

Torrington, WY

Corn

5

Xethanol BioFuels, LLC

Blairstown, IA

Corn

5

Yuma Ethanol

Yuma, CO

Corn

40

Total Current Capacity at 141 ethanol biorefineries

7,999.9

Total Under Construction (59)/Expansions (7)

5,406.0

Total Capacity

13,405.9

* locally-owned

~~# plant under construction~~
~~Updated: February 12, 2008~~

~~International~~include Archer Daniels Midland, Green Plains Renewable Energy, Hawkeye Renewable and Valero Renewable Fuels, each of which is capable of producing more ethanol than we produce at our plant.

Ethanol production is also expanding internationally. ~~Brazil has long been~~Ethanol produced or processed in certain countries in Central America and the ~~world’s largest producer and exporter~~Caribbean region is eligible for tariff reduction or elimination on importation to the United States under a program known as the Caribbean Basin Initiative. Some ethanol producers, including Cargill, have started taking advantage of this situation by building dehydration plants in participating Caribbean Basin countries, which convert ethanol ~~although since 2005~~into fuel-grade ethanol ~~production in~~for shipment to the U.S. ~~has exceeded Brazilian production.~~ Ethanol ~~is produced more cheaply in Brazil than in the U.S. because of the use of sugarcane,~~imported from Caribbean Basin countries may be a less expensive ~~raw material~~ alternative to ~~corn. However, because of various tariffs on~~domestically produced ethanol and may affect our ability to sell our ethanol profitably. In addition, despite the ~~importation of ethanol into the U.S., the price~~fact that there is a significant amount of ethanol produced in the U.S. ~~is currently more competitive than ethanol imported from Brazil. In the event that these tariffs are reduced or eliminated, which are scheduled to expire in December 2008, the price of~~, ethanol produced ~~in the U.S.~~abroad and shipped by sea may ~~become less competitive, which could adversely impact our ability~~be a more favorable alternative to ~~sell ethanol.~~supply coastal cities that are located on international shipping ports.

~~In addition, the Caribbean Basin Initiative, or CBI, allows for ethanol produced in participating Caribbean Basin countries to be imported into the U.S. duty free. While the CBI caps the amount~~Our plant also competes with producers of ~~duty free ethanol imported into the U.S. at 7% of total U.S. production from the previous year,~~other gasoline additives having similar octane and oxygenate values as ~~total production in the U.S. grows, the amount of ethanol produced from the Caribbean area~~ethanol. Alternative fuels, gasoline oxygenates and ~~sold in the U.S. will grow accordingly, which could impact our and the industry’s ability to sell ethanol.~~

~~Alternative Production Methods and Fuels~~

~~Alternative~~alternative ethanol production methods ~~fuels and gasoline oxygenates~~ are also continually under development. The ~~current trend in ethanol production research is~~major oil companies have significantly greater resources than we have to market other additives, to develop ~~an efficient method~~alternative products, and to influence legislation and public perception of ~~producing~~ethanol. These companies also have sufficient resources to begin production of ethanol from cellulose-based biomass, such as agricultural waste, forest residue, municipal solid waste, and energy crops. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass may create opportunitiesshould they choose to produce ethanol in areas which are unable to grow corn. In addition, beginning in 2010, the Energy Independence and Security Act of 2007 (HR 6) requires that a specific volume of the renewable fuels standard, or RFS, be met by ethanol derived from cellulosic feedstocks. If an efficient method of producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively with companies that incorporate this production method.do so.

~~Further, a~~A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells, plug-in hybrids or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address ~~increasing~~ worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions. If the fuel cell ~~and hydrogen industries continue~~industry continues to expand and gain broad acceptance and ~~hydrogen~~ becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, which would negatively impact our profitability.

Demand for ethanol may increase as a result of increased consumption of E85 fuel. E85 fuel is a blend of 85% ethanol and 15% gasoline. According to U.S. Department of Energy estimates, there are currently nearly 8 million flexible fuel vehicles capable of operating on E85 in the U.S. Further, the U.S. Department of Energy reports that there are currently more than 1,900 retail gasoline stations supplying E85. The number of retail E85 suppliers increases

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significantly each year, however, this remains a relatively small percentage of the total number of U.S. retail gasoline stations, which is approximately 170,000. In order for E85 fuel to increase demand for ethanol, it must be available for consumers to purchase it. As public awareness of ethanol and E85 increases along with E85’s increased availability, we anticipate some growth in demand for ethanol associated with increased E85 consumption.

Distillers Grains Competition

~~We also face direct competition~~Ethanol plants in the Midwest produce the majority of distillers grains and primarily compete with ~~numerous~~other ethanol producers ~~that produce~~in the production and sales of distillers grains. According to the Renewable Fuels Association’s Ethanol Industry Outlook 2010, ethanol plants produced 30.5 million metric tons of distillers grains in 2008/2009 and estimates 33 million metric tons in 2009/2010. The amount of distillers grains produced is expected to increase significantly as ~~a by-product~~the number of ~~the production process.~~ ~~Sales~~ethanol plants increase.

The primary consumers of distillers grains are ~~highly dependent on product quality, availability,~~dairy and ~~price of competing feed ingredients such as corn and soybean meal. As domestic ethanol production increases,~~beef cattle, according to the Renewable Fuels Association’s Ethanol Industry Outlook 2010. In recent years, an increasing amount of distillers grains ~~entering~~have been used in the swine and poultry markets. Numerous feeding trials show advantages in milk production, growth, rumen health, and palatability over other dairy cattle feeds. With the advancement of research into the feeding rations of poultry and swine, we expect these markets to expand and create additional demand for distillers grains; however, no assurance can be given that these markets will in fact expand, or if they do, that we will benefit from it. The market for distillers grains is ~~expected~~generally confined to ~~increase~~locations where freight costs allow it to be competitively priced against other feed ingredients. Distillers grains generally compete with corn, soybean meal and ~~may reach the point of market saturation. If it reaches this point, we may need to sell an increasing supply of DDGS and Dakota Gold™ to international markets.~~other feed formulations.

Federal and State Government Supports

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

The Renewable Fuels Standard

The ~~most recent ethanol supports are contained~~Energy Policy Act enacted in 2005 established the first ever Renewable Fuel Standard, or RFS, in federal law which mandated certain levels of usage of biofuels in the domestic fuel supply beginning in 2006 and continuing through 2012. In December 2007, the Energy Independence and Security Act of 2007 ~~(HR 6) which~~ was ~~signed into law on December 19, 2007. The bill increases the renewable fuels standard, or RFS, which sets the annual requirements for~~enacted. This legislation further increased the amount of ~~renewable fuels produced and used in motor vehicles. The first RFS was established under~~mandated biofuel usage to a maximum of 36 billion gallons a year by 2022. Pursuant to the Energy Policy Act and the Energy Independence and Security Act, the U.S. Environmental Protection Agency has promulgated rules requiring refineries, blenders, distributors and importers to introduce or sell volumes of ~~2005, which required that 4 billion gallons of~~biofuels, including corn-based ethanol and biodiesel ~~be used~~fuel, into commerce in ~~2006~~accordance with the annual RFS. The following table describes minimum biofuel use mandated for years 2010 through 2015:

Year		Biofuel usage (in billions of gallons)
2010		12.95
2011		13.95
2012		15.20
2013		16.55
2014		18.15
2015		20.50

Under the RFS as modified by Energy Independence and ~~7.5~~Security Act, the mandate for corn-based ethanol is capped at 15 billion gallons ~~be used~~in 2015 and continues at that level through 2022. The remaining amount of biofuel required by ~~2012.~~ ~~Under HR 6, however,~~ the RFS is increased further, requiring 9 billion gallons of renewable fuels in 2008 and progressively increasing to 36 billion gallons by 2022. Beginning in 2010, a specific volume of the annual mandate is met by ethanolmust be derived from ~~cellulosic feedstocks,~~non-corn-based ethanol such as ~~opposed~~biodiesel.

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The EPA is currently reviewing a request to ~~corn. The specified volume~~allow for blending of ~~cellulosic~~up to 15% ethanol ~~use required increases incrementally, culminating~~into gasoline for normal use. A decision is expected in mid 2010. If granted, this waiver could have a positive impact upon demand as E15 may replace E10 as the ~~use of 16 billion gallons of cellulosic ethanol annually in 2022. While the precise impact of HR 6 cannot yet be determined, we anticipate that it will maintain or enhance production~~base blend of ethanol in the ~~U.S.~~

nation’s fuel supply.

~~The Clean Air Act and Oxygenated Gasoline Program~~

Ethanol sales have been favorably affected by the Clean Air Act amendments of 1990, particularly the Oxygenated Gasoline Program, which became effective November 1, 1992. The Oxygenated Gasoline Program requires the sale of oxygenated motor fuels during the winter months in certain major metropolitan areas to reduce carbon monoxide pollution. Ethanol use has also increased as the result of a second Clean Air Act program, the Reformulated Gasoline Program. This program became effective January 1, 1995 and requires the sale of reformulated gasoline in numerous areas to reduce pollutants, specifically those that contribute to ground level ozone, better known as smog. Reformulated gasoline that meets the performance criteria set by the Clean Air Act can be reformulated in a number of ways, including the addition of oxygenates to the gasoline. The two major oxygenates added to reformulated gasoline pursuant to these programs are MTBE and ethanol. MTBE has been linked to groundwater contamination and has been banned from use in approximately 25 states.

The Volumetric Ethanol Excise Tax Credit

The use of ethanol as an alternative fuel source has been aided by federal tax ~~policy.~~policy, which directly benefits gasoline refiners and blenders, and increases demand for ethanol. In 2004, the Volumetric Ethanol Excise Tax Credit (“VEETC”) was ~~created.~~signed into law which amended the federal excise tax structure effective as of January 1, 2005. This law amended the federal gasoline excise tax structure effective January 1, 2005. As amended, the law ~~creates~~created a new volumetric ethanol excise tax credit of $0.51 per gallon of ethanol blended at 10% ($0.45 per gallon as of January 1, 2009). ~~The credit provided by VEETC replaced an exemption which allowed ethanol blended fuel to be taxed at a lower rate than regular gasoline.~~ The use of ethanol as a fuel additive is enhanced by the availability of a credit from the federal gasoline excise tax. The ~~VEETC~~credit is scheduled to expire on December 31, ~~2010~~2010.

Small Ethanol Producer Tax Credit

The Energy Policy Act of 2005 expanded who qualifies for the small ethanol producer tax credit. Historically, small ethanol producers were allowed a 10-cents-per-gallon production income tax credit on up to 15 million gallons of production annually. The size of the plant eligible for the tax credit was limited to 30 million gallons. Under the Energy Policy Act, the size limitation on the production capacity for small ethanol producers increased from 30 million to 60 million gallons. The tax credit is capped at $1.5 million per year per producer. ~~Because of our plant’s expansion in May 2007, we~~We are no longer eligible for this ~~credit.~~

~~Clean-Fuel Vehicle Refueling Equipment Tax Credit~~

~~The Energy Policy Act~~credit because of ~~2005 created a new tax credit that permits taxpayers to claim a 30% credit (up to $30,000) for the cost~~our plant produces in excess of installing clean-fuel vehicle refueling equipment, such as an E85 fuel pump, to be used in a trade or business of the taxpayer or installed at the principal residence of the taxpayer. Under the provision, clean fuels are any fuel at least 85% of the volume of which consists of ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas and hydrogen and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel. The provision is effective for equipment placed in service until January 1, 2010. The credit has helped raise consumer awareness of alternative sources of fuel including ethanol.60 million gallons annually.

Imported Ethanol Tariffs and Quotas

Currently, there is a $0.54 per gallon tariff on imported ethanol, which is scheduled to expire in ~~2008.~~2011. In addition, ethanol imports from 2419 countries in Central America and the Caribbean region are exempted from this tariff under the Caribbean Basin Initiative or CBI, which provides that specified nations may export annually to the U.S. an aggregate of 7.0% of U.S. ethanol production, with additional exemptions from ethanol produced from feedstock in the Caribbean region over the 7.0% limit.

State Legislation Banning or Limiting MTBE Use

As of ~~August 2007,~~February 2010, 25 states ~~including California and New York,~~ have banned or significantly limited the use of MTBE due to environmental and public health concerns. Ethanol has served as a replacement for much of the discontinued volumes of MTBE and is expected to continue to replace future volumes of MTBE that are removed from the fuel supply.

South Dakota

InThe state of South Dakota ~~the state~~ provides an incentive production payment to ethanol producers operating in South Dakota. The production incentive consists of a direct payment to South Dakota ethanol producers of up to $0.20 per gallon, which is divided among producers of fuel ethanol within South Dakota up to a maximum of $1 million per year per plant ~~(a maximum of $83,333 per month in 2007)~~ and a maximum of $10 million over the life of a plant. The program caps the payments that can be distributed to all plants based in South Dakota in a program year to no more than $7 million in payments ~~in 2007~~each year (program year ends on June 30)~~, and every year thereafter.~~. The payments are distributed to each plant in proportion to the total number of gallons of ethanol produced and marketed annually by all the plants in South Dakota. ~~As more~~If additional plants commence production, or existing plants increase production, each plant receives a lower proportionate share of the maximum payment under the program. Conversely, if existing plants terminate operations, or decrease production, each plant receives a higher proportionate share of the maximum payment under the program.

Environmental Regulation and Costs

We are subject to extensive environmental regulation at the federal and state levels. The federal environmental regulations with which our plant must comply ~~were~~are promulgated by the U.S. Environmental Protection Agency ~~(EPA)~~ pursuant to

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the Clean Air Act. The state environmental regulations with which weour plant must comply ~~in contrast,~~ are promulgated by the South Dakota Department of Environment and Natural Resources, ~~(DENR).~~or DENR. The EPA and the DENR regulate air quality, particularly our plant’s emissions into the air. The DENR also regulates water collection and discharge. In addition to its own enforcement authority under this law, the EPA has delegated permitting and enforcement authority to the DENR. To conduct operations, we are required to have the following permits from these and other agencies:

· Title Five Operating Permit from the DENR. In South Dakota, the Title Five Operating Permit serves as the air quality and operation permit for our plant. We must conduct ongoing emissions testing to verify compliance with the Title Five Operating permit. This permit is ~~due for~~subject to a renewal in ~~September~~ 2011.

· Bureau of Alcohol, Tobacco, Firearms and Explosives and Fuel Permit from the U.S. Department of Treasury. We are required to have this permit because of the alcohol content of ethanol. The permit is ~~due for~~subject to renewal annually.

· General Permit for Storm Water Discharge. This permit is required for the runoff of storm water from our plant and is ~~due for~~subject to renewal every five years.

~~While we are currently in~~We maintain an on-going compliance program to ensure compliance with all applicable ~~environmental~~ laws, regulations and ~~permits, we must continue to comply with the permits and regulatory requirements. To ensure this, we maintain an on-going compliance program.~~permits. Maintaining compliance can ~~also~~ require us to incur expenditures for such things as new or upgraded equipment or processes, some of which can be material and costly at times. For example, as a result of U.S. Environmental Protection Agency’s issuance of a Notice of Violation (see Part I, Item 3, “Legal Proceedings” below), we plan to make improvements to our plant’s dryer and thermal oxidizer, the cost of which is expected to be approximately $1 million.

In addition, federal and state government’s regulation of the environment changes constantly. It is possible that more stringent federal or state environmental rules or regulations could be adopted, which could increase our plant’s future operating costs and expenses. It also is possible that federal or state environmental rules or regulations could be adopted that could have an adverse effect on the use of ethanol. For example, ~~changes~~on September 30, 2009, the U.S. Environmental Protection Agency proposed a rule requiring large industrial facilities that emit at least 25,000 tons of greenhouse gases a year to be subject to additional compliance restrictions. If these regulations are adopted and our plant were to become subject to these new regulations, we may have to invest or spend considerable resources to comply with the new requirements, including possibly investing in ~~the environmental regulations regarding ethanol’s use due to currently unknown effects on the environment could have an adverse effect on the ethanol industry.~~additional pollution control equipment or making operation changes. Furthermore, our plant’s operations are governed by the Occupational Safety and Health Administration (“OSHA”). OSHA regulations may change such that the future costs of the operation of our plant may increase. Any of these regulatory factors may result in higher costs or other materially adverse conditions effecting our operations, cash flows and financial performance.

Management and Employees

~~POET™~~POET® Plant Management, LLC manages the day-to-day operations of our plant under a management agreement. Under the agreement, which is in effect until June 2015, ~~POET™~~POET® Plant Management receives a fixed annual fee, adjusted annually for inflation, and an incentive bonus based on our profitability. We also pay certain expenses incurred with respect to the operation of the plant while other expenses, including, but not limited to, the provision of a full-time technical manager and general manager, are included as part of ~~POET™~~POET® Plant Management’s fees. Mr. Blaine Gomer, our plant’s general manager, is an employee of ~~POET™~~POET® Plant Management, and is responsible for operations and production at the plant on a day-to-day basis.

As of the date of this filing, our plant employs 48 employees, including a commodities manager, a commodities supervisor, an operations manager, a maintenance manager, a microbiologist, a chief mechanical operator, a controller, plant operators, maintenance technicians, grains assistants, accountants, and a membership coordinator. This does not include Mr. Gomer and the technical manager, both of whom are employees of ~~POET™~~POET® Plant Management.

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Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to the Securities Exchange Act of 1934, as amended, are filed with the SEC. Such reports and other information filed by us with the SEC are available on the SEC website (www.sec.gov). The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing.

Our website is found at ~~www.poetenergy.com,~~www.poet.com, then clicking on “Meet POET,” “Plants,” “Big Stone, SD,” and ~~finally~~ “Becoming an Investor.” Our reports, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, are not directly available on our website as we instruct readers to obtain the reports through a link to www.sec.gov. However, we provide paper copies of the reports to any person who requests it, free of charge. Beginning in early May 2008, we will make available on our website our most recent Annual Report on Form 10-K.

Item 1A. Risk Factors.

Risks Related to Our Business

Our financial performance is significantly dependent on ~~market prices for ethanol and distillers grains and~~ corn and ~~our financial condition~~ethanol prices and ~~results of operation are directly affected by changes~~generally we will not be able to pass on increases in these ~~market~~ prices to our customers. . Our results of operations and financial condition are significantly affected by the cost and supply of corn and by the ~~selling~~market price ~~for ethanol and distillers grains.~~of ethanol. Changes in the ~~price~~relative prices of corn and ~~supply of these commodities~~ethanol are subject to and determined by market forces over which we have no ~~or little control, including overall supply and demand, government programs and policies, weather, availability and price of competing products, and other factors.~~control.

~~Our business is highly sensitive to~~The spread between ethanol and corn prices can vary significantly. Our gross margins depend principally on the spread between ethanol prices and ~~we generally cannot pass on increases~~corn prices. The spread between the price of a gallon of ethanol and the cost of corn required to produce a gallon of ethanol will likely continue to fluctuate. A protracted reduction in the spread between ethanol and corn prices, whether a result of an increase in corn prices toor a reduction in ethanol prices, would adversely affect our ~~customers.~~ results of operations and financial condition.

Corn, as with most other crops, is affected by weather, disease and other environmental conditions.~~Corn~~ The price of corn is ~~the principal raw material we use to produce ethanol~~also influenced by general economic, market and ~~distillers grains. Because ethanol competes with fuels that are not corn-based, we generally are unable to pass along increased corn costs to our customers,~~government factors. These factors include weather conditions, farmer planting decisions, domestic and ~~accordingly, rising~~foreign government farm programs and policies, global demand and supply and quality. If a period of high corn prices ~~tend~~is sustained for some time, such pricing may reduce our ability to ~~produce lower profit margins. At certain levels, corn prices would~~generate profits because of the higher cost of operating and may make ethanol uneconomical to use in fuel markets. ~~The~~We cannot offer any assurance that we will be able to offset any increase in the price of corn ~~is influenced~~ by weather conditions (especially droughts) and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors, including government policies and subsidies with respect to agriculture and international trade, and global and local supply and demand. Theincreasing the price of our products. If we cannot offset increases in the price of corn, has fluctuated significantly in the past and may fluctuate significantly in the future. In addition, increasing domestic ethanol capacity could boost demand for corn and result in increased corn prices. We may also have difficulty from time to time in purchasing corn on economical terms due to supply shortages. Any supply shortage could require us to suspend operations until corn became available at economical terms. Suspension of operations could have a material adverse effect on our ~~business,~~ results of operations and financial ~~condition.~~condition may be materially and adversely affected and our plant may be forced to curtail production.

The price of distillers grains is affected by the price of other commodity products, and decreases in the price of these commodities could decrease the price of distillers grains. Distillers grains compete with other protein-based animal feed products such as soybean meal. The price of distillers grains may decrease when the price of competing feed products decrease. The prices of competing animal feed products are based in part on the prices of the commodities from which they are derived. Downward pressure on commodity prices, such as soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers grains. As a result, we may experience lower revenue and income.

Our debt financing agreements contain, and our future debt financing agreements may contain, restrictive covenants that impose significant restrictions on the operation of our business.The terms of our existing loan agreements with U.S. Bank National Association, contain, and any future debt agreement we enter into may contain, financial, maintenance, cash distribution, operational and other restrictive covenants. Any violation of the covenants could have an adverse effect on operations. If we are unable to comply with these covenants or service our debt, or obtain necessary waivers of any covenant violation in the future, we may lose control of our business and be forced to reduce or delay planned capital expenditures, sell assets, restructure our indebtedness or submit to foreclosure proceedings, all of which could result in a material adverse effect upon our business.

Hedging transactions involve risks that could harm our profitability. In an attempt to minimize the effects of the volatility of corn and natural gas on operating profits, we engage in hedging activities in the corn and natural gas futures markets. The effectiveness of such hedging activities is dependent, among other things, upon the cost of corn and

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natural gas and our ability to sell sufficient products to utilize all of the corn and natural gas subject to the futures contracts. There is no assurance that our hedging activities will reduce the risk caused by price fluctuation which may leave us vulnerable to high corn and natural gas prices. In addition, we may choose not to take hedging positions in the future, which may adversely affect our financial condition if corn and natural gas prices increase. Our hedging activities also can result in increased costs because price movements in corn and natural gas are highly volatile and are influenced by many factors that are beyond our control.

Our business is subject to seasonal fluctuations. Our operating results are influenced by seasonal fluctuations in the price of our primary production inputs, namely corn, and the price of our primary product, ethanol. In recent years, the spot price of corn tends to rise during the spring planting season in May and June and tends to decrease during the fall harvest in October and November. The price for natural gas, however, tends to move opposite of corn and tends to be lower in the spring and summer and higher in the fall and winter. In addition, our ethanol prices are substantially correlated with the price of unleaded gasoline. As a result, because the price of unleaded gasoline tends to rise during the summer, the price of ethanol generally rises in the summer.

~~Hedging transactions involve risks that could harm our profitability.~~ In an attempt to minimize the effects of the volatility of corn and natural gas on operating profits, we engage in hedging activities in the corn and natural gas futures markets. The effectiveness of such hedging activities is dependent, among other things, upon the cost of corn and natural gas and our ability to sell sufficient products to utilize all of the corn and natural gas subject to the futures contracts. There is no assurance that our hedging activities will reduce the risk caused by price fluctuation which may leave us vulnerable to high corn and natural gas prices. In addition, we may choose not to take hedging positions in the future, which may adversely affect our financial condition if corn and natural gas prices increase. Our hedging activities can also result in increased costs because price movements in corn and natural gas are highly volatile and are influenced by many factors that are beyond our control.

Our business is not diversified because it is limited to the fuel grade ethanol industry, which may limit our ability to adapt to changing business and market conditions. Our sole business is the production and sale of fuel grade ethanol produced from corn and its by-product, distillers grains. Our plant does not have the capability of producing industrial or food and beverage grade ethanol, which is used in such products as cosmetics, perfume, paint thinner and vinegar. Our plant is also not equipped to capture carbon dioxide, another co-product of the ethanol production process. The lack of diversification of our business may limit our ability to adapt to changing business and market conditions.

We are heavily dependent upon ~~POET™~~POET®, LLC. We have several agreements in place with companies owned and controlled by ~~POET™~~POET®, LLC, of Sioux Falls, South Dakota, including those related to the purchase or marketing of ethanol and distillers grains, management of the plant, design and construction, research and technology, and information technology. If any of the agreements were to terminate, we might not be able to secure suitable and timely replacements for those services at a reasonable cost or at all, which would materially harm our business.

We are dependent upon ~~POET™~~POET® Ethanol Products, LLC to purchase and market all of the ethanol produced at our plant. ~~POET™~~POET® Ethanol Products is the exclusive purchaser of all of the ethanol produced at our plant which, in turn, markets and transports the ethanol to refineries located throughout the U.S. If ~~POET™~~POET® Ethanol Products breaches the ethanol marketing agreement or is not in the financial position to purchase all of the ethanol produced, we may not have any readily available means to sell the ethanol and our financial condition will be adversely and materially affected. If the ethanol marketing agreement with ~~POET™~~POET® Ethanol Products were to terminate, we would be forced to seek other arrangements to sell the ethanol produced, but there are no assurances that these arrangements would achieve results comparable to those achieved by ~~POET™~~POET® Ethanol Products.

Interruptions in energy supplies could delay or halt production at our plant, which will reduce our profitability. Ethanol production requires a constant and consistent supply of energy, including electricity, steam and natural gas. If there is any interruption in our plant’s supply of energy for whatever reason, such as supply, delivery or mechanical problems, we may be required to halt production. If production is halted for any extended period of time, it will reduce our profitability. Our plant has agreements with various companies to provide it with necessary energy, but we cannot assure that these companies will continue to be able to supply reliably such energy. If our plant were to suffer interruptions in energy supply, our business would be harmed.

We have limited natural gas available for operations and rely heavily on the adjacent Big Stone Plant. We rely on Big Stone Plant to supply approximately 50% of our energy needs for production. When steam from Big Stone Plant ~~steam~~ is not operating or the transfer of steam to our plant is interrupted, we rely on our natural gas supply to power ~~our~~two on-site boilers in order to generate steam for the production process. The natural gas supply to our plant, however, is limited as ~~it alone~~the supply itself cannot power our plant to operate at its full 75 million annual name-plate production capacity. Therefore, if Big Stone Plant shuts down for any prolonged period of time, our plant must reduce production based on the amount of natural gas that is supplied to the plant. Reducing production could have a material adverse effect on our revenues and profitability.

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Risks Related to the Industry

Demand for ethanol may not continue to grow unless ethanol can be blended into gasoline in higher percentage blends for conventional automobiles. Ethanol is blended with conventional gasoline for use in standard (non-flex fuel) vehicles to create a blend which is 10% ethanol and 90% conventional gasoline. Estimates indicate that approximately 135 billion gallons of gasoline are sold in the U.S. Assuming that all gasoline in the United States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.5 billion gallons. This is commonly referred to as the “blending wall,” which represents a theoretical limit where more ethanol cannot be blended into the national gasoline pool. Many in the ethanol industry believe that the ethanol industry will reach this blending wall in 2010. In order to expand demand for ethanol, higher percentage blends of ethanol must be utilized in conventional automobiles. Such higher percentage blends of ethanol have recently become a contentious issue. Automobile manufacturers and environmental groups have fought against higher percentage ethanol blends. State and federal regulations prohibit the use of higher percentage ethanol blends in conventional automobiles and vehicle manufacturers have stated that using higher percentage ethanol blends in conventional vehicles would void the manufacturer’s warranty. Recently, the U.S. Environmental Protection Agency was expected to make a ruling on using higher percentage blends of ethanol such as E15, but it deferred making a decision until the middle of 2010. Without an increase in the allowable percentage blends of ethanol, demand for ethanol may not continue to increase which could decrease the selling price of ethanol and could result in our inability to operate profitably.

Overcapacity in the industry may result in ~~a decrease~~further decreases in the price of ethanol and distillers grains. Excess capacity in the ethanol industry ~~would~~has had, and may continue to have, an adverse impact on our results of operations, cash flows and general financial condition. Excess capacity ~~may also result or intensify~~has resulted from increases in production capacity coupled with insufficient demand. ~~If the demand for ethanol does not grow at the same pace as increases in supply, we would expect~~As a result, the price ~~for~~of ethanol ~~to decline.~~and our profit margins has declined over time. If excess capacity in the ethanol industry ~~occurs,~~continues, the market price of ethanol may decline to a level that is inadequate to generate sufficient cash flow to cover our costs. In addition, because ethanol production produces distillers grains as a by-product, increased ethanol production could lead to ~~increased supplies~~excess supply of distillers grains. An increase in the supply of distillers grains, without corresponding increases in demand, could lead to lower prices or an inability to sell our distillers grains. Any decline in the price of distillers grain or the distillers grain market generally could have a material adverse effect on our business.

Decreasing gasoline prices may negatively impact the selling price of ethanol which could reduce our ability to operate profitably. The price of ethanol generally tends to change in relation to the price of gasoline. For most of 2009, for example, as a result of a number of factors including the current world economy, the price of gasoline decreased. In correlation to the decrease in the price of gasoline, the price of ethanol also decreased. Decreases in the price of ethanol reduce our revenue. Our profitability depends on a favorable spread between our corn and natural gas costs and the price we receive for our ethanol. If ethanol prices fall during times when corn and/or natural gas prices are high, we may not be able to operate our ethanol plant profitably.

The global financial crisis may have impact on our business and financial condition that we currently cannot predict. The continued credit crisis and related instability in the global and national financial system may impact our business and our financial condition. The credit crisis, for instance, could have an impact on our senior lender under our loan agreement, causing it to take adverse action in the event we are unable to comply with the terms under our loan agreement.

We operate in an intensely competitive industry and compete with larger, better financed entities which could impact our ability to operate profitably. There is significant competition among ethanol producers. There are numerous producer-owned and privately-owned ethanol plants planned and operating throughout the Midwest and elsewhere in the U.S. We also face competition from outside of the U.S. The passage of the Energy Policy Act of 2005 included a renewable fuels mandate. The renewable fuels standard was increased in December 2007 to 36 billion gallons by 2022. Further, some states have passed renewable fuel mandates. All of these increases in ethanol demand have encouraged companies to enter the ethanol industry. The largest ethanol producers include Archer Daniels Midland, Green Plains Renewable Energy, Hawkeye Renewable, and Valero Renewable Fuels, all of which are each capable of producing more ethanol than we produce. Further, many believe that there ~~is no assurance that we~~ will be consolidation occurring in the ethanol industry in the near future which will likely lead to a few companies who control a significant portion of the ethanol production market.

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We may not be able to compete ~~effectively.~~ The ethanol business is highly competitive, and other companies presently in the market, or that are about to enter the market, could adversely affect prices for the products we sell. Commodity groups in the Midwest have encouraged the construction of ethanol plants, and there are

numerous other entities considering the construction of ethanol plants. Nationally, the ethanol industry is becoming much more competitive given the substantial construction and expansion occurring in the industry. We also compete with ~~other~~these larger entities. These larger ethanol producers such as Archer Daniels Midland, Cargill, among others, all of which are capable of producing significantly greater quantities of ethanol than the amount we produce. In light of such competition, there is no assurance that we willmay be able to ~~compete effectively~~affect the ethanol market in ~~the industry.~~ways that are not beneficial to us which could affect our financial condition.

Competition from the advancement of technology may lessen the demand for ethanol and negatively impact our profitability. Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing more efficient engines, hybrid engines and alternative clean power systems using fuel cells, or clean burning gaseous ~~fuels.~~fuels or electricity. Vehicle manufacturers are working to develop vehicles that are more fuel efficient and have reduced emissions using conventional gasoline. Vehicle manufacturers have developed and continue to work to improve hybrid technology, which powers vehicles by engines that utilize both electric and conventional gasoline fuel sources. In the future, the emerging fuel cell industry offers a technological option to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions. If the fuel cell and hydrogen industries continue to expand and gain broad acceptance, and hydrogen becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, which would negatively impact our financial condition.

Corn-based ethanol may compete with cellulose-based ethanol in the future, which could make it more difficult for us to produce ethanol on a cost-effective basis. Most ethanol is currently produced from corn and other raw grains, such as milo or sorghum-especially in the Midwest. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue, municipal solid waste, and energy crops. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas which are unable to grow corn. Although current technology is not sufficiently efficient to be competitive, new conversion technologies may be developed in the future. By ~~2010,~~this year, the renewable fuels standard mandates that a specific volume of ethanol be derived from cellulosic feedstocks. If an efficient method of producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively. If we are unable to produce ethanol as cost-effectively as cellulose-based producers, our ability to generate revenue will be negatively impacted.

~~Consumer resistance to~~Negative media attention associated with the use of corn in the ethanol ~~based~~production process may lead to decreases in demand for the ethanol we produce, which could negatively affect our profitability. Media attention associated with the use of corn as the feedstock in ethanol production has been unfavorable to the ethanol industry. This negative media attention has focused on the ~~belief that~~effect ethanol ~~is expensive, adds to air pollution, harms engines~~production has on domestic and ~~takes more energy to produce than it contributes,~~foreign food prices. Ethanol production has previously received favorable coverage by the news media, which may ~~affect the~~have increased demand for ethanol. The negative perception of ethanol production may have a negative effect on demand for ethanol, which could ~~affect~~decrease the price we receive for our ~~ability to market our product~~. ~~Certain individuals believe that use~~ethanol. Decreases in the selling price of ethanol ~~will~~may have a negative ~~impact~~effect on retail prices. Many also believe that ethanol adds to air pollution and harms car and truck engines. Still other consumers believe that the process of producing ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of ethanol that is produced. These consumer beliefs could potentially be wide-spread. If consumers choose not to buy ethanol, it would affect the demand for the ethanol that we produce which could lower demand for ethanol and negatively affect our ~~profitability.~~financial condition.

Risks Related to Governmental and Regulatory Action

A change in government policies favorable to ethanol may cause demand for ethanol to decline. Growth and demand for ethanol may be driven primarily by federal and state government policies, such as state laws banning MTBE and the national renewable fuels standard. The continuation of these policies is uncertain, which means that demand for ethanol may decline if these policies change or are discontinued. A decline in the demand for ethanol is likely to cause lower ethanol prices which in turn will negatively affect our business and financial condition.

Tariffs effectively limit imported ethanol into the U.S., and their reduction or elimination could undermine the ethanol industry in the U.S. Imported ethanol is generally subject to a $0.54 per gallon tariff that was designed to offset the ~~$0.51~~$0.45 per gallon ethanol incentive available under the federal excise tax incentive program for refineries that blend ethanol in their fuel. There is, however, a special exemption from this tariff for ethanol imported from 2419 countries in Central America and the Caribbean Islands, which is limited to a total of 7% of U.S. ethanol production per year. Imports from the exempted countries may increase as a result of new plants in development. Since production costs for ethanol in

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these countries are significantly less than what they are in the U.S., the duty-free import of ethanol through the countries exempted from the tariff may negatively affect the demand for domestic ethanol and the price at which we sell our ethanol. We do not know the extent to which the volume of imports would increase or the effect on U.S. prices for ethanol if the tariff is not renewed beyond its current expiration date ~~in December 2008.~~of January 2011. Any changes in the tariff or exemption from the tariff could have a material adverse effect on our business and financial condition.

Government incentives for ethanol production may be eliminated in the future. The ethanol industry and our business are assisted by various federal ethanol tax incentives, including those contained in The Energy Independence and Security Act of 2007. Under this law, the renewable fuels standard is increased to a mandate of 36 billion gallons by 2022. While we have no present indication that there are plans to revise the renewable fuels standard in the future, we have no assurance the renewable fuels standard will remain as presently drafted. The renewable fuels standard helps support a market for ethanol that might disappear without this incentive. ~~The elimination or reduction of this law could reduce~~If the ~~market for ethanol, which could reduce prices and our revenues by making it more costly or difficult for us to produce and sell ethanol. If this and other~~ federal ~~tax~~ incentives are eliminated or sharply curtailed, we believe that a decreased demand for ethanol will result, which could negatively affect our profitability and financial condition.

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

We may become subject to additional environmental regulation and permitting from the U.S. Environmental Protection Agency. On September 30, 2009, the EPA proposed a rule requiring large industrial facilities that emit at least 25,000 tons of greenhouse gases, like carbon dioxide, a year to be subject to additional compliance restrictions. If these regulations are adopted and our plant were to become subject to these regulations, we may have to invest or spend considerable resources to comply with the new requirements, including possibly investing in additional pollution control equipment or making operation changes. The expense of compliance could be significant enough to reduce our profitability and negatively affect our financial condition.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our plant is located immediately adjacent to Big Stone Plant in the city of Big Stone City, Grant County, South Dakota. The land on which our plant is located is leased from Big Stone-Grant Industrial Development and Transportation, LLC, which is owned by Otter Tail Power Company, Montana-Dakota Utilities, and NorthWestern Corporation. The term of the lease is for 99 years. The rent is $2,520 per year until December 31, 2010, after which the rent is increased by 5.0%. In addition, our plant has transportation facilities including a rail track, rail spur and paved access roads.

Our plant consists of the following main buildings or properties:

·An administrative building, which contains office equipment, computer systems, and furniture and fixtures.

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· A mechanical building, which contains boilers and water treatment equipment.

· A process building, which contains slurry and fermentation equipment, drums and a lab.

· An evaporation building, which contains evaporators and related equipment.

· A distillation building, which contains distillation columns and mole sieves.

· A ring dryer building, which contains a dryer and a fluid bed.

All of our tangible and intangible property, including our leasehold interest, easement rights, improvements, equipment, personal property, and contracts, serve as the collateral for the debt financing with U.S. Bank National Association, of Sioux Falls, South Dakota, which is described below under “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness.”

Item 3. Legal Proceedings.

From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings, directly or ~~indirectly.~~indirectly, except for the following.

On January 14, 2009, our plant received from the U.S. Environmental Protection Agency a written Notice of Violation (NOV). The NOV alleges that our plant violated the Clean Air Act by failing to adequately maintain a required level of air pollutants as established under the plant’s Title V air permit and by conducting invalid testing for compliance under such permit. Since the issuance of the NOV, our plant has been negotiating with the EPA a possible settlement. We believe that any settlement into which we enter will result in a fine, but that such a fine will not be material. Meanwhile, we have taken corrective actions to address the principal cause of the NOV, principally approving a $1 million capital improvement project for our plant’s dryer and thermal oxidizer.

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

We did not submit any matter to a vote of our security holders through the solicitation of proxies or otherwise during the fourth quarter of ~~2007.~~2009.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchaser of Equity Securities.

As of March ~~5, 2008,~~1, 2010, Northern Growers had ~~963~~960 members.

Trading Activity and Restrictions

Northern Growers’ capital units are not traded on an ~~established trading market such as a stock~~ exchange or The NASDAQ Stock ~~Market; rather,~~Market. Rather, the capital units are traded on a “qualified matching service” as defined by the publicly traded partnership rules of the federal tax code. Under the qualified matching service, bids for capital units from interested buyers and sellers ofare matched and capital units ~~are matched~~traded on the basis of a set of rules and conditions set forth byunder the federal tax code and by Northern Growers, all trades ~~are~~being subject to board of managers’ approval. Northern Growers’ qualified matching service is operated through Alerus Securities Corporation, a registered broker-dealer ~~operating an~~based in Grand Forks, North Dakota, which operates a registered alternative trading system as defined and regulated by the SEC ~~registered Alternative Trading System.~~ The following table contains historical information by quarter for the past two years regarding the trading of capital units under the qualified matching service:

Quarter (1)

Low
Price(1)

High
Price(1)

Average
Price(1)

# of Capital
Units Traded
(1)

Jan — Mar 2006

$
1.37

$
1.91

$
1.64

320,000

April — Jun 2006

$
1.80

$
2.62

$
2.31

750,000

July — Sept 2006

$
3.15

$
4.35

$
3.40

731,000

Oct — Dec 2006

$
2.85

$
4.30

$
3.52

245,000

Jan —- Mar 2007

$
2.30

$
2.69

$
2.36

398,000

April —- June 2007

$
2.35

$
3.25

$
2.76

604,500

July —-Sept 2007

$
3.01

$
3.25

$
3.20

77,000

Oct —- Dec 2007

$
2.40

$
2.95

$
2.48

52,500

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Quarter (1)	Low Price(1)		High Price(1)		Average Price(1)		# of Capital Units Traded (1)
January - March 2008	$	2.05	$	2.50	$	2.26	34,000
April - June 2008	$	1.80	$	1.80	$	1.80	2,000
July - September 2008	$	.95	$	1.30	$	1.13	135,500
October - December 2008	$	1.10	$	1.10	$	1.10	10,000
January - March 2009	$	0.90	$	0.90	$	0.90	5,000
April - June 2009	$	0.85	$	0.90	$	0.87	78,500
July - September 2009	$	-	$	-	$	-	-
October - December 2009	$	0.85	$	0.85	$	0.85	15,000

(1) All unit prices and number of units traded are adjusted to reflect a four-for-one capital unit split made effective on September 1, 2005 and a two-for-one split made effective on July 1, 2006. In addition, ourThe qualified matching service does not permit firm bids per the rules established byunder the federal tax ~~code; thus,~~code. As a result, the prices reflect actual ~~sales.~~sale prices of the capital units.

There were no issuer purchases of equity securities during the fourth quarter ended December 31, ~~2007.~~2009.

As a limited liability company being taxed as a partnership, Northern Growers is required to restrict the transfer of its capital units in order to preserve its preferential single-level tax status. Such restrictions are set forth in Northern Growers’ Operating Agreement and Capital Units Transfer System. Under the Capital Units Transfer System, transfers are limited to those through ~~our~~a qualified matching service, transfers made to qualified family members, or transfers by gift, block, upon death, and like transfers, all of which are subject to final board of managers’ approval.

Pursuant to the Operating Agreement, a minimum of 2,500 capital units is required to become and remain a member. In addition to the transfer restrictions described above, the board of managers retains the right to redeem the capital units at $0.20 per capital unit in the event a member breaches the Operating Agreement or upon a member’s failure to fulfill the membership requirements ~~and~~ with respect to other matters. Under the qualified matching service, the number of capital units traded annually cannot exceed 10% of Northern Growers’ total issued and outstanding capital units.

Distributions

Under the terms of Northern Growers’ Amended and Restated Operating Agreement dated ~~January 1, 2006,~~July 31, 2009, the board of managers is required to make annual (or more frequent) distributions to its members and may not retain more than $200,000 of net cash from operations, unless (i) a ~~super majority~~super-majority of the board of managers (75%) decides otherwise, (ii) it would violate or cause a default under the terms of any debt financing or other credit facilities, or (iii) it is otherwise prohibited by law. For further details of the restrictions under our debt facilities, please see “Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Indebtedness.” Distributions are required to be issued to members of record as of the last day of the quarter immediately prior to the quarter in which the distribution was approved by the board of managers.

In ~~2006,~~2008, Big Stone made no cash distributions to Northern Growers. However, Northern Growers paid cash distributions to its members of approximately ~~$22.95~~$1.52 million, ~~and $6.79~~or $0.030 per capital unit, from a previously made distribution by Big Stone in 2007. In 2009, neither Big Stone nor Northern Growers made any cash distributions to its members.

In February 2010, Big Stone made a cash distribution of $3.47 million to ~~its minority~~Northern Growers and $1.03 million to the noncontrolling interest member. Northern Growers, in turn, ~~distributed~~made a cash distributions to its members of approximately ~~$22.67~~$2.53 million, or ~~$0.448~~$0.05 per capital unit.

In 2007, Big Stone made cash distributions to Northern Growers of approximately $19.52 million and $5.78 million to its minority member. Northern Growers, in turn, distributed to its members approximately $17.32 million, or $0.342 per capital unit. Thus far in 2008, Northern Growers distributed to its members approximately $1.5 million, or $0.03 per capital unit.

~~The~~Our ability to issue ~~similar~~ distributions is substantially dependent upon ~~our~~ profitability, the discretion of our board of managers subject to the provisions of the Operating Agreement, the restrictions under our loan agreement and the approval from our lender, U.S. Bank. ~~Unless current economic conditions improve, which we do not expect in~~In 2010, the ~~near term, we do not anticipate making similar distributions~~issuances of any distribution to members ~~in 2008 as in 2007.~~will be substantially dependent upon the state of the ethanol market and continued profitability.

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Item 6. Selected Financial Data.

The following table sets forth our selected financial data for the periods indicated. The audited financial statements included in Item 8 of this report have been audited by our independent auditors, Eide Bailly LLP.

2007

2006

2005

2004

2003(1)

Statement of Operations Data:

Revenues

$
138,243,780

$
122,837,119

89,692,708

86,587,585

70,857,262

Cost of Revenues

$
112,694,987

$
62,731,376

63,552,756

71,279,883

58,920,917

General and Administrative Expenses

$
4,790,117

$
6,364,983

3,913,177

2,984,237

2,739,136

Income from Operations

$
20,758,676

$
53,740,760

22,226,775

12,323,465

9,197,209

Interest Expense

$
2,876,464

$
1,261,542

1,317,957

1,397,591

1,744,262

Minority Interest in Subsidiary Income

$
(4,269,470
)
$
(12,132,284
)
(4,848,463
)
(2,528,026
)
(1,770,430
)
Net Income

$
14,144,720

$
40,703,348

16,157,712

8,371,332

5,611,068

Capital Units Outstanding (2)

50,628,000

50,628,000

50,628,000

50,628,000

50,628,000

Cash Distributions declared per Capital Unit

0.238

0.518

0.230

0.119

0.095

Net Income per Capital Unit

0.279

0.804

0.319

0.165

0.111

Balance Sheet Data:

Working Capital

$
19,723,995

$
15,982,171

9,011,848

560,046

194,176

Net Property, Plant & Equipment

$
78,141,027

$
66,413,382

39,097,204

40,885,964

41,735,733

Total Assets

$
113,580,105

$
101,479,908

59,315,715

54,678,507

53,786,201

Long-Term Obligations

$
46,794,965

$
33,578,810

17,104,400

16,387,498

20,053,377

Minority Interest in Subsidiary

$
11,631,149

$
10,790,823

7,054,934

5,715,325

5,014,499

Members’ Equity

$
39,804,399

$
38,262,916

23,949,718

19,446,001

17,067,695

Book Value per Capital Unit

$
0.786

$
0.756

0.473

0.384

0.337

		2009		2008		2007		2006		2005
Statement of Operations Data:
Revenues	$	142,038,338		171,424,927		138,243,780		122,837,119		89,692,708
Cost of Revenues	$	125,825,811		169,595,752		112,694,987		62,731,376		63,552,756
General and Administrative Expenses	$	4,408,451		3,679,176		4,790,117		6,364,983		3,913,177
Income (Loss) from Operations	$	11,804,076		(1,850,001	)	20,758,676		53,740,760		22,221,775
Interest Expense	$	2,769,848		3,535,485		2,876,464		1,261,542		1,317,957
Noncontrolling Interest in Subsidiary (Income) Loss	$	(2,143,145	)	1,154,649		(4,269,470	)	(12,132,284	)	(4,848,469	)
Net Income (Loss)	$	6,915,513		(4,152,550	)	14,144,720		40,703,348		16,157,712

Capital Units Outstanding (1)		50,628,000		50,628,000		50,628,000		50,628,000		50,628,000

Cash Distributions declared per Capital Unit	$	---		---		0.238		0.518		0.23
Net Income (Loss) per Capital Unit	$	0.137		(0.082	)	0.279		0.804		0.319

Balance Sheet Data:
Working Capital	$	21,956,305		13,590,348		19,723,995		15,795,102		9,011,848
Net Property, Plant & Equipment	$	68,188,002		73,231,189		78,141,027		66,413,382		39,097,204
Total Assets	$	109,445,807		104,972,958		113,580,105		101,479,908		59,315,715
Long-Term Obligations	$	35,873,728		42,618,873		46,794,965		33,578,810		17,104,400
Noncontrolling Interest in Subsidiary	$	12,454,558		10,111,948		11,631,149		10,790,823		7,054,934
Members’ Equity	$	42,009,654		34,420,293		39,804,399		38,262,916		23,949,718
Northern Growers, LLC Equity per Capital Unit	$	0.830		0.680		0.786		0.756		0.473

(1) ~~Northern Growers reorganized from a cooperative to a limited liability company on April 1, 2003.~~

~~(2)~~ Adjusted for a four-for-one capital unit split made effective September 1, 2005 and a two-for-one split effective July 1, 2006.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

You should read the following discussion along with our financial statements and the notes to our financial statements included elsewhere in this report. 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, such forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information” at the beginning of this report.

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Overview

Northern Growers, LLC (“Northern Growers”) owns and manages a 77.16% interest in its subsidiary, ~~POET™~~POET® Biorefining - Big Stone ~~(POET™~~(POET® Biorefining - Big Stone and Northern Growers are ~~also~~ collectively referred to in this report as “we” “us” or “our”), an ethanol and distillers grains plant (the “plant” or ~~“our plant”~~“Big Stone”) located near the city of Big Stone City, South Dakota.

Our revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the U.S. Corn for the production process is supplied to our plant primarily from local agricultural producers and from purchases on the open market. After processing the corn, ethanol is sold to ~~POET™~~POET® Ethanol Products, LLC, which subsequently markets and sells the ethanol to gasoline blenders and refineries located throughout the continental U.S. All of our distillers grains are sold through ~~POET™~~POET® Nutrition, Inc., which markets and sells the product to livestock feeders primarily located in the continental U.S.

Our operating and financial performance is largely driven by the prices at which we sell ethanol and distillers grains and the costs related to production. ~~Since 2004, federal and state government incentive programs are an immaterial source of revenue and income.~~ The price of ethanol is influenced by factors such as prices of unleaded gasoline and the petroleum markets, supply and demand, weather, and government policies and ~~programs, and supply and demand.~~programs. Excess ethanol supply in the market, ~~in particular,~~generally puts downward pressure on the price of ethanol. The price of distillers grains is influenced by the price of corn, soybean meal and other protein-based feed products, and supply and demand. ~~Excess grain supply in the market, in particular,~~A low price of corn generally puts downward pressure on the price of distiller grains.

Our two largest costs of production are corn and natural gas, although our plant’s use of natural gas is offset by the use of steam supplied from the adjacent Big Stone Plant. The cost of natural gas and corn is generally impacted by factors such as supply and demand, weather, government policies and programs, and our risk management program used to protect against the price volatility of these commodities.

Executive Summary

We ~~generated higher than expected profits in 2007 but significantly lower profits~~had a net income of $6.9 million and $4.5 million for the year and quarter ended December 31, 2009, respectively, compared to ~~2006. Our~~a net ~~income decreased from $40.7~~loss of $4.2 million ~~in 2006~~and $1.8 million for the year and quarter ended December 31, 2008. The change between periods is primarily attributed to ~~$14.1 million in 2007. The major factors driving this result are an increase~~a decrease in corn and energy costs, ~~an increase in production costs associated with our plant’s expansion, and~~offset by a decrease in ethanol ~~prices. Our~~revenues. For the year, our corn costs ~~increased 85% from 2006 to 2007~~per bushel decreased 29% primarily due to ~~an increase~~a decrease in the market price of ~~corn, which is driven by increased demand from the ethanol industry and lower corn supply projections.~~corn. The price of ~~ethanol~~corn decreased ~~11%~~ between periods because of excess supply in the industry. Production costs increased after production volume increased 22% following the expansion of our plant to a 75 million gallon facility in May 2007. Partially offsetting this, however, are increases in ~~our revenue~~supply, a large carryout from ~~the sale of ethanol~~2008 and ~~distillers grains. Revenue from the sale of ethanol rose because of an increase~~favorable corn harvest forecasts in ~~sales volume following a 22% increase in production. Revenue from the sale of distillers grains increased~~2009. Likewise, energy costs per gallon decreased 31% ~~between periods,~~ due principally to ~~increases~~a decrease in ~~production~~natural gas costs. The decrease in corn and ~~price. The price of distillers grains rose~~energy costs between periods, however, was offset by a decrease in ethanol revenues. Ethanol revenues decreased between periods because of ~~increases~~a continuing surplus of ethanol in ~~demand from livestock producers who increased their use of distillers grains for feed purposes due to~~ the ~~high price of corn~~market and ~~other protein based feed products.~~low unleaded gasoline prices.

We ~~are expecting significant~~will face challenges in 2008, which may lead to further profit erosion. Our first challenge is dealing with the high price of corn. While the 2007 corn crop in the U.S. set a record of 13.1 billion bushels harvested, up 24% from 2006, we expect prices to linger at or above their current level ($5 per bushel as of January 2008) through at least the summer. A factor contributing to this expectation is the lower than projected carryout from 2007. On January 11, 2008, the USDA revised its December carryout projection from 1.797 billion bushels to 1.438 billion bushels, because of increased feed use for livestock and other residual uses. Another factor, and an additional challenge we face, is the increase in demand for corn from the ethanol ~~industry. In the U.S., another 5.6 billion gallons of ethanol are expected to enter the market~~industry in ~~the next 18 months, all from new or expanding plants. Unless new markets for ethanol open up to absorb these gallons, we anticipate that prices will remain depressed or possibly commence~~2010, but probably on a ~~downward trend. The newly enacted renewable fuels standard, or RFS, which mandates the use in the U.S. of 9.0 billion gallons of renewable fuels~~lesser scale than in 2008 and ~~15 billion gallons by 2015, though it is expected to create new markets to absorb this excess supply, the timing of its impact in 2008 and beyond is uncertain.~~

~~While challenges lie ahead, we are encouraged by factors that could partially counter the effects of these challenges. Distillers grains’ revenues~~2009. Ethanol prices are expected to remain ~~strong, as~~low by historical standards due to supply and demand issues. Excess supply, a dominant factor in pushing ethanol prices lower in 2008 and most of 2009, is likely to continue in 2010. With economic factors recently improving in the high prices of corn and soybean meal should make the use of distillers grains more attractive to livestock producers. We also believe that natural gas costs should remain stable through at least June because of high inventories nationwide. Further, our plant should be more efficient as a result of new economies of scale following expansion. Nevertheless, we believe it will be difficult to overcome completely the challenges that lie ahead. Sterner fiscal measuresindustry, existing plants, which either shut down or scaled back production in 2009, are likely to return fully on online in 2010. In addition, new plants with approximately 1.04 billion gallons in capacity are expected to come online in 2010. While demand for ethanol grew in the fourth quarter of 2009, and has continued to grow slowly in the first quarter of 2010, it is not likely that demand will grow at the same pace as supply. As a result, ethanol prices and revenues are not likely to increase materially from their 2009 levels. But this situation could change if the U.S. Environmental Protection Agency decides to permit an increase in the amount of ethanol blended for use in conventional automobiles from 10% to as high as 15%. A favorable decision by the EPA, we believe, will increase demand for ethanol and positively impact ethanol prices and revenues. EPA’s decision, however, is not expected until the summer of 2010. Meanwhile, we believe corn prices will remain favorable at least for the first two quarters of 2010, helping offset lagging ethanol prices. Corn prices are expected to be ~~necessary, including preserving more cash~~favorable because of record supply. On January 12, 2010, the U.S. Department of Agriculture forecast a record corn crop for 2009, estimating that U.S. farmers produced 13.2 billion bushels of corn, up 8.8% from ~~operations, which will mean a decrease in distributions to members compared to 2007.~~2008.

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Results of Operations

Comparison of years ended December 31, ~~2007~~2009 and December 31, ~~2006.~~2008

	Year Ended December 31,
	2007				2006				Year Ended December 31,
			%				%		2009		2008
			of				of		$	% of Revenue	$	% of Revenue
	$		Revenue		$		Revenue
Revenue
Ethanol	116,084,868		84	%	105,702,927		86	%	112,997,456	80%	137,146,540	80%
Distillers grains	21,408,911		15	%	16,349,308		13	%	28,374,215	20%	33,632,791	20%
Incentive	750,001		1	%	784,884		1	%	666,667	0%	645,596	0%
Total	138,243,780		100	%	122,837,119		100	%	142,038,338	100%	171,424,927	100%

Cost of Revenues	112,694,987		82	%	62,731,376		51	%	125,825,811	89%	169,595,752	99%

G&A Expenses	4,790,117		3	%	6,364,983		5	%
General & Administrative Expenses									4,408,451	3%	3,679,176	2%

Other Operating Income (Exp)	(2,344,486	)	(2	%)	(905,128	)	(1	%)
Other Operating Income (Expense)									(2,745,418)	(2%)	(3,457,198)	(2)%

Minority Interest	(4,269,470	)	(3	%)	(12,132,284	)	(10	%)
Noncontrolling Interest									(2,143,145)	(2%)	1,154,649	1%

Net Income (Loss)	14,144,720		10	%	40,703,348		33	%	6,915,513	5%	(4,152,550)	(2)%

Revenues – Revenue decreased $29.4 million, or 17%, to $142.0 million for the year ended December 31, 2009 from $171.4 million for the year ended December 31, 2008. Revenues decreased due to a decrease in ethanol and distillers grains’ revenue.

Revenue from the sale of ethanol decreased $24.1 million, or 18%, to $113.0 million for the year ended December 31, 2009 from $137.1 million for the year ended December 31, 2008. The decrease is primarily due to an 18% decrease in the average sales price per gallon. Ethanol prices decreased between periods because of an oversupply of ethanol in the industry and a decrease in the price of unleaded gasoline and corn.

Revenue from the sale of distillers grains decreased $5.2 million, or 16%, to $28.4 million for the year ended December 31, 2009 from $33.6 million for the year ended December 31, 2008. The decrease is primarily due to an 18% decrease in the average sales price per ton. The price of distillers grains decreased due to a decrease in demand as livestock producers increased their use of corn for feed purposes due to declining corn prices.

Cost of Revenues – Cost of revenues, which includes production expenses, decreased $43.8 million, or 26%, to $125.8 million for the year ended December 31, 2009 from $169.6 million for the year ended December 31, 2008. The primary reason for the decrease is a decrease in corn and energy costs.

Corn costs per bushel decreased 29% between periods. This decrease is primarily due to a 23% decrease in the market price of corn. The market price decreased due to favorable crop reports and weather conditions, a decrease in demand from the ethanol industry and a decrease in commodity speculation. Likewise, energy costs per gallon decreased

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31% due primarily to a decrease in natural gas costs. Natural gas costs per unit decreased 52% due to an increase in natural gas reserves and decreases in demand nationwide.

General and Administrative Expenses – General and administrative expenses increased $730,000, or 20%, to $4.41 million for the year ended December 31, 2009 from $3.68 million for the year ended December 31, 2008. The primary reason for the increase is management incentive fees which increase if our net income (before net income attributable to the non-controlling interest) increase and decrease if our net income decreases.

Interest Expense - Interest expense decreased $770,000, or 22%, to $2.77 million for the year ended December 31, 2009 from $3.54 million for the year ended December 31, 2008. Interest expense decreased because we drew down on revolving loans during the first months of 2008, compared to not drawing down on the revolving loans in 2009. Interest rates on our variable loans also decreased by an average of 0.45%.

Net Income – Net income increased $11.1 million, or 267%, to $6.9 million for the year ended December 31, 2009 from a net loss of $4.2 million for the year ended December 31, 2008. This change is caused primarily by a decrease in corn and energy costs, offset by a decrease in ethanol revenues.

Comparison of years ended December 31, 2008 and December 31, 2007

	Year Ended December 31,
	2008		2007
	$	% of Revenue	$	% of Revenue

Revenue
Ethanol	137,146,540	80%	116,084,868	84%
Distillers grains	33,632,791	20%	21,408,911	15%
Incentive	645,596	0%	750,001	1%
Total	171,424,927	100%	138,243,780	100%

Cost of Revenues	169,595,752	99%	112,694,987	82%

General & Administrative Expenses	3,679,176	2%	4,790,117	3%

Other Operating Income (Expense)	(3,457,198)	(2)%	(2,344,486)	(2)%

Noncontrolling Interest	1,154,649	1%	(4,269,470)	(3)%

Net Income (Loss)	(4,152,550)	(2)%	14,144,720	10%

Revenues —- Revenue increased ~~$15.4~~$33.2 million, or ~~12.5%~~24%, to $171.4 million for the year ended December 31, 2008 from $138.2 million for the year ended December 31, ~~2007 from $122.8 million for the year ended December 31, 2006.~~2007. Revenues increased due to an increase in sales of ethanol and distillers grains.

Revenue from the sale of ethanol increased ~~$10.4~~$21.0 million, or ~~10%~~18%, to $137.1 million for the year ended December 31, 2008 from $116.1 million for the year ended December 31, ~~2007 from $105.7 million for the year ended December 31, 2006.~~2007. The increase is primarily due to ~~a 23%~~an increase in sales volume, ~~between periods, offset by an 11% decrease in the average sales price per gallon. Sales volume increased because of an~~due principally to a 17% increase in production volume ~~following our plant’s expansion, only to be offset by~~and a 2% increase in price between periods. From the ~~decrease in ethanol prices between periods due to~~end of the ~~excess supply~~third quarter 2008 through the end of 2008, however, the price of ethanol decreased by approximately 30% because of an oversupply in the ~~market.~~industry.

Revenue from the sale of distillers grains increased ~~$5.1~~$12.2 million, or ~~31%~~57%, to $33.6 million for the year ended December 31, 2008 from $21.4 million for the year ended December 31, ~~2007 from $16.3 million for the year ended December 31, 2006.~~2007. The increase is primarily due to ~~increases~~a 44% increase in ~~sales volume and~~the sales price per ton. ~~Like ethanol, sales increased due~~The increase in price per ton is attributed to an increase in ~~plant production between periods. Unlike ethanol, however,~~the value of distillers grains

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relative to the price of corn as livestock producers increasingly switched to distillers grains ~~increased approximately 18% in conjunction with~~as a source of feed due to the ~~rise in prices~~high price of ~~corn and soybean meal.~~corn.

Cost of Revenues -— Cost of revenues, which includes production expenses, increased ~~$50.0~~$56.9 million, or ~~80%~~50%, to $169.6 million for the year ended December 31, 2008 from $112.7 million for the year ended December 31, ~~2007 from $62.7 million for~~2007. An increase in corn costs between periods is the ~~year ended December 31, 2006. The~~largest contributing factor, followed by an increase in energy production costs.

Corn costs rose 41% per bushel between periods. This increase is primarily due to ~~an increase in corn costs and production expenses.~~

~~Corn costs per bushel increased 85% between periods. The increase is primarily the result of an approximately 65%~~a 42% increase in the market price of corn, ~~between periods. The market price continued~~due to ~~be adversely impacted by lower~~an increase in demand and decrease in supply of grains globally, an increase in commodity speculation including corn ~~carryout from 2006~~ and ~~from a very strong demand from the ever-growing ethanol industry. With a lower than projected carryout for 2007~~oil, and increased demand for corn from the ethanol ~~industry and world markets, we believe that the current trend of high corn prices is likely to remain through 2008.~~industry.

~~Also included in the~~Energy costs per gallon of ethanol rose 20% between periods primarily due to an increase in ~~corn costs is a $1.9 million net loss under our corn price risk management program. Gains and losses that result from a change in value of corn and~~ natural gas ~~hedging and forward contract instruments are recognized~~costs. Natural gas costs per unit increased 32% between periods due to a rise in cost of revenues as the changes occur. Gains are recognized as a decrease to cost of revenues, and losses are recognized as an increase to cost of revenues. For the year ended December 31, 2007, cost of revenues includes losses of $1.6 millioncrude oil prices. Our steam costs per unit from the ~~use of corn hedging instruments. This loss is caused~~adjacent Big Stone Plant also increased by a significant increase in the market price of corn in the fourth quarter of 2007 and the impact that the price decrease had on the value of our hedging instruments at December 31, 2007. The remaining part of the $1.9 million loss is attributed to losses on our forward contracts for corn at December 31, 2007.

In addition, cost of revenues rose because the 22% increase in production volume following expansion increased overall production expenses. Expenses, including chemicals, depreciation, electricity, and maintenance, all rose directly25% due to ~~expansion.~~a new pricing arrangement with Big Stone Plant which became effective on January 1, 2008.

General and Administrative Expenses -— General and administrative expenses decreased ~~$1.56~~$1.1 million, or ~~25%~~23%,to ~~$4.80~~$3.7 million for the year ended December 31, ~~2007~~2008 from ~~$6.36~~$4.8 million for the year ended December 31, ~~2006.~~2007. The decrease is primarily due to a decrease in management incentive fees and costs, which ~~are attributed to~~resulted from a decrease in net ~~income.~~income on which these fees and costs are directly based.

Interest Expense — - Interest expense increased ~~$1.6 million, or 128%,~~$660,000 to ~~$2.9~~$3.54 million for the ~~twelve months~~year ended December 31, ~~2007~~2008 from ~~$1.3~~$2.88 million for the ~~twelve months~~year ended December 31, ~~2006. The increase is primarily due~~2007. Despite a decrease in interest rates from 2007 to ~~an increase of $18.3 million of long-term debt used~~2008, interest expense increased because, in contrast to ~~finance various construction projects~~capitalizing our interest payment in 2007 ~~including expansion.~~during construction of our plant’s expansion, we expensed all interest payments in 2008.

Net Income -— Net income decreased ~~$26.6~~$18.3 million, or 129%, to a net loss of $4.2 million for the year ended December 31, 2008 from a net income of $14.1 million for the year ended December 31, ~~2007 from $40.7 million for the year ended December 31, 2006.~~2007. This change is caused primarily by ana significant increase in the cost of revenues from rising corn costs, offset ~~partially~~ by an increase in revenues from the sale of ethanol and distillers grains.

~~Comparison of years ended December 31, 2006 and December 31, 2005.~~

Year Ended December 31,

2006

2005

%

%

of

of

$

Revenue

$

Revenue

Revenue

Ethanol

105,702,927

86
%
72,633,304

81
%
Distillers grains

16,349,308

13
%
16,305,319

18
%
Incentive

784,884

1
%
754,085

1
%
Total

122,837,119

100
%
89,692,708

100
%

Cost of Revenues

62,731,376

51
%
63,552,756

71
%

G&A Expenses

6,364,983

5
%
3,913,177

4
%

Other Operating Income (Exp)

(905,128
)
(1
%)
(1,220,600
)
(1
%)

Minority Interest

(12,132,284
)
(10
%)
(4,848,463
)
(5
%)

Net Income (Loss)

40,703,348

33
%
16,157,712

18
%

~~Revenues~~ - Revenue from the sale of ethanol increased 46% from the year ended December 31, 2005 to the year ended December 31, 2006. The increase is due to a 41% increase in the average price of ethanol per gallon and a 4% increase in sales volume. Ethanol prices rose significantly between periods as a result of increased demand from refineries and increases in the price of unleaded gasoline in 2006. Refineries increased their demand for ethanol as many accelerated the phase out of MTBE in the refinery process, switching to ethanol in its place.

Revenue from the sale of distillers grains increased just slightly from the year ended December 31, 2005 to the year ended December 31, 2006, the increase being driven by an increase in sales volume following a slight increase in production volume.

The incentive revenue from the U.S. Department of Agriculture’s Commodity Credit Corporation Bioenergy Program, which terminated on June 30, 2006, decreased $40,000 to $9,000 for the year ended December 31, 2006 from $49,000 for the year ended December 31, 2005. Incentive revenue from the State of South Dakota, in contrast, increased $70,000, or 10%, to $776,000 for the year ended December 31, 2006 from $705,000 for the year ended December 31, 2005.

~~Cost of Revenues -~~ Cost of revenues decreased $800,000, or 1%, to $62.7 million for the year ended December 31, 2006 from $63.5 million for the year ended December 31, 2005. Cost of revenues decreased slightly between periods because of a decrease in energy costs. Corn costs remained relatively constant between periods because a net gain under our corn risk management program offset a rise in the market price of corn.

Our energy costs decreased 6% from 2005 to 2006. This decrease is due to an increased use of steam from Big Stone Plant and lower natural gas costs. Our volume usage of steam, the cost of which is less than natural gas, increased 19% from 2005 to 2006 because Big Stone Plant had fewer general maintenance shut-downs in 2006 compared to 2005. During the same period, natural gas costs decreased 4% from 2005 due primarily to an 11% decrease in the cost per unit. This decrease is due to stable natural gas prices in 2006, compared to 2005 when an active hurricane season caused the reverse effect.

Corn prices rose 13% between periods because of low corn carryout for 2006 and increased demand for corn from the ethanol industry. A $2.9 million net gain under our corn risk management program in 2006, however, offset the 13% increase. For the year ended December 31, 2006, cost of revenues includes losses of $2.7 million from the use of corn hedging instruments. This loss is caused by a significant increase in the market price of corn in the fourth quarter of 2006 and its effect on the value of the hedging instruments at December 31, 2006. Offsetting this loss is a $5.6 million gain on our forward contracting for corn. In August 2006, the prices at the Chicago Board of Trade (CBOT) rose due to a reduction in bushels of corn to be harvested nationwide. But since we had locked in lower prices for corn under our forward contracts, the value of forward contracts rose and resulted in a $5.6 million gain at December 31, 2006.

~~General and Administrative Expenses~~ - ~~General and administrative expenses increased $2.45 million, or 63%,~~to $6.36 million for the year ended December 31, 2006 from $3.91 million for the year ended December 31, 2005. The increase is primarily due to increased management incentive fees and costs during the year, which are based on an increase in our profitability.

~~Interest Expense~~ - Interest expense decreased $60,000, or 4%, to $1.26 million for the year ended December 31, 2006 from $1.32 million for the year ended December 31, 2005. The decrease in interest expense is due to a $1.9 million reduction in non-construction related debt outstanding from December 31, 2005 to December 31, 2006 as we reduced our debt through principal payments.

~~Net Income -~~ Net income increased $24.5 million to $40.7 million for the year ended December 31, 2006 from $16.2 million for the year ended December 31, 2005. This change is caused primarily by, as discussed above, an increase in ethanol revenue at a time of relatively constant cost of revenues.

Liquidity and Capital Resources

Our primary sources of liquidity are cash provided by operations and borrowings under our ~~$17.0~~$8.0 million and $9.0 million revolving credit facilities which are discussed below under “Indebtedness.” Net working capital is ~~$19.72~~$22 million as of December 31, ~~2007~~2009, compared to ~~$15.98~~$13.6 million as of December 31, ~~2006. The~~2008. Working capital increased between periods principally due to an increase in profitability. We believe that, for the next 12 months, working capital ~~is due~~will remain adequate and our cash flows from operations and revolving debt will be sufficient to a $2.17 million reduction in construction related-party payable ($0 at December 31, 2007 as all construction projects are complete), as well as a $5.27 million reduction in distributions payable to Northern Growers’ membersmeet our expected capital and ~~a $2.51 million reduction in distributions payable to the minority member.~~liquidity requirements.

The following table shows the cash flows between the year ended December 31, ~~2007~~2009 and the year ended December 31, ~~2006~~2008:

	Year Ended December 31
	2009	2008
	$	$
Net cash from operating activities	9,218,745	10,316,093
Net cash from (used for) investing activities	(9,882)	445,293
Net cash (used for) financing activities	(5,800,320)	(7,230,934)

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Cash Flow From Operating Activities – Net cash flow provided by operating activities decreased $1.1 million between periods due principally to a decrease in cash provided by inventory, commodities contracts and broker transactions, offset by an increase in cash provided by net income between periods. Total ethanol inventory increased 36% between period ends, due to a 25% increase in the ethanol inventory value per gallon. Total corn inventory was relatively flat between period ends, despite a 48% increase in bushels of corn in inventory. However, we had significantly more cash tied up in commodities contracts and broker transactions between periods due to a 23% decrease in the market value of corn inventory per bushel. This was offset by a $5.8 million gain on commodities contracts and broker transactions at December 31, 2009, compared to a $3.2 million loss on commodities contracts and broker transactions at December 31, 2008.

Cash Flow (Used For) From Investing Activities – Net cash flow used for investing activities increased $455,000 between periods due to a decrease in purchases of property and equipment and a decrease in refunds from the State of South Dakota for sales and excise tax paid. Since completing construction of our plant’s expansion in May 2007, we have purchased less in property and equipment because material capital improvements on the plant have been less necessary. In addition, we received more in tax refunds from the State of South Dakota in 2008 than in 2009, because construction of our plant’s expansion was completed in 2007 and due to the timing of refund payments from the State of South Dakota.

Cash Flow (Used For) Financing Activities- Net cash used for financing activities decreased $1.4 million between periods, because we paid to our members a distribution of $1.5 million in 2008, compared to paying no distributions to members in 2009.

The following table shows the cash flows between the year ended December 31, 2008 and the year ended December 31, 2007:

	Year Ended December 31				Year Ended December 31
	2007		2006		2008	2007
	$		$		$	$
Net cash from operating activities	26,146,297		39,638,229		10,316,093	26,146,297
Net cash (used for) investing activities	(19,231,097	)	(29,101,256	)
Net cash from (used for) investing activities					445,295	(19,231,097)
Net cash (used for) financing activities	(7,657,867	)	(12,668,790	)	(7,230,934)	(7,657,867)

Cash Flow From Operating Activities - Net cash flow from operating activities decreased ~~$13.5~~$15.8 million between periods due principally to a decrease in cash provided by net income between periods, offset by an increase in cash provided by inventory. ~~Ethanol~~Total ethanol inventory ~~decreased 62% from 2006 to 2007~~was relatively flat between period ends, despite a 20% reduction in the ethanol inventory value per gallon. However, we had significantly less cash tied up in corn inventory between periods due to a 17% decrease in the ~~number~~market value of ~~gallons in~~corn inventory per bushel and a ~~decrease in the net realizable value.~~$2.7 million loss on forward corn contracts at December 31, 2008 (compared to a $5.1 million gain on forward corn contracts at December 31, 2007).

Cash Flow From Investing Activities - Net cash flow ~~used for~~from investing activities ~~decreased $9.9~~increased $19.7 million between periods due ~~primarily~~ to a decrease in ~~payments for~~2008 in purchases of property and equipment onand the receipt of a sales and excise tax refund from the State of South Dakota. In contrast to 2007, we purchased in 2008 significantly less in property and equipment after completing the construction of our plant’s expansion and BPX™ project. The total cost of the plant’s expansion and BPX™ project is $42.3 million, of which $33 million is financed with debt and the remainder with cash from operations. We completed construction on the expansion and BPX™ projects in May ~~2007~~2007. In addition, we received in 2008 from the State of South Dakota a series of tax refunds totaling $1,016,697 for sales and ~~October 2006, respectively, having spent $14.0 million and $28.3 in cash for these projects~~excise taxes paid in 2007 and 2006 ~~respectively.~~relating to the construction of our plant’s expansion.

Cash Flow From Financing Activities - Net cash used for financing activities decreased ~~by $5.0 million~~$430,000 between periods due ~~primarily~~ to a ~~$6.4~~$21.5 million decrease in distributions paid to ~~Northern Growers’~~ members and the minority interest member ~~of POET™ Biorefining — Big Stone. This~~from 2007 to 2008. The decrease is ~~partially~~ offset by a ~~$900,000 increase~~decrease in ~~principal payments~~advances on long-term debt ~~because~~as we ~~commenced~~no longer drew down on the $33 million construction note following our plant’s expansion and an increase of $2.9 million in principal ~~payments during the fourth quarter of 2007 relating to the financing of our three main capital improvement projects, namely, expansion, BPX™ and grain storage.~~paid on long-term notes payable between periods.

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We believe that cash flows from operations and our revolving debt will be sufficient to meet our expected capital and liquidity requirements for the foreseeable future. We anticipate that our capital improvement projects in 2008 will be miscellaneous in nature and financed with cash from operations. However, because we anticipate less cash flow from operations due to current market forces, we plan to rely more on our revolving debt to fund operations. Further, until we see tangible improvement in the market, we do not anticipate paying distributions to our members.

~~The following table shows the cash flows between the year ended December 31, 2006 and the year ended December 31, 2005:~~

Year Ended December 31

2006

2005

$

$

Net cash from operating activities

39,638,229

26,166,011

Net cash (used for) investing activities

(29,101,256
)
(1,225,498
)
Net cash (used for) financing activities

(12,668,790
)
(16,333,813
)

~~Cash Flow From Operating Activities -~~ ~~The increase~~Table of $13.5 million in net cash flow provided from operating activities is primarily due to a significant increase in net income between periods, offset by an increase in cash used for accounts receivable and inventory.

~~Cash Flow From Investing Activities -~~ Net cash flow used for investing activities increased $27.9 million between periods due to capital improvement projects. In 2006, we made significant cash expenditures to pay for the plant’s expansion and incorporation of BPX™ technology into the production process.

~~Cash Flow From Financing Activities -~~ Net cash used for financing activities decreased $3.7 million between periods, due primarily to the $18.9 million advanced by U.S. Bank under a construction note used to pay for the expansion and BPX™ projects. This advance is offset by a $13.5 million increase in distributions paid to members in 2006.Contents

Indebtedness

We have six notes and loans outstanding under our loan agreement with our lender, U.S. Bank: 1) a $33.0 million term note; 2) a $15.8 million fixed-rate note; 3) a $3.9 million variable-rate, non-revolving note; 4) an $8 million variable rate, revolving note; 5) a $9 million variable rate, revolving note; and 6) a $4.3 million variable rate note.

The $8 million note permits us to borrow, on a revolving basis, the difference between the unpaid principal balance and $8 million. The principal purpose of this revolver is to cover the cost of any non-corn related items at the plant at any time. ~~We had $8 million available for use~~The principal balance outstanding is $0 as of December 31, ~~2007.~~2009, allowing us to borrow up to $8 million as of December 31, 2009 and the date of this filing.

The $9 million note permits us to borrow, on a revolving basis, the difference of the outstanding principal amount and the lesser of the borrowing base or $9.0 million. The borrowing base is defined as 75% of the total of the fair market value of the outstanding inventory, eligible accounts receivable, and hedging accounts at fair market value. The principal purpose of this revolver is to cover the cost of purchasing corn during a ~~time~~period of ~~tightened~~tight margins. ~~We had $9 million available for use~~The principal balance outstanding is $0 as of December 31, ~~2007.~~2009, allowing us to borrow up to $9 million as of December 31, 2009 and the date of this filing.

The $33 million term note, which ~~was~~had been converted from a construction note on August 31, 2007, is subject to two interest rate arrangements. The notional amounts ($~~16.1~~12.79 million and ~~$8.0~~$6.39 million as of December 31, ~~2007)~~2009) are subject to an interest rate swap agreement with U.S. Bank. (see also Item 7A below-”Quantitative and Qualitative Disclosures About Market Risk”). Under the agreement, the notional amounts are subject to a fixed rate of 7.98% and 7.52% respectively, which is payable monthly until maturity on August 30, 2014. The remaining portion of the note is subject to a variable rate of one-month LIBOR plus 2.75%, adjusted and due monthly ~~(7.571%~~(2.980% at December 31, ~~2007)~~2009). A principal payment of $825,000 is due quarterly on the ~~note, which commenced on November 30, 2007.~~note.

The principal balance outstanding on the $15.8 million fixed-rate note (6.38%) is ~~$12.44~~$9.59 million as of December 31, ~~2007.~~2009. Principal payments of ~~$1,293,225~~$1.47 million were made for the year ended December 31, ~~2007.~~2009.

The principal balance outstanding on the $3.9 million variable rate ~~(7.25%)~~(3.25% as of December 31, 2009) non-revolving loan is ~~$2.83~~$2.05 million as of December 31, ~~2007.~~2009. Principal payments of $390,000 were made for the year ended December 31, ~~2007.~~2009.

The principal balance outstanding on the $4.3 million ~~note, which was funded to us in full on October 5, 2007 to finance additional grain storage and handling equipment, is subject to a~~ variable rate ~~of LIBOR plus 3.00% (8.225%~~loan (3.235% at December 31, ~~2007), adjusted and payable monthly.~~2009) is $2.91million. Principal payments of ~~$154,000~~$616,000 were made for the year ended December 31, ~~2007.~~2009.

All of the loans and notes outstanding are secured by ~~our~~Big Stone’s tangible and intangible property, including a leasehold interest, easement rights, improvements, equipment, personal property, accounts receivable, inventory and contracts. In addition to standard covenants and conditions in the amended and restated loan agreement, ~~we are~~Big Stone is subject to ~~the following~~ material conditions and ~~covenants:~~covenants, including 1) aan annual capital expenditure limitation, ~~not exceeding $1 million in any calendar year;~~ 2) a cash distribution limitation to members, ~~not exceeding 80% of~~3) a tangible net ~~income annually; 3)~~worth minimum, 4) a minimum working capital ~~of $10 million; and 4)~~requirement, 5) a fixed charge coverage ratio, and 6) a minimum balance sheet equity. The following table represents the material covenant and condition requirements under Big Stone’s loan agreement and its actual results in terms of ~~1.15:1~~compliance as of December 31, 2009:

Material Loan Covenants (and Measurement Period)	Requirement	Actual	In Compliance (1)
Capital Expenditure Limitation (Annual)	$1 million	$200,000	Yes
Cash Distribution Limitation (Annual)	80% of Net Income	44%	Yes
Tangible Net Worth Minimum (Quarter)	$25 million	$54 million	Yes
Minimum Working Capital (Quarter)(2)	$10 million	$25.5 million	Yes
Fixed Charge Coverage Ratio (Quarter)	1.15:1	1.43:1	Yes
Minimum Balance Sheet Equity (Quarter)	40%	51%	Yes

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(1) Compliance is based on the ~~last day~~financial statements of ~~any fiscal quarter for~~our subsidiary, Big Stone, as opposed to on a consolidated basis.

(2) U.S. Bank’s covenants permit the ~~four consecutive fiscal quarters ending on that date.~~ inclusion of the $8 million revolver if not drawn down.

We ~~were~~are in compliance with all conditions and covenants under our loan agreement with U.S. Bank as of December 31, ~~2007~~2009 and the date of this filing.

The following table summarizes our consolidated contractual obligations as of December 31, ~~2007:~~2009:

			One to	Four to				One to	Four to
		Less than	Three	Five	After Five		Less than	Three	Five	After Five
Contractual Obligations	Total	One Year	Years	Years	Years	Total	One Year	Years	Years	Years

Long-Term Debt Obligations (1)	66,901,295	9,328,538	17,644,474	21,414,953	18,513,330	47,321,555	8,222,999	20,837,454	18,261,102	-
Operating Lease Obligations	379,675	2,520	5,040	5,292	366,823	374,635	2,520	5,292	5,292	361,531
Purchase Obligations(2)	4,818,725	764,589	1,529,178	1,345,695	1,179,263	3,398,617	784,420	1,385,357	983,072	245,768
Total Contractual Cash Obligations	72,099,695	10,095,647	19,178,692	22,765,940	20,059,416	51,094,807	9,009,939	22,228,103	19,249,466	607,299

(1) Long-term debt obligations reflect payment obligations, including interest, arising under the amended Loan Agreement ~~dated September 21, 2007.~~with U.S. Bank.

(2) Purchase obligations include payment for minimum steam purchases, and services for plant management and risk management.

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

In ~~September 2006,~~June 2009, the FASB amended the existing accounting and disclosure guidance for the consolidation of variable interest entities, which is effective January 1, 2010. The amended guidance requires enhanced disclosures intended to provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. We are currently assessing the impact of adoption on its financial position and results of operations.

In October 2009, the FASB issued ~~SFAS 157,~~ ~~Fair Value Measurements~~~~. SFAS 157 defines fair value, establishes a framework~~new guidance for ~~measuring fair value, and expands disclosures about fair value measurements. The statement~~revenue recognition with multiple deliverables, which is effective for ~~(1) financial assets and liabilities~~revenue arrangements entered into or materially modified in ~~financial statements issued for~~ fiscal years beginning on or after ~~November~~June 15, ~~2007,~~2010, although early adoption is permitted. This guidance eliminates the residual method under the current guidance and ~~interim periods within those fiscal years~~replaces it with the “relative selling price” method with allocating revenue in a multiple deliverable arrangement. The selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists, otherwise third-party evidence of selling price shall be used. If neither exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable. After adoption, this guidance will also require expanded qualitative and ~~(2) certain non-financial assets and liabilities in financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.~~quantitative disclosures. We are ~~evaluating~~currently assessing the ~~effect, if any, that the~~impact of adoption ~~of SFAS 157 will have~~ on ~~our results of operations,~~its financial position and ~~the related disclosures.~~results of operations.

~~In February 2007, the FASB issued SFAS 159,~~ ~~The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No.~~ ~~115 (~~Newly Adopted Accounting ~~for Certain Investments in Debt and Equity Securities~~). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value and is effective for fiscal years beginning after November 15, 2007 with early adoption permitted. We are evaluating the effect, if any, that the adoption of SFAS 159 will have on our results of operations, financial position, and the related disclosures.Pronouncements

~~In December 2007, the FASB issued SFAS 160,~~ Noncontrolling Interests in Consolidated Financial ~~Statements — an amendment~~Statements. On January 1, 2009, we adopted new guidance for the accounting, reporting and disclosure of ~~ARB No. 51 (Consolidated Financial Statements). SFAS 160 establishes~~noncontrolling interests, which improves the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for athe noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. ~~In addition, SFAS 160~~The impact of adopting this guidance on the consolidated financial statements was the presentation of

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noncontrolling interest within equity in the consolidated balance sheets and in the consolidated statements of changes in equity.

Business Combinations. On January 1, 2009, we adopted new guidance on business combinations which expands the scope of acquisition accounting to all transactions under which control of a business is obtained. This guidance requires ~~certain consolidation procedures~~an acquirer to recognize the assets acquired and liabilities assumed at the acquisition date fair values with limited exceptions. Additionally, the guidance requires that contingent consideration be recorded at fair value on the acquisition date, that acquired in-process research and development be capitalized and recorded as intangible assets at the acquisition date, and also requires transaction costs and costs to restructure the acquired company be expensed. On April 1, 2009, additional guidance was issued further amending the accounting for ~~consistency with~~business combinations to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can reasonably be estimated. If the ~~requirements~~acquisition date fair value of ~~SFAS 141,~~ an asset acquired or liability assumed that arises from a contingency cannot be determined, the asset or liability would be recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability would be recognized. We have not had any business combinations since adopting this guidance.

~~Business Combinations~~Disclosures about Derivative Instruments and Hedging Activities.~~. SFAS 160 is effective~~ On April 1, 2009, we adopted new guidance related to derivative disclosure and hedging activities. This guidance requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for ~~fiscal years,~~using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. The guidance also requires entities to disclose additional information about the amounts and ~~interim periods~~location of derivatives located within ~~those fiscal years, beginning on or after December 15, 2008 with earlier adoption prohibited. We are evaluating~~ the ~~effect, if any,~~financial statements and the impact that ~~the adoption of SFAS 160 will~~hedges have on ~~our~~an entity’s operating results, ~~of operations,~~ financial position ~~and the related~~or cash flows. See Note 4 — Derivative Financial Instruments for additional disclosures.

Codification.In ~~December 2007,~~June 2009, the FASB issued ~~SFAS 141(R),~~ ~~Business Combinations~~the FASB Accounting Standards Codification (“Codification”). ~~SFAS 141(R) expands~~The Codification became the ~~definition~~single source for all authoritative GAAP recognized by the FASB and has been applied to financial statements issued for periods ending after September 15, 2009. The only impact of ~~transactions~~adopting this provision was to update and events that qualify as business combinations; requires that the acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflectedremove certain references in ~~revenue, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs~~our consolidated financial statements to be expensed as incurred. Adoption of SFAS 141(R) is required for combinations after December 15, 2008. Early adoption and retroactive application of SFAS 141(R) to fiscal years preceding the effective date are not permitted. We are evaluating the effect, if any, that the adoption of SFAS 141(R) will have on our results of operations, financial position, and the related disclosures.technical accounting literature.

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. We continually evaluate these estimates based on historical experience and other assumptions we believe to be reasonable under the circumstances.

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

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

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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 U.S., we accrue an expense when it is probable that a liability has been incurred and the amount can be reasonably estimated.

Inventory Valuation. We account for cornEthanol and related product inventory is stated at estimated net realizable market value. Corn inventory is an agricultural commodity that is freely traded, has quotedstated at market value, which approximates net realizable value (local market prices may be sold without significant further processing, and has predictable and insignificant costsless cost of disposal. We derive our estimates fromdisposal), based on local market prices determined by grain terminals in our area. Changes in the market valuearea of corn inventory is recognized as a component of cost of revenues. Ethanolthe plant. Other raw materials, spare parts and distillers grains are stated at net realizable value. Work-in-process and chemicalwork-in-process inventory are stated at the lower of cost or market on an average cost method.

Revenue Recognition. Revenue from the productionsale of ethanol and related products is recorded when title transfers to customers, netcustomers. Generally, ethanol is shipped FOB shipping point and related products are shipped FOB destination point. In accordance with our agreement for the marketing and sale of allowances for estimated returns.ethanol, shipping costs arranged by the marketer are deducted from the gross sales price reported to us by the marketer; thus no shipping costs are incurred relate to sales of ethanol. For distiller grains, shipping costs incurred by us are included as a component of cost of revenues. Interest income is recognized whenas 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 program.incentive programs, we derive an estimate of the incentive revenue for the relevant period based on various factors. The estimate is subject to change as we become aware of increases or decreases in the amount of funding available under the incentive programs or other factors that affect funding or allocation of funds under such programs.

Cost of Revenues. The primary components of cost of revenues from the production of ethanol and related products are corn expense, energy expense (electricity, natural gas and steam), raw materials expense (chemicals and denaturant), shipping costs on sales, depreciation on process equipment and direct labor costs. Shipping costs incurred by us are recorded as a component of cost of revenues. Shipping costs in cost of revenues includes inbound freight charges on inventory, outbound freight charges on related product and purchasing and receiving costs.

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 our 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 cash flows.

Accounting for Derivative Instruments and Hedging Activities. We enter into derivative instruments to hedge our exposure to price risk related to forecasted corn and natural gas purchases, forward corn purchase contracts and forecasted ethanol sales. We do not typically enter into derivative instruments other than for hedging purposes. All derivative contracts are recognized on the December 31, ~~2007~~2009 and ~~2006~~2008 balance sheets at their fair market value.

On the date the derivative instrument is entered into, we 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

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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 7A. Quantitative and Qualitative Disclosure About Market Risk.

We are exposed to the impact of market fluctuations associated with commodity prices and interest rates as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. Specifically, we use forward, futures and option contracts to hedge changes to the commodity prices of corn and natural gas, as well as interest rate swaps to hedge against changes in interest rates. However, we do not enter into these derivative financial instruments for trading or speculative purposes. The interest rate swap agreement is accounted for as a cash flow hedge pursuant to the requirements of SFAS 133, as amended, Accounting for Derivative Instruments and Hedging Activities.

Commodity Price Risk

We produce ethanol and its by-product, distillers grains, from corn, and, as such, we are 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. We also use natural gas in the production process, and as such are 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. The price of distillers grains is principally influenced by the price of corn and soybean meal, and competing protein feed products.

We attempt 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 our total corn and natural gas ownership relative to our 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. Likewise, natural gas is hedged with futures and options contracts offered through the New York Mercantile Exchange. Basis contracts are also 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 our exposure to commodity price risk. The table presents the fair value of open futures and option positions for corn and natural gas as of December 31, ~~2007~~2009 and December 31, ~~2006~~2008 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:

Year Ended

Fair Value

Effect of
Hypothetical
Adverse
Change — Market Risk

December 31, 2007

$
11,181,459

$
1,118,146

December 31, 2006

$
19,767,196

$
1,976,720

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Year Ended	Fair Value		Effect of Hypothetical Adverse Change — Market Risk
December 31, 2009	$	1,455,911	145,591
December 31, 2008	$	5,297,175	529,718

Interest Rate Risk

We manage our interest rate risk by monitoring the effects of market changes on the interest rates and using fixed-rate debt whenever ~~possible and using the~~possible. We also enter into interest rate swap ~~agreement on the term note.~~ agreements.

Our interest rate risk exposure pertains primarily to our variable rate, long-term debt. Specifically, we had ~~$10.87~~$11.36 million in variable rate, long-term debt outstanding as of December 31, ~~2007,~~2009, or approximately ~~21%~~28% of our total long-term indebtedness. The interest rate on ~~$2.83~~$2.05 million of the ~~$3.9 million~~ variable rate, long-term debt is U.S. Bank’s prime rate, which ~~is 7.25%~~was 3.25% as of December 31, ~~2007.~~2009. The interest rate on $2.91 million of the variable rate debt is subject to an interest rate of 3.235% as of December 31, 2009. The variable rate on the ~~$8.04~~$6.39 million portion of the ~~expansion~~term note is ~~7.571%~~2.980% (One-Month LIBOR plus 2.75%) as of December 31, ~~2007.~~2009.

In order to achieve a fixed interest rate on a portion of our $33.0 million term note, we ~~entered into~~are a party to an interest rate swap agreement with U.S. Bank. The swap agreement covers a seven-year term financing period through August 30, 2014. This agreement assists us in protecting against exposure to increases in interest rates and fixes the interest rate at 7.98% and 7.52% on the notional amounts ($~~16.1~~12.79 million and ~~$8.04~~$6.39 million, respectively as of December 31, ~~2007)~~2009). The remaining amount, ~~$8.04~~$6.39 million, is subject to a variable rate of One-Month LIBOR plus 2.75%. While our exposure is now reduced, ~~under the swap agreement,~~ there is no assurance that the interest rate swap will provide us with protection in all scenarios. For example, under the swap agreement, when One-Month LIBOR plus 2.75% exceeds 7.98% or 7.52%, we receive payments from U.S. Bank for the difference between the market rate and the swap rate. Conversely, when the One-Month LIBOR plus 2.75% falls below 7.98% or 7.52%, we make payments to U.S. Bank for the difference. The interest rate on the variable portion of our $33.0 million term note decreased 0.231% from December 31, 2008 to December 31, 2009, which required us to pay more in interest to U.S. Bank on the two swap transactions.

Item 8. Financial Statements and Supplementary Data.

Reference is made to the “Table of Contents” of Northern Growers, LLC located on the page prior to page F-1 of this report, and financial statements for the year ended December 31, ~~2007~~2009 referenced therein, which are hereby incorporated by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item ~~9A.~~9A(T). Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Our management, including the participation of our Chief Executive Officer/Chief Financial Officer, has concluded that, based on management’s evaluation as of the end of the period covered by this Annual Report on Form 10-K, the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, based on management’s evaluation, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is accumulated and communicated to our management, including our Chief Executive Officer/Chief Financial Officer, to allow timely decisions regarding required disclosures.

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Management’s report on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed our internal control over financial reporting in relation to criteria described in Internal Control- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment using those criteria, we concluded that, as of December 31, ~~2007,~~2009, our internal control over financial reporting was effective.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by Eide Bailly LLP, an independent registered public accounting firm, as stated in their report which appears on page F-1 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended December 31, ~~2007~~2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

	/s/ Robert Narem
	Robert Narem ~~Chief Executive Officer~~
	Chief Executive Officer and Chief Financial Officer, Manager
	(Principal Executive Officer)

Item 9B. Other Information.

~~None.~~On October 23, 2009, we announced an intent to undertake a reclassification of our Class A capital units. The proposed transaction, which is subject to approval by our members, will result in the reclassification of our Class A capital units outstanding into three distinct classes. In the proposed reclassification, we expect that: (a) record holders of between 40,000 and 69,999 of our Class A capital units will receive newly-created Class B capital units, on the basis of one Class B capital unit for each Class A capital unit; (b) record holders of less than 40,000 of our Class A capital units will receive newly-created Class C capital units, on the basis of one Class C capital unit for each Class A member unit; and (c) all other Class A capital units will remain outstanding. Capital unit holders receiving Class B or Class C capital units will receive no additional consideration for their Class A capital units.

The reclassification transaction can only be effected by the adoption by our members of amendments to our Fifth Amended and Restated Operating Agreement, which amendments will be included in a Sixth Amended and Restated Operating Agreement. The members will vote on the adoption of the proposed amendment at a special meeting of members on April 26, 2010, in Milbank, South Dakota. The Sixth Amended and Restated Operating Agreement will include details about the rights, privileges, obligations and restrictions associated with the Class A, B and C capital units. If our members approve the Sixth Amended and Restated Operating Agreement and the reclassification is implemented, we anticipate having fewer than 300 Class A members of record, which would enable us to terminate voluntarily the registration of our Class A units under the Securities Exchange Act of 1934.

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PART III

~~Pursuant~~Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Officers

The following table provides certain information about Northern Growers’ board of managers and sole officer. None of our managers or officer has served as a director of another company which is required to ~~General Instructions G(3),~~file reports under the Exchange Act.

Name, Address and Board/Officer Position, if any	District	Age	Board Member Since	Term Expiring	Background

Ronald Anderson 47895 S.D. Hwy. 158 LaBolt, South Dakota 57246 Audit Committee	One	66	1999	2012	Ron has been a farmer for nearly 42 years. He served as a director of the Nassau Farmers Elevator for 12 years and as its chairman for six years. He assisted with the organization of the Grant County Soybean Association, serving as its president for six years. He is an active member of American Lutheran Church in Milbank, South Dakota. He attended Augustana College, Sioux Falls, South Dakota for one year before returning to farming in 1964.

LeRoy Bergan 15445 442nd Avenue, Florence, SD 57235	One	72	2007	2010	Leroy is a retired farmer who farmed for over 30 years. He is currently an independent wellness consultant for Nikken, Inc., of Irvine, California, and has served since 1991 on the board of directors for Codington-Clark Electric Coop, Inc., representing District 3. He graduated from South Dakota State University, Brookings, South Dakota, in 1959 with a Bachelor of Science Degree in Agriculture Education, and in 1969 with a Masters Degree in Education.

Wendell Falk 45384 154th St. South Shore, South Dakota 57265	One	38	2005	2011	Wendell has been a farmer for the past 10 years. He and his wife own and operate Wendell Falk Farms. He graduated from South Dakota State University, Brookings, South Dakota, in 1992 with an Associate Degree in General Agriculture.

R. Lars Herseth 39949 114th Street Houghton, South Dakota 57449	One	62	2003	2012	Lars has been a farmer for 40 years. He is a former State Representative and State Senator with the South Dakota Legislature, serving for 12 years and 8 years, respectively. He currently serves as a director of the American Coalition of Ethanol and as a member of the South Dakota Corn Utilization Council. He graduated from the University of South Dakota, Vermillion, South Dakota, in 1969 with a Bachelor of Arts Degree in Government and History.

Mark Lounsbery	One	63	1999	2011	Mark has been a farmer for the past 35 years. He is a former director of the South Dakota Corn

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16453 482nd Ave. Revillo, South Dakota 57259 Nomination Committee					Utilization Council and is a current director of the American Corn Growers Association.

Robert Metz 46602 127th Street Browns Valley, Minnesota 56219 President; Audit Committee	One	52	1999	2010	Robert has been a farmer for the past 33 years. He represents South Dakota on the United Soybean Board and serves as past chairman of the National Bio-Diesel Board. He serves as a member of the South Dakota Corn Growers Association and is trustee of St. Anthony’s Catholic Church. He is also a former board member of the Browns Valley School District and the Browns Valley Community Elevator. He is a past president of the American Soybean Association.

Robert Narem 14313 469th Ave. Twin Brooks, South Dakota 57269 Chief Executive Officer	One	54	1999	2011	Robert has been employed with Soil Consultant, Inc. as an agronomist since 1982 and serves as its president. He is a member of the South Dakota Independent Crop Consultant Association, vice president of the South Dakota Certified Crop Advisor Committee, and supervisor of Kilborn Township. He is a board member of Mountain View Harvest Coop and Gerald, LLC, a commercial baking company. He graduated from South Dakota State University, Brookings, South Dakota, in 1977, with a Bachelor of Science Degree in Park Management and in 1982 with a Masters of Science Degree in Agronomy.

Jeff Olson 2494 300th Street Madison, Minnesota 56256	Two	47	2004	2010	Jeff has been a farmer for the past 21 years. He currently serves as a director of the Lac Qui Parle County Planning and Zoning Committee. He graduated from South Dakota State University, Brookings, South Dakota, in 1985 with a Bachelor of Science Degree in Agriculture Education.

Ronald Olson 44228 150th Street Waubay, South Dakota 57273	One	46	1999	2010	Ron has been a farmer for the past 24 years. He currently serves as a director of the South Dakota Corn Utilization Council and serves on an Action Team for the U.S. Grains Council. He graduated from South Dakota State University, Brookings, South Dakota, in 1986 with an Associate Degree in General Agriculture.

Heath Peterson 16948 482nd Ave. Revillo, South Dakota 57259	One	40	2006	2012	Heath has been a farmer for 16 years. He currently serves as a member of the South Dakota Corn Growers Association, and is a former director of the Revillo Farmers Elevator Board. He graduated from Lake Area Vocational School in 1992.

Delton Strasser 13975 SD Hwy. 123 Wilmot, South Dakota 57279 Secretary/Treasurer	One	65	1999	2012	Del has been a farmer for over 39 years. He is president of the board of POET® Biorefining - Big Stone and of Zion Community Church. He is a former director and chairman of the South Dakota Corn Utilization Council and former director of National Corn Growers Association. He attended Trinity College, Chicago, Illinois, for one year.

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Steve Street 16153 486th Avenue Revillo, South Dakota 57259 Nomination Committee	One	59	1999	2010	Steve has been a farmer for over 31 years. He currently serves as a State Representative for District 4 in the South Dakota Legislature. He is also treasurer of Adams Township and was formerly president of the Revillo Grain Elevator. He graduated from South Dakota State University in Brookings, South Dakota, in 1972 with a Bachelor of Science Degree in Agronomy.

J. Charles Walters 68937 240th St. Graceville, Minnesota 56240	Two	57	2009	2012	Charles has been a farmer for 28 years. He graduated from the University of Minnesota, St. Paul, Minnesota, in 1975 with a Bachelor of Science Degree in Agronomy.

Bill Whipple 13453 460th Avenue Wilmot, South Dakota 57279 Audit Committee	One	65	1999	2011	Bill has been a farmer for over 35 years with Whipple Ranch, Inc., where he is president and manager. He has served as a director of the South Dakota Corn Growers Association. He serves as Director of the South Dakota Corn Utilization Council. He graduated from South Dakota State University, Brookings, South Dakota, in 1969 with a Bachelor of Science Degree in Animal Science.

Robert Wittnebel 2971 121st Ave. Nassau, Minnesota 56257 Audit and Nomination Committees	Two	70	2002	2011	Robert has been a farmer for over 37 years. He is a member of the American Legion, VFW, and Trinity Lutheran Church. He also serves as a director of Hilltop Residence and Madison Lutheran Home. He graduated from South Dakota State University, Brookings, South Dakota, in 1961 with a Bachelor of Science Degree in Agricultural Education.

Director Qualifications

Each person was elected because of his involvement in and support of the agriculture industry in northeastern South Dakota, including the ethanol industry. In particular, each person is or was an agriculture producer or owns a business involved in the agriculture industry. In addition, seven persons - Ron Anderson, Mark Lounsbery, Robert Metz, Robert Narem, Delton Strasser, Steve Street, and Bill Whipple - were chosen because they are the original founders of Northern Growers. As original founders, they are viewed as having invaluable experience and knowledge in representing the board of managers and our operations.

Audit Committee

We have a separately designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Exchange Act, whose members include Messrs. Ron Anderson, Robert Metz, Bill Whipple and Robert Wittnebel. Because our board of managers are mostly farmers, as is common for producer-based agricultural entities, we ~~omit Part III, Items 10,~~do not have an audit committee financial expert serving on our Audit Committee as that term is defined under SEC rules.

Code of Ethics

All of the board of managers, officers and employees, are required to comply with Northern Growers’ Code of Ethics. A copy of the Code of Ethics can be obtained, without charge, by writing to the following address:

Membership Coordinator

Northern Growers, LLC

c/o POET® Biorefining - Big Stone

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48416 144th Street.

Big Stone City, South Dakota 57216

Amendments and modifications to, and waivers of, the Code of Ethics will be promptly disclosed, to the extent required under the Exchange Act, on a current report on Form 8-K.

Director Nominations

There are no material changes to the procedures by which members may recommend nominees to our board of managers where those changes were implemented after our last provided disclosure in 2009. Therefore, members will be allowed to recommend candidates to the board of managers prior to the election at the 2010 Annual Meeting of Members.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and managers of our Board, and persons who directly or indirectly own more than ten percent of a class of our Class A capital units, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “SEC”). Executive officers and greater than ten-percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such reports furnished to us and written representations from our executive officer and managers of the Board, all Section 16(a) filing requirements were complied with during the fiscal year ended December 31, 2009 except a Form 3 for Mr. Charles Walters which was filed with the SEC on a Form 5 on February 3, 2010.

Item 11. Executive Compensation

Executive Compensation

Summary Compensation Table

The tables below summarize the total compensation paid or earned by our chief executive and financial officer, Mr. Robert Narem. Mr. Narem has served in this position since September 11, ~~12, 13~~2003. He does not receive a salary or bonus for his services as officer. He also does not receive any stock or incentive awards, health-care, retirement or other benefits, or compensation for a termination or change in control. His compensation is strictly based on services he performs on behalf of Northern Growers’ which is a fee of $250 for most services performed, including reviewing financial reports, preparing and ~~14,~~reviewing SEC reports and ~~incorporate~~compliance matters, communicating with our board of managers and the plant’s general manger, and anything relating to the oversight of the management of POET® Biorefining - Big Stone. The amounts reported in the Summary Compensation Tables reflect actual amount paid during the year.

SUMMARY COMPENSATION TABLE

Name and principal position	Year	Salary ($)		Bonus ($)	All Other Compensation ($) See Note 2		Total ($)
Robert Narem (1)	2009	$	NA	NA	$	5,750	$	5,750
	2008	$	NA	NA	$	5,821	$	5,821

(1) Robert Narem is the chief executive and chief financial officer of Northern Growers.

(2) The amount shown in this column represents Northern Growers’ total aggregate payment to Mr. Narem in 2009 and 2008 for services performed on behalf of Northern Growers, at $250 per service item and for mileage reimbursement

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Managers’ Compensation

For their services on Northern Growers’ board of managers, an individual receives compensation shown in the following table and explained in the accompanying notes.

Name	Fees Earned or Paid in Cash See Note 1		All Other Compensation See Note 2	Total ($)
Ronald Anderson	$	3,250	—	$	3,250
Leroy Bergan	$	1,750		$	1,750
Wendell Falk	$	2,000	—	$	2,000
Lars Herseth	$	2,000	—	$	2,000
Mark Lounsbery	$	2,000	—	$	2,000
Robert Metz	$	3,750	—	$	3,750
Robert Narem(3)	$	5,750	—	$	5,750
Jeff Olson	$	2,000	—	$	2,000
Ronald Olson	$	1,500	—	$	1,500
Heath Peterson	$	2,000	—	$	2,000
Delton Strasser	$	4,000	—	$	4,000
Steve Street	$	3,000	—	$	3,000
J. Charles Walters	$	750		$	750
Bill Whipple	$	2,750	—	$	2,750
Robert Wittnebel	$	3,250	—	$	3,250

(1) The board of managers receives a per diem fee for services performed on our behalf in the amount of $250 for each regular board or committee meeting. The board also receives the same membership benefits as other members receive in proportion to their ownership of capital units in the company.

(2) The board of managers is reimbursed at current IRS rates for travel incurred for each board and committee meeting or function and when attending other events on behalf of the company.

(3) Mr. Narem serves as Chief Executive Officer and Cheif Financial Officer of Northern Growers.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We have not authorized the issuance of any equity securities for purposes of any equity compensation plan. The following table sets forth certain information as of February 1, 2010, with respect to the capital unit ownership of: (i) each our board of managers, (ii) all officers and managers of Northern Growers, 15 in number, as a group; and any person or group (as that term is used in Section 13(d)(3) of the Exchange Act) who beneficially own more than 5% of Northern Growers’ capital units. Mr. Robert Narem serves in the capacity of executive officers. Except as noted below, the persons listed below possess sole voting and investment power over their respective capital units

Title of Class	Name and Address of Beneficial Owner(1)	Amount and Nature of Beneficial Owner (in units)	Equity Percent of Class		Voting Percent of Class
Class A	South Dakota Corn Processors Investment Fund P.O. Box 85102 Sioux Falls, South Dakota 57104	3,150,000	6.2	%	*

Class A	Ronald Anderson, Manager(2)	160,000	*		*

Class A	Leroy Bergan, Manager	40,000	*		*

Class A	Wendell Falk, Manager (3)	40,000	*		*

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Class A	Lars Herseth, Manager (4)	170,000	*	*

Class A	Mark Lounsbery, Manager (5)	246,666	*	*

Class A	Robert Metz, Manager (6)	200,000	*	*

Class A	Robert Narem, Manager, CEO/CFO(7)	120,000	*	*

Class A	Jeff Olson, Manager	40,000	*	*

Class A	Ronald Olson, Manager	140,000	*	*

Class A	Heath Peterson, Manager	120,000	*

Class A	Delton Strasser, Manager(8)	172,000	*	*

Class A	Steve Street, Manager(9)	320,000	*	*

Class A	J. Charles Walters	10,000	*	*

Class A	Bill Whipple, Manager(10)	440,000	*	*

Class A	Robert Wittnebel, Manager	40,000	*	*

Class A	Managers and Executive Officers, as a Group	2,258,666	5.1%	1.9	%

*Percentage of capital units beneficially owned does not exceed 1% of the class.

(1) The addresses for each of the individual managers listed above is set forth above under Item 10. Directors, Executive Officers and Corporate Governance

(2) Includes 120,000 capital units owned of record through an IRA.

(3) Includes 40,000 capital units owned jointly with Mr. Falk’s wife.

(4)Includes 2,500 capital units held by Mr. Herseth as custodian for the benefit of a grandchild and 2,500 capital units held by Mr. Herseth’s wife as custodian for the benefit of her grandchildren.

(5) Includes capital units owned jointly with Mr. Lounsbery’s wife.

(6) Includes 80,000 capital units owned of record by Mr. Metz’s wife.

(7) Includes capital units owned of record by Soil Consultants, Inc. of which Mr. Narem is the owner.

(8) Includes 172,000 capital units owned jointly with Mr. Strasser’s wife.

(9) Includes 80,000 capital units owned of record by Mr. Street’s wife.

(10) Represents capital units owned of record through an IRA and Whipple Ranch, Inc. of which Mr. Whipple is co-owner.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Northern Growers’ board of managers and officer have not entered into, and do not anticipate entering into, any contractual or other transactions between themselves and us, directly or indirectly, except for transactions identical to those provided by all other members such ~~items~~as corn delivery transactions to Northern Growers’ subsidiary, POET® Biorefinery — Big Stone. The board of managers receives a per diem fee and other reimbursement and compensation for their services, as described above.

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Except as set forth under the operating agreement, Northern Growers does not have any formal policies and procedures for the review, approval or ratification of transactions between board of managers or officers. Under the operating agreement, all acts of the board of managers are required to be conducted by majority vote of disinterested persons serving on the board. A disinterested person is defined as a person who does not have a financial interest in any contract or agreement, or whose family member does not have a financial interest in the same. A person who is not disinterested is precluded from voting on the matter at hand unless such agreement or contract is made available to all members of the company. In 2009, the terms and conditions regarding a vote by disinterested board of managers were fully complied with under our operating agreement.

All of the board of managers are independent except Mr. Robert Narem. Mr. Narem is not independent because of his service as an executive officer of Northern Growers and not due to any other transactions or relationships. The determination of independence is made by reference to ~~an amendment to this Annual Report on Form 10-K or to an Information Statement to be filed with~~NASDAQ Rule 5605.

Item 14. Principal Accounting Fees and Services

The following presents fees for professional services rendered by our independent auditor, Eide Bailly LLP, for the ~~Commission within 120 days after the close~~audit of our annual financial statements for the fiscal year ~~covered~~ended December 31, 2008 and 2009 and fees for other services rendered by ~~this report (December~~Eide Bailly during those periods.

Audit Fees. Eide Bailly has billed us a total amount of $29,500 and $75,000 in December 31, ~~2007)~~2009 and December 31, 2008, respectively, for professional services rendered for the audit of Northern Growers’ various financial statements, and the reviews of the financial statements included in its Form 10-Q for the 2009 and 2008 fiscal years. Additional fees for services performed on the audit of financial statements for the year ended December 31, 2009 are expected to be billed to us in the next 30 days.

Audit-Related Fees. Eide Bailly did not perform any audit-related services as of December 31, 2009 and December 31, 2008.

Tax Fees. Eide Bailly has billed us a total amount of $ 21,548 and $16,581 for professional tax services rendered as of December 31, 2009 and December 31, 2008, respectively. The tax services included preparation of federal tax returns and consultation regarding federal tax laws and an IRS exam.

All Other Fees. Eide Bailly has billed us a total of $550 and $545 for all other services rendered as of December 31, 2009 and December 31, 2008. The services rendered in 2009 pertained to travel to the Northern Growers’ Annual Meeting. The services rendered in 2008 pertained to implementation of SFAS 157 and related disclosures.

We have a separate audit committee. It is the policy of the audit committee to pre-approve all audit and permissible non-audit services performed by Eide Bailly. The audit committee approved all services that Eide Bailly provided to us in the past two fiscal years.

The percentage of hours expended on Eide Bailly’s engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than Eide Bailly’s full time, permanent employees was 0%.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:

(1) Financial Statements—Reference is made to the “Table of Contents” of Northern Growers, LLC located on the page prior to page F-1 of this report for a list of the financial statements and schedules for the year ended December 31, ~~2007~~2009 included herein. The financial statements begin on page F-2 of this Report.

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(2) All supplemental schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the Consolidated Financial Statements or notes thereto.

(3) The exhibits we have filed herewith or incorporated by reference herein are set forth on the attached Exhibit Index. The following exhibits constitute a management contract: 10.14 and 10.16.

(b) See Item 15(a)(3)

SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NORTHERN GROWERS, LLC

Date:	March ~~5, 2008~~	31, 2010	/s/ Robert Narem
			Robert Narem, Chief Executive Officer/Chief Financial Officer (Principal Executive and Financial Officer)

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

	NORTHERN GROWERS, LLC

Date:	March ~~5, 2008~~	31, 2010	/s/ Robert Narem
			Robert Narem, Chief Executive Officer and Chief Financial Officer, Manager


Date:	March ~~5, 2008~~	31, 2010	/s/ ~~Robert Narem~~Ron Anderson
			Ronald Anderson, Manager


Date:	March ~~5, 2008~~	31 , 2010	/s/ Leroy Bergan
			Leroy Bergan, Manager

Date:	March ~~5, 2008~~	31, 2010	/s/ ~~Wendall~~Wendell Falk
			Wendell Falk, Manager

Date:	March ~~5, 2008~~	31, 2010	/s/ Lars Herseth
			Lars Herseth, Manager

Date:	March ~~5, 2008~~	31, 2010	/s/ Mark Lounsbery
			Mark Lounsbery, Manager

Date:	March ~~5, 2008~~	31, 2010	/s/ Robert Metz
			Robert Metz, Manager


Date:	March ~~5, 2008~~	31, 2010	/s/ Jeff Olson
			Jeff Olson, Manager

Date:	March ~~5, 2008~~	31, 2010	/s/ ~~Ronald~~Ron Olson
			Ronald Olson, Manager

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Date:	March ~~5, 2008~~	31, 2010	/s/ Heath Peterson
			Heath Peterson, Manager

Date:	March ~~5, 2008~~	31, 2010	/s/ Delton Strasser
			Delton Strasser, Manager

Date:	March ~~5, 2008~~	31, 2010	/s/ Steve Street
			Steve Street, Manager

Date: March 31, 2010	/s/ J. Charles Walter
	J. Charles Walter, Manager

Date:	March ~~5, 2008~~	31, 2010	/s/ Bill Whipple
			Bill Whipple, Manager

Date:	March ~~5, 2008~~	31, 2010	/s/ Robert Wittnebel
			Robert Wittnebel, Manager

EXHIBIT INDEX

Exhibit No.	Description	Filed Herewith	Incorporated by Reference
2.1	Plan of Organization.		Appendix A to Registrant’s Prospectus filed with the Commission on March 17, 2003.

3.1	Articles of Organization.		Appendix B to Registrant’s Prospectus filed with the Commission on March 17, 2003.

3.2	~~Fourth~~Fifth Amended and Restated Operating Agreement dated July ~~1, 2006.~~31, 2009.		Exhibit 3.2 to the Registrant’s Form ~~10-Q~~8-K filed with the Commission on August ~~14, 2006.~~6, 2009.

4.1	Form of Class A Certificate.		Exhibit 4.1 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

10.1	Loan Agreement with U.S. Bank dated July 11, 2001.		Exhibit 10.7 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

10.2	Lease Agreement with Big Stone — Grant Industrial Development and Transportation, dated April 18, 2001.		Exhibit 10.9 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

10.3	Steam Sale Agreement with Otter Tail Power Company, dated April 18, 2001.		Exhibit 10.10 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

10.4	Water and Fuel Oil Agreement with Otter Tail Power Company, dated August 14, 2001.		Exhibit 10.11 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

10.5	Electric Service Agreement with Otter Tail Power Company, dated September 26, 2001.		Exhibit 10.12 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

10.6	Water and Sanitary Sewer Agreement with the City of Big Stone City, dated December 21, 2001.		Exhibit 10.13 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

10.7	Access and Rail Agreement with Otter Tail Corporation, dated April 18, 2001.		Exhibit 10.14 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

10.8	Industry Track Agreement with Burlington Northern and Santa Fe ~~Railway Company, dated January 8, 2002.~~		Exhibit 10.15 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

Table of Contents

Exhibit No.	Description	Filed Herewith	Incorporated by Reference
	Railway Company, dated January 8, 2002.

10.9	Service Request Form and Extended Service Agreement with NorthWestern Public Service, dated March 19, 2002.		Exhibit 10.17 to the Registrant’s Form S-4 filed with the Commission on July 26, 2002.

10.10	Amendment to U.S. Bank Loan Agreement, dated June 22, 2004.		Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on August 16, 2004.

10.11	Second Amendment to U.S. Bank Loan Agreement, dated March 30, 2005.		Exhibit 10.26 to the Registrant’s Form 10-K filed with the Commission on March 31, 2005.


10.12	$15.8 Million Promissory Note with U.S. Bank, dated March 30, 2005.	Exhibit 10.27 to the Registrant’s Form 10-K filed with the Commission on March 31, 2005.

10.13	$3.9 Million Promissory Note with U.S. Bank, dated March 30, 2005.	Exhibit 10.28 to the Registrant’s Form 10-K filed with the Commission on March 31, 2005.

10.14	Management Agreement with POET™ Plant Management, LLC, dated April 20, 2005.	Exhibit 10.2 to the Registrant’s Form 10-Q filed with the Commission on May 16, 2005.

10.15	Technology and Patent Rights License Agreement with POET™ Design and Construction, LLC, dated October 25, 2005.*	Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on November 14, 2005.

10.16	Amendment to the Management Agreement with POET™ Plant Management, dated October 25, 2005.	Exhibit 10.2 to the Registrant’s Form 10-Q filed with the Commission on November 14, 2005.

10.17	Design Build Agreement with POET™ Design and Construction, Inc., dated October 25, 2005.	Exhibit 10.3 to the Registrant’s Form 10-Q filed with the Commission on November 14, 2005.

10.18	Amended and Restated Loan Agreement with U.S. Bank dated August 28, 2006.	Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on November 14, 2006.

10.19	Expansion Construction Note Agreement dated August 28, 2006.	Exhibit 10.2 to the Registrant’s Form 10-Q filed with the Commission on November 14, 2006.

10.20	$8.0 Million Variable Rate, Revolving Note dated August 28, 2006.	Exhibit 10.3 to the Registrant’s ~~Form~~ Form��10-Q filed with the Commission on November 14, 2006.

10.21	Construction Mortgage and Addendum dated August 28, 2006.	Exhibit 10.4 to the Registrant’s Form 10-Q filed with the Commission on November 14, 2006.

10.22	Security Agreement dated August 28, 2006.	Exhibit 10.5 to the Registrant’s Form 10-Q filed with the Commission on November 14, 2006.

10.23	Corn and Natural Gas Price Risk Management Agreement dated April 1, 2007.	Exhibit 10.2 to the Registrant’s Form 10-Q filed with the Commission on May 10, 2007.

10.24	Amendment No. 1 to Water Fuel Agreement dated March 21, 2007.	Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on May 10, 2007.

10.25	Ethanol Marketing and Services Agreement dated April 24, 2007.	Exhibit 10.3 to the Registrant’s Form 10-Q filed with the Commission on May 10, 2007.

Table of Contents

10.26	DDGS Marketing and Service Agreement dated March 2002.	Exhibit 10.6 to the Registrant’s Form S-4 filed with the Commission July 21, 2002.

~~10.26~~10.27	Design Build Agreement with POET™ Design and Construction dated April 3, 2007.	Exhibit 10.4 to the Registrant’s Form 10-Q filed with the Commission on May 10, 2007.


~~10.27~~10.28	Amendment to Amended and Restated Loan Agreement with U.S. Bank dated September 21, 2007.		Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on November 9, ~~2007~~

~~10.28~~	~~$9.0 Million Promissory Note with U.S. Bank dated September 21,~~ 2007.		~~Exhibit 10.2 to the Registrant’s Form 10-Q filed with the Commission on November 9, 2007~~

10.29	$4.3 Million Promissory Note with U.S. bank dated September 21, 2007.		Exhibit 10.3 to the Registrant’s Form 10-Q filed with the Commission on November 9, ~~2007~~2007.

10.30	Mortgage in Favor of U.S. Bank dated September 21, 2007.		Exhibit 10.4 to the Registrant’s Form 10-Q filed with the Commission on November 9, ~~2007~~2007.

10.31	$9.0 million Promissory Note with U.S. Bank dated July 28, 2009.		Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on August 10, 2009.

21.1	Subsidiaries of the ~~Registrant.~~Registrant	X

31	Rule 13a-14(a)/15d-14(a) Certifications	X

32	Section 1350 Certification	X

*The redacted portions of this exhibit were filed separately with the SEC subject to a request for confidential treatment dated November 14, 2005.

4442

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~The~~To the Audit Committee ~~and Members~~

of
Northern Growers, LLC

Big Stone City, South Dakota

We have audited the accompanying consolidated balance sheets of Northern Growers, LLC as of December 31, ~~2007~~2009 and ~~2006,~~2008, and the related consolidated statements of operations and comprehensive income, changes in members’ equity and comprehensive ~~loss,~~income, and cash flows for ~~each of~~ the years ~~in the three-year period~~ ended December 31, 2009, 2008, and 2007. ~~We also have audited~~ ~~Northern Growers, LLC’s~~ ~~internal control over~~These consolidated financial ~~reporting as of December 31, 2007, based on criteria established in~~ ~~Internal Control-Integrated Framework~~ ~~issued by~~statements are the ~~Committee of Sponsoring Organizations~~responsibility of the ~~Treadway Commission (COSO).~~ ~~Northern Growers, LLC’s~~ management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting.company’s management. Our responsibility is to express an opinion on these consolidated financial statements ~~and an opinion on the company’s internal control over financial reporting~~ based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the ~~audits~~audit to obtain reasonable assurance about whether the financial statements are free of material ~~misstatement and whether effective~~misstatement. The company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting ~~was maintained~~as of December 31, 2009. Our audit as of December 31, 2009 included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in ~~all material respects. Our audits~~the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial ~~statements included~~reporting as of December 31, 2009. Accordingly, we express no such opinion on the effectiveness of the company’s internal control over financial reporting as of December 31, 2009. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, ~~and~~as well as evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our ~~opinions.~~

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northern Growers, LLC as of December 31, ~~2007~~2009 and ~~2006,~~2008, and the results of its operations and its cash flows for ~~each of~~ the years ~~in the three-year period~~ ended December 31, 2009, 2008, and 2007, in conformity with accounting principles generally accepted in the United States of America. ~~Also in our opinion,~~ ~~Northern Growers, LLC~~ ~~maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in the~~ ~~Internal Control—Integrated Framework~~ ~~issued by the Committee of the Sponsoring Organizations of the Treadway Commission (COSO).~~

~~Sioux Falls, South Dakota~~Minneapolis, Minnesota

~~February 22, 2008~~March 31, 2010

~~PEOPLE. PRINCIPLES. POSSIBILITIES.~~

www.eidebailly.com

~~www.eidebailly.com~~

F-1

Table of Contents

NORTHERN GROWERS, LLC

CONSOLIDATED BALANCE SHEETS

December 31,

December 31,

2007

2006

ASSETS

CURRENT ASSETS

Cash

$
9,182,533

$
9,925,200

Accounts receivable

Trade related party

5,711,848

6,445,387

Trade

876,510

850,565

Other

1,005,132

911,359

Inventory

16,977,162

15,493,876

Prepaid expenses

103,678

81,992

Investment in commodities contracts

1,216,724

1,121,151

Total current assets

35,073,587

34,829,530

PROPERTY AND EQUIPMENT

Land improvements

7,090,574

5,105,996

Equipment

71,186,213

45,061,239

Buildings

15,379,448

9,349,073

Construction in progress

—

18,017,902

93,656,235

77,534,210

Less accumulated depreciation

(15,515,208
)
(11,120,828
)

Net property and equipment

78,141,027

66,413,382

OTHER ASSETS

Financing costs, net of amortization of $51,194 and $9,701 as of December 31, 2007 and 2006

265,491

236,996

Assets held for sale

100,000

—

Total other assets

365,491

236,996

$
113,580,105

$
101,479,908

	December 31,			December 31,			December 31,
	2009			2008			2009
							Pro forma
							(Unaudited)
							See Note 13
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	16,121,530		$	12,712,987		$	12,562,330
Accounts receivable
Trade - related party	6,883,902			6,475,987			6,883,902
Trade	950,397			525,851			950,397
Other	352,274			316,576			352,274
Inventory	12,489,540			9,710,268			12,489,540
Prepaid expenses	84,513			127,236			84,513
Due from broker	4,182,016			1,543,287			4,182,016

Total current assets	41,064,172			31,412,192			37,504,972

PROPERTY AND EQUIPMENT
Land improvements	7,141,267			7,107,452			7,141,267
Equipment	71,032,475			71,005,748			71,032,475
Buildings	15,379,448			15,379,448			15,379,448
	93,553,190			93,492,648			93,553,190
Less accumulated depreciation	(25,365,188		)	(20,261,459		)	(25,365,188		)

Net property and equipment	68,188,002			73,231,189			68,188,002

OTHER ASSETS
Financing costs, net of amortization of $177,404
and $116,932 as of December 31, 2009 and 2008	193,633			229,577			193,633
Assets held for sale	-			100,000			-

Total other assets	193,633			329,577			193,633


	$	109,445,807		$	104,972,958		$	105,886,607

See Notes to Consolidated Financial Statements

F-2

Table of Contents

NORTHERN GROWERS, LLC

CONSOLIDATED BALANCE SHEETS

December 31,

December 31,

2007

2006

LIABILITIES AND MEMBERS’ EQUITY

CURRENT LIABILITIES

Accounts payable - trade

$
1,974,139

$
1,254,171

Accounts payable - corn

5,281,356

1,981,804

Accounts payable - related party

348,008

896,678

Accounts payable - construction - related party

—

2,173,905

Other accrued liabilities

523,421

548,909

Accrued interest

3,750

1,321

Distribution payable - Northern Growers

1,518,840

6,787,696

Distribution payable - minority member

—

2,512,400

Notes payable - due upon demand

5,000

5,000

Current portion of notes payable

5,695,078

2,685,475

Total current liabilities

15,349,592

18,847,359

LONG-TERM LIABILITIES

Derivative financial instruments

900,826

187,069

Long-term notes payable

45,894,139

33,391,741

Total long-term liabilities

46,794,965

33,578,810

COMMITMENTS AND CONTINGENCIES (NOTE 6)

MINORITY INTEREST

11,631,149

10,790,823

MEMBERS’ EQUITY

Capital units, $0.25 stated value, 50,628,000 units issued and outstanding

12,657,000

12,657,000

Additional paid-in capital

64,900

64,900

Accumulated other comprehensive (loss)

(695,076
)
(144,342
)
Retained earnings

27,777,575

25,685,358

Total members’ equity

39,804,399

38,262,916

$
113,580,105

$
101,479,908

	December 31,			December 31,			December 31,
	2009			2008			2009
							Pro forma
							(Unaudited)
							See Note 13
LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable - trade	$	1,853,276		$	2,037,590		$	1,853,276
Accounts payable - corn	6,873,524			6,667,478			6,873,524
Accounts payable - related party	642,503			328,566			642,503
Other accrued liabilities	712,609			603,768			712,609
Accrued interest	7,500			3,750			7,500
Accrued liability for commodities contracts	3,132,408			2,390,685			3,132,408
Notes payable - due upon demand	5,000			5,000			5,000
Current portion of notes payable	5,881,047			5,785,007			5,881,047

Total current liabilities	19,107,867			17,821,844			19,107,867

LONG-TERM LIABILITIES
Derivative financial instruments	1,623,620			2,496,933			1,623,620
Long-term notes payable	34,250,108			40,121,940			34,250,108

Total long-term liabilities	35,873,728			42,618,873			35,873,728

COMMITMENTS AND CONTINGENCIES (NOTE 7)

EQUITY
Capital units, $0.25 stated value,
50,628,000 units issued and outstanding	12,657,000			12,657,000			12,657,000
Additional paid-in capital	64,900			64,900			64,900
Accumulated other comprehensive (loss)	(1,252,784		)	(1,926,632		)	(1,252,784		)
Retained earnings	30,540,538			23,625,025			28,009,138

Total Northern Growers, LLC equity	42,009,654			34,420,293			39,478,254

Noncontrolling interest	12,454,558			10,111,948			11,426,758

Total equity	54,464,212			44,532,241			50,905,012


	$	109,445,807		$	104,972,958		$	105,886,607

See Notes to Consolidated Financial Statements

F-3

Table of Contents

~~See Notes to Consolidated Financial Statements~~

~~F-3~~

~~Northern Growers,~~NORTHERN GROWERS, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

~~YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005~~

2007

2006

2005

REVENUES

Sales related party

$
116,084,868

$
105,702,927

$
72,633,304

Sales

21,408,911

16,349,308

16,305,319

Incentive

750,001

784,884

754,085

Total revenues

138,243,780

122,837,119

89,692,708

COST OF REVENUES

112,694,987

62,731,376

63,552,756

GROSS PROFIT

25,548,793

60,105,743

26,139,952

EXPENSES

General and administrative

4,790,117

6,364,983

3,913,177

Total operating expenses

4,790,117

6,364,983

3,913,177

INCOME FROM OPERATIONS

20,758,676

53,740,760

22,226,775

OTHER INCOME (EXPENSES)

Interest income

509,018

334,512

75,682

Interest expense

(2,876,464
)
(1,261,542
)
(1,317,957
)
Other

22,960

21,902

21,675

Total other income (expenses)

(2,344,486
)
(905,128
)
(1,220,600
)

INCOME BEFORE MINORITY INTEREST

18,414,190

52,835,632

21,006,175

MINORITY INTEREST IN SUBSIDIARY (INCOME)

(4,269,470
)
(12,132,284
)
(4,848,463
)

NET INCOME

$
14,144,720

$
40,703,348

$
16,157,712

BASIC AND DILUTED EARNINGS PER CAPITAL UNIT

$
0.279

$
0.804

$
0.319

BASIC AND DILUTED WEIGHTED AVERAGE CAPITAL UNITS OUTSTANDING

50,628,000

50,628,000

50,628,000

DISTRIBUTIONS PER CAPITAL UNIT DECLARED

$
0.238

$
0.518

$
0.230

DISTRIBUTIONS PER CAPITAL UNIT PAID

$
0.342

$
0.448

$
0.241

~~See Notes to Consolidated Financial Statements~~

~~F-4~~

~~Northern Growers, LLC~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY~~ AND COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, ~~2007, 2006~~2009, 2008 AND ~~2005~~2007

Accumulated

Additional

Other

Annual

Capital

Paid-In

Comprehensive

Retained

Comprehensive

Units

Amount

Capital

Income (Loss)

Earnings

Total

Income (Loss)

BALANCE, JANUARY 1, 2005
50,628,000

$
12,657,000

$
64,900

$
—

$
6,724,101

$
19,446,001

Net income
—

—

—

—

16,157,712

16,157,712

16,157,712

Distributions payable
—

—

—

—

(3,212,093
)
(3,212,093
)
—

Distributions paid
—

—

—

—

(8,441,902
)
(8,441,902
)
—

BALANCE, DECEMBER 31, 2005
50,628,000

$
12,657,000

$
64,900

$
—

$
11,227,818

$
23,949,718

$
16,157,712

Net income
—

—

—

—

40,703,348

40,703,348

40,703,348

Cash flow hedge (loss)
—

—

—

(144,342
)
—

(144,342
)
(144,342
)
Distributions payable
—

—

—

—

(6,787,696
)
(6,787,696
)
—

Distributions paid
—

—

—

—

(19,458,112
)
(19,458,112
)
—

BALANCE, DECEMBER 31, 2006
50,628,000

$
12,657,000

$
64,900

$
(144,342
)
$
25,685,358

$
38,262,916

$
40,559,006

Net income
—

—

—

—

14,144,720

14,144,720

14,144,720

Cash flow hedge (loss)
—

—

—

(550,734
)
—

(550,734
)
(550,734
)
Distributions payable
—

—

—

—

(1,518,840
)
(1,518,840
)
—

Distributions paid
—

—

—

—

(10,533,663
)
(10,533,663
)
—

BALANCE, DECEMBER 31, 2007
50,628,000

$
12,657,000

$
64,900

$
(695,076
)
$
27,777,575

$
39,804,399

$
13,593,986

	2009			2008			2007

REVENUES
Sales - related party	$	112,997,456		$	137,146,540		$	116,084,868
Sales	28,374,215			33,632,791			21,408,911
Incentive	666,667			645,596			750,001
Total revenues	142,038,338			171,424,927			138,243,780

COST OF REVENUES	125,825,811		��	169,595,752			112,694,987

GROSS PROFIT	16,212,527			1,829,175			25,548,793

EXPENSES
General and administrative	4,408,451			3,679,176			4,790,117
Total operating expenses	4,408,451			3,679,176			4,790,117

INCOME (LOSS) FROM OPERATIONS	11,804,076			(1,850,001		)	20,758,676

OTHER INCOME (EXPENSES)
Interest income	29,344			84,422			509,018
Interest expense	(2,769,848		)	(3,535,485		)	(2,876,464		)
Other	(4,914		)	(6,135		)	22,960
Total other income (expenses)	(2,745,418		)	(3,457,198		)	(2,344,486		)

NET INCOME (LOSS)	9,058,658			(5,307,199		)	18,414,190

LESS: NET (INCOME) LOSS ATTRIBUTABLE TO THE
NONCONTROLLING INTEREST	(2,143,145		)	1,154,649			(4,269,470		)

NET INCOME (LOSS) ATTRIBUTABLE TO
NORTHERN GROWERS, LLC	6,915,513			(4,152,550		)	14,144,720

OTHER COMPREHENSIVE INCOME (LOSS)
Cash flow hedge income (loss) attributable to
Northern Growers, LLC	673,848			(1,231,556		)	(550,734		)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO
NORTHERN GROWERS, LLC	$	7,589,361		$	(5,384,106	)	$	13,593,986

BASIC AND DILUTED EARNINGS (LOSS) PER CAPITAL UNIT	$	0.137		$	(0.082	)	$	0.279

BASIC AND DILUTED WEIGHTED AVERAGE
CAPITAL UNITS OUTSTANDING	50,628,000			50,628,000			50,628,000

DISTRIBUTIONS PER CAPITAL UNIT DECLARED	$	—		$	—		$	0.238

DISTRIBUTIONS PER CAPITAL UNIT PAID	$	—		$	0.030		$	0.342

See Notes to Consolidated Financial Statements

F-4

NORTHERN GROWERS, LLC

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY AND COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

						Accumulated						Total
				Additional		Other						Northern			Noncontrolling
	Capital			Paid-In		Comprehensive			Retained			Growers, LLC			Interest
	Units	Amount		Capital		Income (Loss)			Earnings			Equity			Equity

BALANCE, JANUARY 1, 2007	50,628,000	$	12,657,000	$	64,900	$	(144,342	)	$	25,685,358		$	38,262,916		$	10,790,823

Net income (loss)	-	-		-		-			14,144,720			14,144,720			4,269,469
Cash flow hedge (loss)	-	-		-		(550,734		)	-			(550,734		)	(163,023		)
Distributions payable	-	-		-		-			(1,518,840		)	(1,518,840		)	-
Distributions paid	-	-		-		-			(10,533,663		)	(10,533,663		)	(3,266,120		)

BALANCE, DECEMBER 31, 2007	50,628,000	$	12,657,000	$	64,900	$	(695,076	)	$	27,777,575		$	39,804,399		$	11,631,149

Net income (loss)	-	-		-		-			(4,152,550		)	(4,152,550		)	(1,154,649		)
Cash flow hedge (loss)	-	-		-		(1,231,556		)	-			(1,231,556		)	(364,552		)
Distributions payable	-	-		-		-			-			-			-
Distributions paid	-	-		-		-			-			-			-

BALANCE, DECEMBER 31, 2008	50,628,000	$	12,657,000	$	64,900	$	(1,926,632	)	$	23,625,025		$	34,420,293		$	10,111,948

Net income (loss)	-	-		-		-			6,915,513			6,915,513			2,143,145
Cash flow hedge income (loss)	-	-		-		673,848			-			673,848			199,465
Distributions payable	-	-		-		-			-			-			-
Distributions paid	-	-		-		-			-			-			-

BALANCE, DECEMBER 31, 2009	50,628,000	$	12,657,000	$	64,900	$	(1,252,784	)	$	30,540,538		$	42,009,654		$	12,454,558

See Notes to Consolidated Financial Statements

F-5

Table of Contents

NORTHERN GROWERS, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, ~~2007, 2006~~2009, 2008 AND ~~2005~~2007

2007

2006

2005

OPERATING ACTIVITIES

Net income

$
14,144,720

$
40,703,348

$
16,157,712

Changes to net income not affecting cash

Depreciation

4,459,581

2,758,668

2,613,727

Amortization of loan fees

41,493

9,701

102,818

Loss on impairment of assets

625,195

450,362

355,177

Minority interest in subsidiary’s earnings

4,269,470

12,132,284

4,848,463

Decrease (increase) in current assets

Accounts receivable

Related party

733,539

(2,848,745
)
78,553

Trade

(25,945
)
(422,436
)
113,517

Other

50,998

(29,163
)
682,345

Inventory

(1,483,286
)
(11,711,260
)
856,945

Prepaid expenses

(21,686
)
(7,859
)
270,570

Investment in commodity contracts

(95,573
)
(1,036,189
)
25,989

Increase (decrease) in current liabilities

Accounts payable

Trade

719,968

(408,239
)
428,227

Corn

3,299,552

(381,534
)
(680,757
)
Related party

(548,670
)
376,085

141,962

Accrued liabilities

(25,488
)
55,732

124,356

Accrued interest

2,429

(2,526
)
(3,593
)

NET CASH PROVIDED BY OPERATING ACTIVITIES

26,146,297

39,638,229

26,116,011

INVESTING ACTIVITIES

Purchase of property and equipment

(18,840,552
)
(28,844,044
)
(1,426,068
)
Cash received on sale of assets

555

31,100

—

Cash paid for capitalized construction interest

(653,413
)
(288,312
)
—

Tax refund on construction

262,313

—

200,570

NET CASH (USED FOR) INVESTING ACTIVITIES

(19,231,097
)
(29,101,256
)
(1,225,498
)

FINANCING ACTIVITIES

Long-term notes payable issued

18,340,126

18,959,874

1,032,369

Principal paid on long-term notes payable

(2,828,126
)
(1,919,718
)
(1,446,148
)
Distributions paid - Northern Growers

(17,321,359
)
(22,670,206
)
(12,219,954
)
Distributions paid - minority member

(5,778,520
)
(6,792,043
)
(3,700,080
)
Cash paid for financing costs

(69,988
)
(246,697
)
—

NET CASH (USED FOR) FINANCING ACTIVITIES

(7,657,867
)
(12,668,790
)
(16,333,813
)

NET INCREASE (DECREASE) IN CASH

(742,667
)
(2,131,817
)
8,556,700

CASH AT BEGINNING OF YEAR

9,925,200

12,057,017

3,500,317

CASH AT END OF YEAR

$
9,182,533

$
9,925,200

$
12,057,017

	2009			2008			2007
OPERATING ACTIVITIES
Net income (loss)	$	6,915,513		$	(4,152,550	)	$	14,144,720
Changes to net income (loss) not affecting cash
Depreciation	5,139,255			5,136,891			4,459,581
Amortization of loan fees	60,472			65,738			41,493
Noncontrolling interest in subsidiary’s earnings (losses)	2,143,145			(1,154,649		)	4,269,470
Loss on sale/disposal of assets	135,216			16,975			625,195
Decrease (increase) in current assets
Accounts receivable
Related party	(407,915		)	(764,139		)	733,539
Trade	(424,546		)	350,659			(25,945		)
Other	(157,100		)	(767		)	50,998
Inventory	(2,779,272		)	2,176,550			(1,826,219		)
Prepaid expenses	42,723			(23,559		)	(21,686		)
Due from broker	(2,638,729		)	3,970,752			(4,083,906		)
Commodities contracts	—			793,029			4,331,266
Increase (decrease) in current liabilities
Accounts payable
Trade	(184,314		)	63,451			719,968
Corn	206,046			1,386,122			3,299,552
Related party	313,937			(19,442		)	(548,670		)
Accrued liabilities	108,841			80,347			(25,488		)
Accrued liability for commodities contracts	741,723			2,390,685			—
Accrued interest	3,750			—			2,429

NET CASH PROVIDED BY OPERATING ACTIVITIES	9,218,745			10,316,093			26,146,297

INVESTING ACTIVITIES
Purchase of property and equipment	(263,478		)	(571,402		)	(18,840,552		)
Cash received on sale of assets	5,000			—			555
Cash paid for capitalized construction interest	—			—			(653,413		)
Refund on construction	84,922			—			—
Tax refund on construction	163,674			1,016,697			262,313

NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES	(9,882		)	445,295			(19,231,097		)

FINANCING ACTIVITIES
Long-term notes payable issued	—			—			18,340,126
Principal paid on long-term notes payable	(5,775,792		)	(5,682,270		)	(2,828,126		)
Distributions paid - Northern Growers	—			(1,518,840		)	(17,321,359		)
Distributions paid - noncontrolling interest	—			—			(5,778,520		)
Cash paid for financing costs	(24,528		)	(29,824		)	(69,988		)

NET CASH (USED FOR) FINANCING ACTIVITIES	(5,800,320		)	(7,230,934		)	(7,657,867		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	3,408,543			3,530,454			(742,667		)

CASH AT BEGINNING OF PERIOD	12,712,987			9,182,533			9,925,200

CASH AT END OF PERIOD	$	16,121,530		$	12,712,987		$	9,182,533


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest	$	2,766,098		$	3,535,485		$	3,612,547

SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Accounts receivable for tax refund on construction	$	—		$	142,632		$	831,955
Accounts receivable for refund on construction	$	21,230		$	—		$	—
Distributions payable	$	—		$	—		$	1,518,840

See Notes to Consolidated Financial Statements

~~See Notes to Consolidated Financial Statements~~

~~(continued on next page)~~

F-6

~~CONSOLIDATED STATEMENTS OF CASH FLOWS — page 2~~Table of Contents

2007

2006

2005

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest

$
3,612,547

$
1,552,337

$
1,321,551

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Accounts payable incurred for construction costs

$
—

$
2,173,905

$
62,769

Accounts receivable for tax refund on construction

$
831,955

$
687,184

$
—

Notes payable refinanced

$
—

$
—

$
18,667,631

Distributions payable

$
1,518,840

$
9,300,096

$
4,162,868

~~See Notes to Consolidated Financial Statements~~

~~F-7~~

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

Principal Business Activity

Northern Growers, LLC or Northern Growers (formerly Northern Growers Cooperative or the “Cooperative”), is a South Dakota limited liability company that was organized to pool investors, provide a portion of the corn supply for an ethanol plant ~~(“the plant”~~(the “plant”) owned by Northern Lights Ethanol, LLC (d/b/a ~~POET™~~POET® Biorefining —– Big Stone) (“~~POET™~~POET® Biorefining —– Big Stone”), and own a 77.16% interest in ~~POET™~~POET® Biorefining —– Big Stone. For purposes of the financial statements and notes, the “Company” refers to both Northern Growers and ~~POET™~~POET® Biorefining —– Big Stone on a consolidated basis. On June 26, 2002, the Company began grinding corn and on July 5, 2002, the Company commenced its principal operations at a 40 million gallon nameplate capacity. On May 14, 2007, the Company completed ~~its~~an expansion to a 75 million gallon nameplate capacity. The Company sells ethanol and related products primarily in the United States.

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 to take effect on 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 statements 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 was surrendered and retired. In connection with the reorganization, Whetstone subsequently changed its name to Northern Growers, LLC. Under the amended Northern Growers’ Operating Agreement, a minimum of 2,500 capital units is required to become a member. Such units are subject to certain transfer restrictions, including approval by the Board of Managers of Northern Growers. Northern Growers 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 2,500 units or if a member becomes bankrupt. The Operating Agreement also includes provisions whereby cash flow in excess of $200,000 will be distributed to unit holders subject to limitations imposed by a super majority vote of the Board of Managers or restrictions imposed by loan covenants.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Northern Growers and its 77.16% owned subsidiary, ~~POET™~~POET® Biorefining - Big Stone. All significant inter-company transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents consist of all highly liquid investments with an original maturity of three months or less.

~~(continued on next page)~~

~~F-8~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Revenue Recognition

Revenue from the ~~production~~sale of ethanol and related ~~product~~products is recorded ~~upon transfer of~~when title transfers to ~~customers, net of allowances for estimated returns on related products.~~customers. Generally, ethanol is shipped FOB shipping point and related ~~product is~~products are shipped FOB ~~destination.~~destination point. In accordance with the Company’s agreement for the marketing and sale of ethanol, shipping costs arranged by the marketer are deducted from the gross sales price reported to the Company by the marketer, thus no shipping costs are incurred related to sales of ethanol. For distiller grains, shipping costs incurred by the Company are included as a component of cost of revenues. Interest income is recognized as earned.

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

Receivables and Credit Policies

Trade receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Customer account balances with invoices dated over 30 days old are considered delinquent. Interest is not charged on any delinquent accounts.

Trade receivables are stated at the amount billed to the customer.

(continued on next page)

F-7

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.

The carrying amount of trade receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management reviews all trade receivable balances that exceed 30 days from the invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Management believes that all trade receivables are collectible; therefore, there is no valuation allowance as of December 31, ~~2007~~2009 and ~~2006.~~2008.

Inventory

Ethanol and related product inventory is stated at net realizable value. Corn inventory is stated at market value, which approximates net realizable value (local market prices less cost of disposal), based on local market prices determined by grain terminals in the area of the plant. Other raw materials, spare parts and work-in-process inventory are stated at the lower of cost or market on an average cost method.

Inventories at December 31, ~~2007~~2009 and ~~2006~~2008 are as follows:

2007

2006

Finished goods

$
1,473,720

$
3,256,330

Raw materials

12,983,539

10,461,893

Work-in-process

1,352,000

807,185

Spare parts inventory

1,167,903

968,468

$
16,977,162

$
15,493,876

~~(continued on next page)~~

~~F-9~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

	2009		2008


Finished goods	$	2,340,779	$	1,875,444
Raw materials	8,050,117		5,620,800
Work-in-process	925,858		1,022,085
Spare parts inventory	1,172,786		1,191,939

	$	12,489,540	$	9,710,268

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities

~~SFAS No. 133~~

Derivative accounting guidance 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~~derivative accounting 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 derivative accounting and reporting ~~requirements of SFAS No. 133.~~requirements.

The Company enters into short-term cash, options and futures contracts and ethanol swaps as a means of securing corn and natural gas for the ethanol plant and managing exposure to changes in commodity prices. All 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, the Company uses futures and option contracts and ethanol swaps offered through regulated commodity exchanges to reduce ~~risk and~~risk. The Company is exposed to risk of loss in the market value of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts, ethanol swaps 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 current earnings. For the statement of cash flows, such contract transactions are classified as operating activities.

The Company has recorded an increase (decrease) to cost of revenues of $1,595,577, $3,181,810 and ($211,011) related to our derivative contracts for the year ended December 31, 2007, 2006 and 2005, respectively. These derivative contracts can be found on the Balance Sheet under “Investment in commodities contracts”.

During 2007 and 2006 the Company entered into derivative financial instruments to limit its exposure to changes

(continued on next page)

F-8

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

in interest rates. The Company entered into two interest rate swap agreements as part of its interest rate risk management strategy and to effectively convert a portion of its variable rate debt to fixed rate debt. The swap agreements are accounted for as a cash flow ~~hedge under SFAS No. 133, as amended.~~hedge.

Interest Rate Swap Agreements

During 2007 and 2006 the Company entered into interest rate swap agreements as part of its interest rate risk management strategy and to effectively convert a portion of its variable rate debt to fixed rate debt. The swap agreements, which both expire August 31, 2014, are accounted for as cash flow ~~hedges under SFAS No. 133, as amended.~~hedges. Under the terms of the swap agreements, the Company’s net payment is a fixed interest rate on the notional amount in exchange for receiving a variable rate based on one month LIBOR. The swap transactions qualify for the shortcut method of ~~recognition under SFAS No. 133;~~recognition; therefore, no portion of the swap is treated as ineffective. The notional amount of the two interest rate swap agreements was $24,131,250 and $16,252,000 as of December 31, 2007 and 2006, respectively. A derivative liability to record the fair value of the swap of $900,826 and $187,069 has been recorded, with a corresponding entry of $550,734 and $144,342 to accumulated other comprehensive loss to the members’ equity section of the balance sheet and a decrease of $163,023 and $42,727 to minority interest for the years ended December 31, 2007 and 2006, respectively.

~~(continued on next page)~~

~~F-10~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Other Comprehensive Income (Loss)

The Company has adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (“SFAS 130”) that establishes standards for reporting comprehensive income. The Statement definesCompany’s comprehensive income ~~as the changes in equity~~(loss) consists of ~~an enterprise except those resulting from stockholder transactions. As of December 31, 2007~~net income (loss) and ~~2006, accumulated~~ other comprehensive ~~loss consists~~income (loss), consisting of an unrealized loss from our interest rate swap agreements designated as a cash flow hedge.

~~Minority~~Net Income (Loss) per Unit

Basic net income (loss) per unit is computed by dividing net income (loss) by the weighted average number of members’ units outstanding during the period. Diluted net income per unit is computed by dividing net income by the weighted average number of members’ units and members’ unit equivalents outstanding during the period. There were no member unit equivalents outstanding during the periods presented; accordingly, the Company’s basic and diluted net income (loss) per unit are the same.

Noncontrolling Interest

Amounts recorded as ~~minority~~noncontrolling interest on the balance sheet relate to the investment by Broin Investments I, LLC in ~~POET™~~POET® Biorefining —– Big Stone, plus or minus any allocation of income or loss of ~~POET™~~POET® Biorefining —– Big Stone, plus or minus any allocation of accumulated other comprehensive income or loss, less distributions from ~~POET™~~POET® Biorefining —– Big ~~Stone.~~Stone. Earnings/losses and distributions of ~~POET™~~POET® Biorefining —– Big Stone are allocated to its members in proportion to the member’s capital accounts.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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.

Concentrations of Credit Risk

Cash balances are maintained in bank depositories and periodically exceed federally insured limits.

(continued on next page)

F-9

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

Property and equipment is stated at cost. Significant additions and betterments are capitalized, while expenditures for maintenance, repairs and minor renewals are charged to operations when incurred. Depreciation on assets placed in service is computed using the straight-line method over estimated useful lives as follows:

Land improvements		8-40 years
Equipment		3-20 years
Buildings		10-40 years

Land improvements consist of landscaping, additional fencing and improvements to the roads for entering and exiting the plant.

Equipment consists of grain systems, trucks, mechanical and electrical production and process equipment, cooling towers, boilers and a reboiler, field sensors and power supplies.

Buildings ~~consists~~consist of administrative offices, sheds, catwalks, platforms, and mechanical and grain buildings.

Long-Lived Assets

~~In accordance with Financial Accounting Standard Board (FASB) Statement of Financial Accounting Standards No. 144 (SFAS 144),~~ ~~Accounting for the Impairment or Disposal of Long-Lived Assets,~~ ~~long-lived~~

Long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization, are reviewed for

~~(continued on next page)~~

~~F-11~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

During 2009, the Company recorded a loss on disposal of assets of $35,216 for a combination of several small equipment items that were deemed unusable. Also, the “Assets held for sale”, described below, were deemed to have little if no sales value and the remaining value of $100,000 is included in the cost of revenues as a loss on impairment of assets.

A loss on impairment of assets of $625,195 was recognized by the ~~Company’s management during~~Company in 2007 and is included in cost of revenues. A subset of the plant’s thermal oxidizers, built during the original construction of the plant, was deemed impaired for $614,640 when environmental testing indicated that the equipment recently installed to replace the subset was sufficient to meet environmental compliance rules. The estimated fair market value of ~~this asset is~~the subset was $100,000, ~~for~~ which management ~~intends~~intended to sell on the open market, and is listed on the Consolidated Balance Sheet as “Assets held for sale.” In addition, the Company recorded a loss on ~~impairment~~disposal of assets of $10,555 for a compilation of several small equipment items that were deemed unusable.

~~A loss on impairment of assets of $450,362 was recognized by the Company’s management during 2006 and is included in cost of revenues. Upon the completion and incorporation of BPX~~TM technology into the plant’s production process in October 2006, there were multiple tanks, motors and other equipment deemed to be unusable. Two tanks were sold. Management determined that the balance of the unsuable assets was without value as the scrap value of such assets approximated the costs of disposal.

A loss on impairment of assets for $355,177 was recognized by the Company’s management during 2005 and is included in cost of revenues. A subset of the thermal oxidizers was deemed impaired and no longer useful due to extreme internal heat damage. Due to the extreme degradation of the subset, management determined that this asset was without value as the scrap value of such asset approximated the costs of disposal.

Environmental Liabilities

The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company 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

(continued on next page)

F-10

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

financial liability which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated.

Income Taxes

The Company is ~~not~~organized as a ~~taxpaying entity for federal~~limited liability company under state law. Accordingly, the Company’s earnings pass through to the members and ~~state~~are taxed at the member level. No income tax ~~purposes due to its treatment as a partnership. Accordingly, no~~ provision ~~or liability for federal or state income taxes~~ has been included in these financial statements. ~~Income~~Differences between the financial statement basis of assets and the tax basis of assets are related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. In addition, differences in lives and methods result in differences in the depreciation of property and equipment for financial statement and tax purposes. Differences also exist in the treatment of unrealized gains and losses on investments in grain contracts, derivative instruments, and hedging activities. The Company is ~~taxed~~no longer subject to ~~the members in their respective returns.~~U.S. Federal income tax examinations by tax authorities for fiscal years prior to 2006.

In June 2006, the FASB issued ~~Interpretation No. 48,~~ ~~Accounting~~new guidance for ~~Uncertainty~~accounting for uncertainty in ~~Income Taxes~~ ~~(FIN 48). FIN 48~~income taxes. This guidance clarifies the requirements of ~~SFAS 109,~~ ~~Accounting~~accounting for ~~Income Taxes~~,income taxes, relating to the recognition of income tax benefits. ~~FIN 48~~The provisions of this have subsequently been included in the FASB Accounting Standards Codification Topic 740 provides a two-step approach to recognizing and measuring tax benefits when realization of the benefits is uncertain. The first step is to determine whether the benefit meets the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. ~~Primarily~~The Company has evaluated whether it was necessary to recognize any benefit from uncertain tax positions in currently open tax periods and determined that, primarily due to ~~the Company’s tax~~its status as a partnership, ~~the adoption of FIN 48 on January 1, 2007, had~~there are no material ~~impact on~~uncertainties within its filed tax returns. As a result, no liability related to the implementation of this guidance has been recorded.

As of December 31, 2009 the Company’s ~~financial condition or results of operations.~~

~~(continued on next page)~~

~~F-12~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~net assets exceeded their tax basis by approximately $30,000,000.

Cost of Revenues

The primary components of cost of revenues from the production of ethanol and related products are corn expense, energy expense (steam, natural gas and electricity), raw materials expense (chemicals and denaturant), shipping costs on sales, ~~and~~ depreciation on process ~~equipment.~~equipment and direct labor costs.

~~All shipping~~Shipping costs incurred ~~with regard to~~by the ~~sale of ethanol and related product inventory~~Company are ~~included in the consolidated statements of operations as a component of gross revenues. Accordingly, those shipping costs are deducted and are all classified~~recorded as a component of cost of revenues. Shipping costs in ~~relation to sales are defined as the cost to transport products to customers. Other shipping costs in the~~ cost of revenues ~~include~~includes inbound freight charges on ~~inventory.~~inventory, outbound freight charges on related product and purchasing and receiving costs.

General and Administrative Expenses

The primary components of general and administrative expenses are management fees, administrative salaries and wages, insurance expense and professional fees (legal, audit and consulting).

Advertising Costs

Advertising and promotion costs are expensed when incurred and totaled $314,915, $129,074 and $203,386 for the years ended December 31, 2009, 2008 and 2007, respectively.

(continued on next page)

F-11

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitalization of Interest

The Company capitalizes interest cost on construction in progress and capitalized development costs. A certain portion of interest costs are capitalized as part of the historical cost of developing or constructing an asset. The Company capitalized $0, $0 and $653,413 of interest for the years ending December 31, 2009, 2008 and 2007, respectively.

Reclassifications

Certain reclassifications have been made to the ~~2006~~2007 and ~~2005~~2008 financial statements to conform to the presentation in ~~2007.~~2009. These reclassifications had no change in previously reported net income.

Recently Issued Accounting Pronouncements

In ~~September 2006,~~June 2009, the FASB amended the existing accounting and disclosure guidance for the consolidation of variable interest entities, which is effective January 1, 2010. The amended guidance requires enhanced disclosures intended to provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The Company is currently assessing the impact of adoption on its financial position and results of operations.

In October 2009, the FASB issued ~~SFAS 157,~~ ~~Fair Value Measurements~~~~. SFAS 157 defines fair value, establishes a framework~~new guidance for ~~measuring fair value, and expands disclosures about fair value measurements. The statement~~revenue recognition with multiple deliverables, which is effective for ~~(1) financial assets and liabilities~~revenue arrangements entered into or materially modified in ~~financial statements issued for~~ fiscal years beginning on or after ~~November~~June 15, ~~2007,~~2010, although early adoption is permitted. This guidance eliminates the residual method under the current guidance and ~~interim periods within those fiscal years~~replaces it with the “relative selling price” method with allocating revenue in a multiple deliverable arrangement. The selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists, otherwise third-party evidence of selling price shall be used. If neither exists for a deliverable, the vendor shall use its best estimate of the selling price for that deliverable. After adoption, this guidance will also require expanded qualitative and ~~(2) certain non-financial assets and liabilities in financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.~~quantitative disclosures. The Company is ~~evaluating~~currently assessing the ~~effect, if any, that the~~impact of adoption ~~of SFAS 157 will have~~ on its ~~results of operations,~~ financial position and ~~the related disclosures.~~results of operations.

~~In February 2007, the FASB issued SFAS 159,~~ ~~The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No.~~ ~~115 (~~Newly Adopted Accounting ~~for Certain Investments in Debt and Equity Securities~~Pronouncements). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value and is effective for fiscal years beginning after November 15, 2007 with early adoption permitted. The Company is evaluating the effect, if any, that the adoption of SFAS 159 will have on its results of operations, financial position, and the related disclosures.

~~In December 2007, the FASB issued SFAS 160,~~ Noncontrolling Interests in Consolidated Financial ~~Statements — an amendment~~Statements. On January 1, 2009, the Company adopted new guidance for the accounting, reporting and disclosure of ~~ARB No. 51 (Consolidated Financial Statements). SFAS 160 establishes~~noncontrolling interests, which improves the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for athe noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. ~~In addition, SFAS 160 requires certain consolidation procedures for consistency with~~The impact of adopting this guidance on the ~~requirements~~consolidated financial statements was the presentation of ~~SFAS 141,~~ ~~Business Combinations~~~~. SFAS 160 is effective for fiscal years,~~noncontrolling interest within equity in the consolidated balance sheets and ~~interim periods within those fiscal years, beginning on or after December 15, 2008 with earlier adoption prohibited. The Company is evaluating~~in the ~~effect, if any, that the adoption~~consolidated statements of ~~SFAS 160 will have on its results of operations, financial position, and the related disclosures.~~changes in equity.

~~(continued~~Business Combinations. On January 1, 2009, the Company adopted new guidance on ~~next page)~~business combinations which expands the scope of acquisition accounting to all transactions under which control of a business is obtained. This guidance requires an acquirer to recognize the assets acquired and liabilities assumed at the acquisition date fair values with limited exceptions. Additionally, the guidance requires that contingent consideration be recorded at fair value on the acquisition date, that acquired in-process research and development be capitalized and recorded as intangible assets at the acquisition date, and also requires transaction costs and costs to restructure the acquired company be expensed. On April 1, 2009, additional guidance was issued further amending the accounting for business combinations to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can reasonably be estimated. If the acquisition date fair value of an asset acquired or liability assumed that arises from a contingency

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F-12

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

cannot be determined, the asset or liability would be recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability would be recognized. The Company has not had any business combinations since adopting this guidance.

Disclosures about Derivative Instruments and Hedging Activities. On April 1, 2009, the Company adopted new guidance related to derivative disclosure and hedging activities. This guidance requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. The guidance also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements and the impact that hedges have on an entity’s operating results, financial position or cash flows. See Note 4 — Derivative Financial Instruments for additional disclosures.

Codification.In ~~December 2007,~~June 2009, the FASB issued ~~SFAS 141(R),~~ ~~Business Combinations~~the FASB Accounting Standards Codification (“Codification”). ~~SFAS 141(R) expands~~The Codification became the ~~definition~~single source for all authoritative GAAP recognized by the FASB and has been applied to financial statements issued for periods ending after September 15, 2009. The only impact of ~~transactions~~adopting this provision was to update and events that qualify as business combinations; requires that the acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflectedremove certain references in ~~revenue, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs~~our consolidated financial statements to be expensed as incurred. Adoption of SFAS 141(R) is required for combinations after December 15, 2008. Early adoption and retroactive application of SFAS 141(R) to fiscal years preceding the effective date are not permitted. The Company is evaluating the effect, if any, that the adoption of SFAS 141(R) will have on its results of operations, financial position, and the related disclosures.technical accounting literature.

NOTE 3 - FAIR VALUE MEASUREMENTS~~NOTES PAYABLE~~

~~Northern Growers received advances~~On January 1, 2008, the Company adopted new guidance on fair value measurements, which clarifies the definition of ~~$5,000 from various entities~~fair value, establishes a framework for measuring fair value, and expands the disclosures of fair value measurements. In February 2008, the FASB deferred the effective date of the new guidance for one year for nonfinancial assets and liabilities recorded at fair value on a nonrecurring basis. The effect of adoption on January 1, 2009 of the new guidance for nonfinancial assets and liabilities recorded at fair value on a nonrecurring basis did not have a material impact on the Company’s financial position and results of operations or cash flows.

There are three levels of inputs that may be used to ~~help establish~~measure fair value:

Level 1 inputs include quoted market prices in an active market for identical assets or liabilities.

Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.

Level 3 inputs are unobservable and corroborated by little or no market data.

Except for those assets and liabilities which are required by accounting guidance to be recorded at fair value in the ~~Company. This short-term note payable is due on demand and does~~consolidated balance sheets, the Company has elected not ~~bear interest. The balance of this non-interest bearing note was $5,000~~to record any other assets or liabilities at fair value, as permitted by new guidance. No events occurred during the twelve months ended December 31, ~~2007 and 2006.~~2009 which would require adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis.

On August 28, 2006, POET™ Biorefining - Big Stone and US Bank National Association, Sioux Falls, South Dakota (Bank) entered into an amended and restated loan agreement for the purpose of financing the plant’s expansion and restructuring the $3.0 million and $5.0 million revolving notes into one note. On September 21, 2007, an amendment to the loan agreement became effective. The purpose of the amendment was to finance $4,300,000 for additional grain storage and to finance a $9,000,000 short-term revolving note. Under the amended and restated loan agreement and the September 21, 2007 amendment, POET™ Biorefining — Big Stone is subject to six notes: Note #174, a $3.9 million variable-rate, non-revolving note; Note #158, a $15.8 million fixed-rate note; Note #91, an $8 million variable-rate, revolving long term note; Note #190, a $33 million construction note; Note #232, a $4.3 million variable-rate note; and Note #216, a $9 million variable-rate, revolving short-term note.
(continued on next page)

Note #174, the $3.9 million variable-rate, non-revolving note, bears interest at the Bank’s prime rate, or 7.25% at December 31, 2007. This note requires quarterly payments of interest and amortized principal on the basis of a ten-year term, the first payment being made on June 30, 2005. The note matures on March 31, 2012.

Note #158, the $15.8 million fixed-rate note, bears an interest rate of 6.38%. This note requires quarterly payments of interest and amortized principal on the basis of a ten-year term and is subject to maturity on March 31, 2012. The first payment was made on June 30, 2005.

~~Note #117, the $1.2 million fixed rate note, was retired on April 30, 2007.~~

The amended and restated loan agreement restructured the $3.0 million and $5.0 million notes into an $8 million revolving note (Note #91). The new revolving note permits POET™ Biorefining - Big Stone to borrow, on a revolving basis, the difference between the unpaid principal balance and $8 million. The revolving note bears a variable-interest rate equal to the prime rate announced by the Bank from time to time, adjusted each time the Prime Rate changes. Quarterly payments of interest on any unpaid balance are due March 31, June 30, September 30, and December 31 of each year. The total unpaid principal balance is due at maturity, or August 31, 2014. The loan is subject to a quarterly unused commitment fee of .0375% and prepayment is without penalty.

Note #190, the construction note of $33,000,000, was converted to a term note on August 31, 2007. The notional amount ($24,131,250 as of December 31, 2007) is subject to the interest rate swap agreements discussed in Note 2 under “Interest Rate Swap Agreements”. The loan will be amortized over a ten-year period which began August 31, 2007 and is subject to a maturity of August 31, 2014. Payments of principal are due quarterly and began November 30, 2007. Payments of interest are due monthly, subject to a variable rate of one-month LIBOR plus 2.75%, adjusted monthly (7.571% at December 31, 2007).

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Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides information on those assets and liabilities measured at fair value on a recurring basis.

	Carrying Amount
	In Consolidated
	Balance Sheets			Fair Value			Fair Value Measurement Using
	December 31, 2009			December 31, 2009			Level 1		Level 2			Level 3
Commodities contracts	$	(1,887,106	)	$	(1,887,106	)	$(1,887,106	)
Corn purchase contracts	$	(1,245,302	)	$	(1,245,302	)			$	(1,245,302	)
Derivative financial instruments	$	(1,623,620	)	$	(1,623,620	)			$	(1,623,620	)

~~Note #232,~~Commodities contracts principally includes corn and natural gas futures and option contracts and ethanol swaps. The fair values for which are obtained from quoted market prices from the ~~$4.3 million note, which was issued to finance additional grain storage~~CBOT for identical assets or liabilities, and ~~handling equipment, is subject to a variable rate~~are designated as Level 1 within the valuation hierarchy. The Company’s corn purchase contracts consist of ~~LIBOR plus 3.00% (8.225% at December 31, 2007), adjusted~~forward purchase commitments and ~~due monthly. A principal payment of $154,000 is due quarterly, which began on October 31, 2007.~~

Note #216, the $9 million short-term note, which was issued on September 21, 2007, permits us to borrow, on a revolving basis, the difference of the outstanding principal amount and the lesser of the borrowing base or $9.0 million. The borrowing base is defined as 75% of the total of the fair market value of the outstanding inventory, eligible accounts receivable, and hedging accounts at fair market value. The principal purpose of this revolver is to cover the cost of purchasing corn. It bears a variable-interest rate equal to one-month LIBOR plus 3.00%, payable monthly when there is an outstanding balance (8.225% at December 31, 2007). The loan is subject to a quarterly unused commitment fee of .0250%. The total unpaid principal balance is due at maturity, or July 30, 2008. $9 million was available at December 31, 2007.

POET™ Biorefining - Big Stone is subject to certain restrictive covenants establishing minimum reporting requirements, ratios, working capital and net worth requirements and is in full compliance at December 31, 2007. Under the Septemer 21, 2007 amendment to the loan agreement, the working capital requirement increased from $7.5 million to $10 million on October 1, 2007. Collateral for the notes is multiple mortgages and security agreements, multiple UCC filings on all business assets, and assignments of certain agreements related to the construction and operation of the plant.

~~The balance of the long-term notes payable as of December 31, 2007 and 2006 is as follows:~~

2007

2006

Note #174

$
2,827,500

$
3,217,500

Note #158

12,440,717

13,733,942

Note #117

—

165,901

Note #190

32,175,000

18,959,873

Note #232

4,146,000

—

51,589,217

36,077,216

Less current portion

(5,695,078
)
(2,685,475
)

$
45,894,139

$
33,391,741

~~At December 31, 2007 and 2006, there were no outstanding borrowings against the variable rate revolving notes and the balance available on these notes was $8,000,000.~~

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~~F-15~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Minimum principal payments, through the maturity of the notes, are estimated as follows:~~

Year Ending December 31,

Amount

2008

$
5,695,078

2009

5,785,844

2010

5,882,541

2011

5,985,556

2012

11,499,198

2013 to August 31, 2014

16,741,000

$
51,589,217

~~NOTE 4 -~~~~RELATED PARTY TRANSACTIONS~~

Northern Growers and Broin Investments I, LLC, are the members of POET™ Biorefining - Big Stone. Northern Growers invested $12,500,000 and Broin Investments I, LLC invested $3,700,000 in POET™ Biorefining - Big Stone for their respective ownership interests of 77.16% and 22.84%. In accordance with the Operating Agreement of POET™ Biorefining - Big Stone, Broin Investments I, LLC, has the right to elect two of seven members of the Board of Managers of POET™ Biorefining - Big Stone.

~~Additional agreements with related parties~~ are included in ~~Note 6.~~Commodities contracts if positive and in Accrued liability for commodity contracts if negative. The fair value for these agreements were determined using quoted market prices from the Chicago Board of Trade (CBOT) for similar assets, and are designated as Level 2 within the valuation hierarchy. Derivative financial instruments consists of interest rate swaps at fair value using the counterparty’s marked-to-market statement, which can be validated using modeling techniques that include market inputs such as publicly available interest rate yield curves, and are designated as Level 2 within the valuation hierarchy.

~~NOTE 5 -~~~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

The Company considers the carrying amount of significant classes of financial instruments on the balance sheets, including cash, accounts receivable, inventories, other assets, accounts payable, accrued liabilities, and variable rate long-term debt to be reasonable estimates of fair value either due to their length of maturity or the existence of variable interest rates underlying such financial instruments that approximate prevailing market rates at December 31, ~~2007. The Company’s other significant classes of financial instruments on the balance sheets for which the carrying amounts~~2009 and ~~estimated fair values differ at December 31, 2007 are detailed below.~~2008.

~~As of December 31, 2006, the carrying amount of the fixed-rate, long-term note payable obligations exceeded fair value.~~

Due to declining interest rates ~~during 2007,~~since the inception of certain long-term notes, the carrying amount of the fixed-rate, long-term note payable obligations were less than fair value at December 31, ~~2007.~~2009 and 2008. As the following table presents, the carrying amount and the fair value of long-term note payable obligations at December 31, ~~2007~~2009 and ~~2006~~2008 are as follows:

Carrying Amount

Fair Value

Long-term notes payable December 31, 2007

$
51,589,217

$
51,652,937

Long-term notes payable December 31, 2006

$
36,077,216

$
35,728,911

	Carrying Amount		Fair Value

Long-term notes payable December 31, 2009	$	40,131,155	$	40,159,996
Long-term notes payable December 31, 2008	$	45,906,947	$	46,319,988

The Company believes the carrying amount of short-term notes payable approximates their value due to the short maturity of these instruments.

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Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS

From time to time the Company enters into derivative transactions to hedge its exposures to interest rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes.

As discussed in Note 2, on January 1, 2009, the Company adopted new guidance requiring holders of derivative instruments to provide qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.

As of December 31, 2009, the Company has entered into ethanol, natural gas and corn derivative instruments and interest rate swap agreements. The Company is required to record derivative financial instruments as either assets or liabilities at fair value in the statement of financial position. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. Furthermore, the Company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge, a cash flow hedge or a hedge against foreign currency exposure. The Company formally documents, designates, and assesses the effectiveness of transactions that receive hedge accounting initially and on an on-going basis.

Commodity Contracts

The Company enters into ethanol and corn commodity-based derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices for periods up to twelve months in order to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales and corn purchase commitments where the prices are set at a future date. In addition, the Company hedges anticipated sales of ethanol to minimize its exposure to the potentially adverse effect of price volatility. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Derivative fair market value gains or losses are included in the results of operations and are included in cost of revenues. All commodity contracts do not qualify for hedge accounting.

Interest Rate Contracts

The Company manages its floating rate debt using interest rate swaps. The Company will enter into fixed rate swaps to alter its exposure to the impact of changing interest rates on its consolidated results of operations and future cash outflows for interest. Fixed rate swaps are used to reduce the Company’s risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision.

At December 31, 2009, the Company had $19,181,250 of notional amount outstanding in swap agreements that exchange variable interest rates (one-month LIBOR plus 2.75%) for fixed interest rates over the terms of the agreements and are designated as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments. The effective portion of the fair value gains or losses on these swaps is included as a component of accumulated other comprehensive income (“AOCI”).

All interest rate swaps held by the Company as of December 31, 2009 qualified as cash flow hedges. For these qualifying hedges, the effective portion of the change in fair value is recognized through earnings when the underlying transaction being hedged affects earnings, allowing a derivative’s gains and losses to offset related results from the hedged item on the income statement.

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F-15

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables provide details regarding the Company’s derivative financial instruments at December 31, 2009:

	Asset Derivatives			Liability Derivatives
As of December 31,	2009			2009
	Balance Sheet	Fair		Balance Sheet	Fair
	Location	Value		Location	Value

Derivatives designated as hedging instruments
Interest rate swap		$	-	Long-term liabilities	$ 1,623,620

Total derivatives designated as hedging instruments		$	-		$ 1,623,620


Derivative not designated as hedging instruments
Commodities contracts		$	-	Current liabilities	$ 3,132,408

Total derivatives not designated as hedging instruments		$	-		$ 3,132,408

Derivative Cash Flow Hedging Relationship - Interest rate swaps	Twelve Months Ended December 31, 2009


Amount of gain (loss) recognized in OCI on derivative	$	673,848

Amount of gain (loss) reclassified from accumulated OCI into income on derivative	$	-

Location of gain (loss) reclassified from accumulated OCI into income


Amount of gain (loss) recognized in income on derivative	$	(982,284	)

Location of gain (loss) recognized in income	Interest Expense

Derivatives not designated as hedging intruments - Commodities contracts	Twelve Months Ended December 31, 2009


Amount of gain (loss) recognized in income on derivative	$	5,773,808

Location of gain (loss) recognized in income	Cost of revenues

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F-16

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - NOTES PAYABLE

Northern Growers received advances of $5,000 from various entities to help establish the Company. This short-term note payable is due on demand and does not bear interest. The balance of this non-interest bearing note was $5,000 at December 31, 2009 and December 31, 2008.

Northern Growers received a loan advance of $25,000 from First Bank & Trust, Milbank, SD, during the three month period ending March 31, 2008 for short-term cash needs. This short-term note payable bore interest at 5.94% and matured May 1, 2008 and was paid in full. The balance of this note was $0 at December 31, 2009 and December 31, 2008.

On August 28, 2006, POET® Biorefining - Big Stone and U.S. Bank National Association, Sioux Falls, South Dakota (Bank) entered into an amended and restated loan agreement for the purpose of financing the plant’s expansion and restructuring the $3,000,000 and $5,000,000 revolving notes into one note. On September 21, 2007, an amendment to the loan agreement became effective. The purpose of the amendment was to finance the purchase and construction of additional grain storage bins and equipment ($4,300,000) and obtain a $9,000,000 short-term revolving loan. Under the amended and restated loan agreement and the September 21, 2007 amendment, POET® Biorefining – Big Stone is subject to six notes: Note #174, a $3,900,000 variable-rate, non-revolving note; Note #158, a $15,800,000 fixed-rate note; Note #91, an $8,000,000 variable-rate, revolving long term note; Note #190, a $33,000,000 construction note; Note #232, a $4,300,000 variable-rate note; and Note #216, a $9,000,000 variable-rate, revolving short-term note.

Note #174, the $3,900,000 variable-rate, non-revolving note, bears interest at the Bank’s prime rate, or 3.25% at December 31, 2009. This note requires quarterly payments of interest and amortized principal on the basis of a ten-year term, the first payment being made on June 30, 2005. The note matures on March 31, 2012.

Note #158, the $15,800,000 million fixed-rate note, bears an interest rate of 6.38%. This note requires quarterly payments of interest and amortized principal on the basis of a ten-year term and is subject to maturity on March 31, 2012. The first payment was made on June 30, 2005.

Note #117, the $1,200,000 fixed rate note, was retired on April 30, 2007.

Note #91, the $8,000,000 variable rate, revolving note, permits POET® Biorefining - Big Stone to borrow, on a revolving basis, the difference between the unpaid principal balance and $8,000,000. The revolving note bears a variable-interest rate equal to the prime rate announced by the Bank from time to time, adjusted each time the Prime Rate changes (3.25% at December 31, 2009). Quarterly payments of interest on any unpaid balance are due March 31, June 30, September 30, and December 31 of each year. The total unpaid principal balance is due at maturity, or August 31, 2014. The loan is subject to a quarterly unused commitment fee of 0.0375% and prepayment is without penalty. At December 31, 2009 and 2008, there were no outstanding borrowings against the long-term variable rate revolving note and the balance available on this note was $8,000,000.

Note #190, the construction note of $33,000,000, was converted to a term note on August 31, 2007. The notional amount ($19,181,250 as of December 31, 2009) is subject to the interest rate swap agreements discussed in Note 2 under “Interest Rate Swap Agreements”. The note is amortized over a ten-year period and is subject to a maturity of August 31, 2014. Payments of principal are due quarterly and began on November 30, 2007. Payments of interest are due monthly, subject to a variable rate of one-month LIBOR plus 2.75%, adjusted monthly (2.980% at December 31, 2009).

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F-17

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note #232, the $4,300,000 note, is subject to a variable rate of LIBOR plus 3.00% (3.235% at December 31, 2009), adjusted and due monthly. A principal payment of $154,000 is due quarterly, which began on October 31, 2007.

Note #216, the $9,000,000 short-term note, which was issued on September 21, 2007, permits us to borrow, on a revolving basis, the difference of the outstanding principal amount and the lesser of the borrowing base or $9,000,000. The borrowing base is defined as 75% of the total of the fair market value of the outstanding inventory, eligible accounts receivable, and hedging accounts at fair market value. The principal purpose of this revolver is to cover the cost of purchasing corn. The loan has been renewed, with revised terms, as of July 28, 2009. It bears a variable-interest rate equal to one-month LIBOR plus 3.00%, payable monthly when there is an outstanding balance (4.250% at December 31, 2009). The revolver is subject to a quarterly unused commitment fee of 0.500% per year, assessed quarterly in arrears (previously was 0.250%). The variable interest rate has been revised to one-month LIBOR plus 4.00%. The total unpaid principal balance is due at maturity, or July 26, 2010. The amount available on this note was $9,000,000 at December 31, 2009 and December 31, 2008.

POET® Biorefining - Big Stone is subject to certain restrictive covenants establishing minimum reporting requirements, ratios, working capital and net worth requirements and is in full compliance at December 31, 2009. The bank waived compliance of the fixed charge coverage ratio on May 14, 2009 for the March 31, 2009 compliance date. On May 14, 2009, the bank also adjusted the 2009 requirements of the fixed charge coverage ratio covenant for the second and third quarters of 2009 and the Company was in full compliance with the covenants at June 30 and September 30, 2009. The Company believes it will be in compliance with all covenants for each of the four quarters of 2010. Collateral for the notes is multiple mortgages and security agreements, multiple UCC filings on all business assets, and assignments of certain agreements related to the construction and operation of the plant.

The balance of the long-term notes payable as of December 31, 2009 and 2008 is as follows:

	2009			2008


Note #174	$	2,047,500		$	2,437,500
Note #158	9,594,655			11,064,447
Note #190	25,575,000			28,875,000
Note #232	2,914,000			3,530,000

	40,131,155			45,906,947
Less current portion	(5,881,047		)	(5,785,007		)

	$	34,250,108		$	40,121,940

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F-18

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Minimum principal payments, through the maturity of the notes, are estimated as follows:

Twelve Months Ending December 31,	Amount

2010	$	5,881,047
2011	5,983,965
2012	11,525,143
2013	3,916,000
January 1, 2014 to August 31, 2014	12,825,000

	$	40,131,155

NOTE 6 - RELATED PARTY TRANSACTIONS

Northern Growers and Broin Investments I, LLC, are the members of POET® Biorefining - Big Stone. Northern Growers invested $12,500,000 and Broin Investments I, LLC invested $3,700,000 in POET® Biorefining - Big Stone for their respective ownership interests of 77.16% and 22.84%. In accordance with the Member Control Agreement of POET® Biorefining - Big Stone, Broin Investments I, LLC, has the right to elect two of seven members of the Board of Managers of POET® Biorefining - Big Stone.

Additional agreements with related parties are included in Note 7.

NOTE 7 - COMMITMENTS, CONTINGENCIES AND AGREEMENTS

Substantially all of the Company’s endeavors are subject to federal, state and local regulations relating to the discharge of materials into the environment. Management believes that the current practices and procedures for the control and disposition of such wastes comply with the applicable federal, state and local requirements.

Due to the name change of Broin Companies, LLC (“Broin”) to ~~POET™~~POET®, LLC in early 2007 and a corresponding change in the name of some Broin-related companies, the Company’s existing contractual arrangements and agreements for plant development, operations and marketing are now with newly named entities containing ~~POET™~~POET®. All of the newly named ~~POET™~~POET®-related entities are the same Broin-related entities that existed prior to the Broin to ~~POET™~~POET® name change. Broin Investments I, LLC, the minority member of ~~POET™~~POET® Biorefining —– Big Stone, has not changed its name, yet is still a related party to all ~~POET™~~POET®-named companies listed here.

The Company has entered into contracts and agreements regarding the construction, operation and management of the ethanol plant. Agreements with the minority member, or parties related to the minority member through common ownership, are as follows:

Expansion Construction Agreement —– The Company entered into a Design/Build Agreement with ~~POET™~~POET® Design and Construction, Inc. (formerly known as Broin & Associates, Inc.) on October 25, 2005. The purpose of this agreement was to expand the name-plate production capacity of the plant from 40 million gallons of ethanol annually to 75 million gallons of ethanol annually, as well as to make certain capital improvements to the plant for the incorporation of new raw starch technology. The final cost of construction and improvements for both projects was $42.3 million, with all construction complete at December 31, 2007. ~~The liability incurred on this construction contract was $0 and $2,173,905 at December 31, 2007 and 2006, respectively.~~

Additional Corn Storage Construction Agreement —– The Company entered into a Design/Build Agreement with ~~POET™~~POET® Design and Construction, Inc. on April 3, 2007. The purpose of this agreement was to expand the corn storage capacity at the plant. The final cost of construction and improvements for this project was $4.2 million, with all construction complete and final payments made at December 31, 2007.

Ethanol Marketing Agreement —– The Company renewed its agreement with Ethanol Products, LLC (d/b/a/ ~~POET™~~POET® Ethanol Products) for the sale, marketing, billing and receipt of payment and other administrative

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NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

services for all ethanol produced by the plant. The new agreement is effective July 1, 2007 and terminates on July 1, 2012, automatically renewing for a five-year term unless a notice of termination is provided by either party prior to the end of the term, and increases marketing fees by $0.002 per gallon sold. The Company has sales commitments with ~~POET™~~POET® Ethanol Products of approximately 2814.0 million gallons over the next twelve months, of which, ~~14 million~~virtually all gallons are contracted at a variable ~~price and 14 million gallons are contracted at a fixed sales price ranging from $1.58 to $1.98 per gallon.~~price. The Company purchases all of its denaturant through ~~POET™~~POET® Ethanol Products.

Management Agreement —– On April 20, 2005, the Company renewed its agreement with ~~POET™~~POET® Plant Management, LLC (formerly known as Broin Management, LLC) for the management and operation of the plant. The ~~original~~new agreement ~~was executed~~terminates on ~~November 2, 2000 and remained in effect until July 1, 2005. The term of the new management agreement, as amended, continues through~~ June 30, 2015. In exchange for ~~these~~management services, ~~POET™~~POET® Plant Management receives an annual fee of $450,000, payable in equal monthly installments, plus an incentive bonus based on a percentage of net income, payable quarterly. The annual fee is adjusted each year on March 1st for changes in the consumer price index. The fees and bonus paid to ~~POET™~~POET® Plant Management include the salary and benefits of the general manager and technical manager and certain other services related to operation of the plant.

~~(continued on next page)~~

~~F-17~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Technology and Patent Rights License Agreement - On October 25, 2005, the Company entered into a Technology and Patent Rights License Agreement with ~~POET™ Design and Construction,~~POET® Research, Inc. (formerly known as Broin and Associates, Inc.). Under this agreement, ~~POET™ Design and Construction granted~~POET® Research grants the Company a non-exclusive license to use certain technology and patents owned, developed, or obtained by ~~POET™ Design and Construction~~POET® Research relating to the ethanol and related product production processes. The Company is required to pay an annual licensing fee for the right to use such technology and patents. The ~~term of this~~ agreement ~~continues until~~terminates on June 30, 2015.

Risk Management Agreement -– On April 1, 2007, the Company entered into a new corn and natural gas price risk management agreement with ~~POET™ Plant Management.~~POET® Risk Management, LLC. The new risk management agreement became effective on July 1, 2007 and terminates on July 1, 2012, automatically renewing for a five-year term unless a notice of termination is provided by either party prior to the end of the term. In exchange for providing certain risk management services relating to corn and natural gas prices, including hedging and pooling services, the Company pays ~~POET™ Plant~~POET® Risk Management an annual fee, payable in quarterly installments, subject to modification in the case of plant expansions or increases in corn usage.

Distillers Grains Marketing Agreement —– ~~The~~On March 8, 2002the Company ~~has~~entered into an agreement with ~~POET™~~POET® Nutrition, Inc. (formerly known as Dakota Gold Marketing, Inc.), to provide marketing and administrative services for the sale of distillers grains. The agreement ~~commenced March 8, 2002, with a current expiration date of~~terminates March 8, 2012, ~~renewing~~but renews for ~~five-year terms~~a five year term unless ~~terminated by~~ either party ~~with~~provides the other party a 90 ~~days~~day notice of termination prior to ~~expiration.~~the renewal date. The agreement provides for an agency relationship ~~in that POET™~~as POET® Nutrition does not take title to the distillers grains but acts as a broker on behalf of the Company. The Company ~~has~~ entered into forward contracts to sell approximately ~~61,000~~18,000 tons of various distiller grains at an average fixed price of approximately ~~$146~~$160 per ton as of December 31, ~~2007.~~2009.

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NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenues and expenses related to agreements with related parties for the years ended December 31, ~~2007, 2006~~2009, 2008 and ~~2005~~2007 are as follows:

	2007		2006		2005		2009		2008		2007

Ethanol gross revenues	$	116,084,868	$	105,702,927	$	72,633,304	$	112,997,456	$	137,146,540	$	116,084,868
Denaturant expense	4,352,347		4,105,335		2,806,553		2,535,515		4,621,203		4,352,347
Management fees expense	1,592,821		3,440,001		1,663,261		1,114,437		587,089		1,592,821
Licensing fees expense	428,981		82,739		—		441,080		532,832		428,981
Freight expense - all products							11,060,167		11,800,137		7,223,554
Marketing fees expense - all products	952,888		659,874		619,527		1,340,850		1,473,192		985,136

Agreements with unrelated parties are as follows:

Property Lease — – The Company has a 99 year property lease (an operating lease) with Big Stone-Grant Industrial Development and Transportation, LLC. In 2001, rent was $2,400 annually through May 1, 2006, after which it increased by 5% through 2011. Beginning on May 1, 2006, and every five years thereafter, rent is increased 5% over the immediately preceding five-year period.

Steam —– The Company has an agreement with the co-owners of the Big Stone ~~Plant (“Big Stone Plant”),~~Plant- - Otter Tail Corporation, Montana-Dakota Utilities Co. and Northwestern Public ~~Service,~~Service- - for the use of steam in the ethanol production process. The rate for a minimum amount is set at a base rate, adjusted annually for changes in the cost of ~~energy.~~energy, and any amount over the base rate is set at a market rate. The agreement commenced on June 1, 2002 and has a term of ten years, renewable for two five-year periods, after which the agreement is renewable from year to year. Either party may terminate the agreement by providing notice one year prior to a renewal or expiration date.

~~(continued on next page)~~

~~F-18~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Expenses related to the property lease and steam agreements for the years ended December 31, 2009, 2008 and 2007 ~~2006~~were $3,604,975, $4,444,553 and ~~2005 were~~ $2,962,099, ~~$3,052,753 and $2,361,367,~~ respectively.

Minimum payments related to the above agreements are summarized in the following table:

Unconditional

Lease

Management

Purchase

Years Ending December 31,

Agreements

Agreements

Agreements

Total

2008

$
2,520

$
547,509

$
217,080

$
767,109

2009

2,520

547,509

217,080

767,109

2010

2,520

547,509

217,080

767,109

2011

2,646

547,509

217,080

767,235

2012

2,646

490,656

90,450

583,752

2013-2100

366,823

1,179,263

—

1,546,086

$
379,675

$
3,859,955

$
958,770

$
5,198,400

			Unconditional
Twelve Months Ending	Lease	Management	Purchase
December 31,	Agreements	Agreements	Agreements	Total

2010	$ 2,520	$ 567,340	$ 217,080	$ 786,940
2011	2,646	567,340	217,080	787,066
2012	2,646	510,487	90,450	603,583
2013	2,646	491,536	-	494,182
2014	2,646	491,536	-	494,182
2015-2100	361,531	245,768	-	607,299
	$ 374,635	$ 2,874,007	$ 524,610	$ 3,773,252

Corn Delivery —– On August 9, 2005, ~~POET™~~POET® Biorefining - Big Stone agreed to release Northern Growers and, accordingly, all of its members from delivering corn to the plant starting on January 1, 2006. Prior to January 1, 2006, Northern Growers’ members were obligated to deliver corn to the plant unless the plant released the member from the member’s corn delivery obligation. Effective January 1, 2006, however, Northern Growers’

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NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

members are no longer obligated to deliver corn to the plant. Instead, the plant purchases all of its corn from local corn producers and the open market. ~~In addition, POET™ Biorefining - Big Stone agreed to honor all member forward contracts for 2006 delivery if the contract was written by September 15, 2005.~~ Purchases of corn from corn delivery agreements and cash contracts from the Northern Growers’ members totaled approximately ~~$36,357,000, $26,346,000~~$43,965,000, $60,957,000 and ~~$22,016,000~~$36,357,000 for the years ending December 31, ~~2007, 2006~~2009, 2008 and ~~2005,~~2007, respectively, of which ~~$3,898,937~~$4,382,519 and ~~$1,505,428~~$4,409,611 was recorded as a liability at December 31, ~~2007~~2009 and ~~2006,~~2008, respectively.

Incentive Revenue —- The Company previously received incentive payments from the United States Department of Agriculture (USDA) for the use of corn to produce ethanol. The program ended June 30, 2006. The USDA had set the annual maximum not to exceed $7,500,000 for each eligible producer. The incentive was calculated on the USDA fiscal year of October 1 to September 30. Revenue of $31,385 and $26,835 was earned for the USDA program years ended September 30, 2006 and 2005, respectively. Incentive revenue of $0, $8,551, and $48,681 was recorded for the twelve months ended December 31, 2007, 2006 and 2005, respectively, for this program due to the variability of program rules for payout ratios.

~~The Company 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. The Company has earned ~~$416,667, $750,000~~$333,334, $666,667 and ~~$776,333~~$645,596 for the program years ended June 30, ~~2008, 2007~~2010, 2009 and ~~2006,~~2008, respectively. Incentive revenue of ~~$750,001, $776,333~~$666,667, $645,596 and ~~$705,404~~$750,001 was recorded for the twelve months ended December 31, ~~2007, 2006~~2009, 2008 and ~~2005,~~2007, respectively, for this program.

Capital Unit Trading - On March 8, 2004, Northern Growers’ members and non-members began trading Northern Growers capital units on an alternative trading system operated by Alerus Securities Corporation of West Fargo, North Dakota.

~~(continued on next page)~~Environmental Contingency - The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company 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.

~~F-19~~The Company conducts an ongoing compliance program designed to meet these environmental laws and regulations. The Company believes that it is in substantial compliance with applicable environmental laws and regulations. From time to time, however, the Company may be involved in investigations or determinations regarding non-material matters that may arise.

In January 2003, the U.S. Environmental Protection Agency (U.S. EPA) issued formal information requests to, among others, plants designed, constructed, and/or managed by POET® Design and Construction and POET® Plant Management. The Company’s plant was a subject of these requests. The requests required that the plants provide the EPA with certain data regarding emissions.

On January 14, 2009, the Company’s plant received from the U.S. EPA a written Notice of Violation (NOV). The NOV alleges that the Company’s plant violated the Clean Air Act by failing to adequately maintain a regulated level of air pollutants under the plant’s Title V air permit, and by conducting invalid testing for compliance with such limit. Since the issuance of the NOV, the plant has been negotiating a possible settlement with the EPA. The Company believes that any settlement into which it may enter will result in a fine, but that such fine will not be material.

The Company has taken corrective action relating to the NOV through planned capital improvements to the plant. On January 22, 2009, a capital improvement project for approximately $1 million was approved. This project, which will involve the construction of improvements to the dryer and thermal oxidizer, is expected to be capitalized and financed with cash from operations. A small amount of design work has been initiated on this project as of December 31, 2009.

(continued on next page)

F-22

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Environmental Contingency~~ — In January 2003, the Environmental Protection Agency (EPA) issued formal information requests to, among others, plants designed, constructed, and/or managed by POET™ Design and Construction and POET™ Plant Management. By virtue of the nature and timing of these requests, the Company’s plant became subject to these requests. The requests required that the subject plants provide the EPA with certain data regarding emissions, presumably to determine whether the applicable plants were in compliance with the Clean Air Act. After this information was provided to the EPA, POET™ Design and Construction, on behalf of the Company and the subject plants managed by POET™ Plant Management, initiated discussions with the EPA regarding the application and use of testing methods for quantifying certain types of emissions emanating from these plants.

To date, no legal proceeding is pending with or threatened by the EPA nor has POET™ Design and Construction resolved with the EPA the application and use of the proper testing method for quantifying emissions. If a proceeding were initiated or settlement reached with the EPA, fines and/or other penalties against the Company could result, the nature and scope of which is uncertain. While there is a reasonable possibility of fines and/or other penalties in the event a proceeding is initiated or settlement reached, until the EPA and POET™ Design and Construction resolve the outstanding issues, the Company is unable to estimate the scope and magnitude of any possible fine or other penalty. Accordingly, the Company has not accrued any amount to its consolidated statement of operations relating to any potential claim.

~~NOTE 7 -~~~~DISTRIBUTIONS~~

During January 2005, POET™ Biorefining - Big Stone approved a $5,000,000 distribution, which it paid on February 1, 2005. Northern Growers received $3,858,000 and the minority member received $1,142,000. In conjunction with this cash distribution, on February 7, 2005, Northern Growers paid a distribution of $3,778,051 to its members of record as of December 31, 2004.

During July 2005, POET™ Biorefining - Big Stone approved an $8,000,000 distribution, which it paid on July 28, 2005. Northern Growers received $6,172,800 and the minority member received $1,827,200. In conjunction with this cash distribution, on July 29, 2005, Northern Growers paid a distribution of $5,972,839 to its members of record as of April 30, 2005.

During October 2005, POET™ Biorefining - Big Stone approved a $3,200,000 distribution, which it paid on October 28, 2005. Northern Growers received $2,469,120 and the minority member received $730,880. In conjunction with this cash distribution, on October 31, 2005 Northern Growers paid a distribution of $2,469,064 to its members of record as of August 31, 2005.

During January 2006, POET™ Biorefining - Big Stone approved a $4,162,763 distribution, which it paid on January 24, 2006. Northern Growers received $3,211,988 and the minority member received $950,775. In conjunction with this cash distribution, on January 30, 2006, Northern Growers paid a distribution of $3,212,093 to its members of record as of December 31, 2005.

During April 2006, POET™ Biorefining - Big Stone approved a $3,675,448 distribution, which it paid on May 1, 2006. Northern Growers received $2,835,976 and the minority member received $839,472. In conjunction with this cash distribution, on May 8, 2006, Northern Growers paid a distribution of $2,760,998 to its members of record as of March 31, 2006.

During July 2006, POET™ Biorefining - Big Stone approved a $10,899,284 distribution, which it paid on August 2, 2006. Northern Growers received $8,409,888 and the minority member received $2,489,396. In conjunction with this cash distribution, on August 7, 2006, Northern Growers paid a distribution of $8,359,696 to its members of record as of June 30, 2006.

~~(continued on next page)~~

~~F-20~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

During October 2006, POET™ Biorefining - Big Stone approved an $11,000,000 distribution, which it paid on October 30, 2006. Northern Growers received $8,487,600 and the minority member received $2,512,400. In conjunction with this cash distribution, on November 6, 2006, Northern Growers paid a distribution of $8,337,419 to its members of record as of September 30, 2006.

During January 2007, POET™ Biorefining - Big Stone approved an $11,000,000 distribution, which it paid on January 26, 2007. Northern Growers received $8,487,600 and the minority member received $2,512,400. In conjunction with this cash distribution, on January 29, 2007, Northern Growers retained $1,699,904 by a super majority vote of the Board of Managers, and paid a distribution of $6,787,696 to its members of record as of December 31, 2006. The above distributions are recorded as a liability as of December 31, 2006.

During April 2007, POET™ Biorefining - Big Stone approved a $9,000,000 distribution, which it paid on April 24, 2007. Northern Growers received $6,944,400 and the minority member received $2,055,600. In conjunction with this cash distribution, on April 25, 2007, Northern Growers retained $499,961 by a super majority vote of the Board of Managers, and paid a distribution of $6,444,439 to its members of record as of March 31, 2007.

During July 2007, POET™ Biorefining - Big Stone approved a $5,300,000 distribution, which it paid on July 27, 2007. Northern Growers received $4,089,480 and the minority member received $1,210,520. In conjunction with this cash distribution, on August 2, 2007, Northern Growers paid a distribution of $4,089,224 to its members of record as of June 30, 2007.

During January 2008, Northern Growers approved a distribution which it paid from cash reserves. On January 29, 2008, Northern Growers paid a distribution of $1,518,840 to its members of record as of December 31, 2007. The above distribution is recorded as a liability as of December 31, 2007.

NOTE 8 - DISTRIBUTIONS

POET - Big Stone Distribution Date	POET - Big Stone Approved Distribution		Northern Growers Amount Received		Minority Member Amount Received		Northern Growers Distribution Date	Distributions paid to Northern Growers Members		Quarter - Year for Northern Growers Tax Purposes and Liability Recorded
1/26/2007	$	11,000,000	$	8,487,600	$	2,512,400	1/29/2007	$	6,787,696	4th Quarter 2006
4/24/2007	$	9,000,000	$	6,944,400	$	2,055,600	4/25/2007	$	6,444,439	1st Quarter 2007
7/27/2007	$	5,300,000	$	4,089,480	$	1,210,520	8/2/2007	$	4,089,224	2nd Quarter 2007
1/29/2008	$	-	$	-	$	-	1/29/2008	$	1,518,840	4th Quarter 2007

NOTE 9 - CAPITAL UNITS

On June 20, 2005, Northern Growers approved a four-for-one (4-for-1) capital unit split of its Class A capital units, effective for September 1, 2005. Under the terms of the Class A capital units’ split, members of record as of September 1, 2005 received four capital units for each one capital unit held in Northern Growers.

On June 2, 2006, Northern Growers approved a two-for-one (2-for-1) capital unit split of its Class A capital units, effective for July 1, 2006. Under the terms of the Class A capital units’ split, members of record as of July 1, 2006 received two capital units for each one capital unit held in Northern Growers.

~~Prior period financial statements have been restated to reflect the capital unit splits stated above.~~

NOTE 910 - 401(K) PLAN~~INCOME TAXES~~

As of December 31, 2007 and 2006, the Company’s book basis of assets exceeded their tax basis by approximately $32,800,000 and $30,100,000, respectively. As of December 31, 2007 and 2006, the Company’s book basis of liabilities exceeded their tax basis by $900,826 and $187,069, respectively, due to the treatment of the derivative financial instruments.

~~(continued on next page)~~

~~F-21~~

~~NORTHERN GROWERS, LLC~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTE 10 -~~~~401(K) PLAN~~

On February 1, 2003, ~~the Company~~POET® Biorefining - Big Stone set up a 401(k) plan for substantially all employees who work more than 1,000 hours per year. Employees can make voluntary contributions up to federally designated limits. ~~The Company~~POET® Biorefining - Big Stone matches employee voluntary contributions at a 50% level up to an effective maximum of 2% of gross employee pay. Eligible employees are always fully vested in their account balances resulting from employee voluntary contributions. ~~The Company~~POET® Biorefining - Big Stone’s 401(k) expense for the years ended December 31, 2009, 2008 and 2007 ~~2006~~was $33,767, $34,978 and ~~2005 was~~ $25,283, ~~$33,646 and $25,192,~~ respectively.

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F-23

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 -QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarterly results are as follows:

	First			Second			Third			Fourth			First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter

Year Ended December 31, 2009:

Total revenues													$	30,214,259		$	33,142,354		$	35,859,598		$	42,822,127
Gross profit (loss)													1,296,886			1,584,249			5,426,711			7,904,681
Operating income (loss)													398,954			507,824			4,416,426			6,480,872
Income (loss) before Noncontrolling Interest													(307,357		)	(173,878		)	3,731,422			5,808,471
Noncontrolling interest in subsidiary (income) loss													45,796			28,784			(870,405		)	(1,347,320		)
Net income (loss)													(261,561		)	(145,094		)	2,861,017			4,461,151
Basic earnings (loss) per unit													(0.005		)	(0.003		)	0.057			0.088

Year Ended December 31, 2008:

Total revenues													$	43,374,017		$	45,776,791		$	47,777,435		$	34,496,684
Gross profit (loss)													3,309,166			3,942,954			(4,901,122		)	(521,823		)
Operating income (loss)													2,405,794			2,928,091			(5,644,305		)	(1,539,581		)
Income (loss) before Noncontrolling Interest													1,454,237			2,033,115			(6,484,552		)	(2,309,999		)
Noncontrolling interest in subsidiary (income) loss													(351,359		)	(474,053		)	1,468,919			511,142
Net income (loss)													1,102,878			1,559,062			(5,015,633		)	(1,798,857		)
Basic earnings (loss) per unit													0.022			0.031			(0.099		)	(0.036		)

Year Ended December 31, 2007:

Total revenues	$	32,193,532		$	34,977,104		$	40,200,101		$	30,873,043		$	32,193,532		$	34,977,104		$	40,200,101		$	30,873,043
Gross profit	9,091,141			4,349,497			8,802,914			3,305,241
Gross profit (loss)													9,091,141			4,349,497			8,802,914			3,305,241
Operating income (loss)	7,690,390			3,320,726			7,501,694			2,245,866			7,690,390			3,320,726			7,501,694			2,245,866
Income (loss) before Minority Interest	7,524,659			2,732,543			6,755,378			1,401,610
Minority interest in subsidiary (income) loss	(1,745,148		)	(633,687		)	(1,549,455		)	(341,180		)
Income (loss) before Noncontrolling Interest													7,524,659			2,732,543			6,755,378			1,401,610
Noncontrolling interest in subsidiary (income) loss													(1,745,148		)	(633,687		)	(1,549,455		)	(341,180		)
Net income (loss)	5,779,511			2,098,856			5,205,923			1,060,430			5,779,511			2,098,856			5,205,923			1,060,430
Basic earnings (loss) per unit	0.114			0.041			0.103			0.021			0.114			0.041			0.103			0.021

Year Ended December 31, 2006:

Total revenues	$	25,944,116		$	31,839,903		$	34,896,320		$	30,156,780
Gross profit	8,663,189			15,741,041			20,163,657			15,537,856
Operating income (loss)	7,548,135			14,182,345			18,347,680			13,662,600
Income (loss) before Minority Interest	7,306,106			13,951,973			18,097,633			13,479,920
Minority interest in subsidiary (income) loss	(1,678,944		)	(3,196,560		)	(4,137,618		)	(3,119,162		)
Net income (loss)	5,627,162			10,755,413			13,960,015			10,360,758
Basic earnings (loss) per unit	0.111			0.212			0.276			0.205

Year Ended December 31, 2005:

Total revenues	$	22,264,409		$	20,151,343		$	22,174,095		$	25,102,861
Gross profit	6,286,254			3,714,285			6,321,903			9,817,510
Operating income (loss)	5,374,964			2,913,306			5,359,768			8,578,737
Income (loss) before Minority Interest	5,081,681			2,611,957			5,036,734			8,275,803
Minority interest in subsidiary (income) loss	(1,170,325		)	(614,764		)	(1,161,824		)	(1,901,550		)
Net income (loss)	3,911,356			1,997,193			3,874,910			6,374,253
Basic earnings (loss) per unit	0.077			0.039			0.077			0.126

The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these interim periods presented have been included. Basic earnings or loss per unit are presented on the 50,628,000 units currently issued and outstanding.

~~F-22~~NOTE 12 - MARKET RISKS AND UNCERTAINTIES

The Company has certain risks and uncertainties that it experiences during volatile market conditions such as what the Company experienced during the twelve months ending December 31, 2009. These volatilities can have a severe impact on operations. The Company’s revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the U.S. Corn for the production process is supplied to our plant primarily from local agricultural producers and from purchases on the open market. Ethanol sales, historically, average 80% of total revenues and corn costs historically average 50% to 70% of cost of revenues.

The Company’s operating and financial performance is largely driven by the prices at which we sell ethanol and the net expense of corn. The price of ethanol is influenced by factors such as prices of supply and demand,

(continued on next page)

F-24

Table of Contents

NORTHERN GROWERS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

weather, government policies and programs, and the price of unleaded gasoline and corn. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. Our largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, government policies and programs, and our risk management program used to protect against the price volatility of these commodities.

NOTE 13 - SUBSEQUENT EVENTS

During February 2010, POET® Biorefining – Big Stone approved a $4,500,000 distribution, which it paid on February 16, 2010. Northern Growers received $3,472,200 and the noncontrolling interest member received $1,027,800. In conjunction with this cash distribution, on February 19, 2010, Northern Growers retained $940,800 by a super majority vote of the Board of Managers, and paid a distribution of $2,531,400, or $0.05 per capital unit, to its members of record as of December 31, 2009. A pro forma balance sheet has been included in the accompanying consolidated financial statements to reflect the effects of the February 2010 distributions as if they had been paid on December 31, 2009. Adjustments applied to the historical December 31, 2009 consolidated financial statements include a reduction of cash and cash equivalents, retained earnings and noncontrolling interest.

F-25

				Under
			Current	Construction/
			Capacity	Expansions
Company	Location	Feedstock	(mgy)	(mgy)
Abengoa Bioenergy Corp.	York, NE	Corn/milo	55
	Colwich, KS		25
	Portales, NM		30
	Ravenna, NE		88
Aberdeen Energy*	Mina, SD	Corn		100
Absolute Energy, LLC*	St. Ansgar, IA	Corn		100
ACE Ethanol, LLC	Stanley, WI	Corn	41
Adkins Energy, LLC*	Lena, IL	Corn	40
Advanced Bioenergy	Fairmont, NE	Corn	100
AGP*	Hastings, NE	Corn	52
Agri-Energy, LLC*	Luverne, MN	Corn	21
Al-Corn Clean Fuel*	Claremont, MN	Corn	35	15
Amaizing Energy, LLC*	Denison, IA	Corn	48
	Atlantic, IA	Corn		110
Archer Daniels Midland	Decatur, IL	Corn	1,070	550
	Cedar Rapids, IA	Corn
	Clinton, IA	Corn
	Columbus, NE	Corn
	Marshall, MN	Corn
	Peoria, IL	Corn
	Wallhalla, ND	Corn/barley
Arkalon Energy, LLC	Liberal, KS	Corn	110
Aventine Renewable Energy, LLC	Pekin, IL	Corn	207	226
	Aurora, NE	Corn
	Mt. Vernon, IN	Corn
Badger State Ethanol, LLC*	Monroe, WI	Corn	48
Big River Resources, LLC*	West Burlington, IA	Corn	52
BioFuel Energy - Pioneer Trail Energy, LLC	Wood River, NE	Corn		115
BioFuel Energy - Buffalo Lake Energy, LLC	Fairmont, MN	Corn		115

Blue Flint Ethanol	Underwood, ND	Corn	50
Bonanza Energy, LLC	Garden City, KS	Corn/milo	55
Bushmills Ethanol, Inc.*	Atwater, MN	Corn	40
Calgren	Pixley, CA	Corn		55
Cardinal Ethanol	Harrisville, IN	Corn		100
Cargill, Inc.	Blair, NE	Corn	85
	Eddyville, IA	Corn	35
Cascade Grain	Clatskanie, OR	Corn		108
Castle Rock Renewable Fuels, LLC	Necedah, WI	Corn		50
Celunol	Jennings, LA	Sugar cane bagasse		1.5
Center Ethanol Company	Sauget, IL	Corn		54
Central Indiana Ethanol, LLC	Marion, IN	Corn	40
Central MN Ethanol Coop*	Little Falls, MN	Corn	21.5
Chief Ethanol	Hastings, NE	Corn	62
Chippewa Valley Ethanol Co.*	Benson, MN	Corn	45
Cilion Ethanol	Keyes, CA	Corn		50
Commonwealth Agri-Energy, LLC*	Hopkinsville, KY	Corn	33
Corn, LP*	Goldfield, IA	Corn	50
Cornhusker Energy Lexington, LLC	Lexington, NE	Corn	40
Corn Plus, LLP*	Winnebago, MN	Corn	44
Coshoctan Ethanol, OH	Coshoctan, OH	Corn		60
Dakota Ethanol, LLC*	Wentworth, SD	Corn	50
DENCO, LLC	Morris, MN	Corn	21.5
E Energy Adams, LLC	Adams, NE	Corn	50
E Caruso (Goodland Energy Center)	Goodland, KS	Corn		20
East Kansas Agri-Energy, LLC*	Garnett, KS	Corn	35
Elkhorn Valley Ethanol, LLC	Norfolk, NE	Corn	40
ESE Alcohol Inc.	Leoti, KS	Seed corn	1.5
Ethanol Grain Processors, LLC	Obion, TN	Corn		100
First United Ethanol, LLC (FUEL)	Mitchell Co., GA	Corn		100
Front Range Energy, LLC	Windsor, CO	Corn	40
Gateway Ethanol	Pratt, KS	Corn	55
Glacial Lakes Energy, LLC*	Watertown, SD	Corn	100
Global Ethanol/Midwest Grain Processors	Lakota, IA	Corn	95
	Riga, MI	Corn	57
Golden Cheese Company of California*	Corona, CA	Cheese whey	5
Golden Grain Energy, LLC*	Mason City, IA	Corn	110	50
Golden Triangle Energy, LLC*	Craig, MO	Corn	20
Grand River Distribution	Cambria, WI	Corn		40
Grain Processing Corp.	Muscatine, IA	Corn	20
Granite Falls Energy, LLC*	Granite Falls, MN	Corn	52
Greater Ohio Ethanol, LLC	Lima, OH	Corn		54
Green Plains Renewable Energy	Shenandoah, IA	Corn	50
	Superior, IA	Corn		50
Hawkeye Renewables, LLC	Iowa Falls, IA	Corn	105

	Fairbank, IA	Corn	115
	Menlo, IA	Corn		100
	Shell Rock, IA	Corn		110
Heartland Corn Products*	Winthrop, MN	Corn	100
Heartland Grain Fuels, LP*	Aberdeen, SD	Corn	9
	Huron, SD	Corn	12	18
Heron Lake BioEnergy, LLC	Heron Lake, MN	Corn		50
Holt County Ethanol	O’Neill, NE	Corn		100
Husker Ag, LLC*	Plainview, NE	Corn	26.5
Idaho Ethanol Processing	Caldwell, ID	Potato Waste	4
Illinois River Energy, LLC	Rochelle, IL	Corn	50
Indiana Bio-Energy	Bluffton, IN	Corn		101
Iroquois Bio-Energy Company, LLC	Rensselaer, IN	Corn	40
KAAPA Ethanol, LLC*	Minden, NE	Corn	40
Kansas Ethanol, LLC	Lyons, KS	Corn		55
KL Process Design Group	Upton, WY	Wood waste	1.5
Land O’ Lakes*	Melrose, MN	Cheese whey	2.6
Levelland/Hockley County Ethanol, LLC	Levelland, TX	Corn		40
Lifeline Foods, LLC	St. Joseph, MO	Corn	40
Lincolnland Agri-Energy, LLC*	Palestine, IL	Corn	48
Lincolnway Energy, LLC*	Nevada, IA	Corn	50
Little Sioux Corn Processors, LP*	Marcus, IA	Corn	52
Marquis Energy, LLC	Hennepin, IL	Corn		100
Marysville Ethanol, LLC	Marysville, MI	Corn		50
Merrick & Company	Golden, CO	Waste beer	3
MGP Ingredients, Inc.	Pekin, IL	Corn/wheat starch	78
	Atchison, KS
Mid America Agri Products/Wheatland	Madrid, NE	Corn		44
Mid America Agri Products/Horizon	Cambridge, NE	Corn		44
Mid-Missouri Energy, Inc.*	Malta Bend, MO	Corn	45
Midwest Renewable Energy, LLC	Sutherland, NE	Corn	25
Minnesota Energy*	Buffalo Lake, MN	Corn	18
NEDAK Ethanol	Atkinson, NE	Corn		44
New Energy Corp.	South Bend, IN	Corn	102
North Country Ethanol, LLC*	Rosholt, SD	Corn	20
Northeast Biofuels	Volney, NY	Corn		114
Northwest Renewable, LLC	Longview, WA	Corn		55
Otter Tail Ag Enterprises	Fergus Falls, MN	Corn		57.5
Pacific Ethanol	Madera, CA	Corn	40
	Boardman, OR	Corn	40
	Burley, ID	Corn		50
	Stockton, CA	Corn		50
Panda Ethanol	Hereford, TX	Corn/milo		115
Parallel Products	Louisville, KY	Beverage waste	5.4
	R. Cucamonga, CA
Patriot Renewable Fuels, LLC	Annawan, IL	Corn		100

Penford Products	Cedar Rapids, IA	Corn		45
Phoenix Biofuels	Goshen, CA	Corn	25
Pinal Energy, LLC	Maricopa, AZ	Corn	55
Pine Lake Corn Processors, LLC*	Steamboat Rock, IA	Corn	20
Plainview BioEnergy, LLC	Plainview, TX	Corn		100
Platinum Ethanol, LLC*	Arthur, IA	Corn		110
Plymouth Ethanol, LLC*	Merrill, IA	Corn		50
POET™	Sioux Falls, SD		1,208	327
	Alexandria, IN	Corn		#
	Ashton, IA	Corn
	Big Stone, SD	Corn
	Bingham Lake, MN	Corn
	Caro, MI	Corn
	Chancellor, SD	Corn
	Coon Rapids, IA	Corn
	Corning, IA	Corn
	Emmetsburg, IA	Corn
	Fostoria, OH	Corn		#
	Glenville, MN	Corn
	Gowrie, IA	Corn
	Groton, SD	Corn
	Hanlontown, IA	Corn
	Hudson, SD	Corn
	Jewell, IA	Corn
	Laddonia, MO	Corn
	Lake Crystal, MN	Corn
	Leipsic, OH	Corn
	Macon, MO	Corn
	Marion, OH	Corn		#
	Mitchell, SD	Corn
	North Manchester, IN	Corn		#
	Portland, IN	Corn
	Preston, MN	Corn
	Scotland, SD	Corn
Prairie Horizon Agri-Energy, LLC	Phillipsburg, KS	Corn	40
Quad-County Corn Processors*	Galva, IA	Corn	27
Range Fuels	Soperton, GA	Wood waste		20
Red Trail Energy, LLC	Richardton, ND	Corn	50
Redfield Energy, LLC*	Redfield, SD	Corn	50
Reeve Agri-Energy	Garden City, KS	Corn/milo	12
Renew Energy	Jefferson Junction, WI	Corn	130
Siouxland Energy & Livestock Coop*	Sioux Center, IA	Corn	60
Siouxland Ethanol, LLC	Jackson, NE	Corn	50
Southwest Iowa Renewable Energy, LLC*	Council Bluffs, IA	Corn		110

Sterling Ethanol, LLC	Sterling, CO	Corn	42
Tate & Lyle	Loudon, TN	Corn	67	38
	Ft. Dodge, IA	Corn		105
The Andersons Albion Ethanol LLC	Albion, MI	Corn	55
The Andersons Clymers Ethanol, LLC	Clymers, IN	Corn	110
The Andersons Marathon Ethanol, LLC	Greenville, OH	Corn	110
Tharaldson Ethanol	Casselton, ND	Corn		110
Trenton Agri Products, LLC	Trenton, NE	Corn	40
United Ethanol	Milton, WI	Corn	52
United WI Grain Producers, LLC*	Friesland, WI	Corn	49
US BioEnergy Corp.	Albert City, IA	Corn	310	440
	Woodbury, MI	Corn
	Hankinson, ND	Corn		#
	Central City , NE	Corn		#
	Ord, NE	Corn
	Dyersville, IA	Corn		#
	Janesville, MN	Corn		#
	Marion, SD	Corn
Utica Energy, LLC	Oshkosh, WI	Corn	48
VeraSun Energy Corporation	Aurora, SD	Corn	560	330
	Ft. Dodge, IA	Corn
	Albion, NE	Corn
	Charles City, IA	Corn
	Linden, IN	Corn
	Welcome, MN	Corn		#
	Hartely, IA	Corn		#
	Bloomingburg, OH	Corn		#
Western New York Energy, LLC	Shelby, NY	Corn	50
Western Plains Energy, LLC*	Campus, KS	Corn	45
Western Wisconsin Renewable Energy, LLC*	Boyceville, WI	Corn	40
White Energy	Hereford, TX	Corn/Milo	100
	Russell, KS	Milo/wheat starch	48
Wind Gap Farms	Baconton, GA	Brewery waste	0.4
Renova Energy	Torrington, WY	Corn	5
Xethanol BioFuels, LLC	Blairstown, IA	Corn	5
Yuma Ethanol	Yuma, CO	Corn	40
Total Current Capacity at 141 ethanol biorefineries			7,999.9
Total Under Construction (59)/Expansions (7)				5,406.0
Total Capacity			13,405.9

Year Ended	Fair Value		Effect of Hypothetical Adverse Change — Market Risk
December 31, 2007	$	11,181,459	$	1,118,146
December 31, 2006	$	19,767,196	$	1,976,720

		Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-1

CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets		F-2
Statements of Operations and Comprehensive Income		F-4
Statements of Changes in Members’ Equity and Comprehensive Income		F-5
Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		~~F-8~~F-7

						Accumulated
				Additional		Other									Annual
	Capital			Paid-In		Comprehensive			Retained						Comprehensive
	Units	Amount		Capital		Income (Loss)			Earnings			Total			Income (Loss)
BALANCE, JANUARY 1, 2005	50,628,000	$	12,657,000	$	64,900	$	—		$	6,724,101		$	19,446,001

Net income	—	—		—		—			16,157,712			16,157,712			16,157,712
Distributions payable	—	—		—		—			(3,212,093		)	(3,212,093		)	—
Distributions paid	—	—		—		—			(8,441,902		)	(8,441,902		)	—

BALANCE, DECEMBER 31, 2005	50,628,000	$	12,657,000	$	64,900	$	—		$	11,227,818		$	23,949,718		$	16,157,712

Net income	—	—		—		—			40,703,348			40,703,348			40,703,348
Cash flow hedge (loss)	—	—		—		(144,342		)	—			(144,342		)	(144,342		)
Distributions payable	—	—		—		—			(6,787,696		)	(6,787,696		)	—
Distributions paid	—	—		—		—			(19,458,112		)	(19,458,112		)	—

BALANCE, DECEMBER 31, 2006	50,628,000	$	12,657,000	$	64,900	$	(144,342	)	$	25,685,358		$	38,262,916		$	40,559,006

Net income	—	—		—		—			14,144,720			14,144,720			14,144,720
Cash flow hedge (loss)	—	—		—		(550,734		)	—			(550,734		)	(550,734		)
Distributions payable	—	—		—		—			(1,518,840		)	(1,518,840		)	—
Distributions paid	—	—		—		—			(10,533,663		)	(10,533,663		)	—

BALANCE, DECEMBER 31, 2007	50,628,000	$	12,657,000	$	64,900	$	(695,076	)	$	27,777,575		$	39,804,399		$	13,593,986

Year Ending December 31,	Amount

2008	$	5,695,078
2009	5,785,844
2010	5,882,541
2011	5,985,556
2012	11,499,198
2013 to August 31, 2014	16,741,000

	$	51,589,217

					Unconditional
	Lease		Management		Purchase
Years Ending December 31,	Agreements		Agreements		Agreements		Total

2008	$	2,520	$	547,509	$	217,080	$	767,109
2009	2,520		547,509		217,080		767,109
2010	2,520		547,509		217,080		767,109
2011	2,646		547,509		217,080		767,235
2012	2,646		490,656		90,450		583,752
2013-2100	366,823		1,179,263		—		1,546,086

	$	379,675	$	3,859,955	$	958,770	$	5,198,400