**UNITEDSTATESSECURITIES 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 June 30, 2003**                                                                                                                                                                                                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                |
| **OR**                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                |
| o                                                                                                                                                                                                                                                                                                                   | **Transition report under Section  13 or 15(d) of the Exchange Act.** |
|                                                                                                                                                                                                                                                                                                                |
| **For the transition period from                          to                        .** |
|                                                                                                                                                                                                                                                                                                                |
| **Commission file number 333-96703**                                                                                                                                                                                                                                                                                |

** **
| **EAST  KANSAS AGRI-ENERGY, L.L.C.**                               |
|--------------------------------------------------------------------|
| (Exact name of small business issuer as  specified 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 filedby Section 13 or 15(d) of the Exchange Act during the past 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.                                                                                                                                                                                             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 June 30, 2003, there were 1,220 units outstanding.

 

Transitional Small Business Disclosure 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**                           |
|                                     |
| **CERTIFICATIONS**                       |

 

2

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

 

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

 

**EASTKANSAS AGRI-ENERGY, LLC**

 

Table of Contents

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|                                                       |   |
|------------------------------------------------------------|--------|
| **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                    |   |

 

 

 

3

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**EAST KANSAS AGRI-ENERGY, LLC(A DEVELOPMENT STAGE COMPANY)BALANCE SHEET (UNAUDITED)JUNE 30, 2003**

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| **ASSETS**                                                                          |   |      |    |
|-------------------------------------------------------------------------------------|--------|-----------|---------|
|                                                                                |   |      |    |
| CURRENT ASSETS                                                                      |   |      |    |
| Cash and cash equivalents                                                           |   | $         | 97,979  |   |
| Accounts receivable - grant                                                         |   | 39,811    |    |
| Prepaid offering costs                                                              |   | 252,411   |    |
| Prepaid expense                                                                     |   | 7,893     |    |
| Total current assets                                                                |   | 398,094   |    |
|                                                                                |   |      |    |
| PROPERTY, PLANT AND EQUIPMENT                                                       |   |      |    |
| Office equipment                                                                    |   | 16,490    |    |
| Construction in progress                                                            |   | 69,090    |    |
|                                                                                |   | 85,580    |    |
| Less accumulated depreciation                                                       |   | 1,832     |    |
|                                                                                |   | 83,748    |    |
| OTHER ASSETS                                                                        |   |      |    |
| Land option                                                                         |   | 10,000    |    |
|                                                                                |   |      |    |
| Total assets                                                                        |   | $         | 491,842 |   |
|                                                                                |   |      |    |
| **LIABILITIES AND MEMBERS' EQUITY**                                                 |   |      |    |
|                                                                                |   |      |    |
| CURRENT LIABILITIES                                                                 |   |      |    |
| Current portion of long-term debt                                                   |   | $         | 75,000  |   |
| Accounts payable                                                                    |   |      |    |
| Trade                                                                               |   | 42,380    |    |
| Related party                                                                       |   | 15,000    |    |
| Accrued payroll, taxes, and withholdings                                            |   | 6,342     |    |
| Total current liabilities                                                           |   | 138,722   |    |
|                                                                                |   |      |    |
| 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                                   |   | (866,880  | )       |
| Total members' equity                                                               |   | 353,120   |    |
|                                                                                |   |      |    |
| Total liabilities and members' equity                                               |   | $         | 491,842 |   |

 

See Notes to UnauditedFinancial Statements

4

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**EAST KANSAS AGRI-ENERGY, LLC(A DEVELOPMENT STAGE COMPANY)STATEMENTS OF OPERATIONS (UNAUDITED)**

----

 
|                            |   |             |   |           |   |             |   |           |    | **From January 3** |       |
|---------------------------------|--------|------------------|--------|----------------|--------|------------------|--------|----------------|---------|--------------------|------------|
|                            |   | **Three Months** |   | **Six Months** |   | **Three Months** |   | **Six Months** |    | **2001 (Date of**  |       |
|                            |   | **Ended**        |   | **Ended**      |   | **Ended**        |   | **Ended**      |    | **Inception) to**  |       |
|                            |   | **June 30,**     |   | **June 30,**   |   | **June 30,**     |   | **June 30,**   |    | **June 30,**       |       |
|                            |   | **2003**         |   | **2003**       |   | **2002**         |   | **2002**       |    | **2003**           | ** ** |
|                            |   |             |   |           |   |             |   |           |    |               |       |
| REVENUE                         |   | $                | — |           | $      | —           |   | $              | —  |               | $          | — |   | $ | — |   |
|                            |   |             |   |           |   |             |   |           |    |               |       |
| OPERATING EXPENSES              |   |             |   |           |   |             |   |           |    |               |       |
| Organizational expenses         |   | —           |   | —         |   | —           |   | —         |    | 3,643              |       |
| Start-up expenses               |   |             |   |           |   |             |   |           |    |               |       |
|                            |   | 6,078            |   | 86,291         |   | 47,105           |   | 71,164         |    | 247,110            |       |
|                            |   | 6,078            |   | 86,291         |   | 47,105           |   | 71,164         |    | 250,753            |       |
| OTHER INCOME                    |   |             |   |           |   |             |   |           |    |               |       |
| Interest income                 |   | 258              |   | 1,416          |   | 900              |   | 1,188          |    | 6,404              |       |
| Other income                    |   | —           |   | —         |   | —           |   | 2,000          |    | 2,000              |       |
|                            |   | 258              |   | 1,416          |   | 900              |   | 3,188          |    | 8,404              |       |
|                            |   |             |   |           |   |             |   |           |    |               |       |
| NET LOSS                        |   | $                | (5,820 | )              | $      | (84,875          | )      | $              | (46,205 | )                  | $          | (67,976 | ) | $ | (242,349 | ) |
|                            |   |             |   |           |   |             |   |           |    |               |       |
| BASIC AND DILUTED LOSS PER UNIT |   | $                | (4.77  | )              | $      | (69.57           | )      | $              | (37.87  | )                  | $          | (65.68 | ) |   |   |
|                            |   |             |   |           |   |             |   |           |    |               |       |
| WEIGHTED AVERAGE UNITS          |   |             |   |           |   |             |   |           |    |               |       |
| OUTSTANDING, BASIC AND DILUTED  |   | 1,220            |   | 1,220          |   | 1,220            |   | 1,035          |    |               |       |

 

See Notes to UnauditedFinancial Statements

5

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**EAST KANSAS AGRI-ENERGY, LLC(A DEVELOPMENT STAGE COMPANY)STATEMENTS OF CHANGES IN MEMBERS’EQUITY (UNAUDITED)**

 
|                                                  |   |      |   |            |      | **Deficit**     |   |      |   |
|-------------------------------------------------------|--------|-----------|--------|-----------------|-----------|-----------------|--------|-----------|--------|
|                                                  |   |      |   |            |      | **Accumulated** |   |      |   |
|                                                  |   |      |   |            |      | **During the**  |   |      |   |
|                                                  |   |      |   | **Contributed** |      | **Development** |   |      |   |
|                                                  |   | **Units** |   | **Capital**     |      | **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 six months ended June 30,  2002      |   | —    |   | —          |      | (67,976         | )      | (67,976   | )      |
|                                                  |   |      |   |            |      |            |   |      |   |
| Balance as of June 30, 2002                           |   | 1,220     |   | 1,220,000       |      | (722,858        | )      | 497,142   |   |
|                                                  |   |      |   |            |      |            |   |      |   |
| Net loss for the six months ended December  31, 2002  |   | —    |   | —          |      | (59,147         | )      | (59,147   | )      |
|                                                  |   |      |   |            |      |            |   |      |   |
| Balance as of December 31, 2002                       |   | 1,220     |   | 1,220,000       |      | (782,005        | )      | 437,995   |   |
|                                                  |   |      |   |            |      |            |   |      |   |
| Net loss for the six months ended June 30,  2003      |   | —    |   | —          |      | (84,875         | )      | (84,875   | )      |
|                                                  |   |      |   |            |      |            |   |      |   |
| Balance as of June 30, 2003                           |   | 1,220     |   | $               | 1,220,000 |            | $      | (866,880  | )      | $ | 353,120 |   |

 

See Notes to UnauditedFinancial Statements

6

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**EAST KANSAS AGRI-ENERGY, LLC(A DEVELOPMENT STAGE COMPANY)STATEMENTS OF CASH FLOWS (UNAUDITED)**

----

 
|                                                                        |   |           |    |           |   | **From January 3,** |   |
|-----------------------------------------------------------------------------|--------|----------------|---------|----------------|--------|---------------------|--------|
|                                                                        |   | **Six Months** |    | **Six Months** |   | **2001 (Date of**   |   |
|                                                                        |   | **Ended**      |    | **Ended**      |   | **Inception) to**   |   |
|                                                                        |   | **June 30,**   |    | **June 30,**   |   | **June 30,**        |   |
|                                                                        |   | **2003**       |    | **2002**       |   | **2003**            |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                        |   |           |    |           |   |                |   |
| Net loss                                                                    |   | $              | (84,875 | )              | $      | (67,976             | )      | $ | (242,349 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities |   |           |    |           |   |                |   |
|                                                                        |   |           |    |           |   |                |   |
| Depreciation                                                                |   | 1,434          |    | —         |   | 1,832               |   |
|                                                                        |   |           |    |           |   |                |   |
| Increase in current assets                                                  |   |           |    |           |   |                |   |
| Accounts receivable                                                         |   | (39,811        | )       | —         |   | (39,811             | )      |
| Prepaid expense                                                             |   | (7,893         | )       | —         |   | (7,893              | )      |
| Increase (decrease) in current liabilities:                                 |   |           |    |           |   |                |   |
| Accounts payable                                                            |   | (16,000        | )       | 46,332         |   | 57,380              |   |
| Accrued payroll, taxes, and withholdings                                    |   | 4,934          |    | —         |   | 6,342               |   |
| Net cash used for operating activities                                      |   | (142,211       | )       | (21,644        | )      | (224,499            | )      |
|                                                                        |   |           |    |           |   |                |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                        |   |           |    |           |   |                |   |
| Purchase of equipment                                                       |   | (9,890         | )       | —         |   | (16,490             | )      |
| Purchase of land option                                                     |   | (5,000         | )       | (5,000         | )      | (10,000             | )      |
| Construction in process                                                     |   | (6,847         | )       | (36,429        | )      | (69,090             | )      |
| Net cash used for investing activities                                      |   | (21,737        | )       | (41,429        | )      | (95,580             | )      |
|                                                                        |   |           |    |           |   |                |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                        |   |           |    |           |   |                |   |
| Cost of raising capital                                                     |   | (112,263       | )       | (31,339        | )      | (266,942            | )      |
| 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                       |   | (112,263       | )       | 397,661        |   | 418,058             |   |
|                                                                        |
|                                                                        |   |           |    |           |   |                |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                   |   | (276,211       | )       | 334,588        |   | 97,979              |   |
|                                                                        |   |           |    |           |   |                |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF  PERIOD                             |   | 374,190        |    | 186,809        |   | —              |   |
|                                                                        |   |           |    |           |   |                |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                    |   | $              | 97,979  |           | $      | 521,397             |   | $ | 97,979 |   |
|                                                                        |   |           |    |           |   |                |   |
| 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 UnauditedFinancial Statements

7

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**EASTKANSAS AGRI-ENERGY, LLC**

**(ADEVELOPMENT STAGE COMPANY)**

**NOTESTO UNAUDITED FINANCIAL STATEMENTS**

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

 

*Nature of Busines****s***

 

East Kansas Agri-Energy, LLC,(a development stage Kansas limited liability company) to be located inGarnett, Kansas, was organized to pool investors to build a 20 million gallonethanol plant with distribution within the United States. Construction isprojected to begin in the year 2003. As of June 30, 2003, the Company is in thedevelopment stage with its efforts being principally devoted to organizationaland financing activities.

 

The Company was formally organizedas a limited liability company as of October 16, 2001. Prior to that date theCompany operated as a general partnership with no formal partnership agreement.

 

*Basis of Accounting*

 

The Company uses the accrualbasis of accounting in accordance with accounting principles generally acceptedin the United States of America. This method recognizes revenues as earned andexpenses as incurred.

 

The unaudited financialstatements contained herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission. Accordingly, they do notinclude all the information and footnotes required by accounting principlesgenerally accepted in the United States of America.

 

In the opinion of management,all adjustments considered necessary for a fair presentation have been includedin the accompanying financial statements.

 

These financial statementsshould be read in conjunction with the financial statements and notes includedin the Company’s financial statements for the year ended December 31, 2002.

 

*Estimates*

 

Management uses estimates andassumptions in preparing financial statements. Those estimates and assumptionsaffect the reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities at the date of the financial statements, andthe reported amounts of revenues and expenses. Actual results could differ fromthe estimates used.

 

*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. As of June 30, 2003, there were no units includable in diluted earningsper unit related to subscribed units as the calculation would have beenantidilutive.

 

*Recently Issued Accounting Pronouncements*

 

The Financial AccountingStandards Board (FASB) has issued Statement No. 149, Amendment of Statement 133on Derivative Instruments and Hedging Activities. The Statement amends andclarifies accounting for derivative instruments, including certain derivativeinstruments embedded in other contracts, and for hedging activities underStatement 133.

 

(continue on next page)

 

8

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The Financial AccountingStandards Board (FASB) has issued Statement No. 150, Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity.  The Statement establishes standards for howan issuer classifies and measures certain financial instruments.

 

Management does not expect theimplementation of these pronouncements to have a significant effect on theCompany’s financial statements.

 

**NOTE 2 -COMMITMENTS AND CONTINGENCIES**

 

The Company has entered into anoption agreement to purchase approximately 10 acres of land. The option wasoriginally purchased for $5,000 and provides for a purchase price of $9,000 peracre, plus the cost to replace boundary fencing and relocate an existingstructure along with water and electric utilities. The option was extended toMarch 13, 2004 and the Company paid an additional $5,000 for the extension. Thepurchase price of the land will be reduced by amounts previously paid for theoption and extension.

 

The Company has an agreementwith its former project coordinator to defer a portion of fees earned untilstock sales are authorized. The former project coordinator provides limitedservice on an ongoing basis. The deferred amount included in accounts payable —related party as of June 30, 2003 was $15,000.

 

On May 14, 2002, the Companyentered into an option to purchase real property for the plant site with a fairvalue of approximately $172,500. The option is for the purchase ofapproximately 23 acres within the Golden Prairie Industrial Park of the City ofGarnett, Kansas for $1. The option was extended and expires on June 1, 2004.

 

The Company entered into anagreement for preliminary engineering for the proposed ethanol plant with FaganEngineering LLC. The agreement obligates the Company for no more than $30,000,of which approximately $11,000 had been incurred as of June 30, 2003.

 

During the six months endedJune 30, 2003, the Company terminated its agreement with Value Add 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 of June30, 2003.

 

The Board of Directors approveda registration statement filed with the Securities and Exchange Commission forthe sale of units in an initial public offering. A minimum of 9,000 units and amaximum of 18,000 units (exclusive of units issued prior to the initial publicoffering) will be offered for sale in the public offering at a price of $1,000per unit. Each investor is required to purchase a minimum of 10 units. Theminimum amount of the offering is $9,000,000, with a maximum potential amountraised of $18,000,000. In the event subscriptions for the minimum are notreceived and accepted or events occur that prevent the escrow from being broken(such as non-execution of debt financing agreements), amounts received fromsubscriptions will be returned to the purchaser with interest based on interestearned on the escrow account, less applicable fees. Subscriptions requiresubmission of 10% of the offering price, with the remaining amount subject tocall of the Board of Directors. In the event a subscriber does not pay fortheir units in full, all amounts previously collected are forfeited to theCompany. As of June 30, 2003 the amount held in escrow totaled $341,900representing subscriptions of $3,149,000 for 3,149 units. Amounts held inescrow are not included in the accompanying financial statements as the Companydoes not have title to the proceeds of the subscriptions until the terms of theescrow agreement have been met and the subscriptions are released to theCompany.

 

(continued on next page)

 

9

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**NOTE 3 -CONCENTRATION OF CREDIT RISK**

 

The Company maintains cashbalances at a financial institution in its trade area. The account is securedby the Federal Deposit Insurance Corporation up to $100,000. At times, theCompany’s bank balance may exceed $100,000.

 

During 2003, the Companyentered into an agreement with Garnett State Savings Bank to provide securityfor balances held in escrow related to subscriptions received as part of theCompany’s initial public offering.

 

**NOTE 4 -VALUE ADDED GRANT**

 

During the three months endedJune 30, 2003, the Company received notification of award of a United StatesDepartment of Agriculture Value-Added Agricultural Product Market Development Grant(the Grant) for approximately $450,000. The Grant can be used to pay forcertain organizational, offering and start-up costs related to the formationand capitalization of the Company. The Company qualified for reimbursement of$34,687 and $94,134 of costs, of which $9,459 and $34,240 related to cost ofraising capital and $25,228 and $59,894 was recorded as a reduction of start-upcosts for the three and six months ended June 30, 2003, respectively.

 

 

10

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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 orachievements.  We caution you not to putundue reliance on any forward-looking statements, which speak only as of thedate of this report.  You should readthis report and the documents that we reference in this report and have filedas exhibits, completely and with the understanding that our actual futureresults may be materially different from what we currently expect.  We qualify all of our forward-lookingstatements by these cautionary 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 raise inthe 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 third partyprocessor.  We intend to hire staff onlyto operate our ethanol plant and manage our business.

 

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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 thenext 21 months in financing, design-development and construction of thePlant.  During the timepreceding completion of this Offering, we will identify and interview seniorbank lenders to obtain needed debt financing. We intend to begin this processby identifying regional lenders that are able to fund projects of the size ofour Plant and inviting those lenders to inform us of their level of interest inoffering us debt financing.  We willthen determine which of those lenders have the least restrictive requirementsof us and the terms that are most favorable to us.  We expect to have the senior bank loan commitment from a majorfinancing institution or institutions in place at approximately the closing ofthis Offering.

 

We are currently in the process of negotiating a design-build contractwith Fagen, Inc.  We expect that theconstruction of the Plant and rail spur will take 14 months from the timeconstruction commences.  We expect thatinitial start-up and operations of the plant will be under the generaldirection and guidance of Fagen, Inc. employees and our own personnel, who willhave experience in ethanol production or will have received on-site trainingprovided by Fagen, Inc.  We furtheranticipate that additional on-site support will be provided by Fagen, Inc. forthe first 30 days of plant operation.

 

**Sources and Uses of Funds**

 

The gross proceeds from this Offering will be $9,000,000 if the minimumamount of equity offered is sold, and $18,000,000, before deducting expenses,if the maximum number of Units offered is sold. We estimate the Offeringexpenses to be approximately $350,000, and the net proceeds of the Offering tobe $8,650,000 if the minimum amount of equity is raised, and $17,650,000 if themaximum number 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  | % |

 

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We intend to use the net proceeds of the Offering to build an ethanolplant and to start operating the ethanol Plant as a going concern. We mustsupplement the proceeds of this Offering with debt financing to meet our statedgoals. We estimate total capital expenditures for the construction of thePlant, including real estate costs, will be approximately $33 million. Thefollowing table describes our proposed use of proceeds based on a maximumoffering amount of $18,000,000, and a minimum offering amount of $9,000,000.The following figures are intended to be estimates only, and the actual use offunds may vary significantly from the descriptions given below.

 
| **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 amount of debt, we will first payfinancing costs of approximately $1,290,000. This is an estimate and our actualdebt financing expenses could be substantially higher.  We will have significant operating costsprior to the receipt of revenue from the sale of ethanol and distillersgrains.  Among these costs is the costof insurance.  The Board of Directors iscurrently researching various insurance structures for directors and officers’insurance, general liability insurance and property insurance. We are reservingapproximately $865,000 to cover costs associated with securing appropriateinsurance coverage and other organizational expenses. This reserve amount isbased on an estimate only and our actual insurance costs may exceed the reserveamount.  We are also reserving funds forstart up costs, such as $300,000 to pay general and administrative costs formanagerial fees, out-of-pocket reimbursements and general office expenses.  Our actual general and administrativeexpenses may exceed this amount. We will also have preproduction costs forinventory and other expenses.  It is possible that lenders mayrequire a performance bond for the construction of the Plant.  Payment for such a bond 

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will be ourresponsibility.  We anticipate that sucha bond will cost approximately $300,000. The remainder of the funds will be used to payconstruction costs, such as digging, laying foundations, purchasing andinstalling equipment, 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 also dependent on our board of directors to maintain our booksand records.  These individuals areultimately responsible for complying with the rules and regulations promulgatedunder the Securities and Exchange Act of 1934 concerning the maintenance ofaccurate books and records, and the timely submission of periodic reports andother requirements with the Securities and Exchange Commission.

 

We had employed Value Add Ventures, LLC toassist in raising equity for our Company. We have terminated that agreement and are not currently using anyconsultants for such assistance.

 

**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 June 30, 2003, we had cash and cashequivalents of $97,979 and total assets of $491,842.  Our total assets include $252,411 of prepaid offering costsrelating to the Offering.  At the timewe issue units in the Offering, these costs will be netted against the proceedsreceived, or if we do not complete the sale of any units in the Offering, theywill be expensed.  To date, we haveraised a total of $610,000 in seed capital, which we have used to

 

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fund our organization and operation todate.  As of June 30, 2003, we hadcurrent liabilities of $138,722, which consists primarily of our accountspayable.  Since our inception throughJune 30, 2003, we have an accumulated deficit of $866,880.  Total members’ equity as of June 30, 2003was $353,120.  Since our inception, wehave generated no revenue 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 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 projectsuffers delays, we may not be able to timely repay the loan.  If interest rates increase, we will havehigher interest payments, which could adversely affect our business. Wecurrently have no commitment 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, andour Treasurer (the principal financial officer), Jill A. Zimmerman, haveevaluated any changes in our internal control over financial reporting thatoccurred as of the end of the period covered by this quarterly report and therehas been no change that has materially affected or is reasonably likely tomaterially affect our internal control over financial reporting.

 

**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.

 

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We registered a total of 18,000 units with an aggregate gross offeringprice of $18,000,000, or $1,000.00 per unit. We intend to close the Offering on January 24, 2004.  As of June 30, 2003, we have receivedsubscriptions for approximately 3,149 units, or an aggregate of $3,149,000 ofsubscription payments in the form of cash and notes.  We are depositing all subscription payments from the Offering inan escrow account.  We have not yet met theconditions to breaking escrow and therefore have not completed the sale of anyof the units subscribed.  We will notbreak escrow and complete the sale of any of the units subscribed for until wesatisfy the following conditions:

•                                 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;

•                                 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 June 30, 2003, we incurred no expenses for our account inconnection with the issuance and distribution of the units registered forunderwriting discounts and commissions, finders’ fees, expenses paid to or forunderwriters, or other expenses.  FromJanuary 24, 2003 (the effective date of the registration statement) to June 30,2003, we did not receive or use any net offering proceeds.

 

**Item 3.****           DefaultsUpon Senior Securities**

 

None.

 

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

 

None.

 

**Item 5.****           OtherInformation**

 

None.

 

**Item 6.****           Exhibitsand Reports on Form 8-K**

 

(a)                                  Thefollowing exhibits are included herein:

 
| 31.1 | Certificate Pursuant to 17 CFR 240.15d-14(a)  |
|------|-----------------------------------------------|
| 31.2 | Certificate Pursuant to 17 CFR 240.15d-14(a)  |
| 32.1 | Certificate Pursuant to 18 U.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:  | August 14, 2003                          |   | /s/ William R. Pracht |
|   | William  R. Pracht                       |
|   | President  (Principle Executive Officer) |
|        |                                          |  |  |

 

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|   |                                                    |
|--------|---------------------------------------------------------|
|   |                                                    |
| Date:  | August 14, 2003                                         |   | /s/ Jill A. Zimmerman |
|   | Jill A. Zimmerman                                       |
|   | Treasurer  (Principal Financial and Accounting Officer) |
|        |                                                         |  |  |

 

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