**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-QSB**

 

| **ý****  Quarterly report under Section 13 or 15(d)  of the Securities Exchange Act of 1934.** |
|----------------------------------------------------------------------------------------------------------|
|                                                                                                     |
| **For the  quarterly period ended September 30, 2003**                                                   |
|                                                                                                     |
| **OR**                                                                                                   |
|                                                                                                     |
| **o****  Transition report under Section 13 or  15(d) of the Exchange Act.**                        |
|                                                                                                     |

**For the transition period from                      to                      .**

 

**Commissionfile number 333-96703**

** **

**EAST KANSAS AGRI-ENERGY, L.L.C.**

(Exact name of small business issuer asspecified in its charter)

** **

| **Kansas**                                                           |   | **48-1251578**                            |
|----------------------------------------------------------------------|--------|-------------------------------------------|
| **(State  or other jurisdiction of  incorporation or organization)** |   | **(I.R.S.  Employer Identification No.)** |
|                                                                 |   |                                      |
| **P.O. Box 225,   210 1/2 East 4th Ave. Garnett, Kansas 66032** |
| **(Address  of principal executive offices)**                        |
|                                                                 |   |                                      |
| **(785) 448-2888**                                                   |
| **(Issuer’s  telephone number)**                                |

 

Check whether the issuer:  (1)filed all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.                                                                                                                                                                                                                                                                                                    ý  Yes       o  No

 

State the number of shares outstanding for each of the issuer’s classesof common equity as if the latest practicable date:  As of September 30, 2003, there were 1,220 units outstanding.

 

Transitional Small BusinessDisclosure Format (Check one):                   o  Yes          ý  No

 

 

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**INDEX**

 
| **PART I.**    | **FINANCIAL INFORMATION**                                                         |   |
|----------------|-----------------------------------------------------------------------------------|--------|
|           |                                                                              |   |
|           | **Item 1.  Financial Statements**                                            |   |
|           | **Item 2.   Management’s Discussion and Analysis or Plan of Operation** |   |
|           | **Item 3.  Controls and Procedures**                                         |   |
|           |                                                                              |   |
| **PART II.**   | **OTHER INFORMATION**                                                             |   |
|           |                                                                              |   |
|           | **Item 1.  Legal Proceedings**                                               |   |
|           | **Item 2.  Changes in Securities**                                           |   |
|           | **Item 3.  Defaults Upon Senior Securities**                                 |   |
|           | **Item 4.  Submission of Matters to a Vote of  Security Holders**            |   |
|           | **Item 5.   Other Information**                                              |   |
|           | **Item 6.   Exhibits and Reports on Form 8-K**                               |   |
|           |                                                                              |   |
| **SIGNATURES** |                                                                              |

 

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**EAST KANSAS AGRI-ENERGY, LLC**

 

Table of Contents

 
| **FINANCIAL  STATEMENTS**                                  |   |
|------------------------------------------------------------|--------|
| Balance Sheet (Unaudited)                                  |   |
| Statements of Operations (Unaudited)                       |   |
| Statements of Changes in Members’ Equity  (Unaudited) |   |
| Statements of Cash Flows (Unaudited)                       |   |
| Notes to Unaudited Financial Statements                    |   |

 

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**PART I.****    FINANCIALINFORMATION**

 

**Item 1.****           FinancialStatements**

 

# **EAST KANSAS AGRI-ENERGY,LLC**

**(A DEVELOPMENT STAGE COMPANY)**

#### **BALANCE SHEET (UNAUDITED)**

**SEPTEMBER30, 2003**

 
| **ASSETS**                                                                          |   |      |    |
|-------------------------------------------------------------------------------------|--------|-----------|---------|
|                                                                                |   |      |    |
| CURRENT ASSETS                                                                      |   |      |    |
| Cash and cash equivalents                                                           |   | $         | 58,977  |   |
| Accounts receivable - grant                                                         |   | 25,853    |    |
| Prepaid offering costs                                                              |   | 248,811   |    |
| Prepaid expense                                                                     |   | 4,656     |    |
| Total current assets                                                                |   | 338,297   |    |
|                                                                                |   |      |    |
| PROPERTY, PLANT AND EQUIPMENT                                                       |   |      |    |
| Office equipment                                                                    |   | 16,490    |    |
| Construction in progress                                                            |   | 74,499    |    |
|                                                                                |   | 90,989    |    |
| Less accumulated depreciation                                                       |   | 2,663     |    |
|                                                                                |   | 88,326    |    |
| OTHER ASSETS                                                                        |   |      |    |
| Land option                                                                         |   | 10,000    |    |
|                                                                                |   |      |    |
| Total assets                                                                        |   | $         | 436,623 |   |
|                                                                                |   |      |    |
| **LIABILITIES AND MEMBERS’ EQUITY**                                            |   |      |    |
|                                                                                |   |      |    |
| CURRENT LIABILITIES                                                                 |   |      |    |
| Current portion of long-term debt                                                   |   | $         | 75,000  |   |
| Accounts payable                                                                    |   |      |    |
| Trade                                                                               |   | 32,901    |    |
| Related party                                                                       |   | 15,000    |    |
| Accrued payroll, taxes and withholdings                                             |   | 6,644     |    |
| Total current liabilities                                                           |   | 129,545   |    |
|                                                                                |   |      |    |
| COMMITMENTS AND CONTINGENCIES                                                       |   |      |    |
|                                                                                |   |      |    |
| MEMBERS’ EQUITY                                                                |   |      |    |
| Capital contributions, 20,000 units authorized,  1,220 units issued and outstanding |   | 1,220,000 |    |
| Deficit  accumulated during the development stage                                   |   | (912,922  | )       |
| Total members’ equity                                                          |   | 307,078   |    |
|                                                                                |   |      |    |
| Total liabilities and members’ equity                                          |   | $         | 436,623 |   |

 

SeeNotes to Unaudited Financial Statements

 

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##### ***EAST KANSAS AGRI-ENERGY, LLC***

**(A DEVELOPMENT STAGE COMPANY)**

**STATEMENTSOF OPERATIONS****(UNAUDITED)**

 
|                                                   |   | **Three Months  Ended  September 30,  2003** | ** ** | **Nine Months  Ended  September 30,  2003** | ** ** | **Three Months  Ended  September 30,  2002** | ** ** | **Nine Months  Ended  September 30,  2002** | ** ** | **From January 3,  2001 (Date of  Inception) to  September 30,  2003** | ** ** |
|--------------------------------------------------------|--------|----------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|------------------------------------------------------------------------|------------|
|                                                   |   |                                         |       |                                        |       |                                         |       |                                        |       |                                                                   |       |
| REVENUE                                                |   | $                                            | —     |                                        | $          | —                                       |       | $                                           | —     |                                                                   | $          | — |   | $ | — |   |
|                                                   |   |                                         |       |                                        |       |                                         |       |                                        |       |                                                                   |       |
| OPERATING EXPENSES                                     |   |                                         |       |                                        |       |                                         |       |                                        |       |                                                                   |       |
| Organizational expenses                                |   | —                                       |       | —                                      |       | —                                       |       | —                                      |       | 3,643                                                                  |       |
| Start-up expenses                                      |   |                                         |       |                                        |       |                                         |       |                                        |       |                                                                   |       |
|                                                   |   | 46,269                                       |       | 132,560                                     |       | 35,941                                       |       | 107,105                                     |       | 293,512                                                                |       |
|                                                   |   | 46,269                                       |       | 132,560                                     |       | 35,941                                       |       | 107,105                                     |       | 297,155                                                                |       |
| OTHER INCOME                                           |   |                                         |       |                                        |       |                                         |       |                                        |       |                                                                   |       |
| Interest income                                        |   | 227                                          |       | 1,643                                       |       | 2,011                                        |       | 3,199                                       |       | 6,631                                                                  |       |
| Other income                                           |   | —                                       |       | —                                      |       | —                                       |       | 2,000                                       |       | 2,000                                                                  |       |
|                                                   |   | 227                                          |       | 1,643                                       |       | 2,011                                        |       | 5,199                                       |       | 8,631                                                                  |       |
|                                                   |   |                                         |       |                                        |       |                                         |       |                                        |       |                                                                   |       |
| NET LOSS                                               |   | $                                            | (46,042    | )                                           | $          | (130,917                                     | )          | $                                           | (33,930    | )                                                                      | $          | (101,906 | ) | $ | (288,524 | ) |
|                                                   |   |                                         |       |                                        |       |                                         |       |                                        |       |                                                                   |       |
| BASIC AND DILUTED LOSS PER UNIT                        |   | $                                            | (37.74     | )                                           | $          | (107.31                                      | )          | $                                           | (27.81     | )                                                                      | $          | (98.46 | ) |   |   |
|                                                   |   |                                         |       |                                        |       |                                         |       |                                        |       |                                                                   |       |
| WEIGHTED AVERAGE UNITS OUTSTANDING, BASIC AND  DILUTED |   | 1,220                                        |       | 1,220                                       |       | 1,220                                        |       | 1,035                                       |       |                                                                   |       |

 

SeeNotes to Unaudited Financial Statements

 

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# **EAST KANSAS AGRI-ENERGY,LLC**

**(A DEVELOPMENT STAGE COMPANY)**

**STATEMENTSOF CHANGES IN MEMBERS’ EQUITY****(UNAUDITED)**

 
|                                                   |   | **Units** |   | **Contributed  Capital** |      | **Deficit  Accumulated  During the  Development  Stage** |   | **Total** |   |
|--------------------------------------------------------|--------|-----------|--------|--------------------------|-----------|----------------------------------------------------------|--------|-----------|--------|
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Balance, January 3, 2001 (Date of Inception)           |   | —    |   | $                        | —    |                                                     | $      | —    |   | $ | — |   |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Net loss for the period ended December 31, 2001        |   | —    |   | —                   |      | (30,484                                                  | )      | (30,484   | )      |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Balance as of December 31, 2001                        |   | —    |   | —                   |      | (30,484                                                  | )      | (30,484   | )      |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Units issued                                           |   | 1,220     |   | 610,000                  |      | —                                                   |   | 610,000   |   |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Impact of units issued at a discount                   |   | —    |   | 610,000                  |      | (610,000                                                 | )      | —    |   |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Cost of raising capital                                |   | —    |   | —                   |      | (14,398                                                  | )      | (14,398   | )      |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Net loss for the nine months ended September 30,  2002 |   | —    |   | —                   |      | (101,906                                                 | )      | (101,906  | )      |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Balance as of September 30, 2002                       |   | 1,220     |   | 1,220,000                |      | (756,788                                                 | )      | 463,212   |   |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Net loss for the three months ended December 31,  2002 |   | —    |   | —                   |      | (25,217                                                  | )      | (25,217   | )      |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Balance as of December 31, 2002                        |   | 1,220     |   | 1,220,000                |      | (782,005                                                 | )      | 437,995   |   |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Net loss for the nine months ended September 30,  2003 |   | —    |   | —                   |      | (130,917                                                 | )      | (130,917  | )      |
|                                                   |   |      |   |                     |      |                                                     |   |      |   |
| Balance as of September 30, 2003                       |   | 1,220     |   | $                        | 1,220,000 |                                                     | $      | (912,922  | )      | $ | 307,078 |   |

 

SeeNotes to Unaudited Financial Statements

 

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# **EAST KANSAS AGRI-ENERGY,LLC**

**(A DEVELOPMENT STAGE COMPANY)**

**STATEMENTSOF CASH FLOWS****(UNAUDITED)**

 
|                                                                        |   | **Nine Months  Ended  September 30,  2003** |     | **Nine Months  Ended  September 30,  2002** |   | **From January 3,  2001 (Date of  Inception) to  September 30,  2003** |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------------|----------|---------------------------------------------|--------|------------------------------------------------------------------------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES                                        |   |                                        |     |                                        |   |                                                                   |   |
| Net loss                                                                    |   | $                                           | (130,917 | )                                           | $      | (101,906                                                               | )      | $ | (288,524 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities |   |                                        |     |                                        |   |                                                                   |   |
|                                                                        |   |                                        |     |                                        |   |                                                                   |   |
| Depreciation                                                                |   | 2,265                                       |     | 109                                         |   | 2,663                                                                  |   |
|                                                                        |   |                                        |     |                                        |   |                                                                   |   |
| Increase in current assets                                                  |   |                                        |     |                                        |   |                                                                   |   |
| Accounts receivable                                                         |   | (25,853                                     | )        | —                                      |   | (25,853                                                                | )      |
| Prepaid expense                                                             |   | (4,656                                      | )        | —                                      |   | (4,656                                                                 | )      |
| Increase (decrease) in current liabilities:                                 |   |                                        |     |                                        |   |                                                                   |   |
| Accounts payable                                                            |   | (25,479                                     | )        | 57,625                                      |   | 47,901                                                                 |   |
| Accrued payroll, taxes and withholdings                                     |   | 5,236                                       |     | —                                      |   | 6,644                                                                  |   |
| Net cash used for operating activities                                      |   | (179,404                                    | )        | (44,172                                     | )      | (261,825                                                               | )      |
|                                                                        |   |                                        |     |                                        |   |                                                                   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                        |   |                                        |     |                                        |   |                                                                   |   |
| Purchase of equipment                                                       |   | (11,470                                     | )        | (5,019                                      | )      | (16,490                                                                | )      |
| Purchase of land option                                                     |   | (5,000                                      | )        | (5,000                                      | )      | (10,000                                                                | )      |
| Construction in process                                                     |   | (10,676                                     | )        | (46,271                                     | )      | (74,499                                                                | )      |
| Net cash used for investing activities                                      |   | (27,146                                     | )        | (56,290                                     | )      | (100,989                                                               | )      |
|                                                                        |   |                                        |     |                                        |   |                                                                   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                        |   |                                        |     |                                        |   |                                                                   |   |
| Cost of raising capital                                                     |   | (108,663                                    | )        | (68,027                                     | )      | (263,209                                                               | )      |
| Proceeds from notes payable                                                 |   | —                                      |     | —                                      |   | 137,000                                                                |   |
| Repayment of notes payable                                                  |   | —                                      |     | (126,000                                    | )      | (137,000                                                               | )      |
| Proceeds from long-term debt                                                |   | —                                      |     | —                                      |   | 75,000                                                                 |   |
| Capital contributions                                                       |   | —                                      |     | 555,000                                     |   | 610,000                                                                |   |
| Net cash provided by (used for) financing  activities                       |   | (108,663                                    | )        | 360,973                                     |   | 421,791                                                                |   |
|                                                                        |   |                                        |     |                                        |   |                                                                   |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                   |   | (315,213                                    | )        | 260,511                                     |   | 58,977                                                                 |   |
|                                                                        |   |                                        |     |                                        |   |                                                                   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              |   | 374,190                                     |     | 186,809                                     |   | —                                                                 |   |
|                                                                        |   |                                        |     |                                        |   |                                                                   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                    |   | $                                           | 58,977   |                                        | $      | 447,320                                                                |   | $ | 58,977 |   |

 

(continuedon next page)

 

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**STATEMENTS OF CASH FLOWS (UNAUDITED)**

 
|                                                          |   | **Nine Months  Ended  September 30,  2003** |   | **Nine Months  Ended  September 30,  2002** |   | **From January 3,  2001 (Date of  Inception) to  September 30,  2003** |   |
|---------------------------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------------|--------|------------------------------------------------------------------------|--------|
|                                                          |   |                                        |   |                                        |   |                                                                   |   |
| NON CASH INVESTING AND FINANCING ACTIVITIES                   |   |                                        |   |                                        |   |                                                                   |   |
|                                                          |   |                                        |   |                                        |   |                                                                   |   |
| Property, plant, and equipment costs incurred                 |   | $                                           | — |                                        | $      | —                                                                 |   | $ | 13,112 |   |
|                                                          |   |                                        |   |                                        |   |                                                                   |   |
| Cost of raising capital reclassified to members’  equity |   | $                                           | — |                                        | $      | —                                                                 |   | $ | 14,398 |   |
|                                                          |   |                                        |   |                                        |   |                                                                   |   |
| Capital contributions issued at discount                      |   | $                                           | — |                                        | $      | —                                                                 |   | $ | 610,000 |   |
|                                                          |   |                                        |   |                                        |   |                                                                   |   |
| Prepaid expenses reclassified to cost of raising  capital     |   | $                                           | — |                                        | $      | 35,754                                                                 |   | $ | — |   |

 

See Notes to Unaudited Financial Statements

 

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**EASTKANSAS AGRI-ENERGY, LLC**

**(ADEVELOPMENT STAGE COMPANY)**

**NOTES TOUNAUDITED FINANCIAL STATEMENTS**

 

**NOTE 1 -**                       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

*Nature of Business*

 

East Kansas Agri-Energy, LLC, (a development stage Kansas limitedliability company) to be located in Garnett, Kansas, was organized to poolinvestors to build a 20 million gallon ethanol plant with distribution withinthe United States. Construction is projected to begin in the year 2003. As ofSeptember 30, 2003, the Company is in the development stage with its effortsbeing principally devoted to organizational and financing activities.

 

The Company was formally organized as a limited liability company as ofOctober 16, 2001. Prior to that date the Company operated as a generalpartnership with no formal partnership agreement.

 

*Basis of Accounting*

 

The Company uses the accrual basis of accounting in accordance withaccounting principles generally accepted in the United States of America. Thismethod recognizes revenues as earned and expenses as incurred.

 

The unaudited financial statements contained herein have been preparedpursuant to the rules and regulations of the Securities and ExchangeCommission. Accordingly, they do not include all the information and footnotesrequired by accounting principles generally accepted in the United States ofAmerica.

 

In the opinion of management, all adjustments considered necessary fora fair presentation have been included in the accompanying financialstatements.

 

These financial statements should be read in conjunction with thefinancial statements and notes included in the Company’s financial statementsfor the year ended December 31, 2002.

 

*Estimates*

 

Managementuses estimates and assumptions in preparing financial statements. Thoseestimates and assumptions affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expenses.Actual results could differ from the estimates used.

 

*Earnings Per Unit*

 

Earnings perunit are calculated based on the period of time units have been issued andoutstanding. For purposes of calculating diluted earnings per capital unit,units subscribed for but not issued are included in the computation ofoutstanding capital units. As of September 30, 2003, there were no unitsincludable in diluted earnings per unit related to subscribed units as thecalculation would have been antidilutive.

 

*Recently Issued Accounting Pronouncements*

 

The Financial Accounting Standards Board (FASB) has issued StatementNo. 149, Amendment of Statement 133 on Derivative Instruments and HedgingActivities*.* The Statement amendsand clarifies accounting for derivative instruments, including certainderivative instruments embedded in other contracts, and for hedging activitiesunder Statement 133.

 

(continued on next page)

 

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The Financial Accounting Standards Board (FASB) has issued StatementNo. 150, Accounting for Certain Financial Instruments with Characteristics ofboth Liabilities and Equity*.*  The Statement establishes standards for howan issuer classifies and measures certain financial instruments.

 

Management does not expect the implementation of these pronouncementsto have a significant effect on the Company’s financial statements.

 

**NOTE 2 -**                       COMMITMENTS AND CONTINGENCIES

 

The Company has entered into an optionagreement to purchase approximately 10 acres of land. The option was originallypurchased for $5,000 and provides for a purchase price of $9,000 per acre, plusthe cost to replace boundary fencing and relocate an existing structure alongwith water and electric utilities. The option was extended to March 13, 2004,and the Company paid an additional $5,000 for the extension. The purchase priceof the land will be reduced by amounts previously paid for the option andextension.

 

The Company has an agreement with its formerproject coordinator to defer a portion of fees earned until stock sales areauthorized. The former project coordinator provides limited service on anongoing basis. The deferred amount included in accounts payable – related partyas of September 30, 2003 was $15,000.

 

On May 14, 2002, the Company entered into anoption to purchase real property for the plant site with a fair value of approximately$172,500. The option is for the purchase of approximately 23 acres within theGolden Prairie Industrial Park of the City of Garnett, Kansas for $1. Theoption was extended and expires on June 1, 2004.

 

The Company entered into an agreement for preliminaryengineering for the proposed ethanol plant with Fagan Engineering LLC. Theagreement obligates the Company for no more than $30,000, of whichapproximately $16,000 had been incurred as of September 30, 2003.

 

During the nine months ended September 30,2003, the Company terminated its agreement with Value Added Ventures, LLC(VAV). The Company has been notified by VAV requesting payment for servicesfrom the inception of the contract through the date of termination totaling$33,380. The Company and VAV are negotiating settlement of this contract. TheCompany has recorded a liability related to this agreement of $5,847 as ofSeptember 30, 2003.

 

TheBoard of Directors approved a registration statement filed with the Securitiesand Exchange Commission for the sale of units in an initial public offering. Aminimum of 9,000 units and a maximum of 18,000 units (exclusive of units issuedprior to the initial public offering) will be offered for sale in the publicoffering at a price of $1,000 per unit. Each investor is required to purchase aminimum of 10 units. The minimum amount of the offering is $9,000,000, with amaximum potential amount raised of $18,000,000. In the event subscriptions forthe minimum are not received and accepted or events occur that prevent theescrow from being broken (such as non-execution of debt financing agreements),amounts received from subscriptions will be returned to the purchaser withinterest based on interest earned on the escrow account, less applicable fees.Subscriptions require submission of 10% of the offering price, with theremaining amount subject to call of the Board of Directors. In the event asubscriber does not pay for their units in full, all amounts previouslycollected are forfeited to the Company. As of September 30, 2003, theamount held in escrow totaled $401,700 representing subscriptions of $3,747,000for 3,747 units. Amounts held in escrow are not included in the accompanyingfinancial statements as the Company does not have title to the proceeds of thesubscriptions until the terms of the escrow agreement have been met and thesubscriptions are released to the Company.

 

(continued on next page)

 

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**NOTE 3 -**                       CONCENTRATION OF CREDIT RISK

 

The Company maintains cash balances at a financial institution in itstrade area. The account is secured by the Federal Deposit Insurance Corporationup to $100,000. At times, the Company’s bank balance may exceed $100,000.

 

During 2003, the Company entered into an agreement with Garnett StateSavings Bank to provide security for balances held in escrow related tosubscriptions received as part of the Company’s initial public offering.

 

**NOTE 4 -**                       VALUE ADDED GRANT

 

During the nine months endedSeptember 30, 2003, the Company received notification of award of a UnitedStates Department of Agriculture Value-Added Agricultural Product MarketDevelopment Grant (the Grant) for approximately $450,000. The Grant can be usedto pay for certain organizational, offering and start-up costs related to theformation and capitalization of the Company. The Company qualified forreimbursement of $25,853 and $119,987 of costs, of which $0 and $34,240 relatedto cost of raising capital and $25,853 and $85,747 was recorded as a reductionof start-up costs for the three and nine months ended September 30, 2003,respectively.

 

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**Item 2.****           Management’sDiscussion and Analysis or Plan of Operation**

 

This report contains forward-looking statements that involve futureevents, our future performance and our expected future operations andactions.  In some cases you can identifyforward-looking statements by the use of words such as “may,” “should,”“anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,”“estimate,” “predict,” “hope,” “potential,” “continue,” or the negative ofthese terms or other similar expressions. These forward-looking statements are only our predictions and involvenumerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from theseforward-looking statements for many reasons, including the risks described inour Registration Statement on Form SB-2, as amended (SEC Registration No.333-96703) and appearing elsewhere in this report.  We are not under any duty to update the forward-lookingstatements contained in this report.  Wecannot guarantee future results, levels of activity, performance or achievements.  We caution you not to put undue reliance onany forward-looking statements, which speak only as of the date of thisreport.  You should read this report andthe documents that we reference in this report and have filed as exhibits,completely and with the understanding that our actual future results may bematerially different from what we currently expect.  We qualify all of our forward-looking statements by thesecautionary statements.

 

**Overview**

 

We are a start-up company in the development stage.  We plan to build a corn-based ethanol plantthat will produce ethanol, distillers grains and carbon dioxide.  The ethanol plant is expected to processapproximately 7.5 million bushels of corn and sorghum per year into 20 milliongallons of denatured fuel grade ethanol. We also intend to produce approximately 64 thousand tons of drieddistillers grains with solubles and 63 thousand tons of raw carbon dioxide gas.

 

We filed a Registration Statement on Form SB-2 (SEC Registration No.333-96703), as amended, with the Securities and Exchange Commission, whichbecame effective on January 24, 2003 (the “Registration Statement”) for aninitial public offering of our units (the “Offering”).  Depending on the results of the Offering, weexpect that the project will cost approximately $35.9 million.  We have raised approximately $610,000 inseed capital in the form of cash and promissory notes, and plan to raise aminimum of $9,000,000 and a maximum of $18,000,000 in the Offering and securethe balance through federal, state and local grants and debt financing.  We will require a significant amount of debtfinancing to complete our project.  Theamount of debt financing that we need depends on the amount of equity we raisein the Offering and whether we receive all of our grant proceeds.  We have contacted and have had limiteddiscussions with prospective lenders, but have no agreement with any lender forthe debt financing that we need.  If wedo not secure the debt financing that we need, we will not be able to constructour proposed ethanol plant and may have to abandon our business.

 

We expect that it will take approximately 14 to 16 months from the datewe close the Offering to construct the ethanol plant and commence start-upoperations.  We do not intend to hire asales staff to market our products.  Weplan to engage third party distributors to market or purchase our ethanol anddistillers grains.  We have entered intodiscussions with third party distributors to market our ethanol, but have notexecuted any agreement with any distributor for our ethanol or distillersgrains.  We plan to pay commissions orfees to distributors to market our products. We have no plans at this time to sell our carbon dioxide to a thirdparty processor.  We intend to hirestaff only to operate our ethanol plant and manage our business.

 

We are in the process ofacquiring 23 acres of land in the Golden Prairie Industrial Parkon the edge of Garnett, Kansasfor the project.  We have received anoption to purchase the real estate from the City of Garnett, Kansas.  That option was set to expire on December 1,2002, but was extended for six months to June 1, 2003.  On May 13, 2003, the Garnett City Commissionextended the option for another year, to June 1, 2004.  The extension to the option was grantedwithout additional costs to us.

 

**Plan of Operation to Start-up of the Ethanol Plant**

 

We expect to spend the next 18 months infinancing, design-development and construction of the Plant.  During the time precedingcompletion of this Offering, we will identify and interview senior bank lendersto obtain needed debt financing. We intend to begin this process by identifyingregional lenders that are able to fund projects

 

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of the size of our Plant and inviting thoselenders to inform us of their level of interest in offering us debtfinancing.  We will then determine whichof those lenders have the least restrictive requirements of us and the termsthat are most favorable to us.  Weexpect to have the senior bank loan commitment from a major financinginstitution or institutions in place at approximately the closing of thisOffering.

 

We are currently in the process ofnegotiating a design-build contract with Fagen, Inc.  We expect that the construction of the Plant and rail spur willtake 14 months from the time construction commences.  We expect that initial start-up and operations of the plant willbe under the general direction and guidance of Fagen, Inc. employees and ourown personnel, who will have experience in ethanol production or will havereceived on-site training provided by Fagen, Inc.  We further anticipate that additional on-site support will beprovided by Fagen, Inc. for the first 30 days of plant operation.

 

**Sources and Uses of Funds**

 

The grossproceeds from this Offering will be $9,000,000 if the minimum amount of equityoffered is sold, and $18,000,000, before deducting expenses, if the maximumnumber of Units offered is sold. We estimate the Offering expenses to beapproximately $350,000, and the net proceeds of the Offering to be $8,650,000if the minimum amount of equity is raised, and $17,650,000 if the maximumnumber of Units offered is sold.

 

Assuming the successfulcompletion of this Offering and the related debt financing, we expect to havesufficient cash on hand to cover all costs associated with construction of theproject, including but not limited to, site acquisition, utilities,construction, equipment acquisition and site development. In addition, weexpect to have enough cash to cover our costs through this period, includingstaffing, office costs, audit, legal, compliance and staff training.  We estimate that we will need approximately$35.6 million to complete the project.

 

We must obtain debt financing in order to complete construction on theethanol Plant. The amount and nature of the debt financing that we are seekingis subject to the interest rates and the credit environment as well as othereconomic factors over which we have no control. We have no binding contracts orcommitments with any bank, lender or financial institution for our debtfinancing, but we will not close on this Offering until we execute bindingfinancing arrangements.

 

The following schedule is an estimate of our sources of funds.  This schedule is based on numerousassumptions, including, among other things, that we sell 14,360 units andreceive grant proceeds of $450,000.  Theamounts set forth below are estimates only and our actual source of funds couldvary significantly due to a variety of factors, including those described inthe Registration Statement and this report.

** **
| **Source of Funds**            |   | **If 14,360 Units  Sold** |       | **Percent of  Total** |   |
|--------------------------------|--------|---------------------------|------------|-----------------------|--------|
| Unit  Proceeds                 |   | $                         | 14,200,000 |                  | 39.9   | % |
| Seed Capital Proceeds          |   | $                         | 610,000    |                  | 1.7    | % |
| Government and Grant Financing |   | $                         | 450,000    |                  | 1.3    | % |
| Term Debt Financing            |   | $                         | 20,346,000 |                  | 57.1   | % |
|                           |   |                      |       |                  |   |
| **Total  Sources of Funds**    |   | $                         | 35,606,000 |                  | 100.0  | % |

 

We intend to use the net proceeds of theOffering to build an ethanol plant and to start operating the ethanol Plant asa going concern. We must supplement the proceeds of this Offering with debtfinancing to meet our stated goals. We estimate total capital expenditures forthe construction of the Plant, including real estate costs, will beapproximately $33 million. The following table describes our proposed use ofproceeds based on a maximum offering amount of $18,000,000, and a minimumoffering amount of $9,000,000. The following figures are intended to beestimates only, and the actual use of funds may vary significantly from thedescriptions given below.

 

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| **Use of Funds**                                                 |   | **Expenses** |       |   |       | **Percent of Total** |       |
|------------------------------------------------------------------|--------|--------------|------------|--------|------------|----------------------|------------|
|                                                             |   |         | ** ** |   | ** ** |                 | ** ** |   | ** ** |
| Plant  Construction and Equipment                                |   |         |       |   |       |                 |       |   |   |
| Grain  receiving, storage and milling equipment                  |   | $            | 1,655,500  |   |       |                 | 4.65       | % |   |   |
| Conversion  and liquefication system                             |   | $            | 1,204,000  |   |       |                 | 3.38       | % |   |   |
| Fermentation  System                                             |   | $            | 3,612,000  |   |       |                 | 10.14      | % |   |   |
| Distillation  and molecular sieve                                |   | $            | 2,709,000  |   |       |                 | 7.61       | % |   |   |
| Liquid/Solid  separation system                                  |   | $            | 1,354,500  |   |       |                 | 3.80       | % |   |   |
| Evaporation  system                                              |   | $            | 2,408,000  |   |       |                 | 6.76       | % |   |   |
| Product  storage area                                            |   | $            | 2,107,000  |   |       |                 | 5.92       | % |   |   |
| Utilities:  costs to install gas, electric, water infrastructure |   | $            | 1,200,000  |   |       |                 | 3.37       | % |   |   |
| General  plant infrastructure, including roads                   |   | $            | 8,650,000  |   |       |                 | 24.30      | % |   |   |
| Engineering  and architectural fees                              |   | $            | 2,500,000  |   |       |                 | 7.02       | % |   |   |
| Total Plant Construction and Equipment                           |   |         |       | $      | 27,400,000 |                 |       |   | 76.95 | % |
| Non-Plant Construction                                           |   |         |       | $      | 200,000    |                 |       |   | 0.56 | % |
| Organizational Costs                                             |   |         |       | $      | 865,000    |                 |       |   | 2.43 | % |
| Start  Up Costs                                                  |   |         |       | $      | 1,960,000  |                 |       |   | 5.51 | % |
| Fire Protection / Water Supply                                   |   |         |       | $      | 420,000    |                 |       |   | 1.18 | % |
| Rolling  Stock                                                   |   |         |       | $      | 190,000    |                 |       |   | 0.53 | % |
| Site  Costs                                                      |   |         |       | $      | 851,000    |                 |       |   | 2.39 | % |
| Railroad                                                         |   |         |       | $      | 1,430,000  |                 |       |   | 4.02 | % |
| Financing Costs                                                  |   |         |       | $      | 1,290,000  |                 |       |   | 3.62 | % |
| Thermal Oxidizer                                                 |   |         |       | $      | 1,000,000  |                 |       |   | 2.81 | % |
|                                                             |   |         |       |   |       |                 |       |   |   |   |
| **Total Uses of Funds**                                          |   |         |       | $      | 35,606,000 |                 |       |   | 100.00 | % |

 

Because we must secure a significant amountof debt, we will first pay financing costs of approximately $1,290,000. This isan estimate and our actual debt financing expenses could be substantiallyhigher.  We will have significantoperating costs prior to the receipt of revenue from the sale of ethanol anddistillers grains.  Among these costs isthe cost of insurance.  The Board ofDirectors is currently researching various insurance structures for directorsand officers’ insurance, general liability insurance and property insurance. Weare reserving approximately $865,000 to cover costs associated with securingappropriate insurance coverage and other organizational expenses. This reserveamount is based on an estimate only and our actual insurance costs may exceedthe reserve amount.  We are alsoreserving funds for start up costs, such as $300,000 to pay general andadministrative costs for managerial fees, out-of-pocket reimbursements andgeneral office expenses.  Our actualgeneral and administrative expenses may exceed this amount. We will also havepreproduction costs for inventory and other expenses.  It is possible that lenders may require aperformance bond for the construction of the Plant.  Payment for such a bond will be our responsibility.  We anticipate that such a bond will costapproximately $300,000.  The remainder of the funds will be used to pay constructioncosts, such as digging, laying foundations, purchasing and installingequipment, and constructing buildings.

 

**Administration**

 

We currently have an office staff comprisedof two full-time and two part-time employees. One of the full-time employees, Jill Zimmerman, is also a director ofthe company.  The staff is dedicated tocoordinating our campaign to complete our equity drive and to complying withstate and federal regulations in the process. We are

 

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also dependent on our board ofdirectors to maintain our books and records. These individuals are ultimately responsible for complying with therules and regulations promulgated under the Securities and Exchange Act of 1934concerning the maintenance of accurate books and records, and the timelysubmission of periodic reports and other requirements with the Securities and ExchangeCommission.

 

**Operating Expenses**

 

When the ethanol plant nears completion, weexpect to incur various operating expenses, such as supplies, utilities andsalaries for administration and production personnel.  Along with operating expenses, we anticipate that we will havesignificant expenses relating to financing and interest.  We have allocated funds in our capitalstructure for these expenses, but cannot assure you that the funds allocatedwill be sufficient to cover these expenses. We may need additional funding to cover these costs if sufficient fundsare not available or if costs are higher than expected.

 

**Employees**

 

Upon completion of the ethanol plant, we intend to hire approximately32 additional employees. Approximately ten of our employees will be involvedprimarily in management and administration and the remainder will be involvedprimarily in Plant operations.

 

The following table represents some of the anticipated positions withinthe Plant and the minimum number of individuals we intend to employ for eachposition:

 

| **Position**            |   | **# Employed** |       |
|-------------------------|--------|----------------|------------|
| General  Manager        |   | 1              |       |
| Plant  Manager          |   | 1              |       |
| Commodities  Manager    |   | 1              |       |
| Controller              |   | 1              |       |
| Lab Manager             |   | 1              |       |
| Lab  Technician         |   | 2              |       |
| Secretary/Clerical      |   | 4              |       |
| Shift  Supervisors      |   | 4              |       |
| Maintenance  Supervisor |   | 1              |       |
| Maintenance  Craftsmen  |   | 4              |       |
| Plant  Operators        |   | 12             |       |
| **TOTAL**               |   | **32**         | ** ** |

 

**Liquidity and Capital Resources**

 

As of September 30, 2003, we had cash andcash equivalents of $58,977 and total current assets of $338,297.  Our total assets include $248,811 of prepaidoffering costs relating to the Offering. At the time we issue units in the Offering, these costs will be nettedagainst the proceeds received, or if we do not complete the sale of any unitsin the Offering, they will be expensed. To date, we have raised a total of $610,000 in seed capital, which wehave used to fund our organization and operation to date.  As of September 30, 2003, we had currentliabilities of $129,545, which is comprised substantially by our accountspayable and the current portion of our long-term debt.  Since our inception through September 30,2003, we have an accumulated deficit of $912,922.  Total members’ equity as of September 30, 2003 was $307,078.  Since our inception, we have generated norevenue from operations.

 

We are seeking to raise a minimum of$9,000,000 and a maximum of $18,000,000 in the Offering. Depending on theresults of the Offering, we believe that the project will cost a total ofapproximately $35,600,000.  We plan tofinance the project with seed capital, proceeds from the Offering, governmentgrants and debt financing.  The amountof debt financing that we need depends on the results of the Offering andwhether we receive all of our anticipated grant proceeds.  We anticipate that we will needapproximately $26,600,000 in debt financing if we raise the minimum amountoffered in the Offering, and approximately $17,600,000 if we raise the maximumamount offered.  The amount of debtfinancing we need may decrease if we receive additional grants.  We have no

 

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commitments for the debtfinancing that we need or for any additional grants.  Completion of the proposed ethanol plant depends on our abilityto close on our debt financing and satisfy all conditions for breaking escrowand closing on the Offering.

 

We expect that our debt financing will be inthe form of a construction loan that will convert to a permanent loan when webegin operations.  We also expect thatthe loan will be secured by all of our real property and substantially all ofour other assets, including receivables and inventories.  In addition to repaying the principal, weplan to pay interest on the loan at market rate for loans to start-up ethanolprojects, plus annual fees for maintenance and observation of the loan by thelender.  We intend to capitalize all ofour interest until we commence start-up operation, which means that we will notmake any payment on the loan until we construct the ethanol plant and beginproducing ethanol.  If the project suffersdelays, we may not be able to timely repay the loan.  If interest rates increase, we will have higher interestpayments, which could adversely affect our business. We currently have nocommitment for any financing.

 

**Item 3.****           Controlsand Procedures**

 

(a)                                  Evaluationof Disclosure Controls and Procedures.

 

Our President (the principal executive officer), William R.Pracht, and our Treasurer (the principal financial officer), Jill A.Zimmerman, have reviewed our disclosure controls and procedures as of the endof the period covered by this quarterly report.  Based upon this review, these officers believe that ourdisclosure controls and procedures are effective in ensuring that materialinformation related to us is made known to them by others within the Company.

 

(b)                                 Changesin Internal Controls.

 

Our President (the principal executive officer), William R.Pracht, and our Treasurer (the principal financial officer), Jill A.Zimmerman, have evaluated any changes in our internal control over financialreporting that occurred as of the end of the period covered by this quarterlyreport and there has been no change that has materially affected or isreasonably likely to materially affect our internal control over financialreporting.

 

**PART II.****                                                OTHERINFORMATION**

 

**Item 1.****           LegalProceedings**

 

None.

 

**Item 2.****           Changesin Securities**

 

The Securitiesand Exchange Commission declared our Registration Statement on Form SB-2 (SECRegistration No. 333-96703) effective on January 24, 2003.  We commenced our initial public offering ofour units shortly thereafter.  We havenot closed the Offering and are continuing to offer the units. Our officers anddirectors are offering and selling the units on a best efforts basis withoutthe assistance of an underwriter.  We donot pay our officers or directors any compensation for services related to theoffer or sale of the units.  One of our directors, Jill Zimmerman, is employedon a full-time basis as our equity manager. Her compensation is a fixed annualsalary.

 

We registered a total of 18,000 units with anaggregate gross offering price of $18,000,000, or $1,000.00 per unit.  We intend to close the Offering on January24, 2004.  As of September 30, 2003, we havereceived subscriptions for approximately 3,747 units, or an aggregate of $3,747,000of subscription payments in the form of cash and notes.  We are depositing all subscription paymentsfrom the Offering in an escrow account. We have not yet met the conditions to breaking escrow and therefore havenot completed the sale of any of the units subscribed.  We will not break escrow and complete thesale of any of the units subscribed for until we satisfy the followingconditions:

•                                 thesubscription proceeds in the escrow account equals or exceeds $9.0 million(exclusive of interest);

•                                 weobtain a written debt financing commitment sufficient to carry out our businessplan;

 

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•                                 weelect, in writing, to terminate the escrow agreement; and

•                                 releaseis approved by the Kansas Securities Commission.

 

From January 24, 2003  (the effective date of the registrationstatement) to September 30, 2003, we incurred no expenses for our account inconnection with the issuance and distribution of the units registered for underwritingdiscounts and commissions, finders’ fees, expenses paid to or for underwriters,or other expenses.  From January 24,2003 (the effective date of the registration statement) to September 30, 2003,we did not receive or use any net offering proceeds.

 

**Item 3.****           Defaults Upon SeniorSecurities**

 

None.

 

**Item 4.****           Submission of Mattersto a Vote of Security Holders**

 

None.

 

**Item 5.****           Other Information**

 

None.

 

**Item 6.****           Exhibits and Reports onForm 8-K**

 

(a)                                  Thefollowing exhibits are included herein:

 

31.1                           Certificate Pursuant to 17CFR 240.15d-14(a)

31.2                           Certificate Pursuant to 17CFR 240.15d-14(a)

32.1                           Certificate Pursuant to 18U.S.C. § 1350

 

(b)                                 Reportson Form 8-K.

 

None.

 

**SIGNATURES**

 

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

 

 
|   |              | EAST  KANSAS AGRI-ENERGY, L.L.C.                        |
|--------|-------------------|---------------------------------------------------------|
|   |              |                                                    |
|   |              |                                                    |
| Date:  | November 14, 2003 |                                                    | /William  R. Pracht/ |   |
|   |              | William  R. Pracht                                      |
|   |              | President  (Principle Executive Officer)                |
|   |              |                                                    |
|   |              |                                                    |
| Date:  | November 14, 2003 |                                                    | /Jill A. Zimmerman/ |
|   |              | Jill A. Zimmerman                                       |
|   |              | Treasurer  (Principal Financial and Accounting Officer) |

** **

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