**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-K**





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


For
      the
      fiscal year ended September 30, 2007





OR





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


For
      the
      transition period from __________ to ______________





Commission
      File Number: 000-51764







**LINCOLNWAY
      ENERGY, LLC**


(Exact
      name of registrant as specified in its charter)











**Iowa**
            **20-1118105**(State
                or other jurisdiction of
            (IRS Employerincorporation
                or organization)
            Identification No.)





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




Registrant's
      telephone number, including area code: **(515)
      382-8899**





Securities
      registered pursuant to Section 12(b) of the Act: **None**





Securities
      registered pursuant to Section 12(g) of the Act: **Limited
      Liability Company Units**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the


Securities
      Act. Yes  o No x








Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section


15(d)
      of
      the Act. Yes  o No x





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.


Yes  x No o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
      be contained, to the best of registrant's knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-K
      or any amendment to this


Form
      10-K  .     o





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





Large
      accelerated
      filer  o  Accelerated
      filer o  Non-accelerated
      filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the


Exchange
      Act).       Yes o No x




The
      aggregate market value of the units held by non-affiliates of the registrant
      was
      $61,196,122 as of March 31, 2007. The units are not listed on an exchange or
      otherwise publicly traded. The value of the units for this purpose has been
      based upon the $1,526 book value per-unit as of March 31, 2007. In determining
      this value, the registrant has assumed that all of its directors and its
      president and its chief financial officer are affiliates, but this assumption
      shall not apply to or be conclusive for any other purpose.




The
      number of units outstanding as of November 30, 2007 was 42,049.





DOCUMENTS
      INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy
      statement to be filed with the Securities and Exchange Commission are
      incorporated by reference into Item 11 of Part III of this Form
      10-K.










**LINCOLNWAY
      ENERGY, LLC**


**FORM
      10-K**


**For
      the Fiscal Year Ended September 30, 2007**





**INDEX**





Part
                I.Item 1.
            Business.
            1Item 1A.
            Risk
                Factors.
            11Item 1B.
            Unresolved
                Staff Comments.
            35Item 2.
            Properties.
            35Item 3.
            Legal
                Proceedings.
            36Item 4.
            Submission
                of Matters to a Vote of Security Holders.
            37Part
                II.Item 5.
            Market
                for Registrant's Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities.
            38Item 6.
            Selected
                Financial Data.
            43Item 7.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operation.
            44Item 7A.
            Quantitative
                and Qualitative Disclosures About Market Risk.
            57Item
                8.
            Financial
                Statements and Supplementary Data.
            60Item
                9.
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure.
            61Item 9A.
            Controls
                and Procedures.
            61Item 9B.
            Other
                Information.
            62Part
                III.Item
                10.
            Directors,
                Executive Officers and Corporate Governance.
            63Item
                11.
            Executive
                Compensation.
            69Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.
            69Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence.
            71Item
                14.
            Principal
                Accountant Fees and Services.
            71Part
                IV.Item
                15.
            Exhibits
                and Financial Statement Schedules.
            72SIGNATURESAmendment
                Number One to Coal Supply AgreementDistillers'
                Grains Marketing AgreementCertification
                of President and CEOCertification
                of Chief Financial OfficerSection
                1350 Certification of President and CEOSection
                1350 Certification of Chief Financial Officer







**CAUTIONARY
      STATEMENT ON FORWARD LOOKING STATEMENTS**


**AND
      INDUSTRY AND MARKET DATA**





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





Actual
      future performance, outcomes and results may differ materially from those
      suggested by or expressed in forward looking statements as a result of numerous
      and varied factors, risks and uncertainties, some that are known and some that
      are not, and many of which are beyond the control of Lincolnway Energy and
      Lincolnway Energy's management. It is not possible to predict or identify all
      of
      those factors, risks and uncertainties, but they include inaccurate assumptions
      or predictions by management, the accuracy and completeness of the publicly
      available information upon which part of Lincolnway Energy's business strategy
      is based and all of the various factors, risks and uncertainties discussed
      in
      Items 1, 1A and 7 of this annual report.





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








**PART
      I**





**Item 1.**
            **Business.**




***General
      Overview***





Lincolnway
      Energy, LLC is an Iowa limited liability company that was organized on May
      19,
      2004. Lincolnway Energy operates a dry mill, coal fired ethanol plant located
      in
      Story County, Iowa, near Nevada, Iowa. Lincolnway Energy began processing corn
      into fuel grade ethanol and distiller's grains at the ethanol plant on May
      22,
      2006, and the first full month of production at full capacity was July of
      2006.





Lincolnway
      Energy selected the Nevada, Iowa site based upon management's analysis of
      several factors, including that the site was in an area with adequate corn
      production and water supply, and had access to both road and rail
      transportation. The site is near Iowa State US Highway 30 and Interstate 35
      and
      is served by the Union Pacific Railroad.





The
      ethanol plant has a nameplate production capacity of 50,000,000 gallons of
      ethanol per year, which, at that capacity, would also generate approximately
      144,000 tons of distiller's grains per year.





Lincolnway
      Energy currently does not capture or market the carbon dioxide which is produced
      as part of the ethanol production process.





***Financial
      Information***





Financial
      statements for Lincolnway Energy are included in Item 8 of this annual report.
      The financial statements include information regarding Lincolnway Energy's
      revenues, profits or losses and total assets. Item 6 of this annual report
      includes summary selected financial data.





Lincolnway
      Energy did not derive any revenue during the fiscal year ended September 30,
      2007 from any customers located in any foreign country, and Lincolnway Energy
      did not have any assets located in a foreign country.





***Principal
      Products and Their Markets***





Lincolnway
      Energy's principal products are fuel grade ethanol and distiller's grains.





**Ethanol**





Lincolnway
      Energy produces ethanol from corn. The ethanol produced by Lincolnway Energy
      is
      fuel grade ethanol, which can be used as a blend component/fuel additive in
      gasoline. Ethanol increases the octane rating of gasoline and reduces vehicle
      emissions, primarily carbon monoxide. The use of ethanol is currently heavily
      supported by various governmental incentives and programs. The loss of one
      or
      more of those incentives or programs could be highly detrimental to the ethanol
      industry.


1





Lincolnway
      Energy's ethanol production is sold to Renewable Products Marketing Group.
      Lincolnway Energy's ethanol is pooled with the ethanol of other ethanol
      producers whose ethanol is marketed by Renewable Products Marketing Group.
      Lincolnway Energy pays Renewable Products Marketing Group a pooling fee of
      $.01
      per gallon of ethanol, and Renewable Products Marketing Group pays Lincolnway
      Energy a netback price per gallon that is based upon the difference between
      the
      pooled average delivered ethanol selling price and the pooled average
      distribution expense. The averages are calculated based upon each pool
      participant's selling price and expense averaged in direct proportion to the
      volume of ethanol supplied by each pool participant. Lincolnway Energy's
      agreement with Renewable Products Marketing Group had an initial term through
      June 2007, but Lincolnway Energy and Renewable Products Marketing Group are
      continuing to operate under the existing agreement while they attempt to
      negotiate a new agreement. Lincolnway Energy currently believes it will be
      able
      to negotiate a satisfactory agreement with Renewable Products Marketing Group.
      Lincolnway Energy is dependent upon its agreement with Renewable Products
      Marketing Group for the marketing and sale of Lincolnway Energy's ethanol,
      and
      Lincolnway Energy's loss of the agreement could have material adverse effects
      on
      Lincolnway Energy.





The
      primary purchasers of ethanol are refiners, blenders or wholesale marketers
      of
      gasoline. Lincolnway Energy anticipates that its ethanol production will be
      sold
      primarily in coastal markets given the availability of rail service at
      Lincolnway Energy's ethanol plant, but Renewable Products Marketing Group
      controls the marketing of all of Lincolnway Energy's ethanol output.





Lincolnway
      Energy anticipates that its primary means of shipping and distributing ethanol
      will be by rail, but Lincolnway Energy is also able to ship and distribute
      ethanol by truck.





The
      nameplate production capacity of Lincolnway Energy's ethanol plant is 50,000,000
      gallons of ethanol per year, or approximately 4,167,000 gallons per month.
      The
      ethanol plant exceeded the nameplate production capacity for the fiscal year
      ended September 30, 2007, however, by approximately .67%, with 50,336,892
      gallons of ethanol produced during that period, and with an average monthly
      production of 4,194,741 gallons.





Lincolnway
      Energy anticipates that the ethanol plant will produce ethanol at an increased
      rate during the fiscal year ending September 30, 2008, and that Lincolnway
      Energy will process approximately 18,700,000 bushels of corn into approximately
      54,100,000 gallons of ethanol during the fiscal year ending September 30, 2008.
      The increased ethanol production is due to an anticipated reduction in plant
      shutdowns for the fiscal year ending September 30, 2008.


2





Lincolnway
      Energy's revenues from the sale of ethanol during the fiscal years ended
      September 30, 2006 and September 30, 2007 accounted for approximately 87% of
      Lincolnway Energy's total revenues during those two periods. Lincolnway Energy
      estimates that its revenues from the sale of ethanol for the fiscal year ending
      September 30, 2008 will also account for approximately 87% of Lincolnway
      Energy's total revenues for that fiscal year.





**Distiller's
      Grains**





Lincolnway
      Energy's other primary product is distiller's grains, which is a byproduct
      of
      the ethanol production process. Distiller's grains are, in general, the solids
      which are left after the processing and fermentation of corn into ethanol.
      Distiller's grains are a high protein feed supplement that are marketed
      primarily in the dairy and beef industries. Distiller's grains can also be
      used
      in poultry, swine and other livestock feed.





A
      dry
      mill ethanol process such as that utilized by Lincolnway Energy can produce
      wet
      distiller's grains and dried distiller's grains. Wet distiller's grain contains
      approximately 70% moisture, and has a shelf life of only approximately three
      days. Wet distiller's grains can therefore only be sold to users located within
      relatively close proximity to the ethanol plant. Dried distiller's grain is
      wet
      distiller's grain that has been dried to 10% to 12% moisture. Dried distiller's
      grain has an almost indefinite shelf life and may be sold and shipped to any
      market.





Lincolnway
      Energy's output of distiller's grains was sold to Commodity Specialists Company
      until October 1, 2007. Lincolnway Energy paid Commodity Specialists Company
      a
      fee of 2% of the FOB plant price of the dried distiller's grains and 4% of
      the
      FOB plant price for wet distiller's grains that were sold by Commodity
      Specialists Company.





Lincolnway
      Energy's output of distiller's grains is now sold to Hawkeye Gold, LLC under
      a
      Distiller's Grains Marketing Agreement that became effective on October 1,
      2007.
      Lincolnway Energy pays Hawkeye Gold, LLC a marketing fee for dried distiller's
      grains equal to the greater of 2% of the FOB plant price for the dried
      distiller's grains or a per-ton fee of $1.30 for the dried distiller's grains.
      The marketing fee for wet distiller's grains is the greater of 3% of the FOB
      plant price for the wet distiller's grains or a per-ton fee of $1.00 for the
      wet
      distiller's grains. The Distiller's Grains Marketing Agreement can be terminated
      by either Lincolnway Energy or Hawkeye Gold, LLC on 90 days written notice.
      Lincolnway Energy must pay a termination fee if it terminates the Distiller's
      Grains Marketing Agreement during the first 12 months under the Distiller's
      Grains Marketing Agreement. The termination fee is an amount equal to the
      marketing fees paid to Hawkeye Gold, LLC during the three full calendar months
      which preceded the effective termination date. Lincolnway Energy is dependent
      upon its agreement with Hawkeye Gold, LLC for the marketing and sale of
      Lincolnway Energy's distiller's grains, and Lincolnway Energy's loss of the
      agreement could have material adverse effects on Lincolnway
      Energy.


3





The
      primary purchasers of distiller's grains are individuals or companies involved
      in dairy, beef or other livestock production. Lincolnway Energy anticipates
      that
      approximately 7% of its distiller's grains will be locally marketed to nearby
      livestock producers, but Hawkeye Gold, LLC controls the marketing of all of
      Lincolnway Energy's distiller's grains.





Lincolnway
      Energy anticipates that its means of shipping and distributing distiller's
      grain
      will be by rail or by truck. Local livestock producers are also able to pick
      up
      distiller's grains directly from the ethanol plant.





Lincolnway
      Energy produced 157,000 tons of distiller's grains during the fiscal year ended
      September 30, 2007, or approximately 13,000 of distiller's grains per month.
      The
      composition of the distiller's grains was approximately 11% wet distiller's
      grains and 89% dried distiller's grains.





Lincolnway
      Energy anticipates processing approximately 18,700,000 bushels of corn into
      approximately 54,100,000 gallons of ethanol and approximately 150,000 tons
      of
      distiller's grains during the fiscal year ending September 30,
      2008.





Lincolnway
      Energy's revenues from the sale of distiller's grains during the fiscal years
      ended September 30, 2006 and September 30, 2007 accounted for approximately
      13%
      of Lincolnway Energy’s total revenues during those periods. Lincolnway Energy
      estimates that its revenues from the sale of distiller's grains for the fiscal
      year ending September 30, 2008 will also account for approximately 13% of
      Lincolnway Energy's total revenues for that fiscal year.





Although
      distiller's grains is a primary product of Lincolnway Energy, Lincolnway Energy
      does not believe that distiller's grains should be viewed as a significant
      or
      material source of revenue for Lincolnway Energy over the long term because
      of
      the increasing potential for the overproduction and supply of distiller's
      grains.





**Carbon
      Dioxide**





Lincolnway
      Energy currently does not attempt to capture or market the carbon dioxide which
      is produced as part of the ethanol production process, and Lincolnway Energy
      currently has no plans to do so. Lincolnway Energy estimates that it will
      produce approximately 150,000 tons of carbon dioxide per year, assuming full
      production.


4





***Sources
      and Availability of Raw Materials***





Corn
      and
      coal are the primary raw materials that are utilized by Lincolnway Energy in
      the
      production of ethanol. Corn is used to produce the ethanol, and coal is
      Lincolnway Energy's primary energy source for its ethanol plant.





**Corn**





Lincolnway
      Energy estimates that it will utilize approximately 18,700,000 bushels of corn
      per year at its ethanol plant, or approximately 1,600,000 bushels per month,
      assuming production at a capacity of 54,100,000 gallons of ethanol per year.





Lincolnway
      Energy's ethanol plant is located in Story County, Iowa, near Nevada, Iowa.
      Although Lincolnway Energy anticipates purchasing corn from various sources
      and
      areas, Lincolnway Energy believes that Story County will produce a sufficient
      supply of corn, assuming normal growing conditions, to generate the necessary
      annual requirements of corn for the ethanol plant. There is not, however, any
      assurance that Lincolnway Energy will be able to purchase sufficient corn
      supplies from Story County or regarding the supply or availability of corn
      given
      the numerous factors which affect the supply and price for corn.





Lincolnway
      Energy has an agreement with Heart of Iowa Cooperative pursuant to which
      Lincolnway Energy can obtain up to 50% of its corn needs from Heart of Iowa
      Cooperative's facility located adjacent to Lincolnway Energy's ethanol plant,
      with the remaining 50% to be obtained from other Heart of Iowa Cooperative
      facilities or other licensed grain dealers. The 50% limitation for Heart of
      Iowa
      Cooperative's Nevada, Iowa location was imposed by the Iowa Department of
      Natural Resources, as part of the air permitting process. Heart of Iowa
      Cooperative is a licensed grain dealer and has locations throughout Story
      County, Iowa. Heart of Iowa Cooperative is also a member of Lincolnway Energy.





Lincolnway
      Energy's agreement with Heart of Iowa Cooperative will terminate by its terms
      on
      May 22, 2026. The agreement may also be terminated, however, at any time upon
      six months notice and the payment of a termination fee by the terminating party.
      The termination fee starts at $2,000,000, and is reduced by $50,000 for each
      completed year of the agreement. The term of the agreement commenced on May
      22,
      2006.





Lincolnway
      Energy purchased approximately 17,800,000 bushels of corn from Heart of Iowa
      Cooperative during the fiscal year ended September 30, 2007.





Corn
      is
      delivered to Lincolnway Energy's ethanol plant by rail and by truck. Lincolnway
      Energy has corn storage capabilities for approximately 10 days of continuous
      ethanol production.


5





**Coal
      and Lime**





Lincolnway
      Energy's ethanol plant is a coal fired plant. Lincolnway Energy estimates that
      its ethanol plant will utilize approximately 270 tons of coal and 5 tons of
      lime
      per day, assuming production at a capacity of 54,100,000 gallons of ethanol
      per
      year.





Lincolnway
      Energy utilized approximately 92,000 tons of coal and 2,000 tons of lime during
      the fiscal year ended September 30, 2007.





Lincolnway
      Energy currently obtains all of its coal pursuant to an agreement between
      Lincolnway Energy and Williams Bulk Transfer. The agreement allows Lincolnway
      Energy to purchase up to 220,000 tons of coal per year at a per ton price equal
      to the sum of the coal price and the transportation price, as those terms are
      defined in the agreement. The coal price and the transportation price are
      subject to adjustment in various circumstances and based on various factors.
      For
      example, the transportation price is subject to quarterly adjustment, upward
      or
      downward (but never below the initial transportation price stated in the
      agreement), by 100% of the quarterly percentage change in the All Inclusive
      Index--Less Fuel, and to a monthly adjustment, upward but not downward, through
      the addition of a fuel surcharge determined by the amount by which the average
      Retail On-Highway Diesel Fuel Price of the U.S. exceeds a specified amount
      per
      gallon. The transportation price will also be increased on the scheduled
      adjustment dates set out in the agreement. The coal price adjustments are based
      upon, in general, any increased costs as a result of any changes in laws,
      changes in inflation as determined by designated indices, and the quality of
      the
      coal. Lincolnway Energy is required to pay a penalty of $16.00 per ton if
      Lincolnway Energy fails to purchase a minimum of 80,000 tons of coal in any
      calendar year. The $16.00 per ton penalty amount is subject to adjustment as
      provided in the agreement. Lincolnway Energy's agreement with Williams Bulk
      Transfer will expire by its terms on January 1, 2013.





Lincolnway
      Energy is totally dependent upon its agreement with Williams Bulk Transfer
      for
      the supply of all of Lincolnway Energy's coal needs. Lincolnway Energy's loss
      of
      its contract with Williams Bulk Transfer, or Lincolnway Energy's inability
      to
      negotiate a new contract with Williams Bulk Transfer or another supplier on
      favorable terms before the expiration or termination of the agreement, would
      have material adverse effects on Lincolnway Energy.





All
      of
      the coal utilized by Lincolnway Energy is delivered by truck. Lincolnway Energy
      has coal storage for approximately 8 days of continuous ethanol production.





**Other
      Raw Materials**





Lincolnway
      Energy's ethanol plant also requires a significant amount of electricity and
      significant supplies of water.


6





Lincolnway
      Energy's electricity needs are currently met by Alliant Energy. Lincolnway
      Energy pays the general service rates for its electricity.





Lincolnway
      Energy has water intake of approximately 600,000 gallons per day. Lincolnway
      Energy discharges 275,000 gallons of water per day that has been treated by
      their reverse osmosis system. Their actual water consumption is approximately
      325,000 gallons per day or approximately 2 gallons of water per gallon of
      ethanol produced. Lincolnway Energy's water needs are currently met by the
      City
      of Nevada.





***Rail
      Access***





Rail
      access is critical to the operation of Lincolnway Energy's ethanol plant,
      because rail is used for the shipment and distribution of ethanol and
      distiller's grains. Lincolnway Energy utilizes rail track owned by Lincolnway
      Energy, as well as tracks owned by the Union Pacific and Heart of Iowa
      Cooperative. Lincolnway Energy has agreements with the Union Pacific and Heart
      of Iowa Cooperative regarding the use of their tracks.





***Expansion
      Plans***





Lincolnway
      Energy currently has no definite plans to expand its ethanol plant or to
      construct or acquire any additional ethanol plants. Lincolnway Energy will,
      however, consider those matters as part of its ongoing operations and analysis
      of its business and the ethanol industry in general.





Lincolnway
      Energy will also continue to consider and evaluate any other opportunities
      that
      may arise with respect to its ethanol plant or the ethanol industry, including
      with respect to possible ethanol marketing arrangements or ventures or any
      use
      or marketing of corn germ or corn oil.





***Research
      and Development Activities***





Lincolnway
      Energy is not currently engaged in any significant research or development
      activities.





***Competition***





The
      ethanol industry and markets are highly competitive, and although new
      construction and expansion of ethanol plants appears to have slowed during
      2007
      due to unfavorable market conditions, ethanol production continues to grow.
      According to the Renewable Fuels Association, ethanol production in the U.S.
      has
      increased by more than 300% since 2000, and the U.S. ethanol industry produced
      a
      record of nearly 4.9 billion gallons of ethanol from 110 plants located in
      19
      states in 2006, which exceeded the 2005 U.S. ethanol production by 1 billion
      gallons, or more than 25%. World production reached an all time high of nearly
      13.5 billion gallons in 2006, according to the Renewable Fuels Association,
      with
      the U.S. having become the world's largest producer of fuel ethanol in 2006,
      surpassing Brazil. Other countries are also rapidly expanding their domestic
      ethanol industries, including Canada, China and India.


7





The
      Renewable Fuels Association estimates that as of December 3, 2007, there were
      134 ethanol plants in production, capable of producing nearly 7.2 billion
      gallons of ethanol, and that there were 66 new plants and 10 expansions proposed
      or under construction, which will add additional production capacity of nearly
      6.2 billion gallons, for a total yearly production of nearly 13.4 billion
      gallons of ethanol. The mandate set in the 2005 energy bill is for the use
      of
      7.5 billion gallons of annual biofuel production by 2012.





The
      ethanol industry is therefore still a rapidly expanding industry, both
      domestically and internationally, and domestic production will soon outstrip
      the
      current mandates required by the 2005 energy bill. Although it is anticipated
      that a new energy bill will be passed which will increase the mandated renewable
      fuels usage amounts, there is still no assurance that a bill will be passed
      or
      what any new mandated use levels would be if a bill was passed.





The
      competitors in the U.S. include not only regional farmer-owned entities, but
      also the major oil companies and other large companies such as Archer Daniels
      Midland, Cargill, Inc., VeraSun Energy Corporation, Aventine Renewable Energy,
      Inc., Hawkeye Renewables, Poet and Abengoa Bioenergy Corp.





The
      competition in the ethanol industry has increased during 2007, with declining
      ethanol prices, excess supplies of ethanol and rising corn costs.





The
      ethanol industry will also continue to face increasing competition from
      international suppliers of ethanol. International suppliers produce ethanol
      primarily from sugar cane and have cost structures that may be substantially
      lower than Lincolnway Energy's and other U.S. based ethanol producers. Although
      there is currently a $.54 per gallon tariff on foreign produced ethanol, ethanol
      imports equivalent to up to 7% of total U.S. production in any given year from
      various countries were exempted from the tariff under the Caribbean Basin
      Initiative to spur economic development in Central America and the Caribbean.
      Foreign suppliers of ethanol may significantly increase their imports into
      the
      U.S. Also, Canada may import ethanol duty free, and Mexico may import ethanol
      under a duty rate of $.10 per gallon. Some of the larger competitors in the
      ethanol industry may construct or establish ethanol plants in Central America
      or
      the Caribbean.





Smaller
      competitors also pose a threat. Farmer-owned cooperatives and independent
      companies consisting of groups of individual farmers and investors have been
      able to compete successfully in the ethanol industry. These smaller competitors
      operate smaller facilities which do not affect the local price of corn grown
      in
      the proximity to the facility as much as larger facilities do, and some of
      the
      smaller competitors are farmer-owned and the farmer-owners either commit, or
      are
      incented by their ownership in the facility, to sell corn to the
      facility.





8




The
      continuing increase in domestic or foreign competition could cause Lincolnway
      Energy to have to reduce its prices and take other steps to compete effectively,
      which could adversely affect Lincolnway Energy's results of operations and
      financial position.





Many
      competitors will have greater production capacity, greater experience, more
      access to information and/or greater capital or other financial resources,
      any
      which will make it difficult for Lincolnway Energy to compete with the
      competitor. For example, greater ethanol production may allow a competitor
      to
      market its ethanol or distiller's grains at lower prices than Lincolnway Energy.
      Lincolnway Energy anticipates that there will be acquisitions and consolidations
      in the ethanol industry, and that those acquisitions and consolidations will
      lead to additional competitors with greater advantages over Lincolnway Energy.
      For example, VeraSun Energy Corp. and U.S. Bioenergy Corp. recently announced
      that a merger agreement has been approved by their boards. According to the
      Renewable Fuels Association, those companies have a combined production capacity
      of 870 million gallons of ethanol per year as of December 3, 2007, with an
      additional 770,000 million gallons per year of production under construction.
      A
      competitor may also offer other products or services that are not offered by
      Lincolnway Energy, which may give the competitor an additional advantage over
      Lincolnway Energy.





An
      ethanol plant utilizing corn to produce ethanol may also experience competition
      in the form of other plants which produce ethanol from other products. For
      example, ethanol can be produced from corn stalks, rice straw, wood, cheese
      whey, potatoes, wheat, oats, barley straw, sorghum, milo, sugar bogasse, rice
      hulls, switchgrass and biomass. Research is being conducted by various entities
      regarding the use of these cellulostic and biomass type products, and it is
      likely that processes will be developed at some point which will make the
      production of ethanol from these types of sources economical. It is also
      possible that one or more of these other sources may from time to time have
      greater advantages than corn, which would adversely affect an ethanol plant
      that
      produces ethanol solely from corn. For example, a plant using one of those
      sources may be able to produce ethanol on a more economical basis or on a more
      efficient or greater scale. The increased production of ethanol from other
      sources could also adversely affect the price for ethanol generally. Lincolnway
      Energy's ethanol plant is designed to produce ethanol only from corn.





Poet
      has
      recently announced that it intends to expand one of its existing corn based
      ethanol plants to also produce ethanol from cobs and stalks, with the expansion
      to begin operation in 2011. Poet is working with the U.S. Department of Energy
      on the project. According to the Renewable Fuels Association, Poet had an
      aggregate ethanol production capacity of approximately 1.11 billion gallons
      as
      of December 3, 2007. The U.S. Department of Energy has also awarded $385 million
      to five other companies hoping to construct a cellulostic/biomass ethanol plant.
      A Canadian company, Iogen Corporation, also currently produces approximately
      1
      million gallons of ethanol annually from wheat, oat and barley straw.


9





Some
      competitors operate their ethanol plant and produce ethanol using different
      sources of energy than coal, or using various other sources of energy. The
      other
      sources of energy include natural gas and various forms of waste type products,
      such as tires and construction waste. Those competitors may have lower
      production and input costs and/or higher operating efficiencies than Lincolnway
      Energy, which would allow them to market their ethanol at lower prices than
      Lincolnway Energy.





Competition
      from newly developed fuel additives would also reduce the use of ethanol and
      Lincolnway Energy's profitability. Although it is difficult to predict if any
      new fuel additives will be developed, it will occur at some point, and it could
      be in the near future.





Research
      is also continually being conducted for alternatives to petroleum based fuel
      products and for additional renewable fuel products. For example, research
      is
      ongoing regarding the use of hydrogen, electric or solar powered vehicles and
      fuel cells. A breakthrough or discovery in any research could conceivably occur
      at any time, and would likely have the effect of greatly reducing the use of
      ethanol or of even making the use of ethanol obsolete. There will be increased
      incentives to develop alternatives to petroleum based fuel products if gasoline
      prices stay at their current levels.





Ethanol
      is a commodity and is priced on a very competitive basis. Lincolnway Energy
      believes that its ability to compete successfully in the ethanol industry will
      depend upon its ability to price its ethanol competitively, which in turn will
      depend on many factors, many of which are beyond the control of Lincolnway
      Energy and its management. As indicated above, one of those factors is that
      Lincolnway Energy is subject to material and substantial competition, including
      from competitors who will be able to produce or market significantly higher
      volumes of ethanol and at lower prices.





Lincolnway
      Energy believes that the principal competitive factors with respect to
      distiller's grains are price, proximity to purchasers and product
      quality.





***Government
      Oversight and Regulation***





Lincolnway
      Energy's business is subject to substantial governmental oversight and
      regulation, including those relating to the discharge of materials into the
      air,
      water and ground; the generation, storage, handling, use, transportation and
      disposal of hazardous materials; and the health and safety of Lincolnway
      Energy's employees.


10





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





The
      principal risks associated with the substantial governmental oversight and
      regulation of Lincolnway Energy and its business are discussed in Item 1A of
      this annual report, at "Lincolnway Energy's Operations Are Subject To
      Substantial and Extensive Governmental Laws and Regulations Which Restrict
      and
      Increase the Cost of Lincolnway Energy's Business".





The
      ethanol industry is also substantially supported by and dependent upon various
      federal and state programs, including various subsidies, tax exemptions and
      other forms of financial incentives. Some of those programs and the principal
      risks associated with the governmental support of the ethanol industry are
      discussed in Item 1A of this annual report, under "Loss of Current Governmental
      Support and Incentives for Ethanol Would Reduce the Use of Ethanol and
      Materially and Adversely Affect Lincolnway Energy's Results of Operations and
      Financial Position".





***Employees***





As
      of
      December 15, 2007, Lincolnway Energy had 45 employees.





**Item 1A.**
            **Risk
                Factors.**





Any
      of
      the following risks could significantly and adversely affect Lincolnway Energy's
      prospects, business, results of operation and financial condition. The following
      risks are not the only risks Lincolnway Energy is subject to or may face, and
      they are not intended to be set forth in order of materiality or
      significance.


11





**Risks
      Relating to Lincolnway Energy and Its Business**





***Lincolnway
      Energy Has A Limited Operating History.*** Lincolnway
      Energy was organized in May, 2004, and its ethanol plant did not become
      operational until May 22, 2006. Lincolnway Energy therefore has a limited
      business, operating and financial history. Lincolnway Energy is in a rapidly
      expanding and evolving industry where supply and demand and other industry
      and
      market factors and occurrences can change materially in a short amount of time.
      Lincolnway Energy may not be able to achieve its purposes or
      objectives.





***Lincolnway
      Energy's Managers And Officers Do Not Have Substantial Experience With An
      Ethanol Plant Or In The Ethanol Industry.*** The
      board
      and the officers of Lincolnway Energy do not have any significant or material
      experience with an ethanol plant or the ethanol industry, other than through
      their positions with Lincolnway Energy. Lincolnway Energy has one ethanol plant
      that did not commence operations until May 22, 2006. The managers and officers
      therefore do not have significant or material experience in, or knowledge of,
      the operation of an ethanol plant or in or of the ethanol industry.





***Lincolnway
      Energy Is Heavily Dependent On A Management Team And Certain Suppliers And
      Service Providers, But Could Lose Any Of Their Services At Any Time.*** Lincolnway
      Energy is heavily dependent upon its core management team of its president
      and
      chief executive officer, chief financial officer, plant manager, commodities
      manager and controller, as well as on the companies which provide coal and
      corn
      to Lincolnway Energy and the companies which market Lincolnway Energy's ethanol
      and distiller's grains. If any of those management team members or companies
      terminate their services or for any reason cease to provide services to
      Lincolnway Energy, Lincolnway Energy's business and operations could be
      adversely affected in a sudden and material way. The services could be lost
      for
      reasons outside of anyone's control, such as death or disability. The marketing
      companies may also be heavily dependent upon one or more key employees or other
      relationships, and the loss of any of those employees or relationships by a
      company could adversely affect the company's ability to continue to provide
      timely and quality services to Lincolnway Energy.





***Lincolnway
      Energy's Ethanol Plant Has Only Been Operating Since May 22, 2006.*** Lincolnway
      Energy's ethanol plant has only been operating since May 22, 2006. Lincolnway
      Energy may still discover defects or deficiencies in the ethanol plant. For
      example, Lincolnway Energy is currently subject to regulatory proceedings with
      the Iowa Environmental Protection Commission and the Iowa Attorney General
      regarding alleged water and emissions violations. Any defects or deficiencies
      could cause production and other delays as well as substantial costs and
      expenses, and in particular if the defects or deficiencies are not covered
      by
      any warranty.


12





***Lincolnway
      Energy Is Subject To Risk Because Its Ethanol Plant Utilizes Coal.*** The
      primary energy source for Lincolnway Energy's ethanol plant is coal. The use
      of
      coal as a power source for an ethanol plant is still relatively new and
      untested. The use of coal is also subject to numerous federal and state
      regulations, including regarding permissible emissions levels.





Lincolnway
      Energy is currently subject to proceedings with the Iowa Environmental
      Protection Commission and the Iowa Attorney General concerning, among other
      things, air permitting, emission limit exceedences, stack testing, monitoring
      and reporting. Lincolnway Energy will attempt to reach a negotiated settlement
      of all allegations. Lincolnway Energy cannot predict the outcome, however it
      is
      likely that settlement will include a monetary penalty. Settlement may also
      include repermitting regarding air emissions and injunction concerning future
      activities. If repermitting becomes necessary, Lincolnway Energy could be
      subject to higher ongoing compliance and operating costs. Lincolnway Energy
      is
      hopeful that it will be able to reach a settlement regarding these matters,
      but
      there is no assurance that the matters will be settled, and Lincolnway Energy
      cannot predict at this time the result of any settlement or other proceedings
      that may arise out of these matters. Lincolnway Energy is therefore not able
      to
      determine at this time what effect these matters will have on Lincolnway Energy,
      but the result (even if through settlement) could have material adverse effects
      on Lincolnway Energy's business and financial condition.





Lincolnway
      Energy's ability to comply with the emissions and other requirements arising
      from its use of coal will depend to a degree on the type and quality of coal
      that is provided to Lincolnway Energy by its coal supplier. If the coal does
      not
      meet the content and quality standards anticipated by Lincolnway Energy,
      Lincolnway Energy may not be able to meet its emissions and other regulatory
      and
      permit conditions and requirements.





The
      use,
      storage and handling of coal also creates risks related to dust explosions
      and
      fire. Although Lincolnway Energy will take precautions to try to avoid those
      types of incidents, there is no assurance that those precautions will be
      successful in every circumstance.





The
      use
      of coal also generates fly ash, and Lincolnway Energy may face economic,
      logistic and environmental issues and difficulties in disposing of its fly
      ash.





Lincolnway
      Energy currently obtains all of its coal from one coal supplier. If the
      agreement is terminated or if that supplier fails to perform for any reason,
      Lincolnway Energy might face an interruption in the supply of coal and have
      to
      seek an alternate supply source. Lincolnway Energy does not have any agreement
      with any alternative suppliers at this time. As with natural gas and other
      energy sources, coal supplies can be subject to interruption by weather,
      strikes, transportation, and production problems that can cause supply
      interruptions or shortages. Lincolnway Energy has coal storage for approximately
      8 days of continuous ethanol production, and an interruption in the supply
      of
      coal beyond that period could cause Lincolnway Energy to halt or discontinue
      the
      production of ethanol, which would damage Lincolnway Energy’s ability to
      generate revenues.


13





***Lincolnway
      Energy's Business Is Not Diversified Because It Is Limited To The Operation
      Of A
      Single Ethanol Plant In The Midwest.*** Lincolnway
      Energy's business is limited to the ownership and operation of a single ethanol
      plant, although it is possible that Lincolnway Energy may attempt to own and
      operate other ethanol plants at some point in the future. The products of the
      ethanol plant are limited to ethanol and distiller's grains, and the ethanol
      is
      limited to use as a fuel additive, as opposed to industrial and food and
      beverage ethanol. Lincolnway Energy is not, therefore, a diversified
      business.





Lincolnway
      Energy's plant is located in Story County, Iowa. Lincolnway Energy contemplates
      that if it ever owns or operates any additional ethanol plants, the plants
      will
      also be located in the Midwest. The geographic location of Lincolnway Energy's
      business may therefore be limited to Iowa or, perhaps, the Midwest. Lincolnway
      Energy is therefore subject to any adverse economic conditions or occurrences
      which may be particular to the Midwest. Lincolnway Energy's location in the
      Midwest may also lower Lincolnway Energy's potential customer base given, among
      other things, the logistics and cost to transport ethanol and distiller's grains
      to other regions.





***If
      Lincolnway Energy Ever Expands, It Will Be Subject To The Risks Inherent In
      The
      Development And Construction Process.*** If
      Lincolnway Energy ever determines to expand its existing ethanol plant or to
      pursue the construction of an additional ethanol plant, Lincolnway Energy will
      be subject to the numerous material risks and uncertainties inherent in the
      development and construction process. For example, it may be difficult to
      identify a suitable location for another ethanol plant because many favorable
      locations have already been acquired by other ethanol plants or ethanol plant
      developers. Lincolnway Energy also believes that it could be difficult to obtain
      the necessary financing, at least at this time, given the generally unfavorable
      debt and equity financing market for the ethanol industry at the time of the
      preparation of this annual report and the Iowa regulatory proceedings to which
      Lincolnway Energy was subject at the time of the preparation of this annual
      report.





***Lincolnway
      Energy May Make Other Investments Or Engage In Other Business.*** Lincolnway
      Energy's board has the authority to cause Lincolnway Energy to construct or
      acquire or to invest in other ethanol plants or to make other investments or
      to
      engage in other businesses. The scope and nature of Lincolnway Energy's business
      could therefore change significantly, which could expose Lincolnway Energy
      to
      numerous other risks and uncertainties. Lincolnway Energy's business may not
      always be limited only to owning and operating its current ethanol
      plant.





***Lincolnway
      Energy Is Leveraged And Has Substantial Debt And Debt Service Requirements.*** Lincolnway
      Energy financed the construction and start-up of its ethanol plant with
      significant debt, and Lincolnway Energy will have loans outstanding from time
      to
      time under its operating and working lines of credit.


14





The
      use
      of leverage creates risks. For example, if Lincolnway Energy is unable to
      generate profits and cash flow to service its substantial debt and its ongoing
      operations and working capital needs, Lincolnway Energy may be forced to reduce
      or delay capital expenditures or any expansion plans, sell assets or operations,
      obtain additional loans or capital or attempt to restructure its loans and
      other
      debt. Lincolnway Energy also may not be able to renew, extend or replace any
      existing loans or financing arrangements Lincolnway Energy may have in place
      from time to time. If any of those events occur, Lincolnway Energy will need
      to
      attempt to obtain additional financing through the sale of additional units
      or
      debt in Lincolnway Energy or through additional loans from other lenders.
      Lincolnway Energy believes, however, that the debt and equity financing market
      is currently adverse to the ethanol industry in general. Any additional
      financing may lower returns and adversely affect Lincolnway Energy's cash flow,
      business and operations. If Lincolnway Energy is unable to obtain financing
      when
      needed, Lincolnway Energy may be forced to liquidate or otherwise sell some
      or
      all of its assets or operations.





Lincolnway
      Energy will also need to comply with the numerous restrictions and covenants
      that are included as part of Lincolnway Energy's credit and loan agreements.
      The
      restrictions and covenants include prohibitions or restrictions on incurring
      additional debt, granting additional security interests or liens, acquiring
      additional assets, mergers, the issuance of additional units, and making
      distributions to Lincolnway Energy's members. The credit and loan agreements
      also require Lincolnway Energy to maintain various financial ratios and other
      similar financial covenants. Those restrictions and requirements may limit
      Lincolnway Energy's flexibility in planning for, or reacting to, competition
      or
      changes in the ethanol industry and Lincolnway Energy's ability to pursue other
      perceived business opportunities.





Lincolnway
      Energy's loans are secured by liens on all of Lincolnway Energy's assets, and
      if
      Lincolnway Energy breaches any of its agreements with its lenders, the lenders
      will be able to foreclose on Lincolnway Energy's assets.





Lincolnway
      Energy's debt and leverage may place it at a competitive disadvantage with
      competitors which have less debt or greater financial resources, and may also
      increase Lincolnway Energy's vulnerability to adverse economic or industry
      conditions or occurrences.





Any
      increases in Lincolnway Energy's debt will increase the risks discussed
      above.





***Lincolnway
      Energy's Financing Costs Will Rise If Interest Rates Increase.*** Lincolnway
      Energy will be adversely affected by any increase in interest rates or other
      lending costs because Lincolnway Energy has substantial debt. Although difficult
      to predict and outside of Lincolnway Energy's control, it is likely that there
      will be additional increases in interest rates in both the near and longer
      term
      future.


15





***Lincolnway
      Energy's Potential Success Is Almost Exclusively Dependent On Ethanol Sales,
      And
      The Price Of Ethanol And Gasoline Can Vary Greatly And Are Beyond Lincolnway
      Energy's Control.*** Although
      Lincolnway Energy's ethanol plant produces distiller's grains, ethanol is the
      primary and material source of revenue for Lincolnway Energy, having generated
      approximately 90% and 87% of Lincolnway Energy's total revenues for the fiscal
      years ended September 30, 2006 and 2007, respectively.





Ethanol
      prices can vary significantly over both short and long term periods, and it
      is
      difficult to accurately predict changes in ethanol prices or in ethanol trends.
      For example, the spot price of ethanol reached $3.81 at the Chicago terminal
      during June 2006, but fell to $1.78 during September of 2006. As another
      example, the spot price of ethanol reached $2.49 at the Chicago terminal during
      January, 2007, but fell to $1.51 during September, 2007.





As
      another example, ethanol prices during the fiscal year ended September 30,
      2007
      were generally lower than the ethanol prices for the prior fiscal year, and
      in
      particular when comparing the fourth quarters of those two time periods.
      Lincolnway Energy's average ethanol sales prices for the fiscal year ended
      September 30, 2007 was $2.05 per gallon, as opposed to $2.33 per gallon during
      the prior fiscal year.





The
      price
      of gasoline also varies significantly over both short and long term periods.
      The
      price for ethanol has generally had some correlation to the price of gasoline,
      so low gasoline prices or reductions in gasoline prices will also generally
      reduce ethanol prices and profitability. Gasoline prices have remained at or
      near record levels since approximately late June 2006 due to various events
      and
      circumstances, but it is unlikely that gasoline prices will continue at their
      current level over the long term. Also, the current gasoline price has reached
      a
      level where businesses and consumers are actively seeking ways to lower or
      reduce their gasoline consumption. For example, there is increased attention
      to
      requiring the auto industry to produce cars with higher fuel efficiency. The
      higher gasoline prices will also increase the focus and attention on the
      research and development of alternative energy options, such as fuel cells.
      If
      those trends continue, it could adversely affect gasoline and ethanol prices
      and
      the profitability of ethanol plants.





Lincolnway
      Energy's inability to foresee or accurately predict changes in the supply or
      prices of ethanol or gasoline will adversely affect Lincolnway Energy's
      business.





If
      ethanol prices decline to the point where it is unprofitable to produce ethanol
      and remain at that level, Lincolnway Energy could be required to suspend
      operations until the price increases to the level where it is once again
      economical or profitable to produce and market the ethanol. Any suspension
      of
      operations would have a material adverse effect on Lincolnway Energy's business,
      results of operations and financial condition.




Even
      if
      ethanol prices are generally favorable, Lincolnway Energy still may not be
      able
      to sell all of its ethanol, or at favorable prices.


16




***The
      Increase In Supplies Of Ethanol May Adversely Affect Ethanol And Ethanol
      Byproduct Prices.*** There
      has
      been a significant increase in ethanol production since 2000 and in particular
      over the past two to three years. Lincolnway Energy anticipates that there
      will
      continue to be material increases in ethanol production, both in the United
      States and internationally.





The
      increasing ethanol production will at times lead or contribute to lower ethanol
      prices and lower prices for distiller's grains. The increased ethanol production
      is one of the factors that has contributed to the lower ethanol prices and
      lower
      prices for distiller's grains generally experienced to date during 2007. The
      increasing ethanol production may also lead to there being excess ethanol and/or
      distiller's grains production at some point, which would also lower ethanol
      and
      distiller's grains prices. The 2005 energy bill mandates the use of 7.5 billion
      gallons of biofuels by 2012, but the current estimated production and production
      under construction will already lead to ethanol in excess of that level.
      Lincolnway Energy anticipates that a new energy bill will be passed which
      increases the level of mandatory use of biofuels, but there is no assurance
      of
      that fact or of the amount of any increase in the mandated gallons. Lower
      ethanol and distiller's grains prices will reduce profitability.





Excess
      ethanol production capacity could also result from decreases in demand for
      ethanol, which could result from a number of factors, such as regulatory
      developments, reduced gasoline consumption in the United States or advancements
      in alternatives to gasoline.





***Purchases
      Of Ethanol Blended Gasoline Will Decline If The Price Exceeds The Price For
      Regular Unleaded Gasoline.*** The
      price
      of ethanol blended gas at the pump has at times exceeded the price of regular
      unleaded gasoline. Consumers' purchases of gasoline are price driven, so it
      is
      likely that the use of ethanol blended gasoline will be reduced during periods
      where the price of ethanol blended gasoline exceeds the price of regular
      unleaded gasoline.





***Continued
      Growth In The Ethanol Industry Depends On Changes To And Expansion Of Related
      Infrastructure Which May Not Occur On A Timely Basis, If At All.*** Substantial
      development and/or expansion of infrastructure will be required by persons
      outside of Lincolnway Energy's control for the ethanol industry to be able
      to
      continue to grow. Some areas requiring development or expansion include:




·
            Additional
                rail and rail car capacity;


·
            Additional
                storage facilities for ethanol;


·
            Increases
                in truck fleets capable of transporting ethanol within localized
                markets;


·
            Expansion
                of refining and blending facilities to handle
                ethanol;


17





·
            Growth
                in service stations equipped to handle ethanol fuels, and in particular
                E85 fuels; and


·
            Growth
                in the fleet of flexible fuel vehicles which are capable of using
                fuel
                with significantly higher ethanol content than
                10%.





The
      substantial investments required for these infrastructure developments may
      not
      be made or they may not be made on a timely basis. Any failure or delay in
      making the developments to or expansion of the infrastructure could hurt the
      demand or prices for ethanol, impede Lincolnway Energy's delivery of ethanol,
      impose additional costs on Lincolnway Energy or otherwise have a material
      adverse effect on Lincolnway Energy's results of operations and financial
      condition.





***Any
      Significant Dependence On Any Particular Customer Or Supplier Could Have Adverse
      Effects On Lincolnway Energy In The Event Of The Loss Of Any Such Customer
      Or
      Supplier.*** If
      Lincolnway Energy is overly dependent on any particular customer or group of
      customers for the sale of its ethanol or distiller's grains or on any supplier
      or group of suppliers for Lincolnway Energy's corn, coal or other inputs, the
      loss of any such customer or supplier could have a material adverse effect
      on
      Lincolnway Energy and its business. Lincolnway Energy is currently heavily
      dependent upon a single supplier for obtaining a significant portion of its
      corn
      needs and upon another supplier for all of its coal needs. Lincolnway Energy
      also currently utilizes a single company to market all of Lincolnway Energy's
      ethanol and another company to market all of its distiller's grains. The loss
      of
      any of those relationships could have material adverse effects on Lincolnway
      Energy.





***Lincolnway
      Energy's Results Of Operations, Financial Position And Business Outlook Will
      Likely Fluctuate Substantially Because Lincolnway Energy's Business Is Highly
      Dependent On Commodity Prices, Which Are Subject To Significant Volatility
      And
      Uncertainty, And On The Availability Of Raw Materials Supplies.*** Lincolnway
      Energy's results of operations will be substantially dependent on commodity
      prices, especially prices for corn, coal, ethanol and unleaded gasoline. The
      prices of these commodities are volatile and beyond Lincolnway Energy's control.
      As a result of the volatility of the prices for these commodities, Lincolnway
      Energy's results will likely fluctuate substantially over time. Lincolnway
      Energy will experience periods during which the prices for ethanol and
      distiller's grains decline and the costs of Lincolnway Energy's raw materials
      increase, which will result in lower profits or operating losses and which
      will
      adversely affect Lincolnway Energy's financial condition. Lincolnway Energy
      may
      attempt to offset a portion of the effects of such fluctuations by entering
      into
      forward contracts to supply ethanol or to purchase corn, coal or other items
      or
      by engaging in hedging and other futures related activities, but those
      activities also involve substantial risks and may be ineffective to mitigate
      price fluctuations.


18





***The
      Supply And Costs Of The Inputs Required By Lincolnway Energy Can Vary Greatly
      And Adversely Affect Lincolnway Energy's Profits And Financial
      Position*** .
      Lincolnway Energy's ethanol plant produces ethanol from corn. Lincolnway Energy
      estimates that corn costs will, on the average, make up approximately 60% of
      Lincolnway Energy's total annual operating costs. Accordingly, rising corn
      prices will lower profit margins, and, at certain levels, corn prices would
      make
      ethanol uneconomical to produce and to use in the fuel markets. Lincolnway
      Energy generally will be unable to pass along increased corn costs to Lincolnway
      Energy's customers. Corn prices began to rise significantly in approximately
      July, 2006, with the cash corn price in Lincolnway Energy's local market area
      ranging from a low of $2.09 per bushel in July, 2006 to a high of $4.20 per
      bushel in February, 2007. The corn price based on the Chicago Board of Trade
      daily futures data ranged from a low of $2.61 per bushel to a high of $4.37
      per
      bushel during Lincolnway Energy's fiscal year ended September 30,
      2007.





The
      price
      of corn is influenced by many factors, including general economic, market and
      regulatory factors, such as government policies and subsidies with respect
      to
      agriculture and international trade, and global and local demand and supply.
      The
      expansion in the ethanol industry has also affected the corn markets and the
      supply of corn, and has contributed to the higher corn prices generally
      experienced since July 2006. Lincolnway Energy anticipates that the continuing
      expansion of the ethanol industry will continue to significantly increase the
      demand for corn, which will result in higher corn prices and, possibly,
      shortages of corn from time to time.





The
      price
      for corn in the market area encompassing Lincolnway Energy's ethanol plant
      could
      be higher than the corn price payable in other markets, and in particular if
      another ethanol plant is constructed in the same market area or another ethanol
      plant attempts to purchase corn in Lincolnway Energy's market area. Lincolnway
      Energy will also compete for corn with the livestock producers and elevators
      located within Lincolnway Energy's market area.





The
      price
      of corn is also influenced by the supply of corn, which is subject to many
      risks
      which are beyond anyone's control, such as farmer planting decisions, imports,
      weather and disease.





Lincolnway
      Energy will have difficulty from time to time in obtaining corn on economical
      terms, due to increasing prices or supply shortages. Lincolnway Energy may
      not
      always have short-term or long-term agreements or positions in place for the
      purchase of all of its corn needs, and Lincolnway Energy will at times need
      to
      buy all, or at least some, of Lincolnway Energy's corn needs on the open market.
      There may not be adequate supplies of corn available on the open market or
      at
      prices which are favorable or acceptable to Lincolnway Energy.





If
      Lincolnway Energy is unable to obtain corn or to obtain corn at favorable
      prices, Lincolnway Energy could be required to suspend operations until corn
      became available or at economical terms. Any suspension of operations would
      have
      a material adverse effect on Lincolnway Energy's business, results of operations
      and financial condition.


19





Lincolnway
      Energy's gross margin will depend significantly on the spread between ethanol
      and corn prices, and in particular the spread (sometimes referred to as the
      crush spread) between the price of a gallon of ethanol and the price for the
      amount of corn required to produce a gallon of ethanol. During June 2006, the
      spread between ethanol and corn prices was at a historically high level due
      to
      the combination of both historically high oil and ethanol prices and the
      historically low corn prices. The price of ethanol and corn fluctuates
      frequently and widely, however, and the spread between ethanol and corn prices
      has been significantly reduced since that time because of a reduction in ethanol
      prices and an increase in corn prices over the period of, generally, July,
      2006
      to January, 2007. Any favorable spread between ethanol and corn prices which
      may
      exist from time to time therefore cannot be relied upon as indicative of the
      future. As an example of the fluctuation in the crush spread, average U.S.
      ethanol rack prices, as reported by Bloomberg, L.P., ranged from approximately
      $0.94 to $3.82 in 2005 and from approximately $1.68 to $4.08 during 2006, and
      with corn spot prices based on the Goldman Sachs Commodity Index ranging from
      approximately $1.48 to $2.75 per bushel during 2005 and from $2.00 to $3.75
      per
      bushel during 2006. As another example, those same ranges during Lincolnway
      Energy's fiscal year ended September 30, 2007 were, respectively, $1.40 to
      $2.40, and $2.40 to $4.20.





The
      supply and cost of other inputs needed by Lincolnway Energy can also vary
      greatly, such as coal, electric and other energy costs. Lincolnway Energy's
      ethanol plant utilizes coal as its primary energy source, and Lincolnway Energy
      estimates that coal costs will, on average, make up approximately 8% of
      Lincolnway Energy's annual total operating costs. The prices for and
      availability of coal are subject to numerous market conditions and factors
      which
      are beyond Lincolnway Energy's control. Significant disruptions in the supply
      of
      coal would impair Lincolnway Energy's ability to produce ethanol, and increases
      in coal prices or changes in Lincolnway Energy's coal costs relative to the
      costs paid by Lincolnway Energy's competitors would adversely affect Lincolnway
      Energy's competitiveness and results of operation and financial position.





Lincolnway
      Energy is currently reliant upon its contract with a single coal supplier for
      the supply of all of Lincolnway Energy's coal needs. The contract will terminate
      by its terms on January 1, 2013, and there is no assurance that Lincolnway
      Energy will be able to enter into a similar agreement for the supply of coal
      after that time. Lincolnway Energy believes its current contract for coal
      provides it with some protection regarding extreme changes in the price of
      coal,
      but there is no assurance that Lincolnway Energy will be able to enter into
      another contract that provides those same protections to Lincolnway
      Energy.





There
      may
      also be seasonal fluctuations experienced by Lincolnway Energy in the price
      of
      corn and coal and the price of ethanol. For example, the spot price of corn
      has
      historically tended to rise during the spring planting season in May and June
      and to decrease during the fall harvest in October and November. The price
      of
      gasoline has tended to rise during the summer and winter months. Lincolnway
      Energy does not, however, know if the historical seasonal fluctuations will
      continue or will affect Lincolnway Energy's results over time.


20





Transportation
      costs can also be a factor in the price for ethanol because ethanol is currently
      shipped by truck or by rail, and not by pipeline, and because ethanol generally
      needs to be shipped long distances to a terminal where the ethanol can be
      blended with gasoline. The recent high fuel prices have greatly increased
      transportation costs, and Lincolnway Energy believes that fuel prices will
      stay
      high for the foreseeable future.





Lincolnway
      Energy's inability to foresee or accurately predict changes in the supply or
      prices of corn, coal and other inputs, or the inability to pass on any increased
      costs to Lincolnway Energy's customers, will adversely affect Lincolnway
      Energy's business, results of operation and financial position.





Lincolnway
      Energy's inability to obtain, or any delays in obtaining, corn, coal or other
      inputs in times of shortages or high demand will also adversely affect
      Lincolnway Energy's business, results of operation and financial
      position.





***Market
      Prices And Futures Prices For Ethanol And For Corn, Coal And Other Inputs Are
      Very Difficult To Predict Because They Are Speculative And
      Volatile.*** The
      agricultural economy and the economy in general, and market prices and futures
      prices for oil, ethanol, distiller's grains, corn, coal and other inputs needed
      for Lincolnway Energy's ethanol operation, are all highly volatile and are
      influenced by many varying factors. It is not possible to identify all possibly
      relevant factors, but some of the factors include the following and rumors
      or
      speculation about the following:





·
            Changing
                supply and demand relationships and trade deficit
                issues;


·
            Weather
                and other environmental conditions;


·
            Acts
                of God, including drought and
                storms;


·
            Agricultural,
                fiscal, monetary, economic, trade and exchange control programs and
                policies of governments;


·
            International,
                national, regional and local political and economic events and
                policies;


·
            Changes
                in fuel and energy costs or in interest rates or rates of inflation;


·
            Controversies
                or disputes about the use of biotechnology in crops, or errors or
                adverse
                reactions caused by the use of biotechnology in crops, such as the
                past
                issues with Starlink corn;


·
            Infestations
                or diseases in crops;


·
            Acts
                of terrorism or war, both nationally and internationally, including
                in
                Afghanistan and the Middle East;


·
            Illegal
                or improper activities or scandals by participants in the markets,
                such as
                those that have recently occurred in the accounting industry, the
                stock
                and mutual fund industry and the insurance industry;
                and


21





·
            The
                general emotions and psychology of businesses, consumers and of the
                market
                place in general, which at times can be totally unrelated to actual
                economic or market conditions or other more tangible factors.





The
      internet, e-mail, television and other forms of communication allow rumors
      and
      speculation to be quickly and widely circulated, which can have immediate and
      substantial effects on the markets, even if the rumor or speculation is later
      found to be incorrect or unjustified.





It
      is
      very likely that there will be further acts of terrorism in the United States
      and abroad, including the possibility of acts aimed at disrupting the economy
      or
      the markets or various industries or sectors within the markets. For example,
      there has been speculation about possible acts of terrorism aimed at the energy,
      agricultural and food industries. Any speculation or rumors about, or actual
      acts of, terrorism could cause immediate and substantial reactions in a wide
      range of the markets and industries and in the economy in general. The continued
      uncertainty in Afghanistan and the Middle East also continues to create
      uncertainties and could cause adverse reactions in the oil and energy markets
      and in the markets and economy in general.




None
      of
      the above factors or occurrences can be controlled by Lincolnway Energy, and
      it
      will be impossible to always accurately predict or identify which factors are
      relevant or are likely to occur.





Also,
      even if Lincolnway Energy were somehow able to have fully current and correct
      information as to all factors, prices would still not always react as predicted
      or as would seem likely given the information. For example, there have been
      many
      occasions where the movements of the futures markets have seemed totally
      unrelated to actual supply and demand and other more tangible factors. The
      latter fact may be caused, in part, because of the substantial speculative
      trading that occurs in the futures markets.





***The
      Use Of Hedging Strategies Or The Futures Markets By Lincolnway Energy Could
      Be
      Unsuccessful And Result In Losses.*** Lincolnway
      Energy will likely attempt to minimize the effects of the volatility of corn,
      coal, ethanol, distiller's grains and other prices by taking hedging positions
      through forward pricing contracts or on the futures markets. The intent of
      those
      positions will be to attempt to protect the supply of, and the price at which
      Lincolnway Energy can buy, corn, coal or other inputs and the price at which
      Lincolnway Energy can sell its ethanol. Any attempt by Lincolnway Energy to
      use
      hedging strategies may be unsuccessful, and in fact could result in substantial
      losses because price movements in futures contracts and options are highly
      volatile and speculative, and are influenced by many factors which are beyond
      the control of anyone. Some of those factors include those noted above in
      "Market Prices And Futures Prices For Ethanol And For Corn, Coal And Other
      Inputs Are Very Difficult To Predict Because They Are Speculative And Volatile."
      Lincolnway Energy will likely vary the amount of forward pricing, hedging and
      other risk mitigation strategies Lincolnway Energy may undertake, and Lincolnway
      Energy may at times choose not to engage in any such transactions. As a result,
      Lincolnway Energy's results of operations and financial position may be
      adversely affected by increases in the price of corn or coal or decreases in
      the
      price of ethanol or unleaded gasoline. Lincolnway Energy does not typically
      enter into derivative instruments other than for hedging purposes. Although
      Lincolnway Energy believes its derivative positions are economic hedges, none
      have been designated as a hedge for accounting purposes.


22





Futures
      markets will also sometimes be illiquid, and Lincolnway Energy may not be able
      to execute a buy or sell order at the desired price, or to close out an open
      position in a timely manner. The inability to timely close out an open position
      may result in substantial losses to Lincolnway Energy. Lincolnway Energy's
      potential losses and liabilities for any futures or options positions are not
      limited to margin amounts or to the amount held in or the value of Lincolnway
      Energy's trading account, and in the event of a deficiency in Lincolnway
      Energy's trading account due to a margin call made to the trading account,
      a
      loss exceeding the value of the trading account, or otherwise, Lincolnway Energy
      will be responsible for the full amount of the deficiency. Given the volatility
      of futures trading, margin calls can occur frequently and the amount of a margin
      call can be significant.





***There
      Are Many Factors Important To The Success Of An Ethanol Plant And The Operation
      Of An Ethanol Plant Which Are Beyond The Control Of Lincolnway Energy.*** Lincolnway
      Energy's ability to successfully operate its ethanol plant and to market the
      ethanol and distiller's grains produced at the plant are subject to numerous
      factors and risks which are beyond the control of Lincolnway Energy. Those
      factors include the following:





·
            The
                ability to retain qualified employees and other personnel, and on
                favorable terms;


·
            Labor
                disputes or other employee issues;


·
            Increases
                in the price of corn, coal, electricity, labor, gas or fuel, and
                in truck
                and rail transportation costs;


·
            Railcar
                and truck shortages or strikes within those
                industries;


·
            The
                price of oil and gas;


·
            The
                demand for and consumption of petroleum products generally and ethanol
                specifically;


·
            Environmental
                and other regulations which impact both the demand for ethanol and
                the
                operation and cost of operation of the ethanol
                plant;


·
            Governmental
                regulations and incentives; and


·
            General
                market fluctuations and economic
                conditions.





The
      operation of an ethanol plant is subject to ongoing compliance with all
      applicable governmental regulations, such as those governing pollution controls,
      ethanol production, grain purchasing and other matters. Other regulations will
      likely arise in the future regarding the operation of ethanol plants, including
      the possibility of required additional permits and licenses and increased
      environmental, emissions or wastewater requirements or other regulatory
      compliance. There could be difficulty in obtaining any such additional permits
      or licenses or in meeting any additional environmental, emissions, wastewater
      or
      other compliance requirements.


23





***Lincolnway
      Energy's Operations Are Subject To Substantial And Extensive Governmental Laws
      And Regulations Which Restrict And Increase The Costs Of Lincolnway Energy's
      Business.*** Lincolnway
      Energy's ethanol operations are subject to substantial and extensive
      governmental laws and regulations, including those relating to the discharge
      of
      materials into the air, water or ground, and the generation, storage, handling,
      use, transportation and disposal of hazardous materials. Some of those laws
      and
      regulations require Lincolnway Energy to maintain various permits and other
      approvals in order to continue ongoing operations. Lincolnway Energy will need
      to meet the various requirements and conditions necessary to the issuance and
      maintenance of those permits and approvals. The requirements and conditions
      may
      include that the ethanol plant facilities and operations meet various
      specifications regarding air quality, discharge, water and waste treatment,
      and
      various other operational matters. Lincolnway Energy's compliance with all
      necessary permits, approvals and laws and regulations will increase Lincolnway
      Energy's costs and expenses. Lincolnway Energy's failure to comply with those
      requirements or to maintain those permits and approvals may result in fines
      or
      penalties, the loss of the right to continue operations or claims by third
      parties.





For
      example, as discussed elsewhere in this annual report, Lincolnway Energy was
      subject to regulatory proceedings by the Iowa Department of Natural Resources
      and the Iowa Attorney General at the time of the preparation of this annual
      report concerning various alleged environmental law violations relating to
      wastewater releases, exceedences of iron and total suspended solid limits in
      Lincolnway Energy's NPDES wastewater discharge permit, air permitting, emissions
      exceedences, stack testing, monitoring and reporting. Lincolnway Energy hopes
      to
      reach a settlement on all of the alleged violations, but there is no assurance
      that the matters will be settled, and Lincolnway Energy cannot predict at this
      time the outcome of any settlement or other proceedings that may arise out
      of
      these matters. The outcome could, however, have material adverse effects on
      Lincolnway Energy's business, operations and financial condition. Lincolnway
      Energy believes it is likely that the outcome will include a monetary penalty,
      and may include repermitting air emissions.





Lincolnway
      Energy also anticipates that there will be changes in the approval requirements
      and other laws and regulations over time, and that those changes will increase
      the regulatory oversight and costs and expenses of Lincolnway Energy. For
      example, the regulation of the environment, including the use of water,
      wastewater, storm water and air emissions, is a constantly changing area of
      the
      law, and it is likely that more stringent federal or state environmental laws,
      rules or regulations, or interpretation or enforcement of existing laws, rules
      or regulations, could be adopted which would require Lincolnway Energy to make
      substantial capital expenditures and/or increase Lincolnway Energy's operating
      costs and expenses. It is also possible that federal or state environmental
      laws, rules or regulations could be adopted which have an adverse effect on
      the
      use of ethanol, such as changes in the regulations regarding the required oxygen
      content of automobile fumes. The new laws, rules or regulations could also
      arise
      or become necessary because of currently unknown conditions or problems arising
      from the production or use of ethanol, similar to what have occurred with methyl
      tertiary-butyl ether (MTBE) because of the adverse environmental and health
      issues now known to be caused by MTBE. There has also been increased attention
      by the Environmental Protection Agency and other regulators to the wastewater
      and air emissions released as a result of the process of producing ethanol,
      and
      it is possible that additional environmental or other regulatory requirements
      or
      conditions may be applied to the wastewater and air emissions released as part
      of the process of producing ethanol.


24





***Lincolnway
      Energy May Become Subject To Various Environmental And Health And Safety And
      Property Damage Type Claims And Liabilities.*** The
      nature of Lincolnway Energy's operations will expose it to the risk of
      environmental and health and safety claims and property damage claims. For
      example, if any of Lincolnway Energy's operations are found to have polluted
      the
      air or surface water or ground water, such as through an ethanol spill,
      Lincolnway Energy could become liable for substantial investigation, clean-up
      and remediation costs, both for its own property and for the property of others
      which may have been affected by the pollution or spill. Those types of claims
      could also be made against Lincolnway Energy based upon the acts or omissions
      of
      other persons, including persons transporting or handling ethanol or who are
      responsible for any locations where Lincolnway Energy disposes of any hazardous
      substances. Environmental and property damages claims and issues can also arise
      due to spills, losses or other occurrences arising from events outside of
      Lincolnway Energy's control and which are possible in Lincolnway Energy's
      business, such as fire, explosions or blowouts. A serious environmental
      violation or repeated environmental violation could result in Lincolnway Energy
      being unable to construct or operate any additional ethanol plants and the
      loss
      of defenses to nuisance suits. Lincolnway Energy may also be unable to obtain
      financing or necessary permits if Lincolnway Energy is subject to any pending
      administrative or legal action regarding environmental matters. Any of those
      types of events could have a material adverse effect on Lincolnway Energy's
      financial condition and future prospects.





***There
      Is Growing Negative Press And Public Sentiment Against The Ethanol Industry
      Which Could Lead To Reduced Governmental And Public Support For The Use Of
      Ethanol.*** There
      has
      been growing negative press and public sentiment against the ethanol industry
      based upon claims that the use of corn to produce ethanol has driven up grain
      prices, which hurts livestock farmers and also consumers due to increased food
      prices. The claims also include environmental type allegations, including that
      burning ethanol in gasoline causes air pollution and that increased corn acreage
      and ethanol production could strain water supplies and worsen pollution in
      rivers and streams. The criticism has come from, among others, environmental
      groups, the National Academy of Sciences, the American Lung Association and
      through the United Nations. The growing criticism of the ethanol industry could
      lead to reduced governmental supports for the industry and reduced public
      support and use of ethanol. The current criticisms are based primarily on the
      production of ethanol from corn, and could accelerate the development of other
      economical sources for the production of ethanol. Lincolnway Energy's plant
      can
      only produce ethanol from corn.


25





***Loss
      Of Current Governmental Support And Incentives For Ethanol Would Reduce The
      Use
      Of Ethanol And Materially And Adversely Affect Lincolnway Energy's Results
      Of
      Operations And Financial Position.*** There
      are
      various federal and state laws and regulations and programs which have lead
      to
      the increasing use of ethanol, including various subsidies, tax exemptions
      and
      other forms of financial incentives. Some of the laws provide economic
      incentives to produce or use ethanol and some of the laws mandate the use of
      ethanol. No guarantee can be given that any of those laws, regulations or
      programs will be continued, and the revocation or amendment of any one or more
      of those laws, regulations or programs could adversely affect the future use
      and
      price of ethanol in a material way. Governmental support of the ethanol industry
      may decrease due to governmental budget issues. The current governmental support
      of the ethanol industry may also decrease as the ethanol industry matures and
      advances, or in the event of any adverse environmental or other occurrences
      in
      the ethanol industry.





As
      of the
      date of this annual report, debate was occurring on a new energy bill and a
      new
      farm bill, and ethanol and biofuel proponents are hopeful that the bills will
      be
      favorable to the ethanol and biofuel industries by, for example, increasing
      the
      mandated use of biofuels beyond the current mandate of 7.5 billion gallons
      by
      2012. Although it appears likely that legislation will be able to be passed
      which increases the biofuels mandate, there is no assurance that the legislation
      will be passed or what increases will be made in the biofuels mandate that
      was
      part of the 2005 energy bill. There is also no assurance of how any new mandate
      will be allocated across ethanol, biodiesel and other biofuels. The Renewable
      Fuels Association has estimated that the U.S. annual ethanol production capacity
      as of December 3, 2007 was 7.2 billion gallons, and that additional production
      capacity of 6.2 billion gallons was under construction or proposed as of that
      date.





As
      noted
      above, the biofuels industry has received substantial negative press as of
      late
      regarding the possible negative effects and side effects of ethanol production.
      Any negative public sentiment could lead to decreases in governmental support
      of
      the ethanol industry.





Some
      of
      the material existing federal laws and programs are as follows:





·
            The
                cost of production of ethanol is made significantly more competitive
                with
                regular gasoline by federal tax incentives, sometimes referred to
                as the
                blenders' credit. Before January 1, 2005, the federal excise tax
                incentive
                program allowed gasoline distributors who blended ethanol with gasoline
                to
                receive a federal excise tax rate reduction for each blended gallon
                they
                sold. If the fuel was blended with 10% ethanol, the refiner/marketer
                paid
                $0.052 per gallon less tax, which equated to an incentive of $.52
                per
                gallon of ethanol. The $.52 per gallon incentive for ethanol was
                reduced
                to $.51 per gallon in 2005 and is scheduled to expire in 2010. The
                blenders' credit may not be renewed in 2010 or may be renewed on
                different
                terms. In addition, the blender's credit, as well as other federal
                and
                state programs benefiting ethanol (such as tariffs), generally are
                subject
                to U.S. government obligations under international trade agreements,
                such
                as the World Trade Organization Agreement on Subsidies and Countervailing
                Measures, and might be the subject of challenges under those trade
                agreements. The elimination or significant reduction in the blenders'
                credit could have a material adverse effect on Lincolnway Energy's
                results
                of operations and financial
                position.


26





·
            Congress
                passed the Freedom to Farm Act in 1996, which allows farmers continued
                access to government subsidies while reducing restrictions on farmer's
                decisions about land use. The Act increased acreage dedicated to
                corn
                crops and also allowed farmers more flexibility to respond to increases
                in
                corn prices by planting greater amounts of corn. Any changes to,
                or the
                elimination of, the Act could have a material adverse effect on the
                amount
                of corn available in future years and could reduce the farming industry's
                responsiveness to the increasing corn needs of ethanol producers.
                There
                may be changes to the Act given the increasing budget and deficit
                issues
                facing the federal government.





·
            Imported
                ethanol is generally subject to a $.54 per gallon tariff that was
                designed
                to offset the $.51 per gallon ethanol incentive available under the
                federal excise tax incentive program for refineries that blend ethanol
                in
                their fuel. A special exemption from the tariff exists for ethanol
                imported from 24 countries in Central America and the Caribbean islands,
                but is limited to a total of 7% of U.S. production per year. Imports
                from
                the exempted countries might increase as a result of new ethanol
                plants
                that are under development. Production costs for ethanol in those
                countries can be significantly less than in the U.S. and the duty
                free
                import of lower price ethanol through the countries exempted from
                the
                tariff may reduce the demand for U.S. ethanol and the price at which
                Lincolnway Energy can sell its ethanol. Any changes in the tariff
                or
                exemption from the tariff could have a material adverse effect on
                U.S.
                ethanol production and on Lincolnway Energy's results of operation
                and
                financial position. In addition, the North America Free Trade Agreement
                which went into effect on January 1, 1994 allows Canada and Mexico
                to
                import ethanol duty free or at a reduced rate. Canada is exempt from
                the
                duty under the current North America Free Trade Agreement guidelines,
                and
                Mexico's duty rate is currently $.10 per
                gallon.





·
            The
                Energy Policy Act of 2005 established the renewable fuels standard
                that
                mandates minimum annual volumes of renewable fuel to be used by refiners
                in the fuel supply. The annual requirement grows to 7.5 billion gallons
                per year by 2012.


27





·
            The
                use of fuel oxygenates, including ethanol, was mandated through
                regulation, and much of the forecasted growth in demand for ethanol
                was
                expected to result from additional mandated use of oxygenates. Most
                of
                this growth was projected to occur in the next few years as the remaining
                markets switch from MTBE to ethanol. The 2005 federal energy bill,
                however, eliminated the mandated use of oxygenates and established
                minimum
                nationwide levels of renewable fuels to be included in gasoline.
                Renewable
                fuels for this purpose include ethanol, biodiesel or any other liquid
                fuel
                produced from biomass or biogas. Biodiesel and other renewable fuels,
                in
                addition to ethanol, are therefore counted toward the minimum usage
                requirements, so the elimination of the oxygenate requirement for
                gasoline
                may result in a decline in ethanol consumption. The energy bill also
                included provisions for trading of credits for use of renewable fuels.





The
      energy bill did not include MTBE liability protection sought by refiners, and
      this lack of protection might result in an accelerated removal of MTBE and
      increased demand for ethanol. Refineries may, however, use other possible
      replacement additives, such as iso-octane, iso-octene and alkylate. The actual
      demand for ethanol may therefore increase at a lower rate than estimated, which
      could result in excess production capacity in the ethanol industry.





The
      U.S.
      Department of Energy, in consultation with the Secretary of Agriculture and
      the
      Secretary of Energy, may waive the renewable fuels mandate with respect to
      one
      or more states if the Administrator of the Environmental Protection Agency
      determines that implementing the requirements would severely harm the economy
      or
      the environment of the state, a region or the U.S., or that there is inadequate
      supply to meet the requirement. Any waiver of the renewable fuels standard
      with
      respect to one or more states would adversely affect demand for ethanol and
      could have a material adverse effect on the ethanol industry.





***Lincolnway
      Energy Currently Has No Expansion Plans And Any Expansion Plans That May Be
      Developed May Not Be Able To Be Implemented By Lincolnway Energy.*** Although
      Lincolnway Energy may determine to expand its ethanol plant, or to construct
      or
      acquire additional ethanol plants in the future, Lincolnway Energy currently
      does not have any definite plans for any expansion of its existing ethanol
      plant
      or for the construction or acquisition of an additional ethanol plant.
      Lincolnway Energy therefore may not ever be a company which has multiple ethanol
      plants or that will produce significant volumes of ethanol.


28





Any
      expansion plans that may be developed by Lincolnway Energy may not be able
      to be
      implemented for numerous reasons. For example, Lincolnway Energy will need
      to be
      able to identify, and to acquire on acceptable terms, suitable real estate
      in an
      area which already has, or can feasibly and economically develop, the gas,
      electric, water and other physical infrastructure necessary to support the
      plant
      and which also has both sufficient supplies of gas, electricity, water, corn
      and
      other inputs and adequate rail and other transportation access. Given the
      increasing number of ethanol plants, it is becoming increasingly more difficult
      to identify suitable locations for an ethanol plant. As other examples,
      Lincolnway Energy might not be able to obtain the necessary debt or equity
      financing or the various lender and governmental approvals and permits that
      would be necessary in order to construct and operate new or expanded facilities.
      Lincolnway Energy believes that the current equity and lending market is adverse
      to the ethanol industry. The construction costs could also increase to levels
      that would make the expansion of Lincolnway Energy's existing plant or the
      construction of a new facility too expensive or unprofitable to operate. There
      currently are only three contractors with significant experience in building
      ethanol plants in the United States, so it may be difficult to retain a
      contractor on a timely basis. There is also currently great demand for those
      contractors, so it may be difficult to retain any of those contractors on
      acceptable financial or commercial terms.





Any
      expansion would also likely reduce Lincolnway Energy's earnings and profits
      for
      some period of time because of the significant costs and expenses that will
      be
      incurred in order to expand or to construct or acquire and start up an
      additional ethanol plant and operations and the working capital requirements
      and
      operating losses that will be incurred during the construction and start up
      period for the expanded or new ethanol plant. The costs and expenses of any
      expansion plan would likely result in net losses to Lincolnway Energy during
      the
      expansion period.





The
      pursuit and implementation of any expansion plans through the acquisition of
      other ethanol plants would involve numerous risks, including possible dilution
      to existing members if the acquisition is financed by the issuance of units.
      Other risks include difficulties in supporting and transitioning customers
      and
      suppliers of the target company, and the general integration of the new plant
      and related business into Lincolnway Energy's existing business and
      operations.





***Interruptions
      In The Supply Of Water, Electricity, Coal Or Other Energy Sources Or Other
      Interruptions In Production Would Have An Adverse Effect On Lincolnway Energy's
      Ethanol Plant.*** Interruptions
      in the supply of water, electricity, coal or other energy sources at Lincolnway
      Energy's ethanol plant would have a material adverse impact on operations,
      and
      could require Lincolnway Energy to halt production at the ethanol plant.





Interruptions
      in or the loss of the supply of water, electricity, coal or other energy sources
      could occur, for example, because of software or other computer problems at
      the
      ethanol plant or at the plants of the suppliers of the water, electricity,
      coal
      or other energy. Lincolnway Energy's and any suppliers' use of its software
      and
      other computer systems will be subject to attack by computer hackers, and to
      failure or interruption through equipment failures, viruses, acts of God and
      other events beyond the control of Lincolnway Energy or a
      supplier.


29





Lincolnway
      Energy's operations are also subject to significant interruption if its ethanol
      plant experiences a major accident or is damaged by severe weather or other
      natural disasters. Lincolnway Energy's operations are also subject to labor
      disruptions and unscheduled down time, and other operational hazards inherent
      in
      the ethanol industry, such as equipment failures, fires, explosions, abnormal
      pressures, blowouts, pipeline ruptures, transportation accidents and natural
      disasters. Some of these operational hazards may cause personal injury or loss
      of life, severe damage to or destruction of property and equipment or
      environmental damage, and may result in suspension of operations and the
      imposition of civil or criminal penalties against Lincolnway Energy.





Lincolnway
      Energy's business is dependent upon the continuing availability of railroads,
      railcars, truck fleets and other infrastructure necessary for the production,
      transportation and use of ethanol. Any disruptions or interruptions in that
      infrastructure could have a material adverse effect on Lincolnway
      Energy.





Lincolnway
      Energy may not have insurance covering any of these types of matters or
      occurrences. Any insurance Lincolnway Energy may have in place may not be
      adequate to fully cover the potential losses and hazards, and Lincolnway Energy
      may not be able to renew the insurance on commercially reasonable terms or
      at
      all.





***Competition
      From Other Ethanol Producers Or Energy Sources Will Adversely Affect Lincolnway
      Energy And Could Reduce Lincolnway Energy's Profitability.*** The
      ethanol industry is competitive and is rapidly becoming increasingly more
      competitive, in particular given the substantial new construction and expansion
      that has already occurred and is continuing to occur in the industry. The
      competitors include not only regional farmer-owned entities, but also the major
      oil companies and other large companies such as Archer Daniels Midland, Cargill,
      Inc., Vera Sun Energy Corporation, Aventine Renewable Energy, Inc., Abengoa
      Bioenergy Corp. and Poet.





The
      ethanol industry may also face increasing competition from international
      suppliers of ethanol. International suppliers produce ethanol from corn but
      also
      other sources, such as sugar cane. Some international suppliers may have cost
      structures that are substantially lower than Lincolnway Energy's and other
      U.S.
      based ethanol producers. Although there is a $.54 per gallon tariff on foreign
      produced ethanol, ethanol imports equivalent to up to 7% of total U.S.
      production in any given year from various countries were exempted from the
      tariff under the Caribbean Basin Initiative to spur economic development in
      Central America and the Caribbean. Foreign suppliers of ethanol may
      significantly increase their imports into the U.S. Also, Canada may import
      ethanol duty free, and Mexico may import ethanol under a duty rate of $.10
      per
      gallon. Some of Lincolnway Energy's competitors may determine to establish
      ethanol plants in Central America or the Caribbean.




30




Smaller
      competitors also pose a threat. Farmer-owned cooperatives and independent
      companies consisting of groups of individual farmers and investors have been
      able to compete successfully in the ethanol industry. These smaller competitors
      operate smaller facilities which do not affect the local price of corn grown
      in
      the proximity to the facility as much as larger facilities do, and some of
      the
      smaller competitors are farmer-owned and the farmer-owners either commit, or
      are
      incented by their ownership in the facility, to sell corn to the
      facility.





Any
      increase in domestic or foreign competition could cause Lincolnway Energy to
      have to reduce its prices and take other steps to compete effectively, which
      could adversely affect Lincolnway Energy's results of operations and financial
      position.





Many
      competitors will have greater production capacity, greater experience, more
      access to information and/or greater capital or other financial resources,
      any
      of which will make it difficult for Lincolnway Energy to compete with the
      competitor. For example, greater ethanol production may allow a competitor
      to
      market its ethanol or distiller's grains at lower prices than Lincolnway Energy.
      There may be acquisitions and consolidations in the ethanol industry, and those
      acquisitions and consolidations will likely lead to competitors with greater
      advantages over Lincolnway Energy. For example, VeraSun Energy Corp. and US
      Bioenergy Corp. recently announced that a merger agreement has been approved
      by
      their boards. According to the Renewable Fuels Association, those companies
      had
      a combined production capacity of 870 million gallons of ethanol per year as
      of
      December 3, 2007, with an additional 770 million gallons per year of production
      under construction. A competitor may also offer other products or services
      that
      are not offered by Lincolnway Energy, which may give the competitor an
      additional advantage over Lincolnway Energy.





An
      ethanol plant utilizing corn to produce ethanol may also experience competition
      in the form of other plants which produce ethanol from other products. For
      example, ethanol can be produced from corn stalks, rice straw, wheat, cheese
      whey, potatoes, wheat, oats, barley straw, milo, sorghum, sugar bogasse, rice
      hulls and cellulose based biomass. Research is being conducted by various
      entities regarding the use of these cellulostic and biomass type products,
      and
      it is likely that processes will be developed at some point which will make
      the
      production of ethanol from these types of sources economical. It is also
      possible that one or more of these other sources may from time to time have
      greater advantages than corn, which would adversely affect an ethanol plant
      that
      produces ethanol solely from corn. For example, a plant using one of those
      sources may be able to produce ethanol on a more economical basis or on a more
      efficient or greater scale. The increased production of ethanol from any of
      those sources could also adversely affect the price for ethanol generally.
      Lincolnway Energy's ethanol plant is designed to produce ethanol only from
      corn.





Poet
      has
      recently announced that it intends to expand one of its existing corn based
      ethanol plants to also product ethanol from cobs and stalks, with the expansion
      to begin operation in 2011. Poet is working with the U.S. Department of Energy
      on the project. According to the Renewable Fuels Association, Poet had an
      aggregate ethanol production capacity of approximately 1.11 billion gallons
      as
      of December 3, 2007. The U.S. Department of Energy has also awarded $385,000,000
      among five other companies hoping to construct a cellulostic/biomass ethanol
      plant. A Canadian company, Iogen Corporation, also currently produces
      approximately 1,000,000 gallons of ethanol annually from wheat, oat and barley
      straw.


31


Some
      competitors operate their ethanol plant and produce ethanol using different
      sources of energy than coal, or using various other sources of energy. The
      other
      sources of energy include natural gas and various forms of waste type products
      such as tires and construction waste. Those competitors may have lower
      production and input costs and/or higher operating efficiencies than Lincolnway
      Energy, which would allow them to market their ethanol at lower prices than
      Lincolnway Energy.





Competition
      from newly developed fuel additives would also reduce the use of ethanol and
      Lincolnway Energy's profitability. Although it is difficult to predict if any
      new fuel additives will be developed, it will likely occur at some point, and
      it
      could be in the near future.





Research
      is also continually being conducted for alternatives to petroleum based fuel
      products and for additional renewable fuel products. For example, research
      is
      ongoing regarding the use of hydrogen, electric or solar powered vehicles and
      fuel cells. A breakthrough or discovery in any research could conceivably occur
      at any time, and could have the effect of greatly reducing the use of ethanol
      or
      of even making the use of ethanol obsolete. There will be increased incentives
      to develop alternatives to petroleum based fuel products if gasoline prices
      stay
      at the current levels.





***Loss
      Of Rights To Technology Or The Occurrence Of Technological Advances Could Make
      Lincolnway Energy's Ethanol Plant Obsolete.*** Lincolnway
      Energy obtained its right to use the various software, patents and other
      technologies necessary to its ethanol plant under license agreements with third
      parties. The termination of those license agreements or other loss of the right
      to use any necessary technology would have material adverse effects on the
      ethanol plant and on Lincolnway Energy.





Technological
      advances in the processes and procedures for producing ethanol are continually
      occurring, and further ongoing advances should be expected. It is possible
      that
      those advances could make the processes and procedures that are utilized at
      Lincolnway Energy's ethanol plant obsolete or inefficient or cause the ethanol
      and/or other by-products produced at the ethanol plant to not be as high of
      quality as plants which utilize any new or advanced technology. Any
      modifications or changes to Lincolnway Energy's ethanol plant to utilize any
      new
      technology could be technologically or cost prohibitive, and will in all events
      at least initially reduce Lincolnway Energy's profitability.


32


***There
      Are Potential Conflicts Of Interest In The Structure And Operation Of Lincolnway
      Energy.*** Although
      Lincolnway Energy does not believe any conflict of interest exists which in
      practice will be detrimental to Lincolnway Energy, potential conflicts of
      interest do exist in the structure and operation of Lincolnway Energy and its
      business. For example, the directors and officers of Lincolnway Energy are
      not
      required to devote their full time or attention to Lincolnway Energy, and they
      are all involved in other full time businesses and may provide services to
      others. Some of the directors or officers might be owners or otherwise
      interested in other ethanol plants. The directors and the officers will
      experience conflicts of interest in allocating their time and services between
      Lincolnway Energy and their other businesses and interests.





The
      various companies that provide marketing and other services to Lincolnway Energy
      are also not required to devote their full time or attention to those services,
      and they will very likely be involved in other ethanol plants and ethanol
      related businesses and possibly other businesses or ventures, including having
      ownership or other interests in other ethanol plants. The companies will
      therefore experience conflicts of interest in allocating their time and services
      between Lincolnway Energy and their various other ethanol plants or business
      ventures. The companies providing ethanol and distiller's grains marketing
      services to Lincolnway Energy will be providing those same services to other
      ethanol plants, and may experience conflicts of interest in allocating favorable
      sales and sales when the supply of ethanol or distiller's grains exceeds the
      demand.





**Risks
      Relating To Lincolnway Energy's Units.**





***Lincolnway
      Energy's Units Are Not A Liquid Investment.*** No
      market exists for Lincolnway Energy's units. A market will not develop for
      the
      units because the units are not freely transferable and can only be sold,
      assigned or otherwise transferred in compliance with the federal and applicable
      state securities laws and the terms and conditions of the amended and restated
      operating agreement and unit assignment policy of Lincolnway Energy, which
      require the prior approval of the board for all sales and assignments of any
      units. The restrictions set out in the securities laws, the amended and restated
      operating agreement and the unit assignment policy may at times preclude the
      transfer of a unit. The units are therefore not a liquid
      investment.





***There
      Is No Guarantee Of Any Distributions From Lincolnway Energy.*** Lincolnway
      Energy is not required to make any distributions to its members. Lincolnway
      Energy will also be prohibited, or at least severely limited or restricted,
      from
      making any distributions under the terms of Lincolnway Energy's credit and
      loan
      agreements. Lincolnway Energy's financial situation may also not allow it to
      make any distributions to its members in any event. The payment of distributions
      will also always be at the discretion of the board of Lincolnway Energy and
      will
      depend on, among other things, the board's analysis of Lincolnway Energy's
      earnings, financial condition, capital requirements, level of indebtedness,
      statutory and contractual restrictions regarding the payment of distributions
      and any other considerations that the board deems relevant.


33


***The
      Staggered Terms Of Lincolnway Energy's Board May Delay Or Prevent Lincolnway
      Energy's Acquisition By A Third Party.*** Lincolnway
      Energy's amended and restated operating agreement provides for three classes
      of
      directors, based upon the term of office, with each director holding a three
      year term. Some view that type of provision as making more difficult, or as
      deterring, a merger, tender offer or acquisition involving Lincolnway Energy
      that might result in the members receiving a premium for their units.





**Taxation
      And Other Risks.**





***Members
      Will Owe Taxes On Lincolnway Energy's Profits But May Never Receive Any
      Distributions From Lincolnway Energy.*** Lincolnway
      Energy is not required to make any distributions, and it is possible that no
      distributions will be made by Lincolnway Energy, even if Lincolnway Energy
      has
      profits.





Any
      Lincolnway Energy profits will be taxable to its members in accordance with
      the
      members' respective percentage ownership of the units, whether or not the
      profits have been distributed. Even if distributions are made, the distributions
      may not equal the taxes payable by a member on the member's share of Lincolnway
      Energy's profits.





Lincolnway
      Energy could also sustain losses offsetting the profits of a prior tax period,
      so a member might never receive a distribution or be able to sell the member's
      units for an amount equal to the taxes which have already been paid by the
      member.





***The
      Internal Revenue Service Could Challenge Allocations And Audit Lincolnway
      Energy's Tax Returns.*** The
      amended and restated operating agreement of Lincolnway Energy provides for
      the
      allocation of profits, losses and credits among the members. The Internal
      Revenue Service might challenge those allocations and reallocate various items
      in a manner which reduces deductions or increases income to the members, both
      of
      which would result in additional tax liability for members.





The
      Internal Revenue Service might also audit Lincolnway Energy's returns, and
      adjustments might be required as a result of an audit. If an audit results
      in an
      adjustment, members could be required to file amended returns and to pay back
      taxes, plus interest and possibly penalties. The members' tax returns might
      also
      be audited.





***The
      Tax Laws May Change To The Detriment Of Lincolnway Energy And Its Members.*** It
      is
      possible that the current federal and/or state tax treatment given to an
      investment in the units or to Lincolnway Energy may be changed by subsequent
      legislative, administrative or judicial action. Any such changes could
      significantly alter the tax consequences and decrease the after tax rate of
      return on investment in the units.


34





For
      example, although Lincolnway Energy anticipates being treated as a partnership
      for tax purposes, if for some reason Lincolnway Energy was classified or treated
      as a corporation, or Lincolnway Energy's board determined that it would be
      beneficial for Lincolnway Energy and its members for Lincolnway Energy to become
      taxed as a corporation, Lincolnway Energy would pay corporate income tax and
      no
      profits or losses would flow through to the members. The payment of taxes by
      Lincolnway Energy would lower the cash available for distribution to the
      members, and any distributions would be taxed to the members as
      dividends.





***Software
      Problems And Computer Viruses May Have A Materially Adverse Effect Upon
      Lincolnway Energy.*** Lincolnway
      Energy will utilize various software applications in connection with its ethanol
      operation. There is no assurance that the operation of any software or other
      computer systems will be uninterrupted or error free or will otherwise be
      successful. There is also no assurance or guarantee that the software will
      continue to be available to Lincolnway Energy or that the software will be
      able
      to be maintained and updated as necessary from time to time.





Lincolnway
      Energy 's use of its software and other computer systems will be subject to
      attack by computer hackers and to failure or interruption through viruses or
      acts of God or other occurrences beyond the control of Lincolnway Energy, such
      as computer failure, communications line failure, power failure, mechanical
      failure, equipment malfunction or failure, and lightning.





The
      refiners, suppliers and other persons who Lincolnway Energy has business
      relationships with are also subject to the same software and computer system
      risks, and may affect their ability to do business with Lincolnway
      Energy.





Any
      problems with any software or other computer systems might have material adverse
      effects on Lincolnway Energy.





**Item 1B.**
            **Unresolved
                Staff Comments.**





This
      Item
      is not applicable to Lincolnway Energy because Lincolnway Energy is not an
      accelerated filer, a large accelerated filer or a well-known seasoned issuer,
      as
      those terms are defined in the rules of the Securities and Exchange
      Commission.





Lincolnway
      Energy has not, however, received any written comments from the Securities
      and
      Exchange Commission regarding Lincolnway Energy's periodic or current reports
      under the Securities Exchange Act of 1934 that have not been
      resolved.





**Item 2.**
            **Properties.**





Lincolnway
      Energy's office and its ethanol plant are located on approximately 160 acres
      in
      Story County, Iowa, near Nevada. Iowa. Lincolnway Energy owns the real estate
      and its office and ethanol plant, but all of those properties are subject to
      a
      first mortgage and security interest held by Lincolnway Energy's primary lender,
      CoBank, and to other mortgages and security interests held by the Iowa
      Department of Economic Development, the Iowa Department of Transportation,
      and
      Fagen, Inc.


35





Lincolnway
      Energy's office building has approximately 1,400 square feet. Lincolnway Energy
      utilizes the office building for office space for Lincolnway Energy's management
      and other staff. Lincolnway Energy was utilizing approximately 90% of the
      available office space as of the date of this annual report, with the remaining
      10% of the available office space being available to accommodate any staff
      expansion. The office building also includes grain receiving
      facilities.





Lincolnway
      Energy's ethanol plant and related facilities include the following material
      buildings and related fixtures and equipment:





·
            process
                building containing lab, offices and control
                room;


·
            maintenance
                building containing offices, storage and a welding
                shop;


·
            administration
                building containing furniture and fixtures, office equipment, computers,
                telephone system, board room and grain receiving;
                and


·
            rail
                tracks and rail spur, paved access roads, dryers, evaporators, fermenters,
                grain bins and storage facilities for ethanol and distiller's
                grains.





Lincolnway
      Energy's ethanol plant has a nameplate capacity of 50,000,000 gallons of ethanol
      per year, and at that capacity will generate approximately 144,000 tons of
      distiller's grains per year. The ethanol plant became operational in May 2006,
      and the first full month of production at full capacity was July of 2006.
      Lincolnway Energy has attempted to operate the plant at full capacity since
      that
      time, subject to normal shutdown and other maintenance related days and
      matters.





Lincolnway
      Energy also owns approximately 93 acres of real estate which is adjacent to
      the
      160 acre parcel noted above. Lincolnway Energy may utilize the real estate
      as
      part of any expansion of its business or to construct additional rail
      facilities, but anticipates custom farming the land during 2008.





Lincolnway
      Energy also leases 90 rail cars which are used for transporting distiller's
      grains. The lease has a 5 year term which is scheduled to expire on March 25,
      2011.





Lincolnway
      Energy also leases various miscellaneous office equipment and equipment utilized
      in the operation of the ethanol plant.





**Item 3.**
            **Legal
                Proceedings.**





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


36


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





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





A
      vote on
      the election of the two director positions which were not filled by the May
      2,
      2007 ballot vote by the members was taken by ballot pursuant to a proxy
      statement that was first mailed to the members on or about July 9, 2007. Ballots
      were accepted by Lincolnway Energy until 3:00 p.m. on July 27,
      2007.





There
      were five nominees for the two director positions. Under the amended and
      restated operating agreement that was approved by the members on June 29, 2007,
      the directors of Lincolnway Energy are elected by the vote of a plurality of
      the
      units voted in the election, so the two nominees who received the highest number
      of votes in the July 27, 2007 ballot vote of the members were elected as
      directors.





The
      number of votes cast for, against or withheld, and the number of abstentions
      and
      broker non-votes, with respect to the five nominees for election as a director
      was as follows:


37





Name
            
            For
            
            Against
              or
                Withheld
            
            Abstentions
            
            Broker
              Non-VotesDavid
                Eggers
            
            
            12,525
            
            
            -
            
            
            -
            
            
            -Lad
                Grove
            
            
            760
            
            
            -
            
            
            -
            
            
            -David
                Hassebrock
            
            
            8,896
            
            
            -
            
            
            -
            
            
            -Richard
                Johnson
            
            
            15,852
            
            
            -
            
            
            -
            
            
            -Kurt
                Olson
            
            
            17,177
            
            
            -
            
            
            -
            
            
            -





As
      reflected by the above table, Richard Johnson and Kurt Olson received the
      highest number of votes cast by the ballots which were returned to Lincolnway
      Energy, so they were each elected to serve as a director until the annual
      meeting of the members which will be held in 2010 and until their respective
      successor is elected and qualified.





The
      other
      directors whose term of office as a director continued after the vote were
      William Couser, Jeff Taylor, Timothy Fevold, Terrill Wycoff, Brian Conrad,
      Rick
      Vaughan and Jim Hill.





**PART
      II**





**Item 5.**
              **Market
                  for Registrant's Common Equity, Related Stockholder Matters and
                  Issuer
                  Purchases of Equity
                  Securities.**





Lincolnway
      Energy is authorized to issue an unlimited number of units, but member approval
      is required in order to issue more than 45,608 units. Lincolnway Energy had
      42,049 outstanding units as of November 30, 2007, which were held of record
      by
      970 different members. The determination of the number of members is based
      upon
      the number of record holders of the units as reflected in Lincolnway Energy's
      internal unit records.





Lincolnway
      Energy did not issue any units during the fiscal year ended September 30,
      2007.





Lincolnway
      Energy's units are not listed on any exchange, and there is no public trading
      market for Lincolnway Energy's units. An investment in Lincolnway Energy's
      units
      is not a liquid investment because the amended and restated operating agreement
      of Lincolnway Energy establishes various conditions on the issuance of
      additional units and various restrictions on the sale, assignment or other
      transfer of units.


38


The
      amended and restated operating agreement of Lincolnway Energy provides that
      the
      board of Lincolnway Energy may not issue any units for a consideration or value
      of less than $500 per unit, issue more than an aggregate of 45,608 units, or
      issue any units to any director or officer of Lincolnway Energy in their
      capacity as such, without the vote of the members holding at least a majority
      of
      the outstanding units represented at a meeting at which a quorum of the members
      is present. The members holding at least 25% of the outstanding units
      constitutes a quorum at any meeting of the members.





The
      amended and restated operating agreement of Lincolnway Energy also provides
      that
      no member shall, directly or indirectly, own, hold or control more than 49%
      of
      the outstanding units at any time, unless the member exceeds that percentage
      by
      reason of Lincolnway Energy purchasing units. The amended and restated operating
      agreement provides that for this purpose a member will be deemed to indirectly
      own, hold and control all units which are owned by the member's spouse or any
      of
      the member's parents or minor children and by any entity of which any one or
      more of the member or any of those relatives owns at least 10% of the
      outstanding voting equity of the entity.





The
      amended and restated operating agreement of Lincolnway Energy also establishes
      restrictions on the sale, assignment or other transfer of units.





The
      amended and restated operating agreement provides that a member may not sell,
      transfer, assign or otherwise dispose of or convey any units, whether
      voluntarily or involuntarily, or grant a security interest in any units, except
      with the prior approval of the board of Lincolnway Energy and in compliance
      and
      accordance with the policies and procedures as may be adopted from time to
      time
      by the board. The board is authorized to adopt and implement those policies
      and
      procedures for any reasonable purpose, as determined by the board. A reasonable
      purpose includes prohibiting, restricting, limiting, delaying or placing
      conditions on any assignment which, alone or together with any other past or
      contemplated assignments, would or might reasonably be determined
      to:





·
            Violate
                or cause Lincolnway Energy to violate or to otherwise be in noncompliance
                with any law, rule, regulation or order, including any securities
                law,
                rule, regulation or order;





·
            Cause
                Lincolnway Energy to be taxed as a corporation for tax purposes,
                including
                by reason of Section 7704 of the Internal Revenue Code of 1986;





·
            Result
                in the termination of Lincolnway Energy or Lincolnway Energy's tax
                year
                for tax purposes, including under Section 708 of the Internal Revenue
                Code
                of 1986, or cause the application to Lincolnway Energy of Sections
                168(g)(1)(B) or 168(h) of the Internal Revenue Code of 1986 or similar
                or
                analogous rules;





·
            Violate
                any term or condition of the amended and restated operating agreement,
                including the 49% ownership limitation noted above;


39


·
            Violate
                or cause Lincolnway Energy to violate or to otherwise be in noncompliance
                with any law, rule, regulation or order applicable to Lincolnway
                Energy's
                selection or use of its then current fiscal year, including Section
                444 of
                the Internal Revenue Code of 1986;





·
            Require
                Lincolnway Energy to become licensed, registered or regulated as
                an
                investment company, a broker-dealer or any other form of regulated
                entity
                under any law, rule, regulation or order;
                or





·
            Create
                or result in any fractional units.





The
      policies and procedures adopted by the board regarding the assignment of units
      are referred to as the unit assignment policy, Lincolnway Energy's current
      unit
      assignment policy mirrors the terms of the amended and restated operating
      agreement and provides that all assignments require the prior approval of the
      board, and that the board may prohibit, restrict, limit, delay or place
      conditions on any assignment which might have any of the effects described
      in
      the preceding subparagraphs. Several of those potential effects could be
      applicable to Lincolnway Energy at any given time.





One
      example that will be applicable to Lincolnway Energy on an ongoing basis arises
      from the fact that Lincolnway Energy is taxable as a partnership for income
      tax
      purposes. There are various statutes and regulations that Lincolnway Energy
      must
      comply with in order to maintain that tax classification. One applicable statute
      and related regulation is Section 7704 of the Internal Revenue Code of 1986
      and
      the Section 1.7704-1 of the Treasury Regulations. Section 7704 provides, in
      general, that a partnership which becomes a publicly traded partnership under
      Section 7704 will be taxed as a corporation. Section 7704 provides that a
      publicly traded partnership is a partnership whose interests either are traded
      on an established securities market or are readily tradable on a secondary
      market or the substantial equivalent. Section 1.7704-1 sets forth some rules
      for
      making a determination of whether a partnership is readily tradable on a
      secondary market or the substantial equivalent for that purpose, and establishes
      some specified processes and procedures as "safe harbors" under the publicly
      traded partnership rules. The safe harbors include a limited matching service
      and a limited repurchase option.





The
      general rule under the publicly traded partnership rules is that no more than
      2%
      of a partnership's outstanding units may be transferred during any taxable
      year,
      unless the partnership has established one of the safe harbors that are
      available under the publicly traded partnership rules. As noted above, the
      safe
      harbors include a limited matching service and a limited repurchase option.
      If
      one or both of those processes have been established, a partnership may permit
      the transfer of up to an aggregate of 10% of the partnership's outstanding
      units
      during any taxable year, so long as no more than 2% of the transfers occur
      outside of the matching service or the repurchase option and all of the other
      transfers are made in accordance with the terms of the matching service or
      the
      repurchase option.


40





Lincolnway
      Energy has established a qualified matching service on Lincolnway Energy's
      website, and the amended and restated operating agreement of Lincolnway Energy
      includes a repurchase provision which complies with the safe harbor for a
      repurchase option under the publicly traded partnership rules. There are
      numerous conditions and requirements in both the qualified matching service
      and
      the repurchase option, so neither provides any significant liquidity to units.
      Also, Lincolnway Energy has no obligation to purchase any units under the
      repurchase provisions in the amended and restated operating
      agreement.





Lincolnway
      Energy has not made any repurchases of its units pursuant to the repurchase
      provisions set forth in the amended and restated operating agreement.





There
      have been some sales of units pursuant to Lincolnway Energy's qualified matching
      service. The purchase price and other terms of any transactions pursuant to
      Lincolnway Energy's qualified matching service are, however, negotiated and
      established solely by the seller and the buyer. Lincolnway Energy does not
      endorse or recommend any sale of units and is not responsible for the fairness
      of the purchase price paid in any transactions made pursuant to the qualified
      matching service, or for the payment or other terms of any transaction.
      Lincolnway Energy therefore does not represent or guarantee in any way that
      any
      of the prices paid pursuant to the qualified matching service are fair or
      accurately reflect the value of Lincolnway Energy's units, and Lincolnway Energy
      does not endorse or recommend any sales of units at any of the prices listed
      by
      a member in the qualified matching service or on the same or similar
      terms.





The
      publicly traded partnership rules exclude some types of transfers from the
      2%
      and 10% limitation. As an example, a gift of units by a member to certain family
      members of the member is not counted towards the 2% and 10%
      limitations.





Another
      example of a transfer limitation that currently will be applicable to Lincolnway
      Energy on an ongoing basis arises from the fact that Lincolnway Energy has
      elected to utilize a September 30 fiscal year end. Given that fact, no more
      than
      5% of Lincolnway Energy's units can be owned by pass-through type entities,
      such
      as Subchapter S corporations, limited liability companies or partnerships.
      At
      the time of the preparation of this annual report, Lincolnway Energy was at
      the
      5% maximum amount, so no transfers of any units to a pass-through type entity
      were permitted.





The
      amended and restated operating agreement and the unit assignment policy both
      contemplate that a member desiring to assign any units must present Lincolnway
      Energy with a unit assignment application and any other information requested
      by
      the board. The board is not required to act on a unit assignment application
      until the next regularly scheduled meeting of the board which follows the date
      on which Lincolnway Energy receives the completed and executed unit assignment
      application.





An
      assignment of a unit which is approved by the board will be effective for all
      purposes, including for purposes of allocations and distributions, only as
      of
      the date determined by the board, but the date must be within 32 days of the
      date of the approval of the assignment by the board. Lincolnway Energy believes
      that approach is necessary in order to provide a uniform effective date for
      assignments of units.


41





The
      unit
      assignment policy also provides that Lincolnway Energy may require the assigning
      member or the assignee to provide a legal opinion to Lincolnway Energy regarding
      the assignment, and that Lincolnway Energy may require that Lincolnway Energy
      be
      paid or reimbursed for all of its fees, costs and expenses incurred in
      connection with any assignment, including legal and accounting
      fees.





As
      of the
      date of this annual report, Lincolnway Energy did not have any equity
      compensation plans (including individual compensation arrangements) in place
      for
      any directors, officers, employees or other persons.





As
      of the
      date of this annual report, Lincolnway Energy had no plans to, and had not
      agreed to, register any of its units under any federal or state securities
      laws.





There
      were no outstanding warrants, options or other rights to purchase any units
      of
      Lincolnway Energy as of the date of this annual report, and there were no
      outstanding securities which were convertible or exchangeable into or for any
      units of Lincolnway Energy. Lincolnway Energy's units are not convertible in
      any
      other securities.





The
      payment of distributions to members by Lincolnway Energy is within the
      discretion of the board of Lincolnway Energy, and there is no assurance of
      any
      distributions from Lincolnway Energy. The payment of distributions by Lincolnway
      Energy is also subject to Lincolnway Energy's compliance with the various
      covenants and requirements of Lincolnway Energy's credit and loan agreements,
      and it is possible that those covenants and requirements will at times prevent
      Lincolnway Energy from paying a distribution to its members.





Lincolnway
      Energy has declared three distributions since Lincolnway Energy was organized
      in
      May 2004. The first distribution was declared in November 2006 and was in the
      amount of $150 per unit, resulting in an aggregate distribution of $6,428,850.
      The second distribution was declared in May 2007, and was in the amount of
      $200
      per unit, resulting in an aggregate distribution of $8,409,800. The third
      distribution was declared in November 2007, and was in the amount of $125 per
      unit, resulting in an aggregate distribution of $5,256,125.





Lincolnway
      Energy does not contemplate being able to establish a definite or regular
      distribution policy or history because the determination of whether a
      distribution can or should be made by Lincolnway Energy will need to be made
      by
      the board of Lincolnway Energy based upon the then existing facts and
      circumstances of Lincolnway Energy, which could change materially from time
      to
      time.


42





Neither
      Lincolnway Energy nor any affiliated purchaser of Lincolnway Energy repurchased
      any of Lincolnway Energy's units during the period of July 1, 2007 to September
      30, 2007. ****





**Item 6.**
            **Selected
                Financial Data.**





The
                following information is summary selected financial data for Lincolnway
                Energy for the fiscal years ended September 30, 2007, 2006 and 2005
                and
                Period from May 19, 2004 (date of inception) to September 30, 2004,
                with
                respect to the statements of operations data, and as of September
                30,
                2007, 2006 and 2005 with respect to the balance sheet data. The data
                is
                qualified by, and must be read in conjunction with, Item 7 of this
                annual
                report, “Management’s Discussion and Analysis of Financial Condition and
                Results of Operation”, and with the financial statements and supplementary
                data included in Item 8 of this annual report.





**Statements
                of Operations Data:**
            
            **2007**
            
            **2006**
            
            **2005**
            
            **2004**Revenues
            
            $
            118,783,540
            
            $
            44,883,457
            
            $
            **-**
            
            $
            **-**Cost
                of goods sold
            
            
            94,233,456
            
            
            25,886,144
            
            
            -Gross
                profit
            
            
            24,550,084
            
            
            18,997,313
            
            
            -
            
            
            -General
                and administrative expense
            
            
            2,903,436
            
            
            2,082,597
            
            
            427,478
            
            
            247,506Operating
                income (loss)
            
            
            21,646,648
            
            
            16,914,716
            
            
            (427,478
            )
            
            (247,506
            )Interest
                expense
            
            
            (2,228,179
            )
            
            (1,281,287
            )
            
            -
            
            
            -Other
                income- interest and grant
            
            
            536,897
            
            
            274,292
            
            
            625,679
            
            
            3,728Net
                income (loss)
            
            **$**
            **19,955,366**
            ****
            **$**
            **15,907,721**
            ****
            **$**
            **198,201**
            ****
            **$**
            **(243,778**
            **)**Weighted
                average units outstanding
            
            
            42,519
            
            
            42,293
            
            
            32,816
            
            
            1,636Net
                income (loss) per unit -basic diluted
            
            **$**
            **469.33**
            ****
            **$**
            **376.13**
            ****
            **$**
            **6.04**
            ****
            **$**
            **(149.01**
            **)****Cash
                distributions per unit**
            
            **$**
            **350.00**
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **-**








**Balance
                Sheet Data:**
            
            **2007**
            
            **2006**
            
            **2005**Working
                Capital
            
            $
            12,196,308
            
            $
            6,548,336
            
            $
            4,212,119Net
                Property Plant & Equipment
            
            
            71,617,762
            
            
            78,170,697
            
            
            35,125,192Total
                Assets
            
            
            88,820,957
            
            
            93,027,237
            
            
            43,084,240Long-Term
                Obligations
            
            
            24,743,372
            
            
            29,548,706
            
            
            1,100,000Members’
                Equity
            
            
            59,968,965
            
            
            55,662,249
            
            
            38,640,778Book
                Value per Member Unit
            
            
            1,426
            
            
            1,299
            
            
            919


43


Lincolnway
      Energy, LLC was organized on May 19, 2004, and its ethanol plant became
      operational during May 2006. There was no comparative balance sheet data for
      2004.





As
      discussed in Item 3 of this annual report, Lincolnway Energy is currently
      subject to enforcement proceedings by the Iowa Attorney General and the Iowa
      Environmental Protection Commission regarding certain alleged environmental
      law
      violations. Lincolnway Energy cannot predict at this time the outcome of those
      proceedings, but they could have material adverse effects on Lincolnway Energy’s
      business and financial condition.





**Item 7.**
                **Management's
                    Discussion and Analysis of Financial Condition and Results of
                    Operation.**





Except
                for the historical information, the following discussion contains
                forward-looking statements that are subject to risks and uncertainties,
                and undue reliance must not be placed on any forward-looking statements,
                which speak only as of the date of this annual report. Lincolnway
                Energy's
                actual results or actions may differ materially from these forward-looking
                statements for many reasons, including the risks described in Item
                1A and
                elsewhere in this annual report. This Item should be read in conjunction
                with the financial statements and related notes and with the understanding
                that Lincolnway Energy's actual future results may be materially
                different
                from what is currently expected by Lincolnway
                Energy.





***Overview***





Lincolnway
      Energy is an Iowa limited liability company that was formed on May 19, 2004
      for
      the purpose of constructing and operating a dry mill, coal fired ethanol plant.
      Lincolnway Energy has been engaged in the production of ethanol and distillers
      grains since May 22, 2006, and the plant became fully operational on June 22,
      2006. The ethanol plant produced 50,336,892 gallons of ethanol during the fiscal
      year ended September 30, 2007, with an average of 4,194,741 gallons of ethanol
      per month. The nameplate capacity of the plant is 50,000,000 gallons of ethanol
      per year. Lincolnway Energy had a planned shut down during the months of October
      2006 and March 2007 to complete some maintenance work.





Lincolnway
      Energy's revenues
      are derived from the sale of Lincolnway
      Energy's ethanol
      to Renewables Fuels Marketing Group and of its distillers grains to Hawkeye
      Gold, LLC and Commodity Specialist Company until October 1, 2007.





Lincolnway
      Energy's ethanol
      is sold to Renewable Products Marketing Group (RPMG) pursuant to an ethanol
      marketing agreement between Lincolnway Energy and RPMG. Lincolnway
      Energy's ethanol is
      pooled with the ethanol of other ethanol producers whose ethanol is marketed
      by
      RPMG. Lincolnway
      Energy pays
      RPMG a pooling fee of $.01 per gallon, and RPMG pays Lincolnway
      Energy a
      netback price per gallon that is based upon the difference between the pooled
      average delivered ethanol selling price and the pooled average distribution
      expense. These averages are calculated based upon each pool participant's
      selling price and expense averaged in direct proportion to the volume of ethanol
      supplied by each participant to the pool. Lincolnway
      Energy's agreement with RPMG had an initial term through June 2007, but
      Lincolnway Energy and RPMG are continuing to operate under the existing
      agreement while they attempt to negotiate a new agreement. Lincolnway Energy
      currently believes that it will be able to negotiate a satisfactory agreement
      with RPMG. Lincolnway Energy is dependent upon its agreement with RPMG for
      the
      marketing and sale of Lincolnway Energy's ethanol, and Lincolnway Energy's
      loss
      of the agreement could have material adverse effects on Lincolnway
      Energy.


44


Lincolnway
      Energy's output of distiller's grains was sold to Commodity Specialists Company
      until October 1, 2007. Lincolnway Energy paid Commodity Specialists Company
      a
      fee of 2% of the FOB plant price of the dried distiller's grains and 4% of
      the
      FOB plant price for wet distiller's grains that were sold by Commodity
      Specialists Company.





Lincolnway
      Energy's output of distiller's grains is now sold to Hawkeye Gold, LLC under
      a
      Distiller's Grains Marketing Agreement that became effective on October 1,
      2007.
      Lincolnway Energy pays Hawkeye Gold, LLC a marketing fee for dried distiller's
      grains equal to the greater of 2% of the FOB plant price for the dried
      distiller's grains in question or a per-ton fee of $1.30 for the dried
      distiller's grains. The marketing fee for wet distiller's grains is the greater
      of 3% of the FOB plant price for the wet distiller's grains in question or
      a
      per-ton fee of $1.00 for the wet distiller's grains. The Distiller's Grains
      Marketing Agreement can be terminated by either Lincolnway Energy or Hawkeye
      Gold, LLC on 90 days written notice. Lincolnway Energy must pay a termination
      fee if it terminates the Distiller's Grains Marketing Agreement during the
      first
      12 months under the Distiller's Grains Marketing Agreement. The termination
      fee
      is an amount equal to the marketing fees paid to Hawkeye Gold, LLC during the
      three full calendar months which preceded the effective termination date.
      Lincolnway Energy is dependent upon its agreement with Hawkeye Gold, LLC for
      the
      marketing and sale of Lincolnway Energy's distiller's grains, and Lincolnway
      Energy's loss of the agreement could have material adverse effects on Lincolnway
      Energy.





Lincolnway
      Energy's operating income or loss is significantly tied to the price at which
      ethanol and distiller’s grain are sold. Historically, the price of ethanol
      tended to fluctuate in the same direction as the price of unleaded gas and
      other
      petroleum prices. The historical trend suddenly reversed, however, in April
      2007, with wholesale ethanol prices falling below the rising wholesale price
      of
      unleaded gas. Surplus ethanol supplies and lack of infrastructure to blend
      and
      distribute the large production of ethanol is putting a downward pressure on
      ethanol prices. The price of distillers grains generally tends to fluctuate
      based on the price of substitute livestock feed, such as corn and soybean meal.
      Surplus grains tend to put downward price pressure on distillers grains.


45


***Comparability
      of Operating Data***





Since
      Lincolnway Energy only became operational in May 2006, Lincolnway Energy does
      not have a full 12 months of prior fiscal year income, production, sales or
      other data to use for comparison purposes against the fiscal year ended
      September 30, 2007. Lincolnway Energy is accordingly not providing a comparison
      of Lincolnway Energy's financial results between reporting periods in this
      annual report, but the fact that Lincolnway Energy did not start producing
      ethanol until May 2006 must be kept in mind when making any comparison or review
      of Lincolnway Energy's fiscal year ended September 30, 2006 and the fiscal
      year
      ended September 30, 2007.





***Plan
      of Operations for the Next 12 Months***





Lincolnway
      Energy is in the final stages of deciding on a technology and equipment supplier
      to provide Lincolnway Energy with corn oil extraction equipment. Over the past
      few months numerous equipment tests have been conducted and results are
      currently being analyzed to determine the best fit for Lincolnway Energy. Once
      the installation of equipment is complete, Lincolnway Energy will have the
      ability to extract corn oil from a portion of the thin stillage.





Lincolnway
      Energy has also recently begun to evaluate technology that would allow a portion
      of the dry ingredients used in fermentation to be purchased in liquid form.
      The
      use of those ingredients in liquid form would allow Lincolnway Energy to
      automate the process and reduce risk of injury, by eliminating the need to
      handle numerous heavy bags required for each fermentation batch.





Lincolnway
      Energy installed a steam separator to the steam supply system on June 1, 2007.
      The installation has improved steam quality and has reduced water treatment
      costs. Lincolnway Energy will continue to explore ways to reduce steam usage,
      which will in effect reduce energy costs.





Lincolnway
      Energy continues to explore ways to speed the fermentation process and increase
      ethanol yields, which is especially important as corn costs continue to
      rise.





***Air
      and Water Permit Compliance***





As
      discussed in Item 3 of this annual report, Lincolnway Energy is currently
      subject to enforcement proceedings by the Iowa Attorney General and the Iowa
      Environmental Protection Commission regarding certain alleged environmental
      law
      violations. Lincolnway Energy cannot predict at this time the outcome of those
      proceedings, but they could have material adverse effects on Lincolnway Energy’s
      business and financial condition.


46





Lincolnway
      Energy is scheduled to conduct a third round of stack emissions compliance
      testing during mid to late December 2007. Lincolnway Energy had previously
      conducted stack emissions testing in December 2006 and June 2007. The June
      2007
      test showed lower emissions than the stack test conducted in December 2006.
      The
      stack emissions tests to be conducted during mid to late December 2007 are
      important tests, and will hopefully confirm the results of the June 2007 test
      as
      correct. Lincolnway Energy will not know the results of the stack emissions
      tests for approximately two to four months.





As
      noted
      above, one possibility from the proceedings being conducted by the Iowa Attorney
      General and the Iowa Environmental Protection Commission is that Lincolnway
      Energy may need to be repermitted with respect to air emissions. Any
      repermitting of Lincolnway Energy's ethanol plant could increase Lincolnway
      Energy's ongoing compliance and operations costs.





Lincolnway
      Energy completed the installation of various equipment in July 2007 to attempt
      to address the exceedences of iron and total suspended solid limits in
      Lincolnway Energy's NPDES wastewater discharge permit. The tests since the
      installation of the equipment have shown significant improvements in both the
      iron and total suspended solid limits in Lincolnway Energy's wastewater, and
      Lincolnway Energy is hopeful that with additional training in the use and
      maintenance of such equipment, Lincolnway Energy will be able to stay within
      the
      limits of its NPDES wastewater discharge permit.





***Water
      Conservation***





Lincolnway
      Energy is currently working with technology providers to attempt to find a
      system that will reduce plant water consumption. The technologies vary greatly
      in cost, and the mineral content of Lincolnway Energy's water supply creates
      some challenges. Lincolnway Energy is hopeful, however, that it will be able
      to
      identify a cost effective solution.





**Financial
      Summary and Analysis of Fiscal Year Ended September 30,
      2007**





Lincolnway
      Energy's net
      income for the fiscal year ended September 30, 2007 was approximately $20
      million, consisting of $21.6 million of operating income, $0.5 million of other
      income (consisting of grants and interest income), and offset by $2.2 million
      of
      interest expense.





Revenues
      for the fiscal year ended September 30, 2007 were approximately $118.8 million,
      consisting of $103.0 million of ethanol sales (87%) and $15.8 million in
      distiller's grain sales (13%). Lincolnway
      Energy sold
      approximately 50.1 million gallons of ethanol at an average price of $2.05
      per
      gallon, 140,000 tons of dried distillers grain at an average price of $110.00
      per ton and 16,506 tons of wet distillers grain at an average price of $24.00
      per ton during the fiscal year ended September 30, 2007. The increase in
      revenues for the fiscal year ended September 30, 2007 resulted from a full
      year
      of operations compared to the prior year that only had four months of
      production. In April 2007, Lincolnway Energy started entering into derivative
      contracts to hedge their exposure to price risk as it relates to ethanol sales.
      For the year ended September 30, 2007 revenues included an unrealized gain
      of
      $514,464. While Lincolnway
      Energy anticipates continued strong demand for ethanol, Lincolnway
      Energy is
      uncertain as to the sustainability of current ethanol prices given the
      increasing ethanol supply as new plants begin production and existing plants
      continue to expand.


47





Lincolnway
      Energy's cost of
      goods sold for the fiscal year ended September 30, 2007 totaled approximately
      $94.2 million. Cost of goods sold major components are: corn costs, energy
      costs, ingredient costs, production labor, repairs and maintenance, process
      depreciation, ethanol and distillers grain freight expense and marketing fees.
      Cost of goods sold also includes a combined unrealized and realized net gain
      of
      $2,702,925 from derivative instruments, and which is recognized in corn
      costs.





Corn
      costs for the fiscal year ended September 30, 2007 totaled approximately $59.7
      million. Approximately 17.5 million bushels of corn was ground during the fiscal
      year at an average cost of $3.42 per bushel. Corn costs, including the combined
      unrealized and realized net gain from derivative instruments, represented 61%
      of
      cost of goods sold for the fiscal year ended September 30, 2007. Lincolnway
      Energy recognizes the gains and losses that result from the changes in value of Lincolnway
      Energy's derivative instruments in corn costs as the changes occur. As corn prices
      fluctuate, the value of Lincolnway
      Energy's derivative instruments are impacted, which affects Lincolnway Energy's financial
      performance. Lincolnway
      Energy anticipates continued volatility in Lincolnway
      Energy's corn
      costs due to the timing of the change in value of the derivative instruments
      relative to the cost and use of the corn being hedged.





Energy
      costs for the fiscal year ended September 30, 2007 totaled approximately $6.7
      million or 8% of cost of goods sold. Energy costs consist of coal costs and
      electricity and propane costs. For the fiscal year ended September 30, 2007, Lincolnway
      Energy purchased approximately 92,000 tons of coal at an approximate total cost of
      $4.3
      million. Electricity and propane costs amounted to approximately $2.4 million.





Ingredient
      costs for the fiscal year ended September 30, 2007 totaled approximately $6.0
      million or 6% of cost of goods sold. Ingredient costs consist of denaturant
      and
      process chemicals.





Production
      labor, repairs and maintenance and other plant costs totaled approximately
      $4.7
      million, or 5% of cost of goods sold, for the fiscal year ended September 30,
      2007.





Depreciation
      totaled approximately $7.3 million, or 8% of cost of goods sold, for the fiscal
      year ended September 30, 2007.


48


Ethanol
      and distiller’s grain freight expense and marketing fees totaled approximately
      $11.8 million, or 12% of cost of goods sold, during the fiscal year ended
      September 30, 2007.





**Financial
      Summary and Analysis of Fourth Quarter 2007**





The
      fourth quarter of 2007 is the first full quarter where there is comparable
      data
      available for 2006 and so the following paragraphs compare those
      periods.





As
      of
      September 30, 2007, Lincolnway
      Energy had the
      following assets: cash and cash equivalents of $7,856,908, current assets of
      $16,304,928 and total assets of $88,820,957. As of September 30, 2007, Lincolnway
      Energy had
      current liabilities of $4,108,620 and long-term debt of $24,743,372. Members'
      equity was $59,968,965 as of September 30, 2007, consisting of retained earnings
      of $20,978,860 and members' contributions, net of cost of raising capital,
      of
      $38,990,105.





Current
      assets increased by $ 1,940,310 from September 30, 2006 to September 30, 2007
      due to an increase in cash balances and inventories offset by a decrease in
      trade accounts receivable and derivative instruments. Current liabilities
      decreased by $3,707,662 from September 30, 2006 to September 30, 2007 due to
      a
      decrease in current maturities of long-term debt. Long-term debt decreased
      by
      $4,805,334 from September 30, 2006 to September 30, 2007. The decrease in
      liabilities is due from paying down debt on Lincolnway Energy's construction
      term loan.





Lincolnway
      Energy's net income totaled approximately $1.7 million during the fourth quarter
      of fiscal year 2007, which was a decrease from net income of approximately
      $13.4
      million in the fourth quarter of fiscal year 2006. This decrease is due to
      a
      combination of a decrease in ethanol price and an increase in corn costs from
      the fourth quarter of fiscal year 2007 to the fourth quarter of fiscal year
      2006.





Revenues
      from operations for the fourth quarter of fiscal year 2007 totaled approximately
      $29.0 million, down from approximately $34.0 million in the fourth quarter
      of
      fiscal year 2006. Net gallons of denatured ethanol sold totaled approximately
      12,700,000 in the fourth quarter of fiscal year 2007, compared to 13,400,000
      gallons in the fourth quarter of fiscal year 2006. The approximate 700,000
      gallon difference between quarters is due to ethanol unit trains being loaded,
      but not yet released to the common carrier at the end of the fourth quarter
      of
      fiscal year 2007, which resulted in higher finished goods inventory because
      revenue is not recognized until the unit trains are released to the common
      carrier. Lincolnway Energy experienced a 13% decrease in ethanol prices in
      the
      fourth quarter of fiscal year 2007, when compared to the fourth quarter of
      fiscal year 2006. While Lincolnway Energy anticipates continued strong demand
      for ethanol, Lincolnway Energy is uncertain as to the sustainability of current
      ethanol prices given the increasing ethanol supply as new plants begin
      production and existing plants continued to expand.


49





Lincolnway
      Energy sold approximately 41,000 tons of distiller's grains in the fourth
      quarter of fiscal year 2007, compared to 38,000 tons in the fourth quarter
      of
      fiscal year 2006. Lincolnway Energy experienced an 18% increase in distillers
      grain price for the fourth quarter of 2007 compared to the fourth quarter of
      2006.





Lincolnway
      Energy's cost of goods sold for the fourth quarter of fiscal year 2007 totaled
      approximately $26.5 million, which was an increase from approximately $19.2
      million in the fourth quarter of fiscal year 2006. The increase is due to an
      approximate 130% increase in corn costs and an approximate 38% reduction of
      denaturant usage. Denaturant usage has decreased due to the escalating price
      increase in unleaded gas compared to ethanol.





General
      and administrative expenses for the fourth quarter of fiscal year 2007 totaled
      approximately $.620 million, compared to $.670 million in the fourth quarter
      of
      fiscal year 2006. The net decrease of $.05 million is due to a reduction of
      professional fees, marketing fees and administrative labor costs for the fourth
      quarter of fiscal year 2007.





Other
      income and expense for the fourth quarter of fiscal year 2007 totaled
      approximately $.41 million net expense, compared to $.89 million net expense
      in
      the fourth quarter of fiscal year 2006. The decrease in net expense is due
      to a
      decrease in interest expense for the fourth quarter of fiscal year 2007.
      Long-term debt and interest rates decreased for the fourth quarter of fiscal
      year 2007 compared to the fourth quarter of fiscal year 2006.





**Financial
      Summary and Analysis of Fiscal Year Ended September 30,
      2006**





Lincolnway
      Energy started ethanol production operations on May 22, 2006. Accordingly,
      the
      income, production and sales data for the year ended September 30, 2006 do
      not
      reflect a full year of operations.





Lincolnway
      Energy's net
      income for the year ended September 30, 2006 was approximately $15.9 million,
      consisting of $16.9 million of operating income, $0.3 million of other income
      (consisting of grants and interest income), and offset by $1.3 million of
      interest expense.





Revenues
      for the year ended September 30, 2006 were approximately $44.9 million,
      consisting of $40.5 million of ethanol (90%) and $4.4 million of sales in dried
      distillers grain (10%). Lincolnway
      Energy sold
      approximately 17.4 million gallons of ethanol at an average price of $2.33
      per
      gallon and 44,000 tons of dried distillers grain at an average price of $100.00
      per ton for the year ended September 30, 2006. Increase in revenues for the
      year
      ended September 30, 2006 resulted from the start up of operations on May 22,
      2006. While Lincolnway
      Energy anticipates continued strong demand for ethanol, Lincolnway
      Energy is
      uncertain as to the sustainability of current ethanol prices given the
      increasing ethanol supply as new plants begin production and existing plants
      continue to expand.


50





Lincolnway
      Energy's cost of
      goods sold for the year ended September 30, 2006 totaled approximately $25.9
      million. Cost of goods sold major components are: corn costs, energy costs,
      ingredient costs, production labor, repairs and maintenance, process
      depreciation, ethanol and distillers grain freight expense and marketing fees.
      Also included in cost of goods sold, which is recognized in corn costs, is
      a
      combined unrealized and realized net gain of $515,300 from derivative
      instruments.





Corn
      costs for the year ended September 30, 2006 totaled approximately $12.8 million.
      Approximately 6.9 million bushels of corn were purchased for the year at an
      average cost of $1.86 per bushel. Corn costs represented 50% of cost of goods
      sold for the year ended September 30, 2006. Lincolnway
      Energy recognizes the gains and losses that result from the changes in value of Lincolnway
      Energy's derivative instruments in corn costs as the changes occur. As corn prices
      fluctuate, the value of Lincolnway
      Energy's derivative instruments are impacted, which affects Lincolnway Energy financial
      performance. Lincolnway
      Energy anticipates continued volatility in Lincolnway
      Energy's corn
      costs due to the timing of the change in value of the derivative instruments
      relative to the cost and use of the corn being hedged.





Energy
      costs for the year ended September 30, 2006 totaled approximately $3.1 million
      or 12% of cost of goods sold. Energy costs consist of coal costs, electricity
      and propane. For the year ended September 30, 2006, Lincolnway
      Energy purchased approximately 33,000 tons of coal at an approximate total cost of
      $1.7
      million. Electricity and propane costs amounted to approximately $1.4 million.





Ingredient
      costs for the year ended September 30, 2006 totaled approximately $2.4 million
      or 9% of cost of goods sold. Ingredient costs consist of denaturant and process
      chemicals.





Production
      labor, repairs and maintenance and other plant costs totaled approximately
      $1.8
      million, or 7% of cost of goods sold, for the year ended September 30,
      2006.





Depreciation
      totaled approximately $2.3 million, or 8% of cost of goods sold, for the year
      ended September 30, 2006.





Ethanol
      and distillers grain freight expense and marketing fees totaled approximately
      $3.5 million, or 14% of cost of goods sold, during the year ended September
      30,
      2006.


51





**Critical
      Accounting Estimates and Accounting Policies**





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





***Derivative
      Instruments***





Lincolnway
      Energy enters into derivative contracts to hedge its exposure to price risk
      related to forecasted corn needs, forward corn purchase contracts and ethanol
      sales. Lincolnway Energy does not typically enter into derivative instruments
      other than for hedging purposes. All the derivative contracts are recognized
      on
      the September 30, 2007 and 2006 balance sheets at their fair market value.
      Although Lincolnway Energy believes Lincolnway Energy's derivative positions
      are
      economic hedges, none has been designated as a hedge for accounting purposes.
      Accordingly, any realized or unrealized gain or loss related to these derivative
      instruments is recorded in the statement of operations as a component of cost
      of
      goods sold in the case of corn contracts and as a component of revenue in the
      case of ethanol sales.








During
      the fiscal years ended September 30, 2007 and 2006, Lincolnway Energy had
      combined realized and unrealized net gain for corn derivative instruments of
      $2,702,925 and $515,300, respectively. Unrealized (losses) and gains of
      $(117,475) and $1,313,212 are included in derivative financial instruments
      on
      the balance sheet as of September 30, 2007 and 2006, respectively. During the
      fiscal year ended September 30, 2007, Lincolnway Energy had recorded an
      unrealized gain for ethanol sales derivative instruments of $514,464. There
      was
      no realized or unrealized gain or loss for ethanol sales during the fiscal
      year
      ended September 30, 2006. Unrealized gains and losses on forward contracts,
      in
      which delivery has not occurred, are deemed "normal purchases and normal sales"
      under FASB Statement No. 133, as amended, and therefore are not marked to market
      in Lincolnway Energy's financial statements. As of September 30, 2007,
      Lincolnway Energy had outstanding commitments for approximately 516,000 bushels
      of corn amounting to approximately $1.750 million under a forward contract
      and
      approximately 2,565,000 bushels of corn under several basis contracts in which
      the related commodity will be delivered through July 2008.




52


**Liquidity
      and Capital Resources**





For
      the
      fiscal year ended September 30, 2007, cash provided by operating activities
      was
      $30.3 million, compared to cash provided by operating activities of $11.4
      million for the fiscal year ended September 30, 2006. The increase is due to
      there having been a full year of operations in fiscal year 2007, as compared
      to
      only four months of operations in fiscal year 2006, which increased net income
      and depreciation.





Cash
      flows used in investing activities reflect the impact of property and equipment
      acquired for the ethanol plant. Net cash used in investing activities decreased
      by $45.5 million for the fiscal year ended September 30, 2007, when compared
      to
      the fiscal year ended September 30, 2006. The decrease is due to plant
      construction having been completed during fiscal year 2006.





Cash
      flows from financing activities include transactions and events whereby cash
      is
      obtained or paid back to or from depositors, creditors or investors. Net cash
      provided by financing activities decreased by $58.5 million for the fiscal
      year
      ended September 30, 2007, when compared to the fiscal year ended September
      30,
      2006. The net decrease is primarily due to decreased borrowings for the plant
      construction of $47.3 million, payment of member distributions of $14.8 million
      and a change in membership units of $1.6 million. The decrease was offset by
      the
      reduction in debt payments of $(5.2) million.





Lincolnway
      Energy expects
      to have available cash to meet Lincolnway Energy's currently anticipated
      liquidity needs for the 2008 fiscal year.





Lincolnway
      Energy has a construction and term loan with Co-Bank. The interest rate under
      the term loan is a variable interest rate based on the prime rate less .05%.
      The
      loan requires 30 principal payments of $1,250,000 per quarter. The quarterly
      payments commenced in December 2006 and will continue through March 2014, with
      the final installment due in May 2014. The loan requires the maintenance of
      certain financial and nonfinancial covenants. The borrowings under the loan
      are
      collateralized by substantially all of Lincolnway Energy's assets. The loan
      also
      includes certain prepayment penalties, but as of September 30, 2007, Lincolnway
      Energy had been allowed to make prepayments of $16,250,000 without any penalty.
      As of September 30, 2007, the balance remaining on Lincolnway Energy’s
      construction loan was $22,750,000.





Lincolnway
      Energy also has a $10,000,000 construction/revolving term credit facility with
      Co-Bank. The interest rate under the credit facility agreement is a variable
      interest rate based on the prime rate less .05%. Borrowings are subject to
      borrowing base restrictions as defined in the agreement. The credit facility
      requires the maintenance of certain financial and nonfinancial covenants. The
      borrowings under the agreement are collateralized by substantially all of
      Lincolnway Energy's assets. The construction/revolving term credit facility
      has
      a commitment fee on the average daily unused portion of the commitment at a
      rate
      of 1⁄2 of 1% per annum, payable monthly. The agreement also includes certain
      prepayment penalties. There was no balance remaining on the facility as of
      September 30, 2007.


53





Lincolnway
      Energy executed a mortgage in favor of Co-Bank creating a first lien on
      substantially all of its assets, including the real estate and ethanol plant
      and
      all personal property located on its property for the loan and credit agreements
      discussed above. There was no loan outstanding under Lincolnway Energy's
      construction/revolving term credit agreement.





Lincolnway
      Energy also has subordinated debt financing which includes a subordinated note
      of $1,250,000 payable to Fagen, Inc., with an interest rate of 4%, and a
      $1,216,781 note payable to Fagen, Inc., with an interest rate of 5%. Principal
      is due in full under both of those notes at maturity on May 22, 2021 and
      November 17, 2014, respectively.





Lincolnway
      Energy also entered into a $500,000 loan agreement with the Iowa Department
      of
      Transportation in February 2005. Under the agreement, the loan proceeds were
      disbursed upon submission of paid invoices and interest at 2.11% per annum
      began
      to accrue on January 1, 2007. Payments began on July 1, 2007. Lincolnway Energy
      also has a $300,000 loan agreement and a $100,000 forgivable loan agreement
      with
      the Iowa Department of Economic Development. The $300,000 loan does not impose
      any interest, and the $100,000 loan is forgivable upon the completion of
      Lincolnway Energy's ethanol plant and the production of at least 50 million
      gallons of ethanol before the project completion date of October 31, 2008.
      As of
      December 15, 2007, Lincolnway Energy had made payments totaling $32,500 on
      the
      Iowa Department of Economic Development $300,000 loan agreement and $22,563
      on
      the Iowa Department of Transportation agreement.





Lincolnway
      Energy entered into an agreement with an unrelated entity on March 3, 2006
      to
      lease railcars. The 5 year term of the agreement will end in March 2011. The
      agreement required a $351,000 letter of credit facility as partial security
      for
      Lincolnway Energy's obligations under the agreement. The letter of credit
      facility was initially funded through a $4,000,000 revolving credit agreement
      with Co-Bank. On April 11, 2007, the $4,000,000 revolving credit agreement
      was
      reduced to $351,000, the amount of the above mentioned letter of credit. The
      $351,000 revolving credit agreement was cancelled on July 3, 2007, however,
      because an amendment was made to the railcar lease agreement on June 19, 2007,
      that allowed Lincolnway Energy to purchase a certificate of deposit for $351,000
      in lieu of the letter of credit. The deposit will mature on June 20, 2008 and
      will be automatically renewed. Interest is paid to Lincolnway Energy on the
      certificate of deposit on a quarterly basis.




54


In
          addition to long-term debt obligations, Lincolnway Energy has certain other
          contractual cash obligations and commitments.  The following tables provide
          information regarding Lincolnway Energy's consolidated contractual obligations
          and commitments as of September 30, 2007:
  **Payment
                    Due By Period****Contractual
                    Obligations**
                
                **Total**
                
                **Less
                    than**
                  **One
                    Year**
                
                **Two
                    to**
                  **Three**
                  **Years**
                
                **Four
                    to**
                  **Five**
                  **Years**
                
                **More
                    than Five**
                  **Years**Long-Term
                    Debt Obligations
                
                $
                26,066,718
                
                $
                1,323,346
                
                $
                10,154,643
                
                $
                10,131,219
                
                $
                4,457,510Interest
                    Obligation of Long-Term Debt
                
                
                6,707,915
                
                
                1,809,035
                
                
                2,868,112
                
                
                1,324,037
                
                
                706,731Operating
                    Lease Obligations
                
                
                2,469,494
                
                
                738,168
                
                
                1,435,954
                
                
                295,372
                
                
                -Purchase
                    ObligationsCoal
                    Supplier Commitment
                
                
                21,468,000
                
                
                4,101,600
                
                
                8,443,200
                
                
                8,923,200
                
                
                -Corn
                    Supplier Commitment
                
                
                1,750,000
                
                
                1,750,000
                
                
                -
                
                
                -
                
                
                -Anhydrous
                    Ammonia Commitment
                
                
                89,099
                
                
                89,099
                
                
                -
                
                
                -
                
                
                -Denaturant
                    Commitment
                
                
                704,410
                
                
                704,410
                
                
                -
                
                
                -
                
                
                -Total
                
                $
                59,255,636
                
                $
                10,515,658
                
                $
                22,901,909
                
                $
                20,673,828
                
                $
                5,164,241





**Off-balance
      Sheet Arrangements**




Lincolnway
      Energy has the following contractual commitments that could have a current
      or
      future effect on Lincolnway Energy's financial condition, changes in financial
      condition, revenues or expenses, results of operations, liquidity, capital
      expenditures or capital resources.





Lincolnway
      Energy has an agreement with the Heart of Iowa Cooperative (HOIC), a member
      of
      Lincolnway Energy, pursuant to which HOIC may be required to provide 100% of
      Lincolnway Energy's requirements of corn for use in the operation of the ethanol
      plant. The agreement became effective when Lincolnway Energy began accepting
      corn for use at the ethanol plant in May 2006 and may continue for a period
      of
      20 years. Lincolnway Energy paid HOIC a handling fee of $.075 per bushel of
      corn
      until July 2007, when the handling fee was reduced to $.0675 per bushel. The
      handling fee was reduced because Lincolnway Energy purchased its own locomotive
      and would no longer be using HOIC's locomotive as otherwise permitted under
      the
      agreement. If Lincolnway Energy chooses to buy corn that is not elevated by
      HOIC, and is outside a 60-mile radius of Nevada, Iowa, Lincolnway Energy will
      be
      required to pay HOIC $.03 per bushel of corn. The agreement may be terminated
      by
      Lincolnway Energy or HOIC before the end of the term by providing six months’
notice of termination and paying the other party $2,000,000, reduced by $50,000
      for each completed year of the agreement. The amount is payable over four years
      with interest at the prime rate on the date of termination.





Lincolnway
      Energy purchased corn from HOIC under the agreement totaling $59,189,376 and
      $14,878,595 for the fiscal years ended September 30, 2007 and 2006,
      respectively. As of September 30, 2007, Lincolnway Energy had one corn cash
      contract with HOIC with a commitment of approximately $1,750,000 and also
      several basis contracts representing approximately 2,565,000 bushels of corn.
      The contracts mature on various dates through July 2008. Lincolnway Energy
      also
      made some miscellaneous purchases from HOIC (storage fees, fuel, propane and
      locomotive costs) amounting to $375,213 and $245,662 for the fiscal years ended
      September 30, 2007 and 2006, respectively. As of September 30, 2007 and 2006,
      the amount due to HOIC was $89,812 and $127,683, respectively.


55


Lincolnway
      Energy purchases anhydrous ammonia from Prairie Land Cooperative, a member
      of
      Lincolnway Energy. The total purchases for the fiscal years ended September
      30,
      2007 and 2006 were $552,677 and $129,601, respectively. As of September 30,
      2007
      and 2006, the amount due to Prairie Land Cooperative was $78,401 and $35,356,
      respectively. As of September 30, 2007, Lincolnway Energy had a purchase
      commitment with Prairie Land Cooperative of $89,099.





Lincolnway
      Energy has an agreement with an unrelated party to provide the coal supply
      for
      the ethanol plant. The agreement was amended in various ways pursuant to an
      amendment that was entered into on October 1, 2007. The agreement allows
      Lincolnway Energy to purchase up to 220,000 tons of coal per year at a per
      ton
      price equal to the sum of the coal price and the transportation price, as those
      terms are defined in the agreement. The coal price and the transportation price
      are subject to adjustment in various circumstances and based on various factors.
      For example, the transportation price is subject to quarterly adjustment, upward
      or downward (but never below the initial transportation price stated in the
      agreement), by 100% of the quarterly percentage change in the All Inclusive
      Index--Less Fuel, and to a monthly adjustment, upward but not downward, through
      the addition of a fuel surcharge determined by the amount by which the average
      Retail On Highway Diesel Fuel Price of the U.S. exceeds a specified amount
      per
      gallon. The transportation price will also be increased on the scheduled
      adjustment dates set out in the agreement. The coal price adjustments are based
      upon, in general, any increased costs as a result of any changes in laws,
      changes in inflation as determined by designated indices, and the quality of
      the
      coal. Lincolnway Energy is required to pay a penalty of $16.00 per ton if
      Lincolnway Energy fails to purchase a minimum of 80,000 tons of coal in any
      calendar year. The $16.00 per ton penalty amount is subject to adjustment as
      provided in the agreement. The agreement will expire by its terms on January
      1,
      2013. For the fiscal years ended September 30, 2007 and 2006, Lincolnway Energy
      purchased $4,257,613 and $1,752,646, respectively, of coal under the agreement.





Lincolnway
      Energy has a variable contract with a supplier of denaturant. The variable
      contract is for a minimum purchase of 352,205 gallons of denaturant at the
      national gasoline daily average plus $.27/usg. The term of the contract is
      from
      October 1, 2007 through December 31, 2007. The total purchase commitment at
      September 30, 2007 was $704,410. For the fiscal years ended September 30, 2007
      and 2006, Lincolnway Energy purchased $3,162,301 and $1,720,321, respectively,
      of denaturant.


56





**Employees**





As
      of
      December 15, 2007, Lincolnway had 45 employees in the following general
      positions:


**Position**
              **#
                  Employed**President
                  and Chief Executive Officer
              1Chief
                  Financial Officer
              1Plant
                  Manager
              1Merchandising/Logistics
                  Manager
              1Controller
              1Lab
                  Supervisor
              1Production
                  Manager
              1Maintenance
                  Manager
              1Logistics
                  Supervisor
              1Admin/Clerical
              6Shift
                  Supervisors
              4Maint/Instrument
                  Technicians
              8Lab
                  Technicians
              1Plant
                  Operators
              17**Total**
              **45**





**Item
                7A.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk.**





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





***Interest
                Rate Risk***





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





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


57





Lender
            
            Principal Balance
                  as of September 30,2007
            
            Interest
              RateCo-Bank
            
            $
            22,750,000
            
            
            7.7%IA
                Department Economic Development
            
            
            372,500
            
            
            0.0%IA
                Department of Transportation
            
            
            477,437
            
            
            2.11%Fagen,
                Inc.
            
            
            1,216,781
            
            
            5.0%Fagen,
                Inc.
            
            
            1,250,000
            
            
            4.0%$26,066,718





The
      interest rate under all of the loan agreements and promissory notes, other
      than
      with CoBank, are fixed at the interest rates specified above. The interest
      rates
      under all of the CoBank loan agreements are at prime, less .05%, and were at
      7.7% per annum as of September 30, 2007.





A
                hypothetical increase of 1% in the interest rates under the CoBank
                loan
                agreements would result in additional interest expense of approximately
                $227,500 during the fiscal year ending September 30,
                2008.





***Commodity
                Price Risk***





Lincolnway
                Energy is also exposed to market risk with respect to the price of
                ethanol, Lincolnway Energy's principal product, and the price and
                availability of corn, the principal commodity used by Lincolnway
                Energy to
                produce ethanol. The other primary product of Lincolnway Energy is
                distillers grains, and Lincolnway Energy is also subject to market
                risk
                with respect to the price for distillers
                grains.





In
                general, rising ethanol and distillers grains prices result in higher
                profit margins, and therefore represent favorable market conditions.
                Ethanol and distillers grains prices are, however, influenced by
                various
                factors beyond the control of Lincolnway Energy's management, including
                the supply and demand for gasoline, the availability of substitutes
                and
                the effect of laws and regulations.





In
                general, rising corn prices result in lower profit margins and,
                accordingly, represent unfavorable market conditions. Lincolnway
                Energy
                will generally not be able to pass along increased corn costs to
                its
                ethanol customers. The availability and price of corn is subject
                to wide
                fluctuations due to various unpredictable factors which are beyond
                the
                control of Lincolnway Energy's management, including weather conditions,
                farmer planting decisions, governmental policies with respect to
                agriculture and local, regional, national and international trade,
                demand
                and supply. For example, if corn costs were to increase $.10 cents
                from
                one year to the next, the impact on cost of goods sold would be
                approximately $1.87 million for the year. Lincolnway Energy's average
                corn
                costs for the fiscal years ended September 30, 2007 and September
                30, 2006
                was approximately $3.42 per bushel and $2.12 per bushel, respectively.


58





Over
                the five year period from September 30, 2001 through September 30,
                2006,
                corn prices (based on the Chicago Board of Trade daily futures data)
                ranged from a low of $1.86 per bushel in November 2005 to a high
                of $3.35
                per bushel in April 2004, with prices averaging $2.30 per bushel
                over that
                five year period. During the fiscal year ended September 30, 2007,
                corn
                prices (based on the Chicago Board of Trade daily futures data) ranged
                from a low of $3.085 per bushel in July to a high of $4.37 per bushel
                in
                February. On December 7, 2007, the Chicago Board of Trade price per
                bushel
                of March 2008 corn was $ 4.115.


Although
                Lincolnway Energy believes that its futures and option positions
                accomplish an economic hedge against Lincolnway Energy's future purchases
                of corn or futures sales of ethanol, Lincolnway Energy has chosen
                not to
                use hedge accounting for those positions, which would match the gain
                or
                loss on the positions to the specific commodity purchase being hedged.
                Lincolnway Energy is instead using fair value accounting for the
                positions, which generally means that as the current market price
                of the
                positions changes, the realized or unrealized gains and losses are
                immediately recognized in Lincolnway Energy's costs of goods sold
                in the
                statement of operations for corn positions or as a component of revenue
                in
                the statement of operations for ethanol positions. The immediate
                recognition of gains and losses on those positions can cause net
                income to
                be volatile from quarter to quarter due to the timing of the change
                in
                value of the positions relative to the cost and use of the commodity
                being
                hedged. For example, Lincolnway Energy's corn position gain (realized
                and
                unrealized) that was included in its earnings for the fiscal year
                ended
                September 30, 2006 was $515,300, as opposed to $2,702,925 for the
                fiscal
                year ended September 30, 2007.





Another
                important raw material for the production of Lincolnway Energy's
                ethanol
                is coal. Lincolnway Energy's cost per ton for coal under its current
                coal
                supply agreement is subject to various fixed and periodic adjustments
                based on factors which are outside of the control of Lincolnway Energy's
                management, including based upon changes in certain inflation type
                indices, increases in transportation costs and the quality of the
                coal.
                Lincolnway Energy's coal costs will therefore vary, and the variations
                could be material. Coal costs represented approximately 5% of Lincolnway
                Energy's total cost of goods sold for the fiscal year ended September
                30,
                2007.





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





59





**Item
                8.**
            **Financial
                Statements and Supplementary Data.**





**Contents**




Report
                of Independent Registered Public Accounting Firm
            1Financial
                StatementsBalance
                Sheets
            2-3Statements
                of Operations
            4Statements
                of Member Equity
            5Statements
                of Cash Flows
            6-7Notes
                to Financial Statements
            8-17




60









**Report
      of Independent Registered Public Accounting Firm**




To
      the
      Board of Directors and Members


Lincolnway
      Energy, LLC


Nevada,
      Iowa





We
      have
      audited the balance sheets of Lincolnway Energy, LLC as of September 30, 2007
      and 2006, and the related statements of operations, members’ equity and cash
      flows for each of the three years in the period ended September 30, 2007. These
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Lincolnway Energy, LLC as of
      September 30, 2007 and 2006, and the results of its operations and its cash
      flows for each of the three years in the period ended September 30, 2007 in
      conformity with U.S. generally accepted accounting principles.










December
      20, 2007








McGladrey
      & Pullen, LLP is an independent member firm of RSM
      International,


an
      affiliation of separate and independent legal entities.





1


**Lincolnway
                Energy, LLC****Balance
                Sheets****September
                30, 2007 and 2006**




**2007**
            
            2006**ASSETS
                (Note 4)**CURRENT
                ASSETSCash
                and cash equivalents
            
            **$**
            **7,856,908**
            
            $
            4,731,873Certificates
                of deposit
            
            
            **779,050**
            
            
            -Due
                from broker
            
            
            **845,169**
            
            
            701,448Trade
                and other accounts receivable (Note 7)
            
            
            **2,475,593**
            
            
            4,472,238Inventories
                (Note 3)
            
            
            **3,671,529**
            
            
            2,988,794Prepaid
                expenses and other
            
            
            **162,215**
            
            
            157,053Derivative
                financial instruments (Note 8)
            
            
            **514,464**
            
            
            1,313,212**Total
                current assets**
            
            
            **16,304,928**
            
            
            14,364,618PROPERTY
                AND EQUIPMENTLand
                and land improvements
            
            
            **6,966,137**
            
            
            4,874,727Buildings
                and improvements
            
            
            **1,587,836**
            
            
            1,385,202Plant
                and process equipment
            
            
            **73,319,932**
            
            
            72,860,565Construction
                in progress
            
            
            **92,513**
            
            
            1,190,762Office
                furniture and equipment
            
            
            **332,986**
            
            
            544,620**82,299,404**
            
            
            80,855,876Accumulated
                depreciation
            
            
            **(10,681,642**
            **)**
            
            (2,685,179
            )**71,617,762**
            
            
            78,170,697OTHER
                ASSETSFinancing
                costs, net of amortization of 2007 $80,448 and 2006 $37,543
            
            
            **391,514**
            
            
            434,419Deposit
            
            
            **504,753**
            
            
            55,503Investments
            
            
            **2,000**
            
            
            2,000**898,267**
            
            
            491,922**$**
            **88,820,957**
            
            $
            93,027,237




See
                Notes to Financial Statements.





2


**2007**
            
            2006**LIABILITIES
                AND MEMBERS’ EQUITY**CURRENT
                LIABILITIESAccounts
                payable
            
            **$**
            **1,772,703**
            
            $
            1,578,598Accounts
                payable, related party (Note 6)
            
            
            **169,088**
            
            
            163,039Current
                maturities of long-term debt (Note 4)
            
            
            **1,323,346**
            
            
            5,063,837Accrued
                expenses
            
            
            **726,008**
            
            
            1,010,808Derivative
                financial instruments (Note 8)
            
            
            **117,475**
            
            
            -**Total
                current liabilities**
            
            
            **4,108,620**
            
            
            7,816,282LONG-TERM
                DEBT, less current maturities (Note 4)
            
            
            **24,743,372**
            
            
            29,548,706COMMITMENTS
                AND CONTINGENCY (Notes 5, 7 and 10)MEMBERS’
                EQUITYMember
                    contributions, net of issuance costs, 42,049 and 42,859, respectively
                    units issued and outstanding
            
            
            **38,990,105**
            
            
            39,800,105Retained
                earnings
            
            
            **20,978,860**
            
            
            15,862,144**59,968,965**
            
            
            55,662,249**$**
            **88,820,957**
            
            $
            93,027,237





3


**Lincolnway
                Energy, LLC****Statements
                of Operations****Years
                Ended September 30, 2007, 2006 and 2005**




**2007**
            
            2006
            
            2005Revenues
                (Note 7)
            
            **$**
            **118,783,540**
            
            $
            44,883,457
            
            $
            -Cost
                of goods sold
            
            
            **94,233,456**
            
            
            25,886,144
            
            
            -**Gross
                profit**
            
            
            **24,550,084**
            
            
            18,997,313
            
            
            -General
                and administrative expenses
            
            
            **2,903,436**
            
            
            2,082,597
            
            
            427,478**Operating
                income (loss)**
            
            
            **21,646,648**
            
            
            **16,914,716**
            
            
            **(427,478**
            **)**Other
                income (expense):Grants
            
            
            **-**
            
            
            151,859
            
            
            73,141Interest
                income
            
            
            **445,703**
            
            
            117,732
            
            
            552,538Interest
                expense
            
            
            **(2,228,179**
            **)**
            
            (1,281,287
            )
            
            -Other
            
            
            **91,194**
            
            
            4,701
            
            
            -**(1,691,282**
            **)**
            
            (1,006,995
            )
            
            625,679**Net
                income**
            
            **$**
            **19,955,366**
            
            $
            15,907,721
            
            $
            198,201Weighted
                average units outstanding
            
            
            **42,519**
            
            
            42,293
            
            
            32,816Net
                income per unit - basic and diluted
            
            **$**
            **469.33**
            
            $
            376.13
            
            $
            6.04





See
      Notes
      to Financial Statements.





4


**Lincolnway
                Energy, LLC****Statements
                of Members' Equity****Years
                Ended September 30, 2007, 2006 and 2005**




RetainedMember
            
            EarningsContributions
            
            (Deficit)
            
            Total**Balance,
                September 30, 2004**
            
            $
            962,000
            
            $
            (243,778
            )
            $
            718,222Issuance
                of 40,125 membership units
            
            
            38,118,750
            
            
            -
            
            
            38,118,750Offering
                costs
            
            
            (394,395
            )
            
            -
            
            
            (394,395
            )Net
                income
            
            
            -
            
            
            198,201
            
            
            198,201Balance,
                September 30, 2005
            
            
            38,686,355
            
            
            (45,577
            )
            
            38,640,778Issuance
                of 810 membership units (Note 2)
            
            
            810,000
            
            
            -
            
            
            810,000Compensation
                from issuance of membership units
            
            
            303,750
            
            
            -
            
            
            303,750Net
                income
            
            
            -
            
            
            15,907,721
            
            
            15,907,721Balance,
                September 30, 2006
            
            
            39,800,105
            
            
            15,862,144
            
            
            55,662,249Repurchase
                of 810 membership units (Note 2)
            
            
            (810,000
            )
            
            -
            
            
            (810,000
            )Distributions
                ($350 per unit)
            
            
            -
            
            
            (14,838,650
            )
            
            (14,838,650
            )Net
                income
            
            
            -
            
            
            19,955,366
            
            
            19,955,366**Balance,
                September 30, 2007**
            
            **$**
            **38,990,105**
            
            **$**
            **20,978,860**
            
            **$**
            **59,968,965**




See
                Notes to Financial Statements.




5


**Lincolnway
                Energy, LLC****Statements
                of Cash Flows****Years
                Ended September 30, 2007, 2006 and 2005**




**2007**
            
            2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                income
            
            **$**
            **19,955,366**
            
            $
            15,907,721
            
            $
            198,201Adjustments
                to reconcile net income to net cash provided byoperating
                activities:Depreciation
                and amortization
            
            
            **8,053,101**
            
            
            2,715,906
            
            
            6,221Loss
                of disposal of property and equipment
            
            
            **121,786**
            
            
            -
            
            
            -Compensation
                expense- issuance of membership units
            
            
            **-**
            
            
            303,750
            
            
            -Changes
                in working capital components:(Increase)
                in prepaid expenses and other
            
            
            **(5,162**
            **)**
            
            (113,009
            )
            
            (35,844
            )(Increase)
                decrease in trade and other accounts receivable
            
            
            **1,996,645**
            
            
            (4,472,238
            )
            
            -(Increase)
                in due from broker
            
            
            **(143,721**
            **)**
            
            (701,448
            )
            
            -(Increase)
                decrease in derivative financial instruments
            
            
            **916,223**
            
            
            (1,313,212
            )
            
            -(Increase)
                in inventories
            
            
            **(682,735**
            **)**
            
            (2,988,794
            )
            
            -(Increase)
                in deposits
            
            
            **(449,250**
            **)**
            
            (55,503
            )
            
            -Increase
                (decrease) in accounts payable
            
            
            **718,849**
            
            
            1,027,090
            
            
            (19,487
            )Increase
                in accounts payable, related party
            
            
            **6,049**
            
            
            163,039
            
            
            -Increase
                (decrease) in accrued expenses
            
            
            **(168,019**
            **)**
            
            928,224
            
            
            78,314**Net
                cash provided by operating activities**
            
            
            **30,319,132**
            
            
            11,401,526
            
            
            227,405CASH
                FLOWS FROM INVESTING ACTIVITIESPurchase
                of property and equipment
            
            
            **(2,103,791**
            **)**
            
            (48,400,737
            )
            
            (31,833,640
            )Proceeds
                from sale of equipment
            
            
            **-**
            
            
            -
            
            
            33,284Purchase
                of certificates of deposit
            
            
            **(779,050**
            **)**
            
            -
            
            
            -Purchase
                of cost basis investment
            
            
            **-**
            
            
            -
            
            
            (2,000
            )**Net
                cash (used in) investing activities**
            
            
            **(2,882,841**
            **)**
            
            (48,400,737
            )
            
            (31,802,356
            )CASH
                FLOWS FROM FINANCING ACTIVITIESIssuance
                of membership units
            
            
            -
            
            
            810,000
            
            
            38,118,750Repurchase
                of membership units
            
            
            **(810,000**
            **)**
            
            -
            
            
            -Member
                distributions
            
            
            **(14,838,650**
            **)**
            
            -
            
            
            -Payments
                for financing costs
            
            
            **-**
            
            
            (70,495
            )
            
            (386,467
            )Proceeds
                from long-term borrowings
            
            
            **153,707**
            
            
            47,521,690
            
            
            1,100,000Payments
                on long-term borrowings
            
            
            **(8,816,313**
            **)**
            
            (14,041,648
            )
            
            -Proceeds
                from short-term borrowings
            
            
            **-**
            
            
            -
            
            
            639,166Payments
                on short-term borrowings
            
            
            **-**
            
            
            -
            
            
            (639,166
            )Payments
                of offering costs
            
            
            **-**
            
            
            -
            
            
            (163,691
            )**Net
                cash provided by (used in) financing activities**
            
            
            **(24,311,256**
            **)**
            
            34,219,547
            
            
            38,668,592**Net
                increase (decrease) in cash and cash equivalents**
            
            
            **3,125,035**
            
            
            (2,779,664
            )
            
            7,093,641CASH
                AND CASH EQUIVALENTSBeginning
            
            
            **4,731,873**
            
            
            7,511,537
            
            
            417,896Ending
            
            **$**
            **7,856,908**
            
            $
            4,731,873
            
            $
            7,511,537




(Continued)





6


**Lincolnway
                Energy, LLC****Statements
                of Cash Flows (Continued)****Years
                Ended September 30, 2007, 2006 and 2005**




**2007**
            
            2006
            
            2005SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION, cash paid for interest, net
                of amount
                capitalized
            
            **$**
            **2,430,012**
            
            $
            1,271,011
            
            $
            -SUPPLEMENTAL
                DISCLOSURES OF NONCASH OPERATING AND FINANCING ACTIVITIESConstruction
                in progress included in accounts payable
            
            **$**
            **21,078**
            
            $
            545,822
            
            
            3,255,192Capital
                lease obligation incurred for equipment
            
            
            **-**
            
            
            32,501
            
            
            -Deferred
                offering costs
            
            
            **-**
            
            
            -
            
            
            (15,785
            )Accrued
                interest converted to long-term debt
            
            
            **116,781**
            
            
            -
            
            
            -




See
                Notes to Financial Statements.





7


**Lincolnway
        Energy, LLC**
  **Notes
        to Financial Statements**







**Note
                1.**
            **Nature
                of Business and Significant Accounting
                Policies**




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





A
      summary
      of significant accounting policies follows:





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





Concentration
      of credit risk: The
      Company’s cash balances are maintained in bank deposit accounts which at times
      may exceed federally insured limits. The Company has not experienced any losses
      in such accounts.





Cash
      and cash equivalents :
      For the
      purpose of reporting cash flows the Company considers all highly liquid debt
      instruments purchased with a maturity of three months or less to be cash
      equivalents.





Trade
      accounts receivable :
      Trade
      accounts receivable are recorded at original invoice amount less an estimate
      made for doubtful receivables based on a review of all outstanding amounts
      on a
      monthly basis. Management determines the allowance for doubtful accounts by
      regularly evaluating individual customer receivables and considering customers
      financial condition, credit history and current economic conditions. Receivables
      are written off when deemed uncollectible. Recoveries of receivables written
      off
      are recorded when received. A receivable is considered past due if any portion
      of the receivable is outstanding more than 90 days.





Inventories :
      Inventories, which consist primarily of corn, ethanol and distillers grain
      with
      solubles, are stated at the lower of cost or market on the first-in, first-out
      method.





Financing
      costs :
      Financing costs associated with the construction and revolving loans discussed
      in Note 4 are recorded at cost and include expenditures directly related to
      securing debt financing. The Company amortized these costs using the effective
      interest method over the term of the agreement. The financing costs are included
      in interest expense on the statement of operations.





Property
      and equipment :
      Property and equipment is stated at cost. Construction in progress is comprised
      of costs related to the projects that are not completed. Depreciation is
      computed using the straight-line method over the following estimated useful
      lives:


YearsLand
                  improvements
              
              20Buildings
                  and improvements
              
              40Plant
                  and process equipment
              
              5
                  - 20Office
                  furniture and equipment
              
              3
                  - 7


8


**Lincolnway
        Energy, LLC**
  **Notes
        to Financial Statements**







Maintenance
      and repairs are expensed as incurred; major improvements and betterments are
      capitalized. The present value of capital lease obligations are classified
      as
      long-term debt and the related assets are included in equipment. Amortization
      of
      equipment under capital lease is included in depreciation expense. Equipment
      under capital lease and accumulated depreciation totaled $32,501 and $8,976,
      respectively, as of September 30, 2007.





Investments :
      The
      Company has investments in common stock. These investments are carried at
      cost.





Derivative
      financial instruments :
      The
      Company enters into derivative contracts to hedge the Company’s exposure to
      price risk related to forecasted corn needs forward corn purchase contracts
      and
      ethanol sales. The Company does not typically enter into derivative instruments
      other than for hedging purposes. All the derivative contracts are recognized
      on
      the balance sheet at their fair market value. Although the Company believes
      its
      derivative positions are economic hedges, none have been designated as a hedge
      for accounting purposes. Accordingly, any realized or unrealized gain or loss
      related to corn derivative instruments is recorded in the statement of
      operations as a component of cost of goods sold. Any realized or unrealized
      gain
      or loss related to ethanol derivative instruments is recorded in the statement
      of operations as a component of revenue. During the years ended September 30,
      2007and 2006, the Company had recorded a combined realized and unrealized gain
      for corn derivative financial instruments of $2,702,925 and $515,300,
      respectively. There was no realized or unrealized gain or loss during the year
      ended September 30, 2005. During the year ended September 30, 2007, the Company
      had recorded an unrealized gain for ethanol sales derivative instruments of
      $514,464. There was no realized or unrealized gain or loss during the years
      ended September 30, 2006 and 2005 for ethanol sales.





Deposit :
      The
      Internal Revenue Service (under Section 7519) requires partnerships that elect
      a
      fiscal year over a calendar year to make a deposit each year. The deposit is
      25%
      of annual net income, multiplied by the tax rate of 36% for the reporting fiscal
      year.





Revenue
      recognition :
      Revenue
      from the sale of the Company’s ethanol and distillers grains is recognized at
      the time title and all risks of ownership transfer to the customers. This
      generally occurs upon shipment to the customers or when the customer picks
      up
      the goods. For railcar shipments this takes place when the product is released
      to the common carrier and a bill of lading is produced. For truck shipments,
      title passes once the truck is filled and leaves the premise. Shipping and
      handling costs incurred by the Company for the sale of ethanol and distiller
      grains are included in costs of goods sold.





Commissions
      for the marketing and sale of ethanol and distiller grains are included in
      costs
      of goods sold.





Reclassification :
      Certain
      amounts in the statement of operations for 2005 have been reclassified to
      conform to 2007 and 2006 classifications. These reclassifications had no effect
      on net income as previously reported.





Income
      taxes :
      The
      Company is organized as a partnership for federal and state income tax purposes
      and generally does not incur income taxes. Instead, the Company’s earnings and
      losses are included in the income tax returns of the members. Therefore, no
      provision or liability for federal or state income taxes has been included
      in
      these financial statements.





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





Grants :
      The
      Company recognizes grant income upon complying with the conditions of the
      grant.




9


**Lincolnway
        Energy, LLC**
  **Notes
        to Financial Statements**







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





New
      accounting pronouncements :
      In
      September 2006, The SEC issued Staff Accounting Bulletin. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* (SAB
      108). SAB 108 provides interpretive guidance on how the effects of prior-year
      uncorrected misstatements should be considered when quantifying misstatements
      in
      current year financial statements. SAB 108 requires registrants to quantify
      misstatements using both an income statement and balance sheet approach and
      then
      evaluate whether either approach results in a misstatement that, when all
      relevant quantitative and qualitative factors are considered, is material.
      If
      prior year errors that have been previously considered immaterial are now
      considered material based on either approach, no restatement is required so
      long
      as management properly applied its previous approach and all relevant facts
      and
      circumstances were considered. If prior year’s financial statements are not
      restated, the cumulative effect of the adjustment is recorded in opening
      accumulated earnings (deficit) as of the beginning of the fiscal year of
      adoption. SAB 108 is effective for us at the end of 2007. There was no impact
      to
      our financial statements as a result of adoption of this
      pronouncement.





In
      September 2006, the FASB issued Statement No. 157, Fair Value Measurement (FAS
      157). While this statement does not require new fair value measurements, it
      provides guidance on applying fair value and expands required disclosures.
      FAS
      157 is effective for us beginning in the first quarter of 2009. We are currently
      assessing the impact FAS 157 may have on our financial statements.





In
      February 2007, the FASB issued Statement No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities (FAS 159). This statement, which
      is
      expected to expand fair value measurement, permits entities to choose to measure
      many financial instruments and certain other items at fair value. FAS 159 is
      effective for us beginning in the first quarter of 2009. We are currently
      assessing the impact FAS 159 may have on our financial statements.





10


**Lincolnway
        Energy, LLC**
  **Notes
        to Financial Statements**







**Note
                2.**
            **Members’
                Equity**




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





On
      April
      4, 2007, the Company repurchased 810 membership units from the Company’s
      directors at a purchase price of $1,000 per unit pursuant to manager and member
      vote that was held at a special member meeting on April 3, 2007.





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




**Note
                3.**
            **Inventories**




Inventories
      consist of the following as of September 30, 2007 and 2006:





**2007**
            
            2006Raw
                materials, including corn, coal, chemicals and supplies
            
            **$**
            **1,277,700**
            
            $
            1,356,456Work
                in process
            
            
            **1,151,023**
            
            
            770,593Ethanol
                and distillers grains
            
            
            **1,242,806**
            
            
            861,745**Total**
            
            **$**
            **3,671,529**
            
            $
            2,988,794





11


**Lincolnway
      Energy, LLC**




**Notes
      to Financial Statements**







**Note
                4.**
            **Long-Term
                Debt**




Long-term
      debt consists of the following as of September 30, 2007 and 2006:





**2007**
            
            2006Construction
                term loan. (A)
            
            **$**
            **22,750,000**
            
            $
            31,500,000Construction/revolving
                term loan. (C)
            
            
            **-**
            
            
            -Note
                payable to contractor, interest-only quarterly payments at 5%due
                through maturity date of November 2014, secured by realestate
                and subordinate to financial institution debt commitments. (B )
            
            
            **1,216,781**
            
            
            1,100,000Note
                payable to contractor, unsecured, interest-only quarterlypayments
                at 4% due through maturity date of May 2021
            
            
            **1,250,000**
            
            
            1,250,000Note
                payable to Iowa Department of Economic Development. (D)
            
            
            **272,500**
            
            
            300,000Note
                payable to Iowa Department of Economic Development. (D)
            
            
            **100,000**
            
            
            100,000Note
                payable to Iowa Department of Transportation. (E)
            
            
            **477,437**
            
            
            346,293Capital
                lease obligation, due in monthly installments of $2,708,secured
                by the leased equipment.
            
            
            **-**
            
            
            16,250**26,066,718**
            
            
            34,612,543Less
                current maturities
            
            
            **(1,323,346**
            **)**
            
            (5,063,837
            )**$**
            **24,743,372**
            
            $
            29,548,706





Maturities
      of long-term debt as of September 30, 2007 are as follows:





Years
                ending September 30:2008
            
            $
            1,323,3462009
            
            
            5,076,8232010
            
            
            5,077,8202011
            
            
            5,078,8392012
            
            
            5,052,380Thereafter
            
            
            4,457,510$
            26,066,718




12


**Lincolnway
        Energy, LLC**
  **Notes
        to Financial Statements**




(A)
            The
                Company has a construction and term loan with a financial institution.
                Borrowings under the term loan include a variable interest rate based
                on
                prime less .05%. The interest rate for the prior year was prime plus
                .45%.
                The agreement requires 30 principal payments of $1,250,000 per quarter
                commencing in December 2006 through March 2014, with the final installment
                due May 2014. The agreement requires the maintenance of certain financial
                and nonfinancial covenants. Borrowings under this agreement are
                collateralized by substantially all of the Company’s assets. As of
                September 30, 2007 the Company has been allowed to make prepayments
                of
                $16,250,000 without any penalty.





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




(C)
            The
                Company has a $10,000,000 construction/revolving term credit facility
                with
                a financial institution which expires on March 1, 2015. Borrowings
                under
                the credit facility agreement include a variable interest rate based
                on
                prime less .05% for each advance under the agreement. Borrowings
                are
                subject to borrowing base restrictions as defined in the agreement.
                The
                credit facility and revolving credit agreement require the maintenance
                of
                certain financial and nonfinancial covenants. Borrowings under this
                agreement are collateralized by substantially all of the Company’s assets.
                There was no balance outstanding as of September 30, 2007.





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




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





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




**Note
                5.**
            **Lease
                Commitments**




The
      Company entered into a lease agreement with an unrelated third party to lease
      90
      rail cars for the purpose of transporting distillers grains. The five-year
      term
      of the lease commenced March 2006 and will end February 2011. The lease calls
      for monthly payments of $58,500 plus applicable taxes. There is also an
      additional usage rental of 2.5 cents per mile for each car that exceeds 30,000
      miles. The amended agreement that was made to the lease agreement on June 19,
      2007, allowed the Company to purchase a certificate of deposit for $351,000
      in
      lieu of the letter of credit that was required as partial security for the
      Company’s obligation under the lease.




13


**Lincolnway
        Energy, LLC**
  **Notes
        to Financial Statements**




The
      Company leases office equipment and other equipment under operating leases
      that
      will expire various dates through May 2011. The leases call for monthly payments
      ranging from $218 to $2,291 plus applicable taxes.





Minimum
      lease payments under these operating leases for future years are as
      follows:





Years
                ending September 30:2008
            
            $
            738,1682009
            
            
            728,0732010
            
            
            707,8812011
            
            
            295,372$
            2,469,494





Rent
      expense under the above operating leases totaled $702,414, $380,320 and $0
      for
      the years ended September 30, 2007, 2006 and 2005, respectively.





14


**Lincolnway
        Energy, LLC**
  **Notes
        to Financial Statements**




**Note
                6.**
            **Related-Party
                Transactions**




The
      Company has an agreement with the Heart of Iowa Coop (HOIC), a member of the
      Company, to provide 100% of the requirement of corn for use in the operation
      of
      the ethanol plant. The agreement became effective when the Company began
      accepting corn for the use at the ethanol plant in May 2006 and will continue
      for a period of 20 years. The Company pays a handling fee of $.0675 per bushel
      of corn which was reduced in July 2007 from $.075 when the Company purchased
      their own locomotive to use. If the Company chooses to buy corn that is not
      elevated by HOIC, and is outside a 60-mile radius of Nevada, Iowa, the Company
      will be required to pay HOIC $.03 per bushel of corn. The agreement may be
      terminated before the end of the term by providing six months’ notice of
      termination and paying the other party $2,000,000, reduced by $50,000 for each
      completed year of the agreement. The amount is payable over four years with
      interest at the prime rate on the date of termination. The Company purchased
      corn totaling $59,189,376 and $14,878,595 for the years ended September 30,
      2007
      and 2006, respectively. As of September 30, 2007, the Company has one corn
      cash
      contract with HOIC amounting to approximately 516,000 bushels, for a commitment
      of approximately $1,750,000 and several basis contracts representing
      approximately 2,565,000 bushels of corn. The contracts mature on various dates
      through July 2008. The Company also has made some miscellaneous purchases from
      HOIC (storage fees, fuel, propane and locomotive costs) amounting to $375,213
      and $245,662 for the years ended September 30, 2007 and 2006, respectively.
      As
      of September 30, 2007 and 2006 the amount due to HOIC is $89,812 and $127,683,
      respectively.





The
      Company is also purchasing anhydrous ammonia from Prairie Land Cooperative,
      a
      member of the Company. Total purchases for the years ended September 30, 2007
      and 2006 is $552,677 and $129,601, respectively. As of September 30, 2007 and
      2006 the amount due to Prairie Land Cooperative is $78,401 and $35,356,
      respectively. As of September 30, 2007, there was a purchase commitment of
      $89,099.




**Note
                7.**
            **Commitments
                and Major Customer**




The
      Company has an agreement with an unrelated entity and major customer for
      marketing, selling, and distributing all of the ethanol produced by the Company.
      Under such pooling arrangements, the Company will pay the entity $.01 (one
      cent)
      per gallon for each gallon of ethanol sold. This agreement shall be effective
      until terminated by 45 days’ written notice. The agreement had an initial
      12-month term through June 2007. The parties are currently negotiating a new
      agreement and are still operating under the terms of the existing agreement.
      For
      the years ended September 30, 2007 and 2006 the Company has expensed $501,271
      and $174,289, respectively, under this agreement. Revenues with this customer
      were $102,456,965 and $40,441,364 for the years ended September 30, 2007 and
      2006, respectively. Trade accounts receivable of $2,263,990 and $3,862,122
      was
      due from the customer as of September 30, 2007and 2006,
      respectively.





The
      Company has an agreement with an unrelated entity for marketing, selling and
      distributing all of the distiller’s grains with solubles which are by-products
      of the ethanol plant. Under the agreement, the Company will pay the entity
      2% of
      the plant price per ton actually received by the entity. The term of this
      agreement shall be for one year through June 2007. On June 1, 2007 the Company
      provided written notice of its election to terminate the agreement. The
      agreement requires not less than 90 days written notice and therefore terminated
      effective September 1, 2007. For the years ended September 30, 2007 and 2006,
      the Company has expensed $253,366 and $62,775, respectively, under this
      agreement. Revenues with this customer were $15,730,159 and $4,442,093 for
      years
      ended September 30, 2007 and 2006, respectively. Trade accounts receivable
      of
      $114,195 and $231,591 was due from the customer as of September 30, 2007and
      2006, respectively.




15


**Lincolnway
        Energy, LLC**
  **Notes
        to Financial Statements**




The
      Company has entered into a new agreement with an unrelated entity for marketing,
      selling and distributing the distiller’s grains as of October 1, 2007. The
      initial term of this agreement shall be for a period of two years. This new
      agreement can be terminated by either party by providing the other with at
      least
      90 days prior written notice of termination. Under this agreement, the purchase
      price for the dried distiller’s grain shall be the sales price less freight
      costs, less a marketing fee equal to or greater of 2% of the purchase price
      less
      freight or the amount determined by multiplying the number of tons of dried
      distiller’s grain by $1.30. The purchase price for the wet distiller’s grain
      shall be the sales price less freight costs, less a marketing fee equal to
      or
      greater of 3% of the purchase price less freight or the amount determined by
      multiplying the number of tons of wet distiller’s grain by $1.00.





The
      Company has an agreement with an unrelated party to provide the coal supply
      for
      the ethanol plant. The agreement includes the purchase of coal at a cost per
      ton
      and a transportation cost per ton as defined in the agreement. The cost is
      subject to price adjustments on a monthly basis. If the Company fails to
      purchase the minimum number of tons of coal for the calendar year 2007, the
      Company shall pay an amount per ton multiplied by the difference of the minimum
      requirement and actual quantity purchased. The agreement expires as of January
      1, 2008. On October 1, 2007 the Company entered into an amended agreement to
      the
      original coal supply agreement. The term of the agreement has been extended
      from
      the original expiration date of January 1, 2008 to January 1, 2013. The same
      minimum purchase commitment is required from the Company as the previous
      agreement. The calendar year 2007, 2008, 2009, 2010, 2011 and thereafter
      purchase commitments total $531,113, $4,101,600,$4,181,600, $4,261,600,
      $4,421,600 and $4,501,600, respectively. For the years ended September 30,
      2007
      and 2006 the Company has purchased $4,257,613 and $1,752,646, respectively,
      of
      coal.





The
      Company has entered into one variable contract with a supplier of denaturant.
      The variable contract is for a minimum purchase of 352,205 gallons at the
      national gasoline daily average plus $.27/usg. The term of the contracts is
      from
      October 1, 2007 through December 31, 2007. The total future purchase commitment
      is $704,410. For the years ended September 30, 2007 and 2006, the Company
      purchased $3,162,301 and $1,720,321, respectively, of denaturant.




**Note
                8.**
            **Risk
                Management**




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





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





To
      reduce
      price risk caused by market fluctuations, the Company generally follows a policy
      of using exchange-traded futures and options contracts to minimize its net
      position of merchandisable agricultural commodity inventories and forward
      purchases and sales contracts. Exchange traded futures and options contracts
      are
      designated as non-hedge derivatives and are valued at market price with changes
      in market price recorded in income through cost of goods sold. Cost of goods
      sold includes a combined unrealized and realized net gain of $2,702,925,
      $515,300 and $0 for the years ended September 30, 2007, 2006 and 2005,
      respectively, from derivative instruments. Unrealized gain (loss) of ($117,475)
      and $1,313,212 and net realized gain (loss) of $2,820,400 and ($795,787) for
      the
      years ended September 30, 2007 and 2006, respectively, are included in cost
      of
      goods sold. There were no realized or unrealized gains or losses in 2005.
      Unrealized gains and losses on forward contracts, in which delivery has not
      occurred, are deemed “normal purchases and normal sales” under FASB No 133, as
      amended, and therefore are not marked to market in the Company’s financial
      statements.




16




**Lincolnway
        Energy, LLC**
  **Notes
        to Financial Statements**




In
      April
      2007, the Company started entering into derivative contracts to hedge their
      exposure to price risk as it relates to ethanol sales. Any realized or
      unrealized gain or loss related to these derivative instruments is recorded
      in
      the statement of operations as a component of revenue. For the year ended
      September 30, 2007 revenues included an unrealized gain of $
      514,464.




**Note
                9.**
            **Retirement
                Plan**




The
      Company adopted a 401(k) plan covering substantially all employees effective
      February 1, 2006. The Company provides matching contributions of 50% for up
      to
      6% of employee compensation. Company contributions and plan expenses for the
      years ended September 30, 2007 and 2006 totaled 54,645 and $29,093,
      respectively.




**Note
                10.**
            **Contingency**




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




**Note
                11.**
            **Subsequent
                Event**




The
      board
      of directors of the Company declared a distribution to members on November
      14,
      2007. The distribution was in the amount of $125 per unit, and is payable to
      members of record on November 14, 2007. The distribution will be paid out during
      the week of December 17 th ,
      2007.
      The Company had 42,049 outstanding units on November 14, 2007.





17




**Item
              9.**
            **Changes
                in and Disagreements With Accountants on Accounting and Financial
                Disclosure.**





Lincolnway
      Energy has not had any change in its accountants or any disagreements with
      its
      accountants which are required to be disclosed under this Item.





**Item
                9A.**
            **Controls
                and Procedures.**





***Evaluation
      of Disclosure Controls and Procedures***





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




***Changes
      in Internal Control over Financial Reporting***





No
      change
      in Lincolnway Energy's system of internal control over financial 
reporting occurred during the fourth quarter of the fiscal year ended September
      30, 2007 that has materially affected,  or is  reasonably  likely
      to materially  affect,  Lincolnway Energy's internal  control
      over  financial reporting.




61




**Item
                9B.**
            **Other
                Information.**





Lincolnway
                Energy did not have any information which was required to be disclosed
                in
                a report on Form 8-K during the fourth quarter of the fiscal year
                ended
                September 30, 2007, but which was not so
                reported.




62





**PART
      III**





**Item
                10.**
            **Directors,
                Executive Officers and Corporate
                Governance.**





The
                directors and executive officers of Lincolnway Energy as of the date
                of
                this annual report were as follows:





Name
            
            Age
            
            Position(s)William
                Couser
            
            53
            
            Director
                and ChairmanJeff
                Taylor
            
            41
            
            Director
                and ViceChairmanTimothy
                Fevold
            
            47
            
            Director
                and SecretaryTerrill
                Wycoff
            
            65
            
            Director
                and TreasurerJames
                Hill
            
            62
            
            DirectorBrian
                Conrad
            
            46
            
            DirectorRick
                Vaughan
            
            48
            
            DirectorKurt
                Olson
            
            51
            
            DirectorRichard
                Johnson
            
            72
            
            DirectorRichard
                Brehm
            
            54
            
            President
                and ChiefExecutive
                OfficerKim
                Supercynski
            
            45
            
            Chief
                Financial Officer




***William
                Couser***





Mr.
                Couser has been a director of Lincolnway Energy since Lincolnway
                Energy
                was organized in May, 2004. His current term as a director will end
                at the
                annual meeting of the members which will be held in 2009. Mr. Couser
                has
                been the chairman of Lincolnway Energy since Lincolnway Energy was
                organized in May, 2004. He also served as the interim president and
                chief
                executive officer of Lincolnway Energy from May, 2004 until July
                13, 2005.
                Mr. Couser has been self-employed as a farmer since 1977. His farming
                operations include row crops and
                cattle.




63




***Jeff
                Taylor***





Mr.
                Taylor has been a director of Lincolnway Energy since Lincolnway
                Energy
                was organized in May, 2004. His current term as a director will end
                at the
                annual meeting of the members which will be held in 2008. Mr. Taylor
                has
                also served as the vice president/vice chairman of Lincolnway Energy
                since
                Lincolnway Energy was organized in May, 2004. Mr. Taylor has been
                self-employed as a farmer since 1988, and he owns and operates farms
                in
                Story County, Iowa.





***Timothy
                Fevold***





Mr.
                Fevold has been a director of Lincolnway Energy since Lincolnway
                Energy
                was organized in May, 2004. His current term as a director will end
                at the
                annual meeting of the members which will be held in 2008. Mr. Fevold
                has
                also served as the secretary of Lincolnway Energy since May, 2004.
                Mr.
                Fevold has been employed by Hertz Farm Management, based in Nevada,
                Iowa,
                since 1982, and his responsibilities involve the management of farms.
                Mr.
                Fevold has also been licensed as a real estate broker in Iowa since
                1987.





***Terrill
                Wycoff***





Mr.
                Wycoff has been a director of Lincolnway Energy since Lincolnway
                Energy
                was organized in May, 2004. His current term as a director will end
                at the
                annual meeting of the members which will be held in 2009. Mr. Wycoff
                has
                also served as the treasurer of Lincolnway Energy since Lincolnway
                Energy
                was organized in May, 2004. Mr. Wycoff has been employed by First
                National
                Bank, Ames, Iowa for approximately 46 years, and currently serves
                as the
                Executive Vice President of First National Bank. He is also a member
                of
                the board of directors of First National Bank, in Ames,
                Iowa.





***James
                Hill***





Mr.
                Hill has been a director of Lincolnway Energy since Lincolnway Energy
                was
                organized in May, 2004. His current term as a director will end at
                the
                annual meeting of the members which will be held in 2010. Mr. Hill
                has
                been self-employed as a farmer since 1972. He has also served as
                an
                advisory council member for Farm Credit Services of America since
                approximately 1994.





***Brian
                Conrad***





Brian
                Conrad has been a director of Lincolnway Energy since Lincolnway
                Energy
                was organized in May, 2004. His current term as a director will end
                at the
                annual meeting of the members which will be held in 2008. Mr. Conrad
                has
                been employed with John Deere Credit since 1988, and has held various
                positions with John Deere Credit, including credit operations, and
                sales
                and marketing. His current position with John Deere Credit is Business
                Development Manager for John Deere Wind Energy. Mr. Conrad has an
                undergraduate degree in economics and business administration and
                a
                masters in business administration.




64




***Rick
                Vaughan***





Rick
                Vaughan has been a director of Lincolnway Energy since Lincolnway
                Energy
                was organized in May, 2004. His current term as a director will end
                at the
                annual meeting of the members which will be held in 2009. Mr. Vaughan
                has
                been the General Manager of Prairie Land Cooperative since February
                1995.





******Kurt
                  Olson******





Kurt
                Olson has been a director of Lincolnway Energy since July 27, 2007,
                and
                his current term as a director will end at the annual meeting of
                the
                members which is held in 2010. Mr. Olson graduated in 1978 from Iowa
                State
                University in ag-economics and has worked in the agricultural industry
                for
                28 years. He managed both commercial real estate and central Iowa
                farmland
                while serving as an executive director of Litchfield Realty Company
                from
                1987 to 2003. He also served as the president of Litchfield Realty
                and its
                subsidiary, AgServ Company. His responsibilities with AgServ included
                being involved with the purchase, construction, expansion, and operation
                of the following projects: a grain elevator, agronomy supplier, feed
                manufacturer and a soybean seed processor. Mr. Olson started a company
                called FarmLand Real Estate and Management, LC in 1995 to market
                crop
                insurance and manage farmland, and he purchased the business in 2003.
                Mr.
                Olson is actively involved in the business operations and management
                of
                real estate in central Iowa.





***Richard
                Johnson***





Richard
                Johnson has been a director of Lincolnway Energy since July 27, 2007,
                and
                his current term as a director will end at the annual meeting of
                the
                members which will be held in 2010. Mr. Johnson has been a self-employed
                certified public accountant since 2003. He has served since 2006
                as a
                director of a bank holding company, Ogden Bancshares, and as a director
                of
                one of its subsidiaries, Vision Bank of Iowa. He also has served
                as a
                director of EMC National Life Insurance Company (EMCNL) since 2003
                and has
                been a director and treasurer of Petroleum Marketers Management Insurance
                Company (PMMIC) since 2000. Mr. Johnson serves as a member of the
                audit
                committee of Ogden Bancshares and is chairman of the audit committees
                for
                EMCNL and PMMIC. He also served as the elected auditor of the State
                of
                Iowa from 1979 to 2003. Mr. Johnson completed a six year term on
                December
                31, 2006 as a trustee of the Financial Accounting Foundation, the
                board
                that oversees and provides board member selection and funding of
                the
                national Accounting Standards Boards. Mr. Johnson has served as a
                member
                of the Iowa Accountancy Examining Board since January 2003 where
                he is
                currently vice chairman and a member of the disciplinary committee.
                The
                Accountancy Board licenses and regulates certified public accountants
                and
                accounting practitioners in the State of
                Iowa.





65





***Richard
                Brehm***





Mr.
      Brehm
      joined Lincolnway Energy on May 17, 2005 as the General Manager and was
      appointed president and chief executive officer on July 13, 2005. Mr. Brehm
      has
      served in various management positions in agriculture and ethanol production
      since 1995. Mr. Brehm served as Director of Operations for International
      Ingredient Corporation, St. Louis, Missouri from September 1995 to January
      2002.
      During that time he was responsible for the construction and operation of a
      fuel
      ethanol plant at Cleburne, Texas as well as nine other manufacturing plants.
      International Ingredient Corporation is a manufacturer of food and feed
      specialty ingredients for feed, pet food, pharmaceutical and baking companies’
world wide.





From
      June
      2002 to December 2003, Mr. Brehm served as a broker- manager with Agri
      Management Services in Monticello, Iowa. During that time Mr. Brehm obtained
      a
      Series III commodity brokers license and worked to provide companies and
      producers with grain marketing and procurement strategies.





In
      January 2004, Mr. Brehm became Director of Plant Operations at United Bio
      Energy, Wichita, Kansas where he served as interim general manager at Platte
      Valley Fuel Ethanol, Central City, Nebraska between January 2004 and May 2004.
      Mr. Brehm continued to work on numerous ethanol plant projects throughout the
      Midwest until United Bio Energy appointed him general manager of Big River
      Resources, West Burlington, Iowa from October 2004 to March 2005. During April
      2005 and May 2005, United Bio Energy assigned Mr. Brehm to develop additional
      ethanol plants in Kansas and Nebraska.





***Kim
                Supercynski***





Ms.
                Supercynski has served as the chief financial officer of Lincolnway
                Energy
                since October 2005. She served as the corporate controller for Garst
                Seed
                Company, located in Slater, Iowa, from approximately February 1996
                to
                October 2005. Her responsibilities in that capacity included overseeing
                the accounting department. Garst Seed Company is an affiliate of
                Syngenta,
                Inc., which is a large international company that sells, markets
                and
                produces agricultural seed. Ms. Supercynski is a certified public
                accountant and a certified treasury
                professional.





The
                number of directors for Lincolnway Energy was fixed at 9 as of the
                date of
                this annual report. Each of Lincolnway Energy's directors is elected
                to a
                three year term and until his or her successor is elected. The terms
                of
                the directors are staggered, so that three of the directors' terms
                expire
                in one year, three expire the next year, and three expire the following
                year.




66




The
                officers of Lincolnway Energy are elected annually by the directors
                at its
                annual meeting, and hold office until the next annual meeting of
                the
                directors and until their respective successors are chosen. Any officer
                may be removed by the directors at any time, with or without cause,
                subject to any employment agreement as may exist between Lincolnway
                Energy
                and any officer. Lincolnway Energy did not have any written employment
                agreements with any officer as of the date of this annual
                report.





***Significant
                Employees***





Lincolnway
                Energy has three employees who Lincolnway Energy expects to make
                a
                significant contribution to its business, in addition to Lincolnway
                Energy's executive officers identified above. Those employees are
                Larson
                Dunn, Kristine Strum and David Zimmerman. Lincolnway Energy does
                not have
                a written employment agreement with any of those
                employees.





**Larson
                Dunn.**Mr.
                Dunn has served as the plant manager for Lincolnway Energy since
                October
                17, 2005. He was employed by Archer Daniels Midland at Peoria, Illinois
                as
                a mill fermentation superintendent from January, 2003 until October,
                2005.
                He was employed as a plant chemist at Williams Bioethanol in Pekin,
                Illinois from September, 1998 to January, 2003. Williams Bioethanol
                operates a 150,000,000 gallon ethanol plant located in Pekin, Illinois.
                Mr. Dunn is 52.





**Kristine
      Strum.**  Ms.
      Strum
      has served as the controller for Lincolnway Energy since December 12, 2005.
      She
      was employed as a controller by Iowa Newspapers, Inc., in Ames, Iowa, from
      August, 1989 to December, 2005. Iowa Newspapers, Inc. is a newspaper publishing
      company. Ms. Strum is 41.





**David
      Zimmerman.** Mr.
      Zimmerman has been Lincolnway Energy's commodities manager since March 5, 2007.
      He was employed as a commodities analyst by RJ O'Brien and Associates in West
      Des Moines, Iowa from March, 2004 to March, 2007. RJ O'Brien and Associates
      is a
      futures commission merchant. He was employed as a commodities merchant with
      Agri
      Grain Marketing/Cargill in West Des Moines, Iowa and Eddyville, Iowa from
      August, 2002 to March, 2004. Agri Grain Marketing/Cargill is a cash grain
      brokerage business. Mr. Zimmerman is 35.





Ron
      Gates
      served as Lincolnway Energy's commodities manager from August 1, 2005 until
      March 5, 2007. He assisted with the transition of the commodities manager
      position to Mr. Zimmerman. Mr. Gates was employed as a grain division manager
      by
      Heart of Iowa Cooperative, in Roland, Iowa, from August, 1989 to January, 2005.
      Mr. Gates is 63.




67




***Code
                of Ethics***





Lincolnway
                Energy has not adopted a code of ethics that applies to Lincolnway
                Energy's principal executive officer, principal financial officer,
                principal accounting officer or controller, or persons performing
                similar
                functions. Lincolnway Energy anticipates adopting a code of ethics
                before
                the close of the second quarter of the fiscal year ending September
                30,
                2008.





***No
                Changes to Director Nomination
                Procedures***





There
                were no material changes during the fiscal year ended September 30,
                2007
                to the procedures by which the members of Lincolnway Energy may recommend
                nominees for election as a director of Lincolnway Energy. The members
                approved an amended and restated operating agreement on June 29,
                2007, and
                the amendments adopted pursuant to the amended and restated operating
                agreement did amend some of the provisions addressing the procedures
                by
                which members can nominate candidates for election as a director
                of
                Lincolnway Energy. For example, under the amended and restated operating
                agreement, a nomination petition being submitted by a member must
                be
                received by Lincolnway Energy no sooner than October 1, but not later
                than
                the November 30, which precedes the annual meeting in question. The
                prior
                operating agreement provided that a nomination petition must be given
                to
                Lincolnway Energy not less than 60 days, and no more than 90 days,
                prior
                to the annual meeting of the members in question. The amended and
                restated
                operating agreement also clarifies that the directors have the right
                to
                determine the slate, if any, on which a nominee shall be placed for
                purposes of the vote of the members. The nomination procedures in
                the
                amended and restated operating agreement are, however, substantively
                and
                materially similar to those that were provided in the prior operating
                agreement of Lincolnway Energy.





***Audit
                Committee Financial
                Expert***





Lincolnway
                Energy has a separately-designated standing audit committee. The
                members
                of the audit committee as of the date of this annual report were
                Terry
                Wycoff, Brian Conrad, Tim Fevold and Jim
                Hill.





Lincolnway
                Energy's board has determined that Terry Wycoff is an audit committee
                financial expert, as that term is defined in the applicable regulations
                of
                the Securities and Exchange Commission. Lincolnway Energy's board
                has also
                determined that Mr. Wycoff meets the standards of independence under
                the
                Governance Guidelines and applicable NASDAQ Stock Market listing
                standards, including that Mr. Wycoff is free of any relationship
                that
                would interfere with his individual exercise of independent
                judgment.




68




***Section
                16(a) Beneficial Ownership Reporting
                Compliance***





David
      Zimmerman was employed as Lincolnway Energy's commodities manager on March
      5,
      2007, and Lincolnway Energy believes Mr. Zimmerman is a significant employee
      of
      Lincolnway Energy. Mr. Zimmerman should have filed a Form 3 with the Securities
      and Exchange Commission by March 15, 2007, but Mr. Zimmerman inadvertently
      did
      not file a Form 3 until November 27, 2007. Mr. Zimmerman does not own any units
      of Lincolnway Energy.





Ron
      Gates
      was Lincolnway Energy's commodities manager until March 5, 2007, and was a
      significant employee of Lincolnway Energy until that time. Mr. Gates transferred
      10 units of Lincolnway Energy by gift to a related party on June 30, 2007,
      and
      should have filed a Form 4 with respect to that transaction by July 3, 2007.
      Mr.
      Gates inadvertently did not file the Form 4 until November 27, 2007. As
      indicated, the Form 4 reflected a gift of 10 units by Mr. Gates to a related
      party.




**Item
                11.**
            **Executive
                Compensation.**





The
      information required by this Item is incorporated by reference from the
      "Compensation Of Executive Officers And Directors" section in Lincolnway
      Energy's definitive proxy statement to be filed by Lincolnway Energy with
      respect to the annual meeting of the members of Lincolnway Energy for 2008,
      which definitive proxy statement shall be filed within 120 days after the end
      of
      the fiscal year covered by this annual report.





**Item
                12.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.**





As
                of the date of this annual report, Lincolnway Energy was only authorized
                to issue units of membership interest, and Lincolnway Energy did
                not have
                any other classes or series of
                units.





As
                of the date of this annual report, Lincolnway Energy did not have
                any
                units authorized for issuance under any equity compensation plan,
                including any individual compensation
                arrangement.





The
                following table sets forth certain information regarding the beneficial
                ownership of units of Lincolnway Energy as of November 30, 2007 by
                the
                directors and executive officers of Lincolnway Energy. Lincolnway
                Energy
                had an aggregate of 42,049 outstanding units on November 30,
                2007.




69




Name
                of Beneficial Owner
            
            Amount and Nature
              Of Beneficial Ownership1
            
            Percent
                of ClassWilliam
                Couser, Directorand
                Chairman
            
            
            413
            4
            
            .98
            %Jeff
                Taylor, Director and Vice Chairman
            
            
            450
            2,3
            
            1.07
            %Timothy
                Fevold, Director and Secretary
            
            
            101
            
            
            .24
            %Terrill
                Wycoff, Director and Treasurer
            
            
            225
            
            
            .54
            %James
                Hill, Director
            
            
            250
            
            
            .59
            %Brian
                Conrad, Director
            
            
            553
            2
            
            1.32
            %Rick
                Vaughan, Director
            
            
            -0-
            
            
            0
            %Richard
                Johnson,Director
            
            
            42
            
            
            .10
            %Kurt
                Olson, Director
            
            
            200
            2
            
            .48
            %Richard
                Brehm, President and Chief Executive Officer
            
            
            -0-
            
            
            0
            %Kim
                Supercynski, Chief Financial Officer
            
            
            25
            
            
            .06
            %All
                directors and executive officers as a group
            
            
            2,259
            
            
            5.4
            %




1
            Unless
                otherwise indicated by a footnote, all of the units are directly
                owned by
                the listed individual or jointly owned with their spouse and are
                not
                pledged as security by the listed
                individual.





2
            All
                of the units are pledged as security by the listed
                individual.





3
            Fifty
                of the units are held by a trust for which Jeff Taylor serves as
                one of
                the trustees.


4
              One
                  hundred of the units are pledged as security by the listed
                  individual.


To
      Lincolnway Energy's knowledge, as of the date of this annual
      report:





·
            No
                person or group was the beneficial owner of more than 5% of Lincolnway
                Energy's outstanding units, and no person or group held more than
                5% of
                Lincolnway Energy's outstanding units pursuant to any voting trust
                or
                similar agreement, and





·
            There
                are no arrangements, including any pledge of units by any person,
                the
                operation of which may at a subsequent date result in a change in
                control
                of Lincolnway Energy.




70





**Item
              13.**
            **Certain
                Relationships and Related Transactions, and Director
                Independence.**





There
      were no transactions since the beginning of Lincolnway Energy's fiscal year
      ended September 30, 2007, and there are no currently proposed transactions,
      to
      which Lincolnway Energy was or is to be a party, in which the amount involved
      exceeds $120,000 and in which any of the following types of persons had, or
      will
      have, a direct or indirect material interest:





·
            any
                director or executive officer of Lincolnway
                Energy;





·
            any
                person who is known by Lincolnway Energy to own of record or beneficially
                more than 5% of Lincolnway Energy's outstanding units;
                or





·
            any
                immediate family member of any of the foregoing
                persons.





The
                directors of Lincolnway Energy are William Couser, Jeff Taylor, Timothy
                Fevold, Terrill Wycoff, James Hill, Brian Conrad, Rick Vaughan, Richard
                Johnson and Kurt Olson. Each of the directors meets the standards
                of
                independence under the Governance Guidelines and applicable NASDAQ
                Stock
                Market listing standards, including that each director is free of
                any
                relationship that would interfere with his individual exercise of
                independent judgment. David Eggers and David Hassebrock also served
                as
                directors of Lincolnway Energy during part of the fiscal year ended
                September 30, 2007, and Mr. Eggers and Mr. Hassebrock also met the
                referenced independence standards.





**Item
              14.**
            **Principal
                Accountant Fees and
                Services.**





The
      following table presents fees for professional services rendered by McGladrey
      & Pullen, LLP for the audit of Lincolnway Energy's annual financial
      statements for the fiscal years ended September 30, 2006 and 2007 and fees
      billed for other services rendered by McGladrey & Pullen, LLP and its
      affiliate RSM McGladrey, Inc. during those periods:





Year Ended September 30,2006
            
            2007Audit
                Fees
            
            $
            93,000
            
            $
            85,950Tax
                Fees
            
            $
            17,000
            
            $
            17,000All
                Other Fees
            
            $
            38,128
            
            $
            21,987Total
            
            $
            148,128
            
            $
            124,937





Audit
      Fees .
      The
      audit fees were incurred for the audit by McGladrey & Pullen, LLP of
      Lincolnway Energy's annual financial statements and review of the financial
      statements included in Lincolnway Energy's quarterly reports on Form 10-Q or
      services that are normally provided by McGladrey & Pullen, LLP in connection
      with statutory and regulatory filings or engagements for the fiscal years ended
      September 30, 2006 and 2007.





71





Tax
      Fees .
      The tax
      fees were billed for services rendered by RSM McGladrey, Inc. for tax
      compliance, tax advice and tax planning. The nature of the services comprising
      the tax fees was for year end tax preparation of the partnership return and
      associated K-1’s.





All
      Other Fees .
      The all
      other fees were billed to Lincolnway Energy for products and services provided
      by RSM McGladrey, Inc which are not included under audit fees or tax fees.
      The
      nature of the products and services comprising the all other fees for 2006
      and
      2007 was a cost segregation study, director and officer compensation review
      and
      consultations regarding Sarbanes Oxley 404 implementation.





Lincolnway
      Energy's board has concluded that the provision of the non-audit services listed
      above is compatible with maintaining the independence of McGladrey & Pullen,
      LLP.





Each
      specific engagement of McGladrey & Pullen, LLP and its affiliate RSM
      McGladrey, Inc is approved by the board of Lincolnway Energy. None of the
      services included within tax fees or all other fees were approved by the audit
      committee of the board of Lincolnway Energy pursuant to paragraph (c)(7)(i)(C)
      of Rule 2-01 of Regulation S-X.





The
      percentage of hours expended on McGladrey & Pullen, LLP’s engagement to
      audit Lincolnway Energy's financial statements for the fiscal year ended
      September 30, 2007 that were attributed to work performed by persons other
      than
      McGladrey & Pullen, LLP’s full time, permanent employees did not exceed
      50%.





**PART
      IV**





**Item
              15.**
            **Exhibits
                and Financial Statement
                Schedules.**





(a)
            Financial
                Statements and Schedules.





The
      financial statements are set forth under Item 8 of this annual report. Financial
      statement schedules have been omitted because they are not required or are
      not
      applicable, or the information is otherwise included in this annual
      report.





(b)
            Exhibits.





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




72


Incorporated
                  by ReferenceExhibit
              
              
              
              Filed Herewith;
              
              
              
              Period
              
              
              
              FilingNumber
              
              Exhibit
                  Description
              
              Page Number
              
              Form
              
              Ending
              
              Exhibit
              
              Date3.1
              
              Articles
                  of Restatement
              
              
              
              10-Q
              
              6/30/07
              
              3.1
              
              8/13/073.2
              
              Amended
                  and Restated Operating Agreement and Unit Assignment
                  Policy
              
              
              
              10-Q
              
              6/30/07
              
              3.2
              
              8/13/07*10.1
              
              Design/Build
                  Contract Between Lincolnway Energy, LLC and Fagen, Inc.
              
              
              
              10
              
              
              
              10.1
              
              1/27/0610.2
              
              Master
                  Loan Agreement Between Lincolnway Energy, LLC and Farm Credit Services
                  of
                  America
              
              
              
              10
              
              
              
              10.2
              
              1/27/0610.3
              
              Construction
                  and Term Loan Supplement Between Lincolnway Energy, LLC and FarmCredit
                  Services of America
              
              
              
              10
              
              
              
              10.3
              
              1/27/0610.4
              
              Construction
                  and Revolving Term LoanSupplement Between Lincolnway Energy, LLC and Farm Credit Services
                  of
                  America
              
              
              
              10
              
              
              
              10.4
              
              1/27/0610.5
              
              Loan
                  Agreement Between Lincolnway Energy, LLC and Iowa Department of
                  Transportation
              
              
              
              10
              
              
              
              10.5
              
              1/27/0610.6
              
              Ethanol
                  Fuel Marketing Agreement Between Lincolnway Energy, LLC and Renewable
                  Products Marketing Group
              
              
              
              10
              
              
              
              10.6
              
              1/27/0610.7
              
              Distiller's
                  Grain Marketing Agreement Between Lincolnway Energy, LLC and Hawkeye
                  Gold,
                  LLC
              
              E-110.8
              
              Coal/Energy
                  Consulting Agreement Between Lincolnway Energy, LLCAnd
                  U.S. Energy
              
              
              
              10
              
              
              
              10.8
              
              1/27/06*10.9
              
              Coal
                  Supply Agreement Between Lincolnway Energy, LLC and Williams Bulk
                  Transfer, Inc. See Exhibit 10.9.1 for an amendment to this
                  agreement.
              
              
              
              10
              
              
              
              10.9
              
              1/27/06*10.9.1
              
              Amendment
                  Number Oneto
                  Coal Supply Agreement Between Lincolnway Energy, LLC and Williams
                  Bulk
                  Transfer, Inc.
              
              E-2610.10
              
              Loan
                  Agreement Between Lincolnway Energy, LLC and Iowa Department ofEconomic
                  Development
              
              
              
              10
              
              
              
              10.10
              
              1/27/0610.11
              
              Amended
                  and Restated Grain Handling Agreement Between Lincolnway Energy,
                  LLC and
                  Heart of Iowa Cooperative
              
              
              
              10
              
              
              
              10.11
              
              1/27/0610.13
              
              Industry
                  Track Contract Between Lincolnway Energy, LLC and Union Pacific
                  Railroad
              
              
              
              10-Q
              
              6/30/06
              
              10.13
              
              8/14/0610.14
              
              Denaturant
                  Purchase Agreement Between Lincolnway Energy, LLC and Quadra Energy
                  Trading Inc,
              
              
              
              10-K
              
              9/30/06
              
              10.14
              
              12/21/0631.1
              
              Rule
                  13a-14(a) Certification of President and Chief Executive
                  Officer
              
              E-3831.2
              
              Rule
                  13a-14(a) Certificationof
                  Chief Financial Officer
              
              E-3932.1
              
              Section
                  1350 Certification of President and Chief Executive
                  Officer
              
              E-4032.2
              
              Section
                  1350 Certification of Chief Financial Officer
              
              E-41




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




73





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.


LINCOLNWAY
                  ENERGY, LLCDate:
                  December 21, 2007
              By:
              /s/
                  Richard BrehmRichard Brehm, President and ChiefExecutive OfficerDate:
                  December 21, 2007
              By:
              /s/
                  Kim SupercynskiKim Supercynski, Chief FinancialOfficer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated:


Date:
                  December 21, 2007
              /s/
                  William CouserWilliam
                  Couser, DirectorDate:
                  December 21, 2007
              /s/
                  Jeff TaylorJeff
                  Taylor, DirectorDate:
                  December 21, 2007
              /s/
                  Timothy FevoldTimothy
                  Fevold, DirectorDate:
                  December 21, 2007
              /s/
                  Terrill WycoffTerrill
                  Wycoff, DirectorDate:
                  December 21, 2007
              /s/
                  Kurt OlsonKurt
                  Olson, DirectorDate:
                  December 21, 2007
              /s/
                  James HillJames
                  Hill, DirectorDate:
                  December 21, 2007
              /s/
                  Brian ConradBrian
                  Conrad, Director
  
  Date:
                  December 21, 2007
              /s/
                  Richard JohnsonRichard
                  Johnson, DirectorDate:
                  December 21, 2007
              /s/
                  Rick VaughanRick
                  Vaughan, DirectorDate:
                  December 21, 2007
              /s/
                  Richard BrehmRichard
                  Brehm, President andChief
                  Executive OfficerDate:
                  December 21, 2007
              /s/
                  Kim SupercynskiKim
                  Supercynski, Chief FinancialOfficer