10QSB

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

þ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the fiscal quarter ended June 30, 2005

OR

o Transition report under Section 13 or 15(d) of the Exchange Act.

For the transition period from            to           .

COMMISSION FILE NUMBER 00051277

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)

Minnesota
(State or other jurisdiction of
incorporation or organization) 41-1997390
(I.R.S. Employer Identification No.)

15045 Highway 23 SE
Granite Falls, MN 56241-0216
(Address of principal executive offices)

(320) 564-3100
(Issuer’s telephone number)

January 1 – December 31
(Former name, former address, and former fiscal year, if changed since last report)

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

Indicate the number of shares outstanding for each of the issuer’s classes of common equity as of the latest practicable date:

As of August 12, 2005, there were 31,156 units outstanding.

Transitional Small Business Disclosure Format (Check one): Yes o No þ

TABLE OF CONTENTS

PART I — FINANACIAL INFORMATION
	Item 1. Financial Information
	Item 2. Management’s Discussion and Analysis and Plan of Operation
	Item 3. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Unregistered Sales of Equity 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
SIGNATURES
Amended and Restated Articles of Organization
Amendment to Operating and Member Control Agreement
Certification
Certification
Certification
Certification

PART I — FINANACIAL INFORMATION

Item 1. Financial Information.

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Balance Sheet

	June 30,
ASSETS	2005
	(Unaudited)
Current Assets:
Cash and cash equivalents	$	196,459
Interest receivable		187
Prepaid expenses		7,708
Hedge account		129,815
Total current assets		334,169
Property and Equipment:
Land		391,213
Construction in process		38,472,145
Admin Building		215,049
Office equipment		55,497
Vehicle		20,387
		39,154,291
Less accumulated depreciation		6,862
Net property and equipment		39,147,429
Other Assets:
Deferred financing costs		429,719
Total other assets		429,719
Total Assets	$	39,911,317
LIABILITIES AND MEMBERS’ EQUITY
Current Liabilities:
Accounts payable		46,813
Payable to construction contractors		7,565,814
Accrued interest		27,626
Notes payable-City of Granite Falls		47,800
Total current liabilities		7,688,053
Long-term Debt		3,313,216
Commitments and Contingencies
Members’ Equity:
Member contributions, net of costs related to contributions, 31,156 units outstanding		30,202,978
Accumulated other comprehensive income		29,815
Deficit accumulated during development stage		(1,322,745	)
Total members’ equity		28,910,048
Total Liabilities and Members’ Equity	$	39,911,317

Notes to Financial Statements are an integral part of this Statement.

2

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Statements of Operations

							From Inception
	Quarter Ended			Quarter Ended			(December 29, 2000)
	June 30,			June 30,			to June 30,
	2005			2004			2005
	(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	—		$	—		$	—
Operating Expenses
Project coordinator		351			13,000			185,979
Surveying, site and permitting expense		—			15,092			157,729
Professional and consulting fees		56,219			49,451			625,310
General and administrative		60,506			15,787			268,751
Total operating expenses		117,076			93,330			1,237,769
Operating Loss		(117,076	)		(93,330	)		(1,237,769	)
Other Income (Expense)
Interest income		34,922			—			271,995
Miscellaneous income		—			—			2,000
Interest expense		(1,101	)		(5,647	)		(34,217	)
Offering costs		—			—			(324,754	)
Total other income (expense), net		33,821			(5,647	)		(84,976	)
Net Loss	$	(83,255	)	$	(98,977	)	$	(1,322,745	)
Other Comprehensive Income	$	29,815		$	—		$	29,815
Comprehensive Loss	$	(53,440	)	$	(98,977	)	$	(1,292,930	)
Weighted Average Units Outstanding		31,151			1,417			5,929
Net Loss Per Unit	$	(2.67	)	$	(69.85	)	$	(223.10	)
Comprehensive Loss Per Unit	$	(1.72	)	$	(69.85	)	$	(218.07	)

Notes to Financial Statements are an integral part of this Statement.

3

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Condensed Statements of Operations

	Six Months Ended			Six Months Ended
	June 30,			June 30,
	2005			2004
	(Unaudited)			(Unaudited)
Revenues	$	—		$	—
Operating Expenses
Project coordinator		499			24,963
Surveying, site and permitting expense		—			36,944
Professional and consulting fees		137,082			106,864
General and administrative		122,668			29,344
Total operating expenses		260,249			198,115
Operating Loss		(260,249	)		(198,115	)
Other Income (Expense)
Interest income		116,096			1
Miscellaneous income		—			1,000
Interest expense		(2,183	)		(9,664	)
Total other income (expense), net		113,913			(8,663	)
Net Loss	$	(146,336	)	$	(206,778	)
Other Comprehensive Income	$	29,815		$	—
Comprehensive Loss	$	(116,521	)	$	(206,778	)
Weighted Average Units Outstanding		31,134			1,417
Net Loss Per Unit	$	(4.70	)	$	(145.93	)
Comprehensive Loss Per Unit	$	(3.74	)	$	(145.93	)

Notes to Financial Statements are an integral part of this Statement.

4

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Statements of Cash Flows

							From Inception
	Six Months Ended			Six Months Ended			(December 29, 2000)
	June 30,			June 30,			to June 30,
	2005			2004			2005
	(Unaudited)			(Unaudited)			(Unaudited)
Cash Flows from Operating Activities:
Net loss	$	(146,336	)	$	(206,778	)	$	(1,322,745	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation		4,230			628			6,862
Changes in assets and liabilities:
Hedge account		(100,000	)					(100,000	)
Prepaid expenses		24,809			(8,425	)		(7,708	)
Interest receivable		7,090			—			(187	)
Accounts payable		(28,779	)		114,180			46,813
Accrued interest		13,945			2,108			28,729
Net cash used in operating activities		(225,041	)		(98,287	)		(1,348,236	)
Cash Flows from Investing Activities:
Capital expenditures		(86,066	)		—			(290,933	)
Land		(285	)		—			(352,213	)
Construction in process		(23,650,954	)		—			(30,911,031	)
Net cash used in investing activities		(23,737,305	)		9,576			(31,554,177	)
Cash Flows from Financing Activities:
Checks drawn in excess of cash		—			(11,417	)		—
Net proceeds on short term notes payable		3,313,216			201,000			3,386,016
Member contributions		—			—			30,338,500
Payments for costs of raising capital		—			(76,850	)		(200,625	)
Payments for deferred financing costs		(311,968	)		—			(425,019	)
Net cash provided by financing activities		3,001,248			112,733			33,098,872
Net Increase (Decrease) in Cash and Cash Equivalents		(20,961,098	)		24,022			196,459
Cash and Cash Equivalents — Beginning of Period		21,157,557			—			—
Cash and Cash Equivalents — End of Period	$	196,459		$	24,022		$	196,459

- Continued -

Notes to Financial Statements are an integral part of this Statement.

5

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Statements of Cash Flows (continued)

					From Inception
	Six Months Ended		Six Months Ended		(December 29, 2000)
	June 30,		June 30,		to June 30,
	2005		2004		2005
Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	—	$	7,556	$	18,354
Supplemental Disclosure of Noncash Investing, Operating and Financing Activities
Deferred offering costs in accounts payable	$	—	$	9,679	$	—
Conversion of note payable and accrued interest into member units	$	—	$	—	$	26,103
Construction costs in construction payable	$	7,565,814	$	—	$	7,565,814
Financing costs in accounts payable	$	4,700	$	—	$	4,700
Net change in other comprehensive income	$	29,815	$	—	$	29,815
Member units exchanged for land costs	$	39,000	$	—	$	39,000

Notes to Financial Statements are an integral part of this Statement.

6

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Notes to Financial Statements

June 30, 2005

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed financial statements of Granite Falls Energy, LLC (the “Company”) 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 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.

In the opinion of management, the interim condensed financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments.

Nature of Business

Granite Falls Energy, LLC, formally known as Granite Falls Community Ethanol Plant, LLC, started construction on its plant location near Granite Falls, Minnesota in 2004, was originally organized to fund and construct a 40 million gallon ethanol plant with distribution to upper midwest states. The Board of Governors of the Company has approved a proposal to increase the plant size to be capable of producing up to 50 million gallons of ethanol a year. The Company’s operations permit presently allows for the production of up to 47 million gallons of ethanol per year. The Company is currently in the process of amending this permit to produce up to the plant’s capacity. In addition, the Company intends to produce and sell dried distillers grains as a co-product of ethanol production. Construction began in the third quarter of 2004. As of June 30, 2005, the Company is in the development stage with its efforts being principally devoted to organizational and construction activities. The Company plans on beginning operations by the middle of November 2005. On April 28, 2005, members holding a majority of the Company’s outstanding limited liability company membership units voted to approve the amendment of the Company’s amended articles of organization to effect a legal name change from Granite Falls Community Ethanol Plant, LLC to the Company’s assumed name of Granite Falls Energy, LLC.

Fiscal Reporting Period

The Company originally adopted a fiscal year ending December 31 for reporting financial operations. On April 28, 2005, members holding a majority of the outstanding limited liability company membership units voted to approve a change in the Company’s fiscal year from January 1 through December 31, to November 1 through October 31, effective as of April 28, 2005. In July 2005, the Company received approval from the Internal Revenue Service to change the fiscal year end for income tax purposes. Thus, the fiscal year will end on October 31, 2005.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Cash and Equivalents

The Company maintains some of its accounts at a financial institution which is a member of the Company. At times throughout the year, the Company’s cash balances at this and other financial institutions may exceed amounts insured by the Federal Deposit Insurance Corporation. All of the cash and cash equivalents at June 30, 2005 were short-term investments with maturities of three months or less such as money market accounts.

7

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Notes to Financial Statements

June 30, 2005

Deferred Financing Costs

Costs relating to the Company’s debt financing have been capitalized as incurred. Upon conversion of the Company’s construction loan to a term note, the Company will begin to amortize the debt issuance costs using the effective interest rate method.

Property and Equipment

Property and equipment is stated at the lower of cost or estimated fair value. Depreciation is provided over an estimated useful life by use of the straight line depreciation method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.

Fair Value of Financial Instruments

The fair value of the Company’s cash and equivalents and hedge instruments approximates their carrying value. It is not currently practicable to estimate the fair value of the notes payable to the City of Granite Falls nor our long-term debt since these agreements contain unique terms, conditions, and restrictions, which were negotiated at arm’s length, as discussed in Notes 3 and 4, there are no readily determinable similar instruments on which to base an estimate of fair value.

Hedge Accounts

The Company has hedged 1,000,000 bushels of its future corn purchases through December 2005 and 1,008,000 gallons of future ethanol sales to the extent considered necessary for minimizing risk from future market price fluctuations. The Company has used various option contracts as vehicles for these hedges.

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

The hedging accounts have been designated and qualify as cash flow hedges and are reported at fair value as determined by the broker. The unrealized gain or loss on the effective portion is initially included as a component of other comprehensive income and is subsequently reclassified into earnings through the cost of sales when the gain or loss is recognized. The Company has categorized the cash flows related to the hedging activities in the same category as the item being hedged. The Company expects the hedging positions outstanding as of June 30, 2005 to be realized and recognized by October 31, 2006, the end of the next fiscal year.

Comprehensive Loss

Comprehensive loss includes net loss plus other comprehensive income (loss), which is related to the unrealized change in the fair value of our derivative instruments designated as hedges.

Grants

The Company will recognize grant income as other income for reimbursement of expenses incurred upon complying with the conditions of the grant. For reimbursements of capital expenditures, the grants are recognized as a reduction of the cost basis of the asset upon complying with the conditions of the grant.

8

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Notes to Financial Statements

June 30, 2005

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, its earnings and losses are included in the income tax returns of the members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements.

2. DEVELOPMENT STAGE ENTERPRISE

The Company was formed on December 29, 2000 to have an indefinite life. The Company was initially capitalized by proceeds from notes payable to the City of Granite Falls, Minnesota and later by contributions from its founding members and additional seed capital investors. The seven founders contributed an aggregate of $55,000 for 700 units and subsequently the Board of Governors approved a 1:2 reverse membership unit split for the founding members. In addition, six of the seven founding members agreed to return to the Company one-half of each of their remaining units, thereby reducing the number of units held by each such founding member to twenty-five. Sixty-five members, including six of the founders or their affiliates, contributed an additional aggregate of $583,500 for 1,167 units that were issued between March and July 2002 pursuant to a private placement memorandum. On July 31, 2002, the Company discontinued selling units under the private placement memorandum. In August 2002, the Company converted a $25,000 note payable plus accrued interest to the City of Granite Falls to 50 membership units. Net Loss Per Unit retroactively reflects the two 1:2 reverse membership unit splits as well as the return of units to the Company by the founders.

Income and losses are allocated to all members based upon their respective percentage units held for the period being allocated. See Note 4 for further discussion of members’ equity.

3. NOTES PAYABLE TO CITY OF GRANITE FALLS

At June 30, 2005 the Company has $47,800 of notes payable with the City of Granite Falls, Minnesota originally due on January 1, 2004, including interest at 7%. All notes are secured by terms and conditions of the Development Agreement dated February 2, 2001, and subsequently amended, between the City and the Company. The repayment of up to the entire amount may be forgiven subject to the covenants set forth in the Development Agreement.

Under the terms of the Development Agreement, the notes payable can be forgiven at a rate of $5,000 for each job created, up to ten jobs, within six months of the start-up of operations of the facility, provided each job pays a gross annual wage or salary of not less than $24,500. In addition, upon the completion of financing and organizational startup, $25,000 of the notes payable may be converted to equity with a market value of $25,000 or more. In August 2002, the City Council of Granite Falls approved the conversion of a $25,000 note due from the Company plus accrued interest into fifty membership units. The notes payable are completely forgiven, in their entirety, if the project is abandoned. As of June 30, 2005 the City has not required payment of this note as the City believes the Company is working towards the conditions of the Development Agreement.

4. MEMBERS’ EQUITY

As specified in the Company’s operating agreement, the Company initially will have one class of membership units. No member shall transfer all or any portion of an interest without the prior written consent of the Board of Governors.

The Board voted to prepare a new offering and filed a Registration Statement with the United States Securities and Exchange Commission. This Registration Statement offered up to a minimum of 18,000 ($18,000,000) and a maximum of 30,000 ($30,000,000) of units for sale at $1,000 per unit. The minimum purchase was five units. The Registration Statement was declared effective in February 2004.

9

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Notes to Financial Statements

June 30, 2005

As of August 31, 2004, the Company’s escrow agent had received subscriptions proceeds of over $19 million from the sale of units in the Offering. These proceeds included $6,500,000 and $2,500,000 received from Glacial Lakes Energy, LLC (“GLE”) and Fagen, Inc. (“Fagen”), respectively, the Company’s two significant investors. GLE and Fagen had originally provided “qualifying bridge loans” which the Company was able to count towards the $18,000,000 minimum and which were subsequently converted into 6,500 and 2,500 of units, respectively.

The Company has raised the minimum of $18,000,000 through the Offering and has executed a non-binding debt financing commitment with First National Bank of Omaha for a total credit facility of approximately $37 million. On September 24, 2004, the Company released funds from escrow having obtained subscription proceeds in excess of $25,000,000 which when combined with the $34,000,000 construction loan commitment would yield sufficient funds to construct the then estimated cost of the plant. The Company closed the Offering effective October 15, 2004 after receiving proceeds of $29,596,000. In addition to the Units sold, the Company issued a total of 104 Units for consideration other than cash to several individuals and third parties. Of the 104 Units, 79 Units were for payment of services rendered by consultants, 10 Units were for payment of advertising conducted during 2003, and 15 Units were to Granite Falls Bank for payment of escrow charges. In April, 2005, the Company issued 39 Units to two members in exchange for property easements.

5. NOTE PAYABLE TO BANK

On December 16, 2004, the Company entered into a Loan Agreement with First National Bank of Omaha (the “Bank”) for the purpose of funding a portion of the cost of the ethanol plant. Under the Loan Agreement, the Bank has provided a construction loan for approximately $34,000,000, a revolving line of credit of $3,500,000, and standby letters of credit in an amount up to $1,000,000. The loans are secured by substantially all assets. At June 30, 2005, the balance outstanding under the construction loan was $3,313,216 with interest being charged at 6.69% per annum.

The Loan Agreement includes due diligence, negotiation, and commitment fees of $305,000 and an annual servicing fee of $30,000. Additionally, the Company will pay the Bank, quarterly, an unused commitment fee equal to 0.375% of the average unused portion of the $3,500,000 revolving line of credit beginning with the initial advance or March 10, 2006, whichever is earlier and the $5,000,000 long-term revolving note, which is one of the term loans, beginning March 10, 2006.

Under the construction loan, the Company is to make quarterly interest payments at a variable interest rate equal to one-month LIBOR plus 3.50% until March 10, 2006. The amounts borrowed under the construction loan will mature and convert into three term loans aggregating up to $34,000,000 on March 10, 2006. The maturity date of each loan will be March 10, 2011 and interest accrues on each term loan at a variable rate based upon one-month or three-month LIBOR plus 3.00-3.50% depending on the particular loan. In addition to the required payments under the term loans, the Company will have to make an additional principal payment equal to 15% of the Company’s “excess cash flow” as defined in the loan agreement within 120 days of year-end.

The Company is subject to various financial and non-financial loan covenants that include among other items minimum working capital amounts, minimum fixed charge coverage ratios and minimum net worth requirements. The Company is permitted to make distributions once a year (after the Bank’s receipt of a completed annual audit) of between 65% to 70% of net income as long as they are in compliance with these and other loan covenants. After the conversion to the term loans, capital expenditures in excess of $500,000 in a fiscal year require the Bank’s prior approval.

On January 6, 2005, the Company entered into an interest rate swap agreement with the Bank (as required under the Loan Agreement) in order to change the interest on some of the anticipated borrowings from a variable rate to a fixed rate. Under the interest rate swap, the Company will pay the Bank the quarterly difference between interest charged at a fixed rate of 7.69% and the variable rate of three-month LIBOR plus 3.00% on the “notional” amount of 17,000,000. The “notional” balance under the interest rate swap will match the principal balance of one of the

10

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Notes to Financial Statements

June 30, 2005

three term loans mentioned above. The interest rate swap will become effective on September 10, 2005 and will terminate on March 10, 2011.

6. COMMITMENTS AND CONTINGENCIES

The Company has revised its estimate of total costs of the project from $57,850,000 to $64,200,000. The Company anticipates funding the development of the ethanol plant by using grants, the proceeds it raised through its offering, and utilizing debt financing for the remainder of the costs.

Construction Contract

In August 2004, the Company entered into a contract with Fagen, a member, to design and build the ethanol plant for $45,749,700. Based on the decision to expand the capacity of the plant and other change orders, the Company now expects to pay Fagen approximately $49,120,240. If the contract is terminated by the Company without cause or Fagen for cause, the Company will be required to pay Fagen a fee of $1,000,000 as compensation for the limited right to use the work product.

Substantial completion of the entire work shall be achieved no later than 425 calendar days after the date of commencement. If the plant is substantially complete within the 425 days, the Company will pay Fagen an early performance bonus of $8,000 per day for each day that substantial completion is achieved prior to the 425 days after the date of commencement. Based on a start date of December 1, 2004 and an anticipated completion date of October 31, 2005, the Company may pay Fagen an early completion bonus of up to $736,000. As of June 30, 2005, the Company has incurred $35,895,465 of these costs of which $7,565,814 is included in accounts payable.

Construction Management and Operations Management Agreements

In August 2004, the Company entered into a Consulting Agreement and an Operating and Management Agreement with GLE, who is also a member. Under the Consulting Agreement, GLE will provide assistance in planning and will direct and monitor the construction of the Company’s ethanol plant. The Company will pay GLE $10,000 plus pre-approved expenses per month. The Consulting Agreement will terminate upon the effective date of the Operating and Management Agreement under which GLE will operate and manage the Company’s plant. The Company will pay GLE $35,000 per month plus 3% of the plant’s operating profits under the Agreement. The initial term of the operating and management agreement is for five years and will automatically renew for successive one-year terms unless terminated 180 days prior to the start of a renewal term.

As of June 30, 2005, the Company has incurred $110,000 of costs under the consulting agreement of which $10,000 is in accounts payable.

Consulting Agreement for Utilities

In September 2004, the Company entered into an agreement with a consultant to provide consulting services for supplies of natural gas and electricity for the plant. The fees during the construction period shall be $15,000 plus pre-approved travel expenses and upon plant completion the fees shall be $2,400 per month plus pre-approved travel expenses. This agreement shall commence on October 1, 2004 and continue until six months after the plant’s completion date.

The agreement shall be month-to-month after the initial term and may be terminated by either party effective after the initial term upon sixty days prior written notice. As of March 31, 2005, the Company has incurred and paid $15,000 of these costs.

11

GRANITE FALLS ENERGY, LLC
(A Development Stage Company)

Notes to Financial Statements

June 30, 2005

7. AGREEMENT WITH GOPHER STATE ETHANOL, LLC

On May 3, 2005, the Company entered into an agreement with Gopher State Ethanol, LLC (“Gopher State”) for the purpose of participating in the Minnesota ethanol producer incentive payments that Gopher State is entitled to receive. Under the agreement, Gopher State would operate the Company’s ethanol plant as a wholly-owned subsidiary. The agreement is conditioned upon the Bankruptcy Court’s approval of a plan of reorganization for Gopher State that includes the agreement between Gopher State and the Company. Even if a plan of reorganization is approved by the Bankruptcy Court, there is no assurance and the Company has no guarantee that the state of Minnesota will agree to pay the ethanol producer incentive payments to Gopher State based upon its operation and production of ethanol at the Company’s facility. Communications from the Minnesota Department of Agriculture indicate that it does not consider the Company’s arrangement with Gopher State to be within the intent of the Minnesota legislature. Additionally, on June 30, 2005 the Minnesota legislature passed a law prohibiting an ethanol producer from transferring its eligibility for payments to a plant at a different location. Accordingly, it is likely that the Company will be required to commence legal proceedings against the state of Minnesota and obtain a favorable court order before Gopher State will receive any ethanol producer incentive payments.

The Company may choose not to commence legal proceedings or the legal proceedings may not be successful in obtaining a portion or the full amount of ethanol producer incentive payments to which Gopher State is entitled to receive. In addition, the Company expects to incur legal costs and expenses in connection with any legal proceedings to enforce Gopher State’s rights to the ethanol producer incentive payments. If the legal proceedings are ultimately unsuccessful, the Company may not be able to offset these legal costs and expenses against any ethanol producer incentive payments.

12

Item 2. Management’s Discussion and Analysis and Plan of Operation.

Cautionary Statements Regarding Forward Looking Statements

     This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “will,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the following factors:

• Changes in the availability and price of corn;

• Increases or decreases in the supply and demand for ethanol;

• Changes in the environmental regulations that apply to our plant operations;

• Delays in plant construction or increases in the cost of construction;

• Changes in interest rates or the availability of credit;

• Changes in our business strategy, capital improvement or development plans;

• Changes in plant production capacity or technical difficulties in operating the plant;

• Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;

• Changes in the availability and price of natural gas;

• Increases or decreases in the supply and demand for distiller grains; and

• Changes and advances in ethanol production technology.

     We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Overview

     Granite Falls Energy, LLC is a development-stage Minnesota limited liability company formed on December 29, 2000 for the purpose of constructing and operating an ethanol plant on our 56-acre site located near Granite Falls, Minnesota. We recently changed our legal name from Granite Falls Community Ethanol Plant, LLC to Granite Falls Energy, LLC.

     We are in the process of constructing a 50 million gallon per year ethanol plant that will produce fuel-grade ethanol and distillers grains for animal feed products. We will not generate revenues until our plant is operational and we anticipate increases in our accumulated losses until the plant is operational. We currently expect to complete construction and begin plant operations in mid-November 2005.

     We originally expected to build a 40 million gallon per year ethanol plant, but subsequently revised our business plan to expand the plant capacity to produce 50 million gallons of ethanol. Based on the increased production capacity of our ethanol plant and change orders to date, we now expect that the project will cost $64,182,640 instead of the $63,046,000 we had previously planned.

     We are financing our project with a combination of equity and debt capital. We raised equity in a public offering registered with the Securities and Exchange Commission. During the offering, we sold 29,700 units and received offering cash proceeds of $29,700,000. We closed the offering in October 2004. To complete project financing, we entered into a $34,000,000 term loan, a $3,500,000 revolving line of credit and standby letters of credit of up to $1,000,000 with First National Bank of Omaha. Our combined equity and debt capital is $63,700,000 excluding the revolving line of credit and standby letters of credit. Based upon our current total project cost

13

estimate of $64,182,640, we expect our equity and debt capital sources to be sufficient to complete plant construction and begin start-up operations.

     We have engaged experienced marketers to market our ethanol and dried distillers grains to local, regional, and national markets. We will be hiring staff to handle the direct operation of the plant, and currently expect to employ 32 employees in addition to five personnel supplied by Glacial Lakes Energy, LLC (“Glacial Lakes”) pursuant to our operating and management agreement with Glacial Lakes.

     Because we are a development-stage company without any revenues, we do not have revenue, production or income data for the three months ended June 30, 2005, or comparable data for any prior periods. Accordingly, we do not provide a comparison of our financial results between reporting periods in this report. If you undertake your own comparison of our second fiscal quarter of 2004 and our second fiscal quarter of 2005, it is important that you keep this in mind.

Plan of Operations for the Next 12 Months

     We expect to spend the next 12 months completing construction of the ethanol plant, site development, and permitting, preparing for and commencing start-up operations, and engaging in the production of ethanol and distillers grains at our plant.

Plant Construction Activity

     We began site grading and dirt work for our ethanol plant in August 2004. The site work was completed in November 2004. On December 1, 2004, Fagen, Inc. (“Fagen”) began actual construction of the plant. We expect plant construction to be complete by mid-November 2005 however we may experience construction delays caused by factors outside our control, such as weather-related delays. If plant construction is delayed, our ability to begin plant operations and generate revenues will also be delayed.

     Based on change orders signed to date, we will pay Fagen a fixed fee of $49,120,240 to build our plant. As of June 30, 2005, have paid Fagen $28,476,980 for construction services and incurred construction services fees of $7,565,814, which we have retained but not yet paid to Fagen in accordance with our design-build agreement. As of July 25, 2005, Fagen estimated that the plant is approximately 79.8% complete. The following construction update is current as of August 10, 2005.

     Process Building. All of the concrete and all of the equipment for the process building has been installed. The process building is being enclosed with piping and electrical work is being done. The cooling tower is complete and the water lines to the process building are being completed.

     Tanks. All stainless-steel tanks have been constructed in place with piping to the process building. All carbon-steel tanks (primarily finished product tanks) are done and are being painted. Pipe racks and load-out piping are being set in place for these tanks.

     Distillers Grain Building. The distillers grain building is complete.

     Energy Center. The energy center, which contains the boilers, dryers, thermal oxidizer, and centrifuges, is substantially complete.

     Grain Receiving. The concrete silos for corn storage are complete. The equipment to move corn into the silos is being worked on currently. The hammermills and day bin are being installed. The installation of the truck scales (next to the administration building) is nearly complete.

     Administration Building. The administration building is complete and we moved into our new offices in May 2005.

     Silos. The concrete corn storage silos have been completed.

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     Utilities – Electrical. The electrical substation has been completed on site. We expect to convert the site from temporary power to using the substation by the end of August 2005.

     Utilities – Water. Installation of the well water main and discharge line off-site has commenced and we anticipate having water flowing from our two production wells by September 1, 2005. The second production well was installed in July and tunnel boring in heavy traffic areas has been completed.

     Utilities – Natural Gas. Our natural gas supplier has buried approximately four miles of the approximate seven-mile transmission line to date and is on schedule for natural gas flow by October 1, 2005.

     Railroad Siding. The installation of the rail siding and the rail spur has also started.

     The following chart summarizes our anticipated progress on plant construction as of the date of this report:

Timeline	Projects
August 2005	Install Piping & Equipment Process Building
	Work on field-erected tanks
	Install main natural gas line
	Finish installation of on-site natural gas line
	Construction of water treatment building and install equipment
	Install rail siding and rail spurs
	Energy Center Piping
	Electrical & Instrumentation
	Electrical distribution system activated
	Finishes Office/Lab Area Process Building
September 2005	Electrical & Instrumentation
	Construction of water treatment building and install equipment
	Finish installation of main natural gas line
	Energy Center Piping
	Finishes Office/Lab Area Process Building
	Train Plant Personnel
October 2005	Electrical & Instrumentation
	Piping & Equipment
	Construct water treatment system
	Train Plant Personnel
November 2005	Finish installation of water treatment system and test
	Test Equipment and Prepare for Start-up Operations
	Perform Water Trials and Hydrology Testing
	Commence Operations
	Seven day performance test
	Punch list

Permitting and Infrastructure Activity

     Permits. We have obtained most of the required air, water, construction and other permits necessary to construct and operate the plant. We received the following permits in 2004:

• Air Emission Permit from the Minnesota Pollution Control Agency (the “MPCA”);

• National Pollution Discharge Elimination System from the MPCA;

• Conditional Water Use Permit for the Minnesota River from Chippewa County;

• Above Ground Storage Tank Permit from the MPCA;

• Construction Storm Water Permit from the MPCA; and

• Building Permit from the City of Granite Falls.

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     We still need to obtain an alcohol fuel producer’s permit from the Alcohol and Tobacco Tax and Trade Bureau (“TTB”). We have submitted our application and the TTB is waiting to conduct an on-site inspection until most of the major equipment is installed. We expect to receive the permit prior to commencing plant operations.

     We must also prepare a Spill Prevention Control and Countermeasures (“SPCC”) plan, a Process Hazard Analysis, and a Risk Management Plan. These items are required by the Environmental Protection Agency and enforced by the MPCA. We have made arrangements for an outside resource to complete the SPCC plan. Under our Design/Build agreement, ICM, Inc. (“ICM”) is completing the Process Hazard Analysis. When it is completed, we will complete the Risk Management Plan with assistance from Glacial Lakes personnel.

     In June 2005, we re-submitted the Air Emissions Permit application. We have requested minor modifications to reflect an increase in expected production levels because the original permit was submitted based on 40 million gallons per year of production. The permit is currently under review by MPCA.

     Electricity. Minnesota Valley Cooperative Light and Power Association has installed all of the transmission line poles and has completed stringing the line. In addition, the sub-station equipment and underground electrical wire network for our buildings has been completed.

     Rail. We awarded a bid on the engineering and have begun the dirt work for the rail siding to connect our plant to the main rail line.

     Water. We obtained a two-year conditional, 240 million gallon per year water appropriation permit from the Minnesota Department of Natural Resources, which will remain in effect through December 31, 2008. We will obtain the water to operate our plant from wells located approximately one and one-half miles from our plant. As part of the application process, we conducted drawdown tests of the wells which indicated that the wells contain a sufficient supply of water for our purposes. As a condition of the water appropriations permit, we will be required to frequently monitor the static water level in our wells and the wells of adjacent property owners. If the wells are adversely impacted by our operations, we will need to locate additional water supply sources.

     We have obtained county permits and easements to construct a water pipeline from our wells to the plant site. We have awarded a contract for the construction of the water pipeline, which began in July 2005.

     We have worked with the Army Corp. of Engineers and have obtained a conditional use permit from Chippewa County to use water from the Minnesota River. We have also obtained property easements from nearby property owners in the event we have to construct a water pipeline from the Minnesota River to our plant site. We have postponed further action on using water from the Minnesota River pending initial use and testing of the water supply provided by our wells. In June 2005, we re-submitted the Process Water Discharge Permit. We have requested minor modifications to the permit to reflect an increase in expected production levels because the original permit was submitted based on 40 million gallons per year of production. The permit application is currently under review by MPCA.

     Most of the water supply from the wells will need to be treated prior to its use in the plant. We have signed a change order with Fagen and issued a purchase order with U.S. Water Services, Inc. for the equipment needed for water treatment. The change order with Fagen was for $1,103,000 and the equipment to be purchased directly from U.S. Water Services, Inc. was for approximately $293,000. The change order from Fagen includes fire protection systems, such as storage tanks, deluge systems, and sprinkler systems for the plant.

Contracting Activity

     Management, Supply and Marketing Agreements. We continue to work towards securing all of the contracts necessary to construct and operate our ethanol plant. Glacial Lakes is managing plant construction and will operate and manage the plant once we are operational. Farmers Cooperative Company will supply our corn. Aventine Renewable Energy, Inc. will market our ethanol and Commodity Specialists Company will market our dry distillers grains by rail and truck. All of these contracts are critical to our success and we will be very dependent on each of these companies once we begin operations. We intend to independently market a portion of our distillers

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grains to local markets, however, if local markets do not supply competitive prices we may market all of our distillers grains through Commodity Specialists Company.

     Natural Gas. We expect to use various natural gas vendors to supply the natural gas necessary to operate the plant. U.S. Energy will assist us with sourcing natural gas through various vendors. We determined that sourcing our natural gas from a variety of vendors may prove more cost-efficient than using an exclusive supplier.

     Rail Service. Our ethanol and distillers grains marketing firms continue to discuss rail service and freight rates on our behalf with both the TC&W Railroad and the Burlington Northern Santa Fe Railroad.

     Railcar Lease. We have received a proposed lease from Trinity Rail Group, LLC for 75 hopper cars to assist us with transport of our dry distillers grains by rail. We would lease these cars for a term of five years at a rate of $640 per car or $48,000 per month, subject to potential adjustment based on the railcars’ final manufacturing cost. We must also provide a stand-by letter of credit to Trinity Rail Group, LLC for six months’ payments, totaling $281,250. We have indicated that we would accept delivery of these cars on or about mid-October 2005. We expect to execute the lease by September 1, 2005, but we have not yet done so and there is no assurance that the final agreement, when executed, will contain the terms we currently anticipate.

     Agreement with Gopher State Ethanol. On May 3, 2005, the Company entered into an agreement with Gopher State Ethanol, LLC (“Gopher State”) for the purpose of participating in the Minnesota ethanol producer incentive payments that Gopher State is entitled to receive. All of our obligations under this agreement are subject to certain conditions that must be fulfilled prior to our obligation to perform.

     Gopher State is a debtor in possession under Chapter 11 of the U.S. Bankruptcy Code. Before its bankruptcy, it was an ethanol plant located in St. Paul, Minnesota and was entitled to ethanol production incentive payments pursuant to Section 41A.09 of the Minnesota Statutes. Because it no longer produces ethanol, Gopher State is not entitled to incentive payments at this time. Under the agreement, we intend to create a subsidiary and lease our ethanol plant to the subsidiary. We expect to merge this subsidiary into Gopher State. After the merger, Gopher State would operate our ethanol plant under the lease. Our intent is to qualify Gopher State to receive ethanol producer payments, however we cannot be certain that the agreement will achieve the desired result. The agreement provides that if we are successful in receiving ethanol producer incentive payments, we will pay to Gopher State’s unsecured creditors 50% of any payments we receive resulting from Gopher State’s future ethanol production at our facility. In exchange, Gopher State’s unsecured creditors will agree to release and discharge any and all claims against Gopher State.

     Our obligation to perform under the agreement is expressly conditioned upon our consent to the plan of reorganization proposed by Gopher State and the Bankruptcy Court’s approval of that plan. We will not take any further action under the agreement until these conditions are met. There is no assurance that a plan of reorganization satisfactory to us and Gopher State Ethanol will be reached or that the Bankruptcy Court will approve the plan of reorganization. A hearing before the Bankruptcy Court has been set for mid-September 2005.

     There is no assurance and we cannot guarantee that even if a plan of reorganization is approved by the Bankruptcy Court, the state of Minnesota will agree to pay the Minnesota ethanol producer incentive payments to Gopher State based upon its operation and production of ethanol at our facility. Communications from the Minnesota Department of Agriculture indicate that it does not consider the Company’s arrangement with Gopher State to be within the intent of the Minnesota legislature. Further, on June 30, 2005, a new law became effective that specifically prohibits an ethanol producer from transferring its eligibility for payments to a plant at a different location. Accordingly, it is likely that the Minnesota Department of Agriculture will reject any future application by Gopher State for producer payments and it may be necessary to institute legal proceedings against the state of Minnesota and obtain a court order in our favor before Gopher State receives any ethanol producer incentive payments. It is also possible that a court would construe the statute against us and use it as a basis for denying the ethanol producer incentive payments.

     The Company may choose not to commence legal proceedings or the legal proceedings may not be successful in obtaining a portion or the full amount of ethanol producer incentive payments to which Gopher State is entitled to receive. In addition, the Company expects to incur legal costs and expenses in connection with any legal proceedings to enforce Gopher State’s rights to the ethanol producer incentive payments. If the legal proceedings

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are ultimately unsuccessful, the Company may not be able to offset these legal costs and expenses against any ethanol producer incentive payments.

Liquidity and Capital Resources

     Sources and Uses of Cash. We originally estimated that we would require approximately $57,850,000 of capital to pay for all of our construction and start-up costs. However, based on our decision to expand the plant from 40 million gallons per year to 50 million gallons per year, new estimates for our utilities, an expected early completion bonus to our design-builder, and other items, we estimate that our total construction and start-up costs will be $64,182,640.

     We have executed a loan agreement with First National Bank of Omaha (the “Bank”) for the purpose of funding a portion of the cost of our ethanol plant. Under our loan agreement with the Bank, the Bank has provided to us a construction loan up to $34,000,000, a revolving line of credit of $3,500,000, and standby letters of credit in an amount up to $1,000,000. As security for the Bank’s loans to us, we have granted the Bank a security interest in all of our assets and a mortgage on our real estate. As of June 30, 2005, there is $3,313,216 outstanding under the construction loan.

     During the construction period, we will make quarterly interest payments on the construction loan at a variable interest rate equal to the one-month LIBOR plus 3.50% until March 10, 2006. On March 10, 2006, the amounts borrowed under the construction loan will convert into three term loans aggregating $34,000,000. The maturity date of each converted loan will be March 10, 2011. Interest on the converted loans will accrue at a variable rate based upon the one-month or three-month LIBOR plus 3.00% to 3.50% depending on the particular loan and subject to the interest rate swap agreement discussed below. We will also be required to make an additional principal payment equal to 15% of our excess cash flow, as that term is defined in the loan agreement, within 120 days of year-end.

     Our loan agreement required us to enter into an interest rate swap agreement with First National Bank to fix a portion of our anticipated borrowings from a variable to a fixed interest rate. Under this swap agreement, we will pay First National Bank the quarterly difference between interest charged at a fixed rate of 7.69% and the variable rate of the three-month LIBOR plus 3.00% on the “notional” amount of $17,000,000. This “notional” balance will match the principal balance on one of the three term loans resulting from conversion of our construction loan. The interest rate swap will become effective on September 10, 2005 and will terminate on March 10, 2011.

     Our loan agreements contain restrictions and financial covenants to which we will be subject during the term of the agreements. If, for any reason, construction of our project is delayed, we may not be able to timely repay the loan. If interest rates increase, we will have higher interest payments, which could adversely affect our business.

     Sources of Funds. The following schedule sets forth our sources of funds from our offering proceeds and our debt financing proceeds:

			Percent of
Source of Funds			Total
Member Equity, Public Offering	$	29,700,000		45.72	%
Member Equity, Seed Capital	$	638,500		0.98	%
Term Debt	$	34,000,000		52.34	%
Other Sources of Funds	$	620,000		0.95	%
Total Sources of Funds	$	64,958,500		100.00	%

     If we need additional cash, we may borrow additional funds or sell additional units. However, we have access to our $3,500,000 revolving credit line for hedging purposes and operations. We cannot assure success in obtaining additional financing if needed on acceptable terms, or at all.

     The following tables describe our revised estimated use of our offering and debt financing proceeds. The figures are estimates only, and the actual uses of proceeds may vary significantly from the descriptions given below.

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Estimated Use of Offering and Debt Proceeds:

Plant Construction (including change orders and water treatment)	$	49,120,240	76.5	%
Other Construction Costs		133,720	0.2	%
Land and Site Development		2,920,329	4.6	%
Utilities (natural gas, electric and water)		882,363	1.4	%
Rolling Stock		205,519	0.3	%
Administration Building and Furnishings		363,016	0.6	%
Railroad and Car Mover		1,459,000	2.3	%
Construction Insurance Costs		300,000	0.5	%
Capitalized Interest (net of interest income)		652,541	1.0	%
Offering and Debt Financing Costs		1,066,838	1.7	%
Organizational Costs		1,333,074	2.0	%
Start-up Costs		5,010,000	7.8	%
Early Completion Bonus		736,000	1.1	%
Total Estimated Use of Proceeds	$	64,182,640	100.0	%

     Comparing the table of estimated uses above with the table of estimated uses contained in our most recent quarterly report, we have slightly increased the total project cost from $63,046,002 to $64,182,640. This increase results from increases in the following four categories:

     Plant Construction. Plant construction costs increased from $47,986,375 to $49,120,240. This increase reflects a change order of $1,103,000 with Fagen for water treatment and fire protection and other change orders totaling $30,865.

     Other Construction Costs. Other construction costs increased from $120,833 to $133,720. This increase results from additional costs incurred to allow us to continue construction through the winter months including frost removal.

     Land and Site Development. The land and site development estimate increased from $2,828,333 to $2,920,329 because of additional surveying costs, the need to expand the parking lot for the administration building and additional costs related to the terms of the Water Appropriations Permit.

     Utilities. The utilities cost estimate decreased from $1,535,000 to $882,363 because we moved dollars previously attributed to this category for the cost of the water line and water treatment equipment to the plant construction category due to the change order with Fagen.

     Organizational Costs. We have increased our cost estimate for organizational costs from $1,196,228 to $1,333,074 in connection with additional professional fees and hiring certain key personnel ahead of schedule.

     Start-Up Costs. We have increased our cost estimate for organizational costs from $1,196,228 to $1,333,074 because we have allocated $380,000 for funds necessary for hedging positions to put price protection for corn and natural gas in place.

     The foregoing increases were partially reduced by a decrease in our cost estimate for capitalized interest from $664,499 to $652,541. This decrease results from additional interest income available from the proceeds of the offering that were invested for a longer period than expected.

     Based upon public offering proceeds of $29,700,000, seed capital of $638,500, a term loan of $34,000,000, and other sources of financing in the amount of $620,000, we have approximately $64,958,500 of debt and equity available. This means we expect to have sufficient cash on hand to cover construction and related start-up costs necessary to make the plant operational. The $620,000 of other sources of financing is comprised of $270,000 of loans and leases from rolling stock vendors, and $350,000 for the expected cost of paving the roads on the plant site, which we will pave with asphalt in the spring of 2006, and expect to pay for using operating profits.

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Quarterly Financial Results

     As of June 30, 2005, we had cash and cash equivalents of $196,459 and total assets of $39,911,317. Our assets primarily consist of construction-in-process of $38,472,145. We sold 29,700 units in our offering and raised proceeds of $29,700,000, in addition to 1,417 seed capital units for seed capital proceeds of $638,500. We have used the proceeds to fund construction activity as well as development and organizational needs. Cash used to fund construction activities for the quarter ended June 30, 2005, totaled $23,650,954.

     As of June 30, 2005, we had current liabilities of $7,668,053, which consists primarily of construction payables (primarily retainage to Fagen and other contractors) in the amount of $7,565,814, accounts payable in the amount of $46,813 and a note to the City of Granite Falls in the amount of $47,800 due January 1, 2004, which has not been paid, and which we have been working with the City to extend and which may be forgiven under the terms of our Development Agreement with the City. As of June 30, 2005, we also had long-term debt in the amount of $3,313,216.

     Total members equity as of June 30, 2005 was $28,910,048. Since inception, we have generated no revenue from operations. For the quarter ended June 30, 2005, we have a net loss of $83,255 due to start-up costs.

Trends Impacting the Ethanol Industry

     While we anticipate continued strong demand for ethanol, we are uncertain as to the sustainability of current ethanol prices given the increasing ethanol supply as new plants begin production and existing plants continue to expand. The total production of ethanol is at an all time high. In 2004, 81 ethanol plants located in 20 states produced 3.41 billion gallons. According to the Renewable Fuels Association, there are currently 88 ethanol plants nationwide that have the capacity to produce over 3.9 billion gallons annual. In addition, there are 16 ethanol plants and two major expansions under construction constituting another 1 billion gallons of annual capacity. A greater supply of ethanol on the market from other plants could reduce the price we are able to charge for our ethanol. This would have a negative impact on our future revenues once we become operational.

     The U.S. Senate passed the Energy Policy Act of 2005 on July 29, 2005 by a vote 74 to 26 following a vote of 275 to 156 by the U.S. House of Representatives on July 28, 2005. President George W. Bush signed the bill into law on August 8, 2005. The bill includes various provisions that are expected to favorably impact the ethanol industry by enhancing both the production and use of ethanol.

     The provisions impacting the ethanol industry is highlighted by the creation of a 7.5 billion gallon renewable fuels standard (RFS). The RFS will begin at 4 billion gallons in 2006, increasing to 7.5 billion gallons by 2012 . The RFS is a national flexible program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. According to the Renewable Fuels Association, the bill is expected to lead to about $6 billion in new investment in ethanol plants across the country. An increase in the number of new plants will bring an increase in the supply of ethanol. Thus, while this bill may cause ethanol prices to increase in the short term due to additional demand, future supply could outweigh the demand for ethanol in the future. This would have a negative impact on our earnings. Since the RFS begins at 4 billion gallons in 2006 and national production is expected to exceed this amount, there could be a short-term oversupply until the RFS requirements exceed national production. This could have an immediate adverse effect on our earnings.

     The bill also expands who qualifies as a small ethanol producer. Historically, small ethanol producers were allowed a 10-cent per gallon production income tax credit on up to 15 million gallons of production annually. The size of the plant eligible for the tax credit was limited to 30 million gallons. Under the Energy Policy Act of 2005 the size limitation on the production capacity for small ethanol producers increases from 30 million to 60 million gallons. The credit can be taken on the first 15 million gallons of production. The tax credit is capped at $1.5 million per year per producer. The credit is effective for taxable years ending after the date of enactment, and ends on December 31, 2008.

     The Energy Policy Act of 2005 also creates a new credit that permits taxpayers to claim a 30% credit (up to $30,000) for the cost of installing clean-fuel vehicle refueling equipment, such as an E85 fuel pump, to be used in a

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trade or business of the taxpayer or installed at the principal residence of the taxpayer. Under the provision, clean fuels are any fuel of at least 85% of the volume of which consists of ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, and hydrogen and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel. The provision is effective for equipment placed in service December 31, 2005 and before January 1, 2008. While it is unclear how this credit will affect the demand for ethanol in the short term, we expect it will help raise consumer awareness of alternative sources of fuel and could positively impact future demand for ethanol.

Off-Balance Sheet Arrangements

     We do not have any off-balance sheet arrangements.

Item 3. Controls and Procedures.

     Our management, including our Chief Executive Officer and General Manager (the principal executive officer), Thomas Branhan, along with our Chief Financial Officer, (the principal financial officer), Michael Nealon, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2005. Based upon this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

     Our management, consisting of our principal executive officer and principal financial officer, have reviewed and evaluated any changes in our internal control over financial reporting that occurred as of June 30, 2005 and there has been no change that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

     None.

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

     The Securities and Exchange Commission declared our registration statement on Form SB-2 (SEC Registration No. 333-96703) effective on February 17, 2004. We commenced our initial public offering shortly thereafter. Our initial public offering was for the sale of our membership units at $1,000 per unit. The offering ranged from a minimum aggregate offering amount of $18,000,000 to a maximum aggregate offering amount of $30,000,000. Our offering required that we raise the $18,000,000 in proceeds by August 31, 2004 and secure significant debt financing by September 30, 2004, both of which we timely accomplished.

     The following is a breakdown of units registered and units sold in the offering:

	Aggregate price of				Aggregate price of
Amount	the				the
Registered	amount registered		Amount Sold		amount sold
30,000	$	30,000,000		29,700	$	29,700,000

     On October 15, 2004, we closed the offering and stopped selling units registered under our registration statement. During the offering we sold 29,596 Units for an aggregate price of $29,596,000. These proceeds included $6,500,000 received from Glacial Lakes Energy, LLC and $2,500,000 received from Fagen, Inc. In

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addition, we sold a total of 143 Units for consideration other than cash to several individuals and third parties in connection with their efforts in the offering. We issued 79 Units for payment of services rendered by consultants, who are also members of our company. We also issued 10 units for payment of advertising conducted during 2003 and 15 Units to Granite Falls Bank, our escrow agent during the offering, for payment of escrow account charges. Lastly, in April 2005, we issued of a total of 39 units to two of our members in exchange for property easements. We sold our units without the assistance of an underwriter.

     On September 24, 2004, we began releasing funds from escrow. On October 15, 2004, we issued a total of 29,700 units consisting of 29,596 Units for cash to investor/members and 104 Units for consideration other than cash. In April, 2005, we issued 39 units to two of our members in exchange for property easements.

     As of June 30, 2005, our expenses related to the registration and issuance of these units were $165,000, which were netted against the offering proceeds. All of these expenses were direct or indirect payments to unrelated parties. Our net offering proceeds after deduction of expenses were $29,535,000. The following table describes our use of net offering proceeds through the quarter ended June 30, 2005:

Plant Construction	$	25,646,000
Land and Site Development (includes utilities)		1,884,000
Operating Loans (repayment)		700,000
Financing Costs		667,000
Organizational Costs		296,000
Railroad and Car Mover		119,000
Construction Insurance		223,000
Total	$	29,535,000

     All of the foregoing payments were direct or indirect payments to persons or entities other than our directors, officers, affiliates, or unit holders owning 10% or more of our units except for $25,646,000 paid to Fagen in exchange for construction services and $700,000 paid to Granite Falls Bank for repayment of indebtedness. Fagen is a member. Under our operating and member control agreement, Fagen’s ownership entitles it to appoint one governor to our board. As of June 30, 2005, have paid Fagen $28,476,980 and we also owe Fagen $7,565,814 for construction services, which we have retained but not yet paid in accordance with our design-build agreement. Granite Falls Bank is a member and our former escrow agent.

Item 3. Defaults Upon Senior Securities.

     None.

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

     The Company’s 2005 annual meeting of members was held on April 28, 2005 for the purpose of reelecting one governor to the Company’s Board of Governors; amending the Company’s Fifth Amended and Restated Operating and Member Control Agreement (“Operating Agreement”) to change the Company’s fiscal year from January 1 through December 31 to November 1 through October 31; and to approve changing the Company’s legal name from Granite Falls Community Ethanol Plant, LLC to Granite Falls Energy, LLC. Prior to the name change, Granite Falls Energy, LLC was the assumed name under which the Company operated.

     Election of Governors

     Shannon Johnson was nominated by the Board to stand for reelection to our Board of Governors and was elected to the Board of Governors by the following vote:

For	Against		Abstain
11,991		86		8,628

22

     The terms of our remaining governors continued after the 2005 annual meeting of members. In addition to Shannon Johnson, our Board of Governors consists of: Paul Enstad, Terry Little, Doyle Thompson, Steven H. Core, Julie Oftedahl-Volstad, Scott Dubbelde, Myron Peterson, and Terry Mudgett.

Change in Fiscal Year

     Amendment of our Operating Agreement requires the affirmative vote by the holders of a majority of the outstanding units of the Company. The members voted to approve the change in fiscal year by the following vote:

For	Against		Abstain
20,595		35		75

Change in the Company’s Legal Name

     Amendment of the Company’s articles of organization requires the affirmative vote by the holders of a majority of the outstanding units of the Company. The members voted to approve the change in the Company’s legal name by the following vote:

For	Against		Abstain
20,635		10		60

Item 5. Other Information.

     None.

Item 6. Exhibits. The following exhibits are included herein:

Exhibit No.	Exhibit
3.1	Amended and Restated Articles of Organization of the Company dated May 10, 2005.
3.2	Amendment to the Fifth Amended and Restated Operating and Member Control Agreement of the Company dated April 28, 2005.
31.1	Certificate Pursuant to 17 CFR 240.13a-14(a).
31.2	Certificate Pursuant to 17 CFR 240.13a-14(a).
32.1	Certificate Pursuant to 18 U.S.C. § 1350.
32.2	Certificate Pursuant to 18 U.S.C. § 1350.

SIGNATURES

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

	GRANITE FALLS ENERGY, LLC
	/s/ Thomas Branhan
August 15, 2005	Thomas Branhan
	Chief Executive Officer and General Manager
	/s/ Michael Nealon
August 15, 2005	Michael Nealon
	Chief Financial Officer and Controller

23

EX-3.1

Exhibit 3.1

[Handwritten “20191-LLC”] [Handwritten “LLC-CN”] [Barcode: 13490240002]

	MINNESOTA SECRETARY OF STATE
	AMENDMENT OF ARTICLES OF
[The Great Seal of Minnesota]	ORGANIZATION FOR A
	LIMITED LIABILITY COMPANY
	MINNESOTA STATUES CHAPTER 322b

PLEASE TYPE OR PRINT IN BLCK INK.

Before Completing this Form Please Read the Instructions on the Back. FILING FEE $35.00

1. Name of Company:
Granite Falls Community Ethanol Plant, LLC

List the name of this company prior to filing this amendment.

AMENDMENT OPTIONS: The articles of organization for this Limited Liability Company are amended. COMPLETE AS MANY AMENDMENT OPTIONS AS APPLY. COMPLETE AN OPTION ONLY IF YOU ARE CHANGING THE INFORMATION RELATED TO THAT OPTION.

2. The company name is changed to: (see instructions in No.2 on the reverse side prior to completing)
Granite Falls Energy, LLC

3. The registered office address is changed to:

		MN
Complete Street Address or Rural Route and Rural Route Box Number	City	State	ZIP Code
(P.O. Box is Unacceptable)

4. The registered agent is changed to: 5. The duration, in years, of the articles of organization is changed to:

6. Business mailing address: (if different from registered office address)

          Address City State ZIP Code

7. The articles of organization are otherwise amended as follows:
	[Stamped: State of Minnesota/ Department of State /Filed May 10, 2005/ Mary Kiffmeyer/ Secretary of State]

This amendment has been approved pursuant to Minnesota States Chapter 322B. I certify that I am authorized to execute this amendment and I further certify that I understand that by signing this amendment, I am subject to the penalties of perjury as set forth in Minnesota Statues Section 609.48 as if I had signed this amendment under oath.
Original Signature        /s/ Thomas E. Branhan

Name and telephone number of contact person for this LLC Thomas Branhan    (302) 564-3110)
Buss66 Rev. 3-03
[Handwritten “Holds AN1l-989902-2”]

EX-3.2

Exhibit 3.2

FIRST AMENDMENT TO THE FIFTH AMENDED AND RESTATED
OPERATING AND MEMBER CONTROL AGREEMENT OF
GRANITE FALLS COMMUNITY ETHANOL PLANT, LLC

     THIS FIRST AMENDMENT TO THE FIFTH AMENDED AND RESTATED OPERATING AND MEMBER CONTROL AGREEMENT OF GRANITE FALLS COMMUNITY ETHANOL PLANT, LLC dated August 12, 2004 (the “Operating Agreement”) is adopted and approved effective as of the 28th day of April, 2005, by the affirmative vote the holders of a majority of the outstanding Membership Units of Granite Falls Community Ethanol Plant, LLC pursuant to Section 322B.37 of the Minnesota Statutes and pursuant to Section 8.1 of the Operating Agreement of the Company at a Meeting of the Members held on April 28, 2005.

     The Operating Agreement is amended as follows:

Amendment to Section 1.7 Section 1.7 is amended by deleting Section 1.7 in its entirety and substituting in lieu thereof the following:

1.7 “Company” shall mean Granite Falls Energy, LLC, a Minnesota limited liability company, as such limited liability company may from time to time be constituted, or any successor in interest for such limited liability company.

Amendment to Section 2.8 Section 2.8 is amended by deleting Section 2.8 in its entirety and substituting in lieu thereof the following:

2.8 Fiscal Year. The fiscal year of the Company shall begin on November 1st of each year and end on October 31st of each year. The fiscal year in which the Company shall terminate shall end on the date of termination of the Company.

     I, Julie Oftedahl-Volstad, do hereby certify that I am the duly elected, qualified, and acting Secretary of the Company, and further certify that the above amendment was duly adopted by a majority of the members of the Company at a meeting of the members held on April 28, 2005, in accordance with the provisions of the Company’s Operating Agreement.

          /s/ Julie Oftedahl-Volstad

Julie Oftedahl-Volstad, Secretary

APPROVED:

          /s/ Paul Enstad

Paul Enstad, Chairman

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)
(SECTION 302 CERTIFICATION)

I, Thomas Branhan, certify that:

1.	I have reviewed this quarterly report on Form 10-QSB of Granite Falls Energy, LLC;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Granite Falls Energy, LLC, as of, and for, the periods presented in this report;
4.	Granite Falls Energy, LLC’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Granite Falls Energy, LLC, and have:

a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Granite Falls Energy, LLC, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of Granite Falls Energy, LLC’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any changes in Granite Falls Energy, LLC’s internal control over financial reporting that occurred during Granite Falls Energy, LLC’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Granite Falls Energy, LLC’s internal control over financial reporting.

5. Granite Falls Energy, LLC’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Granite Falls Energy, LLC’s auditors and the audit committee of Granite Falls Energy, LLC’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Granite Falls Energy, LLC’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in Granite Falls Energy, LLC’s internal controls over financial reporting.

Date: August 15, 2005	/s/ Thomas Branhan
	President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)
(SECTION 302 CERTIFICATION)

I, Michael Nealon, certify that:

1.	I have reviewed this quarterly report on Form 10-QSB of Granite Falls Energy, LLC;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Granite Falls Energy, LLC, as of, and for, the periods presented in this report;
4.	Granite Falls Energy, LLC’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Granite Falls Energy, LLC, and have:

a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Granite Falls Energy, LLC, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of Granite Falls Energy, LLC’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any changes in Granite Falls Energy, LLC’s internal control over financial reporting that occurred during Granite Falls Energy, LLC’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Granite Falls Energy, LLC’s internal control over financial reporting.

5. Granite Falls Energy, LLC’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Granite Falls Energy, LLC’s auditors and the audit committee of Granite Falls Energy, LLC’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Granite Falls Energy, LLC’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in Granite Falls Energy, LLC’s internal controls over financial reporting.

Date: August 15, 2005	/s/ Michael Nealon
	Chief Financial Officer (Principal Financial
	Officer)

EX-32.1

Exhibit 32.1

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 on Form 10-QSB of Granite Falls Energy, LLC (the “Company”) for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas Branhan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

          /s/ Thomas Branhan

President and Chief Executive Officer

Dated: August 15, 2005

EX-32.2

Exhibit 32.2

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 on Form 10-QSB of Granite Falls Energy, LLC (the “Company”) for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Nealon, Chief Financial Officer and Controller, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

      /s/ Michael Nealon

Controller and Chief Financial Officer

Dated: August 15, 2005