UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One)





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


For the
fiscal year ended September 30, 2010





OR





 ̈
            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)
232-1010





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    ̈      No        R





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     ̈      No        R





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     R     No      ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). 
  Yes       ̈      No           ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K 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.           R





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act:





Large
      accelerated
filer
                 ̈
                
                Accelerated
      filer
                 ̈Non-accelerated
      filer
                R
                
                Smaller
      reporting company
                 ̈





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




The
aggregate market value of the units held by non-affiliates of the registrant was
$50,083,020 as of March 31, 2010. 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 $1,259 book value per-unit as of March 31, 2010.  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, 2010 was 42,049.





DOCUMENTS
INCORPORATED BY REFERENCE:  Portions of the registrant's definitive
proxy statement to be filed with the Securities and Exchange Commission with
respect to the 2011 annual meeting of the members of the registrant 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, 2010





INDEX





Part
      I.
                      
                      
                      
                      1Item
      1.
                      Business.
                      
                      1Item
      1A.
                      Risk
      Factors.
                      
                      12Item
      1B.
                      Unresolved
      Staff Comments.
                      
                      30Item
      2.
                      Properties.
                      
                      30Item
      3.
                      Legal
      Proceedings.
                      
                      31Part
      II.
                      
                      
                      
                      32Item
      5.
                      Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
                      
                      32Item
      6.
                      Selected
      Financial Data.
                      
                      36Item
      7.
                      Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                      
                      37Item
      7A.
                      Quantitative
      and Qualitative Disclosures About Market Risk.
                      
                      53Item
      8.
                      Financial
      Statements and Supplementary Data.
                      
                      56Item
      9.
                      Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure.
                      
                      75Item
      9A.
                      Controls
      and Procedures.
                      
                      75Item
      9B.
                      Other
      Information.
                      
                      76Part
      III.
                      
                      
                      
                      76Item
      10.
                      Directors,
      Executive Officers and Corporate Governance.
                      
                      76Item
      11.
                      Executive
      Compensation.
                      
                      83Item
      12.
                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
                      
                      83Item
      13.
                      Certain
      Relationships and Related Transactions, and Director
      Independence.
                      
                      85Item
      14.
                      Principal
      Accounting Fees and Services.
                      
                      86Part
      IV.
                      
                      
                      
                      87Item
      15.
                      Exhibits
      and Financial Statement Schedules.
                      
                      87SIGNATURES





Restatement
of the Certificate of Organization


Second
Amended and Restated Operating Agreement


Certification
of President and CEO


Certification
of Chief Financial Officer


Section
1350 Certification of President and CEO


Section
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, forecasts,
projections and predictions about future events.  All statements other than
statements of historical fact are forward looking statements, and include
statements with respect to financial results and condition; anticipated trends
in business, revenues, net income, net profits or net losses; projections
concerning operations, capital needs and cash flow; investment, business,
growth, expansion, acquisition and divestiture opportunities and strategies;
management's plans or intentions for the future; competitive position or
circumstances; and other forecasts, projections and statements of
expectation.  Words such as "expects," "anticipates," "estimates," "plans,"
"may," "will," "contemplates," "forecasts," "strategy," "future," "potential,"
"predicts," "projects," "prospects," "possible," "continue," "hopes," "intends,"
"believes," "seeks," "should," "could," "thinks," "objectives" and other similar
expressions or variations of those words or those types of words help identify
forward looking statements.





Forward
looking statements involve and are subject to various material risks,
uncertainties and assumptions.  Forward looking statements are necessarily
subjective and are made based on numerous and varied estimates, projections,
views, beliefs, strategies and assumptions made or existing at the time of such
statements and are not guarantees of future results or performance. 
Forecasts and projections are also in all events likely to be inaccurate, at
least to some degree, and especially over long periods of time, and in
particular in a still developing industry such as the ethanol industry. 
Forecasts and projections are also currently difficult to make with any degree
of reliability or certainty given the difficult and uncertain credit, market and
other economic circumstances and uncertainties in existence at the time of the
preparation of this annual report, both generally and with respect to the
ethanol industry.  Lincolnway Energy disclaims any obligation to update or
revise any forward looking statements based on the occurrence of future events,
the receipt of new information, or otherwise.  Lincolnway Energy
cannot guarantee Lincolnway Energy's future results, performance or business
conditions, and strong or undue reliance must not be placed on any forward
looking statements.





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


(i)


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





[THE REST
OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


(ii)




PART
I





Item
      1.
            Business.





General
Overview





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





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
136,000 tons of distiller's grains per year.





Lincolnway
Energy began extracting corn oil from the syrup which is generated in the
production of ethanol in April, 2008.  Lincolnway Energy estimates that it
will produce approximately 3,000 tons of corn oil per year at the
plant.





Lincolnway
Energy entered into an agreement with EPCO Carbon Dioxide Products, Inc. on
April 16, 2010 pursuant to which EPCO constructed a plant on Lincolnway Energy's
site to collect the carbon dioxide that is produced as part of the ethanol
production process and to convert that raw carbon dioxide into liquid carbon
dioxide.  The EPCO plant became fully operational in August 2010. 
EPCO also markets and sells the liquid carbon dioxide.  Lincolnway Energy
estimates that it will produce approximately 105,000 tons of carbon dioxide per
year.  Lincolnway Energy had not captured or marketed the carbon dioxide
which is produced as part of the ethanol production process prior to entering
into the agreement with EPCO.





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





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,
2010 from any customers located in any foreign country, and Lincolnway Energy
did not have any assets located in a foreign country during that fiscal
year.


1


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.





All of
Lincolnway Energy's ethanol production was sold to RPMG, Inc. until September
30, 2009, when Lincolnway Energy entered into an ethanol marketing agreement
with Green Plains Trade Group LLC, as is discussed below.  Under the
agreement with RPMG, Inc., Lincolnway Energy's ethanol was pooled with the
ethanol of other ethanol producers whose ethanol was marketed by RPMG,
Inc.  Lincolnway Energy paid RPMG, Inc. a pooling fee of $.01 per gallon of
ethanol, and RPMG, Inc. paid Lincolnway Energy a netback price per gallon that
was based upon the difference between the pooled average delivered ethanol
selling price and the pooled average distribution expense.  The averages
were 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.  The agreement was terminated effective as of October 1, 2009
by mutual agreement of Lincolnway Energy and RPMG, Inc., but any outstanding
purchase orders between Lincolnway Energy and RPMG, Inc. under the agreement
were finalized and closed out pursuant to the agreement.





Lincolnway
Energy entered into an ethanol marketing agreement with Green Plains Trade Group
LLC effective as of September 25, 2009.  Under the agreement, Green Plains
Trade Group LLC has the exclusive right to market all of the ethanol which is
produced by Lincolnway Energy, except that the agreement permitted Lincolnway
Energy to close out any outstanding purchase orders under Lincolnway Energy's
agreement with RPMG, Inc. and that Lincolnway Energy may market some of its
ethanol in certain limited circumstances, such as ethanol which is the subject
of any purchase order which was submitted by Green Plains Trade Group LLC but
was rejected by Lincolnway Energy.  Lincolnway Energy may reject any
purchase orders submitted by Green Plains Trade Group LLC, in Lincolnway
Energy's sole discretion.  The purchase price payable to Lincolnway Energy
under the agreement is Green Plains Trade Group LLC's contract selling price for
the ethanol in question, less various costs and a fee to Green Plains Trade
Group LLC, but the agreement includes a minimum purchase price.  Lincolnway
Energy is dependent upon its agreement with Green Plains Trade Group LLC for the
marketing and sale of Lincolnway Energy's ethanol, and Lincolnway Energy's loss
of the agreement, or Lincolnway Energy's inability to negotiate a new agreement
with Green Plains Trade Group LLC or another marketer before the expiration or
termination of the agreement, could have material adverse effects on Lincolnway
Energy.


2


The
primary purchasers of ethanol are refiners, blenders or wholesale marketers of
gasoline.  Lincolnway Energy anticipates that its ethanol production will
be sold in various regional markets given the availability of rail service at
Lincolnway Energy's ethanol plant and local markets that will be shipped by
truck, but Green Plains Trade Group LLC controls the marketing of all of
Lincolnway Energy's ethanol output.





Lincolnway
Energy’s primary means of shipping and distributing ethanol will be by rail and
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, 2010, however, by approximately 10%, with 55,121,401 gallons
of ethanol produced during that period, and with an average daily production of
158,881 gallons.





Lincolnway
Energy anticipates that the ethanol plant will produce ethanol at a similar rate
or higher during the fiscal year ending September 30, 2011.





Lincolnway
Energy's revenues from the sale of ethanol during the fiscal years ended
September 30, 2008, September 30, 2009 and September 30, 2010 accounted for
approximately 83%, 80% and 83%, respectively, of Lincolnway Energy's total
revenues during those periods.  Lincolnway Energy estimates that its
revenues from the sale of ethanol for the fiscal year ending September 30, 2011
will account for approximately 80% 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 swine, dairy and beef industries.  Distiller's
grains can also be used in poultry 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 60% moisture, and has a shelf life of approximately ten
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 extended shelf life and may be sold and shipped
to any market.





Lincolnway
Energy's output of distiller's grains is 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 Lincolnway Energy or Hawkeye Gold, LLC on 90 days written
notice.  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, or Lincolnway Energy's inability
to negotiate a new agreement with Hawkeye Gold or another marketer before the
expiration or termination 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's primary means of shipping and distributing distiller's grain will be by
rail and truck.  Local livestock producers are also able to pick up
distiller's grains directly from the ethanol plant.





Lincolnway
Energy produced 149,850 tons of distiller's grains during the fiscal year ended
September 30, 2010, or approximately 12,488 tons of distiller's grains per
month.  The composition of the distiller's grains was approximately 13% wet
distiller's grains and 87% dried distiller's grains.





Lincolnway
Energy anticipates processing approximately 150,000 tons of distiller's grains
during the fiscal year ending September 30, 2011.





Lincolnway
Energy's revenues from the sale of distiller's grains during the fiscal years
ended September 30, 2008, September 30, 2009 and September 30, 2010 accounted
for approximately 17%, 19% and 17%, respectively, 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, 2011 will account for approximately 19% of Lincolnway Energy's
total revenues for that fiscal year.





Other
Byproducts





There are
other potential byproducts from the production of ethanol at a dry mill plant,
primarily corn oil and carbon dioxide.





Corn
Oil





A corn
oil extraction system that Lincolnway Energy purchased from FEC Solutions,
L.L.C. was put into operation in April, 2008.  The system extracts corn oil
from the syrup which is generated in the production of ethanol.  Lincolnway
Energy entered into an agreement with FEC Solutions, L.L.C. on October 13, 2008
under which FEC Solutions, L.L.C. purchases all of Lincolnway Energy's output of
corn oil for resale by FEC Solutions, L.L.C.  Lincolnway Energy pays FEC
Solutions, L.L.C. a marketing and technical assistance fee of 5% of the FOB
sales price of the corn oil.  The agreement has an initial term of 36
months commencing from October 13, 2008, and will renew for successive 36 month
terms unless Lincolnway Energy or FEC Solutions, L.L.C. elect to terminate the
agreement at the end of the then current 36 month term.





Lincolnway
Energy's primary means of shipping and distributing corn oil will be by
truck.


4


Lincolnway
Energy anticipates that FEC Solutions, L.L.C. will sell the corn oil in the
biodiesel, livestock feed and industrial industry, but FEC Solutions, L.L.C.
controls the marketing of all of Lincolnway Energy's output of corn
oil.





Lincolnway
Energy estimates that it will produce approximately 3,000 tons of corn oil per
year at the plant.  Lincolnway Energy does not, however, anticipate that
corn oil will be a material product of Lincolnway Energy because Lincolnway
Energy’s corn oil sales were approximately $1,200,000 and $1,500,000,
respectively, for the fiscal years ended September 30, 2009 and September 30,
2010, which represented approximately only 1%, of Lincolnway Energy's total
revenues for those respective fiscal years.  Lincolnway Energy does not,
however, have any significant operating costs or expenses related to the capture
of corn oil.





Carbon
Dioxide





Lincolnway
Energy entered into a Carbon Dioxide Purchase and Sale Agreement and a related
Non-Exclusive CO2 Facility
Site Lease Agreement with EPCO Carbon Dioxide Products, Inc. on April 16,
2010.  Under those agreements, EPCO constructed a plant on Lincolnway
Energy's site to collect the carbon dioxide which is produced as part of the
ethanol production process and to convert that raw carbon dioxide into liquid
carbon dioxide.  The EPCO plant became fully operational in August of
2010.





EPCO also
markets and sells the liquid carbon dioxide gas under those agreements. 
The purchase price payable by EPCO for the raw carbon dioxide provided by
Lincolnway Energy is based upon EPCO's shipped tons of liquid carbon
dioxide.  The agreement also includes a "take or pay" term which requires
EPCO to purchase, during each contract year, the greater of 180 shipped tons per
day or 70% of the annual liquid carbon dioxide production capacity of the EPCO
plant at full capacity.  The annual liquid carbon dioxide production
capacity of the EPCO plant will be determined based upon the capacity run
procedures as set out in the agreement.  The take or pay obligation is
trued up at the end of each contract year, and the purchase price for any "take
or pay" tons will be the average per shipped ton purchase price paid by EPCO
during the contract year.





EPCO is
responsible for the shipment of all liquid carbon dioxide, which Lincolnway
Energy contemplates, will be by truck.





Lincolnway
Energy does not anticipate that revenues from the sale of carbon dioxide to EPCO
will be a material product of Lincolnway Energy.





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.


5


Corn





Lincolnway
Energy estimates that it will utilize approximately 21,200,000 bushels of corn
per year at its ethanol plant, or approximately 1,767,000 bushels per month,
assuming production at a capacity of approximately 59,000,000 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, dba Key Cooperative
pursuant to which Lincolnway Energy can obtain up to 50% of its corn needs from
Key Cooperative's facility located adjacent to Lincolnway Energy's ethanol
plant, with the remaining 50% to be obtained from other Key Cooperative
facilities or other licensed grain dealers. The 50% limitation for Key
Cooperative's Nevada, Iowa location was imposed by the Iowa Department of
Natural Resources, as part of the air permitting process.  Key Cooperative
is a licensed grain dealer and has locations throughout central Iowa.  Key
Cooperative is also a member of Lincolnway Energy.





Lincolnway
Energy's agreement with Key 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 19,884,281 bushels of corn for $71,804,446 from Key Cooperative
during the fiscal year ended September 30, 2010, and 18,797,250 bushels of corn
for $69,259,682 during the fiscal year ended September 30, 2009.





Corn is
delivered to Lincolnway Energy's ethanol plant by truck.





Lincolnway
Energy has corn storage capabilities for approximately 10 days of continuous
ethanol production.





Coal





Lincolnway
Energy's ethanol plant is a coal fired plant.  Lincolnway Energy's ethanol
plant will utilize approximately 300 tons of coal per day, assuming production
at a capacity of 59,000,000 gallons of ethanol per year.





Lincolnway
Energy purchased approximately 99,000 tons of coal for $6.0 million during the
fiscal year ended September 30, 2010, and approximately 95,000 tons of coal for
$5.6 million during the fiscal year ended September 30, 2009.


6


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 multiplied by the difference of the minimum requirement and
actual quantity purchased, 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 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 6 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.





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





Lincolnway
Energy utilizes approximately two gallons of water to produce a gallon of
ethanol, which results in the use of approximately 325,000 gallons of water per
day.  Lincolnway Energy discharges 275,000 gallons of water per day that
has been treated by a reverse osmosis system. Lincolnway Energy's water needs
are currently met by the City of Nevada.


7


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 Key Cooperative. 
Lincolnway Energy has agreements with the Union Pacific and Key Cooperative
regarding the use of their tracks.





Lincolnway
Energy owns approximately 25 acres of real estate which is to the west of
Lincolnway Energy's existing real estate and which is adjacent to the Union
Pacific railroad tracks near Nevada, Iowa.  The real estate was acquired
primarily for potential future use in the construction of additional railroad
spur tracks. On October 15, 2010, Lincolnway Energy entered into an agreement
with JB Holland Construction, Inc. to perform the dirt work for the additional
rail spur to be added to the track.  This will allow Lincolnway Energy to
ship unit trains on the Union Pacific mainline. Lincolnway Energy anticipates
entering into an agreement for the construction of the rail spur in the spring
of 2011.





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.





Technology
Changes





Lincolnway
Energy continues to monitor and evaluate any opportunities that may arise with
respect to possible technological improvements and alternative energy sources
for Lincolnway Energy's ethanol plant.  For example, Lincolnway Energy is
considering switching the fuel source for its plant from coal to biomass. 
Lincolnway Energy also continues to monitor technological developments in the
industry, such as those purported to increase operating or production
efficiencies or to generate energy or other savings in ethanol or distillers'
grains production.





Research
and Development Activities





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





Competition





The
ethanol industry and markets remain highly competitive even though new
construction and expansion of ethanol plants slowed significantly during the
last three to four years, due to unfavorable credit and market conditions.
Recent installed US ethanol capacity is cited at 14.25 billion gallons per
year.  Recent annualized production amounts show that the industry as a
whole is producing at a rate of approximately 13.3 billion gallons per year.
According to the Renewable Fuels Association, Iowa has 42 ethanol refineries in
production, producing 3.6 billion gallons of ethanol.  The U.S. became the
world's largest producer of ethanol in 2006, surpassing Brazil.  World
production also reached an all time high of approximately 19.5 billion gallons
in 2009, as compared to approximately 17.3 billion gallons in 2008, according to
the Renewable Fuels Association, and representing nearly 400% growth since 2000.
Over 40 countries are now producing ethanol, including Brazil, Canada, China,
India, Thailand, Columbia, Australia, Turkey, Pakistan, Argentina and various
other countries in the European Union and Central America.  Many of those
countries have also enacted renewable fuel use requirements.


8


The
general economic and ethanol industry circumstances have, however, been
difficult and adverse over the past two to three years, with various ethanol
plants having been closed or having cut production and some openings or
construction or expansions of plants having been cancelled or postponed. 
The past projections for the growth of the ethanol industry may, therefore, no
longer be accurate.  Many plants did, however, return to some level of
profitability in the second half of 2009 and into the start of 2010, and some
idle ethanol plants have resumed operations.  The industry has, however,
continued to be somewhat volatile.





Given
that the Energy Independence and Security Act of 2007 increased the renewable
fuels standard to 36 billion gallons of annual renewable fuel use by 2022 (up
from the prior mandate of 7.5 billion gallons of annual use by 2012), it is
likely that there will continue to be some growth in the ethanol industry, both
domestically and internationally, over the longer term.





Lincolnway
Energy's competitors in the U.S. include not only regional farmer-owned
entities, but also the major oil companies and other large
companies.





The
competition in the ethanol industry has increased during the past three years,
with declining ethanol prices, excess supplies of ethanol and higher and
volatile corn prices.





The
ethanol industry will also continue to face increasing competition from
international suppliers of ethanol.  International suppliers produce
ethanol primarily from inputs other than corn, such as sugar cane, and have cost
structures that may be substantially lower than Lincolnway Energy's and other
U.S. based ethanol producers.  Ethanol imports equivalent to up to
approximately 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.  Also, the $.54 per gallon tariff on most
foreign produced ethanol will expire on December 31, 2010, and as of the date of
this annual report it did not appear that the tariff would be extended or
reenacted at any time in the near future, or perhaps at all.





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; although Lincolnway Energy
believes that smaller ethanol plants will have increasing difficulty in
competing with larger plants if the current market conditions continue. 
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.


9


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
of which will make it difficult for Lincolnway Energy to compete with those
competitors.  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 believes there may be acquisitions
and consolidations in the ethanol industry in 2011, and if those acquisitions
and consolidations occur, they could lead to additional competitors with greater
advantages over Lincolnway Energy.  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 stover, corn fiber, wheat straw,
barley straw, switchgrass, miscanthus, trees, grasses. woodwastes, vegetative
wastes and other wastes.  Lincolnway Energy's ethanol plant is designed to
produce ethanol only from corn.





The
Energy Independence and Security Act of 2007 requires that 21 billion gallons of
the new 36 billion gallon renewable fuels standard must come from advanced
biofuels, with 16 billion gallons of that amount required to come from
cellulosic ethanol by 2022.  Research will therefore continue regarding
cellulosic ethanol, and it is likely that processes will be developed in the
near future which will make the production of ethanol from these types of
sources economical.  According to the Renewable Fuels Association, there
were 28 companies with cellulosic ethanol projects under development or
construction or in operation in 23 states as of January, 2010.  Some of
those projects are properly categorized as "pilot" or "test:" plants, but others
are at a larger production level.  For example, Poet plans to open a
25,000,000 gallon per year cellulosic ethanol plant in Iowa in 2011, with the
plant to produce ethanol from corn cobs. DuPont Danisco also has plans to open a
50,000,000 gallon per year cellulosic ethanol plant in the 1st quarter
of 2013, with the plant to produce ethanol from corn stover.  The location
for this plant has not yet been decided.  Some of the cellulosic ethanol
plants are working with the U.S. Department of Energy, and have received grant
funds.





It is
also possible that one or more of the other sources for producing ethanol may
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.


10


The
increased production of ethanol from other sources could also adversely affect
the price for ethanol generally.





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 woodwaste, tires, construction waste and other waste
products.  Those competitors may have lower production and input costs
and/or higher operating efficiencies than Lincolnway Energy, which would allow
them to produce and 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 likely 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 could have the effect of greatly reducing the use of
ethanol or of even making the use of ethanol obsolete at some point.  There
will be increased incentives to develop alternatives to petroleum based fuel
products given the higher gasoline prices that began in 2008 and the continuing
security and other concerns with the Middle East and certain other major oil
producing nations.





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 relating to the discharge of materials into the air, water
and soil; the generation, storage, handling, use, transportation and disposal of
hazardous materials; and the health and safety of Lincolnway Energy's
employees.





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.


11


As part
of the process of settling allegations of the Iowa Environmental Protection
Commission regarding emissions limit exceedences (which were settled in April,
2010) and to otherwise comply with air emissions requirements, Lincolnway Energy
filed an application with the Iowa Department of Natural Resources on August 28,
2008 for Lincolnway Energy to obtain a new air quality permit under the 250 ton
rules which were adopted in late 2007. Lincolnway Energy believes that its
current levels of emissions would comply with the conditions of that air quality
permit, but Lincolnway Energy may also be subject to higher ongoing compliance
and operating costs under the new air quality permit. Due to the progress made
by the Iowa Department of Natural Resources on the new permit and the modeling
required, the Iowa Department of Natural Resources has issued a variance to
Lincolnway Energy’s present operating permit to allow Lincolnway Energy to
operate at the higher production level requested in the new permit.





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 Could Reduce the Use of Ethanol and
Materially and Adversely Affect Lincolnway Energy's Results of Operations and
Financial Position".





Employees





As of
December 15, 2010, Lincolnway Energy had 46 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.





Risks
Relating to Lincolnway Energy and Its Business





The Economy And
The Ethanol Industry Continue To Be Subject To Generally Difficult Market,
Credit And Other CircumstancesThe United States and virtually
all international economies are still widely viewed as facing difficult and
uncertain economic circumstances that may continue well into 2011, and perhaps
longer.  The United States and nearly all international economic
circumstances include a lack of available loans and credit to nearly all types
of industries, significant unemployment, falling profits or losses in many
industries, volatile stock and other investment markets, individual and business
failures and bankruptcies, significant deficit spending and "bailout" programs
by governments, and uncertain business and consumer confidence.


12


The
ethanol industry has been similarly affected.  For example, lenders
and the credit markets have been generally unfavorable to the ethanol industry
during the last two to three years, and the lack of available credit has caused
the proposed construction or expansion of some ethanol plants to be cancelled or
indefinitely delayed.  The ethanol industry also experienced
decreasing profits over that time period, and many ethanol plants experienced
losses over most or some of that time period, although most ethanol plants did
return to some level of profitability in late 2009 to early 2010.  The
ethanol industry has also struggled with volatile corn prices, and record high
corn prices, during parts of the last three years.  The record high
corn prices, coupled with declining ethanol prices, negatively impacted profits,
and caused some ethanol companies to declare bankruptcy or to halt construction
or expansion projects and/or to delay the opening of recently completed ethanol
plants.





There is
also uncertainty in the economy arising from continuing terrorism concerns, both
in the United States and internationally, and the uncertainties and difficulties
in Pakistan, Afghanistan, Iraq, Iran and other parts of the Middle
East.





Lincolnway
Energy is therefore still operating in an uncertain and volatile economic and
industry environment.





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
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 is subject to numerous federal
and state regulations, including regarding permissible emissions
levels.





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.


13


As global
warming and climate change issues become more prevalent and accepted, there will
likely be increased governmental and public sentiment for more regulation of the
use of coal as a source of energy.  Coal is generally viewed
unfavorably in any "carbon footprint" type analysis in any event, but may be
viewed even more unfavorably when used by an ethanol plant because some experts
and federal and state regulatory agencies are taking the position that the
ethanol industry in general also performs poorly in any carbon footprint and/or
land use type analysis.  One result of those types of analysis will
likely be stricter emissions requirements, which could lead to the need for
capital expenditures in order to meet those requirements and higher ongoing
compliance and operating costs.  Those expenditures and costs could be
material, and adversely affect Lincolnway Energy's results of operation and
business.





Lincolnway
Energy believes there will be increased regulatory requirements for coal at some
point in the future.





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 6 days of continuous ethanol production, and an interruption in
the supply of coal beyond that period could cause Lincolnway Energy to
temporarily halt or discontinue the production of ethanol.





Lincolnway Energy
May Not Be Successful In Converting To Another Fuel Source For Its Plant, And
Even If It Is Successful, There Will Be Other Risks Associated With Other Fuel
Sources.Lincolnway Energy is considering the possibility of
changing the energy source for its plant from coal to another source or sources,
such as wood waste, agricultural residues  and/or construction and
demolition waste.  There is not, however, any assurance that
Lincolnway Energy will be successful in converting its plant from coal to
another energy source because the conversion involves various material
considerations and issues, including regulatory, technological and financial
considerations and issues.  You therefore should not assume that
Lincolnway Energy will be able to convert its plant to another energy source, or
on economical terms.





Even if
Lincolnway Energy determines that it is technologically and economically
feasible to convert its plant to another energy source, and is able to
successfully implement the conversion, Lincolnway Energy will still face
regulatory and other risks related to another energy source.  For
example, there will still be air permit and emission limits requirements and
issues that will need to be met by Lincolnway Energy.  As another
example, Lincolnway Energy will need to be able to secure adequate sources of
supply of the other energy source at an economical price, and from reputable
third parties.  Some of the other possible energy sources, such as
woodwastes, may vary in availability from time to time due to various factors,
such as the economic circumstances of the industry in question.  For
example, the availability of woodwaste from the construction industry will
decline when the construction industry is struggling, such as was the case at
the time of the preparation of this annual report.  Some of these
other risks are not as equally applicable to coal.


14


If Lincolnway
Energy Ever Expands Or Attempts To Convert Its Plant To Another Fuel or
Cellulosic Source, 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, or to convert its plant to a fuel source other than
coal or to convert from corn to a cellulosic source, 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.  Any
expansion of Lincolnway Energy's plant or conversion of the plant to another
fuel or cellulosic source may also involve some down time for the plant, which
would in turn result in decreased ethanol and distiller's grain
production.





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 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.  Lincolnway Energy has, however, lowered its outstanding
debt since it commenced ethanol production in 2006 from $34,612,543 to
$9,486,084 as of September 30, 2010.  Lincolnway Energy therefore does
not believe that it was substantially leveraged at the time of the preparation
of this annual report.





Lincolnway
Energy may, however, increase its debt in the future, and the use of leverage
creates risks.  For example, if Lincolnway Energy ever became unable
to generate profits and cash flow to service its debt and its ongoing operations
and working capital needs, Lincolnway Energy could 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, but there is no assurance that any of those steps would be
successful.


15


Lincolnway
Energy will also need to comply with the various restrictions and covenants that
will be included as part of Lincolnway Energy's credit and loan
agreements.  The restrictions and covenants will likely 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 will also likely 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 could at some point 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.





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 will
likely generally have some outstanding loans or debt, which at times might be
substantial.  Although difficult to predict and outside of Lincolnway
Energy's control, it is possible that there may be increases in interest rates,
at least over the longer term.





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, corn oil and carbon dioxide, ethanol is the primary
and material source of revenue for Lincolnway Energy, having generated
approximately 83%, 80% and 83% of Lincolnway Energy's total revenues for the
fiscal years ended September 30, 2008, 2009 and 2010, 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 Chicago Board of Trade price of ethanol
reached $2.365 on November 9, 2010, but was at $1.495 on July 28,
2010.





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.


16


The
recent record prices for gasoline were causing businesses and consumers to
actively seek 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.  Higher gasoline prices also
increase the focus and attention on the research and development of alternative
energy options, such as fuel cells.  The existence of higher gasoline
prices can therefore also 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.  Some ethanol plants have delayed opening or have curtailed
production due to the unfavorable market conditions which were in existence over
the two to three year period preceding the date of this annual
report.





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





Increases In
Supplies Of Ethanol May Adversely Affect Ethanol And Ethanol Byproduct
Prices.Lincolnway Energy anticipates that there will continue
to be increases in ethanol production over the long term, both in the United
States and internationally.  For example, there will need to be
increased ethanol production in order to meet the renewable fuels standards that
were part of the Energy Independence and Security Act of 2007.





The
existing renewable fuels standard requirements may at least provide some
indirect price support as ethanol production increases to meet those standards,
but it is possible that increasing ethanol production may at times lead or
contribute to lower ethanol prices.  For example, at least currently,
the demand for ethanol is primarily driven by the renewable fuels standard
requirements, as opposed to general consumer demand, so if ethanol production
exceeds the amounts required to meet the renewable fuels standard, there could
be excess ethanol available, which would lower ethanol prices.





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 at the federal or state level, reduced gasoline consumption in the
United States or advancements in alternatives to gasoline or in other gasoline
additives.





Any
increase in ethanol production will also lead to increases in distillers' grains
and corn oil production, and increased supplies of those products could also
lead to lower prices for those products.


17


Continued Growth
In The Ethanol Industry Depends On Use Of Increased Ethanol Blends And Related
Expansion Of Infrastructure, Change In Public Views And Regulatory Support,
Which May Not Occur On A Timely Basis, If At All.Most experts
believe that for ethanol use to grow significantly over both the near and longer
term, there must be increased use of ethanol blends in excess of 10%, such as
E20, E30 and, in particular, E85.  There are various areas that need
development and expansion in order for that to occur, including expanded
production of flex fuel vehicles and the expanded use of pumps that can utilize
higher ethanol blends, such as blender pumps.  A blender pump allows a
driver to fill his or her vehicle with any blend of ethanol from 0% to 85%
depending on the type of vehicle they drive.  There will also need to
be changes in the public's views and perceptions of ethanol in order for there
to be increased use of higher blends of ethanol, as well as regulatory
developments at both the federal and state level which allow the use of, and
promote the use of, higher ethanol blends and the use of blender pumps and flex
fuel vehicles.





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.





Lincolnway
Energy estimates that corn costs will, on the average, make up approximately 69%
of Lincolnway Energy's total annual operating costs, but the percentage could be
higher dependent on the price of corn from time to time.  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.  For example, corn prices began to rise significantly in
approximately July, 2006 (when the cash corn price in Lincolnway Energy's local
market area was approximately $2.09 per bushel) and generally continued to rise
until mid-year 2008 (when the cash corn price in Lincolnway Energy's local
market area reached approximately $7.15 per bushel).  The cash corn
price in Lincolnway Energy's local market area was approximately $5.32 per
bushel as of November 30, 2010.  The corn price on the Chicago Board
of Trade daily futures ranged from a low of $3.25 per bushel to a high of $5.29
per bushel during Lincolnway Energy's fiscal year ended September 30,
2010.





The
supply and price of corn are influenced by many factors, including drought, hail
and other adverse weather conditions; insects or disease; farmer planting
decisions; imports; government policies and subsidies with respect to
agriculture and international trade; and global and local demand and
supply.  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.  Lincolnway Energy will also compete for corn with the
livestock producers and elevators located within Lincolnway Energy's market
area.





There is
also uncertainty regarding climate change, and any climate changes could
adversely affect corn production in Lincolnway Energy's primary market area or
other corn production areas in the United States and elsewhere, and thereby both
the supply and price of corn.


18


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.  The price of
ethanol and corn fluctuates frequently and widely, however, so any favorable
spread between ethanol and corn prices which may exist from time to time cannot
be relied upon as indicative of the future.  It is possible for the
circumstance to arise where corn costs increase and ethanol prices decrease to
the point where Lincolnway Energy could be required to suspend operations, as
some other ethanol plants did during 2008 and parts of 2009.  Any
suspension of operations could have a material adverse effect on Lincolnway
Energy's business, results of operations and financial condition.





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 5% 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 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 and may in fact lead to substantial
losses.





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 relatively long distances to a terminal where the ethanol
can be blended with gasoline.





Lincolnway
Energy's inability to foresee or accurately predict changes in the supply or
prices of ethanol or of corn, coal and other inputs will adversely affect
Lincolnway Energy's business, results of operation and financial
position.  Also, 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.





There Are Many
Factors Important To The Success Of An Ethanol Plant That Are Beyond The Control
Of Lincolnway Energy.Lincolnway Energy's ability to
successfully operate its ethanol plant and to market the ethanol, distillers
grains and corn oil produced at the plant are subject to numerous factors and
risks.


19


Some of
those factors and risks relate directly to Lincolnway Energy, such as Lincolnway
Energy's ability to retain qualified employees and other personnel, and on
favorable terms, labor disputes or other employee issues, and unforeseen
accidents at, or damages to, Lincolnway Energy's plant or other
facilities.




Some of
the factors and risks relate to the fact that the agricultural economy and the
economy in general, and market prices and futures prices for oil, gasoline,
ethanol, distiller's grains, corn oil, 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;


·
            Infestations
      or diseases in crops;


·
            Acts
      of terrorism or war, both nationally and
  internationally;


·
            Railcar
      or truck shortages or strikes within those
  industries;


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


·
            Governmental
      incentives related to ethanol;


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


·
            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, Pakistan 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.


20


Most of
the above factors or occurrences cannot 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 The
Futures Markets By Lincolnway Energy Could Be Unsuccessful And Result In
Substantial Losses.Lincolnway Energy will likely attempt to
minimize the effects of the volatility of corn, coal, ethanol, distiller's
grains and other prices by entering into forward pricing contracts and taking
positions in the futures markets.  The primary 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, but not all of the positions may be able
to be properly categorized as being for hedging purposes.  Any attempt
by Lincolnway Energy to use the futures markets, whether in the form of hedging
strategies or for more speculative trading purposes, 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 "There Are Many Factors Important To The
Success Of An Ethanol Plant That Are Beyond The Control Of Lincolnway
Energy."  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.





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 close out an open
position in a timely manner 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.





Losses
from trades in the futures markets, coupled with the volatility in the corn
markets and record high corn prices, are factors that have caused some ethanol
companies to incur significant losses and, in some cases, to seek bankruptcy
protection.


21


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.





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.  New laws, rules and
regulations may be advanced based upon claims related to global warming and
climate change.  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.





Lincolnway
Energy believes that increased regulation of plants powered by coal, such as
Lincolnway Energy's ethanol plant, is particularly likely.  Lincolnway
Energy also foresees the possibility of increased regulation of ethanol plants
arising from carbon footprint and life cycle and indirect land use change type
analysis by regulators.





For
example, in 2009, the State of California adopted a state low carbon fuels
standard, which requires that renewable fuels used in California must accomplish
certain reductions in greenhouse gases which are measured using a life cycle
analysis that includes indirect land use change considerations.  The
current predominant views on how to apply a life cycle and indirect land use
change analysis (including those of the United States EPA) generally lead to
results that are not favorable to coal or to ethanol, and that is the case for
California.  The practical effect of California's low carbon fuel
standard is that it precludes grain-based ethanol from outside
California.


22


The
Renewable Fuels Association, together with other parties, have filed a lawsuit
challenging California's low carbon fuel standard on the grounds that it
violates both the supremacy clause and the commerce clause of the U.S.
Constitution.  California represents a significant ethanol market, and
if corn based ethanol cannot be utilized in California, it could significantly
reduce demand for corn-based ethanol such as that produced by Lincolnway
Energy.  Various other states are also looking at implementing low
carbon fuel standard requirements for their states, so the outcome of the
California lawsuit could have significant effects on the ethanol
industry.





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.  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
Continuing Negative Press And Public Sentiment Against The Ethanol Industry
Which Could Lead To Reduced Governmental And Public Support For The Use Of
Ethanol.There continues to be negative press and public
sentiment against the ethanol industry based upon claims that the use of corn to
produce ethanol drives up grain prices, which hurts livestock farmers and also
consumers due to increased food prices.  The claims also include
environmental type allegations, including that increased corn acreage and
ethanol production could strain water supplies and worsen pollution in rivers
and streams.  The criticisms also include that ethanol production is
leading to land use changes, including the clearing of rain forests and other
native lands for purposes of growing corn or other crops to be used for the
production of ethanol or to replace land which is now used to produce crops for
ethanol, which in turn releases carbon into the atmosphere that has been stored
in the soil and otherwise has negative environmental impacts.  The
continuing and growing criticism has come from, among others, environmental
groups, the National Academy of Sciences, the American Lung Association and
through the United Nations.





The
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.


23


Loss Of Current
Governmental Support And Incentives For Ethanol Could 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 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.





Another
continuing regulatory or governmental support issue for the ethanol industry is
the fact that current law and infrastructure effectively preclude the use of
greater than 10% ethanol blends in conventional automobiles, sometimes referred
to as the "blend wall."  Advocates have been lobbying the EPA and
Congress to increase the permitted percentage for all vehicles from anywhere to
12% to 20%.  The EPA did act in October of 2010 to raise the permitted
ethanol blend from 10% to 15% in vehicles produced in 2007 or later, but that
action was not viewed as significant to the ethanol industry because of the
limitation to vehicles made in 2007 or later and also because many retailers do
not have the pumping equipment needed in order to offer E15.  As of
the preparation of this annual report, the EPA was considering the use of E15 in
vehicles built from 2001 to 2006, but no decision had been announced by the EPA
at the time of the preparation of this annual report.





One key
component of the federal government's support for the ethanol industry is the
renewable fuels standard that arose out of the Energy Independence and Security
Act of 2007.  Under that legislation, the renewable fuels mandate was
increased to 36 billion gallons by 2022, with that requirement broken down among
conventional biofuel, which includes ethanol derived from corn starch, advanced
biofuels and cellulosic biofuels.  There continue to be, however,
difficulties in developing cellulosic biofuel technologies, and in the
practicalities of harvesting, moving and storing some of the fuel stocks which
could be utilized to meet the cellulosic renewable fuels standard (such as
cornstalks and stover), as well as difficulties in obtaining the capital needed
to fully commercialize those technologies.  The EPA therefore has
reduced the target for cellulosic biofuels for the renewable fuels standard for
2011, with the total RFS2 requirement for 2011 remaining at 13.95 billion
gallons, but with 12.6 billion gallons being from starch-based ethanol and the
remaining 1.35 billion gallons being a combination of biodiesel and other
advanced biofuels, including a 6.6 million gallon requirement specifically for
cellulosic biofuels.  It is unclear how any continuing inability to
meet the renewable fuels standard, whether due to technology or financing
issues, would affect governmental or public views of the ethanol industry or the
existing renewable fuels standard.


24


Some
other key areas of legislative interest in the ethanol industry are increasing
the required use of flexible fuel vehicles, particularly E85 vehicles, and
blender pumps, and providing incentives to develop and utilize blender
pumps.





The
actions of states are also important to the ethanol industry, and some states,
such as Iowa and Minnesota, have various requirements which support the ethanol
industry.  A key state, however, California, has passed a low carbon
fuel standard which will effectively shut out grain-based ethanol from outside
California in the coming years.  As noted elsewhere, a lawsuit has
been brought challenging California's low carbon fuel standard, and the outcome
of that litigation could have significant effects on the ethanol industry, in
particular if California's legislation is allowed to stand, and other states
adopt similar legislation.  The legislation adopted by California, and
any other similar legislation that would be adopted by any other states, could
make it difficult to timely meet the renewable fuels standard.





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.





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.


25


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 Could Adversely Affect Lincolnway
Energy And Could Reduce Lincolnway Energy's Profitability.The
ethanol industry is competitive and will likely become increasingly more
competitive.  The competitors include both regional farmer-owned
entities, and also the major oil companies and other large
companies.  The U.S. ethanol industry may also face increasing
competition from international suppliers of ethanol.





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 and/or greater capital or
other financial resources, any of which may make it difficult for Lincolnway
Energy to compete with the competitor.  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 will also experience competition
from other plants which produce ethanol from other
products.   For example, ethanol can be produced from corn
stover, rice straw, wheat, cheese whey, potatoes, wheat, oats, barley straw,
milo, sorghum, sugar bogasse, rice hulls, various wastes (such as wood and
vegetation) and cellulose based biomass.  Various federal incentives
have been enacted to encourage and support the development of cellulosic based
ethanol production, and the Energy Independence and Security Act of 2007
provides that 16 billion gallons of the 36 billion gallon renewable fuels
mandate for 2022 must come from cellulosic biofuel.  Approximately 25
companies were developing cellulosic based ethanol plants as of January
2010.  Cellulosic and other ethanol technologies are viewed by many as
the "next generation" ethanol technologies.





Although
Lincolnway Energy believes there will continue to be a place for corn based
ethanol production within the ethanol industry, it is possible that at some
point in the future governmental and public support of the ethanol industry may
be focused primarily upon, and provide significant advantages or benefits to,
cellulosic and other developing ethanol technologies, which could have adverse
effects on Lincolnway Energy and corn based ethanol production in
general.  The requirements for the use of cellulosic and other
advanced biofuels in the 2007 energy act are evidence of the government's
support of, and trending to, those types of biofuels.  The public may
also eventually support cellulosic and other advanced biofuels because of the
perception that those types of biofuels do not have some of the perceived
negative effects of corn based ethanol, such as the food versus fuel debate,
given that cellulosic and other advanced biofuels are not made from products
otherwise used in the food chain and are in some cases produced from "waste"
products.


26


It is
also possible that one or more of the other sources of products for ethanol
production 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.





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 wood, tires, construction waste and
manure.  Those competitors may have lower production and input costs
and/or higher operating efficiencies than Lincolnway Energy, which would allow
them to produce and 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 will occur at some point, and could
have the effect of greatly reducing the use of ethanol or of even making the use
of ethanol obsolete over time.  There will be increased incentives to
develop alternatives to petroleum based fuel products given the recent high
gasoline prices and uncertainty in the Middle East.  It is also
commonly agreed that the dependence of the U.S. on foreign oil places the U.S.
in difficult political and economic circumstances, and the federal government
will likely assist in the development of alternatives to petroleum based fuel
products given the issues that arise from the dependence of the U.S. on foreign
oil.





Technological
Advances Could Make Lincolnway Energy's Ethanol Plant Less
Competitive.Technological advances in the processes and
procedures for producing ethanol and in the efficiency of ethanol plants 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 or the
ethanol and/or other by-products produced at the ethanol plant less competitive
when compared to other producers.  Any modifications or changes to
Lincolnway Energy's ethanol plant to utilize any new technology could be
technologically or cost prohibitive, and could, at least initially, reduce
Lincolnway Energy's profitability.





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.


27


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 second 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
second 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 could also be
prohibited, or at least 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.  There is therefore no assurance of regular distributions,
or any distributions at all, to Lincolnway Energy's members.





The Staggered
Terms Of Lincolnway Energy's Board May Delay Or Prevent Lincolnway Energy's
Acquisition By A Third Party.Lincolnway Energy's second
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.


28


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 second 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.





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.


29




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.





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.





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% being available to accommodate any
expansion of Lincolnway Energy's staff.  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
      spur, paved access roads, dryers, evaporators, fermenters, grain bins and
      storage facilities for ethanol and distiller's
  grains.


30


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 136,000 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 112 acres of real estate which is adjacent to the
160 acre parcel noted above.  Lincolnway Energy purchased this real
estate primarily for possible use in the construction of additional railroad
spur tracks, but the real estate could also be used as part of any future
expansion of Lincolnway Energy's business.  Except as noted in the
following paragraph, Lincolnway Energy does not, however, have any definite
plans for the use of the real estate in Lincolnway Energy's ethanol operations,
and most of the real estate will likely be custom farmed during
2011.





In
October, 2010, Lincolnway Energy entered into an agreement with JB Holland
Construction, Inc. to perform the dirt work for the additional rail spur to be
added to the existing track.  Lincolnway Energy anticipates signing
the agreement for the construction of the rail spur in the spring of
2011.





Lincolnway
Energy leases 90 rail cars which are used for transporting distiller's
grains.  The lease has a five year term which is scheduled to expire
on March 25, 2011.  Lincolnway Energy also leases 130 tank rail cars
that are used for transporting ethanol.  The scheduled term of leases
goes to February 2011 for 30 cars and September 2016 for 100 cars.





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





Item 3.
            Legal
      Proceedings.





Except as
noted 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. As of the date of this annual
report, Lincolnway Energy was not aware that any governmental authority was
contemplating any material proceeding against Lincolnway Energy or any of
Lincolnway Energy's property.





A
Complaint for Patent Infringement was filed against Lincolnway Energy and
certain other parties on May 3, 2010 by GS CleanTech Corporation, a wholly owned
subsidiary of Green Shift Corporation.  The Complaint was filed in the
United States District Court for the Northern District of Iowa, Western
Division, as Case No. 5:10-cv-04036.  The Complaint alleges, in
general, that the corn oil extraction equipment and related processes used by
Lincolnway Energy and the other parties infringes upon one or more of the claims
under certain patents held by GS CleanTech Corporation.  The Complaint
seeks injunctive relief, an award of damages with interest, and any other
remedies available under certain patent statutes or otherwise under
law.  The Complaint claims damages of at least a reasonable royalty
rate and lost profits.  The Complaint also alleges that the alleged
infringing conduct by Lincolnway Energy is willful, resulting in the right to
recover treble damages and attorney fees pursuant to 35 U.S.C.
§284.  The case has been transferred to the United States District
Court for the Southern District of Indiana pursuant to Multi-District Litigation
proceedings.  No initial disclosures have yet been exchanged and no
discovery has yet been completed.  Lincolnway Energy is therefore
unable to determine at this time if the Complaint will have a material adverse
effect on Lincolnway Energy.


31


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, 2010, which were held of record by 977
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,
2010.





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 second 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.





The
second 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 or issue more than an aggregate of 45,608
units, without the vote of the members, except that the directors of Lincolnway
Energy may effectuate a split of the outstanding units into a lesser or greater
number of units, based upon a uniform multiple, without the vote of the
members.  In that event, the $500 amount and the 45,608 amount shall
also be increased or decreased in accordance with the multiple that was utilized
in the split of the units.  The second amended and restated operating
agreement also provides that Lincolnway Energy may not issue any units to any
director or officer of Lincolnway Energy in their capacity as such, without the
vote of the members.  The necessary vote in any of the circumstances
described in this paragraph is 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 constitute a quorum at any meeting of the
members.


32


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





The
second 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
in compliance with the second amended and restated operating agreement and also
only with the prior written 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 of units
which, alone or together with any other past or anticipated 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 second amended and restated operating
      agreement, including the 49% ownership limitation noted
    above;





·
            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.


33


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 second 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 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.





Lincolnway
Energy has established a qualified matching service on Lincolnway Energy's
website, and the second 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 for
Lincolnway Energy's units.  Also, Lincolnway Energy has no obligation
to purchase any units under the repurchase provisions in the second amended and
restated operating agreement.





Lincolnway
Energy has not made any repurchases of its units pursuant to the repurchase
provisions set forth in the second 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 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.


34


The
publicly traded partnership rules exclude some types of transfers from the 2%
and 10% limitations.  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
second 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.





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 any individual equity 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 into any other securities.


35


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 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 five 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.  The fourth distribution was declared in May 2008, and was
in the amount of $75 per unit, resulting in an aggregate distribution of
$3,153,675.  The fifth distribution was declared in February 2010, and
was in the amount of $50 per unit, resulting in an aggregate distribution of
$2,102,450.





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.  For example, although a distribution was declared in November
of both 2006 and 2007 and in May of both 2007 and 2008, the board of Lincolnway
Energy determined that no distribution should be made by Lincolnway Energy
during November 2008, May 2009 or in November 2009, given the generally
unfavorable economic outlook and the prevailing conditions in the ethanol
industry.  As noted above, Lincolnway Energy did declare a
distribution in February of 2010, but it was at a lower per unit amount than the
prior distributions by Lincolnway Energy.  Although no firm decision
has been made, it is possible that no, or perhaps reduced, distributions will be
declared and paid by Lincolnway Energy during the fiscal year ending September
30, 2011.





None of
Lincolnway Energy's units were purchased by or on behalf of Lincolnway Energy or
any affiliated purchaser (as defined in Rule 10b-18(a)(3) of the Securities
Exchange Act of 1934) of Lincolnway Energy during the period of July 1, 2010 to
September 30, 2010.  As of the date of this annual report, Lincolnway
Energy did not have any publicly announced plans or programs with respect to
purchases of its units.





Item 6.
            Selected
      Financial Data.





The
following information is summary selected financial data for Lincolnway Energy
for the fiscal years ended September 30, 2010, 2009, 2008, 2007 and 2006 with
respect to the statements of operations data, and as of September 30, 2010,
2009, 2008, 2007 and 2006 with respect to the balance sheet data.  The
data is qualified by, and must be read in conjunction with, Item 1A of this
annual report, "Risk Factors", Item 7 of this annual report, "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
with the financial statements and supplementary data included in Item 8 of this
annual report.





36


Statements of Operations
    Data:
                                                                            
                                                                            2010
                                                                            
                                                                            
                                                                            2009
                                                                            
                                                                            
                                                                            2008
                                                                            
                                                                            
                                                                            2007
                                                                            
                                                                            
                                                                            2006Revenues
                                                                            
                                                                            $
                                                                            114,373,268
                                                                            
                                                                            
                                                                            $
                                                                            110,223,531
                                                                            
                                                                            
                                                                            $
                                                                            147,040,911
                                                                            
                                                                            
                                                                            $
                                                                            118,783,540
                                                                            
                                                                            
                                                                            $
                                                                            44,883,457Cost
      of goods sold
                                                                            
                                                                            
                                                                            106,744,081
                                                                            
                                                                            
                                                                            
                                                                            113,576,938
                                                                            
                                                                            
                                                                            
                                                                            138,309,541
                                                                            
                                                                            
                                                                            
                                                                            94,233,456
                                                                            
                                                                            
                                                                            
                                                                            25,886,144Gross
      profit(loss)
                                                                            
                                                                            
                                                                            7,629,187
                                                                            
                                                                            
                                                                            
                                                                            (3,353,407
                                                                            )
                                                                            
                                                                            
                                                                            8,731,370
                                                                            
                                                                            
                                                                            
                                                                            24,550,084
                                                                            
                                                                            
                                                                            
                                                                            18,997,313General
      and administrative expense
                                                                            
                                                                            
                                                                            2,440,390
                                                                            
                                                                            
                                                                            
                                                                            2,366,638
                                                                            
                                                                            
                                                                            
                                                                            2,647,368
                                                                            
                                                                            
                                                                            
                                                                            2,903,436
                                                                            
                                                                            
                                                                            
                                                                            2,082,597Operating
      income (loss)
                                                                            
                                                                            
                                                                            5,188,797
                                                                            
                                                                            
                                                                            
                                                                            (5,720,045
                                                                            )
                                                                            
                                                                            
                                                                            6,084,002
                                                                            
                                                                            
                                                                            
                                                                            21,646,648
                                                                            
                                                                            
                                                                            
                                                                            16,914,716Interest
      expense
                                                                            
                                                                            
                                                                            (851,358
                                                                            )
                                                                            
                                                                            
                                                                            (860,303
                                                                            )
                                                                            
                                                                            
                                                                            (1,430,469
                                                                            )
                                                                            
                                                                            
                                                                            (2,228,179
                                                                            )
                                                                            
                                                                            
                                                                            (1,281,287
                                                                            )Other
      income-interest and grant
                                                                            
                                                                            
                                                                            25,019
                                                                            
                                                                            
                                                                            
                                                                            165,007
                                                                            
                                                                            
                                                                            
                                                                            181,895
                                                                            
                                                                            
                                                                            
                                                                            536,897
                                                                            
                                                                            
                                                                            
                                                                            274,292Net income (loss)
                                                                            
                                                                            $
                                                                            4,362,458
                                                                            
                                                                            
                                                                            $
                                                                            (6,415,341
                                                                            )
                                                                            
                                                                            $
                                                                            4,835,428
                                                                            
                                                                            
                                                                            $
                                                                            19,955,366
                                                                            
                                                                            
                                                                            $
                                                                            15,907,721Weighted
      average units outstanding
                                                                            
                                                                            
                                                                            42,049
                                                                            
                                                                            
                                                                            
                                                                            42,049
                                                                            
                                                                            
                                                                            
                                                                            42,049
                                                                            
                                                                            
                                                                            
                                                                            42,519
                                                                            
                                                                            
                                                                            
                                                                            42,293Net
      income (loss) per unit - basic and diluted
                                                                            
                                                                            $
                                                                            103.75
                                                                            
                                                                            
                                                                            $
                                                                            (152.57
                                                                            )
                                                                            
                                                                            $
                                                                            115.00
                                                                            
                                                                            
                                                                            $
                                                                            469.33
                                                                            
                                                                            
                                                                            $
                                                                            376.13Cash
      distributions per unit
                                                                            
                                                                            $
                                                                            50.00
                                                                            
                                                                            
                                                                            $
                                                                            -
                                                                            
                                                                            
                                                                            $
                                                                            200.00
                                                                            
                                                                            
                                                                            $
                                                                            350.00
                                                                            
                                                                            
                                                                            $
                                                                            -





2010
                                        
                                        
                                        2009
                                        
                                        
                                        2008
                                        
                                        
                                        2007
                                        
                                        
                                        2006Working
      Capital
                                        
                                        $
                                        11,493,635
                                        
                                        
                                        $
                                        6,670,560
                                        
                                        
                                        $
                                        10,216,873 $
                                        
                                        
                                        
                                        11,845,308
                                        
                                        
                                        $
                                        6,548,336Net
      Property Plant & Equipment
                                        
                                        $
                                        49,821,446
                                        
                                        
                                        $
                                        57,293,563
                                        
                                        
                                        
                                        65,010,487
                                        
                                        
                                        
                                        71,617,762
                                        
                                        
                                        
                                        78,170,697Total
      Assets
                                        
                                        $
                                        65,898,900
                                        
                                        
                                        $
                                        71,092,101
                                        
                                        
                                        
                                        90,516,722
                                        
                                        
                                        
                                        88,820,957
                                        
                                        
                                        
                                        93,027,237Long-Term
      Obligations
                                        
                                        $
                                        9,859,711
                                        
                                        
                                        $
                                        14,938,584
                                        
                                        
                                        
                                        19,998,369
                                        
                                        
                                        
                                        24,743,372
                                        
                                        
                                        
                                        29,548,706Members'
      Equity
                                        
                                        $
                                        52,239,260
                                        
                                        
                                        $
                                        49,979,252
                                        
                                        
                                        
                                        56,394,593
                                        
                                        
                                        
                                        59,968,965
                                        
                                        
                                        
                                        55,662,249Book
      Value per Member Unit
                                        
                                        $
                                        1,242
                                        
                                        
                                        $
                                        1,189
                                        
                                        
                                        
                                        1,341
                                        
                                        
                                        
                                        1,426
                                        
                                        
                                        
                                        1,299





Lincolnway
Energy's ethanol plant became operational during May 2006.





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





Except
for the historical information, the following discussion contains
forward-looking statements that are subject to risks and uncertainties, and
which speak only as of the date of this annual report.  No one should
place strong or undue reliance on any forward looking
statements.  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 or projected by
Lincolnway Energy.


37


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 55,233,754 gallons of ethanol during
the fiscal year ended September 30, 2010.  Lincolnway Energy had a
planned shut down during the months of October 2009 and May 2010 to complete
routine maintenance work.





Lincolnway
Energy's revenues for the fiscal year ended September 30, 2010 were derived from
the sale of Lincolnway Energy's ethanol to Green Plains Trading Group, LLC.
(GPTG), the sale of its distiller's grains to Hawkeye Gold, LLC, the sale of its
corn oil to FEC Solutions, LLC (FECS), and the sale of its carbon dioxide (C02)
to EPCO Carbon Dioxide Products, Inc.





Lincolnway
Energy's ethanol was sold pursuant to an ethanol marketing agreement between
Lincolnway Energy and GPTG. This agreement became effective on October 1,
2009.  Prior to that Lincolnway Energy had a marketing agreement with
RPMG.  The purchase price payable to Lincolnway Energy is GPTG’s
contract selling price for the ethanol in question, less various costs and a fee
to GPTG.  The ethanol marketing agreement includes a minimum purchase
price.  Title and all risk of loss and damage to all ethanol commences
at the time the ethanol passes across the inlet flange into the rail cars or
tank cars of the GPTG carrier at the Lincolnway Energy plant.





Lincolnway
Energy's output of distiller's grains is 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 Lincolnway Energy or Hawkeye Gold, LLC on 90 days written
notice.





Lincolnway
Energy purchased a corn extraction oil system from FECS, which was put into
operation in April, 2008.  The system extracts corn oil from the syrup
which is generated in the production of ethanol.  Lincolnway Energy
produced corn oil on a trial basis from April, 2008 until approximately
September, 2008, and FECS purchased all of the corn oil produced by Lincolnway
Energy during that time period.  Lincolnway Energy entered into an
agreement with FECS on October 13, 2008 under which FECS purchases all of
Lincolnway Energy's output of corn oil for resale by FECS.  Lincolnway
Energy pays FECS a marketing and technical assistance fee of 5% of the FOB sales
price of the corn oil.  The agreement has an initial term of 36
months, commencing from October 13, 2008, and can renew for successive 36 month
terms unless Lincolnway Energy or FECS elects to terminate the agreement at the
end of the then current 36 month term.


38


Lincolnway
Energy entered into agreements on April 16, 2010 with EPCO Carbon Dioxide
Products, Inc. pursuant to which EPCO will construct a plant on Lincolnway
Energy’s site to collect the carbon dioxide which is produced as part of the
ethanol process, convert that raw carbon dioxide into liquid carbon dioxide gas,
and market the liquid carbon dioxide.  The EPCO plant became fully
operational in August 2010.  Lincolnway Energy entered into a site
lease agreement with EPCO and shall continue until the agreement is terminated
by either party due to breach or nonfulfillment.  Lincolnway Energy
also entered into a purchase and sale agreement with EPCO.  The
purchase price payable to Lincolnway Energy for the C02 gas
provided shall be a price per ton based off of EPCO’s shipped
tons.  EPCO has agreed to a take or pay obligation for each contract
year the greater of 180 shipped tons per day or 70% of the annual liquid CO2liquid
production capacity of the EPCO plant at full capacity.





Air
Quality Permit Application





Lincolnway
Energy submitted an application for a 250 ton per year air quality permit to the
Iowa Department of Natural Resources (IDNR) on August 28, 2008. The IDNR is
currently in the process of reviewing the application. The review process is
very thorough and often times can take in excess of a year.





Lincolnway
Energy believes that its current levels of emissions will comply with the
conditions that need to be met in order to comply with the new permit
conditions.  Due to the progress made by the IDNR on the new permit and the
modeling required, the IDNR has issued a variance to Lincolnway Energy’s present
operating permit to allow Lincolnway Energy to operate at the higher production
level requested in the new permit.   Once the new permit is issued,
Lincolnway Energy may be subject to higher ongoing compliance testing and
operating costs under the new air quality permit.


39


Comparison
of Fiscal Years Ended September 30, 2010 and 2009




Statements
      of Operations Data:
                                                
                                                2010
                                                
                                                
                                                2009Amount
                                                
                                                
                                                %
                                                
                                                
                                                Amount
                                                
                                                
                                                %Revenues
                                                
                                                $
                                                114,373,268
                                                
                                                
                                                
                                                100.0
                                                
                                                
                                                $
                                                110,223,531
                                                
                                                
                                                
                                                100.0Cost
      of goods sold
                                                
                                                
                                                106,744,081
                                                
                                                
                                                
                                                93.3
                                                
                                                
                                                
                                                113,576,938
                                                
                                                
                                                
                                                103.0Gross
      profit(loss)
                                                
                                                
                                                7,629,187
                                                
                                                
                                                
                                                6.7
                                                
                                                
                                                
                                                (3,353,407
                                                )
                                                
                                                
                                                (3.0
                                                )General
      and administrative expense
                                                
                                                
                                                2,440,390
                                                
                                                
                                                
                                                2.1
                                                
                                                
                                                
                                                2,366,638
                                                
                                                
                                                
                                                2.1Operating
      income(loss)
                                                
                                                
                                                5,188,797
                                                
                                                
                                                
                                                4.6
                                                
                                                
                                                
                                                (5,720,045
                                                )
                                                
                                                
                                                (5.1
                                                )Interest
      expense
                                                
                                                
                                                (851,358
                                                )
                                                
                                                
                                                (0.7
                                                )
                                                
                                                
                                                (860,303
                                                )
                                                
                                                
                                                (0.8
                                                )Other
      income-interest
                                                
                                                
                                                25,019
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                165,007
                                                
                                                
                                                
                                                0.1Net
      income(loss)
                                                
                                                $
                                                4,362,458
                                                
                                                
                                                
                                                3.9
                                                
                                                
                                                $
                                                (6,415,341
                                                )
                                                
                                                
                                                (5.8
                                                )




Revenues
from operations for the fiscal year ended September 30, 2010 were approximately
$114.4 million, consisting of $93.2 million of ethanol sales (net of hedging
activity) (81%), $19.4 million in distiller's grains sales (17%) and $1.7
million of corn oil, syrup and CO2 sales
(2%).  Revenues increased in fiscal year 2010 by approximately 4%,
when compared to the fiscal year 2009. Lincolnway Energy sold approximately 55.1
million gallons of ethanol at an average gross price of $1.72 per gallon,
129,958 tons of dried distillers grains at an average gross price of $145.38 per
ton, and 19,892 tons of wet distillers grains at an average gross price of
$27.19 per ton during the fiscal year ended September 30,
2010.  Lincolnway Energy also sold approximately 2,913 tons of corn
oil at an average gross price of $508.00 per ton during the 2010 fiscal
year.  The increase in revenues for the fiscal year ended September
30, 2010 resulted from a 4.4% increase in ethanol sales volume and a 3.0%
increase in price for ethanol as compared to the previous fiscal year. The
increase in sales volume is due to a maintenance shutdown that lasted longer
than expected in the previous fiscal year and also plant improvements that were
made in fiscal year ended September 30, 2010 that increased the production rate
throughout the fiscal year.  The revenues for the year ended September
30, 2010 include a combined unrealized and realized net loss on derivative
ethanol contracts of $1.4 million compared to a $10,440 gain for the year ended
September 30, 2009.





Management
believes that the ethanol industry has reacted to the oversupply by curtailing
production and this has allowed for the price of ethanol to begin to recover for
Lincolnway Energy’s fiscal year 2010.  However, much of this idled
capacity could come back into production within the first calendar quarter of
2011, which could negatively impact ethanol prices. Management believes that the
ethanol industry must continue to grow demand in order to increase or sustain
current ethanol prices. See additional market information below in the Risks, Trends and
Factors that May Affect Future Operating Resultssection of this
Item.


40


The
average price Lincolnway Energy received for its dried distiller's grains
decreased to $145.38 per ton in fiscal year 2010, from $154.74 per ton in fiscal
year 2009.    Management believes the decrease in the price
for distiller's grains is a result of the decrease in the price of corn because
decreased corn prices affects the price of distiller's grains because animal
feeding operations substitute distiller's grains as animal feed in place of
corn.  Management expects that distiller's grains prices could
decrease slightly in the foreseeable future as the supply of distiller's grains
increases as a result of increased ethanol production.





Lincolnway
Energy anticipates that its results of operations for the remainder of calendar
year 2010 and for 2011 will continue to be affected by a surplus of ethanol and
volatility in the commodity markets.





Lincolnway
Energy's cost of goods sold for the fiscal year ended September 30, 2010 totaled
approximately $106.7 million, which was a decrease of 6% when compared to fiscal
year 2009.  The decrease in cost of goods sold for the 2010 fiscal
year is primarily due to a 3% decrease in the average cost of corn per bushel
for fiscal year 2010.   Cost of goods sold major components are:
corn costs, energy costs, ingredient costs, production labor, repairs and
maintenance, process depreciation, and ethanol and distiller's grain freight
expense and marketing fees.





Corn
costs excluding hedging activity for the fiscal year ended September 30, 2010
totaled approximately $70.4 million, compared to $70.4 million for fiscal year
2009. Approximately 19.7 million bushels of corn was ground during fiscal year
2010 at an average cost of $3.59 per bushel, compared to 18.8 million bushels at
an average cost of $3.70 for fiscal year 2009. The increase in bushels ground
was due to an increase in production during fiscal year 2010. Corn hedging
activity includes a combined unrealized and realized net gain of $1.5 million
from derivative instruments compared to a $3.9 million combined unrealized and
realized net loss for fiscal year 2009.  Corn costs, including the
combined unrealized and realized net loss from derivative instruments,
represented 64.9% of cost of goods sold for the fiscal year ended September 30,
2010, compared to 64.6% of costs of goods sold for fiscal year
2009.





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, 2010 totaled approximately $8.8
million or 8% of cost of goods sold, compared to $8.1 million, or 7% of cost of
goods sold, for the 2009 fiscal year.  Energy costs consist of coal
costs, electricity and propane costs.  For the fiscal year ended
September 30, 2010, Lincolnway Energy purchased approximately 98,500 tons of
coal at an approximate total cost of $6.0 million compared to approximately
95,000 tons at an approximate cost of $5.6 million for fiscal year 2009.
Electricity and propane costs amounted to approximately $2.6 million, an
increase of $.3 million from fiscal year 2009 and approximately $.3 million of
sodium bicarbonate, sand and lime cost for fiscal year 2010 that is added to the
combustor with the coal. The increase in energy cost is due to a price increase
for coal and electricity and the increase in production gallons for the fiscal
year 2010.


41


Ingredient
costs for the fiscal year ended September 30, 2010 totaled approximately $5.0
million or 5% of cost of goods sold, compared to $5.3 million, or 5% of cost of
goods sold, for the 2009 fiscal year.  Ingredient costs consist of
denaturant, enzymes and process chemicals. Denaturant costs (natural gasoline)
increased $.5 million for the fiscal year ended September 30, 2010 compared to
fiscal year 2009.  Denaturant cost have increased significantly from
an average cost per gallon of $1.38 for the 2009 period, compared to $1.87 for
the 2010 period. The increase was offset by a decrease in process chemical costs
of $.8 million for the 2010 period. The decrease is a result of chemical
improvements that required less usage of process chemicals and also the price of
a few process chemicals were lower for the fiscal year 2010 compared to fiscal
year 2009.





Production
labor, repairs and maintenance and other plant costs totaled approximately $5.3
million, or 4.9% of cost of goods sold, for the fiscal year ended September 30,
2010, compared to $4.8 million, or 4.2% of cost of goods sold, for fiscal year
2009. The increase in cost is due to increased labor costs and higher repair and
maintenance and plant cost due to increased production and the wear and tear on
the plant.





Depreciation
totaled approximately $7.6 million, or 7% of cost of goods sold, for the fiscal
year ended September 30, 2010, compared to $7.7 million, or 7% of cost of goods
sold, for fiscal year 2009.





Ethanol,
distiller's grain and corn oil freight expense and marketing fees totaled
approximately $10.4 million, or 9.8% of cost of goods sold, during the fiscal
year ended September 30, 2010, compared to $13.8 million, or 12% of cost of
goods sold, for fiscal year 2009.  The decrease is in part due to
changing ethanol marketers in the 2010 fiscal year.  The current
ethanol marketer prices a majority of the ethanol contracts at an FOB price to
Nevada, Iowa.  The freight is built into the price of ethanol rather
than broken out as a separate cost.  The prior ethanol marketer sold a
large percentage of ethanol on a delivered basis and the freight cost was
separate.





General
and administrative expenses totaled approximately $2.4 million during the fiscal
year ended September 30, 2010, compared to $2.4 million for fiscal year
2009.





Other
income and expense totaled approximately $.8 million net expense during the
fiscal year ended September 30, 2010, compared to $.7 million net expense for
fiscal year 2009. The increase in net expense is due to a decrease in other
income for the 2010 fiscal year.


42


Comparison
of Fiscal Years Ended September 30, 2009 and 2008





Statements
      of Operations Data:
                                                                      
                                                                      2009
                                                                      
                                                                      
                                                                      2008Amount
                                                                      
                                                                      
                                                                      %
                                                                      
                                                                      
                                                                      Amount
                                                                      
                                                                      
                                                                      %Revenues
                                                                      
                                                                      $
                                                                      110,223,531
                                                                      
                                                                      
                                                                      
                                                                      100.0
                                                                      
                                                                      
                                                                      $
                                                                      147,040,911
                                                                      
                                                                      
                                                                      
                                                                      100.0Cost
      of goods sold
                                                                      
                                                                      
                                                                      113,576,938
                                                                      
                                                                      
                                                                      
                                                                      103.0
                                                                      
                                                                      
                                                                      
                                                                      138,309,541
                                                                      
                                                                      
                                                                      
                                                                      94.1Gross
      profit(loss)
                                                                      
                                                                      
                                                                      (3,353,407
                                                                      )
                                                                      
                                                                      
                                                                      (3.0
                                                                      )
                                                                      
                                                                      
                                                                      8,731,370
                                                                      
                                                                      
                                                                      
                                                                      5.9General
      and administrative expense
                                                                      
                                                                      
                                                                      2,366,638
                                                                      
                                                                      
                                                                      
                                                                      2.1
                                                                      
                                                                      
                                                                      
                                                                      2,647,368
                                                                      
                                                                      
                                                                      
                                                                      1.8Operating
      income(loss)
                                                                      
                                                                      
                                                                      (5,720,045
                                                                      )
                                                                      
                                                                      
                                                                      (5.1
                                                                      )
                                                                      
                                                                      
                                                                      6,084,002
                                                                      
                                                                      
                                                                      
                                                                      4.1Interest
      expense
                                                                      
                                                                      
                                                                      (860,303
                                                                      )
                                                                      
                                                                      
                                                                      (0.8
                                                                      )
                                                                      
                                                                      
                                                                      (1,430,469
                                                                      )
                                                                      
                                                                      
                                                                      (0.9
                                                                      )Other
      income-interest and grant
                                                                      
                                                                      
                                                                      165,007
                                                                      
                                                                      
                                                                      
                                                                      0.1
                                                                      
                                                                      
                                                                      
                                                                      181,895
                                                                      
                                                                      
                                                                      
                                                                      0.1Net
      income(loss)
                                                                      
                                                                      $
                                                                      (6,415,341
                                                                      )
                                                                      
                                                                      
                                                                      (5.8
                                                                      )
                                                                      
                                                                      $
                                                                      4,835,428
                                                                      
                                                                      
                                                                      
                                                                      3.3





Revenues
from operations for the fiscal year ended September 30, 2009 were approximately
$110.0 million, consisting of $88.2 million of ethanol sales (80%), $20.7
million in distiller's grains sales (19%) and $1.2 million of corn oil sales
(1%).  Revenues decreased in fiscal year 2009 by approximately 25%,
when compared to the fiscal year 2008. Lincolnway Energy sold approximately 52.8
million gallons of ethanol at an average gross price of $1.67 per gallon,
128,771 tons of dried distillers grains at an average gross price of $155.00 per
ton, and 17,279 tons of wet distillers grains at an average gross price of
$47.00 per ton during the fiscal year ended September 30,
2009.  Lincolnway Energy also sold approximately 3,139 tons of corn
oil at an average gross price of $387.00 per ton during the 2009 fiscal
year.  The decrease in revenues for the fiscal year ended September
30, 2009 resulted from a 2.8% decrease in sales volume and a 26% decrease in
price for ethanol, and a 2% decrease in the sales volume and a 15.3% decrease in
sales price for  dried distiller's grains, all as compared to the
previous fiscal year. The decrease in sales volume is due to a maintenance
shutdown that lasted longer than expected, in May 2009.  When the
plant was shut down in May 2009, a thorough inspection revealed that the
combustion chamber of the boiler required extensive repair work to the cement
refractory surface inside the combustor.  Because the combustor repair
work required the plant to be shut down for longer than planned, maintenance was
able to complete additional unplanned repairs.  The revenues for the
year ended September 30, 2009 include a combined unrealized and realized net
gain on derivative ethanol contracts of $10,440, compared to a $2.2 million loss
for the year ended September 30, 2008.





Management
believed that the decrease in the price of ethanol was due to surplus supply of
ethanol in fiscal year 2009. The ethanol industry has reacted to the oversupply
by curtailing production and this has allowed for the price of ethanol to begin
to recover near the end of Lincolnway Energy’s fiscal year
2009.


43


The
average price Lincolnway Energy received for its dried distiller's grains
decreased to $155.00 per ton in fiscal year 2009, from $183.00 per ton in fiscal
year 2008.    Management believes the decrease in the price
for distiller's grains is a result of the decrease in the price of corn because
decreased corn prices affects the price of distiller's grains because animal
feeding operations substitute distiller's grains as animal feed in place of
corn.  Management expects that distiller's grains prices could
decrease slightly in the foreseeable future as the supply of distiller's grains
increases as a result of increased ethanol production.





Lincolnway
Energy's cost of goods sold for the fiscal year ended September 30, 2009 totaled
approximately $113.6 million, which was a decrease of 18% when compared to
fiscal year 2008.  The decrease in cost of goods sold for the 2009
fiscal year is primarily due to a 3% decrease in ethanol production and a 26%
decrease in the average cost of corn per bushel for fiscal year
2009.   Cost of goods sold major components are: corn costs,
energy costs, ingredient costs, production labor, repairs and maintenance,
process depreciation, and ethanol and distiller's grain freight expense and
marketing fees.  Cost of goods sold for fiscal year 2009 also includes
a combined unrealized and realized net loss of $3.9 million from derivative
instruments, which is recognized in corn costs, compared to a $3.4 million
combined unrealized and realized net gain for fiscal year 2008.





Corn
costs for the fiscal year ended September 30, 2009 totaled approximately $70.4
million, compared to $98.0 million for fiscal year 2008. Approximately 18.8
million bushels of corn was ground during fiscal year 2009 at an average cost of
$3.70 per bushel, compared to 19.5 million bushels at an average cost of $4.99
for fiscal year 2008. The decrease in bushels ground was due to a decrease in
production during fiscal year 2009.  Corn costs, including the
combined unrealized and realized net loss from derivative instruments,
represented 64.6% of cost of goods sold for the fiscal year ended September 30,
2009, compared to 69.4% of costs of goods sold for fiscal year
2008.





Lincolnway
Energy enters into future purchase contracts for corn and these contracts are
evaluated for potential losses.  As of September 30, 2008, Lincolnway
Energy had various corn fixed and basis contracts for approximately 3,564,000
bushels.  Due to rapidly falling corn prices, at September 30, 2008,
Lincolnway Energy recorded a loss  of approximately $.72 on 1,413,571
bushels of fixed price contracts and $.06 on 2,150,000 bushels of basis
contracts, totaling approximately a $1.1 million unrealized loss.  As
of September 30, 2009, there were no losses to record as the outstanding
contracts were at or below market.





Energy
costs for the fiscal year ended September 30, 2009 totaled approximately $8.1
million or 7% of cost of goods sold, compared to $8.2 million, or 6% of cost of
goods sold, for the 2008 fiscal year.  Energy costs consist of coal
costs, electricity and propane costs.  For the fiscal year ended
September 30, 2009, Lincolnway Energy purchased approximately 95,000 tons of
coal at an approximate total cost of $5.6 million.  Electricity and
propane costs amounted to approximately $2.3 million and $.2 million of sand and
lime cost to add to the combustor with the coal.





Ingredient
costs for the fiscal year ended September 30, 2009 totaled approximately $5.3
million or 5% of cost of goods sold, compared to $6.8 million, or 5% of cost of
goods sold, for the 2008 fiscal year.  Ingredient costs were lower for
the fiscal year 2009 due to a decrease in ethanol production from the previous
fiscal year.   Ingredient costs consist of denaturant, enzymes
and process chemicals.


44


Production
labor, repairs and maintenance and other plant costs totaled approximately $4.8
million, or 4.2% of cost of goods sold, for the fiscal year ended September 30,
2009, compared to $5.3 million, or 3.8% of cost of goods sold, for fiscal year
2008.





Depreciation
totaled approximately $7.7 million, or 7% of cost of goods sold, for the fiscal
year ended September 30, 2009, compared to $7.4 million, or 5% of cost of goods
sold, for fiscal year 2008.





Ethanol
and distiller's grain freight expense and marketing fees totaled approximately
$13.8 million, or 12% of cost of goods sold, during the fiscal year ended
September 30, 2009, compared to $14.2 million, or 10% of cost of goods sold, for
fiscal year 2008.  A decrease in sales for the 2009 fiscal year drove
these costs down for the 2009 fiscal year.





General
and administrative expenses totaled approximately $2.4 million during the fiscal
year ended September 30, 2009, compared to $2.6 million for fiscal year 2008.
The decrease of $.2 million is due to a reduction of professional fees and
business promotions.





Other
income and expense totaled approximately $.7 million net expense during the
fiscal year ended September 30, 2009, compared to $1.2 million net expense for
fiscal year 2008. The decrease in net expense is due to a decrease in interest
expense for the fiscal year ended September 30, 2009. Long-term debt and
interest rates decreased for fiscal year 2009 compared to fiscal year
2008.





Risks,
Trends and Factors that May Affect Future Operating Results





The
operations and profitability of Lincolnway Energy are highly dependent on the
prices of the key commodities utilized and sold as part of the production
process.  These include corn, ethanol, and distillers’ grain
co-products.  Since the correlation of prices between these
commodities is not always perfectly correlated, and is often very volatile,
Lincolnway Energy is at risk of diminishing returns in periods of rising corn
prices and decreasing ethanol prices.  The prices of these commodities
is determined by a variety of factors, including growing season weather,
governmental policies, political change, international trade, and macroeconomic
trends.  Lincolnway Energy attempts to mitigate or hedge some of these
risks through the use of various pricing mechanisms including cash contracts,
futures contracts, options on futures, and derivative instruments.





Corn





Corn
values were relatively stable through most of the 2010 fiscal year, with cash
corn in Lincolnway Energy’s geography generally worth $3.10 to $4.00 per bushel
through most of the production year.  However, in July 2010 the supply
and demand balance sheet began to appear tighter than was previously expected in
the marketplace due to decreasing crop yield expectations in the US, decreasing
feed wheat expectations in the Black Sea region, and increasing import potential
by China.  The corn balance sheet for the new crop has since reduced
expected corn excess supply from 1.5 billion bushels to 827 million bushels, the
lowest excess supply number in recent history.  As such, corn values
have increased by over $2.00 per bushel and returned to an increasingly volatile
atmosphere.


45


Ethanol





Ethanol
demand and production continue to incrementally increase in accordance with the
RFS2 (Renewable Fuels Standard) requirements. Recent installed US ethanol
capacity is cited at 14.25 billion gallons per year. Recent annualized
production amounts show that the industry as a whole is producing at a rate of
approximately 13.3 billion gallons per year. Demand for ethanol is slightly less
than recent production rates. Annualized domestic demand has been 12.6 billion
gallons and export demand has been 520 million gallons for a total annualized
demand of approximately 13.12 billion gallons per year. Ethanol
demand is limited recently by overall gasoline demand. With the functional
ethanol inclusion rate for non-flex fuel vehicles at 10%, demand has reached
9.2% of the total US gasoline usage pool. This leaves little room for continued
growth, assuming flat overall domestic gasoline usage. Recently a waiver to
allow blends of E15 on 2007 and newer vehicles was approved by EPA, but faces
many logistical, legal, and regulatory hurdles before an affect can be felt on
ethanol demand.





Other/Regulatory/Governmental





In
addition to RFS2 which included greenhouse gas reduction requirements, in 2009,
California passed a Low Carbon Fuels Standard (LCFS). The California LCFS
requires that renewable fuels used in California must accomplish certain
reductions in greenhouse gases which is measured using a lifecycle analysis,
similar to RFS2.  Management believes that this lifecycle analysis is based
on unsound scientific principles that unfairly disadvantages corn based
ethanol.  Management believes that these new regulations will preclude corn
based ethanol from being used in California.  California represents a
significant ethanol demand market.  If Lincolnway Energy is unable to
supply ethanol to California, it could significantly reduce demand for the
ethanol Lincolnway Energy produces.  Several lawsuits have been filed
challenging the California LCFS. The California LCFS goes into effect January 1,
2011.




Ethanol
production in the United States is benefited by various tax incentives. 
The most significant of these tax incentives is the federal Volumetric Ethanol
Excise Tax Credit (VEETC).  VEETC provides a volumetric ethanol excise tax
credit of 45¢ per gallon of ethanol blended with gasoline.  VEETC is
scheduled to expire on December 31, 2010.  On December 17, 2010, a
bill was signed to extend the VEETC for one year through 2011.





All the
above changes in governmental policy and supply and demand factors are an
ongoing risk factor for the ethanol industry and for Lincolnway
Energy.


46


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.





Off-Balance
Sheet Arrangements





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





Revenue
Recognition





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





Lincolnway
Energy's ethanol was sold pursuant to an ethanol marketing agreement between
Lincolnway Energy and RPMG until approximately September 30, 2009, at which time
Lincolnway Energy began selling its ethanol production to Green Plains Trade
Group LLC, as is discussed above in the "Overview" section of this
Item.  The purchase price payable to Lincolnway Energy under its
agreement with Green Plains is Green Plains' contract selling price for the
ethanol in question, less various costs and a fee to Green Plains, but the
agreement includes a minimum purchase price.





Lincolnway
Energy's distiller's grain production is sold to Hawkeye Gold,
LLC.  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 grain or a per-ton fee of $1.30 for the dried distiller's
grain.  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.





Lincolnway
Energy's corn oil production is sold to FEC Solutions, LLC. For corn oil, title
passes upon the loading of the corn oil into the trucks. The purchase price
payable by FECS for each shipment of corn oil is the FOB sales price less a
marketing and technical assistance fee in an amount equal to 5% of the FOB sales
price.


47


Lincolnway
Energy's CO2 production
is sold to EPCO Carbon Dioxide Products, Inc. For CO2, title
passes at the point at which the carbon dioxide pipe from Lincolnway Energy's
plant joins the corresponding pipe from the EPCO plant.  The purchase
price payable by EPCO for the carbon dioxide provided by Lincolnway Energy
during each calendar month is based upon EPCO's shipped tons of liquid carbon
dioxide.  Under the agreement, EPCO agrees to purchase, during each
contract year, a minimum of the greater of 180 shipped tons per day or 70% of
the annual liquid carbon dioxide production capacity of the EPCO plant at full
capacity, with that capacity to be determined in accordance with the testing
processes set out in the agreement.  The "take or pay" obligation is
trued up at the end of each contract year, and the purchase price for any "take
or pay" tons will be the average per shipped ton purchase price paid by EPCO
during the contract year.  Lincolnway Energy began selling CO2 to EPCO in
August 1, 2010.





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, 2010, 2009 and 2008
balance sheets at fair 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.





The
effects on operating income from derivatives is as follows for the years ending
September 30, 2010, 2009 and 2008:





2010
                                                  
                                                  
                                                  2009
                                                  
                                                  
                                                  2008Increase
      (decrease) in revenue due to derivativesrelated
      to ethanol sales:Realized
                                                  
                                                  $
                                                  45,434
                                                  
                                                  
                                                  $
                                                  10,440
                                                  
                                                  
                                                  $
                                                  (2,174,662
                                                  )Unrealized
                                                  
                                                  
                                                  (1,483,997
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (28,492
                                                  )Total
      effect on revenue
                                                  
                                                  
                                                  (1,438,563
                                                  )
                                                  
                                                  
                                                  10,440
                                                  
                                                  
                                                  
                                                  (2,203,154
                                                  )(Increase)
      decrease in cost of goods sold due toderivates
      related to corn costs:Realized
                                                  
                                                  
                                                  604,475
                                                  
                                                  
                                                  
                                                  (3,783,088
                                                  )
                                                  
                                                  
                                                  6,280,771Unrealized
                                                  
                                                  
                                                  849,475
                                                  
                                                  
                                                  
                                                  (72,350
                                                  )
                                                  
                                                  
                                                  (2,836,100
                                                  )Total
      effect on cost of goods sold
                                                  
                                                  
                                                  1,453,950
                                                  
                                                  
                                                  
                                                  (3,855,438
                                                  )
                                                  
                                                  
                                                  3,444,671Total
      (decrease) increase to operating income due to derivative
      activities
                                                  
                                                  $
                                                  15,387
                                                  
                                                  
                                                  $
                                                  (3,844,998
                                                  )
                                                  
                                                  $
                                                  1,241,517





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


48


Liquidity
and Capital Resources





On
September 30, 2010, Lincolnway Energy had $2.9 million in cash and equivalents
and $10.0 million available under a committed loan
agreement.  Lincolnway Energy’s business is highly impacted by
commodity prices, including prices for corn, ethanol and distillers
grains.  There are times that Lincolnway Energy may operate at
negative operating margins.





The
following table shows cash flows for the fiscal years ended September 30, 2010
and 2009:





Year
      ended September 30,2010
                                
                                
                                2009Net
      cash provided by operating activities
                                
                                $
                                8,811,200
                                
                                
                                $
                                1,695,816Net
      cash (used in) investing activities
                                
                                
                                (847,730
                                )
                                
                                
                                (755,053
                                )Net
      cash (used in) financing activities
                                
                                
                                (10,930,307
                                )
                                
                                
                                (3,826,864
                                )





For the
fiscal year ended September 30, 2010, cash provided by operating activities was
$8.8 million, compared to cash provided by operating activities of $1.7 million
for the fiscal year ended September 30, 2009. The $7.1 million increase is
primarily due to an increase in net income for fiscal year 2010 of $10.8 million
offset by $3.8 million resulting from a net increase in working capital
components for the fiscal year ended September 30, 2010.





Cash
flows from investing activities reflect the impact of property and equipment
acquired for the ethanol plant.  Net cash used in investing activities
increased by $.1 million for the fiscal year ended September 30, 2010, when
compared to the fiscal year ended September 30, 2009.  The increase is
primarily due to an increase of capital expenditures for the fiscal year
2010.





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 used in financing activities increased by $7.1
million for the fiscal year ended September 30, 2010, when compared to the
fiscal year ended September 30, 2009.  The increase is due to an
increase in distribution payments of $2.1 million to the members and an increase
of $5.0 million of additional payments made on long-term borrowing compared to
the 2009 fiscal year.





Management
believes that margins will stay stable for the first quarter in fiscal year
2011, and if demand for ethanol continues to grow and corn prices stay stable,
Lincolnway Energy could see improved margins throughout the fiscal
year.  Lincolnway Energy anticipates keeping cash balances at a low
but acceptable level that will meet covenants.  If Lincolnway Energy
should get in a negative cash position, Lincolnway Energy will having access to
its $10 million line of credit.


49


As of
September 30, 2010, Lincolnway Energy was in compliance with all covenants in
its loan agreements with Co-Bank.





The
following table shows cash flows for the fiscal years ended September 30, 2009
and 2008:





Year
      ended September 30,2009
                                
                                
                                2008Net
      cash provided by operating activities
                                
                                $
                                1,695,816
                                
                                
                                $
                                14,190,197Net
      cash (used in) investing activities
                                
                                
                                (755,053
                                )
                                
                                
                                (1,100,344
                                )Net
      cash (used in) financing activities
                                
                                
                                (3,826,864
                                )
                                
                                
                                (12,235,713
                                )





For the
fiscal year ended September 30, 2009, cash provided by operating activities was
$1.7 million, compared to cash provided by operating activities of $14.2 million
for the fiscal year ended September 30, 2008. The $12.5 million decrease is
primarily due to a decrease in net income for fiscal year 2009 of $11.3
million.  This decrease in net income is primarily the result of a 26%
decrease in ethanol prices, a 15.3% decrease in dried distillers grain price,
and other negative market factors that the ethanol industry experienced in the
fiscal year 2009.





Cash
flows from investing activities reflect the impact of property and equipment
acquired for the ethanol plant.  Net cash used in investing activities
decreased by $.3 million for the fiscal year ended September 30, 2009, when
compared to the fiscal year ended September 30, 2008.  The decrease is
primarily due to a reduction of capital expenditures for the fiscal year
2009.





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 used in financing activities decreased by $8.4
million for the fiscal year ended September 30, 2009, when compared to the
fiscal year ended September 30, 2008.  The decrease is due to a
decrease in distribution payments to the members for the 2009 fiscal
year.





Loans
and Agreements





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 one-month
LIBOR index rate plus 3.30%. The interest rate will be reset automatically
without notice to Lincolnway Energy, on the first "US Banking Day" of each
succeeding week, and each change shall be applicable to all outstanding balances
as of that date.  The loan requires 30 principal payments of
$1,250,000 per quarter.  The quarterly payments commenced in December
2006 and will continue through March 2013.  In order to alleviate some
of the interest rate risk, on July 25, 2008 Lincolnway Energy fixed $7,750,000
of the $19,000,000 loan outstanding at an interest rate of 6.62%, through July
2011.  Upon maturity the fixed portion of the loan will revert back to
a variable rate, and the same payment amortization schedule will
apply.  The borrowings under the loan are collateralized by
substantially all of Lincolnway Energy's assets.


50




The loan
requires the maintenance of certain financial and nonfinancial
covenants.  As of September 30, 2010, Lincolnway Energy was in
compliance with all loan covenants.


As of
September 30, 2010, Lincolnway Energy has made principal payments of $32,500,000
since the inception of the loan, which under the terms of the agreement have
been applied to scheduled payments in order of their maturity. Lincolnway
Energy’s next scheduled payment under this agreement is due in December
2011.





Lincolnway
Energy also has a $10,000,000 construction/revolving term credit facility with
Co-Bank.  The interest rate under the term loan is a variable interest
rate based on the one-month LIBOR index rate plus 3.30%. The interest rate will
be reset automatically without notice to Lincolnway Energy, on the first "US
Banking Day" of each succeeding week, and each change shall be applicable to all
outstanding balances as of that date.  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 outstanding on this credit facility
as of September 30, 2010.





Lincolnway
Energy executed a mortgage and security interest 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.





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% per
annum.  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.  The Iowa Department of
Economic Development determined those conditions to forgiveness of the $100,000
loan were met, and the loan was forgiven on January 22, 2009.  As of
December 15, 2010, Lincolnway Energy had made payments totaling $122,500 on the
Iowa Department of Economic Development $300,000 loan agreement and $163,197 on
the Iowa Department of Transportation agreement.


51


Lincolnway
Energy entered into an agreement with First Union Rail on March 3, 2007 to lease
90 hopper rail cars for the purpose of transporting distiller’s
grain.  The 5 year term of the agreement will end in March 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 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, 2008, 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, 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 certificate of deposit will mature on January 20, 2010
and will be automatically renewed.  Interest is paid to Lincolnway
Energy on the certificate of deposit on a quarterly basis.





Lincolnway
Energy terminated its ethanol marketing agreement with RPMG, Inc. effective
October 1, 2009, and as part of that process, Lincolnway Energy was assigned a
railcar lease between RPMG, Inc. and Trinity Industries Leasing
Company.  The lease includes 100 tank rail cars used for transporting
ethanol.  The lease calls for monthly payments of $52,500 plus
applicable taxes, beginning October 1, 2009.  There is also an
additional usage rental of 3 cents per mile for each car that exceeds 35,000
miles.  The lease has a scheduled maturity date of September
2016.





On
February 2, 2010, Lincolnway Energy entered into a lease agreement with Trinity
Industries Leasing Company to lease an additional 30 ethanol tank rail
cars.  The one-year term of the lease will end February
2011.  The lease calls for monthly payments of $15,000 plus applicable
taxes.  There is also an additional usage rental of 3.0 cents per mile
for each car that exceeds 35,000 miles.





On
October 15, 2010, Lincolnway Energy entered into an agreement with JB Holland
Construction, Inc. to perform the dirt work for the additional rail spur that
Lincolnway Energy is going to add to the existing track.  This will
allow Lincolnway Energy to ship unit trains on the Union Pacific
mainline.  The total base bid is $1,494,607.  Approximately
25% of the dirt work has been completed as of December 15, 2010.  No
agreement has been signed for the construction of the rail spur as of December
15, 2010.  Management is estimating that portion of the project will
cost approximately $1.3 million.





Contractual
Obligations Table





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 contractual obligations and
commitments as of September 30, 2010:


52




Payment
      Due By PeriodLess
      than
                                                                        
                                                                        
                                                                        Two
      to
                                                                        
                                                                        
                                                                        Four
      to
                                                                        
                                                                        
                                                                        More
      thanContractual
      Obligations
                                                                        
                                                                        Total
                                                                        
                                                                        
                                                                        One
      Year
                                                                        
                                                                        
                                                                        Three
      Years
                                                                        
                                                                        
                                                                        Five
      Years
                                                                        
                                                                        
                                                                        Five
      YearsLong-Term
      Debt Obligations
                                                                        
                                                                        $
                                                                        9,486,084
                                                                        
                                                                        
                                                                        $
                                                                        76,373
                                                                        
                                                                        
                                                                        $
                                                                        6,755,877
                                                                        
                                                                        
                                                                        $
                                                                        1,321,983
                                                                        
                                                                        
                                                                        $
                                                                        1,331,851Interest
      Obligation of Long-Term Debt 1
                                                                        
                                                                        
                                                                        1,415,467
                                                                        
                                                                        
                                                                        
                                                                        526,124
                                                                        
                                                                        
                                                                        
                                                                        425,897
                                                                        
                                                                        
                                                                        
                                                                        177,379
                                                                        
                                                                        
                                                                        
                                                                        286,067Operating
      Lease Obligations
                                                                        
                                                                        
                                                                        4,275,000
                                                                        
                                                                        
                                                                        
                                                                        1,041,000
                                                                        
                                                                        
                                                                        
                                                                        1,338,000
                                                                        
                                                                        
                                                                        
                                                                        1,266,000
                                                                        
                                                                        
                                                                        
                                                                        630,000Purchase ObligationsCoal
      Supplier Commitment
                                                                        
                                                                        
                                                                        10,636,925
                                                                        
                                                                        
                                                                        
                                                                        5,465,725
                                                                        
                                                                        
                                                                        
                                                                        5,171,200
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -Corn
      Supplier Commitment
                                                                        
                                                                        
                                                                        17,465,619
                                                                        
                                                                        
                                                                        
                                                                        17,465,619
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -Denaturant
      Commitment
                                                                        
                                                                        
                                                                        519,345
                                                                        
                                                                        
                                                                        
                                                                        519,345
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -Total
                                                                        
                                                                        $
                                                                        43,798,440
                                                                        
                                                                        
                                                                        $
                                                                        25,094,186
                                                                        
                                                                        
                                                                        $
                                                                        13,690,974
                                                                        
                                                                        
                                                                        $
                                                                        2,765,362
                                                                        
                                                                        
                                                                        $
                                                                        2,247,918


1Co-Bank
interestrate is fixed
throughJuly 2011 at 6.62%.For
theremainder of theCo-Bank
loanthevariable rate
assumptionused was4.00%.






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:





Principal
      BalanceLender
                                                
                                                As
      of September 30, 2010
                                                
                                                
                                                RateCo-Bank
                                                
                                                $
                                                6,500,000
                                                
                                                
                                                
                                                6.62
                                                %IA
      Department Economic Development
                                                
                                                
                                                182,500
                                                
                                                
                                                
                                                0.00
                                                %IA
      Department of Transportation
                                                
                                                
                                                336,803
                                                
                                                
                                                
                                                2.11
                                                %Fagen,
      Inc
                                                
                                                
                                                1,216,781
                                                
                                                
                                                
                                                5.00
                                                %Fagen,
      Inc
                                                
                                                
                                                1,250,000
                                                
                                                
                                                
                                                4.00
                                                %$
                                                9,486,084


53


The
interest rate under all of the loan agreements and promissory notes are fixed at
the interest rates specified above.  The Co-Bank interest rate is
fixed through July 2011.  After July 2011 the loan reverts back to a
variable interest rate loan which will be based on the one-month LIBOR index
rate plus 3.30%.




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
distiller's 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 per bushel from one year to the next, the
impact on cost of goods sold would be approximately $1.98 million for the
year.  Lincolnway Energy's average corn costs for the fiscal years
ended September 30, 2010, 2009 and 2008 were, respectively, approximately $3.59
per bushel, $3.70 per bushel and $4.99 per bushel.




Although
Lincolnway Energy believes that its futures and option positions accomplish an
economic hedge against Lincolnway Energy's future purchases of corn or future
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 and (loss) that was included in its earnings for the fiscal year
ended September 30, 2010 was a gain of $1,453,950, as opposed to a loss of
$3,855,438 for the fiscal year ended September 30, 2009, and as opposed to a
gain of $3,444,671 for the fiscal year ended September 30,
2008.


54


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 6% of Lincolnway
Energy's total cost of goods sold for the fiscal year ended September 30, 2010,
compared to, respectively, 5% and 4% for the 2009 and 2008 fiscal
years.





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.





[THE REST
OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


55





Item
8.            Financial
Statements and Supplementary Data.




Contents
 
 Report
      of Independent Registered Public Accounting Firm
                      57Financial
      StatementsBalance
      Sheets
                      58-59Statements
      of Operations
                      60Statements
      of Members’ Equity
                      61Statements
      of Cash Flows
                      62-63Notes
      to Financial Statements
                      64-74
 
 56




Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Members


Lincolnway
Energy, LLC





We have
audited the accompanying balance sheets of Lincolnway Energy, LLC as of
September 30, 2010 and 2009, and the related statements of operations, members'
equity, and cash flows for each of the three years in the period ended September
30, 2010.  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 a 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 , 2010 and 2009, and the results of its operations and its cash
flows for each of the three years in the period ended September 30 , 2010, in
conformity with U.S. generally accepted accounting principles.





We
were not engaged to examine management's assessment of the effectiveness of
Lincolnway Energy, LLC's internal control over financial reporting as of
September 30, 2010 included in the accompanying Management’s Annual Report on
Internal Control Over Financial Reporting and, accordingly, we do not express an
opinion thereon.





/s/
McGladrey & Pullen, LLP





Des
Moines, Iowa





December
21, 2010




57




Lincolnway
Energy, LLC
 
 Balance
Sheets
 September
30, 2010 and 2009
 
 2010
                  
                  
                  2009ASSETS
      (Note 4)CURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  2,858,110
                  
                  
                  $
                  5,824,947Due
      from broker
                  
                  
                  2,305,695
                  
                  
                  
                  565,276Trade
      and other accounts receivable (Note 7)
                  
                  
                  5,880,043
                  
                  
                  
                  3,772,183Inventories
      (Note 3)
                  
                  
                  3,951,079
                  
                  
                  
                  2,485,372Prepaid
      expenses and other
                  
                  
                  298,637
                  
                  
                  
                  197,047Total
      current assets
                  
                  
                  15,293,564
                  
                  
                  
                  12,844,825PROPERTY
      AND EQUIPMENTLand
      and land improvements
                  
                  
                  7,580,868
                  
                  
                  
                  7,580,868Buildings
      and improvements
                  
                  
                  1,604,305
                  
                  
                  
                  1,604,305Plant
      and process equipment
                  
                  
                  75,463,973
                  
                  
                  
                  74,853,995Construction
      in progress
                  
                  
                  191,764
                  
                  
                  
                  -Office
      furniture and equipment
                  
                  
                  411,177
                  
                  
                  
                  355,65485,252,087
                  
                  
                  
                  84,394,822Accumulated
      depreciation
                  
                  
                  (35,430,641
                  )
                  
                  
                  (27,101,259
                  )49,821,446
                  
                  
                  
                  57,293,563OTHER
      ASSETSRestricted
      cash (Note 5)
                  
                  
                  351,000
                  
                  
                  
                  351,000Financing
      costs, net of amortization of  $209,165 and
    $166,260
                  
                  
                  262,797
                  
                  
                  
                  305,702Deposit
                  
                  
                  -
                  
                  
                  
                  151,036Investments
                  
                  
                  170,093
                  
                  
                  
                  145,975783,890
                  
                  
                  
                  953,713$
                  65,898,900
                  
                  
                  $
                  71,092,101
 
 See Notes
to Financial Statements.
  58





2010
                    
                    
                    2009LIABILITIES
      AND MEMBERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable
                    
                    $
                    1,088,299
                    
                    
                    $
                    877,216Accounts
      payable, related party (Note 6)
                    
                    
                    460,958
                    
                    
                    
                    298,533Current
      maturities of long-term debt (Note 4)
                    
                    
                    76,373
                    
                    
                    
                    3,825,357Accrued
      expenses
                    
                    
                    982,432
                    
                    
                    
                    948,309Derivative
      financial instruments (Notes 8 and 9)
                    
                    
                    1,191,867
                    
                    
                    
                    224,850Total
      current liabilities
                    
                    
                    3,799,929
                    
                    
                    
                    6,174,265NONCURRENT
      LIABILITIESLong-term
      debt, less current maturities (Note 4)
                    
                    
                    9,409,711
                    
                    
                    
                    14,488,584Other
                    
                    
                    450,000
                    
                    
                    
                    450,000Total
      noncurrent liabilities
                    
                    
                    9,859,711
                    
                    
                    
                    14,938,584COMMITMENTS
      AND CONTINGENCY (Notes 5, 7 and 11)MEMBERS’
      EQUITYMember
      contributions,  42,049units
      issued and outstanding
                    
                    
                    38,990,105
                    
                    
                    
                    38,990,105Retained
      earnings
                    
                    
                    13,249,155
                    
                    
                    
                    10,989,14752,239,260
                    
                    
                    
                    49,979,252$
                    65,898,900
                    
                    
                    $
                    71,092,101
  59





Lincolnway Energy, LLC
 
 Statements
of Operations
 Years
Ended September 30, 2010, 2009 and 2008
 
 2010
                      
                      
                      2009
                      
                      
                      2008Revenues
      (Note 7)
                      
                      $
                      114,373,268
                      
                      
                      $
                      110,223,531
                      
                      
                      $
                      147,040,911Cost
      of goods sold (Notes 6 and 7)
                      
                      
                      106,744,081
                      
                      
                      
                      113,576,938
                      
                      
                      
                      138,309,541Gross
      profit (loss)
                      
                      
                      7,629,187
                      
                      
                      
                      (3,353,407
                      )
                      
                      
                      8,731,370General
      and administrative expenses
                      
                      
                      2,440,390
                      
                      
                      
                      2,366,638
                      
                      
                      
                      2,647,368Operating
      income (loss)
                      
                      
                      5,188,797
                      
                      
                      
                      (5,720,045
                      )
                      
                      
                      6,084,002Other
      income (expense):Interest
      income
                      
                      
                      25,019
                      
                      
                      
                      39,743
                      
                      
                      
                      181,895Interest
      expense
                      
                      
                      (851,358
                      )
                      
                      
                      (860,303
                      )
                      
                      
                      (1,430,469
                      )Other
                      
                      
                      -
                      
                      
                      
                      125,264
                      
                      
                      
                      -(826,339
                      )
                      
                      
                      (695,296
                      )
                      
                      
                      (1,248,574
                      )Net
      income (loss)
                      
                      $
                      4,362,458
                      
                      
                      $
                      (6,415,341
                      )
                      
                      $
                      4,835,428Weighted
      average units outstanding
                      
                      
                      42,049
                      
                      
                      
                      42,049
                      
                      
                      
                      42,049Net
      income (loss)  per unit - basic and diluted
                      
                      $
                      103.75
                      
                      
                      $
                      (152.57
                      )
                      
                      $
                      115.00
 
 See Notes
to Financial Statements.


60





Lincolnway
Energy, LLC
 
 Statements
of Members' Equity
 Years
Ended September 30, 2010, 2009 and 2008
 
 Member
                  
                  
                  RetainedContributions
                  
                  
                  Earnings
                  
                  
                  TotalBalance,
      September 30, 2007
                  
                  $
                  38,990,105
                  
                  
                  $
                  20,978,860
                  
                  
                  $
                  59,968,965Distributions  ($200
      per unit)
                  
                  
                  -
                  
                  
                  
                  (8,409,800
                  )
                  
                  
                  (8,409,800
                  )Net
      income
                  
                  
                  -
                  
                  
                  
                  4,835,428
                  
                  
                  
                  4,835,428Balance,
      September 30, 2008
                  
                  
                  38,990,105
                  
                  
                  
                  17,404,488
                  
                  
                  
                  56,394,593Net
      loss
                  
                  
                  -
                  
                  
                  
                  (6,415,341
                  )
                  
                  
                  (6,415,341
                  )Balance,
      September 30, 2009
                  
                  
                  38,990,105
                  
                  
                  
                  10,989,147
                  
                  
                  
                  49,979,252Distributions  ($50
      per unit)
                  
                  
                  -
                  
                  
                  
                  (2,102,450
                  )
                  
                  
                  (2,102,450
                  )Net
      income
                  
                  
                  -
                  
                  
                  
                  4,362,458
                  
                  
                  
                  4,362,458Balance,
      September 30, 2010
                  
                  $
                  38,990,105
                  
                  
                  $
                  13,249,155
                  
                  
                  $
                  52,239,260
 
 See Notes
to Financial Statements.
  61





Lincolnway Energy, LLC
 
 Statements
of Cash Flows
 Years
Ended September 30, 2010, 2009 and 2008
 
 2010
                        
                        
                        2009
                        
                        
                        2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income  (loss)
                        
                        $
                        4,362,458
                        
                        
                        $
                        (6,415,341
                        )
                        
                        $
                        4,835,428Adjustments
      to reconcile net income (loss)  to net cash provided
      byoperating
      activities:Depreciation
      and amortization
                        
                        
                        8,378,554
                        
                        
                        
                        8,367,309
                        
                        
                        
                        8,151,084Loss
      on disposal of property and equipment
                        
                        
                        573
                        
                        
                        
                        3,599
                        
                        
                        
                        27,491Forgiven
      loan
                        
                        
                        -
                        
                        
                        
                        (100,000
                        )
                        
                        
                        -Changes
      in working capital components:Due
      from broker
                        
                        
                        (1,740,419
                        )
                        
                        
                        7,360,928
                        
                        
                        
                        (7,081,035
                        )Trade
      and other accounts receivable
                        
                        
                        (2,107,860
                        )
                        
                        
                        (146,589
                        )
                        
                        
                        (1,150,001
                        )Inventories
                        
                        
                        (1,465,707
                        )
                        
                        
                        1,508,650
                        
                        
                        
                        (322,493
                        )Prepaid
      expenses and other
                        
                        
                        (101,590
                        )
                        
                        
                        (113,282
                        )
                        
                        
                        78,450Deposits
                        
                        
                        151,036
                        
                        
                        
                        312,958
                        
                        
                        
                        40,759Accounts
      payable
                        
                        
                        173,278
                        
                        
                        
                        (1,254,071
                        )
                        
                        
                        358,584Accounts
      payable, related party
                        
                        
                        162,425
                        
                        
                        
                        (811,079
                        )
                        
                        
                        940,524Accrued
      expenses
                        
                        
                        31,435
                        
                        
                        
                        370,316
                        
                        
                        
                        (148,015
                        )Accrued
      loss on firm commitments
                        
                        
                        -
                        
                        
                        
                        (1,065,000
                        )
                        
                        
                        1,065,000Derivative
      financial instruments
                        
                        
                        967,017
                        
                        
                        
                        (6,440,655
                        )
                        
                        
                        7,062,494Noncurrent
      other liabilities
                        
                        
                        -
                        
                        
                        
                        118,073
                        
                        
                        
                        331,927Net
      cash provided
by  operating  activities
                        
                        
                        8,811,200
                        
                        
                        
                        1,695,816
                        
                        
                        
                        14,190,197CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                        
                        
                        (823,612
                        )
                        
                        
                        (611,078
                        )
                        
                        
                        (1,530,183
                        )Purchase
      of investments
                        
                        
                        (24,118
                        )
                        
                        
                        (143,975
                        )Proceeds
      from redemption of certificate of deposit
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        428,050Proceeds
      from sale of equipment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,789Net
      cash (used in) investing activities
                        
                        
                        (847,730
                        )
                        
                        
                        (755,053
                        )
                        
                        
                        (1,100,344
                        )CASH
      FLOWS FROM FINANCING ACTIVITIESMember
      distributions
                        
                        
                        (2,102,450
                        )
                        
                        
                        -
                        
                        
                        
                        (8,409,800
                        )Payments
      on long-term borrowings
                        
                        
                        (8,827,857
                        )
                        
                        
                        (3,826,864
                        )
                        
                        
                        (3,825,913
                        )Net
      cash (used in) financing activities
                        
                        
                        (10,930,307
                        )
                        
                        
                        (3,826,864
                        )
                        
                        
                        (12,235,713
                        )Net
      (decrease) increase in cash and cash equivalents
                        
                        
                        (2,966,837
                        )
                        
                        
                        (2,886,101
                        )
                        
                        
                        854,140CASH
      AND CASH EQUIVALENTSBeginning
                        
                        
                        5,824,947
                        
                        
                        
                        8,711,048
                        
                        
                        
                        7,856,908Ending
                        
                        $
                        2,858,110
                        
                        
                        $
                        5,824,947
                        
                        
                        $
                        8,711,048(Continued)


62


Lincolnway Energy, LLC
 
 Statements
of Cash Flows (Continued)
 Years
Ended September 30, 2010, 2009 and 2008
 
 2010
                          
                          
                          2009
                          
                          
                          2008SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWINFORMATION,
      cash paid for interest
                          
                          $
                          838,191
                          
                          
                          $
                          1,052,559
                          
                          
                          $
                          1,534,197SUPPLEMENTAL
      DISCLOSURES OF NONCASH ,INVESTING
      AND FINANCING ACTIVITIESConstruction
      in progress included in accounts payable
                          
                          $
                          37,805
                          
                          
                          $
                          -
                          
                          
                          $
                          -Construction
      in progress included in accrued expenses
                          
                          $
                          2,688
                          
                          
                          $
                          -
                          
                          
                          $
                          -
 
 See Notes
to  Financial Statements.


63




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 purposes of reporting the statement of
cash flows, the Company includes as cash equivalents all cash accounts and
highly liquid debt instruments which are not subject to withdrawal restrictions
or penalties.  Certificates of deposit are considered investments as
all have been purchased with maturities in excess of ninety
days.  Although the Company maintains its cash accounts in one bank,
the Company believes it is not exposed to any significant credit risk on cash
and cash equivalents.  The Company has repurchase agreements with one
bank, which totaled approximately $2,886,000 at September 30,
2010.  In accordance with the terms of the repurchase agreements, the
Company does not take possession of the related securities.  The
Company’s agreements also contain provisions to ensure that the market value of
the underlying assets remain sufficient to protect the Company in the event of
default by the banks by requiring that the underlying securities have a total
market value of at least 100% of the bank’s total obligations under the
agreements.





Trade accounts
receivable:  Trade accounts receivable are recorded at original
invoice amounts less an estimate made for doubtful receivables based on a review
of all outstanding amounts on a monthly basis.  Management determines
the allowance for doubtful accounts by regularly evaluating individual customer
receivables and considering 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, are stated at the
lower of cost or market using the first-in, first-out method.  In the
valuation of inventories and purchase and sale commitments, market is based on
current replacement values except that it does not exceed net realizable values
and is not less than net realizable values reduced by allowances for approximate
normal profit margin.





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
is amortizing 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.


64




Lincolnway
Energy, LLC
  Notes
to Financial Statements




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





Maintenance
and repairs are expensed as incurred; major improvements and betterments are
capitalized.  The Company has no capital leases at this
time.





Investments:  The
Company has investments in financial service cooperatives.  These
investments are carried at cost including allocated retained earnings of the
cooperatives.





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 derivatives is recorded in the statement
of operations as a component of cost of goods sold.  Any realized or
unrealized gain or loss related to ethanol derivative instruments is recorded in
the statement of operations as a component of revenue.





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 taxable 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 the loading of
the product.  For ethanol, title passes at the time the product
crosses the loading flange in either a railcar or truck.  For
distiller’s grain, title passes upon the loading into trucks.  For
railcar shipments, this takes place when the railcar is filled and the marketer
receives written notice that they have been loaded and are available for
billing.  Shipping and handling costs incurred by the Company for the
sale of ethanol and distiller’s grain 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.


65




Lincolnway
Energy, LLC
  Notes
to Financial Statements




Revenue
by product is as follows:


(Excludes
hedging activity)





(In thousands)
                          
                          2010
                          
                          
                          2009
                          
                          
                          2008Ethanol
                          
                          $
                          94,612
                          
                          
                          $
                          88,155
                          
                          
                          $
                          122,253Distiller's
      Grain
                          
                          
                          19,434
                          
                          
                          
                          20,730
                          
                          
                          
                          25,544Other
                          
                          
                          1,766
                          
                          
                          
                          1,328
                          
                          
                          
                          1,447





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.





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 are based on current rates offered to the Company for debt with similar
terms and maturities.




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.





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, 2010 and 2009:





2010
                  
                  
                  2009Raw
      materials, including corn, coal, chemicals and supplies
                  
                  $
                  2,496,681
                  
                  
                  $
                  1,503,410Work
      in process
                  
                  
                  796,409
                  
                  
                  
                  567,782Ethanol
      and distillers grain
                  
                  
                  657,989
                  
                  
                  
                  414,180Total
                  
                  $
                  3,951,079
                  
                  
                  $
                  2,485,372


66




Lincolnway
Energy, LLC
  Notes
to Financial Statements




Note
      4.
            Long-Term
      Debt




Long-term
debt consists of the following as of September 30, 2010 and 2009:





2010
                            
                            
                            2009Construction
      term loan.  (A)
                            
                            $
                            6,500,000
                            
                            
                            $
                            15,250,000Construction/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
                            
                            
                            
                            1,216,781Note
      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)
                            
                            
                            182,500
                            
                            
                            
                            212,500Note
      payable to Iowa Department of
    Transportation.  (E)
                            
                            
                            336,803
                            
                            
                            
                            384,6609,486,084
                            
                            
                            
                            18,313,941Less
      current maturities
                            
                            
                            (76,373
                            )
                            
                            
                            (3,825,357
                            )$
                            9,409,711
                            
                            
                            $
                            14,488,584





Maturities
of long-term debt as of September 30, 2010 are as follows:





Years
      ending September 30:2011
                      
                      $
                      76,3732012
                      
                      
                      5,052,4092013
                      
                      
                      1,703,4682014
                      
                      
                      52,0492015
                      
                      
                      1,269,934Thereafter
                      
                      
                      1,331,851$
                      9,486,084




67




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 the one-month LIBOR index rate plus
      3.30%.  The rate will be reset automatically without notice to
      the Company, on the first “US Banking Day” of each succeeding week, and
      each change shall be applicable to all outstanding balances as of that
      date.  The agreement requires 30 principal payments of
      $1,250,000 per quarter commencing in December 2006 through March 2013. In
      order to alleviate some of the interest rate risk, the Company on July 25,
      2008, fixed a portion of the loan or $7,750,000 at an interest rate of
      6.62%, through July 2011. Upon maturity the fixed portion of the loan will
      revert back to a variable rate.  The same payment amortization
      schedule will apply. As of September 30, 2010, the entire balance
      outstanding is at a fixed interest rate.   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, 2010 the Company has made principal payments of $32,500,000, since the
      inception of the loan, which under the terms of the agreement have been
      applied to scheduled payments in order of their maturity.  The
      Company’s next schedule payment under this agreement is due in December
      2011.





(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 September 1,
      2016.  Borrowings under the credit facility agreement include a
      variable interest rate based on the one-month LIBOR index rate plus
      3.30%.  The rate will be reset automatically without notice to
      the Company, on the first “US Banking Day” of each succeeding week, and
      each change shall be applicable to all outstanding balances as of that
      date.  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,
      2010.





(D)
            The
      Company also has a $300,000 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
      financial institution debt and construction and revolving loan/credit
      agreements included in (A) and (C).  On January 22, 2009, IDED
      forgave the $100,000 forgivable loan after closing the project of
      constructing the ethanol production facility and producing 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).




68




Lincolnway
Energy, LLC
  Notes
to Financial Statements




Note
      5.
            Lease
      Commitments




The
Company entered into a lease agreement with an unrelated third party to lease 90
hopper rail cars for the purpose of transporting distiller’s
grain.  The five-year term of the lease commenced March 2006 and will
end March 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 amendment
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.  The Company has classified this certificate of deposit as
restricted cash in other assets.




In
conjunction with a change in the Company’s ethanol marketer, on September 21,
2009, the Company was assigned a lease that was previously between the Company’s
previous ethanol marketer and an unrelated third party.  The lease
includes 100 tank rail cars for the purpose of transporting
ethanol.  The lease calls for monthly payments of $52,500 plus
applicable taxes, beginning October 1, 2009.  There is also an
additional usage rental of 3 cents per mile for each car that exceeds 35,000
miles.  The lease has a scheduled maturity date of September
2016.




On
February 2, 2010, the Company entered into a lease agreement with an unrelated
third party to lease an additional 30 ethanol tank rail cars.  The
one-year term of the lease will end February 2011.  The lease calls
for monthly payments of $15,000 plus applicable taxes.  There is also
an additional usage rental of 3.0 cents per mile for each car that exceeds
35,000 miles.




The
Company leases office equipment and other equipment under operating leases that
will expire at various dates through March 2015.





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





Years ending Sept 30:2011
                    
                    $
                    1,041,0002012
                    
                    
                    670,0002013
                    
                    
                    668,0002014
                    
                    
                    635,0002015
                    
                    
                    631,000Other
                    
                    
                    630,000$
                    4,275,000





Rent
expense under the above operating leases totaled approximately, $1,597,000,
$741,000 and $738,000 for the years ended September 30, 2010, 2009 and 2008,
respectively.




69




Lincolnway
Energy, LLC
  Notes
to Financial Statements




Note
      6.
            Related-Party
      Transactions




The
Company has an agreement with the Heart of Iowa Coop (HOIC), dba Key
Cooperative, a member of the Company, to provide 100% of the requirement of corn
for use in the operation of the ethanol plant.  The agreement 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.  If the Company
chooses to buy corn that is not elevated by HOIC, and is inside a 60-mile radius
of Nevada, Iowa, the Company will be required to pay HOIC $.04 per bushel of
corn, outside a 60-mile radius, $.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 $71,804,446,
$69,259,682 and $97,996,197 for the years ended September 30, 2010, 2009 and
2008, respectively.  As of September 30, 2010, the Company has several
corn cash contracts with HOIC amounting to 3,613,371 bushels, for a commitment
of $17,465,619 and a basis contract representing 600,000 bushels of
corn.  The contracts mature on various dates through December
2010.  The Company also has made some miscellaneous purchases from
HOIC (fuel costs) amounting to $96,392, $84,255 and $184,062 for the years ended
September 30, 2010, 2009 and 2008, respectively. As of September 30, 2010 and
2009 the amount due to HOIC is $460,226 and $257,938, respectively.





The
Company is also purchasing anhydrous ammonia and propane from Prairie Land
Cooperative, a member of the Company.  Total purchases for the years
ended September 30, 2010, 2009 and 2008 were $21,714, $860,884 and $1,030,326,
respectively. As of September 30, 2010 and 2009 the amount due to Prairie Land
Cooperative is $732 and $40,595, respectively.  As of September 30,
2010, there was no purchase commitment.




Note
      7.
            Commitments
      and Major Customer




The
Company had 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 paid the entity
$.01 (one cent) per gallon for each gallon of ethanol
sold.    Marketing expense for the years ended September 30,
2010, 2009 and 2008 were none, $528,215 and $543,399, respectively, under this
agreement. Revenues with this customer were none, $88,155,144, and $122,253,299
for the years ended September 30, 2010, 2009 and 2008,
respectively.  Trade accounts receivable of none and $2,913,460 was
due from the customer as of September 30, 2010 and 2009,
respectively.





On
September 25, 2009, the Company entered into a new agreement with an unrelated
entity.  The agreement became effective on October 1,
2009.  The unrelated entity is responsible for marketing and
purchasing all of the ethanol produced by the company.  For the year
ended September 30, 2010, the Company has expensed $695,945, under this
agreement for marketing fees.  Revenues with this customer were
$94,611,865 for the year ended September 30, 2010.  Trade accounts
receivable of $4,550,445 was due from the customer as of September 30,
2010.  As of September 30, 2010, the Company has ethanol sales
commitments with the unrelated entity of 1,288,000 gallons for a total sales
commitment of $2,288,920.





The
Company had an agreement with an unrelated entity for marketing, selling and
distributing all of the distiller’s grains which are by-products of the ethanol
plant.   For the years ended September 30, 2010, 2009 and 2008,
the Company has expensed marketing fees of none, none and $1,381, respectively,
under this agreement.  Revenues with this customer were none, none and
$172,899 for the years ended September 30, 2010, 2009 and 2008,
respectively.  The Company has entered into an agreement with an
unrelated entity for marketing, selling and distributing the distiller’s grains
as of October 1, 2007.   For the years ended September 30, 2010
and 2009, the Company has expensed marketing fees of $295,353 and $337,760,
respectively, under this agreement.  Revenues with this customer were
$19,434,064 and $20,729,951 for the years ended September 30, 2010 and
2009.  Trade accounts receivable of $922,754 and $685,806 was due from
the customer as of September 30, 2010 and 2009, respectively.  As of
September 30, 2010, the Company has distiller’s grains sales commitments with
the unrelated entity of 9,218 tons for a total sales commitment of
$1,166,405.




70


Lincolnway
Energy, LLC
  Notes
to Financial Statements




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 , the Company shall pay an amount per ton multiplied
by the difference of the minimum requirement and actual quantity
purchased.  That agreement expired as of January 1,
2008.   On October 1, 2007 the Company entered into an amended
agreement to the original cost supply agreement.  The term of the
agreement has been extended from the original expiration date to January 1,
2013.  The same minimum purchase commitment is required from the
Company as the previous agreement.  The calendar years 2010, 2011, and
2012 estimated purchase commitments total $374,525, $5,091,200,
$5,171,200.  For the years ended September 30, 2010, 2009 and 2008,
the Company has purchased coal of $5,989,438, $5,580,495 and $5,741,047
respectively.





The
Company has entered into a variable contract with a supplier of
denaturant.  The variable contract is for a minimum purchase of
270,000 gallons at the average of the OPIS Conway In-Well Natural Gasoline High
and Low prices on the date of loading plus $.115/usg.  The term of the
contract is from October 1, 2010 through December 31, 2010.   The
estimated future purchase commitment is approximately $519,345.




Note
      8.
            Risk
      Management




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





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





To reduce
price risk caused by market fluctuations, the Company generally follows a policy
of using exchange-traded futures and options contracts to minimize its net
position of merchandisable agricultural commodity inventories and forward
purchases and sales contracts.  Exchange traded futures and options
contracts are designated as non-hedge derivatives and are valued at market price
with changes in market price recorded in operating income through cost of goods
sold for corn derivatives and through revenue for ethanol
derivatives.




71




Lincolnway
Energy, LLC
  Notes
to Financial Statements




The
effects on operating income from derivative activities is as follows for the
years ending September 30, are as follows:





2010
                  
                  
                  2009
                  
                  
                  2008Increase
      (decrease) in revenue due to derivatives related to ethanol
      sales:Realized
                  
                  $
                  45,434
                  
                  
                  $
                  10,440
                  
                  
                  $
                  (2,174,662
                  )Unrealized
                  
                  
                  (1,483,997
                  )
                  
                  
                  -
                  
                  
                  
                  (28,492
                  )Total
      effect on revenue
                  
                  
                  (1,438,563
                  )
                  
                  
                  10,440
                  
                  
                  
                  (2,203,154
                  )(Increase)
      decrease in cost of goods sold due to derivates related to corn
      costs:Realized
                  
                  
                  604,475
                  
                  
                  
                  (3,783,088
                  )
                  
                  
                  6,280,771Unrealized
                  
                  
                  849,475
                  
                  
                  
                  (72,350
                  )
                  
                  
                  (2,836,100
                  )Total
      effect on cost of goods sold
                  
                  
                  1,453,950
                  
                  
                  
                  (3,855,438
                  )
                  
                  
                  3,444,671Total
      (decrease) increase  to operating income due to derivative
      activities
                  
                  $
                  15,387
                  
                  
                  $
                  (3,844,998
                  )
                  
                  $
                  1,241,517





Unrealized
gains and losses on forward contracts, in which delivery has not occurred, are
deemed “normal purchases and normal sales”, and therefore are not marked to
market in the Company’s financial statements, but are subject to a lower of cost
or market assessment.   As of September 30, 2008 the Company
recorded an unrealized loss of $1,065,000 on firm purchase commitments for
corn.




Note
      9.
            Fair
      Value Measurements




Effective
October 1, 2008, the Company began measuring fair value of financial instruments
in accordance with The Fair Value Measurements and Disclosures topic of the
Accounting Standards Codification.




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




72




Lincolnway
Energy, LLC
  Notes
to Financial Statements


Level
      1 -
            Valuations
      for assets and liabilities traded in active markets from readily available
      pricing sources for market transactions involving identical assets or
      liabilities.




Level
      2 -
            Valuations
      for assets and liabilities traded in less active dealer or broker
      markets.  Valuations are obtained from third-party pricing
      services for identical or similar assets or
  liabilities.




Level
      3 -
            Valuations
      incorporate certain assumptions and projections in determining the fair
      value assigned to such assets or
liabilities.





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




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





The
following table summarizes the financial liabilities measured at fair value on a
recurring basis as of September 30, 2010 and 2009, segregated by the level of
the valuation inputs within the fair value hierarchy utilized to measure fair
value:





2010Total
                      
                      
                      Level 1
                      
                      
                      Level 2
                      
                      
                      Level 3Liabilities,
      derivative financial instruments
                      
                      $
                      1,191,867
                      
                      
                      $
                      1,191,867
                      
                      
                      $
                      -
                      
                      
                      $
                      -2009Total
                      
                      
                      Level 1
                      
                      
                      Level 2
                      
                      
                      Level 3Liabilities,
      derivative financial instruments
                      
                      $
                      224,850
                      
                      
                      $
                      224,850
                      
                      
                      $
                      -
                      
                      
                      $
                      -





Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of
impairment).  Financial assets and financial liabilities measured at
fair value on a nonrecurring basis were not significant at September 30, 2010
and 2009.




Note
      10.
            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, 2010, 2009 and 2008 totaled $69,069,
$68,032 and $66,795, respectively.




73




Lincolnway
Energy, LLC
  Notes
to Financial Statements




Note
      11.
            Contingency




In May
2010, a lawsuit was filed against the Company and approximately 20 other ethanol
plants by an unrelated party claiming the Company’s operation of the corn oil
extraction system is a patent infringement. The plaintiff seeks injunctive
relief, an award of damages with interest and any other remedies available under
certain patent statutes or otherwise under law.  The Company is
currently reviewing the lawsuit with legal counsel.  The Company is
unable to determine at this time if the lawsuit will have a material adverse
affect on the Company.




Note
      12.
            Subsequent
      Events




On
October 15, 2010, Lincolnway Energy entered into an agreement with unrelated
entity to perform the dirt work for the additional rail spur that the Company is
going to add to the existing track.  The total base bid is
$1,494,607.




[THE
REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


74





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 annual 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.





Management's
Annual Report on Internal Control Over Financial Reporting.





The
management of Lincolnway Energy is responsible for establishing and maintaining
adequate internal control over financial reporting for Lincolnway
Energy.  Lincolnway Energy's internal control system was designed to,
in general, provide reasonable assurance to Lincolnway Energy's management and
board regarding the preparation and fair presentation of published financial
statements, but because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.  Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.


75





Lincolnway
Energy's management assessed the effectiveness of Lincolnway Energy's internal
control over financial reporting as of September 30, 2010.  The
framework used by management in making that assessment was the criteria set
forth in the document entitled "Internal Control – Integrated Framework" issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on that assessment, Lincolnway Energy's management has determined that as of
September 30, 2010, Lincolnway Energy's internal control over financial
reporting was effective for the purposes for which it is intended.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  As we are a non-accelerated filer, management’s report is
not subject to attestation by our registered public accounting firm pursuant to
Section 404(c) of the Sarbanes-Oxley Act of 2002 that permits us to provide only
management’s report in this annual report.





Changes
      in Internal Control over Financial
Reporting





No
      change in Lincolnway Energy's internal control over financial 
      reporting occurred during the fourth quarter of the fiscal year ended
      September 30, 2010 that has materially affected,  or is 
      reasonably  likely to materially  affect,  Lincolnway
      Energy's internal  control over  financial
      reporting.





Item
      9B.
            Other
      Information.





Lincolnway
      Energy did not have any information that was required to be disclosed in a
      report on Form 8-K during the fourth quarter of the fiscal year ended
      September 30, 2010, that was not reported on a Form
  8-K.





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)Jeff
      Taylor
                                    
                                    44
                                    
                                    Director
      and ChairmanBrian
      Conrad
                                    
                                    49
                                    
                                    Director
      and Vice ChairmanKurt
      Olson
                                    
                                    54
                                    
                                    Director
      and SecretaryTerrill
      Wycoff
                                    
                                    68
                                    
                                    Director
      and TreasurerTimothy
      Fevold
                                    
                                    50
                                    
                                    DirectorWilliam
      Couser
                                    
                                    56
                                    
                                    DirectorJames
      Hill
                                    
                                    65
                                    
                                    DirectorRick
      Vaughan
                                    
                                    51
                                    
                                    DirectorRichard
      Johnson
                                    
                                    75
                                    
                                    DirectorRichard
      Brehm
                                    
                                    57
                                    
                                    President
      and Chief Executive OfficerKim
      Supercynski
                                    
                                    48
                                    
                                    Chief
      Financial
Officer




76





An
      individual may be nominated for election as a director of Lincolnway
      Energy by the members of Lincolnway Energy in accordance with the
      procedures set out in the second amended and restated operating agreement,
      or by the nominating committee of the directors, with the recommendations
      of the nominating committee being subject to approval by the directors.
      The directors are elected by the members for three year terms, with the
      terms of the directors being staggered so that three directors are elected
      at each annual meeting. The vote by the members is generally done by a
      written ballot and without any discussion by the
  members.





Lincolnway
      Energy therefore does not know what specific experience, qualifications,
      attributes or skills of the current directors led any particular member or
      members to vote for any director. All of the current directors were,
      however, nominated by the nominating committee of the directors, and the
      nominating committee, and the directors in considering the recommendations
      of the nominating committee, considered the experience, qualifications,
      attributes or skills set out in the following paragraphs and in the
      following biographies of the directors in reaching the conclusion that the
      current directors should serve as a director and therefore be recommended
      to the members at the annual meetings of the members at which the
      directors were elected to their current respective three year
      terms.





One
      factor that was considered and that applies to each director is that each
      director has gained substantial experience, knowledge and background
      regarding Lincolnway Energy's operations and the ethanol industry in
      general through their service as a director of Lincolnway Energy. Seven of
      the current directors have served as a director since Lincolnway Energy
      was organized in May of 2004, and the other two directors have served
      since July 27, 2007.





Over
      that period of time, Lincolnway Energy, along with the ethanol industry in
      general and the economy as a whole, have experienced a wide range of
      political, economic and market circumstances, ranging from very favorable
      to very difficult circumstances. The current directors have therefore
      gained valuable background and experience over a diverse range of
      circumstances that do not always occur over just a six year period of
      time.


77





Another
      factor that was considered and that applies to all of the directors is the
      training, educational and industry association opportunities that have
      been engaged in by the directors. For example the majority of directors
      have attended the Renewable Fuels Association annual conference and the
      Iowa Institute of Coops director training workshops.  Those
      activities have given the directors additional experience and background
      both with respect to the ethanol industry and serving on the board of a
      company.





Another
      factor that was considered and that applies to each director is that each
      director has individual experience in operating a business through their
      own personal business endeavors that are discussed below. Each director
      has also evidenced a willingness and ability in their individual
      businesses to consider and pursue innovative or new approaches, as well as
      a willingness and ability to assume leadership roles in those businesses
      and industries, all of which are attributes are helpful in an evolving and
      changing industry such as the ethanol
industry.





Another
      practical consideration is that each director is willing to devote the
      time, which can be significant at times, that is necessary to serve as a
      director and on committees of the
directors.





The
      following paragraphs provide some information regarding the directors and
      executive officers of Lincolnway
Energy."





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 2011.  Mr. Taylor served as the vice
      president/vice chairman of Lincolnway Energy from the time Lincolnway
      Energy was organized in May, 2004 until April, 2008.  Mr. Taylor
      has served as the chairman of Lincolnway Energy since May,
      2008.  Mr. Taylor has been self-employed as a farmer since 1988,
      and he owns and operates farms in Story County, Iowa. Mr. Taylor received
      a Bachelor of Science degree from Iowa State University in farm operations
      and agricultural studies.  Mr. Taylor provides, among other
      things, agriculture and management background and experience to the
      directors.  An agricultural background provides, among other
      things, experience that is useful to the directors in connection with
      analyzing issues related to corn and distillers’ grain. Mr. Taylor also
      completed board member and chairman certification from the Iowa Institute
      of Cooperatives.


78





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 2011.  Mr. Conrad has served as the vice
      chairman of Lincolnway Energy since May, 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 the Western U.S. for John Deere Wind
      Energy.  In that capacity, Mr. Conrad has responsibility for
      working with wind developers and negotiating the acquisition of wind
      projects. On December 10, 2010 Exelon Corporation purchased John Deere
      Wind Energy. Mr. Conrad will hold the same position with Exelon
      Corporation.  Mr. Conrad has an undergraduate degree in
      economics and business administration and a Masters in Business
      Administration. Mr. Conrad provides, among other things, background and
      experience in sales, financing and acquisitions to the
      directors.





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 2013.  Mr. Olson has served as the secretary of Lincolnway
Energy since May, 2008.  Mr. Olson graduated in 1978 from Iowa State
University in ag-economics and has been actively involved in business operations
and management of real estate in central Iowa for over 28 years.  Mr.
Olson was employed with Litchfield Realty Company from 1987 to
2003.  He served as the president of Litchfield Realty and its
subsidiaries, AgServ Company and FarmLand Real Estate and Management,
LC.  The business of AgServ Company included a grain elevator, an
agronomy supplier, a feed manufacturer and a soybean seed
processor.  In 2003, Mr. Olson purchased Farmland Real Estate and
Management, LC.  Farmland Real Estate and Management, LC markets crop
insurance and manages farmland.  Mr. Olson provides, among other
things, agricultural, real estate and farm management background and experience
to the directors.





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 2012.  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 49 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.  Mr.
      Wycoff adds, among other things, background and experience in banking and
      finance to the directors.





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 2011.  Mr. Fevold
      served as the secretary of Lincolnway Energy from the time Lincolnway
      Energy was organized in May, 2004 until April, 2008.  Mr. Fevold
      has been employed by Hertz Farm Management, based in Nevada, Iowa, since
      1982, and is an accredited farm manager.  He represents absentee
      landowners throughout Central Iowa.   Mr. Fevold has also
      been licensed as a real estate broker in Iowa since 1987.  Mr.
      Fevold brings, among other things, additional agriculture, real estate and
      farm management background and experience to the
      directors.


79





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 2012.  Mr. Couser was the chairman of
      Lincolnway Energy from the time Lincolnway Energy was organized in May,
      2004 until April, 2008.  He also served as the interim president
      and chief executive officer of Lincolnway Energy from May, 2004 until July
      13, 2005.  Mr. Couser has served as a director of Iowa Renewable
      Fuels Association for the past six years, and is currently serving as the
      president of the Iowa Renewable Fuels Association. He is also serving as a
      director of the Iowa Cattlemen’s Association and Iowa Institute for Coops.
      He has served as director on those boards for the past two
      years.  Mr. Couser has been self-employed as a farmer since
      1977.  His farming operations include row crops and
      cattle.  Mr. Couser brings, among other things, additional
      agricultural and management background and experience to the
      directors.  Mr. Couser also brings outside board and
      affiliations background and experience to the directors, including in the
      ethanol industry as noted above.





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 2013.  Mr. Hill has been self-employed as a
      farmer since 1972.  Following graduation from college, Mr. Hill
      worked in management with his farming business. While farming and feeding
      cattle, Mr. Hill became involved in the cattle industry organizations, and
      he has served as chairman of the Iowa Beef Industry Council and president
      of the Iowa Cattlemen's Association.  He also served as
      president of the board of directors of the Ellsworth-Williams Coop during
      its merger with Prairie Land Coop.  He has also served as an
      advisory council member for Farm Credit Services of America since
      approximately 1994.  Mr. Hill brings, among other things,
      additional agricultural, management and outside board and industry
      association background and experience to the
  directors.





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 2012.  Mr. Vaughan has been the General Manager
      of Prairie Land Cooperative since February 1995.  Mr. Vaughan
      brings, among other things, agricultural, cooperative, management and
      marketing experience and background to the
  directors.


80





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
      2013.  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 its
      subsidiaries, Ames Community Bank and 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, which is the
      board that oversees and provides board member selection and funding of the
      national Accounting Standards Boards.  Mr. Johnson served as a
      member of the Iowa Accountancy Examining Board from January 2003 to May
      2009.  The Accountancy Board licenses and regulates certified
      public accountants and accounting practitioners in the State of
      Iowa.  Mr. Johnson brings, among other things, financial
      accounting experience, including audit committee experience, and outside
      board and association experience to the
  directors.





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,
      including with CHS, Hubbard Milling Company, International Ingredient
      Corporation and United Bio Energy. He is a graduate of Iowa State
      University.





Mr. Brehm
served as the director of operations for United Bio Energy from January 2004 to
April 2005.  In that role, Mr. Brehm served as interim general manager
for Platte Valley Fuel Ethanol, in Central City, Nebraska, and later as the
general manager of Big River Resources, in West Burlington,
Iowa.  United Bio Energy also assigned Mr. Brehm to serve in various
development and leadership roles for ethanol plants and projects in Illinois,
Kansas, Iowa 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. Prior to working at Garst Seed Company she was
      the controller for a third party administrator for employee benefit plans.
      She also has six years of experience working in public accounting. Ms.
      Supercynski is a certified public accountant and a certified treasury
      professional.





Number
      and Term of Directors and Officers





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.


81





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 currently 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 Kristine Strum, David Zimmerman and David
      Sommerlot.  Lincolnway Energy does not have a written employment
      agreement with any of those
employees.





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
  44.





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 38.





David
Sommerlot.Mr. Sommerlot has been Lincolnway Energy's plant
manager since September 8, 2009.  He was employed by Cargill, Inc.
from 1976 to July 1985, working at Cargill, Inc.'s Iowa Protein Products Soy
Specialties facility in Cedar Rapids, Iowa.  He was transferred by
Cargill, Inc. in July of 1985 to Bloomington, Illinois, where he served as the
plant superintendent of Cargill, Inc.'s soy crushing facility.  He was
transferred again in September 1994 to Des Moines, Iowa, where he served as the
plant superintendent for Cargill, Inc.'s oil processing facility until March
2009.  Mr. Sommerlot is 57.





Code
      of Ethics





Lincolnway
      Energy has adopted a code of ethics that applies to Lincolnway Energy's
      directors, principal executive officer, principal financial officer,
      principal accounting officer or controller, or persons performing similar
      functions for Lincolnway
Energy.


82





No
      Changes to Director Nomination
Procedures





There
      were no material changes during the fiscal year ended September 30, 2010
      to the procedures by which the members of Lincolnway Energy may recommend
      nominees for election as a director of Lincolnway
  Energy.





Audit
      Committee Financial Expert





Lincolnway
      Energy has an audit committee.  The members of the audit
      committee as of the date of this annual report were Richard Johnson, Tim
      Fevold, Brian Conrad and Rick
Vaughan.





Lincolnway
      Energy's board has determined that Richard Johnson 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 Richard Johnson and all of the other
      members of the audit committee meet the standards of independence under
      the Governance Guidelines and applicable NASDAQ Stock Market listing
      standards, including that each of the committee members are free of any
      relationship that would interfere with the member's individual exercise of
      independent judgment.





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 which will be
held in 2011, which definitive proxy statement shall be filed not later than 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
      compensation plans, including any individual compensation arrangements,
      under which units of Lincolnway Energy are authorized for
      issuance.





The
      following table sets forth certain information regarding the beneficial
      ownership of units of Lincolnway Energy as of November 30, 2010 by the
      directors and executive officers of Lincolnway
      Energy.  Lincolnway Energy had 42,049 outstanding units on
      November 30, 2010.


83


Name of Beneficial Owner
                            
                            Amount and Nature
                              Of Beneficial Ownership1
                            
                            
                            Percent of ClassWilliam
      Couser, Director
                            
                            
                            413
                            2
                            
                            
                            .98
                            %Jeff
      Taylor, Director and Chairman
                            
                            
                            450
                            2,3
                            
                            
                            1.07
                            %Timothy
      Fevold, Director
                            
                            
                            101
                            
                            
                            
                            .24
                            %Terrill
      Wycoff, Director and Treasurer
                            
                            
                            225
                            
                            
                            
                            .54
                            %James
      Hill, Director
                            
                            
                            250
                            
                            
                            
                            .59
                            %Brian
      Conrad, Director and Vice Chairman
                            
                            
                            553
                            2
                            
                            
                            1.32
                            %Rick
      Vaughan, Director
                            
                            
                            -0-
                            
                            
                            
                            0
                            %Richard
      Johnson, Director
                            
                            
                            52
                            
                            
                            
                            .12
                            %Kurt
      Olson, Director and Secretary
                            
                            
                            200
                            
                            
                            
                            .48
                            %Richard
      Brehm, President and Chief Executive Officer
                            
                            
                            -0-
                            
                            
                            
                            0
                            %Kim
      Supercynski, Chief Financial Officer
                            
                            
                            25
                            4
                            
                            
                            .06
                            %David Zimmerman,
      Commodities
      Manager
                            
                            
                            -0-
                            
                            
                            
                            0
                            %David
      Sommerlot, Plant Manager
                            
                            
                            -0-
                            
                            
                            
                            0
                            %All
      directors and executive officers as a group
                            
                            
                            2,269
                            
                            
                            
                            5.4
                            %


84





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
            All
      of the units are owned by the spouse of 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.





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





Certain
Relationships and Related Transactions





There
were no transactions since the beginning of Lincolnway Energy's fiscal year
ended September 30, 2010, and there are no currently proposed transactions, in
which Lincolnway Energy was or is to be a participant where 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 be the beneficial owner of
      more than 5% of Lincolnway Energy's outstanding units;
  or





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


85





Director
      Independence





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 the director's
      individual exercise of independent
judgment.





Item
      14.
            Principal
      Accounting  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, 2009 and 2010 and fees
billed for other services rendered by McGladrey & Pullen, LLP and its
affiliate RSM McGladrey, Inc. during those periods:





Year Ended September 30,2009
                    
                    
                    2010Audit
      Fees
                    
                    $
                    93,600
                    
                    
                    $
                    96,000Tax
      Fees
                    
                    $
                    25,750
                    
                    
                    $
                    25,250All
      Other Fees
                    
                    $
                    2,590
                    
                    
                    $
                    0Total
                    
                    $
                    121,940
                    
                    
                    $
                    121,250





Audit
Fees.  The audit fees were billed 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.





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.





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.


86





Each
specific engagement of McGladrey & Pullen, LLP and its affiliate RSM
McGladrey, Inc is pre-approved by the audit committee of the board of Lincolnway
Energy.





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, 2010 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 in 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.


87





Incorporated by ReferenceExhibit
                                              
                                              
                                              
                                              Filed Herewith;
                                              
                                              
                                              
                                              Period
                                              
                                              
                                              
                                              FilingNumber
                                              
                                              Exhibit Description
                                              
                                              Page Number
                                              
                                              Form
                                              
                                              Ending
                                              
                                              Exhibit
                                              
                                              Date3.1
                                              
                                              Restatement
      of the Certificate of Organization
                                              
                                              E-13.2
                                              
                                              Second
      Amended and Restated Operating Agreement and Unit Assignment
      Policy
                                              
                                              E-210.2
                                              
                                              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 Loan Supplement 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.  See Exhibit 10.6.1 for an amendment
      to this agreement.
                                              
                                              
                                              
                                              10
                                              
                                              
                                              
                                              10.6
                                              
                                              1/27/0610.6.1
                                              
                                              Amendment
      to Ethanol Fuel Marketing Agreement Between Lincolnway Energy, LLC and
      RPMG, Inc.
                                              
                                              
                                              
                                              10-K
                                              
                                              
                                              
                                              10.6.1
                                              
                                              12/24/0810.7
                                              
                                              Distiller's
      Grain Marketing Agreement Between Lincolnway Energy, LLC and Hawkeye Gold,
      LLC
                                              
                                              
                                              
                                              10-K
                                              
                                              9/30/07
                                              
                                              10.7
                                              
                                              12/21/07*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


88





*10.9.1
                            
                            Amendment
      Number Oneto
      Coal Supply Agreement Between Lincolnway Energy, LLC and Williams Bulk
      Transfer, Inc.
                            
                            
                            
                            10-K
                            
                            9/30/07
                            
                            10.9.1
                            
                            12/21/0710.10
                            
                            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
                            
                            8/14/06*10.15
                            
                            Ethanol
      Marketing Agreement Between Lincolnway Energy, LLC and Green Plains Trade
      Group LLC
                            
                            
                            
                            10-K
                            
                            9/30/09
                            
                            10.15
                            
                            12/22/0914
                            
                            Code
      of Ethics
                            
                            
                            
                            10-K
                            
                            9/30/09
                            
                            14
                            
                            12/22/0931.1
                            
                            Rule
      13a-14(a) Certification of President and Chief Executive
      Officer
                            
                            E-5531.2
                            
                            Rule
      13a-14(a) Certificationof
      Chief Financial Officer
                            
                            E-5732.1
                            
                            Section
      1350 Certification of President and Chief Executive
Officer
                            
                            E-5932.2
                            
                            Section
      1350 Certification of Chief Financial Officer
                            
                            E-60





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


89





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, 2010
              By:
              /s/ Richard BrehmRichard
      Brehm, President and ChiefExecutive
      Officer





Date:  December
      21, 2010
              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, 2010
                /s/ William CouserWilliam
      Couser, DirectorDate:  December
      21, 2010
                /s/ Jeff TaylorJeff
      Taylor, DirectorDate:  December
      21, 2010
                /s/ Timothy FevoldTimothy
      Fevold, DirectorDate:  December
      21, 2010
                /s/ Terrill WycoffTerrill
      Wycoff, DirectorDate:  December
      21, 2010
                /s/ Kurt OlsonKurt
      Olson, DirectorDate:  December
      21, 2010
                /s/ James HillJames
      Hill, DirectorDate:  December
      21, 2010
                /s/ Brian ConradBrian
      Conrad, Director








Date:  December
      21, 2010
                  /s/ Richard JohnsonRichard
      Johnson, DirectorDate:  December
      21, 2010
                  /s/ Rick VaughanRick
      Vaughan, DirectorDate:  December
      21, 2010
                  /s/ Richard BrehmRichard
      Brehm, President andChief
      Executive OfficerDate:  December
      21, 2010
                  /s/ Kim SupercynskiKim
      Supercynski, Chief FinancialOfficer





EXHIBIT
INDEX





Exhibits
Filed With Form 10-K


of
Lincolnway Energy, LLC


For the
Fiscal Year Ended September 30, 2010





Description
      of Exhibit
                                                                
                                                                Page3.
                                                                Articles
      of Incorporation and Bylaws3.1
                                                                
                                                                Restatement
      of the Certificate of Organization
                                                                
                                                                E-13.2
                                                                
                                                                Second
      Amended and Restated Operating Agreement and Unit Assignment
      Policy
                                                                
                                                                E-231.
                                                                Rule
      13a-14(a)/15d-14(a) Certifications31.1
                                                                
                                                                Rule
      13a-14(a) Certification of President and Chief Executive
      Officer
                                                                
                                                                E-5531.2
                                                                
                                                                Rule
      13a-14(a) Certification of Chief Financial Officer
                                                                
                                                                E-5732.
                                                                Section
      1350 Certifications32.1
                                                                
                                                                Section
      1350 Certification of President and Chief Executive
Officer
                                                                
                                                                E-5932.2
                                                                
                                                                Section
      1350 Certification of Chief Financial Officer
                                                                
                                                                E-60