GOING CONCERN

12 Months Ended

Oct. 31, 2011

GOING CONCERN

GOING CONCERN

2.   GOING CONCERN

The financial statements have been prepared on a going-concern basis, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.  The Company has previously disclosed losses related to operations related to difficult market conditions and operating performance.  The Company has had instances of unwaived debt covenant violations and had been operating under forbearance agreements with AgStar Financial Services, PCA (“AgStar”).  In addition, the Company’s working capital was at a lower level than desired.  These conditions contributed to the long-term debt with AgStar being classified as current in previously filed financial statements.  These factors and the continual volatile commodity prices raise substantial doubt about the Company’s ability to continue as a going concern.

The Company has continued to make changes to operations of the plant, renegotiated with AgStar, and enhance working capital.  To this end, the Company began converting the plant from a coal-fired ethanol plant to a natural gas plant in October 2011.  This conversion was completed in fiscal 2012.  The Company believes the conversion will reduce production and operating costs, reduce interest costs, and improve operating profitability.  In May 2011, the Company raised an additional $3.5 million from Project Viking, LLC (“Project Viking”) to help finance the natural gas conversion and to improve working capital.  The Company closed on approximately $707,000 of additional equity in November 2011.

In September 2011, the Company entered into a restructured loan agreement with AgStar that superseded and replaced past loan agreements with AgStar including the forbearance agreements.  This restructured loan agreement extends the maturity date of the Company’s long-term debt, maintains and extends the existing available balance on the revolving portion of the long-term debt, and allowed the Company to reclassify the debt to long-term.  As part of this restructured loan agreement, the Company repaid the revolving line of credit with AgStar in September 2011.  The repayment of the revolving line of credit was done as part of the change in ethanol and distillers marketers to Gavilon, LLC (“Gavilon”) in September 2011 as described in Note 14.  In addition to assuming responsibility for marketing the ethanol and distillers products for the Company, Gavilon will assist the Company with certain risk management activities.

While the Company believe these changes will improve the operating performance of the plant, provide additional working capital, and reduce the effects on our plant of volatility in the industry, it is not yet certain as to whether these efforts and changes will be successful.