Lincolnway Energy 10-Q 2016 Q2 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	March 31, 2016

or

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 þNo

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 May 16, 2016.

LINCOLNWAY ENERGY, LLC

FORM 10-Q

For the Quarter Ended March 31, 2016

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	13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	24
Part II.	Other Information
	Item 1.	Legal Proceedings	24
	Item 1A.	Risk Factors	25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
	Item 3.	Defaults Upon Senior Securities	25
	Item 4.	Mine Safety Disclosures	25
	Item 5.	Other Information	25
	Item 6.	Exhibits	26
Signatures			27
Exhibits Filed With This Report
	Rule 13a-14(a) Certification of President and Chief Executive Officer		E-1
	Rule 13a-14(a) Certification of Director of Finance		E-2
	Section 1350 Certification of President and Chief Executive Officer		E-3
	Section 1350 Certification of Director of Finance		E-4
	Interactive Data Files (filed electronically herewith)

PART I - FINANCIAL INFORMATION

Item 1.    Unaudited Financial Statements.

Lincolnway Energy, LLC

Balance Sheets

	March 31, 2016			September 30, 2015
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	13,966		$	250
Cash equivalents - repurchase account	—			1,502,248
Derivative financial instruments (Note 8 and 9)	612,452			746,178
Trade and other accounts receivable (Note 7)	3,531,591			3,977,264
Inventories (Note 3)	4,194,390			3,957,973
Prepaid expenses and other	313,873			404,180
Total current assets	8,666,272			10,588,093
PROPERTY AND EQUIPMENT
Land and land improvements	6,982,287			6,982,287
Buildings and improvements	3,019,955			2,978,918
Plant and process equipment	100,821,780			93,371,048
Office furniture and equipment	457,211			455,736
Construction in progress	1,790,220			7,604,320
	113,071,453			111,392,309
Accumulated depreciation	(77,157,871		)	(73,753,905		)
Total property and equipment	35,913,582			37,638,404
OTHER ASSETS
Financing costs, net of amortization of $428,125 and $410,590	43,836			61,371
Other	815,065			777,478
Total other assets	858,901			838,849
Total assets	$	45,438,755		$	49,065,346

See Notes to Unaudited  Financial Statements.

2

Lincolnway Energy, LLC

Balance Sheets (continued)

	March 31, 2016			September 30, 2015
	(Unaudited)
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Checks in excess of bank balance	$	110,930		$	1,656,923
Accounts payable	1,778,924			3,096,317
Accounts payable, related party (Note 6)	443,915			750,768
Current maturities of long-term debt (Note 5)	54,853			54,280
Accrued loss on firm purchase commitments	120,995			—
Accrued expenses	1,126,154			1,262,355
Total current liabilities	3,635,771			6,820,643
NONCURRENT LIABILITIES
Long-term debt, less current maturities (Note 5)	3,750,000			27,571
Deferred revenue	666,667			740,741
Other	450,000			450,000
Total noncurrent liabilities	4,866,667			1,218,312
COMMITMENTS AND CONTINGENCIES (Notes 7)
MEMBERS' EQUITY
Member contributions, 42,049 units issued and outstanding	38,990,105			38,990,105
Retained earnings (deficit)	(2,053,788		)	2,036,286
Total members' equity	36,936,317			41,026,391
Total liabilities and members' equity	$	45,438,755		$	49,065,346

3

Lincolnway Energy, LLC

Statements of Operations

	Three Months Ended						Six Months Ended
	March 31, 2016			March 31, 2015			March 31, 2016			March 31, 2015
	(Unaudited)						(Unaudited)
Revenues (Notes 2 and 7)	$	22,463,582		$	30,168,024		$	46,864,241		$	60,188,987
Cost of goods sold (Note 7)	24,502,618			29,667,066			49,453,901			57,099,539
Gross profit (loss)	(2,039,036		)	500,958			(2,589,660		)	3,089,448
General and administrative expenses	669,318			748,136			1,475,654			1,610,935
Operating income (loss)	(2,708,354		)	(247,178		)	(4,065,314		)	1,478,513
Other income (expense):
Interest income	1,006			4,065			2,313			15,234
Interest expense	(18,020		)	(12,743		)	(27,073		)	(25,704		)
	(17,014		)	(8,678		)	(24,760		)	(10,470		)
Net income (loss)	$	(2,725,368	)	$	(255,856	)	$	(4,090,074	)	$	1,468,043
Weighted average units outstanding	42,049			42,049			42,049			42,049
Net income (loss) per unit - basic and diluted	$	(64.81	)	$	(6.08	)	$	(97.27	)	$	34.91

See Notes to Unaudited Financial Statements.

4

Lincolnway Energy, LLC	Six Months Ended			Six Months Ended
Statements of Cash Flows	March 31, 2016			March 31, 2015
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(4,090,074	)	$	1,468,043
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	3,422,509			4,049,490
Changes in working capital components:
Derivative financial instruments	133,726			(139,676		)
Trade and other accounts receivable	445,673			(2,687,315		)
Inventories	(236,417		)	898,913
Prepaid expenses and other	52,720			(117,167		)
Accounts payable	(145,426		)	335,773
Accounts payable, related party	(306,853		)	(73,952		)
Accrued loss on firm purchase commitments	120,995			—
Accrued expenses and deferred revenue	(291,978		)	(602,544		)
Net cash provided by (used in) operating activities	(895,125		)	3,131,565
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(2,770,416		)	(7,695,022		)
Net cash (used in) investing activities	(2,770,416		)	(7,695,022		)
CASH FLOWS FROM FINANCING ACTIVITIES
Members distributions	—			(13,665,925		)
Proceeds from long term borrowings	3,750,000			—
Payments on long-term borrowings	(26,998		)	(26,437		)
Change in checks in excess of bank balance	(1,545,993		)	—
Net cash provided by (used in) financing activities	2,177,009			(13,692,362		)
Net decrease in cash and cash equivalents	(1,488,532		)	(18,255,819		)
CASH AND CASH EQUIVALENTS
Beginning	1,502,498			22,978,388
Ending	$	13,966		$	4,722,569
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest	$	10,815		$	1,425
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Construction in progress included in accounts payable	$	46,123		$	746,799
Construction in progress included in accrued expenses	84,793			32,508

See Notes to Unaudited  Financial Statements.

5

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 build and operate 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. The Company is directly influenced by commodity markets and the agricultural and energy industries and, accordingly, its results of operations and financial condition may be significantly affected by cyclical market trends and the regulatory, political and economic conditions in these industries.

Basis of presentation and other information: The balance sheet as of September 30, 2015 was derived from the Company's audited balance sheet as of that date.  The accompanying financial statements as of March 31, 2016 and for the three and six months ended March 31, 2016 and 2015 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, 2015 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.

Cash and cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Although the Company maintains its cash accounts in one bank, the Company believes it is not exposed to any significant credit risk on cash and cash equivalents. The Company periodically invests excess cash in a bank overnight reverse repurchase account, which totaled approximately $1.1 million and $1.5 million at March 31, 2016 and September 30, 2015, respectively. In accordance with the terms of the repurchase agreements, the Company does not take possession of the related securities. The agreements also contain provisions to ensure that the market value of the underlying assets remain sufficient to protect the Company in the event of default by the bank by requiring that the underlying securities have a total market value of at least 100% of the bank's total obligations under the agreements.

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 the customer's 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 was no allowance for doubtful account balance as of March 31, 2016 and September 30, 2015.

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 commitments, market is based on net realizable values. For the six months ended March 31, 2016, the Company recognized a loss of approximately $95,449 for a lower of costs or market inventory adjustment. No adjustments to inventory were made for the six months ended March 31, 2015.

Derivative financial instruments:  The Company periodically enters into derivative contracts to hedge the Company’s exposure to price risk related to forecasted corn needs, forward corn purchase contracts and ethanol sales.  The Company does not typically enter into derivative instruments other than for hedging purposes.  All the derivative contracts are recognized on the balance sheet at their fair market value.  Although the Company believes its derivative positions are economic hedges, none have been designated as a hedge for accounting purposes.   Accordingly, any realized or unrealized gain or loss related to corn and natural gas derivatives is recorded in the statement of operations as a component of cost of goods sold.  Any realized or unrealized gain or loss related to ethanol derivative instruments is recorded in the statement of operations as a component of revenue. The Company reports all contracts with the same counter party on a net basis on the balance sheet. 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.   

Revenue recognition:  Revenue from the sale of the Company’s ethanol and distillers grains is recognized at the time title and all risks of ownership transfer to the customers.  This generally occurs upon the loading of the product.  For ethanol, title passes at the time the product crosses the loading flange in either a railcar or truck.  For distillers grain, title passes upon the loading into

6

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

trucks or railcars.    Shipping and handling costs incurred by the Company for the sale of distillers grain are included in costs of goods sold. Ethanol revenue is reported free on board (FOB) and all shipping and handling costs are incurred by the ethanol marketer. Commissions for the marketing and sale of ethanol and distiller grains are included in costs of goods sold.

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 agreement.

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 net income (loss) per unit have been computed on the basis of the weighted average number of units outstanding during each period presented.

7

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Note 2.    Revenues

Components of revenues are as follows:

	Three Months Ended				Six Months Ended
	March 31, 2016		March 31, 2015		March 31, 2016		March 31, 2015
Ethanol, net of hedging gain (loss)	$	17,075,811	$	22,767,894	36,294,463		48,134,120
Distillers Grains	4,190,517		6,501,539		8,191,091		10,502,583
Other	1,197,254		898,591		2,378,687		1,552,284
Total	$	22,463,582	$	30,168,024	$	46,864,241	$	60,188,987

Note 3.    Inventories

Inventories consist of the following:

	March 31, 2016		September 30, 2015
Raw materials, including corn, chemicals and supplies	$	2,802,623	$	3,017,637
Work in process	740,493		662,769
Ethanol and distillers grains	651,274		277,567
Total	$	4,194,390	$	3,957,973

Note 4.    Revolving Credit Loan

The Company has a monitored revolving credit loan, with a bank, for up to $8,500,000. 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 2.9%. The Company will also pay a commitment fee on the average daily unused portion of the loan at the rate of .20% 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, 2016. 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 on the revolving credit loan as of March 31, 2016 and September 30, 2015.

8

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Note 5.    Long-Term Debt

The Company has a revolving term loan, with a bank, 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 3.15%. 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. 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, 2020. There was $3,750,000 and $0 outstanding borrowings on the revolving term loan at March 31, 2016 and September 30, 2015.

Note 6.    Related-Party Transactions

The Company had the following related-party activity with members as of March 31, 2016 and during the three and six months ended March 31, 2016 and 2015:

Corn Commitment:
March 31, 2016
	Corn Forward Purchase Commitment		Basis Corn Commitment (Bushels)	Commitment Through	Amount Due
Related Parties	$	1,367,812	2,210,000	October 2016	$	443,915

Corn Purchased:
	Three Months Ended March 31, 2016		Three Months Ended March 31, 2015		Six Months Ended March 31, 2016		Six Months Ended March 31, 2015
Related Parties	$	10,482,669	$	12,720,392	$	23,202,185	$	23,933,453

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 entity were $17,057,595 and $36,221,353, respectively, for the three and six months ended March 31, 2016. Revenues with this entity were $22,029,408 and $47,789,489, respectively, for the three and six months ended March 31, 2015. Trade accounts receivable of $2,592,495 were due from this entity as of March 31, 2016. As of March 31, 2016, the Company had ethanol unpriced sales commitments with this entity of approximately 15.0 million gallons through December 2016.

The Company entered into an agreement on January 1, 2014 with an unrelated entity for marketing, selling and distributing all of the distillers grains produced by the Company. Revenues with this entity were $4,324,175 and $8,696,218, respectively, for the three and six months ended March 31, 2016. Revenues with this entity were $6,501,539 and $10,502,583, respectively, for the three and six months ended March 31, 2015. Trade accounts receivable of $455,493 were due from this entity as of March 31, 2016. The Company had distillers grain sales commitments with this entity of approximately 1,878 tons, for a total sales commitment of approximately $.2 million through April 2016.

9

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

_____________________________________________________________________________________________________

As of March 31, 2016, the Company had purchased commitments for corn forward contracts with various unrelated parties, at a corn commitment total of approximately $1.2 million. These contracts mature at various dates through January 2017. At March 31, 2016, the Company recorded a reserve and a resulting loss of $120,995 for the losses on forward purchase commitments.

In fiscal 2013, the Company entered into an agreement with an unrelated party for the transportation of natural gas to the Company's ethanol plant. Under the agreement, the Company is committed to future monthly usage fees totaling approximately $3.6 million over the 10 year term which commenced in November 2014. At March 31, 2016 the remaining commitment was approximately $2.7 million. The Company also assigned a $2.7 million irrevocable standby letter of credit to the counter-party 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 payment under the agreement.

As of March 31, 2016, the Company had purchased commitments for natural gas forward contracts with an unrelated party for a total commitment of $383,589. These contracts mature at various dates through December 2016.

On August 19, 2015, the Company entered into an agreement with an unrelated party for the construction of a grain bin. The purchase price is approximately $1 million. Approximately $.8 million has been paid. The remaining balance of approximately $.2 million will be paid as invoiced over the course of the completion of the project in fiscal year 2016.

10

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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 its 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 purchase and sale 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:

	March 31, 2016			September 30, 2015
Derivative assets - corn contracts	$	292,706		$	435,525
Derivative liabilities - corn contracts	(160,725		)	(76,075		)
Derivative liabilities - ethanol contracts	(107,483		)	(110,250		)
Derivative liabilities - natural gas contracts	—			(1,880		)
Cash held by broker	587,954			498,858
Total	$	612,452		$	746,178

11

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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

	Three Months Ended						Six Months Ended
	March 31, 2016			March 31, 2015			March 31, 2016			March 31, 2015
Gains (losses) in revenues due to derivatives related to ethanol sales:
Realized gain (loss)	$	22,575		$	(464,772	)	$	70,343		$	(760,673	)
Unrealized gain (loss)	(4,359		)	70,917			2,767			(15,057		)
Total effect on revenues	18,216			(393,855		)	73,110			(775,730		)
Gains (losses) in cost of goods sold due to derivatives related to corn costs:
Realized gain	481,813			1,082,369			1,033,444			158,376
Unrealized gain (loss)	(367,032		)	(484,881		)	(178,719		)	907,550
Total effect on corn cost	114,781			597,488			854,725			1,065,926
Gains (losses) in cost of goods sold due to derivatives related to natural gas costs:
Realized gain	97,390			—			124,800			—
Total effect on natural gas cost	97,390			—			124,800			—
Total effect on cost of goods sold	$	212,171		$	597,488		$	979,525		$	1,065,926
Total gain due to derivative activities	$	230,387		$	203,633		$	1,052,635		$	290,196

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:

12

Lincolnway Energy, LLC

Notes to Unaudited Financial Statements

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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 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 March 31, 2016 and September 30, 2015, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	March 31, 2016
	Total			Level 1			Level 2		Level 3
Assets, derivative financial instruments	$	292,706		$	292,706		$	—	$	—
Liabilities, derivative financial instruments	$	(268,208	)	$	(268,208	)	$	—	$	—
	September 30, 2015
	Total			Level 1			Level 2		Level 3
Assets, derivative financial instruments	$	435,525		$	435,525		$	—	$	—
Liabilities, derivative financial instruments	$	(188,205	)	$	(188,205	)	$	—	$	—

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

General

The following discussion and analysis provides information which management of Lincolnway Energy, LLC (the “Company”, “we,” “us,” and “our”) believes is relevant to an assessment and understanding of our financial condition and results of operations. This discussion should be read in conjunction with the financial statements included herewith and notes to the financial statementsand our Annual Report on Form 10-K for the year ended September 30, 2015 including the financial statements, accompanying notesand the risk factors contained herein.

Cautionary Statement on Forward-Looking Statements

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Various discussions and statements in this quarterly report are or contain forward-looking statements that express our 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, distillers grain 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," "strategy," "future," "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.

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 the Company and its management.  We cannot guarantee our future results, performance or business conditions, and strong or undue reliance must not be placed on any forward-looking statements, which speak only as of the date of this report. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by the Company include:

• Changes in the availability and price of corn and natural gas;

• Negative impacts resulting from the reduction in the renewable fuel volume requirements under the Renewable Fuel Standard issued by the Environmental Protection Agency;

• Changes in federal mandates relating to the blending of ethanol with gasoline, including, without limitation reductions to, or the elimination of, the Renewable Fuel Standard volume obligations;

• The inability to comply with the covenants and other requirements of our various loan agreements;

• Negative impacts that hedging activities may have on our operations or financial condition;

• Decreases in the market prices of ethanol and distillers grains;

• Ethanol supply exceeding demand and corresponding ethanol price reductions;

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

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

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

• Changes in other federal or state laws and regulations relating to the production and use of ethanol;

• Changes and advances in ethanol production technology;

• Competition from larger producers as well as completion from alternative fuel additives;

• Changes in interest rates and lending conditions of the loan covenants in the Company loan agreements;

• Volatile commodity and financial markets; and

• Negative impacts on distillers grain prices and demand resulting from the Chinese antidumping and countervailing duty investigation.

These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in this report.   Any

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expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed below and in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 and in our other prior Securities and Exchange Commission filings. These and many other factors could affect our future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf.  We undertake no obligation to revise or update any forward-looking statements.  The forward-looking statements contained in this report are included in the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

General Overview

Lincolnway Energy is an Iowa limited liability company that operates a dry mill, natural gas fired ethanol plant located in Nevada, Iowa.  We have been processing corn into fuel grade ethanol and distillers grains at the ethanol plant since May 22, 2006.  Our ethanol plant has a nameplate production capacity of 50,000,000 gallons of ethanol per year.

All of the ethanol we produce is marketed by Eco-Energy, LLC (“Eco-Energy”) and all of our distillers grains are marketed by Gavilon Ingredients, LLC (“Gavilon”). Our revenues are derived primarily from the sale of our ethanol and distillers grains.

We also extract corn oil from the syrup generated in the production of ethanol. We market and distribute all of our corn oil directly to end users and third party brokers within the domestic market.

EPCO Carbon Dioxide Products, Inc. (“EPCO”) has a plant located on the Company’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.

We do not anticipate that sales of corn oil and carbon dioxide will be material sources of revenue for us and we do not have significant operating or other costs related to the extraction of such co-products.

We expect to fund our operations during the next 12 months using cash flow from continuing operations and the revolving line of credit that is available to us.

Recent Regulatory Developments

The ethanol industry is dependent on several economic incentives to produce ethanol, including ethanol use mandates. One significant federal ethanol support is the Federal Renewable Fuels Standard (the “RFS”) which has been and will continue to be a driving factor in the growth of ethanol usage. The RFS requires that in each year a certain amount of renewable fuels must be used in the United States. The RFS is a national program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective.   The U.S. Environmental Protection Agency (the “EPA”) is responsible for revising and implementing regulations to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel.

On February 3, 2010, the EPA implemented new regulations governing the RFS which are referred to as “RFS2.” The RFS2 requirements increase incrementally each year through 2022 when the mandate requires that the United States use 36 billion gallons of renewable fuels.  Annually, the EPA is supposed to pass a rule that establishes the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligations. However, the EPA decided to delay finalizing the rule on the 2014 and 2015 RFS2 standards until after the end of 2014. On May 29, 2015, the EPA released proposed rules for the 2014, 2015 and 2016 renewable volume obligations (“EPA Proposed Rule”) which proposed significant reductions in the total renewable fuel volume requirements from the statutory mandates initially set by Congress. The public comment period on the proposed rules was open through July 27, 2015.

On November 30, 2015, the EPA issued its final rules in response to the public comments received relating to the reductions in its proposed rules (the “EPA Final Rule”). The following chart sets forth the statutory volumes, the EPA Proposed Rule volumes for 2014, 2015 and 2016 (in billion gallons) and the EPA Final Rule volumes for 2014, 2015 and 2016 (in billion gallons) are as follows:

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		Total Renewable Fuel Volume Requirement	Portion of Volume Requirement That Can Be Met By Corn-based Ethanol
2014	Statutory	18.15	14.10
	EPA Proposed Rule	15.93	13.25
	EPA Final Rule	16.28	13.61
2015	Statutory	20.50	15.00
	EPA Proposed Rule	16.30	13.40
	EPA Final Rule	16.93	14.05
2016	Statutory	22.25	15.00
	EPA Proposed Rule	17.40	14.00
	EPA Final Rule	18.11	14.50

Although the EPA Final Rule increased the volume requirements over the requirements proposed in the EPA Proposed Rule, the final volume requirements are still below the volume requirements statutorily mandated by Congress. These reduced volume requirements, combined with the potential elimination of such requirements by the exercise of the EPA waiver authority or by Congress, could decrease the market price and demand for ethanol which will negatively impact the Company’s financial performance.

Beginning in January 2016, various ethanol and agricultural industry groups have petitioned a federal appeals court to hear a legal challenge to the EPA Final Rule. In addition, various representatives of the oil industry have also filed challenges to the EPA Final Rule. If the EPA's decision to reduce the volume requirements under the RFS2 is allowed to stand, or if the volume requirements are further reduced, it could have an adverse effect on the market price and demand for ethanol which would negatively impact our financial performance.

Executive Summary

Highlights for the three months ended March 31, 2016, are as follows:

•Total revenues decreased 25.5%, or $7.7 million, compared to the 2015 comparable period.

•Total cost of goods sold decreased 17.4%, or $5.2 million, compared to the 2015 comparable period.

•Net loss was $2.7 million, which was an increase in net loss of approximately $2.4 million when compared to net loss of $.3 million for the 2015 comparable period.

Industry Factors that May Affect Future Operating Results

During the three months ended March 31, 2016, the ethanol industry experienced declining ethanol margins as a result of the combination of factors including the following:

• Corn prices were tightly range bound during the three months ended March 31, 2016 and spot prices remained between $3.35 and $3.63 in the first quarter of calendar 2016. The price per bushel stabilized during the quarter as the market gauged the impact of the second consecutive plentifully large corn crop and a lack of Chinese demand. For the three months ended March 31, 2016 as compared to the three months ended March 31, 2015, the average price per bushel paid was $3.48 and $3.80, respectively. While this would appear to be a positive for margins, the ability for all ethanol capacity to access cheap corn brought excessive supplies to market.

• The latest estimates of supply and demand provided by the U.S. Department of Agriculture (the "USDA") forecast 2016 ending corn stocks of over 1.8 billion bushels, suggesting stable corn prices. In response to these estimates, corn prices continued to trade sideways. Rapidly rising ethanol stocks and falling ethanol prices during the entire quarter ended December 31, 2015 yielded to normal seasonally expanding ethanol stocks and steady ethanol prices during the quarter ended March 31, 2016.

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• Gasoline demand continues to increase over 2015 levels as a result of low gasoline prices which may lead to increased demand for ethanol and could positively impact the market price for ethanol. However, even after record production during the quarter ended December 31, 2015, ethanol inventories continued to increase during the three months ended March 31, 2016. The increased supply of ethanol may offset any positive impact on the demand and price of ethanol resulting from higher gasoline demand.

• Increases in export sales of ethanol to a variety of foreign consumers resulted from recovering petroleum prices and a weaker U.S. dollar. This positively impacted the attractiveness of U.S. ethanol in world markets and served to partially offset the ethanol stocks increase.

We use futures and options 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. We also incorporate risk management strategies to cover some of the risk involved with changing ethanol and distillers market prices. We continue to monitor the markets and attempt to provide for an adequate supply of corn and protection against rapid price increases for corn and price decreases for ethanol and distillers grains.

Management currently believes that our margins will remain tight during the remainder of the fiscal year and continued low crude oil and unleaded gasoline prices or further decreases in the price of such commodities could have a significant negative impact on the market price of ethanol which could adversely impact our profitability. This negative impact could worsen in the event that ethanol stocks remain high and U.S. exports of ethanol decline due to the premium price on ethanol as compared to unleaded gasoline. Unless additional demand can be found in foreign or domestic markets,a continued level of current ethanol stocks or any increase in domestic ethanol supply could have further negative impacts the price of ethanol.

Our margins have also been, and could continue to be, negatively impacted due to the lower prices received for our distillers grains as a result of increased corn and soybean supplies. The increased supplies of corn and soybeans results in lower corn and soybean prices which adversely impacts the price and demand for distillers grains which are an animal feed substitute for corn and soybeans. Demand and prices for distillers grains may experience further declines in the near term due to potential decreased exports to China as a result of the Chinese antidumping and countervailing duty investigation into distillers grains produced in the U.S. initiated in January 2016. Exports to China could further decrease if the investigation results in the imposition of antidumping tariffs on U.S. distillers grains. China has historically been one of the largest importers of domestically produced distillers grains. Reduced demand from China combined with lower corn and soybean prices could lead to an oversupply of distillers grains in the domestic market which could adversely impact our margins and our financial performance.

Corn oil prices have also been adversely impacted by the oversupply of soybeans and the resulting lower price of soybean oil which competes with corn oil principally for biodiesel production. However, management currently believes that the renewal of the biodiesel blenders' tax credit for 2016 may lead to increased biodiesel production which could result in increased demand for corn oil. This may offset the impact of lower soybean oil prices and the current oversupply of corn oil due to the substantial increase in corn oil production during the last few years.

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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 and six months ended March 31, 2016 and 2015 (dollars in thousands):

	Three Months Ended March 31,										Six Months Ended March 31, 2016
	(Unaudited)										(Unaudited)
Income Statement Data	2016					2015					2016				2015
Revenue	$22,464			100.0	%	$30,168			100.0	%	46,864		100.0	%	60,189		100.0	%
Cost of goods sold	24,503			109.1	%	29,667			98.3	%	49,454		105.5	%	57,100		94.9	%
Gross profit (loss)	(2,039		)	(9.1	)%	501			1.7	%	(2,590	)	(5.5	)%	3,089		5.1	%
General and administrative expenses	669			3.0	%	748			2.5	%	1,476		3.2	%	1,611		2.7	%
Operating income (loss)	(2,708		)	(12.1	)%	(247		)	(0.8	)%	(4,065	)	(8.7	)%	1,479		2.4	%
Other income (expense), net	(17		)	(0.1	)%	(9		)	—	%	(25	)	(0.1	)%	(10	)	—	%
Net income (loss)	$	(2,725	)	(12.0	)%	$	(256	)	(0.8	)%	(4,090	)	(8.6	)%	1,468		(0.3	)%

Results of Operations for the Three Months Ended March 31, 2016 as Compared to the Three Months Ended March 31, 2015

Revenues. Total revenues decreased $7.7 million, or 25.5%, for the three months ended March 31, 2016 from the three months ended March 31, 2015. Ethanol sales decreased $5.7 million, or 25.0% and sales from co-products decreased $2.0 million, or 27.2%, for the three months ended March 31, 2016 from the three months ended March 31, 2015. The change in ethanol revenue was a result of a 9.4% decrease in the price per gallon received and a 14.2% decrease in volume for the three months ended March 31, 2016, when compared to the three months ended March 31, 2015. Ethanol prices dropped as a result of the market factors discussed above, including, without limitation, the surplus supply of ethanol in the market, lower gasoline prices and the market response to the reduced volume requirements set forth in the EPA Final Rule. Our sales volume decreased due to an infection issue in production and lower run rates during the implementation of new process improvements. Ethanol revenue for the three months ended March 31, 2016 also included a $18,216 net gain for ethanol derivatives, compared to a $.4 million loss in the same quarter for the prior year.

Sales from co-products decreased by 27.2% for the three months ended March 31, 2016 from the three months ended March 31, 2015. Co-products include dried distillers grains, wet distillers grains, corn oil, syrup and carbon dioxide. The change in co-product sales was due to a $2.3 million decrease in distillers grain sales offset by $.3 million increase in corn oil sales and other co-products for the three months ended March 31, 2016 from the three months ended March 31, 2015. Distillers grain revenue decreased due to the reduction in production and a 15.8% decrease in price for the three months ended March 31, 2016. Distillers grain prices continue to struggle based primarily on lower corn prices and the reduced demand from China. The 45% increase in corn oil revenue was due to a 59.4% increase in sales volume after the implementation of several process improvements offset by a 8.2% decrease in market price due to the oversupply of soybeans and the lower price of soybean oil discussed above.

Cost of goods sold. Cost of goods sold decreased by 17.4% for the three months ended March 31, 2016 from the three months ended March 31, 2015. The decrease was primarily due to a decrease in corn and energy costs. Cost of goods sold includes corn costs, process chemicals, denaturant, natural gas costs, electricity, production labor, repairs and maintenance, and depreciation.

Corn costs, including hedging, decreased $4.2 million, or 19.5%, for the three months ended March 31, 2016 from the three months ended March 31, 2015. The decrease in corn cost is due to the decrease in ethanol production and a 6.5% decrease in corn prices which have been depressed due to the significant increase in the supply of corn available to the market following a strong harvest in 2015. For the three months ended March 31, 2016 corn costs also included a $.1 million net gain for derivatives relating to corn costs, compared to a $.6 million gain in the same quarter for the prior year. Corn costs represented 68.7% of cost of goods sold for the three months ended

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March 31, 2016, compared to 72.2% for the three months ended March 31, 2015. Cost of goods sold also included a ($.5) million reversal for losses on firm corn purchase commitments for the three months ended March 31, 2016.

Natural gas energy costs, decreased by $.5 million, or 23.7%, for the three months ended March 31, 2016 from the three months ended March 31, 2015. The decrease is due to the lower natural gas prices.

Results of Operations for the Six Months Ended March 31, 2016 as Compared to the Six Months Ended March 31, 2015

Revenues. Revenues decreased by $13.3 million, or 22.1%, for the six months ended March 31, 2016 from the six months ended March 31, 2015. There was a decrease in ethanol sales of $11.6 million, or 24.6%, for the six months ended March 31, 2016 from the six months ended March 31, 2015. The average price per gallon of ethanol sold decreased 14.7% for the six months ended March 31, 2016 compared to the six months ended March 31, 2015. Ethanol prices declined during the current period as compared to the prior period as a result of the surplus supply of ethanol in the market and lower gasoline prices and the market response to the reduced volume requirements in both the EPA Proposed Rule and the EPA Final Rule. Ethanol sales volume decreased approximately 11.6% for the six months ended March 31, 2016, when compared to the six months ended March 31, 2015. The decrease was due to infection issues in production and lower run rates during the implementation of new process improvements. The six months ended March 31, 2016 also included a $73,110 net gain for derivatives related to ethanol sales, compared to a $.8 million loss in the prior year.

Sales from co-products decreased by 12.3%, or $1.5 million, for the six months ended March 31, 2016 from the six months ended March 31, 2015. Co-products include dried distillers grains, wet distillers grains, corn oil, syrup and carbon dioxide. A decrease in dried distillers grains revenue partially offset by an increase in corn oil revenue resulted in the co-product decrease for the six months ended March 31, 2016 compared to the six months ended March 31, 2015. Distillers grain revenue decreased $2.3 million due to the reduction in production and a 7% decrease in price, primarily due to lower corn prices, during the six months ended March 31, 2016 from the six months ended March 31, 2015. Corn oil revenue increased $.5 million, or 45.3%, due to an increase in sales volume after the implementation of several process improvements partially offset by a 14.3% decrease in market price resulting from the oversupply of soybeans and the lower price of soybean oil.

Cost of goods sold. Cost of goods sold decreased by 13.4% or $7.6 million for the six months ended March 31, 2016 from the six months ended March 31, 2015. Costs decreased primarily due to lower corn costs and reduced natural gas costs compared to the prior year. Cost of goods sold includes corn costs, process chemicals, denaturant, natural gas, electricity, production labor, repairs and maintenance, and depreciation.

Corn costs decreased by $5.2 million, or 13.1%, for the six months ended March 31, 2016 from the six months ended March 31, 2015. The average price of corn per bushel declined 2.9% for the six months ended March 31, 2016 compared to the six months ended March 31, 2015. Corn volume used decreased 8.2% due to lower production rates resulting from infection issues. For the six months ended March 31, 2016, corn costs also included a $.8 million net gain for derivatives relating to future contracts, compared to a $1.1 million gain for the six months ended March 31, 2015. Corn costs represented 69.6% of cost of goods sold for the six months ended March 31, 2016 compared to 69.4% for the six months ended March 31, 2015.

Energy costs decreased $1.3 million, or 29.3%, for the six months ended March 31, 2016 from the six months ended March 31, 2015. The decrease is due to lower natural gas prices. The Company switched from coal to natural gas as its primary energy source in November 2014.

Credit and Counterparty Risks

Through our normal business activities, we are subject to significant credit and counter-party risks that arise through normal commercial sales and purchases, including forward commitments to buy and sell, and through various other over-the-counter (OTC) derivative instruments that we utilize to manage risks inherent in our business activities.  We define credit and counter-party risk as a potential financial loss due to the failure of a counter-party to honor its obligations.  The exposure is measured based upon several factors, including unpaid accounts receivable from counter-parties and unrealized gains (losses) from OTC derivative instruments (including forward purchase and sale contracts).   Part of our risk management strategy requires that we actively monitor credit and counter-party risk through credit analysis appropriate for the revenue.

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Liquidity and Capital Resources

Based on the financial projections prepared by management, we anticipate that we will have sufficient cash from existing cash, our current credit facilities, 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 was approximately $5.0 million as of March 31, 2016 and is projected to be sufficient with current cash balances and credit facilities available for the remainder of the fiscal year. Management continues to monitor our liquidity position on a weekly basis.

Our financial position and liquidity are, and will continue to be, influenced by a variety of factors, including, without limitation:

• our ability to generate cash flows from operations;

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

• our capital expenditure requirements, which consists primarily of plant improvements to improve efficiencies; and

• our margin maintenance requirements on all commodity trading accounts.

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

	Six Months Ended March 31,
	(Unaudited)
Cash Flow Data:	2016			2015
Net cash provided by (used in) operating activities	$	(895,125	)	$	3,131,565
Net cash used in investing activities	(2,770,416		)	(7,695,022		)
Net cash provided by (used in) financing activities	2,177,009			(13,692,362		)
Net increase (decrease) in cash and cash equivalents	$	(1,488,532	)	$	(18,255,819	)

Cash Flow from Operations

For the six months ended March 31, 2016, net cash provided by operating activities decreased by $4.0 million when compared to net cash provided by operating activities for the six months ended March 31, 2016. The decrease in cash provided by operating activities is due to the $5.6 million decrease in net income partially offset by the timing in working capital components totaling $1.6 million.

Cash Flow from Investing Activities

Cash flows from investing activities reflect the impact of property and equipment acquired for the ethanol plant. Net cash used in investing activities decreased by $4.9 million for the six months ended March 31, 2016 compared to the six months ended March 31, 2016. The decrease is due to the reduction in the number of ongoing capital projects.

Cash Flow from Financing Activities

Cash flows from financing activities include transactions and events whereby cash is obtained from, or paid to, depositors, creditors or investors. Net cash from financing activities increased by $15.9 million for the six months ended March 31, 2016 compared to the six months ended March 31, 2016. The increase is due to $3.8 million in proceeds from long term borrowings and distributions paid to members during the six months ended March 31, 2016.

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Critical Accounting Estimates and Accounting Policies

Our 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 we operate. 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 our 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 our ethanol and distillers grains is recognized at the time title and all risks of ownership transfer to the marketing company or other customers. This generally occurs upon the loading of the product. For ethanol, title passes from the Company 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 us for the sale of ethanol and distillers grain are included in costs of goods sold.

All of our ethanol production is sold to Eco-Energy. The purchase price payable to us under our agreement with Eco-Energy is the purchase price set forth in the applicable purchase order, less a marketing fee payable to Eco-Energy.

We have an agreement with Gavilon to purchase all of the distillers grains produced at our ethanol plant. The purchase price payable to us is the corresponding price being paid to Gavilon for the distillers grains in question, less certain logistics costs and a service fee.

Derivative Instruments

We enter into derivative contracts to hedge our exposure to price risk related to forecasted corn needs, forward corn purchase contracts and ethanol sales. We do not typically enter into derivative instruments other than for hedging purposes. All future derivative contracts are recognized on the March 31, 2016 balance sheet at their fair value. Although we believe our derivative positions are economic hedges, none have 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 our 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 net realizable values.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

In addition to the various risks inherent in the ethanol industry and our operations, we are 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

We are exposed to market risk with respect to the price of ethanol, which is our principal product, and the price and availability of corn and natural gas, which are the principal commodities we use to produce ethanol.  Our other primary product is distillers grains, and we are also subject to market risk with respect to the price for distillers grains.  The prices for ethanol, distillers grains, corn and natural gas are volatile, and we may experience market conditions where the prices we receive for our ethanol and distillers grains are declining, but the price we pay for our corn, natural gas and other inputs is increasing. Our 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.  We are, however, subject to various material risks related to our 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 our management, including the supply and demand for gasoline, the availability of substitutes, international trade and the effects of domestic and foreign laws, regulations and government policies.

In general, rising corn prices result in lower profit margins and, accordingly, represent unfavorable market conditions.  We will generally not be able to pass along increased corn costs to our ethanol customers.  We are subject to various material risks related to the availability and price of corn, many of which are beyond our control.  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. If our corn costs were to increase $.10 per bushel from one year to the next, the impact on costs of goods sold would be approximately $2.3 million for the year, assuming corn use of 23 million bushels during the year.

During the quarter ended March 31, 2016, corn prices based on the Chicago Mercantile Exchange daily futures data ranged from a low of $3.54 per bushel for May 2016 delivery to a high of $3.78 per bushel for May 2016 delivery.  The corn prices based on the Chicago Mercantile Exchange daily futures data during the quarter ended March 31, 2015 ranged from a low of $3.67 per bushel for May 2015 delivery to a high of $4.18 per bushel for May 2015 delivery.

The average price we received for our ethanol during the three months ended March 31, 2016 was $1.26 per gallon, a modest reduction as compared to $1.39 per gallon during the three months ended March 31, 2015.

During the quarter ended March 31, 2016, ethanol prices based on the Chicago Mercantile Exchange daily futures data ranged from a low of $1.35 per gallon for April 2016 delivery to a high of $1.47 per gallon for April 2016 delivery. The ethanol prices based on the Chicago Mercantile Exchange daily futures data during the three months ended March 31, 2015 ranged from a low of $1.345 per gallon for April 2015 delivery to a high of $1.545 per gallon for April 2015 delivery.

We may from time to time take various cash, futures, options or other positions in an attempt to minimize or reduce our price risks related to corn and ethanol. The extent to which we enter into such positions may vary substantially from time to time and based on various factors, including seasonal factors and our 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 our control. We could incur substantial losses on our cash, futures, options or other positions.

Although we intend our futures and option positions to accomplish an economic hedge against our future purchases of corn or futures sales of ethanol, we have 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.  We are 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 our 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, our net gain on corn derivative financial instruments that was included in our cost of goods sold for

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the three months ended March 31, 2016 was $114,781, as opposed to a net gain of $597,488 for the three months ended March 31, 2015.

We attempt 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 January 1, 2016, we had corn coverage through approximately May 1, 2016. We continue to stay at a near neutral corn position due to a lack of ability to lock in profitable ethanol sales margins. We continue 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 our control.

Another important raw material for our production of ethanol is natural gas. Our cost per MMBTU is subject to various factors that are outside of the control of our management. The factors include changes in weather, increase in transportation costs and the overall economic activity.  Our natural gas costs will therefore vary, and the variations could be material.  Our natural gas costs for the three months ended March 31, 2016 represented approximately 6.6% of our total cost of goods sold for that period.

Interest Rate Risk

We have various outstanding loan agreements that expose us to market risk related to changes in the interest rate imposed under the loan agreement and promissory notes.

We have entered into loan agreements, including an irrevocable letter of credit, with Farm Credit Services of America, FLCA and Farm Credit Services of America, PCA (collectively, "Farm Credit"). The interest rate on the Farm Credit monitored revolving credit loan is a variable interest rate loan based on the one month LIBOR index rate plus 2.9%, adjusted weekly. The interest rate on the Farm Credit revolving term loan and irrevocable letter of credit is a variable interest rate based on the one-month LIBOR index plus 3.15%. We do not anticipate any material increase in interest rates during Fiscal 2016.

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Item 4.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our  management,  under the supervision and with  the  participation  of  our President and Chief Executive Officer and our Director of Finance (our principal financial officer), have evaluated the  effectiveness of our 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,  our President and Chief Executive Officer and our Director of Finance have  concluded  that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures have been effective to provide  reasonable  assurance that the information required to be disclosed in the reports our  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 our  principal executive and principal financial officers or persons performing such functions,  as appropriate,  to allow timely decisions regarding  disclosure.  We believe 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 our 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, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings.

From time to time the Company is involved in various litigation matters arising in the ordinary course of its business. None of these matters, either individually or in the aggregate, currently is material to the Company except as report in the Company's annual report on Form 10-K for the year ended September 30, 2015 or in the Company's quarterly reported on Form 10-Q for the quarterly period ended March 31, 2016 and there were no material developments to such matters.

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Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in Item IA of our Form 10-K for the fiscal year ended September 30, 2015 other than as provided below. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations.

The Chinese antidumping and countervailing duty investigation may negatively impact distillers grains demands and prices. China is the world's largest importer of distillers grains produced in the U.S. On January 12, 2016, the Chinese government announced its decision to initiate an antidumping and countervailing duty investigation related to distillers grains imported from the U.S. While the investigation is pending, it is likely that distillers grains exports to China will be reduced. Further, if China introduces a tariff on distillers grains produced in the U.S. and exported to China, demand from the largest source of exports of U.S. produced distillers grains would likely be materially reduced. This antidumping and countervailing duty investigation could significantly decrease demand and prices for distillers grains produced in the U.S. The potential reduction in demand from China combined with lower domestic corn prices could negatively impact the price and demand for our distillers grains and our financial performance.

The introduction of Iranian oil into the market could negatively impact gasoline and ethanol prices. The U.S. recently lifted sanctions on Iran which historically prevented the import of Iranian oil into the U.S. Many other nations with similar bans on Iranian oil which prevented Iran from exporting a significant amount of oil into the world market have also eliminated such bans. As a result of the lifting of these sanctions, additional Iranian oil may be introduced into the world market which could result in lower oil prices. The introduction of Iranian oil exports would further reduce oil prices and increase the world supply of oil when oil prices are already seeing historic low and world supplies of oil are already high. Lower oil prices have resulted in lower priced gasoline which has had an adverse impact on both the price of, and the demand for, ethanol. The continuation of these lower gasoline prices or any further decreased in gasoline prices will continue to adversely impact the price of ethanol which could negatively impact our financial performance.

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

None.

Item 3.    Defaults Upon Senior Securities.

None.

Item 4.     Mine Safety Disclosures.

Not applicable.

Item 5.    Other Information.

None.

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Item 6.    Exhibits.

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

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 Director of Finance	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 Director of Finance†	E-4
101	Interactive Data Files (furnished electronically herewith pursuant to Rule 405 of Regulation S-T)
† This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.

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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
May 16, 2016	By:	/s/   Eric Hakmiller
	Name:    Eric Hakmiller
	Title:     President and Chief Executive Officer
May 16, 2016	By:	/s/   Kristine Strum
	Name:    Kristine Strum
	Title:      Director of Finance (Principal Financial Officer)

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EXHIBIT INDEX

Exhibits Filed With Form 10-Q

of Lincolnway Energy, LLC

For the Quarter Ended March 31, 2016

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 Director of Finance	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 Director of Finance†	E-4
101	Interactive Data Files (furnished electronically herewith pursuant to Rule 405 of Regulation S-T)

† This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.

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