**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q/A**

 

**T**                                 Quarterly report underSection 13 or 15(d) of the Securities Exchange Act of 1934.

 

**For the quarterly periodended March 31, 2007**

 

**OR**

 

**£**                                 Transitionreport under Section 13 or 15(d) of the Exchange Act.

 

**For the transition periodfrom  _______   to _________**

 

**Commission file number**0001170106

** **

**EAST KANSAS AGRI-ENERGY, LLC**

(Exact name of Registrant as specified in its charter)

 

| **Kansas**                                                      | ** ** | **48-1251578**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer Identification No.) |

 

**P.O. Box225, 1304 S. Main, Garnett, Kansas 66032**

(Address of principalexecutive offices)

 

**(785) 448-2888**

(Registrant’s telephonenumber)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.
|  | x   Yes          o  No |
|--|------------------------------------------------------------------------------------|

 

Indicate by check mark whether the registrant is alarge accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):
| Large Accelerated  Filer o | Accelerated  Filer o | Non-Accelerated  Filer x |
|---------------------------------|---------------------------|-------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).
|  | o Yes          x No |
|--|---------------------------------------------------------------------------------|

 

Indicate the number of shares outstanding for each of the issuer’sclasses of common equity as of the latest practicable date:

 

As of May 1, 2007, there were 21,898 membership units outstanding.

 

 

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**ExplanatoryNote Regarding Amendment No. 1**

This Amendment No.1 to the Quarterly Report on Form 10-Q/A of East Kansas Agri-Energy, LLC (“we”,“us”, “our” and “East Kansas”, the “Company”) for the fiscal quarter endedMarch 31, 2007, is being filed for the  purpose of amending and restating Item 1 ofPart I of Form 10-Q/A to reflect the Company’s balance sheet for the fiscal quarter ended March 30, 2007 and for the fiscal year endedDecember 31, 2006.  The audited balancesheet for the fiscal year ended December 31, 2006 was inadvertently omittedfrom our original quarterly report for fiscal quarter ended March 31, 2007filed on form 10-Q.  Our amendedquarterly report on Form 10-Q/A includes the balance sheet in Part I — Item 1 “FinancialStatements”.

In accordance withRule 12b-15 under the Securities and Exchange Act of 1934, the complete text ofsuch Item, as amended, is set forth herein. In addition to the filing of this Amendment No. 1 and pursuant to Rule12b-15, we are including certain currently dated certifications.  The remainder of the Company’s Form 10-Q/A isunchanged.  This report speaks as of theoriginal filing date of the Form 10-Q and has not been updated to reflectevents occurring subsequent to the original reporting date.

 

2

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**PARTI.     FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS.**

** **

EAST KANSAS AGRI-ENERGY,LLCBALANCE SHEET (UNAUDITED)MARCH 31, 2007

** **
| ** **                                                                                                            | ** ** | **March 31, 2007** | ** **      | ** **                      | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-----------------|---------------------------------|------------|
| **ASSETS**                                                                                                            | ** ** | **(Unaudited)**              | ** **      | **December 31, 2006** | ** ** |
| CURRENT ASSETS                                                                                                        | ** ** | ** **                   |            |                            |       |
| Cash and cash  equivalents                                                                                            | ** ** | **$**                        | **3,593,511**   |                            | $          | 5,281,272 |   |
| Trade accounts  receivable - related party                                                                            | ** ** | **4,082,867**                |            | 3,423,118                       |       |
| Inventory                                                                                                             | ** ** | **3,375,406**                |            | 2,282,222                       |       |
| Investment in  commodity contracts                                                                                    | ** ** | **258,628**                  |            | 1,345,752                       |       |
| Interest  receivable                                                                                                  | ** ** | **1,279,620**                |            | 319,107                         |       |
| Prepaid expense                                                                                                       | ** ** | **302,176**                  |            | 498,083                         |       |
| Total current  assets                                                                                                 | ** ** | **12,892,208**               |            | 13,149,554                      |       |
| PROPERTY, PLANT AND  EQUIPMENT                                                                                        | ** ** | ** **                   |            |                            |       |
| Land                                                                                                                  | ** ** | **580,322**                  |            | 580,322                         |       |
| Land  improvements                                                                                                    | ** ** | **2,179,578**                |            | 2,179,578                       |       |
| Office equipment                                                                                                      | ** ** | **270,866**                  |            | 270,866                         |       |
| Buildings                                                                                                             | ** ** | **1,785,915**                |            | 1,785,915                       |       |
| Equipment                                                                                                             | ** ** | **46,675,996**               |            | 46,675,432                      |       |
| Vehicles                                                                                                              | ** ** | **22,743**                   |            | 22,743                          |       |
| Construction in  progress                                                                                             | ** ** | **887,352**                  |            | 65,698                          |       |
|                                                                                                                  | ** ** | **52,402,772**               |            | 51,580,554                      |       |
| Less accumulated  depreciation                                                                                        | ** ** | **(5,601,935**               | **)**           | (4,742,172                      | )          |
| Total property,  plant, and equipment                                                                                 | ** ** | **46,800,837**               |            | 46,838,382                      |       |
| OTHER ASSETS                                                                                                          | ** ** | ** **                   |            |                            |       |
| Investment in  Industrial Revenue Bonds                                                                               | ** ** | **47,866,117**               |            | 47,866,117                      |       |
| Idle property                                                                                                         | ** ** | **2,317,398**                |            | 2,317,398                       |       |
| Other investment                                                                                                      | ** ** | **200**                      |            | 200                             |       |
| Financing costs                                                                                                       | ** ** | **615,288**                  |            | 615,288                         |       |
| Less accumulated  amortization                                                                                        | ** ** | **(98,712**                  | **)**           | (79,298                         | )          |
| Total other  assets                                                                                                   | ** ** | **50,700,291**               |            | 50,719,705                      |       |
| Total assets                                                                                                          | ** ** | **$**                        | **110,393,336** |                            | $          | 110,707,641 |   |
| **LIABILITIES AND MEMBERS’ EQUITY**                                                                              | ** ** | ** **                   |            |                            |       |
| CURRENT LIABILITIES                                                                                                   | ** ** | ** **                   |            |                            |       |
| Current portion  of long-term debt                                                                                    | ** ** | **$**                        | **3,185,028**   |                            | $          | 3,076,532 |   |
| Accounts payable                                                                                                      | ** ** | ** **                   |            |                            |       |
| Trade                                                                                                                 | ** ** | **295,225**                  |            | 595,285                         |       |
| Related parties                                                                                                       | ** ** | **979,428**                  |            | 1,384,572                       |       |
| Accrued payroll,  taxes and withholdings                                                                              | ** ** | **131,529**                  |            | 136,871                         |       |
| Other accrued  expenses                                                                                               | ** ** | **351,777**                  |            | 302,817                         |       |
| Accrued interest                                                                                                      | ** ** | **1,323,350**                |            | 363,742                         |       |
| Total current  liabilities                                                                                            | ** ** | **6,266,337**                |            | 5,859,819                       |       |
| LONG-TERM DEBT (less  current maturities)                                                                             | ** ** | **11,243,620**               |            | 12,059,916                      |       |
| LEASE OBLIGATION                                                                                                      | ** ** | **47,866,117**               |            | 47,866,117                      |       |
| MEMBERS’ EQUITY                                                                                                  | ** ** | ** **                   |            |                            |       |
| Capital  contributions, 40,000 units authorized, 23,798 units issued of which 1,900  units are held as treasury stock | ** ** | **24,707,100**               |            | 24,707,100                      |       |
| Treasury stock,  at cost                                                                                              | ** ** | **(3,800,000**               | **)**           | (3,800,000.00                   | )          |
| Retained  earnings                                                                                                    | ** ** | **24,110,162**               |            | 24,014,689                      |       |
| Total members’  equity                                                                                           | ** ** | **45,017,262**               |            | 44,921,789                      |       |
| Total liabilities and  members’ equity                                                                           | ** ** | **$**                        | **110,393,336** |                            | $          | 110,707,641 |   |

 

See Notes to UnauditedFinancial Statements

 

3

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EAST KANSAS AGRI-ENERGY, LLCSTATEMENT OF OPERATIONS (UNAUDITED)
| ** **                                           | ** ** | **Three Months Ended  March 31, 2007** | ** **     | **Three Months Ended  March 31, 2006** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------|----------------|------------------------------------------------------------|------------|
| REVENUE                                              |       |                                                       |           |                                                       |       |
| Related parties                                      | ** ** | **$**                                                      | **25,605,171** |                                                       | $          | 21,015,698 |   |
| Incentive funds                                      | ** ** | **—**                                                 |           | 680,830                                                    |       |
|                                                 | ** ** | **25,605,171**                                             |           | 21,696,528                                                 |       |
|                                                 |       |                                                       |           |                                                       |       |
| COST OF SALES                                        |       |                                                       |           |                                                       |       |
| Related parties                                      | ** ** | **(14,568,676**                                            | **)**          | (8,141,512                                                 | )          |
| Other                                                | ** ** | **(6,935,824**                                             | **)**          | (6,499,761                                                 | )          |
|                                                 | ** ** | **(21,504,500**                                            | **)**          | (14,641,273                                                | )          |
|                                                 |       |                                                       |           |                                                       |       |
| GROSS PROFIT                                         | ** ** | **4,100,671**                                              |           | 7,055,255                                                  |       |
|                                                 |       |                                                       |           |                                                       |       |
| OPERATING EXPENSES                                   |       |                                                       |           |                                                       |       |
| General,  administrative and selling expenses        | ** ** | **842,011**                                                |           | 875,049                                                    |       |
|                                                 |       |                                                       |           |                                                       |       |
| INCOME FROM OPERATIONS                               | ** ** | **3,258,660**                                              |           | 6,180,206                                                  |       |
|                                                 |       |                                                       |           |                                                       |       |
| OTHER INCOME (EXPENSE)                               |       |                                                       |           |                                                       |       |
| Interest income                                      | ** ** | **993,034**                                                |           | 977,073                                                    |       |
| Interest expense                                     | ** ** | **(308,530**                                               | **)**          | (576,182                                                   | )          |
| Plant lease  interest expense                        | ** ** | **(957,322**                                               | **)**          | (944,208                                                   | )          |
| Other income                                         | ** ** | **167**                                                    |           | —                                                     |       |
|                                                 | ** ** | **(272,651**                                               | **)**          | (543,317                                                   | )          |
|                                                 |       |                                                       |           |                                                       |       |
| NET INCOME                                           | ** ** | **$**                                                      | **2,986,009**  |                                                       | $          | 5,636,889 |   |
|                                                 |       |                                                       |           |                                                       |       |
| BASIC AND DILUTED  INCOME PER UNIT                   | ** ** | **$**                                                      | **136**        |                                                       | $          | 237 |   |
|                                                 |       |                                                       |           |                                                       |       |
| WEIGHTED AVERAGE UNITS OUTSTANDING BASIC AND DILUTED | ** ** | **21,898**                                                 |           | 23,798                                                     |       |

 

See Notes to UnauditedFinancial Statements

4

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EAST KANSAS AGRI-ENERGY, LLCSTATEMENT OF CASH FLOWS (UNAUDITED)
| ** **                                                                    | ** ** | **Three Months Ended  March 31, 2007** | ** **    | **Three Months Ended  March 31, 2006** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------------------|---------------|------------------------------------------------------------|------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES                                         |       |                                                       |          |                                                       |       |
| Net income                                                                    | ** ** | **$**                                                      | **2,986,009** |                                                       | $          | 5,636,889 |   |
| Adjustments to  reconcile net income to net cash used in operating activities |       |                                                       |          |                                                       |       |
| Depreciation                                                                  | ** ** | **859,762**                                                |          | 752,581                                                    |       |
| Amortization                                                                  | ** ** | **19,414**                                                 |          | 23,735                                                     |       |
|                                                                          |       |                                                       |          |                                                       |       |
| (Increase)  decrease in current assets                                        |       |                                                       |          |                                                       |       |
| Accounts  receivable                                                          | ** ** | **(659,749**                                               | **)**         | (863,946                                                   | )          |
| Inventory                                                                     | ** ** | **(1,093,184**                                             | **)**         | 163,045                                                    |       |
| Commodity contracts                                                           | ** ** | **1,087,124**                                              |          | (134,711                                                   | )          |
| Prepaid expense                                                               | ** ** | **195,907**                                                |          | 19,278                                                     |       |
| Interest  receivable                                                          | ** ** | **(960,513**                                               | **)**         | (950,299                                                   | )          |
| Increase  (decrease) in current liabilities:                                  |       |                                                       |          |                                                       |       |
| Accounts payable                                                              | ** ** | **(366,869**                                               | **)**         | (226,101                                                   | )          |
| Accrued expenses                                                              | ** ** | **1,003,226**                                              |          | 1,016,531                                                  |       |
|                                                                          |       |                                                       |          |                                                       |       |
| NET CASH PROVIDED BY  OPERATING ACTIVITIES                                    | ** ** | **3,071,127**                                              |          | 5,437,002                                                  |       |
|                                                                          |       |                                                       |          |                                                       |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                         |       |                                                       |          |                                                       |       |
| Purchase of  plant and equipment, including construction in progress          | ** ** | **(1,160,552**                                             | **)**         | (962,116                                                   | )          |
|                                                                          |       |                                                       |          |                                                       |       |
| NET CASH (USED IN)  INVESTING ACTIVITIES                                      | ** ** | **(1,160,552**                                             | **)**         | (962,116                                                   | )          |
|                                                                          |       |                                                       |          |                                                       |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                         |       |                                                       |          |                                                       |       |
| Payment of  financing fees                                                    | ** ** | **—**                                                 |          | (3,815                                                     | )          |
| Repayment of  long-term debt                                                  | ** ** | **(707,800**                                               | **)**         | (2,240,771                                                 | )          |
| Distributions                                                                 | ** ** | **(2,890,536**                                             | **)**         | —                                                     |       |
|                                                                          |       |                                                       |          |                                                       |       |
| NET CASH (USED IN)  FINANCING ACTIVITIES                                      | ** ** | **(3,598,336**                                             | **)**         | (2,244,586                                                 | )          |
|                                                                          |       |                                                       |          |                                                       |       |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                         | ** ** | **(1,687,761**                                             | **)**         | 2,230,300                                                  |       |
|                                                                          |       |                                                       |          |                                                       |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                               | ** ** | **5,281,272**                                              |          | 4,569,145                                                  |       |
|                                                                          |       |                                                       |          |                                                       |       |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                     | ** ** | **$**                                                      | **3,593,511** |                                                       | $          | 6,799,445 |   |
|                                                                          |       |                                                       |          |                                                       |       |
| SUPPLEMENTAL DISCLOSURE  OF CASH FLOW INFORMATION                             |       |                                                       |          |                                                       |       |
| Cash paid for  interest, net of capitalized interest                          | ** ** | **$**                                                      | **306,244**   |                                                       | $          | 601,830 |   |
|                                                                          |       |                                                       |          |                                                       |       |
| NON CASH INVESTING AND  FINANCING ACTIVITIES                                  |       |                                                       |          |                                                       |       |
| Property, plant, and  equipment costs incurred                                | ** ** | **$**                                                      | **—**    |                                                       | $          | 1,039,137 |   |

 

See Notes to UnauditedFinancial Statements

5

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**EAST KANSAS AGRI-ENERGY, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**MARCH 31, 2007**

**NOTE 1-                SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

*Nature of Business*

East Kansas Agri-Energy,LLC, (a Kansas limited liability company) located in Garnett, Kansas, wasorganized to own and operate a 35 million gallon ethanol plant withdistribution within the United States. East Kansas Agri-Energy, LLC (theCompany) was formally organized as a limited liability company as of October16, 2001. Prior to that date the Company operated as a general partnership withno formal partnership agreement.

*Basis of Accounting*

The unaudited financialstatements contained herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission.  Accordingly, they do not include all theinformation and footnotes required by accounting principles generally acceptedin the United States of America.

In the opinion ofmanagement, all adjustments considered necessary for a fair presentation havebeen included in the accompanying financial statements.  The results of operations for the threemonths ended March 31, 2007 and 2006, are not necessarily indicative of theresults expected for a full year.

These financialstatements should be read in conjunction with the financial statements andnotes included in the Company’s financial statements for the year endedDecember 31, 2006.

*Accounts Receivable*

Accountsreceivable are presented at face value, net of the allowance for doubtfulaccounts.  The allowance for doubtfulaccounts is established through provisions charged against income and ismaintained at a level believed adequate by management to absorb estimated baddebts based on historical experience and current economic conditions.  Management believes all receivables will be collectedand therefore the allowance has been established to be zero at March 31, 2007.

The Company’s policy is to charge simple interest ontrade receivables past due balances; accrual of interest is discontinued whenmanagement believes collection is doubtful. Receivables are considered past due based upon payment terms set forthat the date of the related sale.  TheCompany has no receivables accruing interest March 31, 2007.

*Financing Costs*

Costs incurred related to origination of debt financing are recorded asan asset and amortized over the expected term of the debt.

*Estimates*

Management uses estimatesand assumptions in preparing financial statements. Those estimates andassumptions affect the reported amounts of assets and liabilities, the disclosureof contingent assets and liabilities at the date of the financial statements,and the reported amounts of revenues and expenses. Actual results could differfrom the estimates used.

6

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**EAST KANSAS AGRI-ENERGY, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**MARCH 31, 2007**

*Earnings Per Unit*

Earnings per unit arecalculated based on the period of time units have been issued and outstanding.For purposes of calculating diluted earnings per capital unit, units subscribedfor but not issued are included in the computation of outstanding capitalunits.

*General,administrative and selling expenses*

The primary components of general and administrative expenses aremanagement fees, insurance expense, selling expenses and payroll.

*RevenueRecognition*

Revenue from the production of ethanol and related products is recordedupon transfer of title to our customers. The transfer takes place at the plant site and therefore shipping termsare FOB shipping point.  Interest incomeis recognized as earned.  Income fromfederal and state incentives are recognized when received due to uncertainty ofavailable funds and pro-rations used by the sponsoring organizations.

*Costof Sales*

The primary components of cost of sales from the production of ethanoland related products are grain expense, energy expense (natural gas andelectricity), raw materials expense (chemicals and denaturant), labor anddepreciation on process equipment.

*Shippingand Handling*

Shipping and handling costs are expensed as incurred and are includedin the cost of sales.

*IncomeTaxes*

The Company is organized as a limited liability company under state lawand is treated as a partnership for income tax purposes.  Under this type of organization, the Company’searnings pass through to the partners and are taxed at the partner level.  Accordingly, no income tax provision has beencalculated.  Differences betweenfinancial statement basis of assets and tax basis of assets is related tocapitalization and amortization of organizational and start-up costs for taxpurposes, whereas these costs are expensed for financial statement purposes,and the difference between the recorded amounts of financial statement and taxdepreciation, unrealized gains or losses on commodity contracts and incentiveprograms payments.

*CashEquivalents*

For purposes of the statement of cash flows, the Company considers allhighly liquid debt instruments purchased with an original maturity of threemonths or less to be cash equivalents.

*FairValue of Financial Instruments*

The Company believes the carrying value of cash and cash equivalentsapproximates fair value due to the short maturity of these instruments.  The Company estimates the fair market valueof the investment in Industrial Revenue Bonds to approximate cost.

The Company believes the carrying amount of long-term note payableobligations approximates fair value.  Forthe permanent financing, fair value approximates the carrying amount due to thevariable interest rate feature of the debt.

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**EAST KANSAS AGRI-ENERGY, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**MARCH 31, 2007**

*Inventory*

Inventory isstated at the lower of cost, determined on a first in, first out basis, ormarket value.

*Investmentin Commodity Contracts*

SFAS No. 133 requires a company to evaluate itscontracts to determine whether the contracts are derivatives. Certain contractsthat literally meet the definition of a derivative may be exempted from SFASNo. 133 as normal purchases or normal sales. Normal purchases and normal salesare contracts that provide for the purchase or sale of something other than afinancial instrument or derivative instrument that will be delivered inquantities expected to be used or sold over a reasonable period in the normalcourse of business. Contracts that meet the requirements of normal aredocumented as normal and exempted from the accounting and reportingrequirements of SFAS No. 133.

The Company enters into short-term cash grain, optionand futures contracts as a means of securing grain for the ethanol plant andmanaging exposure to changes in commodity prices. All derivatives aredesignated as non-hedge derivatives. Although the contracts are effectiveeconomic hedges of specified risks, they are not designated as and accountedfor as hedging instruments.

As part of itstrading activity, the Company uses futures and option contracts offered throughregulated commodity exchanges to reduce risk and are exposed to risk of loss inthe market value of inventories. To reduce that risk, the Company generallytakes positions using cash and futures contracts and options. During theperiods ended March 31, 2007 and 2006 this activity resulted in net losses of$1,087,124 and $489,289, respectively, which are reported in cost of sales.

*Propertyand Equipment*

Depreciation iscomputed over the estimated useful life of each asset using the straight-linemethod.  Estimated useful lives generallyused in computing depreciation are:

| Land improvements        |   | 15 to 20 years |
|--------------------------|--------|----------------|
| Buildings                |   | 40 years       |
| Machinery and  equipment |   | 7 to 15 years  |
| Office equipment         |   | 5 to 10 years  |
| Computers and  software  |   | 3 to 5 years   |
| Vehicles                 |   | 5 years        |

 

The Company’sproperty and equipment were acquired under lease agreements pursuant to anindustrial revenue bond issue.  TheCompany is required to make semi-annual deposits with the Trustee sufficient toservice the principal maturities and interest requirements.  Title to the property will be transferred tothe Company when the lease is terminated upon retirement of the bonds.  Accordingly, the bonds have been recorded asa direct obligation of the Company.  TheCompany is also the holder of the bonds.

The Companyreviews its property and equipment for impairment whenever events indicate thatthe carrying amount of the asset may not be recoverable.  An impairment loss is recorded if the sum ofthe future cash flows is less than the carrying amount of the asset.  The amount of the loss is determined bycomparing the fair market value of the asset to the carrying amount of theasset.  Such assessments did not resultin any adjustment to the value of the non-current assets.

*IdleProperty*

The Company hasincurred $2,317,398 of costs related to the preliminary construction of a railspur project.  The Company does notcurrently have an estimate of when and if the project is going to be completed.  Accordingly, the costs have been classifiedas idle property.  The Company plans tocontinue to evaluate the status of this project in future periods.

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**EAST KANSAS AGRI-ENERGY, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**MARCH 31, 2007**

*EnvironmentalLiabilities*

The Company’s operations are subject to federal, state and localenvironmental laws and regulations. These laws require the Company to investigate and remediate the effectsof the release or disposal of materials at its location.  Accordingly, the Company has adopted policies,practices and procedures in the areas of pollution control, occupationalhealth, and the production, handling, storage and use of hazardous materials toprevent material environmental or other damage; and to limit the financialliability which could result from such events. Environmental liabilities are recorded when the liability is probableand the costs can be reasonably estimated.

**NOTE 2 -               INCENTIVE PAYMENTS**

The Company qualified for the federal U.S. Departmentof Agriculture Bio Energy Program.  Thefederal program was managed by the Commodity Credit Corporation and wasdesigned to expand the production of fuel grade ethanol by offering incentivesfor incremental production compared to the same quarter of the prior year.  The annually funded program ran through thestate’s fiscal year 2006 and incentive payments were pro-rated if applicationsfor incentives exceeded the annual funding. The maximum annual incentive program payments the Company could receivewas $7,500,000; individual producers were also subject to an annual limitationof 5% of the total funding.  During theperiod ended March 31, 2006 the Company received $225,160 in federalincentives.

The Company has been approved for the Kansas QualifiedAgricultural Ethanol Producer Incentive Fund. The incentive rate is $.075 per gallon of ethanol produced.  The Company must establish they have produced5,000,000 gallons of ethanol before the State of Kansas will disburse thefunds.  Incentive payments are limited to15,000,000 gallons per production year. During the periods ended March 31, 2007 and 2006, the Company received$0 and $455,671, respectively.

**NOTE 3 -               INVENTORY**

Inventories aresummarized as follows:

|                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------|------------|--------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2007**           | ** ** | **2006**              | ** ** |
|             |       |               |       |                  |       |
| Raw Material     |       | $                  | 2,112,004  |                  | $          | 977,820 |   |
| Work in Progress |       | 614,611            |       | 563,362               |       |
| Finished Goods   |       | 648,791            |       | 741,040               |       |
|             |       |               |       |                  |       |
|             |       | $                  | 3,375,406  |                  | $          | 2,282,222 |   |

 

**NOTE 4 -               LONG-TERM DEBT**

On November 23,2004, the Company entered into a Credit Agreement with Home Federal SavingsBank, establishing a construction loan facility for the construction of a 35million gallon per year ethanol plant. The construction financing is in theamount of $26,000,000 consisting of a $21,000,000 conventional term loan and a$5,000,000 loan, with both loans being secured by substantially all of ourassets.

During theconstruction phase, the Company made monthly payments of interest only at avariable interest rate equal to prime plus 1.75% with a floor of 6%. OnSeptember 20, 2005, following construction completion, the loan was segmentedinto two loans (1) a $5,000,000 loan (Loan A), and (2) a $21,000,000conventional term loan (Loan B). The $5,000,000 loan has an amortization periodand maturity date of ten years. The Company makes monthly

9

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**EAST KANSAS AGRI-ENERGY, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**MARCH 31, 2007**

payments ofprincipal and interest on the $5,000,000 loan at an interest rate equal toprime.  The $21,000,000 conventional loanhas an amortization period of ten years but will mature at the end of fiveyears. The Company makes monthly payments of principal and interest on the$21,000,000 loan at an interest rate equal to prime.  The effective interest rate for both loans atMarch 31, 2007 was 8.25%.

The Company pays a$20,000 annual administration fee related to the credit facility.  The credit facility is secured by a mortgageon our real property and a security interest in all personal and intangibleassets of the Company, including assignment of all material contracts.

On May 4, 2006, theCompany agreed to renegotiate terms of their bank financing.  The new terms provide for a $4,000,000 termrevolving loan in addition to the existing term loans.  The interest rate on the term revolving loanis the prime rate.  The term revolvingloan available credit balance is reduced by $400,000 annually beginningDecember 31, 2007 and matures on October 1, 2010.  At March 31, 2007, the Company has not usedany amount related to the term revolving loan.

During the term ofthe loan, all deposit accounts related to the Company must be maintained atHome Federal Savings Bank. The Company is subject to certain financial loancovenants consisting of minimum working capital, minimum fixed charge coverage,minimum current ratio, minimum debt service, minimum net worth and maximum debtto net worth covenants during the term of the loan. The Company is alsoprohibited from making distributions to their members; however, the Company isallowed to distribute 50% of our net income to our members after our lender hasreceived audited financial statements for the fiscal year. If the Company meetscertain financial ratio requirements, it may distribute an additional 10% ofnet income.  The Company must be incompliance with all financial ratio requirements and loan covenants before andafter any distributions to the members. The lender temporarily waived, through December 31, 2007, the capitalexpenditure covenant.  With the waiver,the Company is in compliance with the applicable loan covenants as of March 31,2007.

The Company isonly allowed to make annual capital expenditures up to $500,000 annuallywithout the lender’s prior approval. During the term of the loan, the Companyis required to pay to the lender an annual amount equal to the greater of: 1)75% of any Commodity Credit Corporation Bio-Energy income payments receivedduring the year, or 2) 25% of the Company’s free cash flow for each year.Payments consisting of USDA Commodity Credit Corporation Bio-Energy income mustbe paid to the lender within 15 days of receipt of any such payments. Thesepayments will continue until an aggregate sum of $7,500,000 has been receivedby the lender.  The Company is incompliance with the applicable loan covenants as of March 31, 2007.

The Companyfinanced its waste water reuse facility through two bond issues by the City ofGarnett.  The Utility System RevenueBonds require annual principal payments beginning on October 1, 2006 andcontinue through 2015.  Interest paymentson these bonds are due semi-annually, at interest rates ranging from 4.6% to5.2%.  The first interest payment was dueApril 1, 2006.  The Community DevelopmentBlock Grant (CDBG) Bonds require semi-annual principal and interest paymentsbeginning on July 1, 2006 and continue through 2015.  The bonds have a fixed interest rate of 2%

Long-termobligations of the Company are summarized as follows:

10

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**EAST KANSAS AGRI-ENERGY, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**MARCH 31, 2007**

|                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **2007**           | ** ** | **2006**              | ** ** |
|                          |       |               |       |                  |       |
| Loan B                        |       | $                  | 10,998,987 |                  | $          | 11,580,282 |   |
| Loan A                        |       | 2,621,109          |       | 2,747,614             |       |
| Utility System Revenue  Bonds |       | 485,000            |       | 485,000               |       |
| CDBG Bonds                    |       | 323,552            |       | 323,552               |       |
| Less current  portion         |       | (3,185,028         | )          | (3,076,532            | )          |
| Long-term portion             |       | $                  | 11,243,620 |                  | $          | 12,059,916 |   |

 

The estimatedmaturities of long-term debt at March 31, 2007, are as follows:

| 12 Month Period Ending March 31, | ** ** | **Amount** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|
|                                                      |       |       |       |
| 2008                                                      |       | $          | 3,185,028  |   |
| 2009                                                      |       | 3,333,310  |       |
| 2010                                                      |       | 3,617,756  |       |
| 2011                                                      |       | 3,638,243  |       |
| 2012                                                      |       | 255,219    |       |
| Thereafter                                                |       | 399,092    |       |
|                                                      |       | $          | 14,428,648 |   |

 

**NOTE 5 -               MEMBERS’ EQUITY**

As specified inthe Company’s Operating Agreement, voting rights are one vote for each votingunit registered in the name of such Member as shown on the MembershipRegistration maintained by the Company. No Member shall directly or indirectlyown or control more than 25% of the issued and outstanding voting membership interestin the Company at any time.

Income and lossesof the Company shall be allocated among the Members in proportion to eachMember’s respective percentage of units when compared with the total Unitsissued.

The Company’s cashflow shall first be applied to the payment of the Company’s operating expenses(including debt service) and then to maintenance of adequate cash reserves asdetermined by the board of directors in its sole discretion, and then shall bedistributed from time to time to the Members in proportion to their respectivepercentage units. No member has the right to demand and receive anydistribution from the Company other than in cash. No distribution shall be madeif, as a result thereof, the Company would be in violation of any loan agreement,and of if the Company would be in violation of any loan agreement, of if theCompany’s total assets would be less than the sum of its total liabilities.

Transfer,disposition or encumbrance of Capital Units is subject to certain restrictions,including approval by the board of directors.

The board ofdirectors approved the redemption of 1,900 units from a member.  The redemption represents the member’s entireunit balance.  On May 10, 2006, theCompany purchased the member’s units for a total of $3,800,000.

11

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**EAST KANSAS AGRI-ENERGY, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**MARCH 31, 2007**

On March 23, 2007,the Company made a dividend distribution to its members in the amount of $132per share, for a total payment of $2,890,536.

**NOTE 6 -               CONCENTRATION OF CREDIT RISK**

The Companymaintains cash balances at five financial institutions in its trade area. Theaccounts are secured by the Federal Deposit Insurance Corporation up to$100,000. At times, the Company’s bank balance may exceed $100,000.

**NOTE 7 -               COMMITMENTS AND CONTINGENCIES**

OnNovember 12, 2004, the Company entered into a Trading Agreement with United BioEnergy Trading, LLC, an affiliated related party, in which United Bio EnergyTrading, LLC will provide market information and consulting services for theCompany. The Company anticipates that the term of the agreement will be for atleast five years and will pay a monthly fee of $6,000.

On November 12,2004, the Company entered into a Distillers Grains Marketing Agreement withUnited Bio Energy Ingredients, LLC, an affiliated related party, pursuant towhich United Bio Energy Ingredients, LLC will purchase all dried and wetdistillers grains produced at the plant for a term of at least five years at aprice of 98% of the FOB plant price United Bio Energy Ingredients, LLC chargesits buyers of dried distillers grains, and 95% of the FOB plant price UnitedBio Energy Ingredients, LLC charges its buyers of wet distillers grains. UnitedBio Energy Ingredients, LLC, will use its best efforts to achieve the highestresale price available under prevailing market conditions. The Company isresponsible for supplying all labor and equipment to load or unload trucks orrail cars without charge to United Bio Energy Ingredients, LLC and is requiredto provide storage for at least 10 days production of wet and dry distillergrains. In addition, the distiller grains must meet quality requirements sothat they will meet current industry standards for primary animal feedingredients. If the Company fails to supply distiller grains that comply withindustry standards, United Bio Energy Ingredients, LLC may reject them.  The Company paid commissions of $133,308 and$78,865 for the periods ended March 31, 2007 and 2006, respectively, related tothis marketing agreement.

OnNovember 12, 2004, the Company entered into a Raw Grains Agreement with UnitedBio Energy Ingredients, LLC, an affiliated related party. The Raw GrainsAgreement provides for the Company to purchase all raw grains necessary forethanol production from United Bio Energy Ingredients, LLC for a period of atleast five years. Pursuant to the agreement, United Bio Energy Ingredients, LLCwill use its best efforts to arrange for the purchase of grain at the lowestprice available under prevailing market conditions and we will supply all laborand equipment necessary to load or unload trucks or rail cars. For its service,the Company will pay United Bio Energy Ingredients, LLC the actual cashprocurement price and all reasonable and necessary expenses to get the grain tothe plant plus a $.02 per bushel fee. The title, risk of loss, andresponsibility for the quality of grain will transfer to the Company when itunloads the grain at the plant. Prior to that time, United Bio EnergyIngredients, LLC will bear the risk of loss. All grain delivered to the plantshall meet certain quality standards and the Company will have the option toreduce the price the Company will pay or fully reject any delivery that failsto conform to these standards, depending upon the severity of thenoncompliance.  For the periods endedMarch 31, 2007 and 2006, the Company paid $84,583 and $72,083, respectively, inbrokerage fees for grain purchases made under this agreement.

OnNovember 12, 2004, the Company also entered into an Ethanol Agreement withUnited Bio Energy Fuels, LLC, an affiliated related party.  United Bio Energy Fuels, LLC changed theirname to Provista Renewable Fuels Marketing, LLC (Provista).  The terms of the agreement provide thatProvista will market all fuel-grade ethanol produced at our plant. In exchange,the Company agrees to pay Provista a fee of $.01 for each gallon of ethanolproduced at the Company’s plant during the term of the agreement. The Companyexpects that the term of the agreement will be at least 5 years. Provista alsoagreed to use its best efforts to obtain the highest price for ethanolavailable under prevailing market conditions. For the periods ended March 31, 2007 and 2006, the Company paid $109,855and $103,481, respectively, in marketing fees for ethanol marketing under thisagreement.

OnNovember 12, 2004, the Company entered into a Management Agreement with UnitedBio Energy Management, LLC, a related party, in which United Bio EnergyManagement, LLC will supervise and direct the general

12

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**EAST KANSAS AGRI-ENERGY, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**MARCH 31, 2007**

operationsof the plant for an anticipated period of at least five years. United BioEnergy Management, LLC will provide the services of a full-time general managerto the plant.  The Company had agreed tocompensate United Bio Energy Management, LLC an annual fee of $250,000 forthese services payable in monthly installments of $20,833, plus an incentivebonus based on the attainment of certain financial benchmarks. United BioEnergy Management, LLC will appoint a general manager to be based on site atour plant, and shall work exclusively for us. In the event of a dispute, theManagement Agreement provides that the Company will first attempt to amicablysettle any dispute or difference privately between United Bio EnergyManagement, LLC and the Company. If the Company cannot resolve the dispute as aresult of the discussions, then the Company must submit the matter tonon-binding mediation. In the event that the dispute is not settled through mediation,the matter must be resolved by non-appealable arbitration in accordance withthe rules of the American Arbitration Association as applicable in the State ofKansas. The determination of the arbitrator is expected to be final and may notbe appealed to any court. The prevailing party in any arbitration proceeding isentitled to recover reasonable attorneys’ fees and expenses incurred. Theagreement commenced during March 2005. For the period ended March 31, 2006, the Company incurred costs of$269,009 related to this agreement including reimbursable expenses. On December13, 2006 the Company reached an agreement with United Bio Energy Management,LLC to terminate the above Management Agreement effective December 31, 2006.  The Company has agreed to continueparticipating in the UBE Plant Manager Program and Group Buying Program for amonthly fee of $10,000 for a term of one year, with the first monthlyinstallment due and payable on January 1, 2007.

On December 1,2006, the Company entered into an agreement with Jade Millrights, Inc. forconstruction of a grain bin for $905,100. As of March 31, 2007, the Company has incurred $737,786 related to theagreement and $120,702 of additional expenses related to the project, none ofwhich are included in accounts payable.

Thefollowing is a schedule of the annual commitments related to the aboveagreements.

| 12 months ending March 31, | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|------------|------------|
|                                           |       |       |       |
| 2008                                           |       | $          | 512,775    |   |
| 2009                                           |       | 404,108    |       |
| 2010                                           |       | 398,108    |       |
| 2011                                           |       | 332,108    |       |
| 2012                                           |       | 332,108    |       |
| Thereafter                                     |       | 1,022,332  |       |
|                                           |       |       |       |
|                                           |       | $          | 3,001,539  |   |

 

TheCompany is involved in various claims arising in the normal course ofbusiness.  Management believes that anyfinancial responsibility that may be incurred would not be material andtherefore no additional accrual is deemed necessary.

**NOTE 8 -               SALE / LEASEBACK TRANSACTION**

On December 20,2005, the Company completed an industrial revenue bond financing with the Cityof Garnett, Kansas that will provide property tax savings for 10 years on theplant site.  As part of the financing,title to the plant site and improvements have been transferred to the City ofGarnett, Kansas, as security for the repayment of the bonds, and the Company isleasing back the site in an amount that is equal to the amount of the principaland interest to be paid on The City of Garnett, Kansas bonds.  Home Federal Savings Bank consented to thistransaction, and the bonds have been pledged to Home Federal Savings Bank assecurity for any obligations under the Home Federal Savings Bank Credit Agreement.  As part of the financing, the Company paidthe bond underwriter, Gilmore & Bell, P.C. $40,000.  The maximum principal amount of the bonds is$50,000,000.  The bonds were initiallyissued in the

13

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**EAST KANSAS AGRI-ENERGY, LLC**

**NOTES TO FINANCIAL STATEMENTS**

**MARCH 31, 2007**

 principal amount of $47,866,117, which is theamount of the Company’s expenditures on the plant as of December 20, 2005.  The additional $2,133,883 is available forfuture capital project costs.

The $40,000 offinancing fees paid to the bond underwriter and $23,656 of legal and other costassociated with the bond closing will be amortized over the approximately 10.5year life of the bonds.  A total of$1,512 and $1,433 of amortization expense related to these costs was recognizedduring the periods ended March 31, 2007 and 2006, respectively.

From the proceedsof the bond, the Company purchased the bonds as an investment.  The Company, as holder of the industrialrevenue bonds, is due interest at 8.0% per annum with interest payable semi-annuallyon June 1st and December 1st, commencing June 1, 2006.  The interest income is directly offset by thelease payments on the plant.  Both thebond and the corresponding lease have terms commencing December 20, 2005 andterminating on June 1, 2016.  The entireoutstanding principal is due upon termination of the bonds.  The outstanding principal at March 31, 2007was $47,866,117.  The lease qualifies asa capital lease.  Interest incomerecognized on the Industrial Revenue Bonds for the periods ended March 31, 2007and 2006 was $957,322 and $944,208, respectively.  These amounts are equal to the lease expenseof the plant for those periods.

Future debtservice requirements on the Industrial Revenue Bonds at March 31, 2007 are asfollows:

| 12 months ending    | ** ** | **Interest** | ** ** | ** **    | ** ** | ** **   | ** ** | ** **  | ** ** |
|-------------------------------|------------|--------------|------------|---------------|------------|--------------|------------|-------------|------------|
| **March 31,**            | ** ** | **Rate**     | ** ** | **Principal** | ** ** | **Interest** | ** ** | **Total**   | ** ** |
|                          |       |         |       |          |       |         |       |        |       |
| 2008                          |       | 8%           |       | $             | —     |         | $          | 3,829,289   |       | $ | 3,829,289 |   |
| 2009                          |       | 8%           |       | —        |       | 3,829,289    |       | 3,829,289   |       |
| 2010                          |       | 8%           |       | —        |       | 3,829,289    |       | 3,829,289   |       |
| 2011                          |       | 8%           |       | —        |       | 3,829,289    |       | 3,829,289   |       |
| 2012                          |       | 8%           |       | —        |       | 3,829,289    |       | 3,829,289   |       |
| Thereafter                    |       | 8%           |       | 47,866,117    |       | 17,231,803   |       | 65,097,920  |       |
|                          |       |         |       |          |       |         |       |        |       |
| Totals                        |       |         |       | $             | 47,866,117 |         | $          | 36,378,248  |       | $ | 84,244,365 |   |
|                          |       |         |       |          |       |         |       |        |       |
| Amount representing  interest |       |         |       |          |       |         |       | (36,378,248 | )          |
|                          |       |         |       |          |       |         |       |        |       |
| Long-Term Obligation          |       |         |       |          |       |         |       | $           | 47,866,117 |   |

 

**NOTE 9 -               RETIREMENT PLAN**

During 2005, theCompany began a SIMPLE 401(k), Savings Incentive Match Plan for Employees,retirement plan for all eligible employees. All employees are eligible to participate in the plan.  The Company makes a matching contribution of3% of participants’ eligible wages.  Theemployees are fully vested upon contribution to the plan.  The Company match for the periods ended March31, 2007 and 2006 was $13,034 and $9,359, respectively.

14

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**ITEM6.  EXHIBITS.**

The following exhibits are filed as part of thisreport.
| Exhibit No. | ** ** | **Exhibit**                                          |
|------------------|------------|------------------------------------------------------|
| 31.1             |       | Certificate Pursuant to  17 CFR 240.13(a)-14(a)      |
|             |       |                                                 |
| 31.2             |       | Certificate Pursuant to  17 CFR 240.13(a)-14(a)      |
|             |       |                                                 |
| 32.1             |       | Certificate Pursuant to  18 U.S.C. Section 1350 |
|             |       |                                                 |
| 32.2             |       | Certificate Pursuant to  18 U.S.C. Section 1350 |

 

**SIGNATURES**

In accordance with Section 13 or 15(d) ofthe Exchange Act, the registrant caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.
|        | EAST KANSAS AGRI-ENERGY, LLC                                            |
|--------|-------------------------------------------------------------------------|
|   |                                                                    |
| Date:  | August 10, 2007                                                         |   | /s/ William R. Pracht |
|   | William R. Pracht                                                       |
|   | President (Principal Executive Officer)                                 |
|   |                                                                    |
| Date:  | August 10, 2007                                                         |   | /s/ Thomas D. Leitnaker |
|   | Thomas D. Leitnaker                                                     |
|   | Chief Financial Officer (Principal Financial &  Accounting Officer) |
|        |                                                                         |  |  |  |  |

 

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