Lincolnway Energy 10Q 2014 Q3 Quarterly report

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	June 30, 2014



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)

515-232-1010

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

þ Yes o No

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.



	Large accelerated filer o	Accelerated filer o

	Non-accelerated filer þ	Smaller reporting company o

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 August 1, 2014.

LINCOLNWAY ENERGY, LLC

FORM 10-Q

For the Quarter Ended June 30, 2014

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	6

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
	Item 4.	Controls and Procedures	22

Part II.	Other Information

	Item 1.	Legal Proceedings	22
	Item 1A.	Risk Factors	23
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
	Item 3.	Defaults Upon Senior Securities	23
	Item 4.	Mine Safety Disclosures	23
	Item 5.	Other Information	23
	Item 6.	Exhibits	24

Signatures			26

Exhibits Filed With This Report
	Rule 13a-14(a) Certification of President and Chief Executive Officer		E-1
	Rule 13a-14(a) Certification of Interim Chief Financial Officer		E-2
	Section 1350 Certification of President and Chief Executive Officer		E-3
	Section 1350 Certification of Interim Chief Financial Officer		E-4
	Interactive Data Files (filed electronically herewith)

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements.

Lincolnway Energy, LLC

Balance Sheets



	June 30, 2014			September 30, 2013
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	14,025,319		$	1,936,800
Derivative financial instruments (Note 8 and 9)	1,516,117			431,476
Trade and other accounts receivable (Note 7)	4,629,719			5,300,204
Inventories (Note 3)	5,535,616			5,342,199
Prepaid expenses and other	407,821			325,880
Total current assets	26,114,592			13,336,559

PROPERTY AND EQUIPMENT
Land and land improvements	6,944,305			6,944,305
Buildings and improvements	1,625,531			1,625,531
Plant and process equipment	81,269,501			79,559,692
Office furniture and equipment	408,572			409,730
Construction in progress	5,062,950			1,185,662
	95,310,859			89,724,920
Accumulated depreciation	(64,229,458		)	(58,859,269		)
Total property and equipment	31,081,401			30,865,651

OTHER ASSETS
Restricted cash	351,000			351,000
Financing costs, net of amortization of $366,754 and $340,453	105,207			131,508
Deposit	—			117,910
Investments	199,184			196,102
Total other assets	655,391			796,520

Total assets	$	57,851,384		$	44,998,730

See Notes to Unaudited Financial Statements.

Lincolnway Energy, LLC

Balance Sheets (continued)



	June 30, 2014		September 30, 2013
	(Unaudited)
LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES
Accounts payable	3,331,525		2,313,615
Accounts payable, related party (Note 6)	437,151		554,478
Current maturities of long-term debt (Note 5)	26,437		52,049
Current settlement payable, related party (Note 6)	425,000		425,000
Accrued expenses	1,694,097		999,460
Total current liabilities	5,914,210		4,344,602

NONCURRENT LIABILITIES
Long-term debt, less current maturities (Note 5)	108,567		135,004
Settlement payable, net of current amount, related party (Note 6)	425,000		850,000
Deferred revenue	933,333		1,000,000
Other	450,000		450,000
Total noncurrent liabilities	1,916,900		2,435,004

COMMITMENTS AND CONTINGENCY (Notes 7 and 10)

MEMBERS' EQUITY
Member contributions, 42,049 units issued and outstanding	38,990,105		38,990,105
Retained earnings (deficit)	11,030,169		(770,981		)
Total members' equity	50,020,274		38,219,124

Total liabilities and members' equity	$	57,851,384	$	44,998,730

Lincolnway Energy, LLC

Statements of Operations



	Three Months Ended						Nine Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
	(Unaudited)						(Unaudited)
Revenues (Notes 2 and 7)	$	38,991,719		$	40,894,385		110,240,856			135,781,429

Cost of goods sold	30,197,217			42,111,656			95,772,846			140,784,344

Gross profit (loss)	8,794,502			(1,217,271		)	14,468,010			(5,002,915		)

General and administrative expenses	988,111			751,843			2,639,235			2,418,085

Operating income (loss)	7,806,391			(1,969,114		)	11,828,775			(7,421,000		)

Other income (expense):
Interest income	5,644			1,097			11,095			2,985
Interest expense	(16,509		)	(41,158		)	(38,720		)	(130,332		)
	(10,865		)	(40,061		)	(27,625		)	(127,347		)

Net income (loss)	$	7,795,526		$	(2,009,175	)	$	11,801,150		$	(7,548,347	)

Weighted average units outstanding	42,049			42,049			42,049			42,049

Net income (loss) per unit - basic and diluted	$	185.39		$	(47.78	)	$	280.65		$	(179.51	)

See Notes to Unaudited Financial Statements.



Lincolnway Energy, LLC	Nine Months Ended			Nine Months Ended
Statements of Cash Flows	June 30, 2014			June 30, 2013
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	11,801,150		$	(7,548,347	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	5,563,697			5,853,993
(Gain) on sale or disposal of property and equipment	(70,367		)	—
Changes in working capital components:
Derivative financial instruments	(1,084,641		)	(195,217		)
Trade and other accounts receivable	670,485			3,888,212
Inventories	(193,417		)	1,172,815
Prepaid expenses and other	(81,941		)	(56,535		)
Deposit	117,910			180,440
Accounts payable	(84,414		)	810,977
Accounts payable, related party	(117,327		)	(17,166		)
Settlement fee payable, related party	(425,000		)	(425,000		)
Deferred revenue	—			1,000,000
Accrued expenses	625,349			251,727
Net cash provided by operating activities	16,721,484			4,915,899

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(4,657,834		)	(151,266		)
Proceeds from sale of equipment	80,000			—
Purchase of investments	(3,082		)	(5,614		)
Net cash (used in) investing activities	(4,580,916		)	(156,880		)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit loan	—			1,350,000
Proceeds from long-term borrowings	—			1,700,000
Payments on long-term borrowings	(52,049		)	(4,987,968		)
Net cash provided by (used in) financing activities	(52,049		)	(1,937,968		)

Net increase in cash and cash equivalents	12,088,519			2,821,051

CASH AND CASH EQUIVALENTS
Beginning	1,936,800			151,824
Ending	$	14,025,319		$	2,972,875

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest	$	34,756		$	107,585

SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Construction in progress included in accounts payable	$	1,102,324		$	—
Construction in progress included in accrued expenses	2,621			—

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 balance sheet as of September 30, 2013 was derived from the Company's audited balance sheet as of that date. The accompanying financial statements as of June 30, 2014 and for the three and nine months ended June 30, 2014 and 2013 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, 2013 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.

Trade accounts receivable: Trade accounts receivable are recorded at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering customers financial condition, credit history and current economic conditions. Receivables are written off when deemed uncollectible. Recoveries of receivables written off are recorded when received. A receivable is considered past due if any portion of the receivable is outstanding more than 90 days. There is no allowance for doubtful account balance as of June 30, 2014 and September 30, 2013.

Inventories: Inventories are stated at the lower of cost or market using the first-in, first-out method. In the valuation of inventories and purchase and sale commitments, market is based on current replacement values except that it does not exceed net realizable values and is not less than net realizable values reduced by allowances for approximate normal profit margin.

Deferred revenue: Deferred revenue represents fees received under a service agreement in advance of services being performed. The related revenue is deferred and recognized as the services are performed over the term of the contract. Deferred revenue is allocated between current and long term portions. The current portion of deferred revenue is included in accrued expenses on the balance sheet.

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.

Net income (loss) per unit: Basic and diluted net income (loss) per unit have been computed on the basis of the weighted average number of units outstanding during each period presented. There were no diluted units for the periods covered.

Fair value of financial instruments: The carrying amounts of cash and cash equivalents, derivative financial instruments, trade and other accounts receivable, accounts payable and accrued expenses approximate fair value. The carrying amount of long-term debt approximates fair value because the interest rates fluctuate with market rates or the fixed rates approximate current rates offered to the Company for debt with similar terms and maturities.

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Note 2. Revenue

Components of revenue are as follows:



	Three Months Ended				Nine Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Ethanol	$	31,119,465	$	30,669,126	$	83,000,282	$	98,809,452
Distillers Grains	6,958,254		9,373,499		24,802,780		34,171,509
Other	914,000		851,760		2,437,794		2,800,468
Total	$	38,991,719	$	40,894,385	$	110,240,856	$	135,781,429

Note 3. Inventories

Inventories consist of the following as of:



	June 30, 2014		September 30, 2013

Raw materials, including corn, coal, chemicals and supplies	$	3,209,805	$	2,737,470
Work in process	929,105		1,063,759
Ethanol and distillers grains	1,396,706		1,540,970
Total	$	5,535,616	$	5,342,199

Note 4. Revolving Credit Loan and Subsequent Event

The Company entered into a master loan agreement with a financial institution on August 21, 2012 and this agreement along with the following supplement was amended on April 17, 2013. One of the supplements of the agreement is a monitored revolving credit loan for up to $8,500,000. The amount available and outstanding under the loan cannot exceed the borrowing base as calculated per the agreement (approximately $6,300,000 as of June 30, 2014). The Company will pay interest monthly on the unpaid balance at a variable rate (adjusted on a weekly basis) based upon the one-month LIBOR index rate plus 3.75%. The Company will also pay a commitment fee on the average daily unused portion of the loan at the rate of .30% per annum, payable monthly. The term of the loan will expire, and the Company must pay all unpaid principal amounts outstanding under the loan, on July 1, 2014. The loan is secured by substantially all assets of the Company and subject to certain financial and nonfinancial covenants as defined in the master loan agreement. There was no outstanding balance as of June 30, 2014 and September 30, 2013.

Subsequent to June 30, 2014, the Company amended and restated the revolving credit supplement with the financial institution. The Company will pay interest monthly on the unpaid balance at a variable rate (adjusted on a weekly basis) based upon the one-month LIBOR index rate plus 3.20%. The term of the loan will expire, and the Company must pay all unpaid principal amounts outstanding under the loan on July 1, 2015.

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

Note 5. Long-Term Debt and Subsequent Event

Long-term debt consists of the following as of:



	June 30, 2014			September 30, 2013

Revolving term loan. (A)	$	—		$	—

Note payable to Iowa Department of Transportation. (B)	135,004			187,053
	135,004			187,053
Less current maturities	(26,437		)	(52,049		)
	$	108,567		$	135,004

(A)

The Company entered into a master loan agreement with a financial institution on August 21, 2012 and this agreement along with the following supplement was amended on April 17, 2013. One of the supplements of the agreement is a revolving term loan available for up to $11,000,000. The Company will pay interest on the unpaid balance at a variable interest rate (adjusted on a weekly basis) based upon the one-month LIBOR index rate plus 4.00%. The Company will also pay a commitment fee on the average daily unused portion of the loan at the rate of .60% per annum, payable monthly. The loan is secured by substantially all assets of the Company and subject to certain financial and nonfinancial covenants as defined in the master loan agreement. The term of the loan will expire, and the Company must pay all unpaid principal amounts outstanding under the revolving term loan, on November 1, 2019.

Subsequent to June 30, 2014, the Company amended and restated the revolving term loan supplement with the financial institution. The Company will pay interest on the unpaid balance at a variable interest rate (adjusted on a weekly basis) based upon the one-month LIBOR index rate plus 3.45%. The Company will also pay a commitment fee on the average daily unused portion of the loan at the rate of .50% per annum, payable monthly.

(B)

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 plant construction. The debt is subordinate to the above financial institution revolving term loan (A) and revolving credit loan (Note 4.)

Note 6. Related-Party Transactions

The Company entered into an agreement on January 24, 2006 with the Heart of Iowa Coop (HOIC), dba Key Cooperative, a member of the Company, to provide 100% of the requirement of corn for use in the operation of the ethanol plant. The agreement could be terminated before the end of the term by providing six months' notice of termination and paying the other party $2,000,000, reduced by $50,000 for each completed year of the agreement.

On April 10, 2012, the Company delivered notice to Key to terminate the Amended and Restated Grain Handling Agreement it held with Key. The termination of the agreement was six months from the date of notice, October 10, 2012. The Company recorded a termination cost of $1,700,000 as required under the agreement, which was expensed for the quarter ending June 30, 2012. Payments of $425,000 will be made annually over a 4 year period with interest at 3.25%, due on October 10 of each year. As of June 30, 2014, $850,000 in principal payments have been made to Key with $850,000 remaining.

On January 10, 2013, the Company began originating its own corn purchasing.

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

The Company purchased corn from Key totaling $3,349,766 and $9,829,017 for the three and nine months ended June 30, 2014, respectively. There were corn purchases of $10,084,927 and $73,106,359 for the three and nine months ended June 30, 2013.

As of June 30, 2014, the Company has several corn cash forward contracts with Key that will be delivered in July 2014. The corn commitment is for 758,142 bushels and totals $3,429,384. The Company has made miscellaneous purchases from Key amounting to $53,112 and $105,207 for the three and nine months ended June 30, 2014, respectively. There were miscellaneous purchases of $13,140 and $54,790, respectively for the three and nine months ended June 30, 2013. As of June 30, 2014 the amount due to Key is $262,186.

For the three and nine months ended June 30, 2014, the Company purchased corn totaling $6,492,536 and $12,870,130 from Heartland Co-op, a member of the Company. For both the three and nine months ended June 30, 2013, the Company purchased corn totaling $875,929 and $4,490,644 from Heartland Coop, respectively. The Company has a corn cash forward contract with Heartland Co-op that will be delivered in September 2014. The corn commitment is for 492,588 bushels and totals $2,152,997. The Company also has a corn basis forward contracts that will mature through May 2014 and total 10,000 bushels. As of June 30, 2014 the amount due to Heartland Co-op is $0.

For the three and nine months ended June 30, 2014, the Company purchased corn totaling $2,887,476 and $13,874,284 from Mid Iowa Cooperative, a member of the Company. For both the three and nine months ended June 30, 2013, the Company made corn purchases for $3,897,395 and $5,492,158, respectively. The Company has a corn cash forward contract with Mid-Iowa that will be delivered in July 2014 for 20,789 bushels and a commitment of $107,061. As of June 30, 2014 the amount due to Mid Iowa Cooperative is $15,448.

The Company purchased corn from other members totaling $2,049,447 and $7,153,250, respectively, for the three and nine months ended June 30, 2014. For both the three and nine months ended June 30, 2013, the Company purchased corn from several other members totaling $1,630,954 and $2,111,495, respectively. As of June 30, 2014, the Company entered into several corn cash forward contracts with several members representing 317,102 bushels and a corn commitment of $1,352,152. These contracts mature at various dates through February 2015. As of June 30, 2014 the amount due to other members is $159,517.

Note 7. Commitments and Major Customers

On January 1, 2013 the Company entered into an agreement with an unrelated entity for marketing, selling and distributing all of the ethanol produced by the Company. Revenues with this customer were $31,161,822 and $83,776,013, respectively, for the three and nine months ended June 30, 2014. Revenues with this customer were $30,669,126 and $64,796,472, respectively, for the three and nine months ended June 30, 2013. Trade accounts receivable of $3,502,559 was due from the customer as of June 30, 2014.

The Company previously had an agreement with an unrelated entity for marketing, selling and distributing all of the ethanol produced by the Company. This agreement ended December 31, 2012. There were no revenues with this customer for both the three and nine months ended June 30, 2014. Revenues with this customer were none and $34,012,975, for the three and nine months ended June 30, 2013. There was no trade accounts receivable due from the customer as of June 30, 2014.

The Company entered into an agreement on January 1, 2014 with an unrelated entity for marketing, selling and distributing the distillers grains. Revenues with this customer were $6,958,254 and $9,223,317, respectively, for the three and nine months ended June 30, 2014, There were no revenues with this customer for the three and nine months ended June 30, 2013. Trade accounts receivable of $729,381 was due from the customer as of June 30, 2014.

The Company previously had an agreement with an unrelated entity for marketing, selling and distributing the distillers grains. This agreement ended December 31, 2013. Revenues with this customer were $0 and $15,579,463, respectively for the three and nine months ended June 30, 2014. Revenues with this customer were $9,373,499 and $34,171,509, respectively for the three and nine months ended June 30, 2013.

The Company entered into an agreement on January 1, 2013 with an unrelated party to provide the coal supply for the ethanol plant. The agreement expires on January 1, 2015. The agreement is subject to a minimum purchase requirement. For the calendar year 2014 the estimated purchase commitment totals $2.7 million.

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

_____________________________________________________________________________________________________

As of June 30, 2014, the Company had purchase commitments for corn forward contracts with various unrelated parties, at a corn commitment total of approximately $4.67 million. These contracts mature at various dates through October 2014.

On April 17, 2013, the Company entered into a Main Extension and Gas Transportation Agreement with an unrelated party. The agreement is part of the Company's long-term plan to convert the energy source for its ethanol plant from coal to natural gas. The unrelated party will construct and own a pipeline that will be utilized to transport natural gas to the Company's ethanol plant. The total estimated cost of the construction of the gas pipeline to the Company is $3.6 million. The Company will pay that amount to the unrelated party through a monthly fee that is payable over a 10 year term of the Agreement. Completion of the pipeline is estimated to be the first quarter of calendar year 2015.

The Company also assigned a $3.1 million irrevocable standby letter of credit to the unrelated party discussed in the previous paragraph to stand as security for the Company's obligation under the Agreement. The letter of credit will be reduced over time as the Company makes its payments under the Main Extension and Gas Transportation Agreement.

On December 19, 2013, the Company signed an agreement with ICM, Inc. for the procurement and installation of a package boiler and Regenerative Thermal Oxidizer (RTO) at the Company's ethanol facility. The purchase price is approximately $7 million. Approximately $4 million has been paid. The remaining balance of approximately $3 million will be paid as invoiced over the course of the completion of the project. October 2014 is the estimated completion date for the project.

On June 14, 2014, the Company entered into an agreement with an unrelated party for an oil separation process. The purchase price is approximately $2.4 million. The Company has paid $10,000 and there is approximately $983,000 included in Accounts Payable. The project is expected to be completed in February 2015.

Note 8. 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. 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 Company treats all contracts with the same counterparty on a net basis on the balance sheet.

Derivatives not designated as hedging instruments are as follows:



	June 30, 2014			September 30, 2013
Derivative assets - primarily corn contracts	$	1,052,214		$	193,060
Derivative liabilities - corn contracts	(159,721		)	(394,699		)
Cash held by broker	623,624			633,115
Total	$	1,516,117		$	431,476

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

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements



	Three Months Ended						Nine Months Ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Decrease in revenue due to derivatives related to ethanol sales:
Realized gain (loss)	$	(27,300	)	$	—		$	(760,673	)	$	—
Unrealized gain (loss)	(15,057		)	—			(15,057		)	—
Total effect on revenue	(42,357		)	—			(775,730		)	—

(Increase) decrease in cost of goods sold due to derivatives related to corn costs:
Realized gain (loss)	380,099			(858,225		)	158,376			132,491
Unrealized gain (loss)	904,512			502,613			907,550			79,750
Total effect on cost of goods sold	1,284,611			(355,612		)	1,065,926			212,241

Total gain (loss) due to derivative activities	$	1,242,254		$	(355,612	)	$	290,196		$	212,241

Unrealized gains and losses on forward contracts, in which delivery has not occurred, are deemed “normal purchases and normal sales”, and therefore are not marked to market in the Company's financial statements but are subject to a lower of cost or market assessment.

Note 9. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:



Level 1 -	Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 -	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
Level 3 -	Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company's financial assets and financial liabilities carried at fair value.

Derivative financial instruments: Commodity futures and exchange-traded commodity options contracts are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

CME and NYMEX markets. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the over-the-counter markets.

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 and September 30, 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:



	June 30, 2014
	Total		Level 1		Level 2		Level 3
Assets, derivative financial instruments	$	1,052,214	$	1,052,214	$	—	$	—

Liabilities, derivative financial instruments	159,721		159,721		—		—

	September 30, 2013
	Total		Level 1		Level 2		Level 3
Assets, derivative financial instruments	$	193,060	$	193,060	$	—	$	—

Liabilities, derivative financial instruments	394,699		394,699		—		—

Note 10. Contingency

In May 2010, a lawsuit was filed against the Company and approximately twenty other ethanol plants, design firms and equipment manufacturers by an unrelated party claiming the Company's operation of the corn oil extraction system is infringing at least one patent. The plaintiff seeks injunctive relief, an award of damages with interest and any other remedies available under certain patent statutes or otherwise under law. The Company is currently defending the lawsuit with legal counsel and has asserted various defenses including that it does not infringe and, further, that the patents are invalid. The Company is unable to determine at this time if the lawsuit will have a material adverse effect on the Company.

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

Cautionary Statement on Forward Looking Statements and Industry and Market 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, forecasts, 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 trends in business, revenues, net income, net profits or net losses; projections concerning ethanol prices, corn prices, gas prices, operations, capital needs and cash flow; investment, business, growth, joint venture, expansion, acquisition and divestiture opportunities and strategies; management's plans or intentions for the future; competitive position or circumstances; and other forecasts, projections, predictions 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 material 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. Forecasts and projections are also in all events likely to be inaccurate, at least to some degree, and especially over long periods of time. Forecasts and projections are also currently difficult to make with any degree of reliability or certainty given the difficult and uncertain political, financial, market, economic and other circumstances and uncertainties in existence at the time of the preparation of this quarterly report, both generally and with respect to the ethanol industry, and both in the United States and internationally. 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 or undue 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 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 elsewhere in this quarterly report and in Items 1A, 7 and 7A of Lincolnway Energy's Annual Report on Form 10-K for the fiscal year ended September 30, 2013.

Lincolnway Energy may have obtained industry, market, competitive position and other data used in this quarterly report or Lincolnway Energy's general business plan from Lincolnway Energy's own research or surveys, studies conducted by other persons and/or trade or industry associations or general publications and other publicly available information. Lincolnway Energy attempts to utilize third party sources of information that Lincolnway Energy believes to be materially complete, accurate, balanced and reliable, but there is no assurance of the accuracy, completeness or reliability of any third party information. For example, 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. Industry publications and surveys and other publicly available information also generally state that they have obtained information from sources believed to be accurate and reliable, but do not guarantee the accuracy and completeness of any information.

General Overview

Lincolnway Energy is an Iowa limited liability company that operates a dry mill, coal fired ethanol plant located in Nevada, Iowa. Lincolnway Energy has been processing corn into fuel grade ethanol and distillers grains at the ethanol plant since May 22, 2006. The ethanol plant is permitted to produce up to 57.7 million gallons of ethanol per year.

Lincolnway Energy's ethanol is marketed by Eco-Energy, LLC. Lincolnway Energy's distillers grains were marketed by Hawkeye Gold, LLC until December 31, 2013, at which time the distillers grains began to be marketed by Gavilon Ingredients, LLC. Lincolnway Energy's revenues are derived primarily from the sale of its ethanol and distillers grains.

Lincolnway Energy extracts corn oil from the syrup that is generated in the production of ethanol. Lincolnway Energy's corn oil is marketed by FEC Solutions, L.L.C.

EPCO Carbon Dioxide Products, Inc. has a plant located on Lincolnway Energy's site that collects the carbon dioxide gas that is produced as part of the fermentation process and converts that raw carbon dioxide gas into liquid carbon dioxide. EPCO also markets and sells the liquid carbon dioxide.

Lincolnway Energy does not anticipate that sales of corn oil and carbon dioxide gas will be material sources of revenue for Lincolnway Energy, but Lincolnway Energy was able to implement the processes to collect corn oil and carbon dioxide gas on an economical basis. Lincolnway Energy does not have significant operating or other costs related to those processes.

DuPont Danisco Cellulosic Ethanol, LLC ("DDCE") purchased approximately 59.05 acres of real estate from Lincolnway Energy in October, 2011. The real estate is located to the southwest of the real estate on which Lincolnway Energy's ethanol plant is located. DDCE is in the process of building a cellulosic ethanol plant on the real estate.

Lincolnway Energy and DDCE also entered into a Load Out Services Agreement. The Load Out Services Agreement provides, in general, that DDCE will construct an aboveground pipeline from DDCE's plant to a holding tank on Lincolnway Energy's property, and that Lincolnway Energy will load out DDCE's product at Lincolnway Energy's rail or truck facilities. The Load Out Services Agreement sets forth the various fees and other amounts that DDCE will pay to Lincolnway Energy for those services, as well as allocating various costs and expenses between Lincolnway Energy and DDCE. The Load Out Services Agreement provides that if it is terminated, then Lincolnway Energy will grant DDCE an easement for the purpose of DDCE constructing its own rail tracks, and that Lincolnway Energy and DDCE will also at that time enter into a track usage agreement that will address how Lincolnway Energy and DDCE will jointly use certain tracks of Lincolnway Energy and other related matters.

Lincolnway Energy does not anticipate that the revenues under the Load Out Services Agreement will be a material source of revenue for Lincolnway Energy, but Lincolnway Energy believes that it will be able to provide the services required under the

Load Out Services Agreement without materially increasing its operating or other costs.

Lincolnway Energy expects to fund its operations during the next 12 months using cash flow from continuing operations and the revolving line of credit that is available to Lincolnway Energy.

Executive Summary

Highlights for the three months ended June 30, 2014, are as follows:

•Total revenues decreased 4.7% or $1.9 million, compared to the 2013 comparable period.

•Total cost of goods sold decreased 28.3% or $11.9 million, compared to the 2013 comparable period.

•Net income increased by about $9.8 million to a net income of $7.8 million, compared to net loss of $2.0 million for the 2013 comparable period.

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 Lincolnway Energy's statement of operations for the three and nine months ended June 30, 2014 and 2013 (dollars in thousands):



	Three Months Ended June 30,									Nine Months Ended June 30,
	(Unaudited)									(Unaudited)
Income Statement Data	2014				2013					2014				2013

Revenue	$38,992		100.0	%	$40,894			100.0	%	$110,241		100.0	%	$135,781			100.0	%
Cost of goods sold	30,197		77.4	%	42,111			103.0	%	95,773		86.9	%	140,784			103.7	%
Gross profit (loss)	8,795		22.6	%	(1,217		)	(3.0	)%	14,468		13.1	%	(5,003		)	(3.7	)%
General and administrative expenses	988		2.5	%	752			1.8	%	2,639		2.4	%	2,418			1.8	%
Operating income (loss)	7,806		20.1	%	(1,969		)	(4.8	)%	11,829		10.7	%	(7,421		)	(5.5	)%
Other net expense	(11	)	—	%	(40		)	(0.1	)%	(28	)	—	%	(127		)	(0.1	)%
Net income (loss)	$7,796		20.1	%	$	(2,009	)	(4.7	)%	$11,801		10.7	%	$	(7,548	)	(5.4	)%

Results of Operations for the Three Months Ended June 30, 2014 as Compared to the Three Months Ended June 30, 2013

Revenues. Total revenues decreased by 4.7% for the three months ended June 30, 2014 from the three months ended June 30, 2013. While ethanol sales increased by1.6% sales from co-products decreased by 23.0% for the three months ended June 30, 2014 from the three months ended June 30, 2013. The change in ethanol revenue was a result of a 6.4% decrease in the price per gallon received more than offsetting a 8.4% increase in volume for the three months ended June 30, 2014, when compared to the three months ended June 30, 2013.

Sales from co-products decreased by 23.0% for the three months ended June 30, 2014 from the three months ended June 30, 2013. Co-products include dried distillers grains, wet distillers grains, corn oil, syrup and CO2. A decrease in the volume of dried distillers grains sold and the decrease in price generated the co-product decrease for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The average price per ton of dried distillers grain sold decreased by 17.8% for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. The decrease in dried distillers grains price is attributable to lower corn prices and the lower demand for distillers grains in the China market. Dried distillers grain sales volume decreased by 10.5% for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. Dried distillers grain tons sold decreased due to railcar constraints, which caused higher unit inventory levels, and reduced DDG yields during the three months ended June 30, 2014 from the three months ended June 30, 2013.

Cost of goods sold. Cost of goods sold decreased by 28.3% for the three months ended June 30, 2014 from the three months ended June 30, 2013. Costs decreased primarily due to lower corn costs, lower repairs and maintenance costs, and decreased DDG freight expense when compared to the same quarter in the prior year. Cost of goods sold includes corn costs, process chemicals, denaturant, coal costs, electricity, production labor, repairs and maintenance, and depreciation.

Corn costs decreased by 33.8% for the three months ended June 30, 2014 from the three months ended June 30, 2013. The three months ended June 30, 2014 corn costs also included a $1.3 million marked to market net gain for derivatives relating to corn costs, compared to a $.36 million loss in the same quarter for the prior year. Corn costs represented 71.2% of cost of goods sold for the three months ended June 30, 2014 compared to 75.2% for the three months ended June 30, 2013.

Repairs and maintenance costs decreased by 33.8% for the three months ended June 30, 2014 from the three months ended June 30, 2013. The decrease is due to a large combustor repair that occurred during a scheduled shutdown in the prior year.

Distillers grains freight decreased 100% for the three months ended June 30, 2014 from the three months ended June 30, 2013. The decrease is due to the change in distillers grains marketers. The new DDG marketer prices all contracts freight on board to Lincolnway Energy. The shipping charges are the responsibility of the buyer and netted against the price to Lincolnway Energy, which are recorded in DDG sales.

Results of Operations for the Nine Months Ended June 30, 2014 as Compared to the Nine Months Ended June 30, 2013

Revenues. Revenues decreased by 18.8% for the nine months ended June 30, 2014 from the nine months ended June 30, 2013. There was a decrease in ethanol sales of 16.0% for the nine months ended June 30, 2014 from the nine months ended June 30, 2013. The average price per gallon of ethanol sold decreased 13.6% for the nine months ended June 30, 2014 compared to the nine months ended June 30, 2013. Ethanol sales volume decreased approximately 2.2% for the nine months ended June 30, 2014, when compared to the nine months ended June 30, 2013. The decrease in sales volume in 2014 is due to lower production resulting from an infection, maintenance issues, and railcar restraints.

Sales from co-products decreased by 26.3% for the nine months ended June 30, 2014 from the nine months ended June 30, 2013. Co-products include dried distillers grains, wet distillers grains, corn oil, syrup and CO2. A decrease in the volume of dried distillers grains sold and the decrease in price generated the co-product decrease for the nine months ended June 30, 2014 compared to the nine months ended June 30, 2013. The average price per ton of dried distillers grain sold decreased 21.7% for the nine months ended June 30, 2014, compared to the nine months ended June 30, 2013. The decrease in dried distillers grains price is attributable to lower corn prices. Dried distillers grain sales volume decreased by 8.5% for the nine months ended June 30, 2014, compared to the nine months ended June 30, 2013. Dried distillers grain production decreased for the nine months ended June 30, 2014, due to decreased ethanol production rates during the nine months ended June 30, 2014. For the nine months ended June 30, 2014 reported sales for syrup, corn oil and CO2 decreased 13.0% from the nine months ended June 30, 2013. This was a result of the combination of decreased production and decreased prices from the nine months ended June 30, 2013.

Cost of goods sold. Cost of goods sold decreased by 32.0% for the nine months ended June 30, 2014 from the nine months ended June 30, 2013. Costs decreased primarily due to lower corn costs, lower ingredient costs, decreased coal usage, lower repairs and maintenance and reduced ethanol and distillers grains freight compared to the same quarter in the prior year. Cost of goods sold includes corn costs, process chemicals, denaturant, coal costs, electricity, production labor, repairs and maintenance, and depreciation.

Corn costs decreased by 38.0% for the nine months ended June 30, 2014 from the nine months ended June 30, 2013. The average price of corn per bushel declined 37.2% for the nine months ended June 30, 2014, compared to the nine months ended June 30, 2013. The nine months ended June 30, 2014 corn costs also included a $1.1 million marked to market net gain for derivatives relating to future contracts, compared to a $.21 million gain in the same quarter for the prior year. Corn costs represented 70.9% of cost of goods sold for the nine months ended June 30, 2014 compared to 77.8% for the nine months ended June 30, 2013.

Ingredient costs decreased by 6.4% for the nine months ended June 30, 2014 from the nine months ended June 30, 2013. The decrease is due to a decrease in price for anhydrous, a decrease in the amount of antibiotics used, and a decrease in urea usage that resulted from a change in enzymes.

Coal costs decreased by 5.6% for the nine months ended June 30, 2014 from the nine months ended June 30, 2013 . The decrease is due to four less days of production due to a scheduled shut in April 2014.

Ethanol freight decreased by 100% for the nine months ended June 30, 2014 from the nine months ended June 30, 2013. The decrease is due to a change in pricing for the ethanol contracts. The new ethanol marketer prices all contracts freight on board to Lincolnway Energy. The shipping charges are the responsibility of the buyer and netted against the price to Lincolnway Energy, which are recorded in ethanol sales.

Distillers grains freight decreased by 38.6% for the nine months ended June 30, 2014 from the nine months ended June 30, 2014. The decrease is due to the reduced sales volume of distillers grains sold as well as the change in distillers grains marketers. The new ethanol marketer prices all contracts freight on board to Lincolnway Energy. The shipping charges are a responsibility of the buyer and netted against the price to Lincolnway Energy, which are recorded in distillers grains sales.

Risks, Trends and Factors that May Affect Future Operating Results

During the three months ended June 30, 2014, the ethanol industry experienced improved ethanol margins from the three months ended June 30, 2013 as a result of a combination of factors.

•Corn prices decreased substantially during the three months ended June 30, 2014 as a result of the near record United States corn crop in 2013. For the three months ended June 30, 2014 as compared to the three months ended June 30, 2013, the price per bushel paid was $4.56 and $7.57, respectively.

•The latest estimates of supply and demand provided by the U.S. Department of Agriculture (the “USDA”) forecast 2014 ending corn stocks of over 1.6 billion bushels, suggesting stable to lower corn prices. Lower than normal ethanol stocks continue to have a positive effect on ethanol margins in the three months ended June 30, 2014 compared to the three months ended June 30, 2013.

•Gasoline demand is currently lower than expected and ethanol inventories continue to be tight.

•Continuing decreases in imports of ethanol from foreign producers, principally Brazil which, as of September 30, 2013, represented 98.9% of shipments received in U.S. ports, according to the Renewable Fuels Association.

Lincolnway Energy uses futures and option strategies on the Chicago Mercantile Exchange to hedge some of the risk involved with changing corn prices, as well as the purchase and physical delivery of corn contracts from area farmers and commercial suppliers. Lincolnway Energy incorporates risk management strategies to also cover some of the risk involved with changing ethanol and distillers market prices. Lincolnway Energy continues to monitor the markets and attempts to provide for the adequate supply of corn and protection against rapid price increases for corn and price decreases for ethanol and distillers grains.

Liquidity and Capital Resources

The following table summarizes Lincolnway Energy's sources and uses of cash and cash equivalents from the unaudited statement of cash flows for the periods presented :



	Nine Months Ended June 30,
	(Unaudited)
Cash Flow Data:	2014			2013
Net cash provided by operating activities	$	16,721,484		$	4,915,899
Net cash used in investing activities	(4,580,916		)	(156,880		)
Net cash used in financing activities	(52,049		)	(1,937,968		)
Net increase in cash and cash equivalents	$	12,088,519		$	2,821,051

For the three months ended June 30, 2014, net cash provided by operating activities increased by $11.8 million, when compared to cash provided by operating activities for the three months ended June 30, 2013. The increase in cash provided by operating activities is primarily due to a $19.3 million increase in net income.

Cash flows from investing activities reflect the impact of property and equipment sold and acquired for the ethanol plant. Net cash used in investing activities increased by $4.4 million for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The increase is due to payments to ICM, Inc. for the selective milling technology unit and the gas boiler/regenerative thermal oxidizer (RTO) capital project.

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 $1.9 million for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The decrease is due to a decrease in

debt and the corresponding payments for the three months ended June 30, 2014.

Lincolnway Energy's financial position and liquidity are, and will be, influenced by a variety of factors, including:


•	Lincolnway Energy's ability to generate cash flows from operations;


•	the level of Lincolnway Energy's outstanding indebtedness and the interest Lincolnway Energy is obligated to pay;


•	Lincolnway Energy's capital expenditure requirements, which consists primarily of plant improvements to improve efficiencies; and


•	Lincolnway Energy's margin maintenance requirements on all commodity trading accounts.

Based on the financial projections prepared by management, Lincolnway Energy anticipates that it will have sufficient cash from existing cash, the current credit facility, and cash from operations to continue to operate the ethanol plant for the next 12 months. Management believes that an abundant corn supply will cause corn prices to remain near current levels and a slightly higher supply of ethanol will cause ethanol prices to stay near current levels. Working capital exceeded $20.2 million as of June 30, 2014 and is projected to be in the $18.0 to $21.0 million range through the remaining fiscal year. Management continues to monitor the liquidity position on a weekly basis.

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.

Revenue Recognition

Revenue from the sale of Lincolnway Energy's ethanol and distillers grains is recognized at the time title and all risks of ownership transfer to the marketing company. This generally occurs upon the loading of the product. For ethanol, title passes from Lincolnway Energy at the time the product crosses the loading flange into either a railcar or truck. For railcar shipments, this takes place when the railcar is filled and the marketer receives written notice that the railcars have been loaded and are available for billing. For distillers grains, title passes upon the loading of distillers grains into trucks. Shipping and handling costs incurred by Lincolnway Energy for the sale of ethanol and distillers grain are included in costs of goods sold.

Lincolnway Energy's ethanol production is sold to Eco-Energy, LLC. The purchase price payable to Lincolnway Energy under its agreement with Eco-Energy is the price for the ethanol, less various costs and a fee to Eco-Energy.

Lincolnway Energy's distillers grain production was sold to Hawkeye Gold, LLC until December 31, 2013. The sales price for the distillers grains was Hawkeye Gold's contract selling price for the distillers grains in question, less costs and a marketing fee to Hawkeye Gold.

Lincolnway Energy entered into a Distillers Grain Off-Take Agreement with Gavilon Ingredients, LLC on December 2, 2013, which became effective on January 1, 2014. Under the Agreement, Gavilon is required to purchase all of the distillers grains produced at Lincolnway Energy's ethanol plant. The purchase price will be the corresponding price being paid to Gavilon for the distillers grains in question, less certain logistics costs and a service fee.

Derivative Instruments

Lincolnway Energy enters into derivative contracts to hedge its exposure to price risk related to forecasted corn needs, forward corn purchase contracts and ethanol sales. Lincolnway Energy does not typically enter into derivative instruments other than for hedging purposes. All the derivative contracts are recognized on the June 30, 2014 balance sheet at their fair 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 contracts and as a component of revenue for ethanol contracts.

Unrealized gains and losses on forward contracts, in which delivery has not occurred, are deemed “normal purchases and normal sales”, and therefore are not marked to market in Lincolnway Energy's financial statements but are subject to a lower of cost or market assessment.

Inventories and Lower of Cost or Market

Inventories are stated at the lower of cost or market using the first-in, first-out method. In the valuation of inventories and forward contracts, market is based on current replacement values except that it does not exceed net realizable values and is not less than net realizable values reduced by allowances for approximate normal profit margin.

Off-Balance Sheet Arrangements

Lincolnway Energy currently does not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Commodity Price Risk

Lincolnway Energy is exposed to market risk with respect to the price of ethanol, which is Lincolnway Energy's principal product, and the price and availability of corn and coal, which are 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 may 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 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 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. A sensitivity analysis has been prepared to estimate our exposure to ethanol, corn, and coal price risk. Market risks related to these factors is estimated as the potential change in operating income resulting from a hypothetical 10% adverse change in the fair value of our ethanol price, corn cost, and coal cost as of June 30, 2014. The volumes are based on the expected use and sale of these commodities. The results of this analysis, which may differ from actual results, are as follows:



	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Cost per Unit	Hypothetical Adverse Change in Price as of June 30, 2014	Approximate Adverse Change to Operating Income
Corn	20,388,693	Bushels	$4.49	10%	$	(9,154,523	)
Coal	602,088	MMBTU	$4.62	10%	$	(278,165	)
Ethanol	57,700,000	Gallons	$1.93	10%	$	(11,136,100	)

During the quarter ended June 30, 2014, corn prices based on the Chicago Mercantile Exchange daily futures data ranged from a low of $4.23 per bushel for June 2014 delivery to a high of $4.70 per bushel for June 2014 delivery. The corn prices based on the Chicago Mercantile Exchange daily futures data during the quarter ended June 30, 2013 ranged from a low of $6.42 per bushel for June 2013 delivery to a high of $6.84 per bushel for June 2013 delivery.

During the quarter ended June 30, 2014, ethanol prices based on the Chicago Mercantile Exchange daily futures data ranged from a low of $2.06 per gallon for June 2014 delivery to a high of $2.13 per gallon for June 2014 delivery. The ethanol prices based on the Chicago Mercantile Exchange daily futures data during the three months ended June 30, 2013 ranged from a low of $2.44 per gallon for June 2013 delivery to a high of $2.47 per gallon for June 2013 delivery.

Lincolnway Energy may from time to time take various cash, futures, options or other positions in an attempt to minimize or reduce Lincolnway Energy's price risks related to corn and ethanol. The extent to which Lincolnway Energy enters into such positions may vary substantially from time to time and based on various factors, including seasonal factors and Lincolnway Energy's views as to future market trends. Those activities are, however, also subject to various material risks, including that price movements in the cash and futures corn and ethanol markets are highly volatile and are influenced by many factors and occurrences that are beyond the control of Lincolnway Energy. Lincolnway Energy could incur substantial losses on its cash, futures options

or other positions.

Although Lincolnway Energy intends its futures and option positions to accomplish an economic hedge against Lincolnway Energy's future purchases of corn or futures sales of ethanol, 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 or unrealized gains and losses are immediately recognized in Lincolnway Energy's costs of goods sold in the statement of operations for corn positions or as a component of revenue in the statement of operations for ethanol positions. 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 gain on corn derivative financial instruments that was included in its cost of goods sold for the three months ended June 30, 2014 was $1,284,611, as opposed to the net loss of $355,612 for the three months ended June 30, 2013.

Lincolnway Energy attempts to offset or hedge some of the risk involved with changing corn prices through the trading of futures and options on the Chicago Mercantile Exchange, as well as through purchase and physical delivery contracts from suppliers. As of July 18, 2014, Lincolnway Energy had corn coverage through approximately August 31, 2014. Lincolnway Energy continues to stay at a near neutral corn position due to a lack of ability to lock in profitable ethanol sales margins. Lincolnway Energy continues to monitor and attempt to ensure adequate corn supply and protection against rapid price increases. As noted above those activities are, however, subject to various material risks, including that price movements in the cash corn and corn futures markets are highly volatile and are influenced by many factors and occurrences which are beyond the control of Lincolnway Energy.

Another important raw material for the production of ethanol by Lincolnway Energy is coal. 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 that are outside of the control of Lincolnway Energy's management. The factors include changes in certain inflation type indices, increase in transportation costs and the quality of coal. Lincolnway Energy's coal costs will therefore vary, and the variations could be material. Lincolnway Energy's coal costs for the three months ended June 30, 2014 and 2013 represented approximately 6% and 4%, respectively, of Lincolnway Energy's total cost of goods sold for that period.

Interest Rate Risk

Lincolnway Energy has two loan agreements that can expose Lincolnway Energy to market risk related to changes in the interest rate imposed under the loan agreement.

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



	Principal Balance		Interest Rate
Lender:	As of June 30, 2014		As of June 30, 2014
Farm Credit - revolving credit loan	$	—	3.90%

Farm Credit - revolving term loan	$	—	4.15%

Iowa Department of Transportation	$	135,004	2.11%

The interest rate under the Iowa Department of Transportation loan agreement is fixed at the interest rate specified above. The interest rate on the Farm Credit revolving credit loan is a variable interest rate loan based on the one-month LIBOR index rate plus 3.75%, adjusted weekly. The interest rate on the Farm Credit revolving term loan is a variable interest rate based on the one-month LIBOR index plus 4.0%, adjusted weekly.

Subsequent to June 30, 2014, Lincolnway Energy amended its debt agreements. The revolving credit loan interest rate decreased from 3.75% to 3.25% and the revolving term loan interest rate decreased from 4.00% to 3.45%. The base for both the revolving credit loan and the revolving term loan is still one-month LIBOR. These are detailed in Notes 4 and 5 of the Notes to Financial Statements.

Item 4. 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 interim 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 interim 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.

No 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 noted in the following paragraphs, 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. As of the date of this quarterly report, Lincolnway Energy was not aware that any governmental authority was contemplating any material proceeding against Lincolnway Energy or any of Lincolnway Energy's property.

On May 3, 2010, Lincolnway Energy was sued by GS CleanTech Corporation ("GS CleanTech"), a wholly owned subsidiary of GS (Green Shift) CleanTech Corporation. The lawsuit involves claims by GS CleanTech that it owns proprietary rights related to methods for the separation of corn oil from the by-product stream of the dry mill ethanol manufacturing process and post-oil removal processing methods.

The case was initially filed in United Stated District Court for the Northern District of Iowa as Case No. 5:10-cv-04036.

Shortly after the case was filed, GS CleanTech petitioned the Multi-District Litigation Panel of the Federal Judiciary, and was successful in having Lincolnway Energy's case as well as numerous other cases moved to the United States District Court for the Southern District of Indiana for all pretrial activity. The MDL proceeding is captioned: In re: Method of Processing Ethanol Byproducts and Related Subsystems ('858) Patent Litigation, and has been assigned the following case number: Master Case No. 1:10-ml-2181-LJM-DML.

There have been no material developments regarding this case since the discussion of this case in Lincolnway Energy's Form 10-K for the fiscal year ended September 30, 2013 and filed with the Securities and Exchange Commission on December 19, 2013.

Lincolnway Energy is unable, as of the date of this quarterly report, to determine the likelihood of an unfavorable outcome or the amount or range of a possible loss or whether this lawsuit will have a material adverse affect on Lincolnway Energy. The case has, however, significantly increased Lincolnway Energy's legal costs.

Item 1A. Risk Factors.

There have been no material changes from the risk factors as previously disclosed in Lincolnway Energy's Form 10-K for the fiscal year ended September 30, 2013 and filed with the Securities and Exchange Commission on December 19, 2013.

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 April 1, 2014 through June 30, 2014.

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) during the period of April 1, 2014 through June 30, 2014.

Item 3. Defaults Upon Senior Securities.

No disclosures are required to be made by Lincolnway Energy under this Item.

Item 4. Mine Safety Disclosures.

This Item is not applicable to Lincolnway Energy.

Item 5. Other Information.

There was no information required to be disclosed in a report on Form 8-K during the period of April 1, 2014 through June 30, 2014 which was not reported on a Form 8-K.

There were no material changes during the period of April 1, 2014 through June 30, 2014 to the procedures by which the members of Lincolnway Energy may recommend nominees to Lincolnway Energy's board.

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

Restatement of the Certificate of Organization.

10-K

9/30/2010

3.1

12/21/2010

3.2

Second Amended and Restated Operating Agreement and Unit Assignment Policy. See Exhibit 3.2.1 for an amendment to this Agreement.

10-K

9/30/2010

3.2

12/21/2010

3.2.1

Amendment to Second Amended and Restated Operating Agreement.

8-K

3.2.1

3/6/2013

10.7

Distillers Grain Marketing Agreement Between Lincolnway Energy, LLC and Hawkeye Gold, LLC. See Exhibit 10.7.1 for an amendment to this agreement.

10-K

9/30/2007

10.7

12/21/2007

10.7.1

Amendment to Distillers Grains Marketing Agreement Between Lincolnway Energy, LLC and Hawkeye Gold, LLC.

10-K

9/30/2012

10.7.1

12/21/2012

10.13

Industry Track Contract Between Lincolnway Energy, LLC and Union Pacific Railroad.

10-Q

6/30/2006

10.13

8/14/2006

10.16

Master Loan Agreement and Amendment Among Farm Credit Services of America, FLCA; Farm Credit Services of America, PCA; and Lincolnway Energy, LLC. See Exhibit 10.23 for an amendment to this Agreement.

10-K

9/30/2012

10.16

12/21/2012

10.17

Revolving Term Loan Supplement and Amendment Between Farm Credit Services of America, FLCA and Lincolnway Energy, LLC. See Exhibit 10.24 for an amendment to this Agreement.

10-K

9/30/2012

10.17

12/21/2012

10.18

Monitored Revolving Credit Supplement and Amendment Between Farm Credit Services of America, PCA and Lincolnway Energy, LLC. See Exhibits 10.25 and 10.26 for amendments to this Agreement.

10-K

9/30/2012

10.18

12/21/2012

*10.19

Ethanol Marketing Agreement Between Lincolnway Energy, LLC and Eco-Energy, LLC.

10-Q

12/30/2012

10.19

2/14/2013

*10.20

Coal Supply Agreement Between Lincolnway Energy, LLC and Williams Bulk Transfer, Inc.

10-Q

12/30/2012

10.20

2/14/2013

10.21

Main Extension and Gas Transportation Agreement Between Lincolnway Energy, LLC and Interstate Power and Light Company.

10-Q

3/31/2013

10.21

5/15/2013

**10.22

Employment Agreement Between Lincolnway Energy, LLC and Eric Hakmiller.

10-Q

3/31/2013

10.22

5/15/2013

10.23

Amendment to the Master Loan Agreement Among Farm Credit Services of America, FLCA, Farm Credit Services of America, PCA and Lincolnway Energy, LLC.

10-Q

3/31/2013

10.23

5/15/2013

10.24

Revolving Term Loan Supplement Between Farm Credit Services of America, FLCA and Lincolnway Energy, LLC.

10-Q

3/31/2013

10.24

5/15/2013

10.25

Monitored Revolving Credit Supplement Between Farm Credit Services of America, PCA and Lincolnway Energy, LLC.

10-Q

3/31/2013

10.25

5/15/2013

10.26

Revolving Credit Supplement Between Farm Credit Services of America, PCA and Lincolnway Energy, LLC.

10-Q

3/31/2013

10.26

5/15/2013

*10.27

Distillers Grain Off-Take Agreement Between Lincolnway Energy, LLC and Gavilon Ingredients, LLC.

10-K/A

9/30/2013

10.27

4/23/2014

10.28

Amendment to the Master Loan Agreement Among Farm Credit Services of America, FLCA, Farm Credit Services of America, PCA and Lincolnway Energy, LLC.

10-Q

6/30/2014

10.28

8/13/2014

10.29

Revolving Term Loan Supplement Between Farm Credit Services of America, FLCA and Lincolnway Energy, LLC.

10-Q

6/30/2014

10.29

8/13/2014

10.30

Monitored Revolving Credit Supplement Between Farm Credit Services of America, PCA and Lincolnway Energy, LLC.

10-Q

6/30/2014

10.30

8/13/2014

10.31

Revolving Credit Supplement Between Farm Credit Services of America, PCA and Lincolnway Energy, LLC.

10-Q

6/30/2014

10.31

8/13/2014

31.1

Rule 13a-14(a) Certification of President and Chief Executive Officer.

E-1

��

31.2

Rule 13a-14(a) Certification of Interim Chief Financial Officer.

E-2

32.1

Section 1350 Certification of President and Chief Executive Officer.

E-3

32.2

Section 1350 Certification of Interim Chief Financial Officer.

E-4

101

Interactive Data Files (furnished electronically herewith pursuant to Rule 405 of Regulation S-T

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

Management Contract or Compensatory Plan

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

August 13, 2014	By:	/s/ Eric Hakmiller
	Name: Eric Hakmiller
	Title: President and Chief Executive Officer


August 13, 2014	By:	/s/ Neal Greenberg
	Name: Neal Greenberg
	Title: Interim Chief Financial Officer

EXHIBIT INDEX

Exhibits Filed With Form 10-Q

of Lincolnway Energy, LLC

For the Quarter Ended June 30, 2014



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 Interim 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 Interim Chief Financial Officer	E-4

101	Interactive Data Files ( furnished electronically herewith pursuant to Rule 405 of Regulation S-T)

Positive
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Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

Lincolnway Energy 10-Q2014 Q3 Quarterly report

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