PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands)

		June 30,			September 30,
		2007			2006
		(unaudited)
Assets
Current assets
Cash and cash equivalents		$	21,049		$	10,814
Accounts receivable:
Trade accounts receivable		4,356			—
Due from broker		18,023			—
Other		70			152
Inventories		2,076			—
Prepaid expenses		248			130
Total current assets		45,822			11,096
Property and equipment, net		205,754			39,909
Other assets
Restricted cash held in escrow		1,995
Cash held for plant construction		—			32,500
Financing and deferred offering costs, net		2,687			1,220
Investments		802			—
Goodwill		29,148			—
Intangibles		2,812			2,812
Other assets		384			66
Total Assets		$	289,404		$	87,603
Liabilities and members’ equity
Current liabilities:
Accounts payable		$	20,847		$	15,681
Accrued expenses		1,363			372
Derivative financial instruments		19,976			—
Current portion of long-term debt		70,680			—
Total current liabilities		112,866			16,053
Deferred income		6,732			—
Long-term debt		67,642			7,000
Members’ equity
Members’ capital, no par value, authorized 20,000,000 Units, 9,848,028 and 7,165,600 units outstanding at June 30, 2007 and September 30, 2006, respectively.		119,945			66,821
Retained deficit		(17,721		)	(2,033		)
Deferred compensation		(60		)	(238		)
Total members’ equity		102,164			64,550
Total liabilities and members’ equity		$	289,404		$	87,603

 

See notes to consolidated financial statements.

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ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share data)

		Three Months ended						Nine Months ended
		June 30, 2007			June 30, 2006			June 30, 2007			June 30, 2006
Net sales
Ethanol and related products		$	14,797		$	—		$	33,664		$	—
Other		2,965						6,288			—
Total net sales		17,762			—			39,952			—
Cost of goods sold		22,981			—			46,546			—
Gross loss		(5,219		)	—			(6,594		)	—
Selling, general and administrative		2,483			695			6,827			1,453
Operating loss		(7,702		)	(695		)	(13,421		)	(1,453		)
Other income		—			—			—			14
Interest income		256			669			805			840
Interest expense		(343		)	—			(1,302		)	(49		)
Net loss before minority interest		(7,789		)	(26		)	(13,918		)	(648		)
Minority interest		(890		)	—			(1,770		)	—
Net loss		$	(8,679	)	$	(26	)	$	(15,688	)	$	(648	)
Basic & diluted weighted average units outstanding		9,131,338			6,700,502			8,501,482			2,595,319
Loss per unit - basic and diluted		$	(0.95	)	$	(0.00	)	$	(1.84	)	$	(0.25	)

 

See notes to consolidated financial statements

4

ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Statements of Changes in Members’ Equity

For the Nine Months Ended June 30, 2007

(Unaudited)

(Dollars in thousands, except member units)

		Member Units		Members’ Capital			Retained (Deficit)			Deferred Compensation				Total Members’ Equity
MEMBERS’ EQUITY - September 30, 2006		7,165,600		$	66,821		$	(2,033	)	$	(238		)		$	64,550
Issuance of membership units, in connection with purchase of Heartland Grain Fuels, L.P.		2,631,578		52,632			—				—				52,632
Issuance of membership units for services		50,850		897			—				—				897
Amortization of unearned compensation		—		—			—				178				178
Unit compensation expense		—		218			—				—				218
Member distribution		—		(623		)	—				—				(623		)
Net Income		—		—			(15,688		)		—				(15,688		)
MEMBERS’ EQUITY — June 30, 2007		9,848,028		$	119,945		$	(17,721	)		$	(60	)		$	102,164

 

See notes to consolidated financial statements

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ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

		Nine Months Ended
		June 30, 2007			June 30, 2006
Cash flows from operating activities
Net loss		$	(15,688	)	$	(648	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		3,634			16
Consulting services exchanged for membership units					327
Unit compensation expense		1,293			10
Unrealized loss on derivative financial instruments		20,279			—
Minority interest in net income		1,771			—
Changes in working capital components net of effects of acquisition of HGF
Receivables		(19,580		)	(44		)
Inventories		(174		)	—
Prepaid expenses		13			35
Accounts payable		2,713			99
Accrued expenses		(26		)	198
Net cash used in operating activities		(5,765		)	(7		)
Cash flows from investing activities
Purchase of land options and deposits		—			(35		)
Purchase of other assets		(486		)	(57		)
Purchase of Heartland Grain Fuels, LP, net of cash acquired		$	(15,204	)	—
Purchase of property and equipment		—			(9,804		)
Payments for construction in progress		(104,915		)	—
Decrease in cash for plant construction and cash held in escrow		30,505			—
Net cash used in investing activities		(90,100		)	(9,896		)
Cash flows from financing activities
Proceeds from sale of membership units		—			60,484
Net cash received from acquisition		—			1,306
Payments on debt		(875		)	(1,271		)
Proceeds from long-term debt		107,798			7,000
Distribution to members		(623		)	—
Payment of deferred offering and financing costs		(200		)	(1,089		)
Net cash provided by financing activities		106,100			66,430
Net increase in cash and cash equivalents		10,235			56,527
Beginning cash and cash equivalents		10,814			894
Ending cash and cash equivalents		$	21,049		$	57,421
Supplemental disclosure of non cash transactions
Deferred income incurred for deposits and deferred offering costs		$	1,373		—
Membership units issued for acquisition of assets		52,632			4,172
Accounts payable incurred for construction in process		12,815			3,214
Financing costs amortized to construction in progress		106			—
Land option applied to land purchase		—			20
Deposit transferred to financing cost		—			25
Unearned compensation provided as a cost of raising capital		—			425
Deferred offering cost transferred to cost of raising capital		—			1,043
Supplemental disclosure of cash flow information:
Cash paid for interest, including interest capitalized of $3.5 million		$	4,620		$	—

 

See notes to consolidated financial statements.

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ADVANCED BIOENERGY, LLC & SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)

1.    Organization and Significant Accounting Policies

The accompanying consolidated financial statements of Advanced BioEnergy, LLC (the “Company”) and its subsidiaries as of June 30, 2007 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto, contained in the Company’s Annual Report on Form 10-KSB for the year ended September 30, 2006. The results of operations for the three and nine months ended June 30, 2007 are not necessarily indicative of the results for the fiscal year ending September 30, 2007. Certain previously reported amounts have been reclassified to conform to the current presentation format, with no impact on equity or net loss.

The financial statements include the accounts of the Company and its wholly owned subsidiaries, ABE Fairmont, LLC (“ABE Fairmont”), ABE Northfield, LLC, Indiana Renewable Fuels, LLC (“IRF”), HGF Acquisition, LLC (“HGF Acquisition”), Dakota Fuels, Inc. (“Dakota Fuels”) and Heartland Grain Fuels LP (“HGF”). HGF is a Delaware limited partnership formed in 1991. ABE acquired a 53.315% ownership interest in HGF on November 8, 2006 (See Note 2). On May 14, 2007, the Company acquired the remaining partnership interest in HFG (the “Second Closing”). All significant inter-company account balances and transactions have been eliminated. These financial statements include the operations of HGF for the respective percentage of ownership from the time of the acquisition closings. Prior to the acquisition of HGF, the Company was a development stage company.

The Company was organized to build ethanol plants and undertake other biofuel projects. The Company currently operates a nine million gallons per year ethanol plant in Aberdeen, South Dakota, and a thirty million gallons per year ethanol plant in Huron, South Dakota, acquired in connection with the HGF acquisition. Construction of a 100 million gallons per year ethanol plant near Fairmont, Nebraska is under way and is expected to be completed in September 2007. A 40 million gallons per year ethanol plant expansion in Aberdeen, South Dakota, is underway and is expected to be completed in December 2007. A 100 million gallon per year ethanol plant to be located near Argos, Indiana, is in the design stage, and a 100 million gallon per year ethanol plant to be located near Northfield, Minnesota, is in the development stage.

Investments

The Company has equity investments interest in three private cooperatives in unrelated industries. The Company’s interest represents less than 20% of the ownership of such companies and the Company has no financial obligations to such companies. The investments are being accounted for under the equity method of accounting.

Receivables

Credit sales are made primarily to two customers and no collateral is required. The Company carries these accounts receivable at face amount with no allowance for doubtful accounts due to the collectibility of those accounts.

Inventories

Corn, chemicals and supplies, work in process, ethanol and distiller grains inventories are stated at the lower of cost or market on the first-in, first-out method.

Derivative Instruments

The Company has entered into derivative contracts to hedge the Company’s exposure to price risk related to forecasted corn purchases and forecasted ethanol sales. These derivative contracts are to be accounted for under Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.

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Although the Company believes its derivative positions are economic hedges, none have been designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings.

Goodwill

The Company records goodwill as the excess of purchase price over the fair value of the identifiable net assets acquired. SFAS No. 142, Goodwill and Other Intangible Assets, prescribes a two-step process for impairment testing of goodwill, which is performed annually, as well as when an event triggering impairment may have occurred. The first step tests for impairment, while the second step, if necessary, measures the impairment. No indicators of impairment were identified during the nine months ended June 30, 2007.

Deferred Income

The Company recorded the net funds received from the Village of Fairmont Nebraska Tax Incremental Financing as deferred income and this deferred income will be amortized into income as property taxes are paid in the fiscal years ending September 2008 through 2021.

Revenue Recognition

Revenue from the production of ethanol and related products is recorded when title transfers to customers. Ethanol and related products are generally shipped free on board (FOB) shipping point. Collectibility of revenue is reasonably assured based on historical evidence of collectibility between the Company and its customers. Interest income is recognized as earned.

In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, commissions due to the marketers are deducted from the gross sale price at the time of payment. Commissions were approximately $1.0 million for the nine months ended June 30, 2007. No commissions were paid for the nine months ended June 30, 2006.

Loss per Unit

Basic and diluted loss per unit are computed using the weighted-average number of vested units outstanding during the period. Unvested units and units held in escrow are considered unit equivalents and are considered in the diluted income per unit computation, but have not been included in the computations of diluted loss per unit as their effect would be anti-dilutive for the periods ended June 30, 2007 and 2006.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Recently Issued Accounting Standards

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an Interpretation of SFAS No. 109. FIN 48 creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The company is currently assessing the impact of adoption of FIN 48.

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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. SFAS No. 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. As such, SFAS No. 157 applies to all other accounting pronouncements that require (or permit) fair value measurements, except for the measurement of share-based payments. SFAS No. 157 does not apply to accounting standards that require (or permit) measurements that are similar to, but not intended to represent, fair value. Fair value, as defined in SFAS No. 157, is the price to sell an asset or transfer a liability and therefore represents an exit price, not an entry price. The exit price is the price in the principal market in which the reporting entity would transact. Further, that price is not adjusted for transaction costs. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. SFAS No. 157 will be applied prospectively as of the beginning of the fiscal year in which it is initially applied. The Company is currently assessing the impact of adoption of SFAS No.157.

2.    Acquisition of HGF

On November 8, 2006, the Company acquired 53.315% of the partnership interest in HGF. On May 14, 2007 the Company acquired the remaining 46.685% partnership interest in HGF and at that point became a wholly-owned subsidiary of Advanced BioEnergy, LLC (See Note 8). HGF owns and operates a nine million gallons per year dry mill corn-processing ethanol plant in Aberdeen, South Dakota, and a thirty million gallons per year dry mill corn processing ethanol plant in Huron, South Dakota.

The aggregate purchase price of HGF was $70.2 million consisting primarily of $16.7 million in cash, the issuance of 2,631,578 units of ABE valued at $52.6 million, or $20 per unit, and direct costs of the acquisition of $918,000. There is no established market for the Company’s units. The per unit fair value for the units issued in the transaction was determined by the Company’s board of directors after consideration of various factors.

The acquisition was accounted for under the purchase method of accounting, and accordingly, the assets and liabilities acquired were recorded at their estimated fair values at the effective date of the acquisition and the results of operations have been included in the unaudited consolidated statements of operations since the acquisition date. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill recorded as a result of the acquisition will be subject to an annual impairment test and will not be amortized.

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed at the date of acquisitions (in thousands):

		As of Nov8, 2006			As of May 14, 2007			Combined
Cash acquired		$	2,414		$	—		$	2,414
Current assets		5,052			—			5,052
Property and equipment		56,634			10,000			66,634
Other long-term assets		635			—			635
Restricted cash held in escrow		7,794			(7,794)			—
Goodwill		15,924			13,224			29,148
Total assets acquired		88,453			15,430			103,883
Current liabilities		(8,645		)	—			(8,645		)
Long-term debt		(34,552		)	7,794			(26,758		)
Minority interest		(7,857		)	9,628			1,771
Fair value of assets and liabilities assumed and accrued, net		$	37,399		$	32,852		$	70,251

 

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The following table presents our consolidated results of operations on an unaudited proforma basis as if the acquisition had taken place at the beginning of the periods presented (in thousands, except share amounts):

		Three Months Ended						Nine Months Ended
		June 30, 2007			June 30, 2006			June 30, 2007			June 30, 2006
		(unaudited)			(unaudited)			(unaudited)			(unaudited)
(in thousands, except per unit data)
Net sales		$	17,762		$	11,983		$	48,096		$	31,683
Gross profit (loss)		(5,344		)	3,581			(6,507		)	5,544
Gross profit %		(30.1		)%	29.9		%	(13.5		)%	17.5		%
Selling, general and administrative		2,483			866			6,931			1,983
Net income (loss)		$	(7,914	)	$	3,003		$	(14,106	)	$	3,531
Income (loss) per unit — basic and diluted		$	(0.81	)	$	0.32		$	(1.45	)	$	0.67

 

3.    Inventories and Property and Equipment

A summary of inventories and property and equipment at June 30, 2007 and September 30, 2006 is as follows (in thousands):

		June 30,			September 30,
		2007			2006
		(unaudited)
Supplies and parts		$	828		—
Chemicals		129			—
Work in process		579			—
Ethanol		498			—
Distillers grain		42			—
Total		$	2,076		$	—

 

		June 30, 2007			September 30, 2006
		(unaudited)
Land		$	1,730		$	1,460
Buildings		7,045			—
Process equipment		51,842			—
Office equipment		314			324
Construction in process		148,488			38,156
		209,419			39,940
Accumulated depreciation		(3,665		)	(31		)
Property and equipment, net		$	205,754		$	39,909

 

The Company capitalizes interest expense as part of the cost of construction of its plants and equipment and will be depreciated over the life of the related assets. Capitalized interest totaled approximately $3.5 million for nine months ended June 30, 2007.

4:    Long Term Debt

Long-term debt consists of the following at June 30, 2007 and September 30, 2006 (in thousands):

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		Interest Rate		June 30, 2007			September 30 2006			Additional Financing Available at June 30, 2007
Subordinate exempt facilities bonds		6.75%		$	7,000		$	7,000		$	—
HGF term commitment, revolving term loan		7.7 — 8.0%		42,000			—			—
HGF Acquisition note payable		15%		5,000			—			—
ABE Fairmont term commitment		8.75%		58,392			—			30,696
ABE Fairmont seasonal line		8.75%		—			—			5,000
Advanced BioEnergy convertible note		15%		25,930
Total outstanding				138,322			7,000			$	35,696
Less: Amounts due within one year				(70,680		)	—
Long-term debt				$	67,642		$	7,000

 

The estimated maturities of long-term debt on or before June 30, are as follows (in thousands):

2008		$	70,680
2009		10,500
2010		10,500
2011		11,315
2012		7,565
Thereafter		27,762
Total long-term debt		$	138,322

 

Fillmore County Subordinate Exempt Facilities Revenue Bonds for the Nebraska Plant

The Company has $7.0 million of Subordinate Exempt Facilities Revenue Bonds outstanding under a subordinated loan and trust agreement with the County of Fillmore, Nebraska and Wells Fargo, N.A. The loan agreement is collateralized by the Nebraska plant assets. The Company has agreed to repay the loan by making loan payments to the issuer in an amount equal to the aggregate principal amount of the loan from time to time outstanding, and the premium, if any, and interest thereon at maturity, upon redemption, upon acceleration, or when otherwise payable. The Company’s obligation to make the loan payments under the loan and trust agreement is evidenced by its execution and delivery of a promissory note. The Company’s repayment of the loan and the security for the loan are subordinate to the Company’s senior loan and credit facility. Annual principal payments of $815,000 are required starting in December 2010 through December 2016, with the remainder due December 2017.

Senior Credit Facility for the South Dakota Plants

The Company has fully drawn on its two HGF Revolving Term loan facilities totaling $42 million. The loans are secured by a first mortgage lien in favor of CoBank, ACB covering real property owned by HGF, together with a security interest covering substantially all personal property owned by HGF, including receivables, inventories and equipment subject to perfected security interests in addition to a pledge equity investment of $581,000 in CoBank. The $6.8 million revolving term loan has quarterly commitment reductions of $750,000 starting September 1, 2011, with the balance due on June 1, 2013 bearing interest at 7.708%. The Company is required to pay the $35.2 million term loan, which bears interest at 8.0%, in full or renegotiate payment terms by January 20, 2008.  Restrictive covenants in the loan agreements provide for, among other things, (1) restrictions on incurring additional indebtedness, (2) restrictions on the ability to mortgage, pledge, assign or grant security interest in any assets to any other party, (3) minimum working capital (4) minimum net worth balances and (5) restrictions on scheduled payments made to lessors during each fiscal year.

Loan From Kruse Investment Company

HGF Acquisition obtained a $5.0 million loan from Kruse Investment Company due March 1, 2008, secured by all of the ownership interests in HGF owned by HGF Acquisition and bearing interest of 12%. HGF Acquisition has loaned the $5.0 million obtained from Kruse Investments to HGF on an unsecured basis, subordinate to the senior lender to HGF. The proceeds of the loan were used to fund a portion of the Aberdeen plant expansion. HGF Acquisition pledged its equity interests in Dakota Fuels and HGF as collateral. HGF Acquisition is prohibited from selling transferring or pledging its assets while this debt is outstanding.

On July 1, 2007 the credit agreement was amended to reflect a maturity date of the earlier of September 30, 2007 or the closing date of a credit facility by Heartland Grain Fuels that refinances all existing Heartland Grain Fuels debt and finances the remaining Aberdeen expansion. The amended interest rate was changed to reflect 15% per annum after July 1, 2007.

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Senior Credit Facility for the Nebraska Plant

Effective February 17, 2007, ABE Fairmont, LLC entered into a loan agreement with Farm Credit establishing a senior credit facility with Farm Credit for the construction of a 100 million gallons per year ethanol plant. The construction financing is in the amount of $79.5 million consisting of a $58.5 million term loan, known as term loan A, and a $21.0 million revolving term loan, known as term loan B. Farm Credit also extended to the Company a $5.0 million revolving credit facility for financing eligible grain inventory and equity in Chicago Board of Trade futures positions, which will not be effective until the Company begins operations at its Nebraska plant. Farm Credit has appointed CoBank, ACB, to serve as its agent with regard to these loans.

ABE Fairmont and Farm Credit also entered into additional loan agreements, the effect of which is to provide an additional $6.5 million term loan, known as term loan C, and an additional $4.0 million revolving term loan, known as term loan D for construction of the Nebraska plant. The terms and conditions of these loan agreements are substantially similar to those described above. The Company issued a letter of credit for the purchase of rail cars to Trinity Industries Leasing Company for $912,000, effectively reducing the financing available from Term Loan D.

The Company paid an origination fee of $397,500 to Farm Credit for term loan A. A commitment fee at a rate of 0.625% per annum is payable on a monthly basis on the unused portion of term loan B. For the grain inventory and futures revolving credit facility, the Company paid an origination fee of $12,500. A commitment fee of 0.25% per annum is payable on a monthly basis on the unused portion of the grain inventory and futures revolving credit facility. ABE Fairmont paid an origination fee of $72,500 to Farm Credit for term loan C. A commitment fee at a rate of 0.625% per annum is payable on a monthly basis on the unused portion of term loan D.

ABE Fairmont may select a rate of interest for each term loan at CoBank’s announced base rate plus 0.5%, a fixed rate to be quoted by CoBank or at LIBOR plus 3.4% per annum. ABE Fairmont may select a rate of interest for the grain inventory and futures revolving credit facility at CoBank’s announced base rate, a fixed rate to be quoted by CoBank or at LIBOR plus 3.1% per annum.

Farm Credit is only obligated to lend the funds for construction if certain conditions are satisfied. These conditions include, among others, the total cost of the project being within a specified amount, the receipt of engineering and construction contracts and a process/yield guarantee from the design engineer and contractor acceptable to Farm Credit, evidence of the issuance of all permits, acceptable insurance coverage and title commitment, the contribution of at least $60.0 million of equity (less any tax increment financing proceeds and the proceeds the Company receives from the sale of subordinate exempt facilities revenue bonds issued by Fillmore County, Nebraska) and the delivery of attorney opinions.

ABE Fairmont must repay term loan A as follows: 25 equal quarterly installments of $2.3 million with the first installment due February 20, 2008, and the last installment due February 20, 2014, followed by a final installment in an amount equal to the remaining unpaid principal balance on May 20, 2014. For each fiscal year ending in 2007 through 2010, ABE Fairmont must pay an additional amount equal to the lesser of $6 million or 75% of its free cash flow, not to exceed $12 million in the aggregate for all of these cash flow payments.

On the earlier of March 1, 2014 or six months following complete repayment of term loan A, ABE Fairmont will begin repayment of term loan B in $5.0 million increments due every six months. ABE Fairmont will repay the grain inventory and futures revolving credit facility the earlier of March 1, 2008 or 12 months after the date on which ABE Fairmont borrows funds.

ABE Fairmont must repay term loan C and term loan D in full on June 1, 2009.

The loans owed to Farm Credit are secured by a first mortgage on all of ABE Fairmont’s real estate and a lien on all of ABE Fairmont’s personal property. ABE Fairmont has agreed to purchase $1,000 worth of stock in Farm Credit Services of America, ACA that will also be pledged as security for the loans. If ABE Fairmont prepays any portion of term loan A or term loan B through a refinancing prior to July 1, 2009, ABE Fairmont will pay a prepayment charge of 3% of the amount prepaid in addition to certain surcharges. If ABE Fairmont prepays any portion of term loan C or term loan D through a refinancing prior to June 1, 2009, ABE Fairmont will pay a prepayment charge of 3% of the amount prepaid in addition to certain surcharges.

While the credit facilities are outstanding, ABE Fairmont will be subject to certain financial loan covenants consisting of minimum working capital, minimum net worth and maximum debt service coverage ratios. After the construction phase, ABE Fairmont will not be allowed to make capital expenditures of more than $600,000 without prior approval. ABE Fairmont is also prohibited from making distributions to Advanced BioEnergy except as follows: (i) for each fiscal year commencing with the

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fiscal year ending September 30, 2007, ABE Fairmont may make a distribution to Advanced BioEnergy of 50% of ABE Fairmont’s net profit for the applicable fiscal year if Farm Credit has received audited financial statements for the applicable fiscal year and (ii) ABE Fairmont may make distributions to Advanced BioEnergy exceeding 50% of its net income if it has made the required cash flow payment for that fiscal year. ABE Fairmont must also be in compliance with all financial ratio requirements and loan covenants before and after any distributions to Advanced BioEnergy.

Upon the occurrence of an event of default or an event that will lead to a default, Farm Credit may upon notice terminate its commitment to loan funds to ABE Fairmont and declare the entire unpaid principal balance of the loans, plus accrued interest, immediately due and payable. An event of default includes, but is not limited to, ABE Fairmont’s failure to make payments when due, insolvency, any material adverse change in ABE Fairmont’s financial condition or ABE Fairmont’s breach of any of the covenants, representations or warranties it has given in connection with the loans.

Subordinated Convertible Debt Financing

We issued Ethanol Investment Partners, LLC, an affiliate of Tennessee Ethanol Partners, LP, an existing investor in our company, $26 million of 15% subordinated convertible promissory notes. The proceeds will be used for continuing construction of the Aberdeen plant expansion.

The notes bear interest at 15% per annum compounded quarterly and will mature in June 2008. The principal and accrued but unpaid interest on the notes are convertible into our membership units at the lesser of (a) $16.00 per unit or (b) the price per unit that is equal to the lowest price per unit at which units are sold by us in any public or private offering during the period that the notes are outstanding, at the option of Ethanol Investment Partners in the event we elect to prepay the notes and convert automatically at maturity.

5. Major Customer and Commitments

HGF entered into a grain origination agreement with South Dakota Wheat Growers Association to supply HGF with its corn requirements. The grain origination agreement was negotiated in connection with the Company’s acquisition of ECM, HGH and may not be as favorable to HGF as a contract negotiated at arm’s length. Purchases for the three and nine months ended June 30, 2007 were approximately $13.5 million and $37.2 million. We did not purchase any corn in the periods ended June 30, 2006. Related accounts payable as of June 30, 2007 and September 30, 2006 were approximately $1.2 million and none, respectively.

HGF also entered into a marketing agreement with Aventine, Renewable Energy, Inc. where Aventine is required to purchase all of the ethanol produced at HGF’s South Dakota plants at a price per gallon determined through a pooling of HGF’s and other producers’ ethanol that is sold by Aventine to third parties, less a commission based on the net pooled price. Sales for the three months ended June 30, 2007 were approximately $21.5 million and $51.4 million respectively. We did not have any ethanol sales in the periods ended June 30, 2006. Related accounts receivable as of June 30, 2007 and September 30, 2006 were approximately $2.9 million and none, respectively. This ethanol marketing agreement will expire on November 30, 2008; however, the agreement automatically renew for successive one-year term unless terminated by either party upon one year’s prior written notice.

HGF is a party to a by-product marketing agreement with Dakotaland Feeds, LLC, whereby Dakotaland Feeds will market locally the sale of ethanol co-products produced at HGF’s plants to third parties for an agreed-upon commission. Co product sales for the three and nine months ended June 30, 2007 were $3.2 million and $5.6 million respectively. We did not have any co product sales in the periods ended June 30, 2006. Related accounts receivable as of June 30, 2007 and September 30, 2006 were approximately $254,000 and none, respectively.

6. Risk Management

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

The manufacturing of the Company’s products requires substantial purchases of corn. Price fluctuations in commodities cause firm commitments to purchase the commodities to develop unrealized appreciation or depreciation when compared with current commodity prices and actual cash outlays for the purchase of the commodities differ from anticipated cash outlays.

To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange traded futures contracts and OTC futures options to reduce its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts and exchange traded futures contracts to reduce price risk. Exchange-traded futures contracts are valued at market price. Changes in market price of ethanol related activities are reflected in revenues and changes in market price of corn related items are reflected in cost of goods sold. At June 30, 2007 and September 30, 2006 net unrealized losses of $20.0 million and none, respectively, are classified as derivative financial instruments on the balance sheets. Net realized and unrealized gains and losses offset revenues by $6.5 million and increased cost of goods sold by $3.3 million for the three months ended June 30, 2007. Net realized and unrealized gains and losses offset revenues by $17.3 million and cost of goods sold by $2.6 million for the nine months ended June 30, 2007. The Company did not enter into any exchange traded futures contracts in the nine months ended June 30, 2006.

Unrealized gains and losses on forward contracts, in which delivery has not occurred, are deemed “normal purchases and normal sales” under FASB Statement No. 133, as amended and, therefore, and not marked to market in the Company’s financial statements. At June 30, 2007, the Company enterd into forward purchase contracts for the purchase of corn totaling approximately $8.6 million through September 2007 and the purchase of natural gas totaling $920,200 through October 2007.

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7. Employee Benefit Plan

The Company has a 401(k) plan. Employees who are at least 21 years of age are eligible to participate in the plan. Eligible employees may make elective deferral contributions to the plan. The Company’s matching contribution is 100% of the employee elective deferrals, not to exceed 5% of the employee’s eligible wages. The Company contributed approximately $16,000 and $34,300 to the plan in the three and nine months ended June 30, 2007.

ITEM 2. Management’s Discussion and Analysis or Plan of Operation

Information Regarding Forward-Looking Statements

The following discussion contains certain forward-looking statements, including statements regarding our expectations, beliefs, intentions, or strategies regarding the future. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The risks and uncertainties are summarized in the forward-looking statements in other documents that we file with the Securities Exchange Commission, such as our Annual Report on Form 10-KSB for the year ended September 30, 2006, and our registered securities offering on Form SB-2 (Registration Statement 333-137299). These forward-looking statements reflect our view only as of the date of this report. We cannot guarantee future results, levels of activity, performance, or achievement. We do not undertake any obligation to update or correct any forward-looking statements.

Executive Overview

Business

We are a Delaware limited liability company formed on January 4, 2005 for the purpose of constructing and operating plants to produce ethanol and distillers grains, as well as to operate other related bio-fuel businesses. Since we only recently became operational as a result of our acquisition of Heartland Grain Fuels, LP (“HGF”) (see Note 2 to our Consolidated Financial Statements), we do not yet have comparable income, production and sales data for the three and nine months ended June 30, 2007. Accordingly, we do not provide a comprehensive comparison of our financial results between reporting periods in this Form 10-QSB. If you undertake your own comparison of the three and nine month periods ending June 30, 2007, it is important that you keep this in mind.

We are currently constructing a 100 million gallons per year dry mill corn-processing ethanol plant near Fairmont, Nebraska, known as the Nebraska plant and a 40 million gallons per year dry mill corn-processing ethanol plant expansion in Aberdeen, South Dakota, known as the Aberdeen plant expansion. We are also planning to construct a 110 million gallons per year dry mill corn-processing ethanol plant to be located near Argos, Indiana, known as the Indiana plant, and a 100 million gallons per year dry mill corn-processing ethanol plant to be located near Northfield, Minnesota, known as the Minnesota plant. We do not expect to generate any revenue from a plant until that plant is completely constructed and operational.

Acquisition of Heartland Grain Fuels, L.P.

On November 8, 2006, we closed on the acquisition of approximately 53% of the ownership interests in Heartland Grain Fuels, L.P., known as HGF. On May 14, 2007, we acquired the remaining partnership interest in HGF, and HGF is now considered our wholly-owned subsidiary.

South Dakota Plants

HGF owns and operates a nine million gallons per year dry mill corn-processing ethanol plant in Aberdeen, South Dakota, known as the Aberdeen plant, and a 30 million gallons per year dry mill corn-processing ethanol plant in Huron, South Dakota, known as the Huron plant. HGF has an ethanol plant with production capacity of 40 million gallons per year under construction in Aberdeen, South Dakota, adjacent to its existing plant. As of July 31, 2007 all sub surface stabilization work on the site has been completed, all concrete associated with the main process building has been installed and concrete is now being poured in the ancillary areas. Underground electrical and on site under ground water have been installed. The tank construction contractor is now on sight and is erecting fermentation and alcohol storage tanks. A large amount of process equipment has been set allowing for piping and equipment specific electrical to get under way and structural steel for the main process building is now being erected as well. This project is progressing on its schedule to be operational in December, 2007.

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We expect the Aberdeen plant expansion will cost approximately $80.0 million to complete, including start-up costs and capitalized interest. We will generate no revenue from the Aberdeen plant expansion until construction is completed.

Based on current production capacity, HGF anticipates that the Aberdeen and Huron plants will need approximately 3.3 million and 11.1 million bushels of corn per year, respectively, for the production of ethanol. HGF will need an additional 14.3 million bushels of corn per year upon completion of the Aberdeen plant expansion. HGF has entered into a grain origination agreement with South Dakota Wheat Growers to provide this corn.

HGF sells the ethanol it produces to Aventine Renewable Energy, Inc. pursuant to an ethanol marketing agreement. Under the terms of this agreement, Aventine is required to purchase all of the ethanol produced at HGF’s South Dakota plants at a price per gallon determined through a pooling of HGF’s and other producers’ ethanol that is sold by Aventine to third parties, less a commission based on the net pooled price. This ethanol marketing agreement will expire on November 30, 2008; however, the agreement automatically renews for successive one-year terms unless terminated by either party upon one year’s prior written notice.

HGF is a party to a co-products marketing agreement with Dakotaland Feeds, LLC, whereby Dakotaland Feeds will market locally the sale of distiller grains and syrup produced at HGF’s plants to third parties for an agreed-upon commission.

Nebraska Plant

Based upon engineering specifications produced by Fagen, the Nebraska plant will annually consume approximately 36 million bushels of corn and annually produce approximately 100 million gallons of fuel grade ethanol and 321,000 tons of distillers grains for animal feed. We currently estimate completing the construction of the Nebraska plant in October 2007. We expect the Nebraska plant will cost approximately $154.5 million to complete. This includes approximately $125.3 million of expected construction costs and an additional $26.3 million in other start-up costs, working capital and interest. We are still in the construction phase, and until the Nebraska plant is operational, we will generate no revenue from the Nebraska plant.

Indiana Plant

Based upon engineering specifications produced by ICM, the Indiana plant will annually consume approximately 39 million bushels of corn and annually produce approximately 110 million gallons of fuel grade ethanol and 350,000 tons of distillers grains for animal feed. We currently estimate that it will take 16 months from the date that we begin construction, which assumes we successfully obtain additional equity and debt financing, and all necessary permits to complete the construction of the Indiana plant.

We expect the Indiana plant will cost approximately $175 million to complete. This includes start-up costs, working capital and capitalized interest. We are considering adding grain storage, grain handling equipment and grain receiving capacity to our plans for the Indiana plant to help maintain adequate grain supply at the facility and improve truck access. If we undertake this additional construction, we estimate that the cost of the Indiana plant will increase by approximately $15.0 million. We are still in the development phase, and until the proposed Indiana plant is operational, we will generate no revenue from the Indiana plant.

Minnesota Plant

Based upon engineering specifications, the Minnesota plant will annually consume approximately 36 million bushels of corn and annually produce approximately 100 million gallons of fuel grade ethanol and 321,000 tons of distillers grains for animal feed. We currently estimate that it will take 14 to 16 months from the date that we begin construction, which assumes we successfully obtain additional equity and debt financing and all necessary permits, to complete the construction of the Minnesota plant. We expect the Minnesota plant will cost approximately $122.5 million to construct and have not yet determined the start-up costs for the Minnesota plant or the total project cost. We are still in the early planning phase, and until the proposed Minnesota plant is operational, we will generate no revenue from the Minnesota plant.

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Future Plants

In the future, we may explore the possibility of developing and building, or acquiring, one or more additional ethanol plants, or we may choose to enter other bio-fuel businesses. We may issue additional equity or incur additional significant debt obligations in order to fund new construction or acquisitions. Any proposed additional plants or businesses may also impose substantial additional demands on the time and attention of our directors and officers.

Selected Pro Forma Financial Data

The following unaudited pro forma consolidated statements of income for the periods presented are based on the historical financial statements of Advanced BioEnergy and HGF. The unaudited pro forma consolidated financial statements give effect to the acquistion which closed on November 8, 2006. Prior to the acquisition of HGF, we were a development stage company. The unaudited pro forma consolidated financial statements have been prepared using the purchase method of accounting as if the transaction had been completed as of the beginning of the periods presented for purposes of the combined consolidated statements of income.

		Three Months Ended						Nine Months Ended
		June 30, 2007			June 30, 2006			June 30, 2007			June 30, 2006
(in thousands)		(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales		$	17,762		$	11,983		$	48,096		$	31,683
Gross profit (loss)		(5,344		)	3,581			(6,507		)	5,544
Gross profit%		(30.1		)%	29.9		%	(13.5		)%	17.5		%
Selling, general and administrative		2,483			866			6,931			1,983
Net income (loss)		$	(7,914	)	$	3,003		$	(14,106	)	$	3,531

 

Pro Forma Three Months Ended June 30, 2007 Compared to Pro Forma Three Months Ended June 30, 2006

Net Sales

Net sales for the three months ended June 30, 2007 were $17.8 million, compared to $11.9 million for the three months ended June 30, 2006, an increase of $5.8 million or 32.5%. Net sales increased in the 2007 period as a result of the Huron plant expansion completed in August 2006, resulting in an increase from 12 to 30 million gallons produced annually. During the 2007 period average ethanol prices decreased $0.21 cents to $2.07 per gallon compared to the same period in 2006. The net increase was offset by a $6.5 million charge for ethanol related hedging activity in the three months ended June 30, 2007.

Sales from co-products increased $2.3 million, or 2.49%, to $3.2 million for the three months ended June 30, 2007. The increase in co-product sales was primarily the result of the additional distiller grain tons produced and sold from the Huron expansion. We expect future ethanol and distiller grains sales volumes to increase once the Fairmont plant and Aberdeen expansion are completed.

Gross Profit

Physically delivered corn costs increased $9.4 million, or 70.0%, to $13.5 million for the three months ended June 30, 2007, from $4.0 million for the three months ended June 30, 2006. Corn costs represented 58.6% of cost of sales for the three months ended June 30, 2007, and 48.0% of cost of sales for the three months ended June 30, 2006. The increase in corn costs was due to a 1.8 million bushel increase in corn used, resulting from the Huron expansion as well as a $1.51 increase per bushel to $3.58 in cost per bushel for the three months ended June 2007 compared to the same period in 2006 and corn related hedging losses of $3.3 million in the three months ended June 30, 2007.

Natural gas costs increased $844,400 to $2.2 million in the quarter ended June 30, 2007, compared to the the quarter ended June 30, 2006. Natural gas costs as a percent of cost of sales declined from 16.0% in the quarter ended June 30, 2006, to 9.5% in the quarter ended June 30, 2007, as a result of a decrease in gas prices and efficiencies at the new Huron expansion. Most of the distiller grains generated from the Huron expansion are sold wet, which requires less natural gas during the drying phase.

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Our gross profit for three months ended June 30, 2007, was ($5.3 million), compared to gross profits of $3.6 million for the three months ended June 30, 2006. The decrease was primarily due to losses on our corn and ethanol related derivative financial instruments of $9.8 million during the quarter ended June 30, 2007. We did not engage in hedging activity for the three months ended June 30, 2006.

Selling, General, and Administration

Selling, general, and administration expenses increased approximately $1.3 million to $2.5 million, for the three months ended June 30, 2007, due to compensation, consulting and system fees incurred related to the HGF acquisition, fundraising and development of the Fairmont plant facility.

Pro Forma Nine Months Ended June 30, 2007 Compared to Pro Forma Nine Months Ended June 30, 2006

Net Sales

Net sales for the nine months ended June 30, 2007 were $48.1 million, compared to $31.7 million for the nine months ended June 30, 2006, an increase of $16.4 million or 34.1%. Sales increased in the 2007 period as a result of the Huron plant expansion completed in August 2006, resulting in an increase from 12 to 30 million gallons produced annually. During the 2007 period ethanol prices increased $0.16 cents to $1.98 per gallon compared to the same period in 2006. These increases were offset by $17.3 million net charge for ethanol related hedging activity in the nine months ended June 30, 2007.

Sales from co-products increased $3.6 million, or 119.1%, to $6.7 million for the nine months ended June 30, 2007. The increase in co-product sales was primarily the result of the additional distiller grain tons produced and sold from the Huron expansion.

Gross Profit

Physically delivered corn costs increased $25.6 million, or 219.2%, to $37.2 million for the nine months ended June 30, 2007, from $11.7 million for the nine months ended June 30, 2006. Corn costs represented 69.2% of cost of sales for the nine months ended June 30, 2007, and 44.6% of cost of sales for the nine months ended June 30, 2006. The increase in corn costs was due to an increase in the number of bushels purchased as a result of the Huron expansion as well as a $1.54 increase in cost per bushel to $3.46 for the first nine months of 2007 compared to the same period in 2006. These increases were offset by $2.6 million in corn related hedging activity gains in the nine months ended June 30, 2007.

Natural gas costs increased $3.7 million to $7.0 million in the nine months ended June 30, 2007, compared to June 30, 2006. Natural gas costs as a percent of cost of sales remained constant at 13%.

Our gross profit for nine months ended June 30, 2007, was $(6.5 million), compared to a $5.5 million gross profit for the nine months ended June 30, 2006, a decrease of $12.0 million or 218.2%. The decrease was primarily due to losses on our derivative financial instruments of $14.7 million during the nine months ended June 30, 2007 along with higher per bushel corn costs offset with increased production from Huron. We did not engage in hedging activity for the nine months ended June 30, 2006.

Selling, General, and Administration

Selling, general, and administration expenses increased approximately $4.9 million to $6.9 million, for the nine months ended June 30, 2007, due to compensation, consulting and system fees incurred related to the HGF acquisition, fundraising and development of the Fairmont plant facility.

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Plan of Operation Through June 2008

We expect to spend the next twelve months focused on operation of the Aberdeen and Huron plants, as well as expansion of the Aberdeen plant, construction of the Nebraska plant, project capitalization, site and plant development for the Indiana plant, and project capitalization and site acquisition and development for the Minnesota plant.

We believe we have sufficient cash on hand and credit facilities to cover all costs associated with construction of the Nebraska plant, including, but not limited to, site development, utilities, construction and equipment acquisition. We will need to raise additional debt and equity to make significant progress on our other goals.

As of July 31, 2007, we have 101 full-time employees and anticipate adding approximately 20 additional employees in connection with the commencement of operations at the new Aberdeen plant in December 2007. We also plan to hire additional employees as our company expands.

Debt Financing for the Aberdeen Plant Expansion

We issued a third party which is an affiliate of an existing investor, $26 million of 15% subordinated convertible promissory notes. The proceeds will be used for continuing construction of our Aberdeen expansion facility. We are continuing to pursue other financing sources to complete the expansion.

Trends and Uncertainties Impacting the Ethanol Industry and our Future Operations

We are subject to industry-wide factors that affect the operating and financial performance of the South Dakota plants and will affect the operating and financial performance of the plants under development once they begin operations. These factors include, but are not limited to, the available supply and cost of corn from which the ethanol and distillers grains is processed; the cost of natural gas, which is used in the production process; the intensely competitive nature of the ethanol industry; possible legislation at the federal, state or local level; changes in federal ethanol tax incentives and the cost of complying with extensive environmental laws that regulate our industry.

We expect ethanol sales to constitute the bulk of our revenues. Ethanol prices have recently been much higher than their ten-year average. However, due to the increase in the supply of ethanol from the number of new ethanol plants scheduled to begin production and the expansion of current plants, we do not expect current ethanol prices to be sustainable in the long term. Areas where we believe demand may increase are new markets in New Jersey, Pennsylvania, Maryland, Massachusetts, North Carolina, South Carolina, Michigan, Tennessee, Louisiana and Texas. Minnesota may also generate additional demand due to the recent passage of state legislation mandating a 20% ethanol blend in its gasoline. Montana passed a similar mandate, but it will not go into effect until 55 million gallons of ethanol are produced in the state.

We expect to benefit from federal ethanol supports and federal tax incentives. Changes to these supports or government incentives could significantly impact demand for ethanol. On August 8, 2005, the Energy Policy Act of 2005 was signed into law containing a renewable fuel standard, known as the RFS. The RFS is a national program that will ensure that gasoline sold or introduced into commerce in the United States contains a particular volume of renewable fuel. The program will apply to refineries, blenders, distributors and importers as appropriate, but will not restrict the geographic areas in which renewable fuels may be used. The applicable volume of renewable fuel under the RFS is 4 billion gallons in 2007 and increases to 7.5 billion gallons by 2012.

Demand for ethanol may increase as a result of increased consumption of E85 fuel. E85 fuel is a blend of 85% ethanol and 15% unleaded gasoline for use in flexible fuel vehicles (FFVs). According to estimates of the Energy Information Administration, E85 consumption increased from a national total of 12.4 million gallons in 2000 to 23 million gallons in 2004. In the United States, there are currently about 3 million flexible fuel vehicles capable of operating on E85 and over 1,000 retail stations supplying it. Automakers have indicated plans to produce an estimated 2 million more flexible fuel vehicles per year.

According to the Renewable Fuels Association, the Energy Policy Act is expected to lead to approximately $6 billion in new investment in ethanol plants across the country. An increase in the number of new plants will bring an increase in the supply

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of ethanol. Thus, while the Energy Policy Act may cause ethanol prices to increase in the short term due to additional demand, supply could outweigh the demand for ethanol in the future. This would have a negative impact on our earnings in the long term.

Consumer resistance to the use of ethanol may affect the demand for ethanol, which could affect our ability to market our product and reduce the value of your investment. Certain individuals believe that use of ethanol will have a negative impact on prices at the pump. Many also believe that ethanol adds to air pollution and harms car and truck engines. Still other consumers believe that the process of producing ethanol actually uses more fossil energy, such as oil and natural gas, than the amount of ethanol that is produced. These consumer beliefs could potentially be wide-spread. If consumers choose not to buy ethanol, it would affect the demand for the ethanol we produce, which could negatively affect our ability to sell our product and negatively affect our profitability.

We expect ethanol prices will be positively impacted by blenders and refineries increasing their use of ethanol in response to environmental liability concerns about methyl tertiary butyl ether or MTBE and increased consumer acceptance and exposure of ethanol.

Technology Developments

Most ethanol is currently produced from corn and other raw grains, such as milo or sorghum—especially in the Midwest. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue, and municipal solid waste and energy crops. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. If an efficient method of producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively. We do not believe it will be cost-effective to convert the existing South Dakota plants or the ethanol plants we are proposing to build into plants that will use cellulose-based biomass to produce ethanol. If we are unable to produce ethanol as cost effectively as cellulose-based producers, our ability to generate revenue will be negatively impacted.

Liquidity and Capital Resources

In the nine months ended June 30, 2007 we generated $106.1 million of cash from financing activites and used $90.1 million for investing activities and $5.8 million for operations. As of June 30, 2007, we have total assets of approximately $289.4 million. We have current liabilities of approximately $112.9 million consisting primarily of our accounts payable and derivative financial instruments and debt obligations maturing within twelve months of approximately $70.7 million. Since our inception through June 30, 2007, we have a retained deficit of approximately $17.7 million. Total members’ equity as of June 30, 2007 was approximately $102.2 million. Prior to the acquisition of HGF, we were a development stage company and had generated no revenue from operations.

Based on our business plan and current construction cost estimates, we believe the Nebraska plant will cost approximately $154.5 million to construct and start operations, the Indiana plant will cost approximately $175.0 million to construct and start operations and the Aberdeen plant expansion will cost approximately $80.0 million to construct and start operations. We have not yet determined the construction and start-up costs for the Minnesota plant. We believe we have sufficient equity, debt financing, government incentives and grants to complete the Nebraska plant. We expect to require significant equity and debt financing to complete the Indiana and Minnesota plants and Aberdeen plant expansion.

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Long-term debt consisted of the following at June 30, 2007 and September 30, 2006 (in thousands):

		Interest Rate		June 30, 2007			September 30 2006			Additional Financing Available at June 30, 2007
Subordinate exempt facilities bonds		6.75%		$	7,000		$	7,000		$	—
HGF term commitment, revolving term loan		7.7 – 8.0%		42,000			—			—
HGF Acquisition note payable		15%		5,000			—			—
ABE Fairmont term commitment		8.75%		58,392			—			30,696
ABE Fairmont seasonal line		8.75%								5,000
Advanced BioEnergy convertible note		15%		25,930
Total outstanding				138,322			7,000			$	35,696
Less: Amounts due within one year				(70,680		)	0
Long-Term Debt				$	67,642		$	7,000

 

The estimated maturities of long-term debt on or before June 30, are as follows (in thousands):

2008		$	70,680
2009		10,500
2010		10,500
2011		11,315
2012		7,565
Thereafter		27,762
Total long-term debt		$	138,322

 

Debt Financing for the South Dakota Plants

Senior Credit Facility

Dakota Fuels, our wholly owned subsidiary and the general partner of HGF, previously entered into loan agreements with Farm Credit establishing a senior credit facility with Farm Credit for HGF. Farm Credit has appointed CoBank, ACB, to serve as its agent with regard to these loans. Heartland Grain Fuels borrowed the entire $42.0 million available under the facility through a $6.8 million revolving term loan and multiple advance term loan supplements of $35.2 million. The revolving term loan bears interest at 7.708% per annum and has quarterly commitment reductions of $750,000 starting September 1, 2011, with the balance due June 1, 2013. Amounts borrowed under the advance term loan supplements mature on January 20, 2008 and bear interest at 8.0% per annum. Dakota Fuels’ obligations under the loan agreements are guaranteed by HGF and secured by a first lien on all equity that Dakota Fuels may now own or hereafter acquire in HGF and on all now owned or subsequently acquired personal property of Dakota Fuels. HGF’s guarantee is secured by a first lien on all now owned and subsequently acquired personal property and real estate of HGF. The loan agreements contain customary covenants, including minimum net worth and working capital requirements for HGF, restrictions on additional indebtedness, restrictions on mortgages, liens pledges or assignments of assets and restrictions on scheduled payments to lessors. In addition, HGF and Dakota Fuels are required to provide to CoBank on or before January 2008 a refinance plan acceptable to CoBank. The loan agreements also contain certain customary events of default including defaults based on cross-defaults to other indebtedness.

On May 25, 2007, we signed an engagement letter and term sheet with WestLB AG, New York branch, to provide senior debt financing for our subsidiary, Heartland Grain Fuels. This proposed senior debt financing would refinance all outstanding debt, complete the construction financing for the Aberdeen and Huron plant expansions, and is expected to close in August 2007. Under the terms of the engagement, WestLB has agreed to use its commercially reasonable efforts to structure, arrange and syndicate the senior debt financing for Heartland Grain Fuels.

Our engagement of WestLB does not serve as a commitment by WestLB to actually provide a debt facility or other financing. WestLB’s obligation to arrange and syndicate the senior debt financing will not arise until after WestLB has conducted its due diligence and sought and obtained all the necessary internal approvals it requires to proceed. Under a separate fee letter agreement we entered into with WestLB on May 25, 2007, in the event that we terminate our engagement of WestLB and we or any of our affiliates enters into and closes a debt financing for the Aberdeen and Huron plant expansions within 12 months, we will be required to pay WestLB a fee equal to $1.0 million.

We anticipate that the proposed financing will consist primarily of senior secured first priority non-recourse construction and term loans in an aggregate amount of approximately $136.0 million. The senior debt facility will be divided into (1) a term loan for up to approximately $47.0 million for the refinancing of existing debt, (2) a construction and term loan for up to approximately $78.0 million for construction of the Aberdeen and Huron plant expansions, and (3) a working capital facility in an amount up to approximately $11.0 million. The proposed senior debt financing is based on an assumed total project cost of approximately $158.8 million and a required equity contribution of approximately $35.7 million.

Assuming we successfully close the WestLB senior debt financing and the subordinate bond financing described below, we believe that we have sufficient cash and financing in place to operate Heartland Grain Fuels’ existing plants and complete the construction of the Aberdeen plant expansion through start-up.

Subordinate Bond Financing

Additional financing is expected to be provided by a subordinate bond financing consisting of approximately $19.0 million Subordinate Solid Waste Facilities Revenue Bonds to be issued by Brown County, South Dakota. The proceeds of the subordinate bonds are to be loaned to HGF to finance solid waste disposal facilities to be included in the Aberdeen expansion.

Loan From Kruse Investment Company

HGF Acquisition obtained a $5.0 million loan from Kruse Investment Company due March 1, 2008, secured by all of the ownership interests in HGF owned by HGF Acquisition and bearing interest of 12%. HGF Acquisition has loaned the $5.0 million obtained from Kruse Investments to HGF on an unsecured basis, subordinate to the senior lender to HGF. The proceeds of the loan were used to fund a portion of the Aberdeen plant expansion. HGF Acquisition pledged its equity interests in Dakota Fuels and HGF as collateral. HGF Acquisition is prohibited from selling transferring or pledging its assets while this debt is outstanding.

On July 1, 2007 the credit agreement was amended to reflect a maturity date of the earlier of September 30, 2007 or the closing date of a credit facility by Heartland Grain Fuels that refinances all existing Heartland Grain Fuels debt and finances the remaining Aberdeen expansion. The amended interest rate was changed to reflect 15% per annum after July 1, 2007.

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Subordinated Convertible Debt Financing

We issued Ethanol Investment Partners, LLC, an affiliate of Tennessee Ethanol Partners, LP, an existing investor in our company, $26 million of 15% subordinated convertible promissory notes. The proceeds will be used for continuing construction of the Aberdeen plant expansion.

The notes bear interest at 15% per annum compounded quarterly and will mature in June 2008. The principal and accrued but unpaid interest on the note are convertible into our membership units at the lesser of (a) $16.00 per unit or (b) the price per unit that is equal to the lowest price per unit at which units are sold by us in any public or private offering during the period that the notes are outstanding, at the option of Ethanol Investment Partners in the event we elect to prepay the notes and convert automatically at maturity.

Provided that a note is outstanding or has been converted into units, our board of directors will at our next annual meeting and thereafter for so long as Ethanol Investment Partners owns a note or the units issued upon conversion, require each of our directors and executive officers to (a) recommend to our members at any meeting of the members at which directors are elected, the election of one nominee of Ethanol Capital Management (an affiliate of Ethanol Investment Partners) to the board, (b) vote the membership units they own or control at any time to elect the Ethanol Capital Management nominated person to the board, and (c) not take any action to remove the Ethanol Capital Management nominee from the board. Each of our directors and executive officers executed and delivered to Ethanol Investment Partners a voting agreement evidencing these board rights. We also granted Ethanol Investment Partners board observation and inspection rights in connection with their investment.

We entered into a registration rights agreement with Ethanol Investment Partners that grants them up to two demand and unlimited piggyback registration rights under certain circumstances.

Nebraska Plant

Senior Credit Facility

Effective February 17, 2007, we entered into a loan agreement with Farm Credit establishing a senior credit facility with Farm Credit for the construction of a 100 million gallons per year ethanol plant. The construction financing is in the amount of $79.5 million consisting of a $58.5 million term loan, known as term loan A, and a $21.0 million revolving term loan, known as term loan B. Farm Credit also extended to the Company a $5.0 million revolving credit facility for financing eligible grain inventory and equity in Chicago Board of Trade futures positions, which will not be effective until we begin operations. Farm Credit has appointed CoBank, ACB, to serve as its agent with regard to these loans. We assigned all our rights and obligations under the loan agreements described in the preceding paragraph to our wholly owned subsidiary, ABE Fairmont, LLC.

ABE Fairmont and Farm Credit also entered into additional loan agreements, the effect of which is to provide an additional $6.5 million term loan, known as term loan C, and an additional $4.0 million revolving term loan, known as term loan D for construction of the Nebraska plant. The terms and conditions of these loan agreements are substantially similar to those described above. The Company issued a letter of credit for the purchase of rail cars to Trinity Industries Leasing Company for $912,000, effectively reducing the financing available from Term Loan D.

A commitment fee at a rate of 0.625% per annum is payable on a monthly basis on the unused portion of term loan B. For the grain inventory and futures revolving credit facility, we paid an origination fee of $12,500. A commitment fee of 0.25% per annum is payable on a monthly basis on the unused portion of the grain inventory and futures revolving credit facility. A commitment fee at a rate of 0.625% per annum is payable on a monthly basis on the unused portion of term loan D.

ABE Fairmont may select a rate of interest for each term loan at CoBank’s announced base rate plus 0.5%, a fixed rate to be quoted by CoBank or at LIBOR plus 3.4% per annum. ABE Fairmont may select a rate of interest for the grain inventory and futures revolving credit facility at CoBank’s announced base rate, a fixed rate to be quoted by CoBank or at LIBOR plus 3.1% per annum.

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Farm Credit is only obligated to lend the funds for construction if certain conditions are satisfied. These conditions include, among others, the total cost of the project being within a specified amount, the receipt of engineering and construction contracts and a process/yield guarantee from the design engineer and contractor acceptable to Farm Credit, evidence of the issuance of all permits, acceptable insurance coverage and title commitment, the contribution of at least $60.0 million of equity (less any tax increment financing proceeds and the proceeds we receive from the sale of subordinate exempt facilities revenue bonds issued by Fillmore County, Nebraska) and the delivery of attorney opinions.

ABE Fairmont must repay term loan A as follows: 25 equal quarterly installments of $2,250,000 with the first installment due February 20, 2008 and the last installment due February 20, 2014, followed by a final installment in an amount equal to the remaining unpaid principal balance on May 20, 2014. For each fiscal year ending in 2007 through 2010, ABE Fairmont must pay an additional amount equal to the lesser of $6 million or 75% of its free cash flow, not to exceed $12 million in the aggregate for all of these cash flow payments.

On the earlier of March 1, 2014 or six months following complete repayment of term loan A, ABE Fairmont will begin repayment of term loan B in $5.0 million increments due every six months. ABE Fairmont will repay the grain inventory and futures revolving credit facility the earlier of March 1, 2008 or 12 months after the date on which ABE Fairmont borrows funds.

ABE Fairmont must repay term loan C and term loan D in full on June 1, 2009.

The loans owed to Farm Credit are secured by a first mortgage on all of ABE Fairmont’s real estate and a lien on all of ABE Fairmont’s personal property. ABE Fairmont has agreed to purchase $1,000 worth of stock in Farm Credit Services of America, ACA that will also be pledged as security for the loans. If ABE Fairmont prepays any portion of term loan A or term loan B through a refinancing prior to July 1, 2009, ABE Fairmont will pay a prepayment charge of 3% of the amount prepaid in addition to certain surcharges. If ABE Fairmont prepays any portion of term loan C or term loan D through a refinancing prior to June 1, 2009, ABE Fairmont will pay a prepayment charge of 3% of the amount prepaid in addition to certain surcharges.

While the credit facilities are outstanding, ABE Fairmont will be subject to certain financial loan covenants consisting of minimum working capital, minimum net worth and maximum debt service coverage ratios. After the construction phase, ABE Fairmont will not be allowed to make capital expenditures of more than $600,000 without prior approval. ABE Fairmont is also prohibited from making distributions to Advanced BioEnergy except as follows: (i) for each fiscal year commencing with the fiscal year ending September 30, 2007, ABE Fairmont may make a distribution to Advanced BioEnergy of 50% of ABE Fairmont’s net profit for the applicable fiscal year if Farm Credit has received audited financial statements for the applicable fiscal year and (ii) ABE Fairmont may make distributions to Advanced BioEnergy exceeding 50% of its net income if it has made the required cash flow payment for that fiscal year. ABE Fairmont must also be in compliance with all financial ratio requirements and loan covenants before and after any distributions to Advanced BioEnergy.

Upon the occurrence of an event of default or an event that will lead to a default, Farm Credit may upon notice terminate its commitment to loan funds to ABE Fairmont and declare the entire unpaid principal balance of the loans, plus accrued interest, immediately due and payable. An event of default includes, but is not limited to, ABE Fairmont’s failure to make payments when due, insolvency, any material adverse change in ABE Fairmont’s financial condition or ABE Fairmont’s breach of any of the covenants, representations or warranties its has given in connection with the loans.

Fillmore County Subordinate Exempt Facilities Revenue Bonds

On April 1, 2006, we entered into a loan and trust agreement with the County of Fillmore, State of Nebraska and Wells Fargo, N.A. wherein Fillmore County issued and sold $7.0 million of subordinate exempt facilities revenue bonds, the interest on which is expected to be exempt from inclusion as gross income of the holder of the bonds for federal and state income tax purposes. Fillmore County has loaned the proceeds from the sale of these bonds to us, the net proceeds of which equal approximately $5.6 million.

We agreed to repay the loan by making annual principal payments of $815,000 starting in December 2010 and continuing until December 2016, with the balance and any interest thereon paid on December 1, 2017, or upon redemption, upon acceleration or when otherwise payable. Our obligation to make the loan payments under the loan and trust agreement is evidenced by the execution and delivery of a promissory note. Repayment of the bonds and the security for the bonds is subordinate to our senior credit facility with CoBank and Farm Credit.

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The proceeds of the bonds are to be used, in order (i) to provide financing for a portion of the costs of the acquisition and installation of certain eligible solid waste disposal facilities at the Nebraska plant; (ii) to fund a debt service reserve fund; (iii) to pay interest during construction in an amount approximately equal to 20 months’ interest on the bonds; and (iv) to pay a portion of the costs of issuance of the bonds.

Defaults under the loan and trust agreement include, but are not limited to: (i) failure to pay any installment of principal or any payment of interest or premium on the loan or the note; (ii) failure to observe or perform any of the covenants, agreements or conditions contained in the loan and trust agreement or in the security documents; and (iii) falseness of any representation or warranty in any material adverse respect as of the time made or given. Upon the occurrence of a default, Wells Fargo may declare all loan repayments for the remainder of the term of the loan and trust agreement to be immediately due and payable by us and may declare the entire outstanding principal balance of the loan, together with all interest accrued thereon, to be due and payable and take whatever action at law or in equity to collect the loan repayments then due and thereafter to become due or to enforce performance and observance of any obligation, agreement or covenant under the loan and trust agreement. However, the ability of Wells Fargo to take these actions upon default is also subject to certain terms and conditions found in a debt subordination agreement between CoBank, us and Wells Fargo.

The bonds are secured by a subordinate deed of trust and security agreement granted by us to Wells Fargo pursuant to which we conveyed to Wells Fargo a mortgage lien on the real property and fixtures constituting the Nebraska plant and security interests in all tangible personal property located on the mortgaged real property or used in connection with the Nebraska plant as security for repayment of the bonds. The lien of the subordinate deed of trust shall be subordinate to the lien of a deed of trust and security agreement given by us in favor of CoBank and Farm Credit.

Tax Increment Financing

In February 2007, we received net proceeds of approximately $5.3 million in tax increment financing from the Village of Fairmont, Nebraska. Tax increment financing is a program created by state statute that provides city councils the power to use all of the real property tax resulting from the increase in taxable valuation due to the construction of new industrial or commercial facilities to provide economic incentives.

Community Development Block Grant

We have received a $305,000 community development block grant to assist Fillmore County with road paving leading to the plant. Fillmore County will draw down directly on community development block grant funds.

Future Capital Requirements

We believe that we have secured sufficient funds to complete construction of the Nebraska plant. However, our capital requirements for start up of the Nebraska plant will require us to obtain at least $17 million of additional equity and debt financing to fund start-up related activities including working capital. Other future capital requirements will primarily depend on the cost and timing to complete the Aberdeen plant expansion, Indiana plant and Minnesota plant and the number of additional plants we construct or acquire, the timing of those plant openings or acquisitions within a given fiscal year and the need to fund operating losses, as well as the terms of any other corporate opportunities we undertake. These requirements will include costs directly related to constructing or acquiring new ethanol plants and may also include costs necessary to ensure that our infrastructure, including technology and distribution capabilities, is able to support multiple plants. We can provide no assurances at this time as to the timing of such an expansion, or whether such an expansion will occur.

Based on our business plan and current construction cost estimates, we believe the Aberdeen plant expansion construction and start-up costs will cost approximately $80.0 million, and we believe the Indiana plant construction and start-up (including working capital) will cost approximately $175.0 million, and we do not yet have cost estimates for the Minnesota plant. We are seeking to raise additional equity and debt financing for the South Dakota plants, described earlier in our Liquidity and Capital Resources section of this 10-QSB under the section Debt Financing for the South Dakota Plants. Depending on the level of future equity financing obtained we expect to require significant debt financing to fund the Aberdeen plant expansion and the Indiana plant, as well as additional equity and debt financing to fund the Minnesota plant. We also need to raise significant additional equity financing to construct the Minnesota plant.

If we do not receive proceeds from the WestLB debt financing described earlier in our Liquidity and Capital Resources section of this 10-QSB under the section Debt Financing for the South Dakota Plants or other sources, we will need to obtain additional equity and debt financing in order for Heartland Grain Fuels to continue funding the Aberdeen plant expansion as scheduled. We are in the process of exploring various alternatives for financing, but there are no assurances that we will be able to obtain financing on acceptable terms or at all or if we can obtain it, whether we will be able to obtain the approvals necessary to finance the Aberdeen plant expansion.

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We do not have definitive contracts with any bank, lender or financial institution for debt financing for the Aberdeen expansion, Indiana plant or Minnesota plants and there is no assurance that we will be able to secure this financing. Completion of the Indiana plant relies primarily on our ability to attract these loans and close on sufficient future equity financing. Completion of the Minnesota plant relies in part on our ability to raise sufficient equity and debt financing.

With the placement of the subordinated exempt facilities revenue bonds to Fillmore County, we have an obligation that may require funding if our cash flows from operations will not cover repayment of these bonds.

We intend to satisfy our capital requirements in fiscal 2007 with existing cash and funds available under our credit facilities, cash generated from operations, primarily from our South Dakota plants and the proceeds from future equity and debt financings. However, if capital requirements for our business strategy change, or other factors change our capital requirements, we may need to seek additional debt or equity financing in the public or private markets. There is no assurance that financing will be available to us on acceptable terms or at all.

Summary of Critical Accounting Policies and Estimates

Note 1 to our consolidated financial statements contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions. Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment. We used our knowledge and experience about past events and certain future assumptions to make estimates and judgments involving matters that are inherently uncertain and that affect the carrying value of our assets and liabilities. We believe that of our significant accounting policies, the following are noteworthy because changes in these estimates or assumptions could materially affect our financial position and results of operations:

Revenue Recognition

Revenue from the production of ethanol and its co-products is recorded when title transfers to customers. Ethanol and its co-products are generally shipped FOB from our plants. In accordance with our marketing agreements, sales are recorded net of commissions retained at the time payment is remitted.

Derivative Instruments and Hedging Activities

Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities , requires a company to evaluate its contracts to determine whether the contracts are derivatives. Certain derivative contracts may be exempt under SFAS No. 133 as normal purchases or normal sales, which are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. At this time, our forward contracts related to the purchase of corn and natural gas are considered normal purchases and, therefore, are exempted from the accounting and reporting requirements of SFAS No. 133.

Inventories

Corn, chemicals and supplies, work in process, ethanol and distiller grains inventories are stated at the lower of cost or market on the first-in, first-out method.

Quantitative and Qualitative Disclosures About Market Risk For Our Current Operations

We consider market risk to be the impact of adverse changes in market prices on our results of operations. We are subject to significant market risk with respect to the price of ethanol and corn. For the nine months ended June 30, 2007, sales of ethanol

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represented 89.12% of our total production revenues and corn costs represented 69.2% of total cost of sales. In general, ethanol prices are affected by the supply and demand for gasoline, the availability of other fuel oxygenates and the regulatory climate. The price of corn is affected by weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors. Traditionally, we have not been able to pass along increased corn costs to our ethanol customers. At June 30, 2007, the price per gallon of ethanol and the price per bushel of corn on the Chicago Board of Trade were $1.95 and $3.29, respectively.

We are also subject to market risk with respect to our supply of natural gas that is consumed in the ethanol production process. Natural gas costs represented 13.0% of total cost of sales for the nine months ended June 30, 2006. The price of natural gas is affected by weather conditions and general economic, market and regulatory factors. At June 30, 2007, the price of natural gas on the New York Mercantile Exchange was $6.80 per MMBtu.

To reduce price risk caused by market fluctuations in the cost of corn and natural gas, we have entered into forward purchase contracts. As of June 30, 2007, we had entered into forward purchase contracts representing approximately 17% of our current corn requirements, and guaranteed prices for our natural gas representing approximately 12% of our current natural gas usage. As of June 30, 2007, we had not entered into any transactions in an effort to mitigate risks associated with changes in the price of ethanol for our current production at HGF.

The following represents a sensitivity analysis that estimates our annual exposure to market risk with respect to our current corn and natural gas requirements and ethanol sales. Market risk is estimated as the potential impact on operating income resulting from a hypothetical 10.0% change in the fair value of our current corn and natural gas requirements and ethanol sales, net of corn and natural gas forward contracts used to hedge market risk with respect to our current corn and natural gas requirements. We expect to be subject to additional market risk as our future production capacity increases. The results of this analysis, which may differ from actual results, are as follows:

		Estimated
		At Risk						Hypothetical									Change in Annual
		Volume(1)						Change in				Spot					Operating Income
		(in millions)				Units		Price				Price(2)					(in millions)
Corn			12.0			bushels			10.0 %				$	3.29				$	3.9
Natural gas			0.97			MMBtu			10.0 %				$	6.80				$	0.7
Ethanol			39.0			gallons			10.0 %				$	1.95				$	7.6

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(1)              The volume of corn is based on the assumption that we will enter into forward contracts for 17% of our estimated current 14.4 million bushel annual requirement. The volume of natural gas is based on the assumption that we will enter into forward contracts for 12% of our estimated 1,100,000 MMBtu annual requirement. The volume of ethanol is based on the current aggregate capacity of the Aberdeen and Huron plants. We expect that as our production capacity increases, we will be exposed to additional market risk with respect to corn, natural gas and ethanol prices.

(2)               Current spot prices include the CBOT price per gallon of ethanol and the price per bushel of corn as of June 30, 2007 and NYMEX price per MMBtu of natural gas as of June 30, 2007.

Interest Rate / Foreign Exchange Risk

Our future earnings may be affected by changes in interest rates due to the impact those changes have on our interest expense on borrowings under our credit facility. As of June 30, 2007, we had $66.2 million of outstanding borrowings with variable interest rates. With each 1% change in interest rates we will incur additional annual interest charges of $662,000. We have not contracted for any derivative financial instruments.

We have no international sales. Substantially all of our purchases are denominated in U.S. dollars.

Impact of Inflation

We believe that inflation has not had a material impact on our results of operations since inception. We cannot assure you that inflation will not have an adverse impact on our operating results and financial condition in future periods.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Government Programs, Tax Credits And Tax Increment Financing

The State of South Dakota pays an incentive to operators of ethanol plants to encourage the growth of the ethanol industry. Each plant is eligible to receive an aggregate of $10 million, payable up to $1 million per year. The amounts are dependent on annual allocations by the State of South Dakota and the number of eligible plants. HGF generally received payment between $700,000 and $800,000 for the Huron plant per year and expects this incentive to terminate for the plant in 2011.

The State of South Dakota has depleted all funds available for its fiscal year ended June 30, 2007, and therefore no related receivable has been recorded in our financial statements. This incentive terminated for the Aberdeen plant in 2004 and we do not expect to receive this incentive for the Aberdeen plant expansion.

We plan to apply for tax incentives available under the Employment and Investment Growth Act available for economic development in Nebraska. We plan to apply for a project development grant from the U.S. Department of Agriculture. Although we may apply under several programs simultaneously and may be awarded grants or other benefits from more than one program, it must be noted that some combinations of programs are mutually exclusive. Under some state and federal programs, awards are not made to applicants in cases where construction on the project has started prior to the award date. There is no guarantee that applications will result in awards of grants or loans.

ITEM 3.    Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

None.

ITEM 2.    Unregistered Sales of Equity Securities And Use Of Proceeds

None.

ITEM 3.    Defaults Upon Senior Securities

Not applicable.

ITEM 4.    Submission of Matters to a Vote of Security Holders

None.

ITEM 5.    Other Information

None.

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ITEM 6.   Exhibits

Exhibit No.		Description		Method of Filing
3.1		Certificate of Formation		Incorporated by Reference (1)
3.2		Third Amended and Restated Operating Agreement of the Registrant		Incorporated by Reference (2)
10.1		Form of 15% Subordinated Convertible Promissory Note to be issued to Ethanol Investment Partners, LLC.		Incorporated by Reference (3)
10.2		Employment Agreement with Perry C. Johnson dated June 25, 2007†		Filed Electronically
10.3		Registration Rights Agreement with Ethanol Investment Partners, LLC dated June 25, 2007		Filed Electronically
10.4		Credit Agreement between HGF Acquisition, LLC and Kruse Investment Company, Inc. dated February 12, 2007, as amended		Filed Electronically
10.5		Investor Rights Agreement with South Dakota Wheat Growers Association dated as of November 7, 2006, as amended		Filed Electronically
10.6		Lump-Sum Design-Build Agreement between ABE Northfield, LLC and Fagen, Inc. dated February 7, 2007, as amended*		Filed Electronically
31.1		Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer		Filed Electronically
31.2		Rule 13a-14(a)/15d-14(a) Certification by Principal Financial and Accounting Officer		Filed Electronically
32		Section 1350 Certifications		Filed Electronically

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*       Material has been omitted pursuant to a request for confidential treatment and such materials have been filed separately with the SEC.

†       Management compensatory plan/arrangement.

(1)              Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed on November 8, 2006 (File No. 000-52421).

(2)              Incorporated herein by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K, filed on November 8, 2006 (File No. 000-52421).

(3)              Incorporated herein by reference to Exhibit to the Registrant’s Current Report on Form 8-K, filed on June 19, 2007 (File No. 000-52421).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ADVANCED BIOENERGY, LLC
Date: August 14, 2007	By:	/s/ Revis L Stephenson III
		Revis L. Stephenson III
		Chairman and Chief Executive Officer
		(Principal Executive Officer)
Date: August 14, 2007	By:	/s/ Richard Peterson
		Richard Peterson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

Exhibit No.		Description		Method of Filing
3.1		Certificate of Formation		Incorporated by Reference
3.2		Third Amended and Restated Operating Agreement of the Registrant		Incorporated by Reference
10.1		Form of 15% Subordinated Convertible Promissory Note to be issued to Ethanol Investment Partners, LLC on or about June 20, 2007		Incorporated by Reference
10.2		Employment Agreement with Perry C. Johnston dated July 7, 2007†		Filed Electronically
10.3		Registration Rights Agreement with Ethanol Investment Partners, LLC dated June 25, 2007		Filed Electronically
10.4		Credit Agreement between HGF Acquistion, LLC and Kruse Investment Company, Inc. dated February 12, 2007, as amended		Filed Electronically
10.5		Investor Rights Agreement with South Dakota Wheat Growers Association dated as of November 7, 2006, as amended		Filed Electronically
10.6		Lump-Sum Design-Build Agreement between ABE Northfield, LLC and Fagen, Inc. dated February 7, 2007, as amended*		Filed Electronically
31.1		Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer		Filed Electronically
31.2		Rule 13a-14(a)/15d-14(a) Certification by Principal Financial and Accounting Officer		Filed Electronically
32		Section 1350 Certifications		Filed Electronically

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*                     Material has been omitted pursuant to a request for confidential treatment and such materials have been filed separately with the SEC.

†                      Management compensatory plan/arrangement.

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