Husker 10QSB 2003 Q1 Quarterly report (small business)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2003; or
o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from to .

Commission file number: 000-49773

HUSKER AG, LLC
(Exact name of registrant as specified in its charter)

Nebraska (State or other jurisdiction of Incorporation or organization)		2869 (325193 NAICS) (Primary Standard Industrial Classification Code Number)		47-0836953 (IRS Employer Identification No.)
54048 Highway 20 P.O. Box 10 Plainview, Nebraska 68769 (402) 582-4446 (Address and telephone number of registrant's principal executive offices)

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 and Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class		Outstanding at March 31, 2003
Membership Units		15,318 Membership Units

HUSKER AG, LLC

INDEX TO 10-QSB FOR THE QUARTERLY

PERIOD ENDED MARCH 31, 2003

			PAGE
PART I	FINANCIAL INFORMATION
	ITEM 1.	INDEPENDENT ACCOUNTANTS' REPORT	4
		CONDENSED BALANCE SHEETS	5
		CONDENSED STATEMENT OF OPERATIONS	6
		CONDENSED STATEMENTS OF CASH FLOWS	7
		NOTES TO CONDENSED FINANCIAL STATEMENTS	8
	ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
	ITEM 3.	CONTROLS AND PROCEDURES	24
PART II	OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	25
	ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS	25
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	25
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	25
	ITEM 5.	OTHER INFORMATION	25
	ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	25
		SIGNATURES	26

ITEM 1: FINANCIAL STATEMENTS

Husker Ag, LLC

Accountants' Report and Financial Statements

March 31, 2003 and 2002

[BKD LLP LOGO]

Husker Ag, LLC

March 31, 2003 and 2002

Contents

Independent Accountants' Report		4
Financial Statements
	Condensed Balance Sheets	5
	Condensed Statements of Income (Loss)	6
	Condensed Statements of Cash Flows	7
	Notes to Condensed Financial Statements	8

Independent Accountants' Report

Board of Directors
Husker Ag, LLC
Plainview, Nebraska

We have reviewed the accompanying condensed balance sheet of Husker Ag, LLC as of March 31, 2003, and the related condensed statements of income (loss) and cash flows for the three-month periods ended March 31, 2003 and 2002. These financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet as of December 31, 2002, and the related statements of operations, members' equity and cash flows for the year then ended (not presented herein), and in our report dated January 31, 2003, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 2002 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

/s/BKD, LLP

Omaha, Nebraska
April 25, 2003

Husker Ag, LLC

Condensed Balance Sheets

March 31, 2003 and December 31, 2002

					March 31, 2003			December 31, 2002
					(Unaudited)
Assets
	Current Assets
		Cash and cash equivalents			$	299,260		$	306,320
		Receivables				742,324			—
		Inventory				1,021,702			—
		Margin account cash				505,325			321,950
		Option contracts				148,845			158,050
		Prepaid expenses				77,396			21,845

				Total current assets		2,794,852			808,165

	Property and Equipment, at cost
		Land				84,318			84,318
		Plant buildings and equipment				28,839,506			—
		Equipment				324,210			345,626
		Office building				202,959			200,518
		Vehicles				17,200			17,200
		Construction in progress				—			23,650,254

						29,468,193			24,297,916
		Less accumulated depreciation				177,886			7,895

						29,290,307			24,290,021

	Other Assets
		Debt origination costs				445,086			445,086
		Option contracts				69,275			173,350
		Other				4,772			4,772

						519,133			623,208

					$	32,604,292		$	25,721,394

Liabilities and Members' Equity
	Current Liabilities
		Accounts payable
			Trade		$	1,793,598		$	298,618
			Retainage on construction in progress			1,345,000			1,345,000
		Short-term debt expected to be refinanced				15,797,918			10,192,115
		Option contracts				453,138			563,575
		Accrued expenses				75,087			21,991

				Total current liabilities		19,464,741			12,421,299

	Option Contracts					170,488			452,850

	Members' Equity
		Membership units, issued and outstanding—15,318 units				14,531,162			14,531,162
		Accumulated deficit				(1,562,099	)		(1,683,917	)

						12,969,063			12,847,245

					$	32,604,292		$	25,721,394

See Notes to Condensed Financial Statements and Accountants' Review Report for March 31, 2003

Husker Ag, LLC

Condensed Statements of Income (Loss)

Three Months Ended March 31, 2003 and 2002

(Unaudited)

		2003			2002
Net Sales		$	1,302,626		$	—
Cost of Sales			850,721			—

Gross Profit			451,905			—
Selling, General and Administrative			(483,959	)		(209,117	)
Gain on Options			180,894			—

Operating Income (Loss)			148,840			(209,117	)

Other Income (Expense)
	Other income		—			1,800
	Interest expense		(27,468	)		—
	Interest income		446			50,436

			(27,022	)		52,236

Net Income (Loss)		$	121,818		$	(156,881	)

Basic and Diluted Earnings (Loss) Per Membership Unit		$	7.95		$	(10.24	)

Weighted Average Units Outstanding			15,318			15,318

See Notes to Condensed Financial Statements and Accountants' Review Report

Husker Ag, LLC

Condensed Statements of Cash Flows

Three Months Ended March 31, 2003 and 2002

(Unaudited)

				2003			2002
Operating Activities
	Net income (loss)			$	121,818		$	(156,881	)
	Items not requiring (providing) cash
		Depreciation expense			169,992			629
		Gain on option contracts			(180,894	)		—
	Changes in
		Accounts receivable			(742,324	)		—
		Margin account cash			(183,375	)		—
		Option contracts			(98,625	)		—
		Prepaid expenses			(55,551	)		(53,430	)
		Interest receivable			—			194
		Inventory			(1,021,702	)		—
		Accounts payable and accrued expenses			1,945,150			19,452

			Net cash used in operating activities		(45,511	)		(190,036	)

Investing Activities
	Purchases of property and equipment				(5,567,352	)		(1,987,654	)

			Net cash used in investing activities		(5,567,352	)		(1,987,654	)

Financing Activities
	Offering costs paid				—			(39,694	)
	Advances on construction loan				5,605,803			—
	Receipt of debt origination costs, net				—			240,000

			Net cash provided by financing activities		5,605,803			200,306

Decrease in Cash and Cash Equivalents					(7,060	)		(1,977,384	)
Cash and Cash Equivalents, Beginning of Period					306,320			13,483,166

Cash and Cash Equivalents, End of Period				$	299,260		$	11,505,782

Supplemental Cash Flows Information
		Net decrease in accounts payable incurred for offering costs		$	—		$	(39,694	)
		Net increase (decrease) in accounts payable incurred for site development and construction in progress		$	(397,074	)	$	6,972

See Notes to Condensed Financial Statements and Accountants' Review Report

Husker Ag, LLC

Notes to Condensed Financial Statements

March 31, 2003 and 2002

(Unaudited)

Note 1: Summary of Significant Accounting Policies and Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed financial statements reflect all adjustments that are, in the opinion of the Company's management, necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist only of normal recurring adjustments. The condensed balance sheet as of December 31, 2002 has been derived from the audited balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto in the Company's Form 10-KSB Annual Report for 2002 filed with the Securities and Exchange Commission. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

Accounts Receivable

Accounts receivable are stated at the amount billed to customers. As of March 31, 2003, the Company believes all receivables are fully collectible. If necessary, the Company will provide an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions.

At March 31, 2003, the Company had receivables from one customer amounting to 37% of the total receivables. Additionally, amounts due from governmental entities for certain tax credits amounted to 29% of the total receivables.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. At March 31, 2003, inventories were comprised of the following:

Raw materials, enzymes and additives	$	500,866
Finished goods		520,836

	$	1,021,702

Revenue Recognition

Revenue from the sale of the Company's products is recognized at the time title to the goods and all risks of ownership transfer to the customers. This generally occurs upon shipment to the customer or when the customer picks up the goods.

The Company records revenue from federal and state incentive programs related to the production of ethanol when the Company has produced the ethanol and completed all the requirements of the applicable incentive program.

See Accountants' Review Report

Property and Equipment

Property and equipment are depreciated over the estimated useful life of each asset. Annual depreciation is computed using the straight-line method.

Freight Costs

The Company reflects freight costs associated with shipping its products to customers as a component of costs of goods sold.

Note 2: Commencement of Operations

In March 2003 the production process for the Company's ethanol plant commenced. The design-build contract (Note 4) requires a testing period to confirm that the plant is consistently producing at capacity and achieved substantial completion. Management expects the plant to achieve substantial completion and commence operations on a normal schedule by April 2003.

At December 31, 2002, the Company was primarily involved in organizational activities and construction of the plant. Accordingly, at December 31, 2002, the Company was considered to be in the development stage and the financial statements presented were those of a development stage enterprise. The total deficit accumulated during the development stage amounted to $1,683,917.

Note 3: Commitments and Related Party Transactions

On August 29, 2002, the Company entered into a natural gas distribution agreement under which the distributor has agreed to transport a minimum of 35 million therms of natural gas at a fixed price over a five-year initial term. The agreement is renewable at the end of the initial term for an additional five-year period.

In November 2002, the Company entered into a marketing agreement with an officer of the Company to sell and market the Company's distiller grains and corn syrup. Under the terms of the agreement, the Company will pay a commission to the officer based on total gross sales contracted for and collected. The marketing agreement expires on March 31, 2004; however, it automatically renews for one year periods on the same terms and conditions unless terminated by either party.

At March 31, 2003, the Company had entered into agreements to purchase 1,433,333 bushels of corn to be delivered between April 2003 and July 2003 at agreed upon prices. Nine contracts totaling 448,609 bushels are with related parties.

In March 2003, the Company entered into an ethanol marketing agreement with Eco-Energy, Inc. to market ethanol at an agreed upon fee. Eco-Energy, Inc. also collects the sales amount from the ultimate customers and remits the net sales price to the Company within three business days after the sale. The agreement has a one-year term.

Note 4: Design-Build Agreement

On November 30, 2001 the Company entered into a definitive design-build agreement with a general contractor for the design and construction of the ethanol plant. Plant construction costs are estimated to be approximately $27,650,000 excluding land, site development, construction of the administration building, connection of a rail spur, and capitalized interest costs. As of March 31, 2003, the Company has approximately $600,000 of remaining costs to be incurred under this agreement; however, the plant is considered substantially complete. The general contractor is a member of the Company.

The design-build contract includes provisions for an incentive bonus to, or liquidated damages from, the general contractor based on the scheduled project completion date. The parties are currently

See Accountants' Review Report

in the process of determining the substantial completion date and the bonus to be paid to the general contractor. Any amount paid will be added to the cost of the project.

Note 5: Debt Financing

On December 19, 2001, the Company entered into a written financing agreement with Stearns Bank, N.A. for up to $20,000,000 of debt financing. The financing agreement provides for, among other things, establishing an 18-month construction loan. Borrowings under this agreement are classified in the accompanying balance sheet as short-term as the construction loan matures on June 19, 2003. However, the loan will convert to a ten-year term note upon completion of construction, as discussed below. Interest will accrue at a floating interest rate of prime plus 0.25% (adjusted daily, payable monthly). Additionally, the Company is in the process of applying for a USDA guarantee under which, if accepted, the USDA will agree to guarantee 60% of borrowings under the term note. At March 31, 2003, there was $15,797,918 in outstanding borrowings under this agreement.

Upon successful completion of construction of the ethanol plant, subject to required loan documentation, and no material adverse change in the Company's financial condition, the bank has agreed to convert the construction loan into a permanent loan amortized over 10 years which will accrue interest as follows: (i) 60% ($12,000,000) at prime plus 0.25%, adjusted quarterly; and (ii) 40% ($8,000,000) at prime plus 0.25%, adjusted quarterly, with a floor of 6.5% and a ceiling of 9.95% for five years beginning July 6, 2001. At the end of five years the floor and ceiling will adjust to the same spread based on the prime rate in effect at that time.

The Company has a line of credit expiring March 31, 2004. At March 31, 2003, there were no borrowings against the line. The line is collateralized by a security agreement dated March 11, 2003. Interest will accrue at a variable interest rate of prime plus 0.50% and is payable monthly.

The Company also has a letter of credit with the bank amounting to $327,825, expiring December 20, 2003, to be used to serve the Company's utility obligations.

Note 6: Derivative Instruments

The Company enters into option and futures contracts, which are designated as hedges of specific volumes of corn expected to be used in the manufacturing process. The Company uses derivative financial instruments to manage the exposure to price risk related to corn purchases. The Company does not typically enter into derivative instruments for any reason other than cash flow hedging purposes. The option and futures contracts presented on the March 31, 2003 condensed balance sheet are recorded at fair value. On the date that the contract is entered into, the Company designates the option or contract as a hedge of variable cash flows of certain forecasted purchases of corn used in the manufacturing process (a "cash flow hedge"). The Company formally documents relationships between the option and futures contracts, which serve as the hedging instruments, and the hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking option and futures contracts that are designated as cash flow hedges to certain forecasted purchasing activities. The Company also assesses, both at the hedge's inception and on an ongoing basis, whether the option or futures contracts that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. When it is determined that an option or futures contract is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.

Changes in the fair value of option and futures contracts that are highly effective and that are designated and qualify as cash flow hedges are recorded in other comprehensive income. Gains or losses that are realized will be recognized in the statement of operations when the finished goods produced using the hedged items are sold.

See Accountants' Review Report

Note 7: Disclosure Regarding Fair Value of Financial Instruments

For all financial instruments held by the Company, including cash, accounts receivable, accounts payable, long-term debt, and loan and construction contract commitments, the carrying amounts are reasonable estimates of fair value.

The fair value of option contracts is reflected in the carrying amounts included in the accompanying balance sheets, as discussed in Note 6.

Note 8: Recent Accounting Pronouncement

The Financial Accounting Standards Board has recently issued SFAS 145 which rescinds, amends and provides technical corrections to various previously issued pronouncements. Management does not expect the implementation of this pronouncements to have a significant effect on the financial statements.

See Accountants' Review Report

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Husker Ag and its representatives may from time to time make written or oral forward-looking statements, including statements made in this report, that represent Husker Ag's expectations or beliefs concerning future events, including statements regarding future sales, future profits and other results of operations, the continuation of historical trends, the sufficiency of cash balances and cash generated from operating and financing activities for Husker Ag's future liquidity and capital resource needs, and the effects of any regulatory changes. Such statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Husker Ag cautions you that any forward-looking statements made by Husker Ag in this report, in other reports filed by Husker Ag with the Securities and Exchange Commission or in other announcements by Husker Ag are qualified by certain risks and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Such risks and factors include, but are not limited to, the risk factors set forth in the section below entitled "RISK FACTORS".

Results Of Operations

On March 4, 2003, the production process for the ethanol plant commenced and the plant commenced grinding corn. After the production process commences, there is a ramp-up production period until the plant begins producing ethanol at 100% of its capacity. The Design Build Contract requires a seven (7) day testing period to confirm that the plant was consistently producing at capacity. After discussions with Fagen, Inc. regarding whether the plant successfully completed the seven-day test and whether the plant has attained "substantial completion" as defined under the Design Build Contract, Husker Ag and Fagen have tenatively agreed upon a "substantial completion" date of March 13¹/2, 2003. Under the terms of the Design-Build Agreement and the contract change order dated August 7, 2002, Fagen, Inc. is entitled to an early completion bonus of $8,000 per day, for every day that substantial completion has been attained in advance of April 26, 2003, and Husker Ag is entitled to liquidated damages of $8,000 per day, for each day that substantial completion extends beyond June 12, 2003. Based on this tenative agreement, Fagen would be entitled to an early completion bonus of $356,000.

The Company is currently in a transition period where it is shifting from the construction phase to the operational start-up of the plant. During the 1^st and 2^nd quarters of 2003, the Company will continue to work with Fagen, Inc. to complete construction of the plant and to achieve and maintain operation of the plant at, or above, full capacity. The Company believes that it will begin operating at full capacity during the 2^nd quarter of 2003. Accordingly, we do not have comparable income, production and sales data for the quarter ended March 31, 2002.

Net income and comprehensive net income for Husker Ag for the three months ended March 31, 2003 was $121,818, consisting of $148,840 operating income and $446 of interest income offset by $27,468 of interest expense. Net income also included a $180,894 gain on options. The gain on options represents the change in the market value of option contracts during the quarter ended March 31, 2003. It includes both option contracts held for the entire quarter and contracts that were closed out during the quarter. Without this gain on options, Husker Ag would have recorded a net loss of income of $59,076. Net income and comprehensive net income for Husker Ag for the three months ended March 31, 2002 was ($156,881). Husker Ag had no revenues as of March 31, 2002 and operating expenses of $209,117. The operating expenses were offset by $50,436 of interest income and $1,800 non-member contributions to the Company.

Net sales for the three months ended March 31, 2003 was $1,302,626 and consisted of approximately $875,000 in sales of ethanol plus a $200,000 ethanol producer credit receivable from the

State of Nebraska (83%) and approximately $228,000 in sales of distiller grains and corn syrup (17%). Husker Ag was in the construction phase and thus had no sales of ethanol, distiller grains and corn syrup during the three month period ended March 31, 2002. LB 536, a State of Nebraska legislative bill which came into law on May 31, 2001, established a production tax credit of 18¢ per gallon of ethanol produced during a 96 consecutive month period by newly constructed ethanol facilities in production prior to June 30, 2004. The tax credit is only available to offset Nebraska motor fuels excise taxes. The tax credit is transferable and therefore Husker Ag intends to transfer credits received to a Nebraska gasoline retailer who will then reimburse Husker Ag for the face value of the credit amount less a handling fee. On March 24, 2003, Husker Ag entered into an agreement with Rite Way Oil & Gas Co., Inc. pursuant to which Husker Ag will transfer up to $500,000 in ethanol production credits to Rite Way per month. Rite Way will then pay Husker Ag the credit amount less a handling fee. No producer can receive tax credits for more than 15,625,000 gallons of ethanol produced in one year and no producer will receive tax credits for more than 125 million gallons of ethanol produced over the consecutive 96 month period. The minimum production level for a plant to qualify for credits is 100,000 gallons of ethanol annually. The production incentive is scheduled to expire June 30, 2012. Once operational and assuming we are producing at least 15,625,000 gallons of ethanol in one year, this producer tax credit could result in payments of up to $2,812,500 to us annually, subject to the statutory maximum limit.

Husker Ag has engaged Eco-Energy, Inc. to market and sell its ethanol and determine the amount of ethanol that should be sold on the spot market or on a contract basis based on current market conditions and the anticipated forecast of the ethanol market. On November 27, 2002, the Company entered into a Risk Management and Ethanol Marketing Contract with FCStone, LLC and Eco-Energy, Inc. pursuant to which FCStone provides Husker Ag with a full service price risk management program and Eco-Energy purchases Husker Ag's entire output of ethanol in good faith at fair market rates for the term of the agreement. The initial term of the agreement is one year from the date Husker Ag plant began ethanol production and automatically renews for an additional one year term unless Husker Ag gives notice of non-renewal in writing at least four months prior to the end of the initial term. The per gallon price of ethanol has generally decreased because the ethanol market has been in a falling market as a result of lower gasoline prices and increasing ethanol industry production capacity.

On November 12, 2002, Husker Ag entered into a Marketing Agreement with Jack G. Frahm ("Frahm") pursuant to which Frahm will sell and market Husker Ag's distiller grains and corn syrup. Under the terms of the Marketing Agreement, Husker Ag will pay Frahm a commission based on the total gross sales contracted for by Frahm and collected by Husker Ag with the commission rate established at 1.25% of total collections during the month. The Marketing Agreement expires on March 31, 2004; however, the Marketing Agreement automatically renews for one year periods on the same terms and conditions unless either party notifies the other party of its intent not to renew the agreement. Either party may terminate the Marketing Agreement upon sixty days written notice to the other party. Frahm is also Secretary of the Company and a member of its Board of Directors. The Board of Directors therefore reviewed and approved the Marketing Agreement in accordance with the Company's Affiliated Transactions Policy. As a result of the affiliation between Frahm and Husker Ag, the Marketing Agreement requires that all contracts written by Frahm under such agreement must state that they are subject to final approval by the Husker Ag General Manager. During the term of the Marketing Agreement, and for a period of two years thereafter, Frahm may not provide similar services to any other person or firm without Husker Ag's prior written approval.

For the three months ended March 31, 2003, Husker Ag had $446 of interest income. Interest income for the three months ended March 31, 2003 consists of income earned on cash on hand and short-term investments pending use of the funds for construction and start-up costs and short-term investments generated from operations. For the three months ended March 31, 2002, Husker Ag had

$50,436 of interest and other income. Interest income for the three months ended March 31, 2002 consisted of income earned on cash on hand and short-term investments pending use of the funds for construction and start-up costs.

The net income for the three months ended March 31, 2003 reflects an approximately $200,000 ethanol producer tax credit receivable from the State of Nebraska but does not reflect any incentive income from the federal government in connection with Husker Ag's production.

Husker Ag's cost of revenues, which includes production expenses, for the three-month period ended March 31, 2003 was approximately $850,721. Husker Ag incurred selling, general and administrative expense of approximately $483,959 and recorded interest expense of 27,468 on its construction loan with Stearns Bank, N.A.

Husker Ag believes that it will begin operating at full capacity during the 2^nd quarter of 2003 and expects to then continue operating the plant at, or above, full capacity thereafter. Husker Ag expects to have sufficient cash from operations to cover its operating and administrative costs and intends to fund working capital, capital expenditures, and debt service obligations for the next twelve months primarily from its construction loan with Stearns Bank, N.A, its revolving line of credit with Stearns Bank, N.A. and through cash flows generated from its operating activities. As of March 31, 2003, the Company had approximately $4,202,082 available under its construction loan and the Company had not made any draws against its revolving line of credit.

Liquidity And Capital Resources

As of March 31, 2003, the Company had current assets of $2,794,852 including cash of $299,260 and the Company had total assets of $32,604,292. The Company's cash generated interest or other income of $446 for the three months ended March 31, 2003. As of March 31, 2003, the Company had current liabilities totaling $19,464,741 consisting of accounts payable, accrued expenses, short-term construction financing debt expected to be refinanced and short positions and option contracts. As of March 31, 2003, the Company had an accumulated deficit of $1,562,099 and member's equity was $12,969,063.

On October 3, 2002, the Company made its first draw against its construction loan. From October 3, 2002 through December 31, 2002, the Company had borrowed $10,192,114 from Stearns Bank, N.A. under its construction loan. From December 31, 2002 through March 31, 2003, the Company borrowed an additional $5,605,803 under its construction loan for total borrowings of $15,797,918. The Company's primary source of liquidity until it begins operating at full capacity will be borrowing under its construction loan and its revolving line of credit with Stearns Bank, N.A.. As of March 31, 2003, the Company had approximately $4,202,082 available under its construction loan. On April 2, 2002, the Company made its first draw against its revolving line of credit and borrowed $150,000.

Cash flow From Operating Activities. The operating activities of Husker Ag for the three months ended March 31, 2003, generated $121,818 of net income. As part of its operating activities, Husker Ag had ($10,902) in items not requiring cash and had net changes in operating assets and liabilities of ($156,427). Therefore, the net cash used for operating activities for the three months ended March 31, 2003 totaled $45,511 primarily to fund salaries, office and administrative expenses, and consulting, legal, and permitting fees as well as commodity option contracts.

Cash Flow from Investing Activities. Cash used for investing activities for the three months ended March 31, 2003 totaled $5,567,352. Cash used for investing activities for the three months ended March 31, 2003 was spent on the construction and development of the ethanol plant and the plant site ($5,380,037) and the purchase of property and equipment ($187,315).

Cash Flow from Financing Activities. Cash provided by financing activities for the three months ended March 31, 2003 totaled $5,605,803, which consists of advances under the construction loan with Stearns Bank, N.A.

Stearns Bank, N.A. is Husker Ag's primary lender. On December 19, 2001, the Company closed on its construction financing with Stearns Bank, N.A., St. Cloud, Minnesota. Under the Construction Loan Agreement with Stearns Bank, N.A. (the "Bank"), the Bank agrees to provide up to $20,000,000 of debt financing for the purpose of constructing a 20 million gallon per year ethanol plant. The construction loan is evidenced by a demand promissory note from the Company to the Bank, with a variable interest rate which follows the prime rate as published by theWall Street Journal plus¹/4% (5.0%, as of the time of the Company's initial borrowing in October 2002 and 4.25% as of March 31, 2003). The construction loan is for an 18-month period, ending June 19, 2003. The Bank's construction loan is secured by a first mortgage on the Company's real estate and plant, as well as a first security interest on all accounts receivable, inventory, equipment, fixtures, all personal property and general intangibles. The total financing costs incurred by the Company in connection with the origination of its debt financing were $445,086. On October 3, 2002, the Company made its first draw against its construction loan and borrowed $2,169,386 and as of March 31, 2003, the Company had borrowed approximately $15,797,918 from Stearns Bank, N.A. under the construction loan. On April 2, 2002, the Company made its first draw against its revolving line of credit and borrowed $150,000.

The Construction Loan Agreement imposes a number of conditions which must be met by the Company on an on-going basis prior to the Bank's disbursement of loan funds, including providing the Bank with detailed budget and cash flow projections and construction schedule, as well as annual audited financial statements and monthly interim financial statements. The Bank has broad powers of discretion with respect to its disbursement of construction loan funds, depending upon the Company's compliance with the Construction Loan Agreement covenants and conditions.

Upon the successful completion of construction of the ethanol plant, subject to required loan documentation, and no material adverse change in the Company's financial condition, the Bank has agreed to convert the construction loan into a permanent loan amortized over 10 years which will accrue interest as follows: (i) 60% ($12,000,000) at prime rate as published by theWall Street Journal plus¹/4%, adjusted quarterly; and (ii) 40% ($8,000,000) at prime rate as published by theWall Street Journal plus¹/4%, adjusted quarterly, with a floor of 6.5% and a ceiling of 9.95% for five years beginning July 6, 2001. At the end of five years the floor and ceiling will adjust to the same spread, plus or minus, prime rate as published by theWall Street Journal at that time. Management currently anticipates the construction loan to convert to a permanent loan in the 2^ndquarter 2003.

The permanent loan is subject to a 60% USDA loan guarantee ($12 million). If the USDA declines the loan, the Bank would proceed with a conventional permanent loan. Any prepayment of the permanent loan by the Company would be subject to a 5% (of loan balance) prepayment premium in year one, 4% premium in year two, 3% premium in year three, 2% premium in year four, and 1% premium in year five.

In addition, the Company has received a revolving line of credit from Stearns Bank, N.A. in the amount of $1,000,000. The term of the revolving credit line is from March 11, 2003 through March 11, 2004. Advances made to Husker Ag under the credit line will accrue interest at a variable rate equal to 0.5% over the prime rate as published by theWall Street Journal with a minimum interest rate of 6.45%. As of March 31, 2003 the prime rate as published by theWall Street Journal was 4.25%.

Management's Plan Of Operations

The Company is currently in a transition period where it is shifting from the construction phase to the operational start-up of the plant. During the 1^st and 2^nd quarter of 2003, the Company will continue to work with Fagen, Inc. to complete construction of the plant and to achieve and maintain operation

of the plant at, or above, full capacity. The Company believes that it will begin operating at full capacity during the 2^nd quarter of 2003.

The Company has expended $589,717 in connection with preparing the site to meet the site specifications required by Fagen, Inc. and set forth in the Design Build Contract, including leveling and grading the site and constructing a road from the plant to Highway 20. The Company has paid $23,649,978 to Fagen, Inc. in connection with the construction of the plant and the purchase and installation of machinery and equipment, including payment of an initial mobilization fee of $1 million (less a 10% retainage), which is applied to the total contract price. O. Wayne Mitchell sits on the Company's Board of Directors and is an officer and employed by Fagen, Inc., which is the Company's design-build contractor. For the three months ended March 31, 2003, Husker Ag borrowed $5,605,803 under its construction loan with Stearns Bank, N.A. Husker Ag's total borrowing under the construction loan totaling $15,797,918 as of March 31, 2003. On April 2, 2002, the Company made its first draw against its revolving line of credit and borrowed $150,000. During the three months ended March 31, 2003, the Company expended $796,424 for payments to third parties other than Fagen, Inc. for expenses related to the construction of the administrative building and rail spur and the purchase of the on-site power distribution transformers.

Operating expenses consisting of general and administrative costs for the three month period ended March 31, 2003 totaled $483,959. The operating expenses for the three month period ended March 31, 2003 included $44,890 on accounting, legal, lobbying and other professional fees, $171,084 on utilities, rent and depreciation, $120,218 on contract labor and compensation, $28,565 on insurance, licenses and permits, $83,938 on spare tools and parts related to overall plant maintenance and $35,264 on office supplies, administrative costs and miscellaneous expenses.

The Company believes that it will complete construction of the ethanol plant during the 2^nd quarter of 2003 and management anticipates commencement of plant operations at capacity in the 2^nd quarter of 2003. Management currently expects that it will have sufficient funds to complete construction of the plant from its construction loan with Stearns Bank, N.A. and its revolving line of credit with Stearns Bank, N.A. as well as income generated from operating activities. As of March 31, 2003, the Company had approximately $4,202,082 available under its construction loan.

The following is management's current estimate of costs and expenditures through completion of construction of the plant and commencement of operations. Such estimates are subject to change for the reasons set forth under Forward-Looking Statements above and the Risk Factors below.

Capitalized interest				$	241,000
Debt and equity financing costs					1,040,000
Rail siding construction					390,000
Site Preparation					640,000
Office equipment					126,000
Construction of plant total					28,414,480
	—Fagen, Inc. construction contract—	$	26,900,000
	—Administration building		205,000
	—Electrical hook-up		210,000
	—Thermal oxidizer		715,480
	—Contractor Bonus		356,000
Rolling stock (trucks, forklifts, etc.)					209,000
Fire system and miscellaneous construction costs					221,000
Purchase of initial inventory					1,148,000
Hedging account					891,000
General and administrative expenses					1,304,000

TOTAL				$	34,624,480

Management currently expects to spend a portion of its remaining debt financing available to the Company on final payments to Fagen Inc. for construction of the plant currently estimated at $4,411,609 and an early completion bonus in the amount of $356,000 earned by Fagen, Inc. in connection with "substantial completion" of the plant prior to April 26, 2003. Under the terms of the Design-Build Agreement and the contract change order dated August 7, 2002, Fagen, Inc. is entitled to an early completion bonus of $8,000 per day, for every day that substantial completion has been attained in advance of April 26, 2003, and Husker Ag is entitled to liquidated damages of $8,000 per day, for each day that substantial completion extends beyond June 12, 2003. After discussions with Fagen, Inc. regarding whether the plant successfully completed the seven-day test and whether the plant has attained "substantial completion" as defined under the Design Build Contract, Husker Ag and Fagen have tenatively agreed upon a "substantial completion" date of March 13¹/2, 2003. Based on this tenative agreement, Fagen would be entitled to an early completion bonus of $356,000.

Management expects to spend the remaining portion of the debt financing available to Husker Ag on plant operation start-up costs in the 2^ndquarter of 2003. These costs include the continued purchase of initial corn inventory, chemicals and other start-up expenses, prior to receiving revenue from the sale of ethanol and distillers grains.

Management intends to fund its operational costs and expenditures through the calendar year 2003 through its existing construction loan from Stearns Bank (which management believes will be converted to a permanent loan in the 2^nd quarter of 2003), the revolving credit line established with Stearns Bank, and through revenue from operations. The Company is currently transitioning from a construction phase to operational start-up of the plant and therefore, management is currently preparing an operational budget that will replace its existing construction budget once the plant is fully operational. Management currently believes that the Company has adequate liquidity to fund its remaining construction costs and its operational costs and expenditures through calendar year 2003. Management intends to continually review and revise its operational budget based on its evaluation of the Company's then current revenues, expenses and cash flow, market risks and possible opportunities for increasing its liquidity.

Management currently expects to be paid for its ethanol within 72 hours of shipment. The principal costs associated with the operation of the plant are employment costs, utilities, purchase of corn inventory, purchase of enzymes, chemicals and other materials necessary to operate the plant, interest on indebtedness and general and administrative expenses. Once operational, increases and decreases in the price of corn and/or the price of ethanol could have a material impact on the liquidity and profitability of the Company. Increases in the price of corn will increase costs to the Company and therefore, would reduce its liquidity and profitability. Rising corn prices produce lower profit margins for the production of ethanol and therefore, represent unfavorable market conditions. Similarly, decreases in the price of corn may increase revenues to the Company and therefore, would increase the liquidity and profitability of the Company.

In an attempt to minimize the effects of the volatility of corn costs on operating profits, Husker Ag has taken hedging positions in corn futures and option markets. Hedging means protecting the price at which the Company buys corn and the price at which it will sell its products in the future. It is a way to attempt to reduce the risk caused by price fluctuation. The effectiveness of hedging activities is dependent upon, among other things, the cost of corn and Husker Ag's ability to sell sufficient amounts of ethanol and distillers grains to utilize all of the corn subject to the futures contracts. Hedging activities can result in costs to the Company because price movements in grain contracts are highly volatile and are influenced by many factors which are beyond the Company's control. Husker Ag may incur similar costs in connection with its hedging transactions and these costs may be significant.

Prices for ethanol products can vary significantly over time and decreases in price levels could adversely affect Husker Ag's profitability and viability. The price for ethanol has some relation to the price for gasoline. The price of ethanol tends to increase as the price of gasoline increases, and the price of ethanol tends to decrease as the price of gasoline decreases. Any lowering of gasoline prices will likely also lead to lower prices for ethanol and adversely affect the Company's operating results.

Changes in the cost of utilities may also have a material impact on the liquidity and profitability of the Company. Ethanol production requires a constant and consistent supply of energy. If there is any interruption in Husker Ag's supply of energy for whatever reason, such as supply, delivery or mechanical problems, the Company may be required to halt production. If production is halted for any extended period of time, it will have a material adverse effect on the Company's business. If Husker Ag were to suffer interruptions in its energy supply, either during construction or after the Company begins operating the ethanol plant, its business would be harmed. In addition, natural gas and electricity prices have historically fluctuated significantly. Increases in the price of natural gas or electricity would harm Husker Ag's business by increasing its energy costs. Currently, the price of natural gas has increased significantly, increasing the cost to the Company to produce ethanol. The Company will also need to purchase significant amounts of electricity to operate the proposed ethanol plant. The prices which Husker Ag will be required to pay for electrical power will have a direct impact on its costs of producing ethanol and its financial results.

Husker Ag's liquidity and profitability may also be adversely impacted if there is an increase in the supply of ethanol. Husker Ag expects that existing ethanol plants will expand to increase their production and that new fuel grade ethanol plants will be constructed as well. Although management believes that there may be a corresponding increase in the demand for ethanol as a result of the phase out of MTBE, Husker Ag cannot provide any assurance or guarantee that there will be any material or significant increases in the demand for ethanol, so the increased production of ethanol may lead to lower prices for ethanol. The increased production of ethanol could have other adverse effects as well. For example, the increased production will also lead to increased supplies of co-products from the production of ethanol, such as distillers grain/solubles. Those increased supplies could lead to lower prices for those co-products. Also, the increased production of ethanol could result in increased demand for corn which could in turn lead to higher prices for corn, resulting in higher costs of production and lower profits.

In addition to general market fluctuations and economic conditions, Husker Ag could experience significant cost increases associated with the on-going operation of the plant caused by a variety of factors, many of which are beyond the Company's control. Labor costs can increase over time, particularly if there is any shortage of labor, or shortage of persons with the skills necessary to operate the ethanol plant. Changes in price, operation and availability of truck and rail transportation may affect the Company's profitability with respect to the transportation of ethanol and other products to its customers. In addition, the operation of the ethanol plant will be subject to ongoing compliance with all applicable governmental regulations, such as those governing pollution control, ethanol production, grain purchasing and other matters. If any of these regulations were to change, it could cost Husker Ag significantly more to comply with them. Further, other regulations may arise in future years regarding the operation of the ethanol plant, including the possibility of required additional permits and licenses. Husker Ag might have difficulty obtaining any such additional permits or licenses, and they could involve significant unanticipated costs. Husker Ag will be subject to all of those regulations whether or not the operation of the ethanol plant is profitable.

Employees

As of March 31, 2003, Husker Ag had hired approximately 30 employees and independent contractors needed to operate the ethanol facility and operations. Husker Ag is not subject to any collective bargaining agreements and has not experienced any work stoppages. Husker Ag considers its relationship with its employees to be good.

Books and Records

Husker Ag currently has one temporary receptionist, one bookkeeper and one plant accountant. The Company is currently dependent on its Board of Directors, a limited staff and the Company's legal counsel, for the maintenance of its books and records. Husker Ag has retained the services of an outside consultant to assist the Company in the maintenance of its accounting books and records from time to time on an hourly basis. Such personnel are and will be responsible for compliance with the rules and regulations promulgated under the Securities and Exchange Act of 1934 concerning the maintenance of accurate books and records, and the timely and accurate submission of annual and periodic reports with the Securities and Exchange Commission.

Permit Update

The Company filed an application with the Nebraska Department of Environmental Quality (the "NDEQ") for its National Pollutant Discharge Elimination System (NPEDS) waste water permit on August 2, 2002. The NDEQ issued a letter to the Company on August 29, 2002 in which the NDEQ raised questions regarding the discharge content and quantities set forth in the Company's permit. The Company filed a response to the NDEQ letter on October 16, 2002 in which the Company responded to the NDEQ's questions. The Company received its waste water permit from the NDEQ and such permit was effective February 26, 2003.

As of March 31, 2003, the NDEQ had not yet issued Husker Ag its Air Quality Operating Permit. Because Husker Ag elected to purchase the thermal oxidizer, the NDEQ determined that the Husker Ag Air Quality Operating Permit needed modification to include the impact of the thermal oxidizer on the plant's dispersion modeling. The Company's Air Quality Construction Permit expires on July 15, 2003. The Company has twelve months once the plant becomes operational to obtain an Air Quality Operating Permit from the NDEQ and once granted, the Company expects the permit will be valid for five years.

RISK FACTORS

The project could suffer delays that could postpone Husker Ag's ability to generate revenues and make it more difficult for Husker Ag to pay its debts.

Husker Ag currently expects that it will begin operating at full capacity during the 2^nd quarter of 2003. The project could be delayed if Husker Ag encounters defective material or workmanship from Fagen which could delay production and the Company's' ability to generate revenues. Under the Design-Build Contract with Fagen, Fagen warrants that the ethanol plant will be free from defects in material or workmanship. If this warranty is breached and there are defects in material or workmanship, it may delay Husker Ag's ability to commence operations and delay its ability to generate revenues. If defects are discovered after the Company begins operating, it could cause the Company to halt or discontinue its operation, which could damage the Company's ability to generate revenues and reduce the value of the membership units. Husker Ag's recourse in the event of a breach of this warranty by Fagen is to file an action against Fagen for breach of contract or breach of warranty which will be subject to the applicable statutes of limitations under the laws of the State of Nebraska.

Husker Ag is a newly formed company with limited working capital which could result in losses.

Husker Ag, LLC is a newly formed company with no prior operations and no experience concerning whether it will be successful in the proposed construction and operation of the ethanol plant or that its plans will materialize or prove successful. Husker Ag cannot make representations about its future profitable operation or the future income or losses of Husker Ag. The Company does not know whether it will ever operate at a profit or that Husker Ag will appreciate in value. If the Company's plans prove to be unsuccessful, its members will lose all or a substantial part of their investment.

Husker Ag's business is not diversified and this could reduce the value of the membership units.

Husker Ag's success depends largely upon its ability to timely complete and profitably operate its ethanol business. Husker Ag does not have any other lines of business or other sources of revenue if it is unable to build the ethanol plant and manufacture ethanol. If Husker Ag were not able to complete construction, or if economic or political factors adversely affect the market for ethanol, the value of its membership units could decline because the Company has no other line of business to fall back on if the ethanol business declines. Husker Ag's business would also be significantly harmed if its ethanol plant could not operate at full capacity for any extended period of time.

Husker Ag will be operating in an intensely competitive industry and will compete with larger, better financed entities which could impact its ability to operate profitably.

There is significant competition among ethanol producers. Husker Ag faces a competitive challenge from larger factories, from plants that can produce a wider range of products than it can, and from other plants similar to its proposed ethanol plant. Husker Ag's ethanol plant will be in direct competition with other ethanol producers, many of which have greater resources than Husker Ag currently has. Large ethanol producers such as Archer Daniels Midlands and Cargill, among others, are capable of producing a significantly greater amount of ethanol than Husker Ag currently expects to produce. In addition, there are several Nebraska, Kansas, Minnesota, Wisconsin, South Dakota and other Midwest regional ethanol producers which have recently formed, are in the process of forming, or are under consideration, which are or would be of a similar size and have similar resources to Husker Ag.

The proposed ethanol plant will also compete with producers of other gasoline additives made from raw materials other than corn having similar octane and oxygenate values as ethanol, such as producers of methyl tertiary butyl ether (MTBE). MTBE is a petrochemical derived from methanol

which generally costs less to produce than ethanol. Many major oil companies produce MTBE and strongly favor its use because it is petroleum-based. Alternative fuels, gasoline oxygenates and alternative ethanol production methods are also continually under development. The major oil companies have significantly greater resources than Husker Ag has to market MTBE, to develop alternative products, and to influence legislation and public perception of MTBE and ethanol. These companies also have significant resources to begin production of ethanol should they choose to do so.

Increases in the production of ethanol could result in lower prices for ethanol and have other adverse effects which could reduce our profitability.

The Company expects that existing ethanol plants will expand to increase their production and that new fuel grade ethanol plants will be constructed as well. Husker Ag cannot provide any assurance or guarantee that there will be any material or significant increases in the demand for ethanol, so the increased production of ethanol may lead to lower prices for ethanol. The increased production of ethanol could have other adverse effects as well. For example, the increased production will also lead to increased supplies of co-products from the production of ethanol, such as distillers grain/solubles. Those increased supplies could lead to lower prices for those co-products. Also, the increased production of ethanol could result in increased demand for corn which could in turn lead to higher prices for corn, resulting in higher costs of production and lower profits. Recently ethanol prices have declined because of increased supply and decreased demand for ethanol, and some gasoline retailers have been pricing ethanol-blended fuel below the lower-octane unleaded fuel. In addition, there are a number of ethanol plants which are under construction or proposed to be constructed in the near future, both regionally and nationally. As result, the supply of ethanol is expect to continue to increase, and, while the demand for ethanol is also expected to increase in the future as the MTBE bans become effective, there is a risk that the market supply of ethanol will increase faster than the market demand, continuing to place downward pressure on the price of ethanol, which would negatively impact our revenue and potential profitability.

Changes in the supply and demand, and production and price with respect to corn could make it more expensive to produce ethanol which could decrease Husker Ag's profits.

Ethanol production will require substantial amounts of corn. Corn, as with most other crops, is affected by weather, governmental policy, disease and other conditions. A significant reduction in the quantity of corn harvested due to adverse weather conditions such as drought, farmer planting decisions, domestic and foreign government farm programs and policies, global demand and supply or other factors could result in increased corn costs which would increase Husker Ag's cost to produce ethanol. The significance and relative impact of these factors on the price of corn is difficult to predict. Significant variations in actual growing conditions from normal growing conditions also may adversely affect Husker Ag's ability to procure corn for the proposed plant. Any events that tend to negatively impact the supply of corn will tend to increase prices and harm Husker Ag's business.

Rising corn prices produce lower profit margins for the production of ethanol and therefore, represent unfavorable market conditions. This is especially true when market conditions do not allow Husker Ag to pass along increased corn costs to its customers. The price of corn has fluctuated significantly in the past and may fluctuate significantly in the future. Substantial increases in the price of corn in 1996 caused some ethanol plants to temporarily cease production or lose money. Husker Ag cannot assure you that it will be able to offset any increase in the price of corn by increasing the price of its products. If Husker Ag cannot offset increases in the price of corn, its financial performance may be materially and adversely affected.

Husker Ag purchases corn from local producers but Husker Ag does not currently have any definitive agreements with any corn producers or grain elevators to provide corn to its ethanol plant.

The Company has also commenced purchases of corn inventory through the futures and option markets.

Federal regulations concerning tax incentives could expire or change which could reduce Husker Ag's revenues.

Congress currently provides certain federal tax incentives for oxygenated fuel producers and marketers, including those who purchase ethanol to blend with gasoline in order to meet federally mandated oxygenated fuel requirements. These tax incentives include, generally, a lower federal excise tax rate for gasoline blended with at least 10 percent, 7.7 percent, or 5.7 percent ethanol, and income tax credits for blenders of ethanol mixtures and small ethanol producers. Gasoline marketers pay a reduced tax on gasoline that they sell that contains ethanol.

The ethanol industry and Husker Ag's business depend on continuation of the federal ethanol credit. This credit has supported a market for ethanol that might disappear without the credit. The federal subsidies and tax incentives are scheduled to expire September 30, 2007. These subsidies and tax incentives to the ethanol industry may not continue beyond their scheduled expiration date or, if they continue, the incentives may not be at the same level. The revocation or amendment of any one or more of those laws, regulations or programs could adversely affect the future use of ethanol in a material way, and Husker Ag cannot guarantee that any of those laws, regulations or programs will be continued. The elimination or reduction of federal subsidy and tax incentives to the ethanol industry would have a material adverse impact on Husker Ag's business by making it more costly or difficult for it to produce and sell ethanol. If the federal ethanol tax incentives are eliminated or sharply curtailed, Husker Ag believes that a decreased demand for ethanol will result.

Nebraska state producer incentives may be unavailable or could be modified which could reduce Husker Ag's revenues.

LB 536, a State of Nebraska legislative bill, became law on May 31, 2001 and established a production tax credit of 18¢ per gallon of ethanol produced during a 96 consecutive month period by newly constructed ethanol facilities in production prior to June 30, 2004. The tax credit is only available to offset Nebraska motor fuels excise taxes. The tax credit is transferable and therefore Husker Ag intends to transfer credits received to a Nebraska gasoline retailer who will then reimburse Husker Ag for the face value of the credit amount less a handling fee. No producer can receive tax credits for more than 15,625,000 gallons of ethanol produced in one year and no producer will receive tax credits for more than 125 million gallons of ethanol produced over the consecutive 96 month period. The minimum production level for a plant to qualify for credits is 100,000 gallons of ethanol annually. Husker Ag has entered into a written agreement with the Tax Commissioner on behalf of the State of Nebraska pursuant to which Husker Ag agreed to produce ethanol at its designated facility and the State of Nebraska agreed to furnish the producer tax credits in accordance with the terms of the new law.

In 2002, because of State of Nebraska budget shortfalls, various tax credit provisions in effect in Nebraska, including LB 536, have come under increased scrutiny from the Nebraska Unicameral. As a result there can be no assurance that the Nebraska legislature will not in subsequent legislative sessions enact new legislation which would revise LB 536, or otherwise adversely impact ethanol plants, such as that being built by Husker Ag, which are to benefit from LB 536.

Husker Ag believes there are several existing projects in Nebraska that could compete with the Company for payments. If another ethanol plant came online and produced 100,000 or more gallons of ethanol, it could also qualify for the producer payment. This would require the legislature to increase funding for the producer incentive program through either an increase in general fund appropriation or other sources such as the grain checkoff program. Despite the Company's written agreement with the

State of Nebraska, the Nebraska legislature could reduce or eliminate the producer tax credits at any time; however, a reduction or elimination would constitute a breach of the contract by the State of Nebraska. The State of Nebraska could also impose taxes on the ethanol plants to provide additional funds for the ethanol production incentive fund. Nebraska legislators are currently discussing and reviewing legislative bills which would establish a direct tax on distiller grains. If the State of Nebraska establishes such a tax, Husker Ag will be required to pay taxes on the distiller grains it produces which will have a serious adverse impact on Husker Ag's net income from the production incentive and will reduce its revenue.

Husker Ag is subject to extensive environmental regulation and operational safety regulations that could result in higher than expected compliance costs and liabilities.

The Company may be subject to regulations on emissions from the United States Environmental Protection Agency. Further, EPA and Nebraska's environmental regulations are subject to change and often such changes are not favorable to industry. Consequently, even if Husker Ag has the proper permits now, the Company may be required to invest or spend considerable resources to comply with future environmental regulations.

The Company's failure to comply or the need to respond to threatened actions involving environmental laws and regulations may adversely affect its business, operating results or financial condition. Once Husker Ag's ethanol plant becomes operational and as its business grows, Husker Ag will have to develop and follow procedures for the proper handling, storage, and transportation of finished products and materials used in the production process and for the disposal of waste products. In addition, state or local requirements may also restrict the Company's production and distribution operations. Husker Ag could incur significant costs to comply with applicable laws and regulations as production and distribution activity increases. Protection of the environment will require Husker Ag to incur expenditures for equipment or processes.

Husker Ag could also be subject to environmental nuisance or related claims by employees, property owners or residents near the proposed ethanol plant arising from air or water discharges. Ethanol production has been known to produce an odor to which surrounding residents could object. If odors become a problem, Husker Ag may be subject to fines and could be forced to take costly curative measures. Environmental litigation or increased environmental compliance costs could increase its operating costs.

Members may be required to pay taxes on their share of Husker Ag's income even if it makes no distributions to members.

Husker Ag expects to be treated as a partnership for federal income tax purposes unless there is a change of law or trading in the membership units is sufficient to classify Husker Ag as a "publicly traded partnership." This means that Husker Ag will pay no income tax and all profits and losses will "pass-through" to its members who will pay tax on their share of Husker Ag's profits. It is likely that Husker Ag's members may receive allocations of taxable income that exceed any cash distributions made, if any. This may occur because of various factors, including but not limited to, accounting methodology, lending covenants that restrict Husker Ag's ability to pay cash distributions, or its decision to retain or use the cash generated by the business to fund its operating activities and obligations. Accordingly, members may be required to pay income tax on the allocated share of Husker Ag's taxable income with personal funds, even if the members receive no cash distributions from the Company.

ITEM 3: CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Company's disclosure controls and procedures (as defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the "Exchange Act")) was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer within the 90-day period preceding the filing date of this quarterly report. Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) accumulated and communicated to Company management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission's rules and forms.

(b) Changes in Internal Controls: In the quarter ended March 31, 2003, the Company did not make any significant changes in, nor take any corrective actions regarding, its internal controls or other factors that could significantly affect these controls.

PART II
OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The Company has not been informed of any legal matters that would have a material adverse effect on its financial condition, results of operations or cash flows.

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5: OTHER INFORMATION

None.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)

EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K

10.1: Promissory Note with Stearns Bank, N.A. dated March 11, 2003.
10.2: Business Loan Agreement (Asset Based) dated March 11, 2003 between Husker Ag and Stearns Bank, N.A.
10.3: Commercial Security Agreement dated March 11, 2003 between Husker Ag and Stearns Bank, N.A.
10.4: Security Interest Subordination Agreement between Husker Ag and Stearns Bank, N.A.
10.5: Agreement dated March 24, 2003 between Husker Ag and Rite Way Oil & Gas Co., Inc.
10.6: Risk Management and Ethanol Marketing Contract dated November 27, 2002 between Husker Ag, FC Stone, L.L.C. and Eco-Energy, Inc.

(b)

REPORTS ON FORM 8-K

None.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COMPANY NAME, INC.
Date: May 14, 2003.	By:	/s/ GARY KUESTER Gary Kuester, Chairman of the Board, President and Director (Principal Executive Officer)
Date: May 14, 2003	By:	/s/ FREDRICK J. KNIEVEL Fredrick J. Knievel, Treasurer and Director (Principal Financial Officer)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Husker Ag, LLC (the "Company") on Form 10-QSB for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1): The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2): The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 14, 2003.

By:		/s/ GARY KUESTER Gary Kuester, Chairman of the Board, President and Director (Principal Executive Officer)
By:		/s/ FREDRICK J. KNIEVEL Fredrick J. Knievel, Treasurer and Director (Principal Financial Officer)

CERTIFICATIONS PURSUANT TO SECTION 302

I, Gary Kuester, President, Chairman of the Board and Principal Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Husker Ag, LLC;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registration and have:

(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003.

By:

/s/ GARY KUESTER

Gary Kuester, Chairman of the Board,
President and Director
(Principal Executive Officer)

I, Fredrick Knievel, Treasurer and Principal Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Husker Ag, LLC;

(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: May 14, 2003.

By:

/s/ FREDRICK J. KNIEVEL

Fredrick J. Knievel, Treasurer and Director
(Principal Financial Officer)

EXHIBIT INDEX

Exhibit No.	Description	Method of Filing
10.1	Promissory Note with Stearns Bank, N.A. dated March 11, 2003.	Filed herewith.
10.2	Business Loan Agreement (Asset Based) dated March 11, 2003 between Husker Ag and Stearns Bank, N.A.	Filed herewith.
10.3	Commercial Security Agreement dated March 11, 2003 between Husker Ag and Stearns Bank, N.A.	Filed herewith.
10.4	Security Interest Subordination Agreement between Husker Ag and Stearns Bank, N.A	Filed herewith.
10.5	Agreement dated March 24, 2003 between Husker Ag and Rite Way Oil & Gas Co., Inc.	Filed herewith.
10.6	Risk Management and Ethanol Marketing Contract dated November 27, 2002 between Husker Ag, FC Stone, L.L.C. and Eco-Energy, Inc.	Filed herewith.

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HUSKER AG, LLC INDEX TO 10-QSB FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

ITEM 1: FINANCIAL STATEMENTS

Husker Ag, LLC Accountants' Report and Financial Statements March 31, 2003 and 2002
Contents
Independent Accountants' Report
Husker Ag, LLC Condensed Balance Sheets March 31, 2003 and December 31, 2002
Husker Ag, LLC Condensed Statements of Income (Loss) Three Months Ended March 31, 2003 and 2002 (Unaudited)
Husker Ag, LLC Condensed Statements of Cash Flows Three Months Ended March 31, 2003 and 2002 (Unaudited)
Husker Ag, LLC Notes to Condensed Financial Statements March 31, 2003 and 2002 (Unaudited)

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3: CONTROLS AND PROCEDURES

PART II OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 5: OTHER INFORMATION

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS PURSUANT TO SECTION 302
EXHIBIT INDEX

Husker Inactive 10QSB2003 Q1 Quarterly report (small business)