Agassiz Energy 10QSB 2007 Q1 Quarterly report (small business)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

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

For the fiscal quarter ended March 31, 2007

OR

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

For the transition period from          to          .

COMMISSION FILE NUMBER: 333-133024

AGASSIZ ENERGY, LLC

(Exact name of small business issuer as specified in its charter)

Minnesota	80-0130330
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

510 County Road 71, Valley Technology Park
Crookston, Minnesota 56716
(Address of principal executive offices)
(218) 281-8442
(Issuer’s telephone number)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 Yeso No

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

State the number of shares outstanding for each of the issuer’s classes of common equity as of the latest practicable date: As of May 15, 2007 the Company had 4,636,500 membership units outstanding.

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

INDEX

	Page No.
PART I. FINANCIAL INFORMATION		2
Item 1. Condensed Financial Statements		2
Item 2. Management’s Discussion and Analysis		10
Item 3. Controls and Procedures		17
PART II. OTHER INFORMATION		18
Item 1. Legal Proceedings		18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3. Defaults Upon Senior Securities		18
Item 4. Submission of Matters to a Vote of Security Holders		18
Item 5. Other Information		18
Item 6. Exhibits		18
SIGNATURES		19
Section 302 Certification
Section 302 Certification
Section 1350 Certification
Section 1350 Certification

PART I — FINANCIAL INFORMATION

Item 1. – Financial Statements (Unaudited)

AGASSIZ ENERGY, LLC
(A Development Stage Company)

Balance Sheet

	March 31,
	2007
	(Unaudited)
ASSETS
Current Assets
Cash and equivalents	$	841
Short-term investments		970,000
Prepaid and other		52,354
Total current assets		1,023,195
Other Assets
Land options		146,250
Deferred offering costs		336,989
Debt issuance costs		1,057
Total other assets		484,296
Total Assets	$	1,507,491
LIABILITIES AND MEMBERS’ EQUITY
Current Liabilities
Line of credit	$	140,000
Members’ note payable, net of unamortized warrant discount		217,673
Accounts payable		334,816
Accounts payable — members		6,003
Accrued expenses		3,825
Total current liabilities		702,317
Commitments and Contingencies
Members’ Equity
Member contributions, 4,636,500 units outstanding		2,379,395
Deficit accumulated during development stage		(1,574,221	)
Total members’ equity		805,174
Total Liabilities and Members’ Equity	$	1,507,491

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

2

AGASSIZ ENERGY, LLC
(A Development Stage Company)

Statement of Operations

	Three Months			Three Months			From Inception
	Ended			Ended			(October 12, 2004) to
	March 31, 2007			March 31, 2006			March 31, 2007
	(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	—		$	—		$	—
Operating Expenses
Professional and consulting fees		123,612			147,208			1,781,687
General and administrative		7,038			2,400			49,502
Total operating expenses		130,650			149,608			1,831,189
Operating Loss		(130,650	)		(149,608	)		(1,831,189	)
Other Income (Expense)
Grant income		—			117,276			275,000
Interest income		3,488			5,998			41,154
Interest expense		(59,186	)		—			(59,186	)
Total other income		(55,698	)		123,274			256,968
Net Loss	$	(186,348	)	$	(26,334	)	$	(1,574,221	)
Weighted Average Units Outstanding		4,636,500			3,036,367			3,560,039
Net Loss Per Unit	$	(0.04	)	$	(0.01	)	$	(0.44	)

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

3

AGASSIZ ENERGY, LLC
(A Development Stage Company)

Statement of Cash Flows

	Three Months			Three Months			From Inception
	Ended			Ended			(October 12, 2004) to
	March 31, 2007			March 31, 2006			March 31, 2007
	(Unaudited)			(Unaudited)			(Unaudited)
Cash Flows from Operating Activities
Net loss	$	(186,348	)	$	(26,334	)	$	(1,574,221	)
Adjustments to reconcile net loss to net cash used in operating activities:
Warrant amortization		55,318			—			55,318
Expired land option		—			—			10,000
Changes in assets and liabilities
Restricted cash		—			21,046			—
Other receivable		—			(81,187	)		—
Prepaid and other		(39,761	)		(27,492	)		(52,354	)
Accounts payable		43,698			3,288			166,175
Accrued expenses		3,825			—			3,825
Net cash used for operating activities		(123,268	)		(110,679	)		(1,391,257	)
Cash Flows from Investing Activities
Payment for short-term investments		(970,000	)		175,000			(1,645,000	)
Proceeds from short-term investments		—			—			675,000
Payment for land options		(30,000	)		(30,000	)		(130,000	)
Net cash provided by (used in) investing activities		(1,000,000	)		145,000			(1,100,000	)
Cash Flows from Financing Activities
Payments for debt issuance costs		(1,057	)		—			(1,057	)
Proceeds from bank line of credit		140,000			—			140,000
Proceeds from members’ note payable		970,000			—			970,000
Member contributions		—			545,500			1,545,500
Payments for deferred offering costs		(2,091	)		(25,630	)		(162,345	)
Net cash provided by financing activities		1,106,852			519,870			2,492,098
Net Increase (Decrease) in Cash and Equivalents		(16,416	)		554,191			841
Cash and Equivalents– Beginning of Period		17,257			77,060			—
Cash and Equivalents– End of Period	$	841		$	631,251		$	841
Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	43		$	—		$	43
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Deferred offering costs in accounts payable	$	174,644		$	73,800		$	174,644
Warrants issued for land option fee	$	26,250		$	—		$	26,250
Warrants issued for members note payable	$	807,645		$	—		$	807,645

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

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AGASSIZ ENERGY, LLC
(A Development Stage Company)

Notes to Condensed Financial Statements (Unaudited)

March 31, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, 2006, contained in the Company’s annual report on Form 10-KSB.

In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company’s financial position as of March 31, 2007 and the results of operations and cash flows for all periods present. The results reported in these condensed interim financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year.

Nature of Business

The Company, which anticipates its plant location to be near Erskine, Minnesota, was organized to fund and construct a 55 million gallon coal fired ethanol plant with distribution throughout the United States and with limited distribution into Canada. In addition, the Company intends to produce and sell distillers grains as a co-product of ethanol production. The Company was formed on October 12, 2004 to have an indefinite life. Construction is anticipated to begin in the fall of 2007. As of March 31, 2007, the Company is in the development stage with its efforts being principally devoted to equity raising and organizational activities.

Accounting Estimates

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

Significant estimates include the deferral of expenditures for offering costs which are dependent upon successful financing and project development and share based payments which are dependent on valuation assumptions, as discussed below. It is at least reasonably possible that these estimates may change in the near term.

Cash and Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

The Company maintains its accounts at one financial institutions. At times throughout the year, the Company’s cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation.

Investments

The Company includes in investments certain debt instruments with maturities greater than three months and classifies them as “available for sale”. Investments currently consist of a bank certificate of deposit due in less than one year. Investments are carried at their estimated fair market value based on quoted market prices, which approximates cost. Interest is accrued as earned on the certificate of deposit.

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AGASSIZ ENERGY, LLC
(A Development Stage Company)

Notes to Condensed Financial Statements (Unaudited)

March 31, 2007

Property and Equipment

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

The Company has incurred substantial consulting, permitting, and other pre-construction services related to building its plant facilities. Due to the substantial current uncertainties regarding the Company’s ability to proceed with the ultimate facility construction until the Company has raised debt and equity financing, the Company expenses these pre-construction costs as incurred.

Deferred Offering Costs

The Company defers the costs incurred to raise equity financing until that financing occurs. At such time that the issuance of new equity occurs, these costs will be netted against the proceeds received or if the financing does not occur, they will be expensed.

Debt Issuance Costs

Debt issuance costs are amortized over the term of the related debt by use of the effective interest method.

Grants

The Company recognizes grant income as other income for reimbursement of expenses incurred or expenses paid on behalf of the Company upon complying with the conditions of the grant. For reimbursements of capital expenditures, the grants will be recognized as a reduction in the basis of the asset upon complying with the conditions of the grant. Grants received for incremental expenses that otherwise would not have been incurred are netted against the related expense.

Share-Based Payments

The Company has adopted SFAS No. 123 (revised 2004) (“SFAS No. 123R”),Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives goods or services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In 2005, the SEC issued SAB No. 107, which provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employees, and instead generally requires that such transactions be accounted for using a fair-value-based method. The Company uses the Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value of stock-based awards.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157) to increase consistency and comparability in fair value measurements by defining fair value, establishing a framework for measuring fair value in generally accepted accounting principles, and expanding disclosures about fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement and is effective for the fiscal years beginning after November 15, 2007. The Company is in the process of evaluating the effect, if any, that the adoption of SFAS No. 157 will have on its results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159) which included an amendment of FASB Statement 115. This Statement provides companies with an option to report selected financial assets and liabilities at fair value. This Statement is effective for fiscal years beginning after

6

AGASSIZ ENERGY, LLC
(A Development Stage Company)

Notes to Condensed Financial Statements (Unaudited)

March 31, 2007

November 15, 2007 with early adoption permitted. The Company is in the process of evaluating the effect, if any, that the adoption of SFAS No. 159 will have on its results of operations and financial condition.

2. GOING CONCERN UNCERTAINTIES

As shown in the accompanying financial statements, the Company incurred a net loss of approximately $186,000 during the three months ended March 31, 2007 and has incurred losses of approximately $1,574,000 since inception.

Management has extended payments on certain upcoming costs and is working to recover costs previously expended under pre-construction services agreements, but its ability to recover such items is uncertain. Although the Company has secured interim financing as described in Note 3, the Company’s ability to continue as a going concern is dependent on the success of generating cash from the Company’s anticipated equity offering described in Note 4 and/or through raising additional capital and ultimately achieving the capital to proceed with the construction of the plant.

Because it is unclear whether the Company will be successful in accomplishing these objectives, there is uncertainty about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

3. INTERIM FINANCING

In March 2007, the Company obtained interim financing from certain members of the Company totaling $970,000, secured by all assets owned by the Company. The loan bears interest at 5.25% and is due on March 6, 2008. With the loan funds received, the Company purchased a certificate of deposit that earns interest at 5.25% and matures on March 6, 2008. The Company used the certificate of deposit as collateral for a revolving line of credit from a bank bearing interest at 7%. The revolving line of credit provides the Company with up to $970,000 until March 6, 2008 at which time the principal and interest are due in full. As of March 31, 2007, the outstanding balance of the line of credit is approximately $140,000.

As an incentive for members to lend money to the Company, the Company issued warrants to members. The Company agreed to grant warrants equal to two units per $1 of loan proceeds. The Company issued warrants for 1,940,000 units, which vest immediately, and may be exercised at a price of $1 per unit any time subsequent to six months after the equity offering described in Note 4 is closed until March 6, 2012. The fair value of these warrants in the amount of approximately $807,000 was recorded as a debt discount at March 6, 2007 and is being amortized to interest expense over the term of the members’ loans. The Company recognized interest expense related to this amortization of approximately $55,000 for the quarter ending March 31, 2007. The company is not required to, and does not intend to, register these units.

4. MEMBERS’ EQUITY

As specified in the Company’s operating agreement, the Company is authorized to issue additional units as needed. The Company has one class of membership units, which include certain transfer restrictions as specified in the operating agreement and pursuant to applicable tax and securities laws. Income, losses and distributions are allocated to all members based upon their respective percentage units held. A member is entitled to one vote for each member unit held.

In November 2004, the Company raised $1,000,000 from 37 seed capital investors in exchange for 3,000,000 units. In March 2006, the Company raised an additional $545,500 in exchange for 1,636,500 units.

The Company prepared a Form SB-2 Registration Statement with the Securities and Exchange Commission (SEC), which was declared effective on October 6, 2006. The Offering is for a minimum of 42,500,000 units and a maximum of 58,500,000 units for sale at $1.00 per unit. The Company anticipates filing a post-effective amendment to the Form SB-2 Registration Statement for the change in anticipated general contractor. The Company also expects to increase the units in the offering to a minimum of 57,500,000 units and a maximum of 65,500,000 units for $1 per unit. The Company anticipates raising debt up to $67,363,000, less any new grants received.

7

AGASSIZ ENERGY, LLC
(A Development Stage Company)

Notes to Condensed Financial Statements (Unaudited)

March 31, 2007

5. UNIT BASED CONSIDERATION

The Company issued a total of 1,940,000 warrants to members, including members of the board of managers, as an incentive to provide interim financing to the Company as described in Note 3. The warrants allow the holder to purchase units at $1 per unit, which are exercisable until March 6, 2012.

The Company also entered into a land option agreement described in Note 6, which provided for the issuance of 53,000 warrants to the land owner. The warrants vest immediately and are exercisable until March 31, 2014 for a purchase price of $1.00 per unit. In March 2007, the Company recognized the fair market value of the warrants as additional land option fees of approximately $26,000.

The fair value of all warrants are estimated on the date of grant using the BSM option-pricing model with the following weighted-average assumptions used for grants in 2007; dividend yield of 0%; expected volatility of 39.95%; risk-free interest rate of 4.50% for the warrants issued to the members and 4.60% for the warrants issued to the land owner; and expected lives of five years for the warrants issued to the members and seven years for the warrants issued to the land owner. There were no unit options granted during 2006. The warrants for the purchase of 1,993,000 units issued are all vested and outstanding.

The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the average volatility of a representative sample of two comparable companies in our industry sector.

The weighted average fair value of warrants granted during the three months ended March 31, 2007 is $.42 per unit. The effect of the warrants outstanding has not been included with the weighted average units outstanding as it would be anti-dilutive. The calculation of warrants includes significant estimates related to the valuation component of each warrant. These estimates affect the amounts recorded for debt discounts. Given the nature of the estimates, it is at least reasonably possible that each component of the estimating process could change, the effects of which is uncertain. To the extent the forfeiture rate is different than we have anticipated, interest expense related to these options will be different from our expectations.

6. COMMITMENTS AND CONTINGENCIES

Plant Construction

The Company previously had a non-binding Memorandum of Understanding and pre-construction services agreements with an anticipated general contractor, an unrelated party, for the construction of the ethanol plant. The final project cost estimate was dramatically different than initial estimates. The Company terminated the agreements with the anticipated general contractor in November 2006.

In April 2007, the Company signed a letter of intent with a general contractor for the design and development of a 55 million gallon a year coal fired ethanol plant. The anticipated cost of the plant, including start up expenses, is approximately $126,408,000. In addition, the Company anticipates entering into a preconstruction services agreement with this general contractor for preliminary engineering and project development costs for approximately $100,000. The Company anticipates entering into a management agreement with this general contractor once the plant commences operations that would include an annual base fee plus a percentage of net profits. In addition, the Company will issue the general contractor units equal to 4.5% ownership of the Company after completion of the registered offering described in Note 4.

Land Contracts

In March 2007, the Company entered a new option for land which includes a 100 acre parcel previously under option. The new land option includes land up to 150 acres available to purchase until March 31, 2008. The purchase price of the land consist of $100,000 in cash, 200,000

8

AGASSIZ ENERGY, LLC
(A Development Stage Company)

Notes to Condensed Financial Statements (Unaudited)

March 31, 2007

units of the Company valued at $1 per unit, along with warrants to purchase 200,000 units at $1 per unit until March 31, 2014. The Company paid $5,000 for this new option, which will be applied to the purchase price if exercised. The Company did not exercise the previous land option on this site and expensed the original amount paid for that option as of December 31, 2006. The Company’s comprehensive plan for the construction of the ethanol plant contemplates using this site, in conjunction with the three sites described below. These four sites are adjacent to each other and are anticipated to be the site of the plant.

In April 2005, the Company entered into a contract with an unrelated party to have the option to purchase approximately 58 acres of land in Polk County, Minnesota, for approximately $60,000 until March 31, 2006. The Company paid $5,000 for this option. The Company paid $5,000 in March 2006 to extend this option until March 31, 2007 and paid an additional $5,000 in March 2007 to extend the option until March 31, 2008. If the option is exercised during the time permitted, all consideration will be applied to the purchase price.

In March 2006, the Company entered into a contract with an unrelated party to have the option to purchase 24 acres of land in Polk County, Minnesota for $200,000 until March 31, 2007. The Company paid $20,000 for this option. In March 2007, the Company paid $20,000 to extend this option until March 31, 2008. If the option is exercised during the time period, all consideration will be applied to the purchase price.

In July 2006, the Company entered into a contract, which was subsequently amended November 2006, with an unrelated party to have the option to purchase approximately 15 acres of land in Polk County, Minnesota for $442,000 at any time during the period from March 15, 2007, until April 1, 2007. The Company paid an amount of $25,000 when the agreement was executed. A second option fee of $75,000 was due in November 2006. The Company paid $35,000 in November with the remaining $40,000 due on April 1, 2007. In March 2007, the land owner agreed to extend the final payment on the property until the Company receives equity proceeds. As part of this extension, the Company issued warrants to purchase 53,000 units at $1 per unit exercisable until March 31, 2014.

7. RELATED PARTY TRANSACTIONS

In February 2005, the Company entered into a consulting agreement with a member to serve as project coordinator as the Company conducts a feasibility study, business plan, equity drive and plant construction. As of March 31, 2007 the Company has incurred approximately $14,000 under this agreement.

A member of the Company provided accounting services on an as needed basis. As of March 31, 2007 the Company has incurred approximately $6,000 for these services.

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PART 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties, including those risks described in this section. Our discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the financial statements and related notes. Actual results may differ substantially from those described below and are subject to certain risks, including:

• The availability and adequacy of our cash flow to meet its requirements, including payment of loans and current liabilities;

• Changes in construction costs, anticipated timetables and design-builder relationships;

• Economic, competitive, demographic, business and other conditions in our local, regional and national markets;

• Changes or developments in laws, regulations or taxes in the ethanol, agricultural or energy industries;

• Actions taken or not taken by third parties, including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;

• Competition in the ethanol industry;

• The loss of any license or permit;

• The loss of our plant due to casualty, weather, mechanical failure or any extended or extraordinary maintenance or inspection that may be required; and

• Changes in our business strategy, capital to support capital improvements and development.

Overview

We are a development stage Minnesota limited liability company formed on October 12, 2004. We do not expect to generate any revenue until the plant is completely constructed and operational.

On March 16, 2005, we executed a real estate option agreement with Randy and Jennifer Kroeplin granting us an option to purchase 100 acres of land in Polk County, Minnesota. Under the terms of the option agreement, we paid $5,000 for the option and have the option to purchase the land for $120,000. On March 10, 2006, we extended the option for an additional 12 months for $5,000. Should we choose to exercise the option, the $10,000 option price will be credited to the purchase price of the land. On March 31, 2007 the Kroeplin real estate option expired. On March 30, 2007, a new land option to purchase up to 150 acres was executed with Randy Kroeplin, the now sole owner of the property. Under the terms of the agreement, we paid $5,000 for the option, which amount will be credited toward the purchase prices. If the option is exercised, Randy will receive $100,000 in cash, 200,000 membership units in the Company and warrants to purchase up to 200,000 membership units at $1.00 per unit within seven years. On April 30, 2005, we executed a real estate option agreement with David and Delores Czech granting us an option to purchase 58 acres of land in Polk County, Minnesota. Under the terms of the option agreement, we paid $5,000 for the option and have the option to purchase the land for approximately $60,000. On March 10, 2006, we extended this for an additional 12 months for $5,000. On March 20, 2007, we signed a second extension of the option to March 31, 2008 for $5,000. Should we choose to exercise the option, the $15,000 option price will be credited to the purchase price of the land. On March 11, 2006 we executed a real estate option agreement with Warren and Henriette Thompson granting us an option to purchase 24 acres of land in Polk County, Minnesota. Under the terms of the option agreement, we paid $20,000 for the option and have the option to purchase the land for $200,000 until March 31, 2007. On March 20, 2007, we signed an extension for an additional 12 months for $20,000. Should we choose to exercise the option, the $40,000 option price will be credited to the purchase price of the land. On July 8, 2006, we executed a real estate option agreement with Richard and D’wana Carroll granting us

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the option to purchase 15 acres of farmland adjacent to the other parcels of land currently subject to option agreements in Polk County, Minnesota. Under the terms of the agreement, we paid $25,000 when the agreement was executed, and paid an additional $35,000 on November 15, 2006 for this option and have the option to purchase the land for $442,000 at any time during the period from March 15, 2007 until April 2007. This option was extended on March 21, 2007 until March 31, 2008. In consideration of the extension, we granted the Carroll’s warrants to purchase up to 53,000 membership units in the Company at $1.00 per unit for a period of seven years.

We intend to acquire all four parcels of land, resulting in a total contiguous site size of approximately 247 acres in Erskine, Minnesota. None of our governors or their Affiliates have any relationship with any of the property owners. The final plant site will have access to both interstate and local roads and two separate rail lines for our transportation requirements.

Currently, our principal place of business is located at 510 County Road 71, Valley Technology Park, Crookston, MN 56716. We do not have a lease of this office space with the Crookston Development Authority, which is one of our members. Under the terms of our oral agreement, we pay expenses such as copying, telephone charges and other expenses directly incurred by the Crookston Development Authority as a result of our operations.

Based on the preliminary design specifications provided by KL Process Design (“KL”), the plant will annually consume approximately 20 million bushels of corn and annually produce approximately 55 million gallons of fuel grade ethanol and 95,000 tons of dried distillers grains for animal feed. We currently estimate that it will take 12 to 18 months from the date that we close the offering, which includes obtaining our debt financing, and obtaining all necessary permits, to complete the construction of the plant.

Based on our letter of intent with KL, we expect the project will cost approximately $126,408,000 to complete. This includes approximately $111,808,000 to build the plant and an additional approximately $14,600,000 in other capital expenditures and working capital. We do not have any binding agreement with KL or any contractor for the labor or materials necessary to build the plant. As a result, our anticipated total project cost is not a firm estimate and is expected to change from time to time as the project progresses. These changes may be significant.

We are still in the development phase, and until the proposed ethanol plant is operational, we will generate no revenue. We anticipate that accumulated losses will continue to increase until the ethanol plant is operational.

Plan of Operations Until Start-Up of Ethanol Plant

We expect to spend at least the next 12 months focused on three primary activities: (1) project capitalization; (2) site acquisition and development; and (3) plant construction and start-up operations. Assuming the successful completion of our offering and the related debt financing, we expect to have sufficient cash on hand to cover all costs associated with construction of the project, including, but not limited to, site acquisition and development, utilities, construction and equipment acquisition. In addition, we expect our seed capital proceeds and our grant funds to supply us with enough cash to cover some of costs through this period, including staffing, office costs, audit, legal, compliance and staff training as well as all of our currently contracted obligations. We estimate that we will need approximately $126,408,000 to complete the project.

Project capitalization

We plan to finance our project with a combination of equity and debt. Since inception, we raised $1,545,500 in our seed capital offering and have been awarded $275,000 in grant funds. We filed a Registration Statement for an initial public offering of our units with the Securities and Exchange Commission on Form SB-2 (SEC Registration No. 333-133024), which became effective on October 6, 2006. We have not sold any units to date as a result of our reanalyzing our business plan and selecting a new design-builder. To provide interim financing, in March 2007, the Company obtained interim financing from certain members of the Company totaling $970,000, secured by all assets owned by the Company. The loan bears interest at 5.25% and is due on March 6, 2008. With the loan funds received, the Company purchased a certificate of deposit that earns interest at 5.25% and matures on March 6, 2008. The Company used the certificate of deposit as collateral for a revolving line of credit from a bank bearing interest at 7%. The revolving line of credit provides the Company with up to $970,000 until March 6, 2008

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at which time the principal and interest are due in full. As of March 31, 2007, the outstanding balance of the line of credit is approximately $140,000.

As an incentive for members to lend money to the Company, the Company issued warrants to members. The Company agreed to grant warrants equal to two units per $1 of loan proceeds. The warrants vest immediately and may be exercised at a price of $1 per unit any time subsequent to six months after the equity offering described in Note 4 is closed until March 6, 2012. The units underlying the warrants will not be registered in the Company’s amended Registration Statement. The fair value of these options in the amount of approximately $807,000 was recorded as a debt discount at March 6, 2007 and is being amortized to interest expense over the term of the members’ loans. The Company recognized interest expense related to this amortization of approximately $55,000 for the quarter ending March 31, 2007.

We are currently reevaluating our equity needs in connection with amending our equity offering on Form SB-2. Our registration statement on Form SB-2 was declared effective on October 6, 2006 for a minimum of $42,500,000 and a maximum of $58,500,000. We currently expect that we will have to file an amendment with the SEC to revise our Form SB-2 to increase the minimum equity to approximately $50,000,000 to build our plant. We have until October 6, 2007 to sell the minimum number of units required to raise the minimum offering amount and collect the cash proceeds. If we sell the minimum number of units prior to October 6, 2007, we may decide to continue selling units until we sell the maximum number of units or October 6, 2007, whichever occurs first. Even if we successfully close the offering by selling at least the minimum number of units by October 6, 2007, we will not release the offering proceeds from escrow until the cash proceeds in escrow equal $50,000,000 or more, we execute a construction contract, we obtain the permits required to begin construction, and we secure a written debt financing commitment for debt financing ranging from a minimum of approximately $25,000,000 to a maximum of $76,500,000 depending on the level of equity raised and any grant funding received. A debt financing commitment only obligates the lender to lend us the debt financing that we need if we satisfy all the conditions of the commitment. These conditions may include, among others, the total cost of the project being within a specified amount, the receipt of engineering and construction contracts acceptable to the lender, evidence of the issuance of all permits, acceptable insurance coverage and title commitment, the contribution of a specified amount of equity and attorney opinions. At this time, we do not know what business and financial conditions will be imposed on us. We may not satisfy the loan commitment conditions before closing, or at all. If this occurs we may:

• commence construction of the plant using all or a part of the equity funds raised while we seek another debt financing source;

• hold the equity funds raised indefinitely in an interest-bearing account while we seek another debt financing source;

• return the equity funds, if any, to investors with accrued interest, after deducting the currently indeterminate expenses of operating our business or partially constructing the plant before we return the funds.

We are also exploring the possibility of obtaining bond funding in an amount up to $20 million from solid waste bonds from Polk County Minnesota and up to $20 million in Federal New Markets tax credits, as well as the governmental financing, however, there is no assurance we can obtain those.

While the foregoing alternatives may be available, we do not expect to begin substantial plant construction activity before satisfying the loan commitment conditions because it is very likely that KL, our design-builder, and any lending institution will prohibit substantial plant construction activity until satisfaction of loan commitment conditions. It is possible that proceeding with plant construction prior to satisfaction of the loan commitment conditions or closing the loan transaction could cause us to abandon the project or terminate operations if we are ultimately unable to close the loan. As a result, you could lose all or part of your investment.

Site acquisition and development

During and after the offering, we expect to continue work principally on the preliminary design and development of our proposed ethanol plant, the execution of a final binding design-build agreement., the acquisition and development of the plant site, obtaining the necessary construction permits, identifying potential sources of debt

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financing and negotiating the corn supply, ethanol and distillers grains marketing, utility and other contracts. We plan to fund these initiatives using the proceeds of our line of credit, totaling $970,000. We believe that our existing funds will permit us to continue our preliminary activities through the end of our offering. If we are unable to close on our offering by that time or otherwise obtain other funds, we may need to discontinue operations.

Plant construction and start-up of plant operations

We expect to complete construction of the proposed plant and commence operations approximately 12 to 18 months after construction commences. Our work will include completion of the final design and development of the plant. We also plan to negotiate and execute finalized contracts concerning the construction of the plant, provision of necessary electricity, coal and other power sources and marketing agreements for ethanol and distillers grains. Assuming the successful completion of our offering and our obtaining the necessary debt financing, we expect to have sufficient cash on hand to cover construction and related start-up costs necessary to make the plant operational. We estimate that we will need approximately $111,808,000 to construct the plant and a total of approximately $14,600,000 to cover all capital expenditures necessary to complete the project, make the plant operational and produce revenue.

Trends and Uncertainties Impacting the Ethanol Industry and Our Future Operations

If we are able to build the plant and begin operations, we will be subject to industry-wide factors that affect our operating and financial performance. These factors include, but are not limited to, the available supply and cost of corn from which our ethanol and distillers grains will be processed; the cost and availability of coal, which we will use in the production process; dependence on our ethanol marketer and distillers grains marketer to market and distribute our products; the intensely competitive nature of the ethanol industry; possible legislation at the federal, and/or local level; changes in federal ethanol tax incentives and the cost of complying with extensive environmental laws that regulate our industry.

We expect ethanol sales to constitute the bulk of our future revenues. Ethanol prices have recently been much higher than their 10-year average. However, due to the increase in the supply of ethanol from the number of new ethanol plants scheduled to begin production and the expansion of current plants, we do not expect current ethanol prices to be sustainable in the long term.

We expect to benefit from federal ethanol supports and federal tax incentives. Changes to these supports or incentives could significantly impact demand for ethanol. In July 2005, the U.S. House of Representatives and the U.S. Senate passed the Energy Policy Act of 2005 (the “Act”), containing a Renewable Fuel Standard (“RFS”). President George W. Bush signed the measure into law on August 8, 2005. The RFS is a national flexible program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. The RFS begins at 4 billion gallons in 2006, and will increase to 7.5 billion gallons by 2012. According to the Renewable Fuels Association, the Act is expected to lead to about $6 billion in new investment in ethanol plants across the country. An increase in the number of new plants will bring an increase in the supply of ethanol. Thus, while this Act may cause ethanol prices to increase in the short term due to additional demand, future supply could outweigh the demand for ethanol. This would have a negative impact on our earnings in the long term.

Although the Act did not impose a national ban of methyl tertiary-butyl ether (MTBE), its failure to include liability protection for manufacturers of MTBE could result in refiners and blenders using ethanol as an oxygenate rather than MTBE to satisfy the reformulated gasoline oxygenate requirement. While this may create some additional demand in the short term, the Act repeals the Clean Air Act’s 2% oxygenate requirement for reformulated gasoline immediately in California and 270 days after enactment elsewhere. However, the Clean Air Act also contains an oxygenated fuel requirement for areas classified as carbon monoxide non-attainment areas. These areas are required to establish an oxygenated fuels program for a period of no less than three months each winter. The minimum oxygen requirement for gasoline sold in these areas is 2.7% by weight. This is the equivalent of 7.7% ethanol by volume in a gasoline blend. This requirement was unaffected by the Act and a number of states, including California, participate in this program.

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Demand for ethanol may also increase as a result of increased consumption of E85 fuel. E85 fuel is a blend of 70% to 85% ethanol and gasoline. According to the U.S. Energy Information Administration in May 2004, E85 consumption is projected to increase from a national total of 7.8 million gallons in 2002 to 42 million gallons in 2025. E85 is used as an aviation fuel and as a hydrogen source for fuel cells. Automakers have indicated plans to produce an estimated 2 million more flexible fuel vehicles per year.

Ethanol production continues to grow as additional plants become operational. Demand for ethanol has been supported by higher oil prices and its refined components and by clean air standards mandated by federal agencies which have required highly populated areas to blend ethanol into their gasoline supplies as an oxygenate. The intent of the air standards is to reduce harmful emissions into the atmosphere. These mandates have been challenged in several metropolitan areas, and are currently being reviewed by the courts. In the future, the combination of additional supply, successful challenges to the clean air standards and stagnant or reduced demand may damage our ability to generate revenues and maintain positive cash flows.

Consumer resistance to the use of ethanol may affect the demand for ethanol which could affect our ability to market our product and reduce the value of your investment. Based on popular media reports, certain individuals believe that use of ethanol will have a negative impact on prices at the pump. Many also believe that ethanol adds to air pollution and harms car and truck engines. Still other consumers believe that the process of producing ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of ethanol that is produced. These consumer beliefs could potentially be wide-spread. If consumers choose not to buy ethanol, it would affect the demand for the ethanol we produce which could negatively affect our ability sell our product and negatively affect our profitability.

Trends and Uncertainties Impacting the Corn and Coal Markets and Our Future Cost of Goods Sold

We expect our future cost of goods sold will consist primarily of costs relating to the corn and coal supplies necessary to produce ethanol and distillers grains for sale. According to the United States Department of Agriculture, the 2006 corn crop was approximately 10.5 billion bushels. The 2005 corn crop was 11.11 billion bushels, which is a 6.5% decrease from 2004’s corn crop according to the National Corn Growers Association in April 2006. According to the U.S.D.A Prospective Acres Report., as of March 30, 2007, the projected corn planting for 2007 is 7.9 million acres in Minnesota, 2.6 million acres in North Dakota and 5.9 million acres in South Dakota all near or at historic highs. Variables such as planting dates, rainfall, temperatures and increasing demand for corn for ethanol production will likely continue to cause market uncertainty and create corn price volatility throughout the remainder of 2007 and beyond. Although we do not expect to begin operations until 3rd or 4th quarter 2008, we expect these same factors will continue to cause volatility in the price of corn, which will significantly impact our cost of goods sold.

According to the U.S. Energy Information Administration in October 2006, coal production in the United States in 2005 was 1,131,498,000 tons, and was 1,133,300,000 tons in 2004. We expect to acquire coal from Montana and Wyoming, which we believe have sufficient production and reserves to meet our needs for the foreseeable future. Coal prices have tended to be stable and we expect to be able to buy coal at reasonable prices. We believe that we will be able to contract for the supply of all of our necessary coal under a five to seven year contract, with fixed prices for the coal.

We elected to fuel the ethanol production process at the plant using coal instead of natural gas based on our belief that a coal-fired ethanol plant will cost less compared a natural gas-fired plant to operate. While the construction costs for a coal-fired plant are higher than for a natural gas-fired plant, we believe the savings will be significant in the long-term. In addition to lower anticipated operating costs from using coal, coal prices and availability have tended to be more stable than natural gas. Natural gas prices and availability have fluctuated dramatically in recent years due to weather, including gulf-coast hurricanes that have limited or halted production of natural gas in those areas. This has lead to historically high prices for natural gas and resulted in higher operating costs for natural gas-fired ethanol plants.

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Employees

As a development stage company, we currently do not have any full-time employees. We expect to hire between 37 and 43 full-time employees before plant operations begin.

Private Placement to Raise Seed Capital

In November 2004, we sold a total of 3,000,000 of our membership units to our seed capital investors at a price of $0.33 per unit and received aggregate proceeds of $1,000,000. In March 2006, we raised an additional $545,500 from the sale of an additional 1,636,500 of our membership units to our existing members at a price of $0.33 per unit. We determined the offering price per unit of $0.33 for our seed capital units based upon the capitalization requirements necessary to fund our development, organization and financing activities as a development-stage company. We did not rely upon any independent valuation, book value or other valuation criteria in determining the seed capital offering price per unit. We expected our seed capital offering proceeds to provide us with sufficient liquidity to fund the developmental, organizational and financing activities necessary to advance our project. All of the seed capital proceeds were immediately at-risk at the time of investment.

These initial seed capital funds have been expended in our efforts to work with Bio-Renewable Group. We were forced to terminate the contract with Bio-Renewable Group. We executed a letter of intent with KL on April 17, 2007 to have KL design and build our plant and are in the process of executing a finalized contract with KL. In order to continue funding our operations we have obtained bridge financing through American Federal Bank of Crookston. In order to obtain this bridge financing we issued promissory notes in the aggregate amount of $970,000 to 11 current members of the Company, including eight governors. Those funds were used to fund a Certificate of Deposit used as collateral for the line of credit with the Bank. In connection with this transaction, we issued 1,940,000 warrants to purchase membership units in the Company at $1.00 per unit to 11 members, including eight of our governors in connection with the guarantee of the line of credit. The warrants are exercisable six month after the current equity offering is closed until March 6, 2012.

Liquidity and Capital Resources

As of March 31, 2007, we had total assets of approximately $1,507,000, consisting primarily of land options, deferred offering costs and a certificate of deposit. As of March 31, 2007, we had current liabilities of approximately $702,000 consisting primarily of a line of credit, a member’s note payable and our accounts payable. Since our inception through March 31, 2007, we have an accumulated deficit of approximately $1,574,000. Total liabilities and members’ equity as of March 31, 2007 was approximately $1,507,000.

Other cash flow requirements until the closing of our offering are expected to be approximately $80,000 for accounting, $100,000 for legal, $25,000 for other expenses relating to our offering and other start-up costs of $200,000, all of which has been budgeted and for which we have funds from our line of credit.

Equity Financing

Based on our business plan and construction cost estimates from KL our new design-builder, we believe the total project will cost approximately $126,408,000. We recently obtained bridge financing through American Federal Bank of Crookston. In order to obtain this bridge financing we issued promissory notes in the aggregate amount of $970,000 to current members of the Company, including eight governors. Those funds are being used to fund a Certificate of Deposit used as collateral for the line of credit with the Bank.

We initially raised $1,545,500 in our seed capital offerings and have been awarded $275,000 in grant proceeds. In October 2006, our Form SB-2 was declared effective by the SEC and we began trying to raise a minimum of $42,500,000 and a maximum of $58,500,000. However, we expect to seek to amend the SB-2 to raise a minimum of $50,000,000 and a maximum of $70,000,000 of equity in an initial public offering. Including the $970,000 line of credit and the $1,545,500 we raised in our seed capital offering and depending on the level of equity raised in our offering and the amount of grants and other incentives awarded to us, we expect to require debt financing ranging from a minimum of approximately $25,000,000 to a maximum of $76,500,000.

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Debt Financing

We hope to attract the senior bank loan from a major bank, with participating loans from other banks, to construct the proposed ethanol plant. We expect the senior loan will be a construction loan secured by all of our property, including receivables and inventories. We plan to pay near prime rate on this loan, plus annual fees for maintenance and observation of the loan by the lender, however, there is no assurance that we will be able to obtain debt financing or that adequate debt financing will be available on the terms we currently anticipate. If we are unable to obtain senior debt in an amount necessary to fully capitalize the project, we may have to seek subordinated debt financing which could require us to issue warrants for the purchase of membership units. The issuance of such warrants could reduce the value of our units.

We do not have contracts or commitments with any bank, lender or financial institution for debt financing other than the line of credit and members’ note payable. We have started identifying and interviewing potential lenders, however, we have not signed any commitment or contract for debt financing. Completion of the project relies entirely on our ability to attract these loans and close on our offering.

Critical Accounting Estimates

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Significant estimates include the deferral of expenditures for offering costs, which are dependent upon successful financing of the project and share based payments. We defer the costs incurred to raise equity financing until that financing occurs. At the time we issue new equity, we will net these costs against the equity proceeds received. Alternatively, if the equity financing does not occur, we will expense the offering costs. It is at least reasonably possible that this estimate may change in the near term. We have incurred substantial consulting, permitting, and other pre-construction services related to building our plant facilities. Due to the substantial uncertainties regarding our ability to proceed with the ultimate facility construction and until we raise debt and equity financing, we will expense these pre-construction costs as incurred.

Off-Balance Sheet Arrangements.

We do not have any off-balance sheet arrangements.

Grants, Government Programs and Tax Increment Financing

Grants

On September 7, 2004, we entered into a collaboration agreement with the Agricultural Utilization Research Institute whereby AURI provided us a matching grant of $105,000 to be used in connection with project feasibility, business/marketing, legal consultation, and board training. As of March 31, 2006, the Company incurred expenses sufficient to receive the total grant of $105,000. All payments approved by AURI were accompanied by a matching payment by Agassiz. As of December 31, 2006 we have received all of the funds we are eligible to receive.

On March 14, 2005, we entered into a value-added agricultural product market development grant with the U.S. Department of Agriculture Rural Business — Cooperative Service that provided us with a $170,000 grant to be used for coordination, feasibility studies and environmental assessments. As of December 31, 2006 we have received all of the $170,000 we are eligible to receive.

Governmental Financing

We are seeking up to $20 million in solid waste bond funding through Polk County, Minnesota to be used to finance our distillers grains facility as part of our ethanol plant.

We are also seeking up to $20 million in Federal New Markets tax credits to be used as a loan to finance part of our plant.

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We have filed an application to qualify for Minnesota’s JOB-Z program, designed to exempt our project from certain state and county taxes.

The City of Erskine, Minnesota is also seeking grants from the Minnesota Investment Fund to provide funds for connecting the plant to the city rapid infiltration basin.

USDA

We plan to apply for a project development grant from the USDA.

Although we may apply under several programs simultaneously and may be awarded grants or other benefits from more than one program, it must be noted that some combinations of programs are mutually exclusive. Under some state and federal programs, awards are not made to applicants in cases where construction on the project has started prior to the award date. There is no guarantee that applications will result in awards of grants or loans.

Going Concern Uncertainties

As shown in the accompanying financial statements, the Company incurred a net loss of approximately $186,000 during the three months ended March 31, 2007 and has incurred losses of approximately $1,574,000 since inception.

Management has extended payments on certain upcoming costs and is working to recover costs previously expended under pre-construction services agreements, but its ability to successfully extend and/or recover such items is uncertain. Although the Company has secured interim financing, the Company’s ability to continue as a going concern is dependent on the success of generating cash from the Company’s anticipated equity offering and/or through raising additional capital and ultimately achieving the capital to proceed with the construction of the plant.

Because it is unclear whether the Company will be successful in accomplishing these objectives, there is uncertainty about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of March 31, 2007 (the “Evaluation Date”), have concluded that our disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting that occurred during the three month period ended March 31, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

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

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are included in this report:

31.1	Certificate Pursuant to 17 CFR 240.13a-14(a).
31.2	Certificate Pursuant to 17 CFR 240.13a-14(a).
32.1	Certificate Pursuant to 18 U.S.C. § 1350.
32.2	Certificate Pursuant to 18 U.S.C. § 1350.

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SIGNATURES

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

	AGASSIZ ENERGY, LLC
Date: May 21, 2007	/s/ Donald Sargeant
	Donald Sargeant
	Chairman and President (Principal Executive Officer)
Date: May 21, 2007	/s/ Larry Altringer
	Larry Altringer
	Treasurer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

AGASSIZ ENERGY, LLC

FORM 10-QSB FOR QUARTER ENDED MARCH 31, 2007

Exhibit Number	Description
31.1*	Certificate Pursuant to 17 CFR 240.13a-14(a).
31.2*	Certificate Pursuant to 17 CFR 240.13a-14(a).
32.1*	Certificate Pursuant to 18 U.S.C. § 1350.
32.2*	Certificate Pursuant to 18 U.S.C. § 1350.

* Filed herewith

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