UNITED STATES SECURITIES AND EXCHANGE COMMISSION ~~Washington, DC 20549~~

~~FORM~~WASHINGTON, DC ~~10-QSB~~ 20549

ý	QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED September 30, 2002
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

FORM 10-Q

ý QUARTERLY ~~COMMISSION~~REPORT ~~FILE~~PURSUANT ~~NUMBER:~~TO ~~333-50568~~ SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

~~BADGER~~FOR ~~STATE~~THE QUARTERLY ~~ETHANOL,~~PERIOD ~~LLC. (Exact~~ENDED ~~name~~MARCH 31, ~~of registrant as specified in its charter)~~ 2005

WISCONSIN (State or other jurisdiction of incorporation or organization)		39-1996522 (IRS Employer Identification No.)
820 West 17th Street Monroe, Wisconsin 53566 (Address of principal executive offices)
(608) 329-3900 (Issuer's telephone number, including area code)
2443 Bethel Road, Monroe, Wisconsin, 53566 (Former name, former address and former fiscal year, if changed since last report)

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

~~Check whether~~FOR ~~the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period~~THE ~~that~~TRANSITION ~~the~~PERIOD ~~registrant was required to file such reports) and (2) has been subject to such filing requirements for the past~~FROM ~~90 days. Yes ý No o~~ TO

AsCOMMISSION ofFILE ~~November 14,~~NUMBER: ~~2002, the Company has issued 19,774 Class A membership units.~~ 333-50568

~~Transitional Small~~BADGER ~~Business~~STATE ~~Disclosure~~ETHANOL, ~~Format: Yes o No ý~~ LLC

(Exact name ~~BADGER~~of ~~STATE~~registrant ~~ETHANOL,~~as specified ~~LLC FORM~~in ~~10-QSB~~its ~~QUARTERLY REPORT FOR THE QUARTER ENDED September 30, 2002~~ charter)

TABLE OF CONTENTS

WISCONSIN		39-1996522
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

820 West 17^th Street Monroe, Wisconsin 53566
(Address of principal executive offices)

(608) 329-3900
(Registrant’s telephone number, including area code)

			Page
Part I—Financial Information
	Item 1. Financial Statements
		Condensed Balance Sheet at September 30, 2002	3
		Condensed Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months ended September 30, 2002 and 2001 and the period from May 11, 2000 (date of inception) to September 30, 2002	4
		Condensed Statements of Cash Flows for the Nine Months ended September 30, 2002 and 2001 and the period from May 11, 2000 (date of inception) to September 30, 2002	5
	Notes to Condensed Financial Statements		6
	Item 2. Management's Discussion and Analysis and Plan of Operations		7
Part II—Other Information
	Item 6. Exhibits and Reports on Form 8-K		11
Signature			12
Exhibits

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of ~~BADGER~~May 12, ~~STATE ETHANOL~~2005, the ~~LLC (A~~Company ~~DEVELOPMENT~~has ~~STAGE~~issued ~~COMPANY) CONDENSED~~19,774 ~~BALANCE~~Class A ~~SHEET (Unaudited)~~ member units.

			September 30, 2002
ASSETS
CURRENT ASSETS
	Cash		$	81,883
	Inventory			113,726
	Prepaid expenses			723,701
	Fair value of derivative contracts			1,827,479
		Total current assets		2,746,789
PROPERTY AND EQUIPMENT
	Construction in progress			44,845,321
	Office equipment			8,853
				44,854,174
		Less accumulated depreciation		2,236
				44,851,938
DEFERRED FINANCING FEES				626,374
			$	48,225,101
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
	Current maturities of long-term debt			60,437
	Construction payable			3,048,300
	Accounts payable and accrued expenses			215,035
		Total current liabilities		3,323,772
LONG-TERM DEBT, less current maturities				27,198,567
COMMITMENTS AND CONTINGENCIES				—
MEMBERS' EQUITY
	Member contributions			17,859,787
	Deficit accumulated during the development stage			(1,751,017	)
	Accumulated other comprehensive income			1,593,992
				17,702,762
			$	48,225,101

BADGER STATE ETHANOL, LLC
FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED
March 31, 2005

~~The accompanying~~TABLE ~~notes~~OF ~~are an integral part of this condensed statement.~~ CONTENTS

PART I - FINANCIAL INFORMATION

	Item 1. Financial Statements (Unaudited)

	Condensed Balance Sheets

	Condensed Statements of Operations

	Condensed Statements of Cash Flows

	Notes to Condensed Financial Statements

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

	Cautionary Statement Regarding Forward-Looking Statements

	Item 3. Quantitative and Qualitative Disclosures About Market Risk

	Item 4. Controls and Procedures

PART II - OTHER INFORMATION

	Item 6. Exhibits

SIGNATURES

CERTIFICATION

PART I – FINANCIAL ~~BADGER STATE ETHANOL, LLC (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)~~ INFORMATION

		Three months ended						Nine months ended
														May 11, 2000 (date of inception) to September 30, 2002
		September 30, 2002			September 30, 2001			September 30, 2002			September 30, 2001
Revenue		$	—		$	—		$	—		$	—		$	—
Operating expenses
Project coordinator			3,000			12,000			21,000			30,000			141,000
Organization costs			18,235			—			38,069			37,779			135,777
Professional fees			36,106			464,923			128,527			586,232			779,742
Office and administrative expenses			197,979			80,647			293,814			107,576			422,454
Derivative contracts			205,939			—			329,139			—			329,139
Other			51,131			2,167			64,694			6,907			79,956
			512,390			559,737			875,243			768,494			1,888,068
	Loss from operations		(512,390	)		(559,737	)		(875,243	)		(768,494	)		(1,888,068	)
Interest income			—			86,247			6,521			86,340			137,051
	Net loss		(512,390	)		(473,490	)		(868,722	)		(682,154	)		(1,751,017	)
	Unrealized gain on derivative contracts		1,073,029			—			1,593,992			—			1,593,992
	Comprehensive income (loss)	$	560,639		$	(473,490	)	$	725,270		$	(682,154	)	$	(157,025	)
	Net loss per unit—basic and diluted	$	(25.91	)	$	(56.77	)	$	(43.93	)	$	(173.71	)	$	(177.68	)
	Weighted average units outstanding		19,774			8,340			19,774			3,927			9,855

Item 1. – Financial Statements

~~The accompanying~~BADGER ~~notes~~STATE ~~are~~ETHANOL, anLLC CONDENSED ~~integral~~BALANCE ~~part of these condensed statements.~~ SHEETS (Unaudited)

	March 31, 2005		December 31, 2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	28,850	$	3,807,383
Accounts receivable:
Trade	5,746,086		5,896,669
Incentives	633,333		100,000
Inventories	2,725,398		2,513,357
Margin deposits	956,259		2,191,259
Other assets	138,091		189,615

Total current assets	10,228,017		14,698,283

PROPERTY AND EQUIPMENT, at cost
Plant buildings and equipment	47,985,996		47,880,729
Land improvements	1,398,917		1,398,917
Office buildings and equipment	476,467		476,467
	49,861,380		49,756,113
Less accumulated depreciation and amortization	5,365,443		4,780,896
	44,495,937		44,975,217

OTHER ASSETS	481,487		528,106

TOTAL ASSETS	$	55,205,441	$	60,201,606

LIABILITIES AND MEMBERS’ EQUITY

CURRENT LIABILITIES
Line of credit	$	525,000	$	—
Current maturities of long-term debt	3,431,825		3,409,246
Accounts payable	1,445,300		1,700,616
Accrued liabilities	860,418		1,064,232
Derivative contracts	1,050,541		1,989,565
Deferred revenue	511,098		329,569

Total current liabilities	7,824,182		8,493,228

LONG-TERM DEBT, less current maturities	16,775,216		17,635,157

COMMITMENTS AND CONTINGENCIES	—		—

MEMBERS’ EQUITY
Members’ contributions	17,859,787		17,859,787
Retained earnings	12,746,256		16,213,434
	30,606,043		34,073,221

TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	55,205,441	$	60,201,606

The accompanying ~~BADGER~~notes ~~STATE~~are ~~ETHANOL,~~an integral ~~LLC (A~~part ~~DEVELOPMENT~~of ~~STAGE~~these ~~COMPANY) CONDENSED~~condensed ~~STATEMENTS OF CASH FLOWS (Unaudited)~~ statements.

		Nine months ended September 30, 2002			Nine months ended September 30, 2001			May 11, 2000 (date of inception) to September 30, 2002
Cash flows from operating activities
	Net loss	$	(868,722	)	$	(682,154	)	$	(1,751,017	)
Adjustments to reconcile net loss to net cash used in operating activities
	Depreciation		1,491			768			2,643
	Other		1,223			—			1,223
Changes in operating assets and liabilities:
	Interest receivable		9,298			(30,365	)		—
	Inventory		(113,726	)		—			(113,726	)
	Prepaid expenses		(714,749	)		(7,132	)		(723,701	)
	Derivative contracts		(233,487	)		—			(233,487	)
	Accounts payable and accrued expenses		133,536			5,126			215,035
	Net cash used in operating activities		(1,785,136	)		(713,757	)		(2,603,030	)
Cash flows from investing activities
	Purchases of equipment and construction in progress		(26,524,403	)		(5,030,000	)		(41,171,527	)
Cash flows from financing activities
	Payments of financing fees		(17,649	)		(566,000	)		(626,374	)
	Proceeds from long-term debt financing		23,209,925			—			26,623,027
	Proceeds from issuance of members' units		—			18,054,000			18,434,000
	Cost of issuing members' units		—			(354,663	)		(574,213	)
	Net cash provided by financing activities		23,192,276			17,133,337			43,856,440
	NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(5,117,263	)		11,389,580			81,883
Cash and cash equivalents at beginning of period			5,199,146			104,620			—
Cash and cash equivalents at end of period		$	81,883		$	11,494,200		$	81,883
Supplemental disclosure of noncash investing and financing activities:
Construction payable for construction in progress		$	3,048,300		$	2,375,326		$	3,048,300
Accumulated other comprehensive income		$	1,593,992		$	—		$	1,593,992
Capitalized interest from long-term debt		$	620,744		$	—		$	635,977

~~The accompanying~~BADGER ~~notes~~STATE ~~are~~ETHANOL, anLLC CONDENSED ~~integral~~STATEMENTS ~~part of these condensed statements.~~ OF OPERATIONS (Unaudited)

	Three months ended March 31, 2005			Three months ended March 31, 2004

Sales and revenues	$	24,682,721		$	23,431,743
Cost of sales	19,429,519			14,202,524
Gross margin	5,253,202			9,229,219

Selling, general and administrative expenses	768,178			739,642

Operating income	4,485,024			8,489,577

Interest expense	(293,495		)	(369,635		)
Interest income	13,605			4,943

Net income	$	4,205,134		$	8,124,885

Net income per unit – basic and diluted	$	212.66		$	410.89

Weighted average units outstanding	19,774			19,774

The accompanying ~~BADGER~~notes ~~STATE~~are ~~ETHANOL,~~an ~~LLC (A~~integral part ~~DEVELOPMENT~~of ~~STAGE~~these ~~COMPANY) NOTES~~condensed ~~TO CONDENSED FINANCIAL STATEMENTS September 30, 2002~~ statements.

~~NOTE A—SUMMARY OF ACCOUNTING POLICIES~~ 2

~~Badger~~BADGER ~~State~~STATE ~~Ethanol~~ETHANOL, LLC ~~(the company) was formed May 11, 2000 to develop, construct and operate a 40 million gallon ethanol plant in the state of~~ ~~Wisconsin.~~CONDENSED ~~Production~~STATEMENTS atOF ~~the plant began in October 2002 and ethanol is currently being distributed to upper Midwest states.~~ CASH FLOWS (Unaudited)

Since formation and through September 30, 2002, the company has been primarily involved in organizational activities, raising capital and construction of the plant. Planned operations, as described above, commenced in October 2002. Accordingly, as of September 30, 2002, the company is considered to be in the development stage and the accompanying condensed financial statements represent those of a development stage company.

	Three months ended March 31, 2005			Three months ended March 31, 2004

Cash flows from operating activities
Net income	$	4,205,134		$	8,124,885
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	631,166			583,100
Changes in operating assets and liabilities:
Trade accounts receivable	150,583			(1,535,463		)
Government incentive payments receivable	(533,333		)	(100,509		)
Inventories	(212,041		)	(369,012		)
Margin deposits	1,235,000			234,000
Other assets	51,524			340,719
Derivative contracts	(939,024		)	(2,756,000		)
Accounts payable	(255,316		)	905,858
Accrued liabilities	(203,814		)	(433,541		)
Deferred revenue	181,529			—

Net cash provided by operating activities	4,311,408			4,994,037

Cash flows from investing activities
Cost of property and equipment	(105,267		)	(172,267		)

Cash flows from financing activities
Net change in line of credit	525,000			—
Payment of dividends	(7,672,312		)	(4,943,500		)
Payments on long-term debt financing	(837,362		)	(748,743		)

Net cash used in financing activities	(7,984,674		)	(5,692,243		)

NET DECREASE IN CASH AND CASH EQUIVALENTS	(3,778,533		)	(870,473		)

Cash and cash equivalents at beginning of period	3,807,383			1,810,490

Cash and cash equivalents at end of period	$	28,850		$	940,017

Supplemental disclosure of cash flow information:
Interest paid	$	304,408		$	384,841

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These condensed financial statements and related notes ~~should~~are ~~be read in conjunction with the financial statements and notes thereto included in the~~an ~~company's~~integral ~~audited~~part ~~financial statements for the year ended December 31, 2001 contained in the company's annual Report on Form 10-KSB for 2001. In the opinion~~ of ~~management, the~~these ~~interim~~ condensed ~~financial~~ statements ~~reflect adjustments, consisting of normal recurring accruals, which are necessary to present fairly the company's financial position, results of operations and cash flows for the periods indicated~~. ~~The results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year.~~

DERIVATIVE INSTRUMENTS—The company enters into options and futures contracts, which are designated as hedges of specific volumes of corn expected to be used in the manufacturing process once the plant is completed. 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 other than for hedging purposes. The options and futures contracts are recognized on the September 30, 2002 balance sheet at their fair value. The company formally documents all relationships between the options 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 all options and futures contracts that are designated as hedges to the specific transaction or item being hedged. The company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the options and futures contracts that are used in hedging transactions are highly effective in offsetting changes in the 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. 3

~~Changes~~BADGER inSTATE ~~the~~ETHANOL, ~~fair~~LLCNOTES TO ~~value~~CONDENSED ofFINANCIAL ~~options and futures contracts that are highly effective and that are designated and qualify as cash flow hedges are recorded in other comprehensive income~~STATEMENTS ~~and~~March 31, ~~recognized in the statement of operations when the finished goods produced using the hedged item are sold.~~ 2005 (Unaudited)

~~The company~~NOTE ~~discontinues~~A ~~hedge~~– ~~accounting~~BASIS ~~prospectively~~OF ~~when~~PRESENTATION itAND isSIGNIFICANT ~~determined~~ACCOUNTING that the derivative is no longer effective in offsetting changes in the hedged item, the derivative expires or is sold, terminated or exercised, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued, the company continues to POLICIES

6Badger State Ethanol, LLC (the “Company”) operates an ethanol plant in Wisconsin that began operations in October 2002. The Company sells its production of ethanol and related products domestically and operates in one business segment.

The accompanying unaudited condensed financial ~~carry~~statements ~~the~~have ~~derivative~~been atprepared ~~its~~pursuant ~~fair~~to ~~value~~the onrules and regulations of the Securities ~~balance~~and ~~sheet,~~Exchange Commission. Certain information and ~~recognizes~~footnote ~~any~~disclosures ~~changes~~normally included in ~~its~~annual financial ~~fair~~statements ~~value~~prepared in ~~earnings~~accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, 2004, contained in the Company’s annual report on Form 10-KSB for 2004.

~~The company~~In ~~has~~the ~~recorded~~opinion anof ~~asset~~management, ~~related~~the tointerim condensed ~~its~~financial ~~options~~statements ~~and~~reflect ~~futures~~all ~~contracts at September 30~~adjustments, ~~2002~~consisting of $1normal recurring accruals,~~827,479.~~ ~~The~~which ~~company~~are ~~has~~necessary ~~recorded~~to ~~$205,939~~present ~~and~~fairly ~~$329,139,~~the ~~respectively,~~Company’s offinancial ~~expense~~position, ~~included~~results ~~within~~of ~~the~~operations ~~three~~ and ~~nine~~cash ~~month~~flows ~~periods~~for ~~ended~~the ~~September 30,~~periods indicated. The ~~2002~~results ~~and $329,139~~ of ~~expense~~operations for the ~~period~~three ~~from~~months ~~May~~ended March 1131, ~~2000~~2005 ~~(date~~are ofnot ~~inception)~~necessarily toindicative ~~September 30,~~of ~~2002~~the ~~related~~results toexpected ~~its~~for ~~options~~the ~~and~~full ~~futures contracts~~year.

~~Item~~NOTE 2:B ~~Management's~~- ~~Discussion and Analysis and Plan of Operations~~ INVENTORIES

~~This~~Inventories ~~report~~consist ~~contains forward-looking statements. In addition, we may make forward-looking statements orally in the future by or on behalf~~ of the Company. When used, the words "believe," "expect," "will," "can," "estimate," "anticipate" and similar expressions are intended to identify forward-looking statements. Readers should not place undue reliance on any forward-looking statements and recognize that the statements are not predictions of actual future results. Actual results could and likely will differ materially from those anticipated in the forward-looking statements due to the risks and uncertainties set forth in our Form SB-2 registration statement under the caption "Risk Factors," as well as others not now anticipated. These risks and uncertainties include, without limitation, our assumptions concerning financing requirements and future operations, our ability to obtain debt financing to finish construction and generate revenues, construction delays, changes in state and federal ethanol subsidies, our need for additional capital, our ability to manufacture our products on a commercial scale and in compliance with regulatory requirements, increased competition, and changes in government regulation. We undertake no responsibility to update any forward-looking statement. following:

Overview

	March 31, 2005		December 31, 2004
Raw materials	$	1,735,113	$	1,244,352
Work-in-process	389,786		355,202
Finished goods	600,499		913,803

Total inventories	$	2,725,398	$	2,513,357

We were formed in May 2000 to develop, construct and operate a 40 million gallon ethanol plant and engage in the production of ethanol and animal feed products in Monroe, Wisconsin. We substantially completed construction of the plant, and began production, in October 2002 and are currently distributing ethanol to upper Midwest states. 4

~~Plan~~NOTE ofC ~~Operations~~– ~~for~~DERIVATIVE ~~the Next 12 Months~~ INSTRUMENTS

WeThe ~~expect~~Company toenters ~~spend~~into ~~the~~derivative ~~next 12 months completing construction and continuing~~ contracts to ~~operate~~hedge the ~~ethanol~~Company’s ~~plant.~~exposure ~~We expect~~ to ~~have~~price ~~sufficient~~risk ~~cash~~related ~~available~~ to ~~cover~~ ~~our~~forecasted ~~costs over the next 12 months~~corn purchases, ~~including~~forward ~~construction,~~corn ~~staffing,~~purchase ~~office,~~contracts ~~audit, legal, compliance costs~~ and ~~start~~forecasted upethanol ~~working capital costs~~sales. The ~~following~~Company isdoes ~~our~~not ~~estimate~~typically ofenter ~~our costs~~into ~~and~~derivative ~~expenditures~~instruments ~~for~~other ~~the~~than ~~next~~for ~~12 months~~hedging purposes. All ~~These~~derivative ~~estimates~~contracts ~~are~~at ~~based~~March 31, 2005 ~~upon~~and ~~our~~December 31, ~~general~~2004 ~~contractor,~~are ~~prime~~recognized ~~subcontractor~~in ~~and~~the ~~financial~~balance ~~advisor's~~sheet ~~experience~~at ~~with~~their fair market value.

7On the date the derivative instrument is entered into, the Company will designate the derivative as either (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (a “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 (a “cash flow hedge”) or (3) will not designate the derivative as a hedge. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income and reclassified into earnings as the underlying hedged item affects earnings. Changes in the fair value of a derivative that is not designated as a hedge are recorded in current period earnings.

At March 31, 2005 and December 31, ~~other~~2004 ~~businesses~~no derivative contracts were designated as hedges and all changes in market value have been recognized through cost of sales. The Itamounts isrecorded ~~only~~for anderivative ~~estimate~~contracts at March 31, 2005 and ~~our~~December 31, ~~actual~~2004 ~~expenses~~were ~~could~~liabilities beof $1,050,541 ~~much~~and ~~higher~~$1,989,565. The ~~due~~Company has recorded an increase to cost of sales of $728,447 related to its derivative contracts for the three months ended March 31, 2005. The Company recorded a ~~variety~~reduction of ~~factors~~cost ~~described~~of sales inof ~~our~~$3,801,087 ~~Form~~related ~~SB-2~~to ~~registration~~its ~~statement~~derivative ~~under~~contracts for the ~~section~~three months ~~entitled~~ended ~~"Risk~~March 31, ~~Factors~~2004."

Construction and development costs:
Insurance		$	120,000
General and administrative costs			0
Capitalized construction interest			120,000
Pre-production startup training costs			62,500
Initial inventories			2,400,000
Spare parts			300,000
Working capital			2,000,000
Railroad infrastructure costs			16,000
Construction in progress payments			4,700,000
	Total construction and development costs	$	9,718,500
Operating costs:
Cost of goods sold and direct production		$	56,700,000
General and administration costs			3,317,000
Interest expense			2,348,000
	Total operating costs	$	62,365,000
Total		$	72,083,500

NOTE D – GOVERNMENT INCENTIVE PAYMENTS

WeThe ~~anticipate~~Company ~~spending~~recognizes ~~approximately~~revenue ~~$72.1 million~~from ~~over~~federal ~~the~~and ~~next~~state ~~twelve~~incentive ~~months.~~payments Wewhen ~~estimate that we will spend approximately $9.7 million during the next three months~~all ~~completing~~requirements ~~the construction and development phase~~ of the ~~project.~~program ~~These~~have ~~costs~~been ~~are~~met ~~projected to include $120,000 for directors~~ and ~~officers'~~payments ~~insurance, builder's risk insurance, general commercial liability, worker's compensation and property insurance. Interest on the construction loans will accrue as loan proceeds~~ are ~~advanced~~assured. The WeCompany ~~estimate~~has torecorded ~~accrue~~revenue ~~approximately~~of $~~120~~633,~~000 of interest expense~~333 ~~during~~related ~~the~~to ~~next~~incentive ~~three~~payments ~~months~~received ~~that~~under ~~will be capitalized into~~ the ~~construction~~State ~~costs~~ of ~~the~~Wisconsin ~~project.~~Producer Subsidy WePayment ~~also~~program ~~expect~~and ~~to spend approximately~~ $1659,~~000~~612 related to ~~complete~~incentive ~~construction~~payments ~~of the railroad track~~received ~~infrastructure~~under ~~for rail access and switching and rail car parking. We have funded a majority of~~ the ~~land~~United ~~costs~~States ~~with~~Department ~~tax increment financing from the City~~ of ~~Monroe~~Agriculture ~~and~~Commodity ~~also~~Credit ~~expect to use grant~~Corporation’s ~~proceeds~~Bioenergy ~~from~~Program ~~the~~(US ~~Wisconsin~~CCC ~~Department~~Program) offor ~~Commerce. We anticipate spending a majority of our resources to operate~~ the ~~ethanol plant. We expect to spend approximately $4.7 million on construction progress payments within the next~~ three months. Weended ~~expect these costs to include material and labor to construct the ethanol plant~~March 31, 2005, ~~grain~~ and ~~ethanol storage and handling facilities~~$1, ~~drying facilities~~154,674 ~~offices~~related ~~and~~to aincentive ~~cooling~~payments ~~tower.~~received Weunder ~~also~~the ~~expect~~US ~~to purchase and install~~CCC ~~ethanol~~Program ~~production~~for ~~equipment,~~the ~~such~~three asmonths ~~pumps,~~ended ~~grinders and processing equipment~~March 31, ~~storage~~2004. No ~~tanks,~~revenue ~~dryers,~~was ~~and~~recognized ~~conveyors.~~related ~~We plan~~ to incentive ~~pay these costs by making monthly progress~~ payments ~~based~~under ~~upon~~ the ~~work completed~~State ~~and~~of ~~invoiced~~Wisconsin toProducer usSubsidy byPayment program ~~our~~for ~~general contractor. Included in these payments will be~~ the ~~retainage~~three ofmonths ~~$2.19~~ended March ~~million~~31, ~~as the construction phase is completed~~2004.

We expect to fund our construction and development costs and expenditures for the next three months through cash on hand, senior and subordinated debt financing, our development agreement with Monroe, and a grant from the Wisconsin Department of Commerce. A $362,500 grant from the Wisconsin Department of Commerce, of which $300,000 will be used for site improvement and approximately $62,500 for training employees was approved on October 6, 2001. 5

~~After the~~NOTE ~~purchase~~E of– the initial raw materials inventory which is projected in the development costs, we expect to incur $62.4 million of operating costs during the first twelve months of operation. We have projected to spend $56.7 million on direct cost of goods sold and production costs. We also expect to incur approximately $3.3 million for general and administration costs plus $2.3 million for COMMITMENTS

8The Company had forward contacts to purchase approximately 4,790,000 and 3,280,000 bushels of corn at various prices at March 31, 2005 and December 31, 2004.

~~interest~~NOTE ~~expense~~F ~~during~~– ~~this~~RELATED ~~twelve month period. We have projected to fund the operating costs for the first twelve months of operations with the sales of ethanol and dried distillers grain and solubles.~~ PARTIES

~~We have~~The ~~hired~~Company’s ~~approximately~~sole 31ethanol ~~employees~~marketing ~~needed~~company tois ~~operate~~a ~~the~~member ~~ethanol~~and ~~facility.~~has Wea representative ~~have~~on ~~hired staff for~~ the ~~direct~~Company’s ~~operations~~Board ~~and~~of ~~administration~~Directors. Sales offor ~~our~~the ~~ethanol~~three ~~business,~~months ~~such~~ended ~~as production~~March 31, 2005 ~~shipping,~~ and ~~receiving.~~2004 ~~We have hired one sales representative~~ to ~~market~~the ~~our~~member ~~feed~~were ~~products.~~$19,421,940 Weand ~~also~~$17,607,758, ~~intend~~and totrade accounts ~~rely~~receivable onat ~~third-party marketing arrangements~~March 31, 2005 and ~~pay~~December 31, ~~commissions~~2004 ~~to marketing~~were ~~agents~~$5,549,841 ~~to market~~ and ~~sell our products~~$5,545,505.

~~Liquidity~~In connection with the sales activities of the ethanol marketing company, the Company paid expenses to the ethanol marketing company of $1,428,800 and $1,225,052 ~~Capital~~related ~~Resources~~ to railcar, freight and marketing fees for the three months ended March 31, 2005 and 2004.

AsNOTE ofG ~~September 30,~~– 2002, we had cash of $81,883, current assets of $2,746,789 and total assets of $48,225,101. The current assets include an investment in corn options and futures contracts totaling $1,827,479. As of September 30, 2002, we had current liabilities totaling $3,323,772. The components of Members' Equity were comprised of an accumulated deficit of $1,751,017 and member's contributions, net of the cost of raising capital, of $17,859,787. Also included in Members' Equity is accumulated other comprehensive income of $1,593,992 as a result of recording the change in the fair value of the options and futures contracts designated as cash flow hedges for specific volumes for corn expected to be used in the manufacturing process. Realized gains and losses for the options and futures contracts will be recognized in the statement of operations when the finished goods produced using the hedged item are sold. RECLASSIFICATIONS

~~For~~Certain prior ~~the~~period ~~nine~~amounts ~~months~~have ~~ended~~been ~~September 30,~~reclassified ~~2002,~~to weconform ~~had~~with ~~no revenues. Our net losses for~~ the ~~nine~~current ~~months ended September 30, 2002 totaled $868,722. Cash flows used for~~period’s ~~operating activities for the nine months ended September 30, 2002, was $1,785,136~~presentation. These ~~cash flows were used primarily to fund salaries, office and administrative expenses, consulting, legal, and insurance costs. During the~~reclassifications ~~nine~~had ~~months~~no ~~ended~~effect ~~September 30, 2002, our prepaid expenses increased by $714,749 which included approximately $704,000 to hold the contract price~~ on ~~305,000~~previously ~~bushels~~recorded of corn. Cash paid for hedge contracts was $233,487 and our accounts payable decreased by $133,536. Cash used for investing activities includes purchases of equipment and construction costs totaling $26,524,403. For the nine months ended September 30, 2002, we received net ~~proceeds~~income ~~from~~or ~~long-term~~members’ ~~debt borrowings totaling $23,209,925~~equity.

~~We estimate that the total construction cost for the ethanol plant will be approximately $43.8 million. On August 28, 2001, we entered into a $32.~~6 million credit facility with First National Bank of Omaha consisting of $30.6 million in long-term financing and a $2 million revolving line of credit. The credit facility is secured by substantially all of our assets. When the ethanol plant is complete and operating, we anticipate converting the construction loan senior debt into a term loan, amortized over ten years with a balloon payment due after five years and to be paid in quarterly payments including principal and interest. The interest rate of the term loan includes incentive pricing that is variable based upon the indebtedness to net worth ratio of the Company. The terms also include a requirement to fix the interest rate on at least 50% of the term debt for not less than five years upon conversion from a construction loan to a term loan. The $2 million revolving line of credit has been increased to $3.5 million and is limited to the borrowing base collateral, which is based upon 75% of the value of the inventory and allowable accounts receivable, and has a variable interest rate. The revolving line of credit has a term of 364 days after funding and is expected to renew annually. We anticipate that we will require access to the revolving line during the first year of operation, and at least a portion of the second year, before generating sufficient surplus cash flow to finance inventories and receivables. The term loan and the revolving line of credit agreements contain restrictions and financial covenants the Company will be subject to during the term of the agreements.

On August 22,Item 2001, we entered into a subordinated credit facility of $32.6 million fromManagement’s AlliantDiscussion Energy—Wisconsin Power and LightAnalysis Companyof toFinancial financeCondition the electrical infrastructure and otherResults of Operations

9Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties, including those risks described in this section. Actual results may differ substantially from those described below. Our discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the financial statements and related notes.

constructionApplication needs. The terms of creditCritical facilityAccounting include a fixed interest rate with payments that include principal and interest which amortize the loan over seven years and mature with a balloon payment due in five years. On July 10, 2001 the City of Monroe passed a resolution authorizing a loan guarantee of the repayment obligations of the subordinated credit facility from Alliant Energy. We are also relying upon $1.6 million in tax increment financing from Monroe to fund improvements to the site. A $362,500 grant from the Wisconsin Department of Commerce, of which $300,000 will be used for site improvement and approximately $62,500 for training employees, was approved on October 6, 2001. Policies

~~The~~Accounting policies, methods and estimates ~~following~~are ~~tables~~an ~~show~~integral ~~updated~~part ~~sources~~of our financial statements and ~~uses~~are based upon management’s current judgments. Certain accounting policies, methods and estimates are particularly important because of ~~our~~their significance ~~liquidity~~to ~~relating~~the financial statements. Note A of the Notes to Financial Statements included in the ~~construction~~Annual Report ~~and~~on ~~start~~Form 10-upKSB includes a summary of ~~our~~the ~~business~~significant accounting policies and methods we use. The following is a discussion of what we believe to be the most critical of these policies and methods.

Sources of Funds:
Equity	$	18,054,000
Seed capital		380,000
Senior debt		30,600,000
Revolving line of credit		3,500,000
Subordinated debt		3,600,000
Tax increment financing		1,600,000
Department of Commerce grant(1)		362,500
Total Sources of Funds	$	58,096,500
Uses of Funds:
Expected maximum contract price	$	43,800,000
Railroad infrastructure costs		1,098,000
Land and infrastructure		2,000,000
Insurance costs		226,500
Organization costs		378,000
Start-up costs		2,973,500
Capitalized interest		715,000
Working capital needs		3,800,000
Financing costs		1,200,000
Offering costs		574,000
Contingency		1,331,500
Total Uses of Funds	$	58,096,500

Revenue Recognition

~~Subsequent~~We ~~Events~~ recognize revenue from federal and state incentive payments when all the requirements of the program have been met and payments are assured. The payments to be received by us may change due to a variety of factors, including legislative changes and the amount of ethanol produced by us and in the marketplace.

Subsequent to September 30, 2002, Badger State Ethanol, LLC substantially completed the construction of the ethanol plant and commenced the production of ethanol, dried distillers grain and wet distillers grain. Corn grinding was started on October 15, 2002 and the first load of ethanol was shipped by truck on October 23, 2002. Inventories

10Inventories are stated at the lower of cost or net realizable value. Costs are determined using the first-in, first-out method.

~~PART II: OTHER INFORMATION~~ Derivatives

~~Item~~We 6:enter ~~Exhibits~~into derivative contracts to hedge the Company’s exposure to price risk related to forecasted corn purchases, forward corn purchase contracts and ~~Reports~~forecasted onethanol ~~Form~~sales. We do not typically enter into derivative instruments other than for hedging purposes. ~~8-K~~ All derivative contracts at March 31, 2005 and December 31, 2004 are recognized in the balance sheet at their fair market value.

		99.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

11At March 31, 2005 and December 31, 2004 no derivative contracts were designated as hedges and all changes in market value have been recognized through cost of sales. We have recorded an increase to cost of sales of $728,447 and a reduction to cost of sales of $3,801,087 related to derivative contracts for the three months ended March 31, 2005 and 2004, respectively.

~~SIGNATURES~~ Summary

InWe ~~accordance~~are ~~with~~engaged in the ~~requirements~~production and sale of ~~the~~fuel ~~Securities~~grade ethanol. We ~~Exchange~~have ~~Act~~an ofannual ~~1934,~~capacity ~~the~~to process ~~registrant~~between ~~caused~~approximately ~~this~~18 ~~report~~to 19 million bushels of corn into between approximately 50 to be52 million ~~signed~~gallons onof ~~its~~ethanol. In ~~behalf~~addition, we sell distillers grains, a principal by-product of the ~~undersigned~~ethanol-production process, which we sell as ~~thereunto~~distillers ~~duly~~modified ~~authorized~~wet grains and distillers dried grains. We also sell carbon dioxide to third parties. We

		BADGER STATE ETHANOL, LLC
DATE: NOVEMBER 14, 2002		BY:		/S/ GARY L. KRAMER Gary L. Kramer President and General Manager (principal financial officer)

12completed construction of our ethanol plant and commenced operations in October 2002. Also, as of July 1, 2004, we completed construction of our carbon dioxide processing equipment and began delivering carbon dioxide for processing and sale to third parties.

~~QuickLinks~~Results of Operations for the Three Months Ended March 31, 2005 and 2004

The following table shows the results of our operations and the percentages of sales and revenues, cost of sales, operating expenses and other items to total sales and revenues in our statements of operations for the three months ended March 31, 2005 and 2004:

	March 31, 2005					March 31, 2004
	Amount			%		Amount			%
Sales and revenues	$	24,682,721		100.0		$	23,431,743		100.0
Cost of sales	19,429,519			78.7		14,202,524			60.6
Gross margin	5,253,202			21.3		9,229,219			39.4

Selling, general and administrative expenses	768,178			3.1		739,642			3.2

Operating income	4,485,024			18.2		8,489,577			36.2

Interest expense	(293,495		)	(1.2	)	(369,635		)	(1.6	)
Interest income	13,605			.0		4,943			.0

Net income	$	4,205,134		17.0		$	8,124,885		34.6

Sales and Revenues

Our sales and revenues are divided into five categories based upon the source from which they are derived: sales of ethanol, sales of distillers grains, marketing corn, sales of carbon dioxide and ethanol incentive payments. For the quarters ended March 31, 2005 and 2004, we derived approximately 78.7% and 75.2% of our sales and revenues from the sale of ethanol. Approximately 12.6% and 17.6% of our sales and revenues were derived from the sale of distillers grains for the three months ended March 31, 2005 and 2004. The marketing of corn accounted for approximately 5.4% and 2.3% of our sales and revenues for the three months ended March 31, 2005 and 2004. Sales of carbon dioxide accounted for 0.5% of sales for the quarter ended March 31, 2005. There were no sales of carbon dioxide for the quarter ended March 31, 2004. Ethanol support payments from the federal and state governments accounted for 2.8% and 4.9% of sales and revenues for the three months ended March 31, 2005 and 2004. The ethanol support revenue amounted to $692,945 and $1,154,674 for the three months ended March 31, 2005 and 2004. The federal support payment is based on increases in the production of ethanol over the same prior year period. The state support payment is based on the production of ethanol within the State of Wisconsin. We expect to maintain production at approximately current levels for the remainder of the year.

Cost of Sales

Our cost of sales as a percentage of sales and revenues were 78.7% and 60.6% for the three months ended March 31, 2005 and 2004. Cost of sales increased by $4,529,534 for the three months ended March 31, 2005, compared to the same time period in 2004, due to changes in the fair value of our derivative contracts. The increase in cost of sales for the three months ended March 31, 2005 is primarily due to fluctuations in price in the underlying input commodities and therefore the value of the related hedging instruments. The remaining difference in cost of sales as a percentage of sales and revenues between 2005 and 2004 is primarily caused by an increase in the cost to ship product by rail.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses as a percentage of sales and revenues were 3.1% and 3.2% for the three months ended March 31, 2005 and 2004. We expect our selling, general and administrative expenses to remain constant and keep pace with production and sales.

Interest Expense and Income

Our interest expense as a percentage of sales and revenues were 1.2% and 1.6% for the three months ended March 31, 2005 and 2004. Our interest expense has decreased as our debt has been paid down.

Liquidity and Capital Resources

As of March 31, 2005, we had cash and cash equivalents of $28,850, current assets of $10,228,017 and available unused line of credit of $2,975,000. For the three months ended March 31, 2005, cash provided by operating activities was $4,311,408, cash paid for property and equipment was $105,267 and cash used in financing activities was $7,984,674.

We have a term loan, originally in the amount of $30.6 million, which we have paid down as described below. Quarterly payments, including principal and interest, of $1,021,839 are payable based upon a five-year amortization with a balloon payment of $8,403,569 due on the maturity date of January 1, 2008. The term loan is structured as three notes and interest accrues monthly on the notes at both fixed and variable rates. The fixed rate accrues at 6.528% on $11,419,962 of the term loan and the variable rate accrues on $5,876,650 of the term loan based on the prime rate (effective rate of 6.0% at March 31, 2005). The amount outstanding on the term loan was $17,296,612 at March 31, 2005. The term loan is secured by substantially all of our assets and contains various restrictions, including the maintenance of certain financial covenants.

We have a term loan of $3.6 million with an electric utility company. Monthly payments, including principal and interest, of $34,762 are payable based upon a ten-year amortization with a balloon payment due on the maturity date of November 1, 2007. Interest accrues monthly on the loan at 3%. The amount outstanding on the electric utility note payable is $2,826,156 at March 31, 2005. The electric utility note payable is secured by our equipment, inventory and a guarantee by the City of Monroe, and contains various restrictions.

We have a 364 day revolving credit facility with a bank, for an amount up to $3.5 million. The revolving line of credit is limited to the borrowing base collateral, which is based upon 75% of the value of the inventory and allowable accounts receivable, and has a variable interest rate based upon the prime rate. There was $525,000 outstanding on the revolving loan at March 31, 2005. The revolving loan is secured by substantially all of our assets and contains various restrictions.

Our start-up costs related to our carbon dioxide agreement were approximately $500,000, which we financed from our operating cash flows in 2004. We originally budgeted $450,000 to cover these start-up costs. In November, 2004, we expanded our production by bringing a fourth fermenter into operation. The cost of installing and bringing this fourth fermenter into operation was approximately $1.2 million, which we funded from our operating cash flows.

We anticipate that capital expenditures for the next year could be approximately $300,000.

On January 27, 2005, the Company’s Board declared a distribution of $388 per unit for members of record at December 31, 2004. The distribution was paid on February 24, 2005. The Company does not anticipate the payment of additional distributions in 2005.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. In addition, we may make forward-looking statements orally in the future by or on behalf of the Company. We undertake no responsibility to update any forward-looking statement. When used, the words “believe,” “expect,” “will,” “can,” “estimate,” “anticipate” and similar expressions are

intended to identify forward-looking statements. Readers should not place undue reliance on any forward-looking statements and recognize that the statements are not predictions of actual future results. Actual results could and likely will differ materially from those anticipated in the forward-looking statements due to risks and uncertainties. These risks and uncertainties include, without limitation, the following and those business risks and factors described elsewhere in this report and our other Securities and Exchange Commission filings, our assumptions concerning financing requirements and future operations, changes in state and federal ethanol subsidies, our need for additional capital, our ability to manufacture our products on a commercial scale and in compliance with regulatory requirements, increased competition, and changes in government regulation.

• We have incurred substantial debt and debt service requirements.

• To service our debt, we will require a significant amount of cash and our ability to generate cash depends on many factors.

• Our debt financing contains numerous covenants, a breach of any of which may result in default.

• Our agreements or understandings with our plant general contractor, subcontractor and our sole ethanol marketing company were not negotiated at arm’s length, we may not have obtained terms as favorable to us as those we could have obtained from third parties, and any claims that we may have against them may be difficult for us to enforce.

• The ethanol industry is increasingly competitive, with additional plants in operation, under construction and in the planning stages. With additional plants coming on line in the near future, the supply of ethanol will increase which, if the demand does not grow accordingly or is unaided by government policies and programs, could adversely impact the price of ethanol and our operating results.

• The ethanol industry and our business are sensitive to corn and natural gas prices. When corn and natural gas prices increase our operating results may suffer. When corn and natural gas prices fluctuate significantly, our cost of revenues and operating results may be adversely affected by the use of derivative instruments under our risk management program.

• Federal regulations and tax incentives concerning ethanol could expire or change, which could harm our business.

• Wisconsin state producer incentive payment may not be available or could be modified which could harm our business.

• Operating our ethanol plant may require additional capital.

• To produce ethanol we intend to purchase significant amounts of corn that is subject to disease and other risks.

• We are subject to extensive environmental regulation.

• Ethanol production is energy intensive, and we will need significant amounts of electricity and natural gas.

• Our business is not diversified.

• We established an output contract with only one distributor who will purchase all of the ethanol we produce and have contracted with only one company for the marketing and distribution of our distillers grains.

As a result of these factors, and other described risk factors, our operating results may not be indicative of future operating results and you should not rely on them as indications of our future performance.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results from holding a revolving promissory note and three term notes. The specifics of each note are discussed in greater detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations. A hypothetical 1% increase in interest rates applied to exposed liabilities as of March 31, 2005 would result in additional interest expense of approximately $50,000 for the remainder of 2005.

Commodity Price Risk

We are also exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process, and the sale of ethanol. We seek to minimize the risks from fluctuations in the prices of corn through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases, they do not qualify for hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of sales. For example, we would generally expect that a 10% increase in the cash price of corn would produce a $520,000 increase in the fair value of our derivative instruments based on our positions at March 31, 2005. Whereas a 10% decrease in the cash price of corn would produce a $520,000 decrease in the fair value of our derivative instruments based on our positions at March 31, 2005.

The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged. As of March 31, 2005, the fair value of our derivative instruments for corn and ethanol was a liability in the amount of $1,050,541. There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of corn or ethanol. However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.

To manage our corn price risk, our hedging strategy is designed to establish a price ceiling for our corn purchases. We have taken a net long position on our exchange traded futures and options contracts, which allows us to offset increases or decreases in the market price of corn. The upper limit of loss on our futures contracts is the difference between the contract price and the cash market price of corn at the time of the execution of the contract. The upper limit of loss on our exchange traded and over-the-counter option contracts is limited to the amount of the premium we paid for the option.

We estimate that our expected corn usage is approximately 18.5 million bushels per year for the production of 50 million gallons of ethanol. As of March 31, 2005, we have cash, futures, and option contract price protection in place for 100% of our expected corn usage through August 2005. We have 27% of our expected corn usage protected by cash purchase contracts through December 2005. As we move forward, additional protection may be necessary. As corn prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. As we move forward into spring, additional price protection may be required. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects but are expected to produce long-term positive growth for the Company. Our current corn hedge position is based upon the amount of ethanol that we have currently sold for future delivery. This protects us against an increase in the variable price of our corn purchased against a fixed sales price of our ethanol sold. We intend to continue our hedging strategy based upon ethanol sales and market conditions. At present, Midwest farmers are planting a corn crop approximately equal in size to last year’s. A significant reduction in the quantity of corn harvested this fall due to adverse weather conditions, disease or other factors could result in increased corn costs with adverse financial consequences to us.

To manage our ethanol price risk, our hedging strategy is designed to establish a price ceiling and floor for our ethanol sales. We have taken a net short position on our exchange traded futures and options contracts, which allows us to offset increases or decreases in the market price of ethanol. The upper limit of loss on our futures contracts is the difference between the contract price and the cash market price of ethanol at the time of the execution of the contract. The upper limit of loss on our exchange traded and over-the-counter option contracts is limited to the amount of the premium we paid for the option. At present, the price of gasoline has substantially increased but the price of ethanol has substantially decreased. In the future, we may not be able to sell ethanol at a favorable price relative to gasoline prices, we also may not be able to sell ethanol at prices equal to or more than our current price. This would limit our ability to offset our costs of production. Currently, we are attempting to lock in favorable prices through forward contracting, however, prices being offered today are lower than year ago levels. Given the significant number of ethanol plants being built and current blending capacity, it is possible that ethanol prices will remain at their current levels for some time to come in the future.

As of March 31, 2005, we have forward cash contract price protection in place for 100% of our expected ethanol production through June 2005. As we move forward, additional protection may be necessary. As ethanol prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. As we move forward into summer, additional price protection may be required. Depending on energy market movements, crop prospects and weather, these price protection positions may cause short-term adverse effects but are expected to produce long-term positive growth for the Company.

To manage our natural gas price risk, we entered into a natural gas purchase agreement with our supplier to supply us with natural gas, fixing the price at which we purchase natural gas. We estimate that we have forward contracts in place for approximately 100% of our natural gas needs through May 2005. The forward contracts provide for approximately 35% higher gas prices for 2005 than for 2004. We have purchased approximately 16% of our summer and fall 2005 natural gas requirements. The price of natural gas has risen substantially over the last several months and our strategy has been to purchase natural gas as the opportunities arise to protect a favorable market. However, we believe that the price of natural gas could drop in the future and are hoping to take advantage of such lower prices.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of March 31, 2005 (the “Evaluation Date”), have concluded that our disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 6. Exhibits

Exhibits

31.1

Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934).

31.2		Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934).

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

	BADGER STATE ETHANOL, LLC


Date: May 12, 2005	By:	/s/ Gary L. Kramer
		Gary L. Kramer
		President and General Manager

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