Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2007

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

For the transition period from ______________________ to _______________________

Commission File Number: 000-51764

LINCOLNWAY ENERGY, LLC

(Exact name of registrant as specified in its charter)

Iowa	20-1118105
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

59511 W. Lincoln Highway, Nevada, Iowa	50201
(Address of principal executive offices)	(Zip Code)

515-382-8899

(Registrant's telephone number, including area code)

N/A

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 42,049 membership units outstanding at February 1, 2008.

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer þ		Smaller Reporting Company o

LINCOLNWAY ENERGY, LLC

FORM 10-Q

For the Quarter Ended December 31, 2007

INDEX

			Page
Part I.	Financial Information

	Item 1.	Unaudited Financial Statements
		a) Balance Sheets	2
		b) Statements of Operations	4
		c) Statements of Cash Flows	5
		d) Notes to Unaudited Financial Statements	7

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 4T.	Controls and Procedures	27

Part II.	Other Information

	Item 1.	Legal Proceedings	28
	Item 1A.	Risk Factors	29
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
	Item 3.	Defaults Upon Senior Securities	29
	Item 4.	Submission of Matters to a Vote of Security Holders	30
	Item 5.	Other Information	30
	Item 6.	Exhibits	30

Signatures

Exhibits Filed With This Report
	Rule 13a-14(a) Certification of President and Chief Executive Officer	E-1
	Rule 13a-14(a) Certification of Chief Financial Officer	E-2
	Section 1350 Certification of President and Chief Executive Officer	E-3
	Section 1350 Certification of Chief Financial Officer	E-4

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements.

Lincolnway Energy, LLC

Balance Sheets

	December 31, 2007			September 30, 2007
	Unaudited
ASSETS (Note 4)

CURRENT ASSETS
Cash and cash equivalents	$	2,191,427		$	7,856,908
Certificate of deposit		-			428,050
Due from broker		3,732,915			845,169
Trade and other accounts receivable (Note 6)		4,235,404			2,475,593
Inventories (Note 3)		3,946,708			3,671,529
Prepaid expenses and other		137,184			162,215
Derivative financial instruments (Note 7)		-			514,464
Total current assets		14,243,638			15,953,928

PROPERTY AND EQUIPMENT
Land and land improvements		6,969,637			6,966,137
Buildings and improvements		1,587,836			1,587,836
Plant and process equipment		73,456,175			73,319,932
Construction in progress		25,042			92,513
Office furniture and equipment		334,626			332,986
		82,373,316			82,299,404
Accumulated depreciation		(12,703,457	)		(10,681,642	)
		69,669,859			71,617,762

OTHER ASSETS
Restricted cash (Note 4)		351,000			351,000
Financing costs, net of amortization of $91,174 and $80,448		380,787			391,514
Deposit		504,753			504,753
Investments		2,000			2,000
		1,238,540			1,249,267

	$	85,152,037		$	88,820,957

See Notes to Unaudited Financial Statements.

	December 31, 2007		September 30, 2007
	(Unaudited)
LIABILITIES AND MEMBERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	1,082,281	$	1,772,703
Accounts payable, related party (Note 5)		814,985		169,088
Current maturities of long-term debt (Note 4)		2,550,565		1,323,346
Accrued expenses		671,257		726,008
Derivative financial instruments (Note 8)		2,384,543		117,475
Total current liabilities		7,503,631		4,108,620

LONG-TERM DEBT, less current maturities (Note 4)		23,485,804		24,743,372

COMMITMENTS AND CONTINGENCY (Notes 5, 6 and 8)

MEMBERS’ EQUITY
Member contributions, net of issuance costs, 42,049
units issued and outstanding		38,990,105		38,990,105
Retained earnings		15,172,497		20,978,860
		54,162,602		59,968,965

	$	85,152,037	$	88,820,957

Lincolnway Energy, LLC

Statements of Operations

	Three Months			Three Months
	Ended			Ended
	December 31, 2007			December 31, 2006
	(Unaudited)

Revenues (Note 6)	$	26,311,275		$	28,068,165

Cost of goods sold		25,701,696			12,005,233

Gross profit		609,579			16,062,932

General and administrative expenses		765,529			643,031

Operating income (loss)		(155,950	)		15,419,901

Other income (expense):
Interest income		81,723			101,772
Interest expense		(476,011	)		(691,761	)
Other		-			26,012
		(394,288	)		(563,977	)

Net income (loss)	$	(550,238	)	$	14,855,924

Weighted average units outstanding		42,049			42,859

Net income (loss) per unit - basic and diluted	$	(13.09	)	$	346.62

See Notes to Unaudited Financial Statements.

Lincolnway Energy, LLC

Statements of Cash Flows

	Three Months			Three Months
	Ended			Ended
	December 31, 2007			December 31, 2006
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(550,238	)	$	14,855,924
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization		2,039,391			2,015,666
Loss of disposal of property and equipment		26,239			-
Changes in working capital components:
Decrease in prepaid expenses and other		25,031			51,414
(Increase) in trade and other accounts receivable		(1,759,811	)		(541,783	)
(Increase) in due from broker		(2,887,746	)		(7,196,209	)
Decrease in derivative financial instruments		2,781,532			2,181,200
(Increase) in inventories		(275,179	)		(1,127,719	)
(Decrease) increase in accounts payable		(700,426	)		301,299
Increase in accounts payable, related party		645,897			397,795
(Decrease) in accrued expenses		(54,751	)		(436,284	)
Net cash provided by (used in) operating activities		(710,061	)		10,501,303

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(96,996	)		(1,075,539	)
Proceeds from redemption of certificate of deposit		428,050			-
Net cash provided by (used in) investing activities		331,054			(1,075,539	)

CASH FLOWS FROM FINANCING ACTIVITIES
Member distributions		(5,256,125	)		(6,428,850	)
Proceeds from long-term borrowings		-			153,707
Payments on long-term borrowings		(30,349	)		(1,263,125	)
Net cash (used in) financing activities		(5,286,474	)		(7,538,268	)

Net increase (decrease) in cash and cash equivalents		(5,665,481	)		1,887,496

CASH AND CASH EQUIVALENTS
Beginning		7,856,908			4,731,873
Ending	$	2,191,427		$	6,619,369

(Continued)

Lincolnway Energy, LLC

Statements of Cash Flows (Continued)

	Three Months		Three Months
	Ended		Ended
	December 31, 2007		December 31, 2006
	(Unaudited)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest, net of
amount capitalized	$	487,429	$	766,408

SUPPLEMENTAL DISCLOSURES OF NONCASH OPERATING
AND FINANCING ACTIVITIES
Construction in progress included in accounts payable	$	10,004	$	61,210
Property and equipment rebate included in accounts receivable		-		284,622

See Notes to Unaudited Financial Statements.

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

Note 1.

Nature of Business and Significant Accounting Policies

Principal business activity: Lincolnway Energy, LLC (the Company), located in Nevada, Iowa, was formed in May 2004 to pool investors to build a 50 million gallon annual production dry mill corn-based ethanol plant. The Company began making sales on May 30, 2006 and became operational during the quarter ended June 30, 2006.

Basis of presentation and other information:

The consolidated balance sheet as of September 30, 2007 was derived from the Company’s audited balance as of that date. The accompanying financial statements as of and for the three months ended December 31, 2007 and 2006 are unaudited and reflect all adjustments(consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto, for the year ended September 30, 2007 contained in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year.

Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Income taxes: The Company is organized as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, the Company’s 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.

Earnings per unit: Basic and diluted earnings per unit have been computed on the basis of the weighted average number of units outstanding during each period presented.

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

Note 2.

Members’ Equity

The Company was formed on May 19, 2004. It was initially capitalized by the issuance of 1,924 membership units totaling $962,000 to the founding members of the Company. The Company has one class of membership units. A majority of the Board of Directors owns a membership interest in the Company. The Company is authorized to issue up to 45,608 membership units without member approval.

Income and losses are allocated to all members based on their pro rata ownership interest. All unit transfers are effective the last day of the month. Units may be issued or transferred only to persons eligible to be members of the Company and only in compliance with the provisions of the operating agreement.

Note 3.

Inventories

Inventories consist of the following as of:

	December 31,		September 30,
	2007		2007

Raw materials, including corn, coal, chemicals and supplies	$	1,189,025	$	1,277,700
Work in process		1,433,548		1,151,023
Ethanol and distillers grains		1,324,135		1,242,806
Total	$	3,946,708	$	3,671,529

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

Note 4.

Long-Term Debt

Long-term debt consists of the following as of:

	December 31, 2007			September 30, 2007

Construction term loan. (A)	$	22,750,000		$	22,750,000

Construction/revolving term loan. (C)		-			-

Note payable to contractor, interest-only quarterly payments at 5% due through maturity date of November 2014, secured by real estate and subordinate to financial institution debt commitments. (B )		1,216,781			1,216,781

Note payable to contractor, unsecured, interest-only quarterly payments at 4% due through maturity date of May 2021		1,250,000			1,250,000

Note payable to Iowa Department of Economic Development. (D)		265,000			272,500

Note payable to Iowa Department of Economic Development. (D)		100,000			100,000

Note payable to Iowa Department of Transportation. (E)		454,588			477,437

		26,036,369			26,066,718
Less current maturities		(2,550,565	)		(1,323,346	)
	$	23,485,804		$	24,743,372

(A)

The Company has a construction and term loan with a financial institution. Borrowings under the term loan include a variable interest rate based on prime less .05%. The agreement requires 30 principal payments of $1,250,000 per quarter commencing in December 2006 through March 2014, with the final installment due May 2014. The agreement requires the maintenance of certain financial and nonfinancial covenants. Borrowings under this agreement are collateralized by substantially all of the Company’s assets. As of December 31, 2007 the Company has been allowed to make prepayments of $16,250,000 without any penalty.

(B)

The Company has a $1,100,000 subordinate note payable dated November 17, 2004 to an unrelated third party. Quarterly interest payments began on March 31, 2007. The third party allowed the Company to include the accrued interest of $116,781 through December 2006 into the principal of the note. Principal is due in full at maturity on November 17, 2014.

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

(C)

The Company has a $10,000,000 construction/revolving term credit facility with a financial institution which expires on March 1, 2015. Borrowings under the credit facility agreement include a variable interest rate based on prime less .05% for each advance under the agreement. Borrowings are subject to borrowing base restrictions as defined in the agreement. The credit facility and revolving credit agreement require the maintenance of certain financial and nonfinancial covenants. Borrowings under this agreement are collateralized by substantially all of the Company’s assets. There was no balance outstanding as of December 31, 2007.

On July 3, 2007 the $351,000 revolving credit agreement was cancelled. This agreement was for the benefit of a letter of credit that was required by an unrelated third party to lease rail cars. An amendment was made to the lease agreement on June 19, 2007, that allowed the Company to purchase a certificate of deposit for $351,000 in lieu of the letter of credit that is pledged as collateral on the railcar lease. The Company has classified this certificate of deposit as restricted cash in other assets.

(D)

The Company also has a $300,000 loan agreement and a $100,000 forgivable loan agreement with the Iowa Department of Economic Development (IDED). The $300,000 loan is noninterest-bearing and due in monthly payments of $2,500 beginning December 2006 and a final payment of $152,500 due November 2012. Borrowings under this agreement are collateralized by substantially all of the Company’s assets and subordinate to the above $39,000,000 financial institution debt and construction and revolving loan/credit agreements included in (A) and (C). The $100,000 loan is forgivable upon the completion of the ethanol production facility and the production of at least 50 million gallons of ethanol before the project completion date of October 31, 2008.

(E)

The Company entered into a $500,000 loan agreement with the Iowa Department of Transportation (IDOT) in February 2005. The proceeds were disbursed upon submission of paid invoices. Interest at 2.11% began accruing on January 1, 2007. Principal payments will be due semiannually through July 2016. The loan is secured by all rail track material constructed as part of the plan construction. The debt is subordinate to the above $39,000,000 financial institution debt and construction and revolving loan/credit agreements included in (A) and (C).

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

Note 5.

Related-Party Transactions

The Company has an agreement with the Heart of Iowa Coop (HOIC), a member of the Company, to provide 100% of the requirement of corn for use in the operation of the ethanol plant. The Company purchased corn totaling $15,996,070 and $10,967,636 for the three months ended December 31, 2007 and 2006, respectively. As of December 31, 2007, the Company has two corn cash contracts with HOIC amounting to approximately 1,140,000 bushels, for a commitment of approximately $4,902,000 and several basis contracts representing approximately 1,325,000 bushels of corn. The contracts mature on various dates through July 2008. The Company also has made some miscellaneous purchases from HOIC (storage fees, fuel, and propane costs) amounting to $109,617 and $33,207 for the three months ended December 31, 2007 and 2006, respectively. As of December 31, 2007 the amount due to HOIC is $757,863.

The Company is also purchasing anhydrous ammonia from Prairie Land Cooperative, a member of the Company. Total purchases for the three months ended December 31, 2007 and 2006 is $114,945 and $103,769, respectively. As of December 31, 2007 the amount due to Prairie Land Cooperative is $57,122. As of December 31, 2007, there was a purchase commitment of $183,000.

Note 6.

Commitments and Major Customer

The Company has an agreement with an unrelated entity and major customer for marketing, selling, and distributing all of the ethanol produced by the Company. Under such pooling arrangements, the Company will pay the entity $.01 (one cent) per gallon for each gallon of ethanol sold. This agreement shall be effective until terminated by 45 days’ written notice. The agreement had an initial 12-month term through June 2007. The parties are currently negotiating a new agreement and are still operating under the terms of the existing agreement. For the three months ended December 31, 2007 and 2006 the Company has expensed $125,915 and $120,762, respectively, under this agreement. Revenues with this customer were $23,745,199 and $24,361,277 for the three months ended December 31, 2007 and 2006, respectively. Trade accounts receivable of $3,619,432 was due from the customer as of December 31, 2007.

The Company had an agreement with an unrelated entity for marketing, selling and distributing all of the distiller’s grains with solubles which are by-products of the ethanol plant. For the three months ended December 31, 2007 and 2006, the Company has expensed marketing fees of $10,672 and $57,937, respectively, under this agreement. Revenues with this customer were $154,758 and $3,706,889 for the three months ended December 31, 2007 and 2006, respectively. There was no trade accounts receivable due from the customer as of December 31, 2007.

The Company has entered into a new agreement with an unrelated entity for marketing, selling and distributing the distiller’s grains as of October 1, 2007. For the three months ended December 31, 2007 and 2006, the Company has expensed marketing fees of $66,529 and $0, respectively, under this agreement. Revenues with this customer were $4,447,622 and $0 for the three months ended December 31, 2007 and 2006, respectively. Trade accounts receivable of $551,944 was due from the customer as of December 31, 2007.

The Company has an agreement with an unrelated party to provide the coal supply for the ethanol plant. For the three months ended December 31, 2007 and 2006 the Company has purchased $1,167,438 and $1,104,620, respectively, of coal under this contract.

The Company has entered into one variable contract with a supplier of denaturant. The variable contract is for a minimum purchase of 270,000 gallons at the national gasoline daily average plus $.23/usg. The term of the contract is from January 1, 2008 through March 31, 2008. The total future purchase commitment is $635,850. For the three months ended December 31, 2007 and 2006, the Company purchased $540,193 and $809,773, respectively, of denaturant.

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

Note 7.

Risk Management

The Company’s activities expose it to a variety of market risks, including the effects of changes in commodity prices. These financial exposures are monitored and managed by the Company as an integral part of its overall risk management program. The Company’s risk management program focuses on the unpredictability of commodity markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.

The Company maintains a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market fluctuations. The Company’s specific goal is to protect the Company from large moves in the commodity costs.

To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange-traded futures and options contracts to minimize its net position of merchandisable agricultural commodity inventories and forward purchases and sales contracts. In April 2007, the Company started entering into derivative contracts to hedge the exposure to price risk as it relates to ethanol sales. Exchange traded futures and options contracts are designated as non-hedge derivatives and are valued at market price with changes in market price recorded in operating income through cost of goods sold for corn derivatives and through revenue for ethanol derivatives.

The effects on operating income from derivative activities is as follows:

	Three Months			Three Months
	Ended			Ended
	December 31, 2007			December 31, 2006

Increase (decrease) in revenue due to derivatives related to ethanol sales:
Realized	$	(524,623	)	$	-
Unrealized		(1,553,414	)		-
Total effect on revenue		(2,078,037	)		-

(Increase) decrease in cost of goods sold due to derivates related to corn costs:
Realized		(54,819	)		7,843,513
Unrealized		(431,344	)		(867,988	)
Total effect on cost of goods sold		(486,163	)		6,975,525

Total increase (decrease) to operating income due to derivative activities	$	(2,564,200	)	$	6,975,525

Unrealized gains and losses on forward contracts, in which delivery has not occurred, are deemed “normal purchases and normal sales” under FASB No 133, as amended, and therefore are not marked to market in the Company’s financial statements.

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

Note 8.

Contingency

The Company needs to maintain various permits to be able to maintain and continue its operations. The permits include water and air permits from the Iowa Department of Natural Resources. The Company has obtained these permits, but on December 4, 2007, the Iowa Environmental Protection Commission referred alleged environmental law violations by the Company to the Iowa Attorney General's office for enforcement action. The referred allegations concern wastewater releases relating to construction activities and exceedences of iron and total suspended solid limits in the Company’s NPDES wastewater discharge permit, and concern air permitting, emission limit exceedences, stack testing, monitoring and reporting. Lincolnway Energy will attempt to reach a negotiated settlement of all allegations. The Company cannot predict the outcome, however it is likely that settlement will include a monetary penalty, although an amount cannot be predicted at this time. Such monetary penalty could have a material adverse effect on the Company’s operations and financial condition.

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement on Forward Looking Statements and Industry and Marketing Data

Various discussions and statements in this Item and other sections of this quarterly report are or contain forward looking statements that express Lincolnway Energy's current beliefs, projections and predictions about future events. All statements other than statements of historical fact are forward looking statements, and include statements with respect to financial results and condition; anticipated future trends in business, revenues or net income; projections concerning operations, capital needs and cash flow; investment, business, growth, expansion and acquisition opportunities and strategies; management's plans and intentions for the future; competitive position; and other forecasts, projections and statements of expectation. Words such as "expects," "anticipates," "estimates," "plans," "may," "will," "contemplates," "forecasts," "future," "strategy," "potential," "predicts," "projects," "prospects," "possible," "continue," "hopes," "intends," "believes," "seeks," "should," "could," "thinks," "objectives" and other similar expressions or variations of those words or those types of words help identify forward looking statements. Forward looking statements involve and are subject to various risks, uncertainties and assumptions. Forward looking statements are necessarily subjective and are made based on numerous and varied estimates, projections, views, beliefs, strategies and assumptions made or existing at the time of such statements and are not guarantees of future results or performance. Lincolnway Energy disclaims any obligation to update or revise any forward looking statements based on the occurrence of future events, the receipt of new information, or otherwise. Lincolnway Energy cannot guarantee Lincolnway Energy's future results, performance or business conditions, and strong reliance must not be placed on any forward looking statements.

Actual future performance, outcomes and results may differ materially from those suggested by or expressed in forward looking statements as a result of numerous and varied factors, risks and uncertainties, some that are known and some that are not, and many of which are beyond the control of Lincolnway Energy and Lincolnway Energy's management. It is not possible to predict or identify all of those factors, risks and uncertainties, but they include inaccurate assumptions or predictions by management, the accuracy and completeness of the publicly available information upon which part of Lincolnway Energy's business strategy is based and all of the various factors, risks and uncertainties discussed in this Item and in Item 1A of Part II of this quarterly report and the following:

Overcapacity within the ethanol industry;

Actual ethanol, distillers grains and corn oil production varying from expectations;

Availability and costs of products and raw materials, particularly corn and coal;

Changes in the price and market for ethanol and distillers grains;

Lincolnway Energy's ability to market, and Lincolnway Energy's reliance on third parties to market, Lincolnway Energy's ethanol and distillers grains;

Railroad and highway access for receipt of corn and coal and outgoing distillers grains and ethanol;

Changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices, such as national, state or local energy policy; federal or state ethanol tax incentives; or environmental laws and regulations that apply to Lincolnway Energy's plant operations and their enforcement;

Changes in the weather or general economic conditions impacting the availability and price of corn and coal;

Total U.S. consumption of gasoline;

Weather changes, strikes, transportation or production problems causing supply interruptions or shortages affecting the availability and price of coal;

Fluctuations in oil and gasoline prices;

Changes in plant production capacity or technical difficulties in operating Lincolnway Energy's plant;

Changes in Lincolnway Energy's business strategy, capital improvements or development plans;

Results of Lincolnway Energy's hedging strategies;

Changes in interest rates or the availability of credit;

Lincolnway Energy's ability to generate free cash flow to invest in Lincolnway Energy's business and service Lincolnway Energy's debt;

Lincolnway Energy's liability resulting from any litigation or governmental proceedings;

Plant reliability;

Lincolnway Energy's ability to retain key employees and maintain labor relations;

Changes and advances in ethanol production technology; and

Competition from other ethanol suppliers and from alternative fuels and alternative fuel additives.

Lincolnway Energy may have obtained industry, market and competitive position data used in this quarterly report from Lincolnway Energy's own research, internal surveys and from studies conducted by other persons, trade or industry associations or general publications and other publicly available information. A trade or industry association for the ethanol industry may present information in a manner that is more favorable to the ethanol industry than would be presented by an independent source. Independent industry publications and surveys also generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of any information. Forecasts are in all events likely to be inaccurate, especially over long periods of time, and in particular in a relatively new and rapidly developing and expanding industry such as the ethanol industry.

Overview

Lincolnway Energy is an Iowa limited liability company that was organized on May 19, 2004 for the purpose of constructing and operating a corn based fuel grade ethanol plant in Nevada, Iowa. Since May 22, 2006, Lincolnway Energy has been engaged in the production of ethanol and distillers grains. As of June 22, 2006, Lincolnway Energy's ethanol plant passed performance testing and became fully operational. Lincolnway Energy anticipates producing approximately 50 to 55 million gallons of denatured ethanol for the fiscal year ended September 30, 2008.

Lincolnway Energy's revenues are derived from the sale and distribution of its ethanol and distillers grains throughout the United States and Mexico. Lincolnway Energy's ethanol is marketed by Renewable Products Marketing Group. Lincolnway Energy's distillers grain is marketed by Hawkeye Gold, LLC.

Lincolnway Energy expects to fund its operations during the next 12 months using cash flow from continuing operations. Lincolnway Energy also has revolving lines of credit available.

Executive Summary

Highlights for the three months ended December 31, 2007, are as follows:

Total revenues decreased 6.3%, or $1.8 million, compared to the 2006 comparable period.

Total cost of goods sold increased 114%, or $13.7 million, compared to the 2006 comparable period.

Net loss was $550,238 for the 2007 period, compared to net income of $14.9 million for the 2006 period.

Ethanol sold was 12.6 million gallons, an increase of 4% or .5 million gallons, compared to the 2006 comparable period.

Plan of Operations

Lincolnway Energy's primary focus over the next 12 months will be concentrated on operating the ethanol plant as efficiently as possible and pursuing cost-effective purchasing of important inputs such as corn and various ingredients. Lincolnway Energy is currently trying out new yeasts, looking at the effect of highly fermentable corn on yields and plans to try different enzymes and new plant optimization technology. Lincolnway Energy is also working with a third party on extracting crude corn oil from Lincolnway Energy's syrup. Lincolnway Energy is planning on installing a second centrifuge for extracting oil. The new centrifuge should be installed sometime in February. When the system is fully installed it will give Lincolnway Energy the capability of producing up to 4 gallons per minute of crude corn oil. At this time the third party contractor who is partnering with Lincolnway Energy on this project will be purchasing the oil.

Air Permit Testing

As discussed in Lincolnway Energy's Form 10-K for the fiscal year ended September 30, 2007, the Iowa Environmental Protection Commission referred alleged environmental law violations by Lincolnway Energy to the Iowa Attorney General's office for enforcement action on December 4, 2007. The referred allegations concern wastewater releases relating to construction activities and exceedences of iron and total suspended solid limits in Lincolnway Energy's NPDES wastewater discharge permit and concern air permitting, emissions limit exceedences, stack testing, monitoring and reporting. There have been no material developments regarding that matter since Lincolnway Energy's filing of its Form 10-K for the fiscal year ended September 30, 2007 with the Securities and Exchange Commission on December 21, 2007.

Water Permit Testing

Over the last quarter, Lincolnway Energy’s water test results during the three months ended December 31, 2007 on iron content show full compliance with Lincolnway Energy’s NPDES permit.

Results of Operations

The following table shows the results of operations and the percentages of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the three months ended December 31, 2007 and 2006:

	Three Months Ended						Three Months Ended
	December 31, 2007						December 31, 2006
	(unaudited)						(unaudited)

Income Statement Data	Amount			%			Amount			%

Revenues	$	26,311,275			100.0		$	28,068,165			100.0
Cost of goods sold		25,701,696			97.7			12,005,233			42.8
Gross profit		609,579			2.3			16,062,932			57.2
General and administrative expenses		765,529			2.9			643,031			2.3
Operating income (loss)		(155,950	)		(.6	)		15,419,901			54.9
Other income (expense)		(394,288	)		(1.5	)		(563,977	)		(2.0	)
Net Income (loss)	$	(550,238	)		(2.1	)	$	14,855,924			52.9

The following table shows other key data for the periods presented:

	Three Months Ended December 31,
	2007			2006
	(unaudited)			(unaudited)

Operating Data:

Ethanol sold (gallons)		12,591,515			12,076,191
Average gross price of ethanol sold (dollars per gallon)	$	1.89		$	2.02
Average dry distillers grain sales price per ton		151.00			97.00
Average corn cost per bushel		3.54			2.45

Other Financial Data:

EBIDA (1)	$	1,954,438		$	17,552,625
Net cash provided (used) by operating
activities	$	(710,061	)	$	10,501,303

(1)

EBIDA is defined as earnings before interest expense, depreciation and amortization. Amortization of debt issuance costs are included in interest expense. We have excluded taxes from EBIDA since we do not incur income taxes as a partnership.

Non-GAAP Financial Measures

This Item includes financial information prepared in accordance with accounting principles generally accepted in the U.S., or GAAP, as well as another financial measure, EBIDA, that is considered a “non-GAAP financial measure.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The presentation of EBIDA information is intended to supplement investor’s understanding of our operating performance and liquidity. Furthermore, this measure EBIDA information is not intended to replace net income, or any other measure of performance under GAAP, or to replace cash flows from operating, investing or financing activities as a measure of liquidity.

We believe that EBIDA is useful to investors and management in evaluating our performance in relation to other companies in our ethanol industry because the calculation of EBIDA generally eliminates the effects of financing which may vary for different companies for reasons unrelated to overall operating performance. EBIDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of the limitations of EBIDA are:

· EBIDA does not reflect our cash used for capital expenditures;

· Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBIDA does not reflect the cash requirements for replacements; and

· EBIDA does not reflect the cash necessary to make payments of interest or principal on our indebtedness.

Because of these limitations, EBIDA should not be considered as a measure of discretionary cash available to us to service our debt or to invest in the growth of our business. We compensate for these limitations by relying on our GAAP results, as well as on our EBIDA.

The following table reconciles our EBIDA to net income (loss) for the periods presented (dollars in thousands):

	Three Months Ended December 31,
	2007			2006
	(unaudited)			(unaudited)

Net income (loss)	$	(550	)	$	14,856
Depreciation and Amortization		2,039			2,016
Interest expense		465			681
EBIDA	$	1,954		$	17,553

Results of Operations for the Three Months Ended December 31, 2007 as Compared to the Three Months Ended December 31, 2006

Revenues. Revenues decreased by $1.8 million, or 6.3% to $26.3 million for the three months ended December 31, 2007 from $28.1 million for the three months ended December 31, 2006. The decrease in total revenues was primarily the result of a combined unrealized and realized loss of $2.1 million on ethanol derivatives for the three months ended December 31, 2007.

Sales from ethanol decreased $.6 million, or 2.5%, to $23.7 million for the three months ended December 31, 2007 from $24.4 million for the three months ended December 31, 2006. The average price of ethanol sold was $1.89 per gallon for the three months ended December 31, 2007 compared to $2.02 per gallon for the three months ended December 31, 2006. Ethanol sales increased .5 million gallons, or 4.3% for the three months ended December 31, 2007 from when compared to the three months ended December 31, 2006.

Sales from co-products increase by .9 million, or 24%, to $4.6 million for the three months ended December 31, 2007 from $3.7 million for the three months ended December 31, 2006. The average price of dried distillers grain sold was $151.00 per ton for the three months ended December 31, 2007, compared to $97.00 for the prior comparable period. Dried distillers grain sales decreased by 9,491 tons, or 25.2% for the three months ended December 31, 2007 from when compared to the three months ended December 31, 2006. Wet distillers grain sales increased by 8,681 tons, or 544% for the three months ended December 31, 2007 from December 31, 2006. For the three months ended December 31, 2007 there were reported sales for excess syrup and corn oil of $42,000. There were no sales for these co products for the three months ended December 31, 2006.

Revenues included a combined unrealized and realized loss of $2.1 million related to our ethanol derivative instruments for the three months ended December 31, 2007. Lincolnway Energy did not hold any ethanol derivative instruments for the three months ended December 31, 2006. As ethanol prices fluctuate, the value of our ethanol-related derivative instruments are impacted, which effects our financial performance. Lincolnway Energy expects the volatility in these derivative instruments to continue to have an impact on revenues due to the timing of changes in value of derivative instruments relative to our sales. These instruments are the primary tools of Lincolnway Energy’s risk management program for ethanol revenues.

Cost of goods sold. Cost of goods sold increased by $13.7 million, or 114% to $25.7 million for the three months ended December 31, 2007 from $12.0 million for the three months ended December 31, 2006. The increase was primarily due to higher corn cost in the 2007 period compared to the 2006 period. Cost of goods sold major components are: corn costs, process chemicals, denaturant, coal costs, electricity, production labor, repairs and maintenance, and depreciation.

Corn costs increased $12.6 million to $16.6 million for the three months ended December 31, 2007 from $4.0 million for the three months ended December 31, 2006. Corn costs represented 65% of our cost of goods sold for the three months ended December 31, 2007 compared to 34% for the three months ended December 31, 2006.

The increase in corn costs is partially driven by an increase in cash corn prices compared to the prior period. The 2007 corn costs also included a marked to market loss of $.5 million for derivatives relating to future deliveries of corn. For the 2006 period we had a $7.0 million marked to market gain, resulting in a $7.5 million increase in corn costs for the 2007 period due to marked to market adjustments. Since our derivative contracts are marked to market each quarter, the benefits of this risk management tool can cause corn costs to be volatile from quarter to quarter due to the timing of the change in value of the positions relative to the cost and use of the corn commodity being hedged. Corn prices have increased significantly from $ 4.165 per bushel in January 2007 for March 2007 delivery to $ 5.19 per bushel in January 2008 for March 2008 delivery.

Corn prices have risen significantly since the first quarter of fiscal year 2006. A decrease of 4-5 bushels in the 07/08 yield, residual feed increased 300 million, carryout dropped 300-500 million to 1.44 million, world wheat numbers and eroding US stocks are some of the reasons we have seen which override the large corn crop and keep increasing corn prices. Corn is now being viewed as an “energy commodity” as opposed to strictly a “grain commodity” due to increased exposure of ethanol both at the national and international level. This increased exposure has placed upward pressure on corn prices. The expected increase in the price of corn will, however, cause our cost of goods sold to increase and, as a result, our gross profit and net income may decline.

Ethanol freight costs increased $.3 million to $1.9 million for the three months ended December 31, 2007 from $1.6 million for the three months ended December 31, 2006. The increase is due to a 12% increase in the average freight rate per gallon due to an increase in rail rates and also an additional volume of ethanol shipped for the period.

General and administrative expenses. General and administrative expenses increased $.2 million to $.8 million for the three months ended December 31, 2007 from $.6 million for the three months ended December 31, 2006. The increase is primarily the result of increased management costs related to compliance with security laws, to support our public company status, including consulting costs relating to SOX Section 404 compliance. Lincolnway Energy is required to be in compliance as of September 30, 2008. We also anticipate continuing higher expenses as a public company as a result of additional legal and corporate governance expense because Lincolnway Energy is a reporting company under the Securities Exchange Act of 1934.

Other income and (expense). Interest expense decreased $.2 million to $.5 million for the three months ended December 31, 2007 from $.7 million for the three months ended December 31, 2006. Our variable interest rate on our construction and term loan with Co-Bank has decreased 1% to 7.2% as of December 31, 2007 from 8.2% as of December 31, 2006. We also have paid down our debt by $7.5 million since December 31, 2006.

Liquidity and Capital Resources

The following table summarizes our sources and uses of cash and cash equivalents from our unaudited statement of cash flows for the periods presented (in thousands):

	Three Months Ended December 31,
	2007			2006
	(unaudited)			(unaudited)

Net cash provided by (used in) operating activities	$	(710	)	$	10,501
Net cash provided by (used in) investing activities		331			( 1,076	)
Net cash (used in) financing activities		(5,286	)		( 7,538	)
Net increase (decrease) in cash and cash equivalents	$	(5,665	)	$	1,887

For the three months ended December 31, 2007, net cash used by operating activities decreased by $11.2 million, when compared to cash provided by operating activities for the three months ended December 31, 2006. The decrease is primarily due to a decrease in net income for the three months ended December 31, 2007 of $15.4 million, offset by a $4.3 million decrease in due from broker for hedging accounts.

Cash flows used in investing activities reflect the impact of property and equipment acquired for the ethanol plant and proceeds from investments. Net cash provided by investing activities increased by $1.4 million for the three months ended December 31, 2007 compared to cash used in investing activities for the three months ended December 31, 2006. The increase is due to proceeds received from a redemption of a certificate of deposit offset by a reduction of property and equipment purchases for the plant.

Cash flows from financing activities include transactions and events whereby cash is obtained from, or paid to, depositors, creditors or investors. Net cash used in financing activities decreased by $2.3 million for the three months ended December 31, 2007 compared to cash used in investing activities for the three months ended December 31, 2006. The decrease is due to a decrease in member distribution payments and payments on long-term borrowings for the three months ended December 31, 2007.

As of December 31, 2007 we had total debt of $26.0 million. $2.6 million is due within one year and is classified as current maturities of long-term debt on the balance sheet. We have a $10.0 million revolving term credit agreement available to us from Co-Bank that we currently have not drawn upon.

Our financial position and liquidity are, and will be, influenced by a variety of factors, including:

· our ability to generate cash flows from operations;

· the level of our outstanding indebtedness and the interest we are obligated to pay; and

· our capital expenditure requirements, which consists primarily of plant improvements to improve efficiencies.

We expect to have available cash to meet our currently anticipated liquidity needs.

Critical Accounting Estimates and Accounting Policies

Lincolnway Energy's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industries in which Lincolnway Energy operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes the following policies are both important to the portrayal of Lincolnway Energy's financial condition and results of operations and require subjective or complex judgments; therefore, management considers the following to be critical accounting policies.

Derivative Instruments

Lincolnway Energy enters into derivative contracts to hedge its exposure to price risk related to forecasted corn needs and forward corn purchase contracts. Lincolnway Energy does not typically enter into derivative instruments other than for hedging purposes. All the derivative contracts are recognized on the December 31, 2007 balance sheet at their fair market value. Although Lincolnway Energy believes its derivative positions are economic hedges, none has been designated as a hedge for accounting purposes. Accordingly, any realized or unrealized gain or loss related to these derivative instruments is recorded in the statement of operations as a component of cost of goods sold for corn derivatives and through revenue for ethanol derivatives.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

In addition to the various risks inherent in Lincolnway Energy's operation, Lincolnway Energy is exposed to various market risks. The primary market risks arise as a result of possible changes in interest rates and certain commodity prices.

Interest Rate Risk

Lincolnway Energy has various outstanding loan agreements and promissory notes which expose Lincolnway Energy to market risk related to changes in the interest rate imposed under those loan agreements and promissory notes.

Lincolnway Energy has loan agreements and/or promissory notes with the following entities, and with the principal balance and interest rates indicated:

	Principal Balance		Interest Rate as of
Lender	as of December 31, 2007		December 31, 2007
Co-Bank	$	22,750,000		7.2%
Other		3,286,369		various fixed rates
	$	26,036,369

The interest rate under all of the loan agreements and promissory notes, other than with CoBank, are fixed at rates ranging from 0% to 5% per annum. The interest rate under all of the CoBank loan agreements is 5/100 of 1% below Co-Bank's prime rate, adjusted .50%, and was at 7.2% per annum as of December 31, 2007. A hypothetical increase of 1% in the interest rates under the CoBank loan agreements would result in additional interest expense of approximately $227,500 per year.

Commodity Price Risk

Lincolnway Energy is also exposed to market risk with respect to the price of ethanol, Lincolnway Energy's principal product, and the price and availability of corn and coal, the principal commodities used by Lincolnway Energy to produce ethanol. The other primary product of Lincolnway Energy is distillers grains, and Lincolnway Energy is also subject to market risk with respect to the price for distillers grains. The prices for ethanol, distillers grains, corn and coal are volatile, and Lincolnway Energy will experience market conditions where the prices Lincolnway Energy receives for its ethanol and distillers grains are declining, but the price Lincolnway Energy pays for its corn, coal and other inputs is increasing. Lincolnway Energy's results will therefore vary substantially over time, and include the possibility of losses, which could be substantial.

In general, rising ethanol and distillers grains prices result in higher profit margins, and therefore represent favorable market conditions. Lincolnway Energy is, however, subject to various material risks factors related to its production of ethanol and distillers grains and the price for ethanol and distillers grains. For example, ethanol and distillers grains prices are influenced by various factors beyond the control of Lincolnway Energy's management, including the supply and demand for gasoline, the availability of substitutes and the effects of laws and regulations.

In general, rising corn prices result in lower profit margins and, accordingly, represent unfavorable market conditions. Lincolnway Energy will generally not be able to pass along increased corn costs to its ethanol customers. Lincolnway Energy is subject to various material risks factors related to the availability and price of corn, many of which are beyond the control of Lincolnway Energy. For example, the availability and price of corn is subject to wide fluctuations due to various unpredictable factors, including weather conditions, crop yields, farmer planting decisions, governmental policies with respect to agriculture and local, regional, national and international trade, demand and supply.

Lincolnway Energy's average gross corn costs during the quarter ended December 31, 2007 was approximately $3.54 per bushel.

During the quarter ended December 31, 2007, corn prices (based on the Chicago Board of Trade daily futures data) ranged from a low of $3.52 per bushel to a high of $4.57 per bushel for March 2008 delivery. As another comparison, delivery month futures ranged from a low of $1.86 per bushel in December 2005 to a high of $5.19 per bushel in January 2008.

All of Lincolnway Energy's ethanol is marketed by Renewable Products Marketing Group under a pooled marketing arrangement, which means that the ethanol Lincolnway Energy produces is pooled with other ethanol producers and marketed by Renewable Products Marketing Group. Lincolnway Energy pays Renewable Products Marketing Group a pooling fee for ethanol delivered to the pool and Renewable Products Marketing Group pays Lincolnway Energy a net back price per gallon that is based on the difference between the pooled average delivered ethanol selling price and the pooled average distribution expense. These averages are calculated based upon each pool participant's selling price and expense averaged in direct proportion to the volume of ethanol supplied by each participant to the pool. As of December 31, 2007, Lincolnway Energy has entered into over the counter ethanol short swaps and long calls to lock in a weighted average price per gallon for 597,000 gallons per month for January, February and March 2008. The 1,791,000 total ethanol gallons hedged represents approximately 3.58% of annual name plate production. Lincolnway Energy also has some price protection in place for April, May and June of 2008 thru short swaps and long calls that net zero gallons.

Lincolnway Energy may from time to time take various cash, futures, options or other positions with respect to its corn needs in an attempt to minimize or reduce Lincolnway Energy's price risks related to corn. Those activities are, however, also subject to various material risks, including that price movements in the cash and futures corn markets are highly volatile and are influenced by many factors and occurrences which are beyond the control of Lincolnway Energy.

Although Lincolnway Energy intends its futures and option positions to accomplish an economic hedge against Lincolnway Energy's future purchases of corn, Lincolnway Energy has chosen not to use hedge accounting for those positions, which would match the gain or loss on the positions to the specific commodity purchase being hedged. Lincolnway Energy is instead using fair value accounting for the positions, which generally means that as the current market price of the positions changes, the realized and unrealized gains and losses are immediately recognized in Lincolnway Energy's costs of goods sold in the statement of operations. The immediate recognition of gains and losses on those positions can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the positions relative to the cost and use of the commodity being hedged. For example, Lincolnway Energy's net loss on derivative financial instruments that was included in its cost of goods sold for the three months ended December 31, 2007 was $486,163, as opposed to the net gain of $6,975,525 for the three months ended December 31, 2006.

The extent to which Lincolnway Energy may enter into arrangements with respect to its ethanol or corn during the year may vary substantially from time to time based on a number of factors, including supply and demand factors affecting the needs of customers to purchase ethanol or suppliers to sell Lincolnway Energy raw materials on a fixed basis, Lincolnway Energy's views as to future market trends, seasonable factors and the cost of future contracts.

Lincolnway Energy's cost per ton for coal under its current coal supply agreement is subject to various fixed and periodic adjustments based on factors which are outside of the control of Lincolnway Energy's management, including based on changes in certain inflation type indices, increases in transportation costs and the quality of coal. Lincolnway Energy's coal costs will therefore vary, and the variations could be material. Coal costs represented approximately 5% of Lincolnway Energy's cost of goods sold for the three months ended December 31, 2007.

Item 4T.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Lincolnway Energy's management, under the supervision and with the participation of Lincolnway Energy's president and chief executive officer and Lincolnway Energy's chief financial officer, have evaluated the effectiveness of Lincolnway Energy's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Based on that evaluation, Lincolnway Energy's president and chief executive officer and Lincolnway Energy's chief financial officer have concluded that, as of the end of the period covered by this quarterly report, Lincolnway Energy's disclosure controls and procedures have been effective to provide reasonable assurance that the information required to be disclosed in the reports Lincolnway Energy files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) accumulated and communicated to management, including Lincolnway Energy's principal executive and principal financial officers or persons performing such functions, as appropriate, to allow timely decisions regarding disclosure. Lincolnway Energy believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control Over Financial Reporting

No change in Lincolnway Energy's internal control over financial reporting occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, Lincolnway Energy's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

Except as set forth noted in the following paragraph, as of the date of this quarterly report, Lincolnway Energy was not aware of any material pending legal proceeding to which Lincolnway Energy was a party or of which any of Lincolnway Energy's property was the subject, other than ordinary routine litigation, if any, that was incidental to Lincolnway Energy's business. Except as set forth noted in the following paragraph, as of the date of this quarterly report, Lincolnway Energy was not aware that any governmental authority was contemplating any proceeding against Lincolnway Energy or any of Lincolnway Energy's property.

On December 4, 2007, as discussed in Lincolnway Energy’s Form 10-K for the fiscal year ended September 30, 2007, the Iowa Environmental Protection Commission referred alleged environmental law violations by Lincolnway Energy to the Iowa Attorney General's office for enforcement action on December 4, 2007. The referred allegations concern wastewater releases relating to construction activities and exceedences of iron and total suspended solid limits in Lincolnway Energy's NPDES wastewater discharge permit and concern air permitting, emissions limit exceedences, stack testing, monitoring and reporting. Lincolnway Energy will attempt to reach a negotiated settlement of all allegations. Lincolnway Energy cannot predict the outcome, however it is likely that settlement will include a monetary penalty, although an amount cannot be predicted at this time. Settlement may also include repermitting regarding air emissions and an injunction concerning future activities. If repermitting becomes necessary, Lincolnway Energy could be subject to higher ongoing compliance and operating costs. Counsel for Lincolnway Energy has spoken with the Iowa Attorney General's office about a schedule for negotiating settlement of the allegations, but a timeline has not yet been established. Lincolnway Energy is hopeful that it will be able to reach a settlement of the allegations, but there is no assurance that the allegations will be settled, and Lincolnway Energy cannot predict at this time the outcome of any settlement or other proceedings that may arise out of these allegations. Lincolnway Energy was therefore unable at the time of the preparation of this annual report to determine what effect the proceedings of the Iowa Attorney General will have on Lincolnway Energy, but the outcome (even if through settlement) could have material adverse effects on Lincolnway Energy's business and financial condition. There have been no material developments regarding that matter since Lincolnway Energy’s filing of its Form 10-K for the fiscal year ended September 30, 2007 with the Securities and Exchange Commission on December 21, 2007.

Item 1A.

Risk Factors.

There has been no material change from the risk factors as previously disclosed in Lincolnway Energy's Form 10-K for the fiscal year ended September 30, 2007 and filed with the Securities and Exchange Commission on December 21, 2007. One matter that has changed, however, is that the Energy Independence and Security Act of 2007 was signed into law by President Bush on December 19, 2007, with the Act taking effect on January 1, 2008. The Act does provide support for the ethanol industry, but Lincolnway Energy does not believe that it will have any material effect on Lincolnway Energy's business or financial results or condition in the new term, with the adverse counterveiling factors currently including the high cost of corn.

Recent studies at two universities have suggested that feeding cattle distillers' grains may increase levels of a form of E. coli bacteria in the cattle. The U.S. Department of Agriculture is also conducting tests on this topic. Although Lincolnway Energy does not contemplate any material adverse effects on the market for distillers' grains based on the tests, it is possible that the use of distiller's grains as a feed product could be adversely affected if the tests show a tie between distillers' grains and increases in E. coli bacteria in cattle.

An investment in any membership units of Lincolnway Energy involves a high degree of risk and is a speculative and volatile investment. An investor could lose all or part of his or her investment in any membership units.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Lincolnway Energy did not sell any membership units during the period of October 1, 2007 through December 31, 2007.

None of Lincolnway Energy's membership units were purchased by or on behalf of Lincolnway Energy or any affiliated purchaser (as defined in Rule 10b-18(a)(3) of the Exchange Act) of Lincolnway Energy during the period of October 1, 2007 through December 31, 2007.

Item 3.

Defaults Upon Senior Securities.

There has been no material default in the payment of principal, interest, a sinking or purchase fund installment, or any other material default not cured within thirty days, with respect to any indebtedness of Lincolnway Energy exceeding 5% of the total assets of Lincolnway Energy.

No material arrearage in the payment of dividends or any other material delinquency has occurred with respect to any class of preferred membership units of Lincolnway Energy which is registered or which ranks prior to any class of registered membership units of Lincolnway Energy.

Item 4.

Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of the members of Lincolnway Energy, through the solicitation of proxies or otherwise, during the period of October 1, 2007 through December 31, 2007.

Item 5.

Other Information.

There was no information required to be disclosed in a report on Form 8-K during the period covered by this quarterly report which was not reported on a Form 8-K.

There were no material changes during the period of October 1, 2007 through December 31, 2007 to the procedures by which the members of Lincolnway Energy may recommend nominees to Lincolnway Energy's board of directors.

Item 6.

Exhibits.

The following exhibits are filed as part of this quarterly report. Exhibits previously filed are incorporated by reference, as noted.

Incorporated by Reference

Exhibit

Filed Herewith;

Period

Filing

Number

Exhibit Description

Page Number

Form

Ending

Exhibit

Date

3.1

Articles of Restatement

10-Q

6/30/07

3.1

8/13/07

3.2

Amended and Restated Operating Agreement and Unit Assignment Policy

10-Q

6/30/07

3.2

8/13/07

*10.1

Design/Build Contract Between Lincolnway Energy, LLC and Fagen, Inc.

10.1

1/27/06

10.2

Master Loan Agreement Between Lincolnway Energy, LLC and Farm Credit Services of America

10.2

1/27/06

10.3

Construction and Term Loan Supplement Between Lincolnway Energy, LLC and Farm Credit Services of America

10.3

1/27/06

10.4	Construction and Revolving Term Loan Supplement Between Lincolnway Energy, LLC and Farm Credit Services of America	10		10.4	1/27/06
10.5	Loan Agreement Between Lincolnway Energy, LLC and Iowa Department of Transportation	10		10.5	1/27/06
10.6	Ethanol Fuel Marketing Agreement Between Lincolnway Energy, LLC and Renewable Products Marketing Group	10		10.6	1/27/06
10.7	Distiller's Grain Marketing Agreement Between Lincolnway Energy, LLC and Hawkeye Gold, LLC	10-K	9/30/07	10.7	12/21/07
10.8	Coal/Energy Consulting Agreement Between Lincolnway Energy, LLC And U.S. Energy	10		10.8	1/27/06
*10.9	Coal Supply Agreement Between Lincolnway Energy, LLC and Williams Bulk Transfer, Inc. See Exhibit 10.9.1 for an amendment to this agreement.	10		10.9	1/27/06
*10.9.1	Amendment Number One to Coal Supply Agreement Between Lincolnway Energy, LLC and Williams Bulk Transfer, Inc.	10-K	9/30/07	10.9.1	12/21/07
10.10	Loan Agreement Between Lincolnway Energy, LLC and Iowa Department of Economic Development	10		10.10	1/27/06

10.11	Amended and Restated Grain Handling Agreement Between Lincolnway Energy, LLC and Heart of Iowa Cooperative		10		10.11	1/27/06
10.13	Industry Track Contract Between Lincolnway Energy, LLC and Union Pacific Railroad		10-Q	6/30/06	10.13	8/14/06

10.14	Denaturant Purchase Agreement Between Lincolnway Energy, LLC and Quadra Energy Trading Inc.		10-K	9/30/06	10.14	12/21/06
31.1	Rule 13a-14(a) Certification of President and Chief Executive Officer	E-1
31.2	Rule 13a-14(a) Certification of Chief Financial Officer	E-2
32.1	Section 1350 Certification of President and Chief Executive Officer	E-3
32.2	Section 1350 Certification of Chief Financial Officer	E-4

*	Material has been omitted pursuant to a request for confidential treatment and such material has been filed separately with the Securities and Exchange Commission.

SIGNATURES

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

	LINCOLNWAY ENERGY, LLC

February 14, 2008	By:	/s/ Richard Brehm
	Name:	Richard Brehm
	Title:	President and Chief
		Executive Officer

February 14, 2008	By:	/s/ Kim Supercynski
	Name:	Kim Supercynski
	Title:	Chief Financial Officer

EXHIBIT INDEX

Exhibits Filed With Form 10-Q

of Lincolnway Energy, LLC

For the Quarter Ended December 31, 2007

Description of Exhibit.				Page

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

		31.1	Rule 13a-14(a) Certification of President and Chief Executive Officer	E-1

		31.2	Rule 13a-14(a) Certification of Chief Financial Officer	E-2

	32.	Section 1350 Certifications

		32.1	Section 1350 Certification of President and Chief Executive Officer	E-3

		32.2	Section 1350 Certification of Chief Financial Officer	E-4

Date: February 14, 2008.	/s/ Richard Brehm
	Name: Richard Brehm
	Title: President and Chief Executive Officer

Date: February 14, 2008.	/s/ Kim Supercynski
	Name: Kim Supercynski
	Title: Chief Financial Officer