UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2008 Commission File Number: 000-51823 AEI INCOME & GROWTH FUND 26 LLC (Exact name of registrant as specified in its charter) State of Delaware 41-2173048 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101 (Address of principal executive offices) (651) 227-7333 (Registrant's telephone number) Not Applicable (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. [X] Yes 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 Accelerated filer Non-accelerated filer Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No AEI INCOME & GROWTH FUND 26 LLC INDEX Part I - Financial Information Item 1. Financial Statements: Balance Sheet as of March 31, 2008 and December 31, 2007 Statements for the Three Months ended March 31, 2008 and 2007: Income Cash Flows Changes in Members' Equity Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4T.Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A.Risk Factors Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits Signatures AEI INCOME & GROWTH FUND 26 LLC BALANCE SHEET MARCH 31, 2008 AND DECEMBER 31, 2007 ASSETS 2008 2007 CURRENT ASSETS: Cash and Cash Equivalents $ 1,114,157 $ 4,249,562 Receivables 288 4,102 ----------- ----------- Total Current Assets 1,114,445 4,253,664 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 5,111,301 4,629,110 Buildings and Equipment 6,323,586 4,781,347 Construction in Progress 1,045,226 0 Accumulated Depreciation (269,229) (211,133) ----------- ----------- 12,210,884 9,199,324 Real Estate Held for Sale 2,126,435 2,126,435 ----------- ----------- Net Investments in Real Estate 14,337,319 11,325,759 ----------- ----------- Total Assets $15,451,764 $15,579,423 =========== =========== LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 19,569 $ 90,239 Distributions Payable 247,988 233,595 Unearned Rent 21,373 0 ----------- ----------- Total Current Liabilities 288,930 323,834 ----------- ----------- MEMBERS' EQUITY (DEFICIT): Managing Members (12,757) (9,975) Limited Members, $10 per Unit; 10,000,000 Units authorized; 1,832,736 Units issued and outstanding 15,175,591 15,265,564 ----------- ----------- Total Members' Equity 15,162,834 15,255,589 ----------- ----------- Total Liabilities and Members' Equity $15,451,764 $15,579,423 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND 26 LLC STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31 2008 2007 RENTAL INCOME $ 165,583 $ 95,308 EXPENSES: LLC Administration - Affiliates 42,969 22,757 LLC Administration and Property Management - Unrelated Parties 11,706 5,319 Depreciation 58,096 39,752 ----------- ----------- Total Expenses 112,771 67,828 ----------- ----------- OPERATING INCOME 52,812 27,480 OTHER INCOME: Interest Income 51,404 9,669 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 104,216 37,149 Income From Discontinued Operations 51,016 32,577 ----------- ----------- NET INCOME $ 155,232 $ 69,726 =========== =========== NET INCOME ALLOCATED: Managing Members $ 4,657 $ 2,092 Limited Members 150,575 67,634 ----------- ----------- $ 155,232 $ 69,726 =========== =========== INCOME PER LLC UNIT: Continuing Operations $ .05 $ .04 Discontinued Operations .03 .03 ----------- ----------- Total $ .08 $ .07 =========== =========== Weighted Average Units Outstanding 1,832,736 960,242 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND 26 LLC STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 155,232 $ 69,726 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 58,096 55,084 Decrease in Receivables 3,814 0 Decrease in Payable to AEI Fund Management, Inc. (70,670) (27,983) Increase in Unearned Rent 21,373 5,973 ----------- ----------- Total Adjustments 12,613 33,074 ----------- ----------- Net Cash Provided By Operating Activities 167,845 102,800 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (3,069,656) 0 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital Contributions from Limited Members 0 2,059,131 Organization and Syndication Costs 0 (301,527) Increase in Distributions Payable 14,393 35,824 Distributions to Members (247,987) (123,743) ----------- ----------- Net Cash Provided By (Used For) Financing Activities (233,594) 1,669,685 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,135,405) 1,772,485 CASH AND CASH EQUIVALENTS, beginning of period 4,249,562 151,644 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 1,114,157 $ 1,924,129 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND 26 LLC STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31 Limited Member Managing Limited Units Members Members Total Outstanding BALANCE, December 31, 2006 $ (1,278) $ 7,440,476 $ 7,439,198 882,126.8 Capital Contributions 0 2,059,131 2,059,131 205,913.1 Organization and Syndication Costs 0 (301,527) (301,527) Distributions (3,713) (120,030) (123,743) Net Income 2,092 67,634 69,726 --------- ----------- ----------- ----------- BALANCE, March 31, 2007 $ (2,899) $ 9,145,684 $ 9,142,785 1,088,039.9 ========= =========== =========== =========== BALANCE, December 31, 2007 $ (9,975) $15,265,564 $15,255,589 1,832,736.0 Distributions (7,439) (240,548) (247,987) Net Income 4,657 150,575 155,232 --------- ----------- ----------- ----------- BALANCE, March 31, 2008 $ (12,757) $15,175,591 $15,162,834 1,832,736.0 ========= =========== =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND 26 LLC NOTES TO FINANCIAL STATEMENTS MARCH 31, 2008 (1) The condensed statements included herein have been prepared by the registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the registrant's latest annual report on Form 10-KSB. (2) Organization - AEI Income & Growth Fund 26 LLC ("Company"), a Limited Liability Company, was formed on March 14, 2005 to acquire and lease commercial properties to operating tenants. The Company's operations are managed by AEI Fund Management XXI, Inc. ("AFM"), the Managing Member. Robert P. Johnson, the President and sole director of AFM, serves as the Special Managing Member. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AEI Fund Management, Inc. ("AEI"), an affiliate of AFM, performs the administrative and operating functions for the Company. The terms of the offering call for a subscription price of $10 per LLC Unit, payable on acceptance of the offer. The Company commenced operations on April 3, 2006 when minimum subscriptions of 150,000 LLC Units ($1,500,000) were accepted. The offering terminated October 19, 2007, when the extended offering period expired. The Company received subscriptions for 1,832,736 Units. Under the terms of the Operating Agreement, the Limited Members and Managing Members contributed funds of $18,327,360 and $1,000, respectively. The Company shall continue until December 31, 2055, unless dissolved, terminated and liquidated prior to that date. During operations, any Net Cash Flow, as defined, which the Managing Members determine to distribute will be distributed 97% to the Limited Members and 3% to the Managing Members. Distributions to Limited Members will be made pro rata by Units. AEI INCOME & GROWTH FUND 26 LLC NOTES TO FINANCIAL STATEMENTS (Continued) (2) Organization - (Continued) Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the Managing Members determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Members and 1% to the Managing Members until the Limited Members receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 6.5% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Members and 10% to the Managing Members. Distributions to the Limited Members will be made pro rata by Units. For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated 97% to the Limited Members and 3% to the Managing Members. Net losses from operations will be allocated 99% to the Limited Members and 1% to the Managing Members. For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Operating Agreement as follows: (i) first, to those Members with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Members and 1% to the Managing Members until the aggregate balance in the Limited Members' capital accounts equals the sum of the Limited Members' Adjusted Capital Contributions plus an amount equal to 6.5% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Members and 10% to the Managing Members. Losses will be allocated 99% to the Limited Members and 1% to the Managing Members. The Managing Members are not required to currently fund a deficit capital balance. Upon liquidation of the Company or withdrawal by a Managing Member, the Managing Members will contribute to the Company an amount equal to the lesser of the deficit balances in their capital accounts or 1.01% of the total capital contributions of the Limited Members over the amount previously contributed by the Managing Members. (3) Reclassification - Certain items related to discontinued operations in the prior period's financial statements have been reclassified to conform to 2008 presentation. These reclassifications had no effect on Members' capital, net income or cash flows. AEI INCOME & GROWTH FUND 26 LLC NOTES TO FINANCIAL STATEMENTS (Continued) (4) Investments in Real Estate - On August 10, 2007, the Company purchased a Starbucks store in Bluffton, Indiana for $1,150,116. The property is leased to Starbucks Corporation under a Lease Agreement with a remaining primary term of 10 years and initial annual rent of $79,800. On December 17, 2007, the Company purchased a 27% interest in a parcel of land in Fredericksburg, Virginia for $1,421,960, including acquisition expenses. The Company obtained title to the land in the form of an undivided fee simple interest in the 27% interest purchased. Simultaneous with the purchase of the land, the Company entered into a Project Construction and Development Financing Agreement under which the Company will advance funds to Silver-Honaker Development Company, LLC ("Silver") for the construction of a Dick's Sporting Goods store on the site. Through March 31, 2008, the Company had advanced $1,045,226 for the construction of the building. The purchase price, including the cost of the land, will be approximately $3,100,000. The remaining interests in the property were purchased by AEI Income & Growth Fund 23 LLC, AEI Income & Growth Fund 24 LLC and AEI Income & Growth Fund 25 LLC, affiliates of the Company. The property is leased to Dick's Sporting Goods, Inc. under a Lease Agreement with a primary term of 10 years and initial annual rent of $219,445. Pursuant to the Lease, the tenant will commence paying rent on the day the store opens for business, which is expected to be in June 2008. Pursuant to the development agreement, for the period from December 17, 2007 to the day that the tenant commences paying rent, Silver will pay the Company interest at a rate of 6.75% on the purchase price of the land and the amounts advanced for construction of the store. Pursuant to the Lease, any improvements to the land during the term of the Lease become the property of the Company. On December 28, 2007, the Company purchased 2.04 acres of land in Beavercreek, Ohio for $1,533,655. The land is leased to Red Robin International, Inc. under a Lease Agreement with a remaining primary term of 11.3 years and initial annual rent of $105,000. Red Robin International, Inc. operates a Red Robin restaurant on the site. Ownership of the building and improvements will transfer to the Company upon termination of the lease. On January 31, 2008, the Company purchased a 30% interest in a Best Buy store in Eau Claire, Wisconsin for $2,014,909. The property is leased to Best Buy Stores, L.P. under a Lease Agreement with a remaining primary term of 10 years and initial annual rent of $142,222. The remaining interests in the property were purchased by AEI Income & Growth Fund XXI Limited Partnership and AEI Income & Growth Fund 23 LLC, affiliates of the Company. AEI INCOME & GROWTH FUND 26 LLC NOTES TO FINANCIAL STATEMENTS (Continued) (5) Payable to AEI Fund Management, Inc. - AEI Fund Management, Inc. performs the administrative and operating functions for the Company. The payable to AEI Fund Management represents the balance due for those services. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. (6) Discontinued Operations - Subsequent to March 31, 2008, the Company entered into an agreement to sell its 40% interest in the Sports Authority store in Wichita, Kansas to an unrelated third party. The sale is subject to contingencies and may not be completed. If the sale is completed, the Company expects to receive net proceeds of approximately $2,944,000, which will result in a net gain of approximately $817,600. If the sale is not completed, the Company will likely seek another buyer for the property and may not be able to negotiate a purchase agreement with similar economic terms. At March 31, 2008 and December 31, 2007, the property was classified as Real Estate Held for Sale with a book value of $2,126,435. The financial results for this property are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the three months ended March 31: 2008 2007 Rental Income $ 51,166 $ 48,065 Property Management Expenses (150) (156) Depreciation 0 (15,332) --------- --------- Income from Discontinued Operations $ 51,016 $ 32,577 ========= ========= (7) Recently Issued Accounting Pronouncements - In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141(R) ("SFAS 141(R)"), Business Combinations. SFAS 141(R) requires, among other things, the expensing of acquisition- related transaction costs. Management anticipates that SFAS 141(R) will be effective for property acquisitions completed on or after January 1, 2009. Management is evaluating the effect that the adoption of SFAS 141(R) will have on the Company's results of operations, financial position, and the related disclosures. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Management's Discussion and Analysis contains various "forward looking statements" within the meaning of federal securities laws which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward looking statements made by the Company, must be evaluated in the context of a number of factors that may affect the Company's financial condition and results of operations, including the following: Market and economic conditions which affect the value of the properties the Company owns and the cash from rental income such properties generate; the federal income tax consequences of rental income, deductions, gain on sales and other items and the effects of these consequences for Members; resolution by the Managing Members of conflicts with which they may be confronted; the success of the Managing Members of locating properties with favorable risk return characteristics; the effect of tenant defaults; and the condition of the industries in which the tenants of properties owned by the Company operate. The Application of Critical Accounting Policies The preparation of the Company's financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates these estimates on an ongoing basis, including those related to the carrying value of real estate and the allocation by AEI Fund Management, Inc. of expenses to the Company as opposed to other funds they manage. The Company purchases properties and records them in the financial statements at cost (including capitalized acquisition expenses). The Company anticipates that for acquisitions completed on or after January 1, 2009, acquisition-related transaction costs will be expensed as incurred as a result of the adoption of Statement of Financial Accounting Standards No. 141(R), Business Combinations. The Company tests long-lived assets for recoverability when events or changes in circumstances indicate that the carrying value may not be recoverable. For properties the Company will hold and operate, management determines whether impairment has occurred by comparing the property's probability-weighted cash flows to its current carrying value. For properties held for sale, management determines whether impairment has occurred by comparing the property's estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the realizable value, an impairment loss is recorded to reduce the carrying value of the property to its realizable value. Changes in these assumptions or analysis may cause material changes in the carrying value of the properties. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) AEI Fund Management, Inc. allocates expenses to each of the funds they manage primarily on the basis of the number of hours devoted by their employees to each fund's affairs. They also allocate expenses at the end of each month that are not directly related to a fund's operations based upon the number of investors in the fund and the fund's capitalization relative to other funds they manage. The Company reimburses these expenses subject to detailed limitations contained in the Operating Agreement. Management of the Company has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing member of the Company. Results of Operations For the three months ended March 31, 2008, the Company recognized rental income from continuing operations of $165,583, representing three months rent from five properties and rent from one property acquired during the period. For the three months ended March 31, 2007, the Company recognized rental income of $95,308, representing three months rent from three properties. For the three months ended March 31, 2008 and 2007, the Company incurred LLC administration expenses from affiliated parties of $42,969 and $22,757, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and correspondence to the Limited Members. During the same periods, the Company incurred LLC administration and property management expenses from unrelated parties of $11,706 and $5,319, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs. As the Company raised additional subscription proceeds and purchased additional properties, the administration and property management expenses increased. For the three months ended March 31, 2008 and 2007, the Company recognized interest income of $51,404 and $9,669, respectively. In 2008, interest income increased due to the Company receiving interest from construction advances and having more money invested in a money market account due to the sale of additional LLC Units. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Company includes the operating results and sale of the property in discontinued operations. In addition, the Company reclassifies the prior periods' operating results of the property to discontinued operations. For the three months ended March 31, 2008, the Company recognized income from discontinued operations of $51,016 representing rental income less property management expenses. For the three months ended March 31, 2007, the Company recognized income from discontinued operations of $32,577 representing rental income less property management expenses and depreciation. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Subsequent to March 31, 2008, the Company entered into an agreement to sell its 40% interest in the Sports Authority store in Wichita, Kansas to an unrelated third party. The sale is subject to contingencies and may not be completed. If the sale is completed, the Company expects to receive net proceeds of approximately $2,944,000, which will result in a net gain of approximately $817,600. If the sale is not completed, the Company will likely seek another buyer for the property and may not be able to negotiate a purchase agreement with similar economic terms. At March 31, 2008 and December 31, 2007, the property was classified as Real Estate Held for Sale with a book value of $2,126,435. Inflation has had a minimal effect on income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. In addition, leases may contain rent clauses which entitle the Company to receive additional rent in future years if gross receipts for the property exceed certain specified amounts. Increases in sales volumes of the tenants, due to inflation and real sales growth, may result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions. Liquidity and Capital Resources The Company's primary sources of cash are proceeds from the sale of Units, interest income, rental income and proceeds from the sale of property. Its primary uses of cash are investment in real properties, payment of expenses involved in the sale of Units, the management of properties, the organization and administration of the Company, and the payment of distributions. The Company generated $167,845 of cash from operations during the three months ended March 31, 2008, representing net income of $155,232 and a non-cash expense of $58,096 for depreciation, which were partially offset by $45,483 in net timing differences in the collection of payments from the tenants and the payment of expenses. The Company generated $102,800 of cash from operations during the three months ended March 31, 2007, representing net income of $69,726 and a non-cash expense of $55,084 for depreciation, which were partially offset by $22,010 of net timing differences in the collection of payments from the tenants and the payment of expenses. The major components of the Company's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate. During the three months ended March 31, 2008, the Company expended $3,069,656 to invest in real properties (inclusive of acquisition expenses). On January 31, 2008, the Company purchased a 30% interest in a Best Buy store in Eau Claire, Wisconsin for $2,014,909. Also during the period, the Company advanced $1,045,226 for the construction of the Dick's Sporting Goods store in Fredericksburg, Virginia and incurred $9,521 in acquisition expenses related to the property. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) During the three months ended March 31, 2007, the Company did not purchase any real properties. During the year ended December 31, 2007, the Company expended $4,069,210 to invest in real properties (inclusive of acquisition expenses). On August 10, 2007, the Company purchased a Starbucks store in Bluffton, Indiana for $1,150,116. On December 28, 2007, the Company purchased land in Beavercreek, Ohio for $1,533,655. On December 17, 2007, the Company purchased a 27% interest in a parcel of land in Fredericksburg, Virginia for $1,412,439. Simultaneous with the purchase of the land, the Company entered into a Project Construction and Development Financing Agreement under which the Company will advance approximately $1,700,000 for the construction of a Dick's Sporting Goods store on the site. During the offering of Units, the Company's primary source of cash flow was from the sale of LLC Units. The Company commenced the offering of LLC Units to the public through a registration statement that became effective October 20, 2005 and continued until October 19, 2007, when the extended offering period expired. The Company raised a total of $18,327,360 from the sale of 1,832,736 Units. From subscription proceeds, the Company paid organization and syndication costs (which constitute a reduction of capital) of $2,706,815. After completion of the acquisition phase, the Company's primary use of cash flow is distribution and redemption payments to Members. The Company declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first ten days after the end of each quarter. For the three months ended March 31, 2008 and 2007, the Company declared distributions of $247,987 and $123,743, respectively, which were allocated 97% to the Limited Members and 3% to the Managing Members. Beginning in April 2009, the Company may acquire Units from Limited Members who have tendered their Units to the Company. Such Units may be acquired at a discount. The Company will not be obligated to purchase in any year more than 2% of the total number of Units outstanding on January 1 of such year. In no event shall the Company be obligated to purchase Units if, in the sole discretion of the Managing Member, such purchase would impair the capital or operation of the Company. The Operating Agreement requires that all proceeds from the sale of Units, subject to a reasonable reserve for ongoing operations, be invested or committed to investment in properties by the later of two years after the date of the registration statement or twelve months after the offering terminates. As of the date of this filing, the Company had no formal contractual commitment to expend capital, except for the agreement to advance funds for the construction of the Dick's Sporting Goods store. Until capital is invested in properties, the Company will remain extremely liquid. After completion of property acquisitions, the Company will attempt to maintain a cash reserve of only approximately .5% of subscription proceeds. Because properties are purchased for cash and leased under net leases, this is considered adequate to satisfy most contingencies. ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 4T.CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing Member of the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, the President and Chief Financial Officer of the Managing Member concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including the President and Chief Financial Officer of the Managing Member, in a manner that allows timely decisions regarding required disclosure. (b) Changes in Internal Control Over Financial Reporting. During the most recent period covered by this report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) 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. There are no material pending legal proceedings to which the Company is a party or of which the Company's property is subject. ITEM 1A.RISK FACTORS. Not applicable. PART II - OTHER INFORMATION (Continued) ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (a) None. (b) Not applicable. (c) Beginning in March 2009, pursuant to Section 7.7 of the Operating Agreement, each Limited Member has the right to present Units to the Company for purchase by submitting notice to the Managing Member during January or July of each year. The purchase price of the Units is equal to 85% of the net asset value per Unit, as of the first business day of January or July of each year, as determined by the Managing Member in accordance with the provisions of the Operating Agreement. The purchase price is equal to 100% of the net asset value per Unit in the case of Units of a deceased investor, who purchased the Units in the initial offering and who is a natural person, including Units held by an investor that is an IRA or other qualified plan for which the deceased person was the primary beneficiary, or Units held by an investor that is a grantor trust for which the deceased person was the grantor. Units tendered to the Company during January and July are redeemed on April 1st and October 1st, respectively, of each year subject to the following limitations. The Company will not be obligated to purchase in any year more than 2% of the total number of Units outstanding on January 1 of such year. In no event shall the Company be obligated to purchase Units if, in the sole discretion of the Managing Member, such purchase would impair the capital or operation of the Company. During the period covered by this report, the Company did not purchase any Units. 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. 31.1 Certification of Chief Executive Officer of Managing Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer of Managing Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer of Managing Member pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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. Dated: May 9, 2008 AEI Income & Growth Fund 26 LLC By: AEI Fund Management XXI, Inc. Its: Managing Member By: /s/Robert P Johnson Robert P. Johnson President (Principal Executive Officer) By: /s/ Patrick W Keene Patrick W. Keene Chief Financial Officer (Principal Accounting Officer)