**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C.20549

**FORM10-QSB**

**Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**for the Quarterly Period Ended:  March 31, 2007**

**Commission File Number: 000-52421**

**ADVANCED BIOENERGY, LLC**

(Exact name ofSmall Business Issuer as Specified in its Charter)

|                                                                  |   | **10201  Wayzata Boulevard, Suite 250**                                                                    |   | ** **                            |
|------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|
|                                                             |   | **Minneapolis,  Minnesota 55305**                                                                          |   |                                  |
| **Delaware**                                                     |   | **(763)  226-2701**                                                                                        |   | **20-2281511**                        |
| (State or Other  Jurisdiction of  Incorporation or Organization) |   | (Address, including zip code, and telephone number, including area  code,  of Principal Executive Offices) |   | (I.R.S. Employer  Identification No.) |

 

Checkwhether the issuer (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.  Yes xNo o

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).  Yes o No x

Indicatethe number of units outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date: 9,842,028 membership units outstanding as of May 15, 2007.

Transitional SmallBusiness Disclosure Format (check one): Yes o No x

 

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**ADVANCED BIOENERGY, LLC**

**FORM 10-QSB**

**Index**
| PART I. FINANCIAL  INFORMATION |   |                                                            |
|--------------------------------|--------|-----------------------------------------------------------------|
|                           |   |                                                            |
| Item 1.                        |   | Financial Statements                                            |   |   |
|                           |   | Consolidated Balance  Sheets                                    |   |   |
|                           |   | Consolidated  Statements of Operations                          |   |   |
|                           |   | Consolidated  Statements of Changes in Members’ Equity     |   |   |
|                           |   | Consolidated  Statements of Cash Flows                          |   |   |
|                           |   | Notes to  Consolidated Financial Statements                     |   |   |
| Item 2.                        |   | Management’s  Discussion and Analysis or Plan of Operation |   |   |
| Item 3.                        |   | Controls and  Procedures                                        |   |   |
|                           |   |                                                            |   |   |
| PART II. OTHER  INFORMATION    |   |                                                            |
|                           |   |                                                            |
| Item 1.                        |   | Legal Proceedings                                               |   |   |
| Item 2.                        |   | Unregistered  Sales of Equity Securities and Use of Proceeds    |   |   |
| Item 3.                        |   | Defaults Upon  Senior Securities                                |   |   |
| Item 4.                        |   | Submission of  Matters to a Vote of Security Holders            |   |   |
| Item 5.                        |   | Other Information                                               |   |   |
| Item  6.                       |   | Exhibits                                                        |   |   |
|                           |   |                                                            |   |   |
|                           |   |                                                            |   |   |
| SIGNATURES                     |   |                                                            |

 

2

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**PART I.  FINANCIALINFORMATION**

**Item 1. Financial Statements**

**ADVANCED BIOENERGY, LLC & SUBSIDIARIES**

**Consolidated Balance Sheets**

**(Dollars inthousands)**
| ** **                                                                                                                                                            | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                                                                                            | ** ** | **2007**           | ** ** | **2006**               | ** ** |
| ** **                                                                                                                                                            | ** ** | **(unaudited)**    | ** ** | ** **             | ** ** |
| **Assets**                                                                                                                                                            |       |               |       |                   |       |
| Current Assets                                                                                                                                                        |       |               |       |                   |       |
| Cash and cash  equivalents                                                                                                                                            |       | $                  | 5,998      |                   | $          | 10,814 |   |
| Accounts  Receivable:                                                                                                                                                 |       |               |       |                   |       |
| Trade accounts  receivable                                                                                                                                            |       | 3,958              |       |                   |       |
| Due from broker                                                                                                                                                       |       | 6,848              |       |                   |       |
| Other                                                                                                                                                                 |       | 70                 |       | 152                    |       |
| Inventories                                                                                                                                                           |       | 2,310              |       |                   |       |
| Derivative  financial instruments                                                                                                                                     |       | 4,896              |       |                   |       |
| Prepaid expenses                                                                                                                                                      |       | 365                |       | 130                    |       |
| **Total  current assets**                                                                                                                                             |       | 24,445             |       | 11,096                 |       |
|                                                                                                                                                                  |       |               |       |                   |       |
| **Other Assets**                                                                                                                                                      |       |               |       |                   |       |
| Restricted cash  held in escrow                                                                                                                                       |       | 10,152             |       |                   |       |
| Cash held for  plant construction                                                                                                                                     |       |               |       | 32,500                 |       |
| Financing and  deferred offering costs, net                                                                                                                           |       | 2,012              |       | 1,220                  |       |
| Investments                                                                                                                                                           |       | 734                |       |                   |       |
| Goodwill                                                                                                                                                              |       | 16,175             |       | —                 |       |
| Intangibles                                                                                                                                                           |       | 2,812              |       | 2,812                  |       |
| Other assets                                                                                                                                                          |       | 303                |       | 66                     |       |
| Property and  equipment, net                                                                                                                                          |       | 156,027            |       | 39,909                 |       |
| **Total  Assets**                                                                                                                                                     |       | $                  | 212,660    |                   | $          | 87,603 |   |
|                                                                                                                                                                  |       |               |       |                   |       |
| **Liabilities and Members’ Equity**                                                                                                                              |       |               |       |                   |       |
| Current Liabilities                                                                                                                                                   |       |               |       |                   |       |
| Accounts payable                                                                                                                                                      |       | $                  | 19,444     |                   | $          | 15,681 |   |
| Accrued expenses                                                                                                                                                      |       | 741                |       | 372                    |       |
| Derivative  financial instruments                                                                                                                                     |       | 13,088             |       |                   |       |
| Current portion  of long-term debt                                                                                                                                    |       | 41,500             |       |                   |       |
| **Total  current liabilities**                                                                                                                                        |       | 74,773             |       | 16,053                 |       |
|                                                                                                                                                                  |       |               |       |                   |       |
| Deferred income                                                                                                                                                       |       | 6,732              |       |                   |       |
| Long-term debt                                                                                                                                                        |       | 35,653             |       | 7,000                  |       |
| Minority interest                                                                                                                                                     |       | 8,738              |       |                   |       |
|                                                                                                                                                                  |       |               |       |                   |       |
| **Members’ Equity**                                                                                                                                              |       |               |       |                   |       |
| Members’  capital, no par value, authorized 20,000,000 Units, 8,613,481 and 7,165,600  units outstanding at March 31, 2007 and September 30, 2006, respectively. |       | 95,925             |       | 66,821                 |       |
| Retained deficit                                                                                                                                                      |       | (9,042             | )          | (2,033                 | )          |
| Deferred compensation                                                                                                                                                 |       | (119               | )          | (238                   | )          |
| **Total Members’ Equity**                                                                                                                                        |       | 86,764             |       | 64,550                 |       |
| **Total Liabilities and Members’  Equity**                                                                                                                       |       | $                  | 212,660    |                   | $          | 87,603 |   |

 

See notes to consolidatedfinancial statements.

3

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**ADVANCED BIOENERGY, LLC & SUBSIDIARIES**

**Consolidated Statements ofOperations**

**(Unaudited)**

**(Dollars inthousands, except per share data)**
| ** **                                              | ** ** | **Three Months ended** | ** ** | **Six Months ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                              | ** ** | **March 31, 2007**     | ** ** | **March 31, 2006**   | ** ** | **March 31, 2007** | ** ** | **March 31, 2006** | ** ** |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| **Net  sales**                                          |       |                             |       |                           |       |   |   |   |   |
| Ethanol and related products                            |       | $                                | 8,630      |                           |       |   | 18,867 |   |   |   |
| Other                                                   |       | 3,108                            |       |                           |       | 3,323 |   | — |   |
| **Total  net sales**                                    |       | 11,738                           |       | —                         |       | 22,190 |   | — |   |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Cost of goods  sold                                     |       | 20,791                           |       |                           |       | 23,565 |   |   |   |
| **Gross  profit (loss)**                                |       | (9,053                           | )          | —                         |       | (1,375 | ) | — |   |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Selling, general  and administrative                    |       | 1,828                            |       | 411                            |       | 4,344 |   | 758 |   |
| **Operating loss**                                      |       | (10,881                          | )          | (411                           | )          | (5,719 | ) | (758 | ) |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Other income                                            |       | —                           |       | 1                              |       | — |   | 13 |   |
| Interest income                                         |       | 192                              |       | 172                            |       | 549 |   | 172 |   |
| Interest expense                                        |       | (483                             | )          | (30                            | )          | (959 | ) | (49 | ) |
| **Net  loss before minority interest**                  |       | (11,172                          | )          | (268                           | )          | (6,129 | ) | (622 | ) |
| Minority  interest                                      |       | (505                             | )          |                           |       | (880 | ) |   |   |
| **Net  loss**                                           |       | $                                | (11,677    | )                              | $          | (268 | ) | $ | (7,009 | ) | $ | (622 | ) |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Basic &  diluted weighted average units outstanding |       | 8,496,814                        |       | 586,288                        |       | 8,186,554 |   | 542,727 |   |
| Loss per unit - basic  and diluted                      |       | $                                | (1.37      | )                              | $          | (0.46 | ) | $ | (0.86 | ) | $ | (1.15 | ) |

 

See notes to consolidated financial statements

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**ADVANCED BIOENERGY, LLC & SUBSIDIARIES**

**Consolidated Statements of Changesin Members’ Equity**

**For the Six Months Ended March 31, 2007**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                        | ** ** | ** **                     | ** ** | **Retained**  | ** ** | **Deferred**     | ** ** | **Total Members’** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------|------------|---------------|------------|------------------|------------|------------------------------|------------|
| ** **                                                                        | ** ** | **Members’ Capital** | ** ** | **(Deficit)** | ** ** | **Compensation** | ** ** | **Equity**                   | ** ** |
| ** **                                                                        |       |                           |       |          |       |             |       |                         |       |
| **MEMBERS’ EQUITY - September 30,  2006**                                    | ** ** | **$**                          | **66,821** | ** **    | **$**      | **(2,033**       | **)**      | **$**                        | **(238**   | **)** | **$** | **64,550** | ** ** |
|                                                                              |       |                           |       |          |       |             |       |                         |       |
| Issuance of 1,403,031  membership units, of which 50,857 units are held in escrow |       | 28,061                         |       | —        |       | —           |       | 28,061                       |       |
|                                                                              |       |                           |       |          |       |             |       |                         |       |
| Issuance of 44,850  membership units for services                                 |       | 897                            |       | —        |       | —           |       | 897                          |       |
|                                                                              |       |                           |       |          |       |             |       |                         |       |
| Amortization of  unearned compensation                                            |       | —                         |       | —        |       | 119              |       | 119                          |       |
|                                                                              |       |                           |       |          |       |             |       |                         |       |
| Unit compensation  expense                                                        |       | 146                            |       | —        |       | —           |       | 146                          |       |
|                                                                              |       |                           |       |          |       |             |       |                         |       |
| Net Income                                                                        |       | —                         |       | (7,009        | )          | —           |       | (7,009                       | )          |
|                                                                              |       |                           |       |          |       |             |       |                         |       |
| **MEMBERS’ EQUITY - March 31, 2007**                                         | ** ** | **$**                          | **95,925** | ** **    | **$**      | **(9,042**       | **)**      | **$**                        | **(119**   | **)** | **$** | **86,764** | ** ** |

 

See notes to consolidated financial statements

5

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**ADVANCED BIOENERGY, LLC & SUBSIDIARIES**

**Consolidated Statements of CashFlows**

**(Unaudited)**

**(Dollars in thousands)**
| ** **                                                                   | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **March 31, 2007**   | ** ** | **March 31, 2006** | ** ** |
| ** **                                                                   | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Cash Flows from  Operating Activities                                        |       |                           |       |   |   |
| Net loss                                                                     |       | $                              | (7,009     | ) | $ | (622 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                           |       |   |   |
| Depreciation                                                                 |       | 2,201                          |       | 6 |   |
| Consulting  services exchanged for membership units                          |       |                           |       | 268 |   |
| Unit  compensation expense                                                   |       | 265                            |       |   |   |
| Unrealized loss  on derivative financial instruments                         |       | 8,495                          |       |   |   |
| Minority  interest of net income of subsidiary                               |       | 880                            |       |   |   |
| Changes in  working capital components net of effects of acquisition of HGF  |       |                           |       |   |   |
| Receivables                                                                  |       | (8,008                         | )          |   |   |
| Inventories                                                                  |       | (408                           | )          |   |   |
| Prepaid expenses                                                             |       | (103                           | )          | 30 |   |
| Accounts payable                                                             |       | (13,400                        | )          | (34 | ) |
| Accrued expenses                                                             |       | (648                           | )          | 50 |   |
| **Net  cash used in operating activities**                                   |       | (17,735                        | )          | (302 | ) |
| Cash Flows from  Investing Activities                                        |       |                           |       |   |   |
| Purchase of land  options and deposits                                       |       | (240                           | )          | (70 | ) |
| Purchase of  other assets                                                    |       | (784                           | )          | (7 | ) |
| Purchase of  Heartland Grain Fuels, LP, net of cash required                 |       | (6,924                         | )          |   |   |
| Purchase of  property and equipment                                          |       |                           |       | (530 | ) |
| Payments for  construction in progress                                       |       | (49,324                        | )          | (43,000 | ) |
| Decrease in cash  for plant construction and cash held in escrow             |       | 31,333                         |       |   |   |
| **Net cash  used in investing activities**                                   |       | (25,939                        | )          | (43,607 | ) |
| Cash Flows from  Financing Activities                                        |       |                           |       |   |   |
| Proceeds from  sale of membership units                                      |       | 897                            |       | 60,363 |   |
| Payments on  short-term debt                                                 |       |                           |       | (1,271 | ) |
| Proceeds from  long-term debt                                                |       | 37,961                         |       |   |   |
| Payment of  deferred offering and financing costs                            |       |                           |       | (295 | ) |
| **Net  cash provided by financing activities**                               |       | 38,858                         |       | 58,797 |   |
| **Net  increase (decrease) in cash and cash equivalents**                    |       | (4,816                         | )          | 14,888 |   |
| Beginning Cash  and Cash Equivalents                                         |       | 10,814                         |       | 894 |   |
| Ending Cash and  Cash Equivalents                                            |       | $                              | 5,998      |   | $ | 15,782 |   |
| ** **                                                                   |       |                           |       |   |   |
| **Supplemental Disclosure of Non  Cash Transactions**                        |       |                           |       |   |   |
| Accounts payable  incurred for deferred offering and financing costs         |       | $                              | —     |   | $ | 431 |   |
| Deferred income  incurred for deposits and deferred offering costs           |       | 1,373                          |       |   |   |
| Membership units  issued for acquisition of assets                           |       | 28,061                         |       |   |   |
| Accounts payable  incurred for construction in process                       |       | 12,285                         |       | 126 |   |
| Financing costs  amortized to construction in progress                       |       | 76                             |       |   |   |
| Land options  applied to land purchases                                      |       | —                         |       | 20 |   |
| Land acquired  through issuance of notes payable                             |       | —                         |       | 1,271 |   |
| Deposit  transferred to deferred offering and financing costs                |       | —                         |       | 25 |   |
| Unearned  compensation provided as cost of raising capital                   |       | —                         |       | 425,000 |   |
| Deferred  offering cost transferred to cost of raising capital               |       |                           |       | 623,629 |   |
| **Supplemental Disclosure of Cash  Flow Information:**                       |       |                           |       |   |   |
| Cash paid for interest,  including interest capitalized of $1 million        |       | $                              | 1,968      |   | $ | — |   |

 

Seenotes to consolidated financial statements.

6

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**ADVANCEDBIOENERGY, LLC & SUBSIDIARIESNotes to Consolidated Financial Statements (unaudited)**

**1.**   Organizationand Significant Accounting Policies

The accompanying consolidated financial statements ofAdvanced BioEnergy, LLC (the “Company”) and its subsidiaries as of March 31,2007 are unaudited and reflect all adjustments (consisting only of normalrecurring adjustments) which are, in the opinion of management, necessary for afair presentation of the financial position and operating results for the interimperiods. The interim financial statements should be read in conjunction withthe audited financial statements and notes thereto, contained in the Company’sAnnual Report on Form 10-KSB for the year ended September 30, 2006. The resultsof operations for the three and six months ended March 31, 2007 are notnecessarily indicative of the results for the fiscal year ending September 30,2007. Certain previously reported amounts have been reclassified to conform tothe current presentation format, with no impact on equity or net loss.

The financial statements include the accounts of theCompany and its wholly owned subsidiaries, ABE Fairmont, LLC (“ABE Fairmont”),ABE Northfield, LLC, Indiana Renewable Fuels, LLC (“IRF”), HGF Acquisition, LLCand the majority interest in Heartland Grain Fuels LP (“HGF”). HGF is aDelaware limited partnership formed in 1991. ABE acquired a 53.315% ownershipinterest in HGF on November 8, 2006 (See Note 2). On May 14, 2007 the Companyacquired the remaining partnership interest in HFG (the “Second Closing”), (SeeNote 8). All significant inter-company account balances and transactions havebeen eliminated. The operations of HGF have been included in the thesefinancial statements from the time of the acquisition. Prior to the acquisitionof HGF, the Company was a development stage company.

The Company was organized to build ethanol plants andundertake other biofuel projects. The Company currently operates a nine milliongallons per year ethanol plant in Aberdeen, South Dakota and a thirty milliongallons per year ethanol plant in Huron, South Dakota acquired in connectionwith the HGF acquisition. Construction of a 100 million gallons per yearethanol plant near Fairmont, Nebraska is under way and is expected to becompleted in August 2007. A forty million gallons per year ethanol plant inAberdeen, South Dakota is underway and is expected to be completed in December2007. 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 plantto be located near Northfield, Minnesota is in the development stage.

**Restricted CashHeld in Escrow**

In connection with the purchase of HGF, the cashportion of the Second Closing has been placed in escrow. Any interest incomeearned is being added to cash held in escrow.

**Investments**

The Company has equity investments interest in threeprivate cooperatives in unrelated industries. The Company’s interest representsless than 20% of the ownership of such companies, and the Company has nofinancial obligations to such companies. The investments are being accountedfor under the equity method of accounting and accordingly, unredeemed patronagedividends received in the form of capital stock or other equities are added tothe investment, cash dividends are recognized as income when declared.

**Receivables**

Credit sales are made primarily to two customers andno collateral is required. The Company carries these accounts receivable atface amount with no allowance for doubtful accounts due to the collectibilityof those accounts.

**Inventories**

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

**DerivativeInstruments**

The Company has entered into derivative contracts tohedge the Company’s exposure to price risk related to forecasted corn purchasesand forecasted ethanol sales. These derivative contracts are to be accountedfor under Statement of Financial Accounting Standard (SFAS) No. 133, “Accountingfor Derivative Instruments and Hedging Activities.” SFAS No. 133 establishesaccounting and reporting standards for derivative instruments, includingcertain derivative instruments embedded in other contracts, and for hedging activities.It requires that an entity recognize all derivatives as either assets orliabilities in the statement of financial position and measure thoseinstruments at fair value. If certain conditions are met, a derivative may bespecifically designated as (a) a hedge of the exposure to changes in the fairvalue 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 aforeign operation, an unrecognized firm commitment, an available-for-salesecurity, or a foreign-currency-denominated forecasted transaction.

7

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Although the Company believes its derivative positionsare economic hedges, none have been designated as a hedge for accountingpurposes and derivative positions are recorded on the balance sheet at theirfair market value, with changes in fair value recognized in current periodearnings. The Company has net unrealized losses of $8.2 million related toderivative contracts recorded on the balance sheet as of March 31, 2007. Therewere no derivatives as of September 30, 2006.

**Goodwill**

The Company recordsgoodwill as the excess of purchase price over the fair value of theidentifiable net assets acquired. SFAS No. 142, “Goodwill and Other IntangibleAssets”, prescribes a two-step process for impairment testing of goodwill,which is performed annually, as well as when an event triggering impairment mayhave occurred. The first step tests for impairment, while the second step, ifnecessary, measures the impairment. No indicators of impairment were identifiedduring the three months ended March 31, 2007.

**DeferredIncome**

The Company recorded thenet funds received from the Village of Fairmont Nebraska Tax IncrementalFinancing as deferred income and this deferred income will be amortized intoincome as property taxes are paid in the fiscal years ended September 2008through 2021.

**RevenueRecognition**

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

In accordance with the Company’s agreements for themarketing and sale of ethanol and related products, commissions due to themarketers are deducted from the gross sale price at the time of payment..Commissions were approximately $689,000 for the six months ended March 31,2007. No commissions were paid for the periods ending March 31, 2006.

**Loss per Unit**

Basic and diluted loss per unit are computed using theweighted-average number of vested units outstanding during the period. Unvestedunits and units held in escrow are considered unit equivalents and areconsidered in the diluted income per unit computation, but have not beenincluded in the computations of diluted loss per unit as their effect would beanti-dilutive for the periods ending March 31, 2007 and 2006.

**AccountingEstimates**

Management uses estimates and assumptions in preparingthese financial statements in accordance with generally accepted accountingprinciples. Those estimates and assumptions affect the reported amounts ofassets and liabilities, the disclosure of contingent assets and liabilities,and the reported revenues and expenses. Actual results could differ from thoseestimates.

**RecentlyIssued Accounting Standards**

In July 2006, the FASB issued Interpretation No. 48(FIN 48), “Accounting for Uncertainty in Income Taxes, an Interpretation ofSFAS No. 109.” FIN 48 creates a single model to address uncertainty in taxpositions and clarifies the accounting for income taxes by prescribing theminimum recognition threshold a tax position is required to meet before beingrecognized in the financial statements. FIN 48 also provides guidance onderecognition, measurement, classification, interest and penalties, accountingin interim periods, disclosure and transition. FIN 48 is effective for fiscalyears beginning after December 15, 2006. The company is currently assessing theimpact of adoption of FIN 48.

In September 2006, the FASB issued SFAS No. 157, “FairValue Measurements.” SFAS No. 157 establishes a framework for measuring fairvalue in generally accepted accounting principles, clarifies the definition offair value within that framework, and expands disclosures about the use of fairvalue measurements. SFAS No. 157 is intended to increase consistency andcomparability among fair value estimates used in financial reporting. As such,SFAS No. 157 applies to all other accounting pronouncements that require (orpermit) fair value measurements, except for the measurement of share-basedpayments. SFAS No. 157 does not apply to accounting standards that require (orpermit) measurements that are similar to, but not intended to represent, fairvalue. Fair value, as defined in SFAS No. 157, is the price to sell an asset ortransfer a liability and therefore represents an exit price, not an entryprice. The exit price is the price in the principal market in which thereporting entity would transact. Further, that price is not adjusted fortransaction costs. SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years. SFAS No. 157will be applied prospectively as of the beginning of the fiscal year in whichit is initially applied. The Company is currently assessing the impact ofadoption of SFAS No.157.

8

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**2.**   Acquisition ofHGF

On November 8, 2006, the Company acquired 53.315% ofthe partnership interest in HGF. The results of HGF’s operations have beenincluded in the consolidated financial statements since that date. HGF owns andoperates a nine million gallons per year dry mill corn-processing ethanol plantin Aberdeen, South Dakota, and a thirty million gallons per year dry mill cornprocessing ethanol plant in Huron, South Dakota. On May 14, 2007 the Companyacquired the remaining partnership interest in HGF (See Note 8).

The aggregate purchase price of the 53.315% interestin HGF was $37.4 million consisting primarily of $8.9 million in cash, theissuance of 1,403,031 units of ABE valued at $28.1 million or $20 per unit, anddirect costs of the acquisition of $430,000. The $7.8 million cash payment and1,228,547 units issuable for the HGF second closing, representing the remaining46.685% interest in HGF, are held in escrow at March 31, 2007. There is noestablished market for the Company’s units. The per unit fair value for theunits issued in the transaction was determined by the Company’s board ofdirectors after consideration of various factors.

The acquisition was accounted for under the purchasemethod of accounting, and accordingly, the assets and liabilities acquired wererecorded at their estimated fair values at the effective date of theacquisition and the results of operations have been included in the unauditedconsolidated statements of operations since the acquisition date. In accordancewith SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill recorded asa result of the acquisition will be subject to an annual impairment test andwill not be amortized. The allocation of any identifiable intangible assets,goodwill and other amounts of HGF has not been finalized and any requiredadjustments will be recorded as necessary when the information becomesavailable. The determination of the final amounts is subject to receipt of athird party appraisal and other factors.

The following tablesummarizes the estimated preliminary fair values of the assets acquired andliabilities assumed at the date of acquisition (in thousands):
|                                                                | ** ** | **As of  November 8, 2006** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------|------------|
| Cash acquired                                                  |       | $                                          | 2,414      |   |
| Current assets                                                 |       | 5,052                                      |       |
| Property and equipment                                         |       | 56,634                                     |       |
| Other long-term assets                                         |       | 635                                        |       |
| Restricted cash held in escrow                                 |       | 7,794                                      |       |
| Goodwill                                                       |       | 16,175                                     |       |
|                                                           |       |                                       |       |
| Total assets acquired                                          |       | 88,704                                     |       |
| Current liabilities                                            |       | (8,895                                     | )          |
| Long-term debt                                                 |       | (34,552                                    | )          |
| Minority interest                                              |       | (7,858                                     | )          |
|                                                           |       |                                       |       |
| Fair value of assets  and liabilities assumed and accrued, net |       | $                                          | 37,399     |   |

 

**The following table presents ourconsolidated results of operations on an unaudited proforma basis as if theacquisition had taken place at the beginning of the periods presented (inthousands, except share amounts):**
| ** **                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                       | ** ** | **March 31, 2007**     | ** ** | **March 31, 2006**   | ** ** | **March 31, 2007** | ** ** | **March 31, 2006** | ** ** |
| ** **                                       | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| (in thousands,  except per unit data)            |       |                             |       |                           |       |   |   |   |   |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Net sales                                        |       | $                                | 11,378     |                           | $          | 10,349 |   | $ | 30,334 |   | $ | 19,621 |   |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Gross profit  (Loss)                             |       | (9,053                           | )          | 1,449                          |       | 45 |   | 2,383 |   |
| Gross profit %                                   |       | (77.1                            | )%         | 14.0                           | %          | 0.1 | % | 12.1 | % |
| Selling, general  and administrative             |       | 1,828                            |       | 574                            |       | 4,448 |   | 1,117 |   |
| Net income  (loss)                               |       | $                                | (11,677    | )                              | $          | 106 |   | $ | (6,394 | ) | $ | (135 | ) |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Income (loss) per Unit –  Basic and Diluted |       | $                                | (1.37      | )                              | $          | 0.05 |   | $ | (0.75 | ) | $ | (0.07 | ) |

 

9

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**3.**   Inventoriesand Property and Equipment

A summary of inventories at March 31, 2007 andSeptember 30, 2006 is as follows (in thousands):
|                     | ** ** | **March 31,** | ** ** | **September 30,** | ** ** |
|---------------------|------------|--------------------|------------|------------------------|------------|
| ** **          | ** ** | **2007**           | ** ** | **2006**               | ** ** |
| ** **          | ** ** | **(unaudited)**    | ** ** | ** **             | ** ** |
| Supplies and  parts |       | $                  | 892        |                   | —     |   |
| Chemicals           |       | 182                |       | —                 |       |
| Work in process     |       | 609                |       | —                 |       |
| Ethanol             |       | 596                |       | —                 |       |
| Distillers grain    |       | 31                 |       | —                 |       |
| Total               |       | $                  | 2,310      |                   | $          | — |   |
|                     |            |                    |            |                        |            |  |  |

 
|                              | ** ** | **March 31,  2007** | ** ** | **September 30,  2006** | ** ** |
|------------------------------|------------|--------------------------|------------|------------------------------|------------|
| ** **                   | ** ** | **(unaudited)**          | ** ** | ** **                   | ** ** |
| Land                         |       | $                        | 1,736      |                         | $          | 1,460 |   |
| Buildings                    |       | 19,176                   |       | —                       |       |
| Process  equipment           |       | 29,432                   |       | —                       |       |
| Office equipment             |       | 436                      |       | 324                          |       |
| Construction in  process     |       | 107,478                  |       | 38,156                       |       |
|                         |       | 158,258                  |       | 39,940                       |       |
| Accumulated  depreciation    |       | (2,231                   | )          | (31                          | )          |
| Property and equipment,  net |       | $                        | 156,027    |                         | $          | 39,909 |   |

 

TheCompany capitalizes interest expense as part of the cost of construction of itsplants and equipment and will be depreciated over the life of the relatedassets. Capitalized interest totaled approximately $1.0 million for six monthsended March 31, 2007.

**4:**   Long Term Debt& Financing

Long-term debt consists of the following at March 31,2007 and September 30, 2006 (in thousands):
| ** **                                | ** ** | **Interest  Rate**        | ** ** | **March 31,  2007** | ** ** | **September 30  2006** | ** ** | **Additional  Financing  Available at  March, 31,  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             |       | 12%                       |       | 4,000                    |       | —                      |       | 1,000                                                               |       |
| ABE Fairmont  term commitment             |       | 8.75%                     |       | 24,153                   |       | —                      |       | 64,935                                                              |       |
| ABE Seasonal  line                        |       | 8.75%                     |       | —                   |       | —                      |       | 5,000                                                               |       |
| Total  Outstanding                        |       |                      |       | 77,153                   |       | 7,000                       |       | $                                                                   | 70,935     |   |
| Less: Amounts  due within one year        |       |                      |       | (41,500                  | )          | —                      |       |                                                                |       |
|                                      |       |                      |       |                     |       |                        |       |                                                                |       |
| Long-Term Debt                            |       |                      |       | $                        | 35,653     |                        | $          | 7,000                                                               |       |   |   |

 

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The estimatedmaturities of long-term debt on or before March 31, are as follows (inthousands):
| 2008                 |   | $     | 41,500 |   |
|----------------------|--------|-------|--------|--------|
| 2009                 |   | 9,000 |   |
| 2010                 |   | 9,000 |   |
| 2011                 |   | 4,718 |   |
| 2012                 |   | 3,065 |   |
| Thereafter           |   | 9,870 |   |
| Total long-term debt |   | $     | 77,153 |   |

 

**Fillmore County Subordinate Exempt Facilities Revenue Bonds for theNebraska Plant**

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

**Senior Credit Facility for the South Dakota Plants**

The Company has fully drawn on its two HGF RevolvingTerm loan facilities totaling $42 million. The loans are secured by a firstmortgage lien in favor of CoBank, ACB covering real property owned by HGF,together with a security interest covering substantially all personal propertyowned by HGF, including receivables, inventories and equipment subject toperfected security interests in addition to a pledge equity investment of$581,000 in CoBank. The $6.8 million revolving term loan has quarterlycommitment reductions of $750,000 starting September 1, 2011, with the balancedue on June 1, 2013 bearing interest at 7.708%. The Company is required to paythe $35.2 million term loan in full or renogiate payment terms by January 20,2008, bearing interest at 8.0%. Restrictive covenants in the loan agreementsprovide for, among other things, (1) restrictions on incurring additionalindebtedness, (2) restrictions on the ability to mortgage, pledge, assign orgrant security interest in any assets to any other party, (3) minimum workingcapital (4) minimum net worth balances and (5) restrictions on scheduledpayments made to lessors during each fiscal year.

**Loan From Kruse Investment Company**

In February 2007, a wholly owned subsidiary, HGFAcquisition, LLC entered into a $5 million Credit Facility with KruseInvestment Company. At March 31, 2007, HGF Acquisition had drawn $4 million. Alloutstanding amounts accrue interest at 12%. Outstanding accrued interest andprincipal amounts are payable in full on March 1, 2008. HGF Acquisition, LLC pledgedits equity interest in the Heartland Grain Fuels, L.P. and Dakota Fuels, Inc.as collateral. The facility requires HGF Acquisition, LLC to comply with alllaws and pay relevant taxes and cannot sell, transfer or merge its assets.

**Senior CreditFacility for the Nebraska Plant**

Effective February 17, 2007, the Company entered intoa loan agreement with Farm Credit establishing a senior credit facility withFarm Credit for the construction of a 100 million gallons per year ethanolplant. The construction financing is in the amount of $79.5 million consistingof a $58.5 million term loan, known as term loan A, and a $21.0 millionrevolving term loan, known as term loan B. Farm Credit also extended to theCompany a $5.0 million revolving credit facility for financing eligible graininventory and equity in Chicago Board of Trade futures positions, which willnot be effective until the Company begins operations at its Nebraska plant.Farm Credit has appointed CoBank, ACB, to serve as its agent with regard tothese loans The Company assigned all its rights and obligations under the loanagreements described in the preceding paragraph to its wholly owned subsidiary,ABE Fairmont, LLC.

ABE Fairmont and Farm Credit also entered intoadditional 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 millionrevolving term loan, known as term loan D for construction of the Nebraskaplant. The terms and conditions of these loan agreements are substantiallysimilar to those described above. The Company issued a letter of credit for thepurchase of rail cars to Trinity Industries Leasing Company for $912,000,effectively reducing the financing available from Term Loan D.

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

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

Farm Credit is only obligated to lend the funds forconstruction 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/yieldguarantee from the design engineer and contractor acceptable to Farm Credit,evidence of the issuance of all permits, acceptable insurance coverage andtitle commitment, the contribution of at least $60.0 million of equity (lessany tax increment financing proceeds and the proceeds the Company receives fromthe sale of subordinate exempt facilities revenue bonds issued by FillmoreCounty, Nebraska) and the delivery of attorney opinions.

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

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

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

The loans owed to Farm Credit are secured by a firstmortgage on all of ABE Fairmont’s real estate and a lien on all of ABE Fairmont’spersonal property. ABE Fairmont has agreed to purchase $1,000 worth of stock inFarm Credit Services of America, ACA that will also be pledged as security forthe loans. If ABE Fairmont prepays any portion of term loan A or term loan Bthrough a refinancing prior to July 1, 2009, ABE Fairmont will pay a prepaymentcharge of 3% of the amount prepaid in addition to certain surcharges. If ABEFairmont prepays any portion of term loan C or term loan D through arefinancing prior to June 1, 2009, ABE Fairmont will pay a prepayment charge of3% of the amount prepaid in addition to certain surcharges.

While the credit facilities are outstanding, ABEFairmont will be subject to certain financial loan covenants consisting ofminimum working capital, minimum net worth and maximum debt service coverageratios. After the construction phase, ABE Fairmont will not be allowed to makecapital expenditures of more than $600,000 without prior approval. ABE Fairmontis also prohibited from making distributions to Advanced BioEnergy except asfollows: (i) for each fiscal year commencing with the fiscal year endingSeptember 30, 2007, ABE Fairmont may make a distribution to Advanced BioEnergyof 50% of ABE Fairmont’s net profit for the applicable fiscal year if FarmCredit has received audited financial statements for the applicable fiscal yearand (ii) ABE Fairmont may make distributions to Advanced BioEnergy exceeding50% of its net income if it has made the required cash flow payment for thatfiscal year. ABE Fairmont must also be in compliance with all financial ratiorequirements and loan covenants before and after any distributions to AdvancedBioEnergy.

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

**5.** Major Customer andCommitments

HGF also entered into a marketing agreement withAventine, where Aventine is required to purchase all of the ethanol produced atHGF’s South Dakota plants at a price per gallon determined through a pooling ofHGF’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 six months endedMarch 31, 2007 and 2006 were approximately $29.0 million and none,respectively. Related accounts receivable as of March 31, 2007 and September30, 2006 were approximately $3.4 million and none, respectively. HGF is a partyto a by-product marketing agreement with Dakotaland Feeds, LLC, wherebyDakotaland Feeds will market locally the sale of ethanol co-products producedat HGF’s plants to third parties for an agreed-upon commission.

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HGF also entered into a grain origination agreementwith South Dakota Wheat Growers Association to supply HGF with its cornrequirements. The grain origination agreement was negotiated in connection withthe first purchase agreement and may or may not be as favorable to HGF as acontract negotiated at arm’s length. Purchases for six months ended March 31,2007 and 2006 were approximately $23.8 million and none, respectively. Related accountspayable as of March 31, 2007 and September 30, 2006 were approximately $148,500and none, respectively.

This ethanol marketing agreement will expire onNovember 30, 2008; however, the agreement automatically renew for successiveone-year term unless terminated by either party upon one year’s prior writtennotice.

**6.** Risk Management

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

The manufacturing of the Company’s products requiressubstantial purchases of corn. Price fluctuations in commodities cause firmcommitments to purchase the commodities to develop unrealized appreciation ordepreciation when compared with current commodity prices and actual cashoutlays for the purchase of the commodities differ from anticipated cashoutlays.

To reduce price risk caused by market fluctuations,the Company generally follows a policy of using exchange traded futurescontracts and OTC futures options to reduce it net position of merchandisableagricultural commodity inventories and forward cash purchase and salescontracts and exchange traded futures contracts to reduce price risk. Exchange-tradedfutures contracts are valued at market price. Changes in market price arerecorded in cost of goods sold or revenues. At March 31, 2007 and September 30,2006 net unrealized losses of $8.2 million and none, respectively, are classifiedas derivative financial instruments on the balance sheets. Net realized andunrealized gains and losses offset revenues by $11.0 million and cost of goodssold by $6.1 million for the six months ended March 31, 2007. The Company didnot enter into any exchange traded futures contracts in the six months endedMarch 31, 2006.

Unrealized gains and losses on forward contracts, inwhich delivery has not occurred, are deemed “normal purchases and normal sales”under FASB Statement No. 133, as amended and, therefore, and not marked tomarket in the Company’s financial statements. At March 31, 2007, the Companyenterd into forward purchase contracts for the purchase of corn totalingapproximately $24.4 million through December 2008 and the purchase of naturalgas totaling $450,600 through October 2007.

**7. Employee Benefit Plan**

The Company has a 401(k)plan. Employees who are at least 21 years of age are eligible to participate inthe plan. Eligible employees may make elective deferral contributions to theplan. The Company’s matching contribution is 100% of the employee electivedeferrals, not to exceed 5% of the employee’s eligible wages. The Companycontributed approximately $18,300 to the plan in the six months ended March 31,2007.

**8.Subsequent Events**

On April 20, 2007,we entered into a note purchase agreement with a third party which is anaffiliate of an existing investor in the Company, pursuant to which we issued a$10 million 15% subordinated convertible promissory note. The Company alsogranted this third party a 40-day option to purchase an additional 15%subordinated convertible promissory note of up to $25 million. The notes willbear interest at 15% per annum compounded quarterly and will mature on thelater of one year from the date of issue of the initial note or, if a follow oninvestment is made, one year from the date of the follow on investment. TheCompany may, at any time, prepay all or a portion of the unpaid principal andunpaid accrued interest of this convertible note without penalty. Anyprepayment of this convertible note will be credited first against unpaidaccrued interest, then principal. The third party may elect to convert theportion of principal to be prepaid into membership units. The principal andaccrued but unpaid interest on the note are convertible into the Company’smembership units, at the lesser of (a) $16.00 per membership unit or (b) theprice per membership unit which is equal to the lowest price per membershipunit at which the Company sells membership units in any public or privateoffering during the period that the notes are outstanding. The proceeds of theinitial $10 million note will be used for continuing construction of theCompany’s Aberdeen expansion facility.

In the notepurchase agreement, the Company’s board of directors will at its next annualmeeting and thereafter as long as the third party owns a note or the membershipunits issued upon conversion, require each of the Company’s directors andexecutive officers to (a) recommend to the Company’s members at any annualmeeting of the members at which directors are elected, the election of onenominee of the third party to the Company’s board, (b) vote the membershipunits owned or controlled at any time to elect the third party nominated personto the board, (c) not take any action to remove the third party nominee fromthe board.

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On May 14, 2007the Company acquired the remaining partnership interest in HGF. The aggregatepurchase price of the remaining 46.685% partnership interest was $7.8 millionin cash and the issuance of 1,228,547 units of the Company valued at $24.6million or $20 per unit (see Note 2). The cash portion of the purchase was heldin escrow prior to May 14, 2007, and was included in the Company’s balancesheet as of March 31, 2007. Following this purchase, HGF is a wholly ownedsubsidiary of the Company.

**ITEM 2. MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

**INFORMATIONREGARDING FORWARD-LOOKING STATEMENTS**

The following discussion contains certainforward-looking statements, including statements regarding our expectations,beliefs, intentions, or strategies regarding the future. These statements arenot guarantees of future performance and are subject to risks, uncertainties,and other factors, some of which are beyond our control and difficult topredict and could cause actual results to differ materially from thoseexpressed or forecasted in the forward-looking statements. The risks anduncertainties are summarized in the forward-looking statements in otherdocuments that we file with the Securities Exchange Commission, such as ourAnnual Report on Form 10-KSB for the year ended September 30, 2006 and ourproposed registered securities offering on Form SB-2 (Registration Statement333-137299). As of the date of this Form 10-QSB the Company’s SB-2 RegistrationStatement (Registration No. 333-137299) has not been declared effective by theSecurities and Exchange Commission. These forward-looking statements reflectour view only as of the date of this report. We cannot guarantee futureresults, levels of activity, performance, or achievement. We do not undertakeany obligation to update or correct any forward-looking statements.

**EXECUTIVE OVERVIEW**

***Business***

We are a Delaware limited liability company formed onJanuary 4, 2005 for the purpose of constructing and operating plants to produceethanol and distillers grains, as well as to operate other related bio-fuelbusinesses. Since we only recently became operational as a result of ouracquisition of Heartland Grain Fuels, LP (“HGF”) (see Note 2 to ourConsolidated Financial Statements), we do not yet have comparable income,production and sales data for the three and six months ended March 31, 2007.Accordingly, we do not provide a comprehensive comparison of our financialresults between reporting periods in this Form 10-QSB. If you undertake yourown comparison of the three and six month periods ending March 31, 2007, it isimportant that you keep this in mind.

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

***Acquisition of Heartland GrainFuels, L.P.***

On November 8, 2006, we closed on the acquisition ofapproximately 53% of the ownership interests in Heartland Grain Fuels, L.P.,known as HGF. On May 14, 2007, we acquired the remaining partnership interestin HGF. Following this purchase, HGF is our wholly owned subsidiary.

***South Dakota Plants***

HGF ownsand operates a nine million gallons per year dry mill corn-processing ethanolplant in Aberdeen, South Dakota, known as the Aberdeen plant, and a 30 milliongallons 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 of40 million gallons per year under construction in Aberdeen, South Dakota,adjacent to its existing plant. As of April 30, 2007, soil sub-surfacestabilization work is continuing and concrete foundation work has beeninitiated. The Title Five air permit has passed through the review process andis now in effect. The design engineer and general contractor are located onsite. The Aberdeen plant expansion is expected to be completed in December2007, assuming we successfully obtain our equity and debt financing, and allnecessary permits.

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We expect the Aberdeen plant expansion will costapproximately $80.0 million to complete, including start-up costs andcapitalized interest. We will generate no revenue from the Aberdeen plantexpansion until construction is completed. This Form 10-QSB should be read inconjunction with the Company’s proposed offering as filed with the Securitiesand Exchange Commission on Form SB-2 (Registration No. 333-137299) RegistrationStatement.

Based oncurrent production capacity, HGF anticipates that the Aberdeen and Huron plantswill 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 14.3million bushels of corn per year upon completion of the Aberdeen plantexpansion. HGF has entered into a grain origination agreement with South DakotaWheat Growers to provide this corn.

HGF sellsthe ethanol it produces to Aventine Renewable Energy, Inc. pursuant to anethanol marketing agreement. Under the terms of this agreement, Aventine isrequired to purchase all of the ethanol produced at HGF’s South Dakota plantsat 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 onthe net pooled price. This ethanol marketing agreement will expire on November 30,2008; however, the agreement automatically renews for successive one-year termsunless terminated by either party upon one year’s prior written notice.Aventine distributes HGF’s ethanol by truck and rail.

HGF is aparty to a co-products marketing agreement with Dakotaland Feeds, LLC, wherebyDakotaland Feeds will market locally the sale of ethanol co-products producedat HGF’s plants to third parties for an agreed-upon commission.

***Nebraska Plant***

Based upon engineering specifications produced byFagen, the Nebraska plant will annually consume approximately 36 millionbushels of corn and annually produce approximately 100 million gallons of fuelgrade ethanol and 321,000 tons of distillers grains for animal feed. Wecurrently estimate completing the construction of the Nebraska plant in August 2007.We expect the Nebraska plant will cost approximately $151.6 million tocomplete. This includes approximately $98.0 million (not includingapproximately $2 million allowance for change orders) to build the plant and anadditional $51.6 million in other capital expenditures, start-up costs, workingcapital and interest. We are still in the construction phase, and until theNebraska plant is operational, we will generate no revenue from the Nebraskaplant.

***Indiana Plant***

Based upon engineering specifications produced by ICM,the Indiana plant will annually consume approximately 39 million bushels ofcorn and annually produce approximately 110 million gallons of fuel gradeethanol and 350,000 tons of distillers grains for animal feed. We currentlyestimate that it will take 16 months from the date that we begin construction,which assumes we successfully complete the our proposed offering as filed withthe Securities and Exchange Commission on Form SB-2 (Registration No.333-137299) and obtain our debt financing, and all necessary permits, tocomplete the construction of the Indiana plant.

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

**MinnesotaPlant**

Based upon engineering specifications, the Minnesota plantwill annually consume approximately 36 million bushels of corn and annuallyproduce approximately 100 million gallons of fuel grade ethanol and 321,000 tonsof distillers grains for animal feed. We currently estimate that it will take14 to 16 months from the date that we begin construction, which assumes wesuccessfully complete our proposed offering as filed with the Securities andExchange Commission on Form SB-2 (Registration No. 333-137299) and obtain ouradditional equity and debt financing, and all necessary permits, to completethe construction of the Minnesota plant. We expect the Minnesota plant willcost approximately $122.5 million to construct and have not yet determined thestart-up costs for the Minnesota plant or the total project cost. We are stillin the early planning phase, and until the proposed Minnesota plant isoperational, we will generate no revenue from the Minnesota plant.

***Future Plants***

In the future, we may explore the possibility ofdeveloping and building, or acquiring, one or more additional ethanol plants,or we may choose to enter other bio-fuel businesses. We may issue additionalequity or incur additional significant debt obligations in order to fund newconstruction or acquisitions. Any proposed additional plants or businesses mayalso impose substantial additional demands on the time and attention of ourdirectors and officers.

**Selected Pro formaFinancial Data**

The following unaudited pro forma consolidatedstatements of income for the periods presented are based on the historicalfinancial statements of Advanced BioEnergy and HGF. The unaudited pro formaconsolidated financial statements give effect to the acquistion which closed onNovember 8, 2006 as to 53.315% of HGF. Prior to the acquisition of HGF, we werea development stage company. The unaudited pro forma consolidated financialstatements have been prepared using the purchase method of accounting as if thetransaction had been completed as of the beginning of the periods presented forpurposes of the combined consolidated statements of income.

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| ** **                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                           | ** ** | **March 31, 2007**     | ** ** | **March 31, 2006**   | ** ** | **March 31, 2007** | ** ** | **March 31, 2006** | ** ** |
| **(in  thousands)**                  | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
|                                 |       |                             |       |                           |       |   |   |   |   |
| Net sales                            |       | $                                | 11,738     |                           | $          | 10,349 |   | $ | 30,334 |   | $ | 19,621 |   |
|                                 |       |                             |       |                           |       | — |   |   |   |
| Gross profit  (Loss)                 |       | (9,053                           | )          | 1,449                          |       | 45 |   | 2,383 |   |
| Gross profit%                        |       | (77.1                            | )%         | 14.0                           | %          | 0.1 | % | 12.1 | % |
| Selling, general  and administrative |       | 1,828                            |       | 574                            |       | 4,448 |   | 1,117 |   |
| Net income  (loss)                   |       | $                                | (11,677    | )                              | $          | 106 |   | $ | (6,394 | ) | $ | (135 | ) |

 

**PRO FORMATHREE MONTHS ENDED MARCH 31, 2007 COMPARED TO PRO FORMA THREE MONTHS ENDEDMARCH 31, 2006**

**Net sales**

Net sales for thethree months ended March 31, 2007 were $11.7 million, compared to $10.3 millionfor the three months ended March 31, 2006, an increase of $1.4 million or 13.4%.Net sales increased in the 2007 period as a result of the Huron plant expansioncompleted in August 2006, resulting in an increase from 12 to 30 milliongallons produced annually. During the 2007 period ethanol prices increased$0.33 cents to $1.94 per gallon compared to the same period in 2006. Theseincreases were offset by a $10.9 million charge related to ethanol relatedhedging activity in the three months ended March 31, 2007.

Sales fromco-products increased $1.8 million, or 186.6%, to $2.8 million for the threemonths ended March 31, 2007. The increase in co-product sales was primarily theresult of the additional distiller grain tons produced and sold from the Huronexpansion.

**Gross profit**

Our gross profitfor three months ended March 31, 2007 was ($9.1 million), compared to grossprofits of $1.4 million for the three months ended March 31, 2006. The decreasewas primarily due of losses on our derivative financial instruments of $11.1million during the quarter ended March 31, 2007. We did not engage in hedgingactivity for the three months ended March 31, 2006.

Corn costsincreased $9.0 million, or 226.2%, to $13.0 million for the three months endedMarch 31, 2007 from $4.0 million for the three months ended March 31, 2006. Corncosts represented 62.3% of cost of sales for the three months ended March 31,2007 and 44.6% of cost of sales for the three months ended March 31, 2006. Theincrease in corn costs was due to a 1.5 million bushel increase in corn used,resulting from the Huron expansion as well as a increase of $1.69 per bushel to$3.58 per bushel for the first three months of 2007 compared to the same periodin 2006.

Natural gas costsincreased $528,300 to $2.5 million in the quarter ended March 31, 2007 comparedto the the quarter ended March 31, 2006. Natural gas costs as a percent of costof sales declined dramatically from 22.3% in the quarter ended March 31, 2006to 12.1% in the quarter ended March 31, 2007, as a result of a 16.0% decreasein gas prices and efficiencies at the new Huron expansion. Most of thedistiller grains generated from the Huron expansion are sold wet, whichrequires less natural gas during the drying phase.

**Selling, General, andAdministration**

Selling, general,and administration expenses increased approximately $1.3 million to $1.8million, for the three months ended March 31, 2007 due to compensation,consulting and system fees incurred related to the HGF acquisition, fundraisingand development of the Fairmont plant facility.

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**PRO FORMASIX MONTHS ENDED MARCH 31, 2007 COMPARED TO PRO FORMA SIX MONTHS ENDED MARCH31, 2006**

**Net sales**

Net sales for thesix months ended March 31, 2007 were $30.3 million, compared to $19.6 millionfor the six months ended March 31, 2006, an increase of $10.7 million or 54.6%.Sales increased in the 2007 period as a result of the Huron plant expansioncompleted in August 2006, resulting in an increase from 12 to 30 milliongallons produced annually. During the 2007 period ethanol prices increased $0.35cents to $1.94 per gallon compared to the same period in 2006. These increaseswere offset by $11.0 million net charge related to ethanol related hedgingactivity in the six months ended March 31, 2007.

Sales fromco-products increased $2.5 million, or 130.0%, to $4.4 million for the sixmonths ended March 31, 2007. The increase in co-product sales was primarily theresult of the additional distiller grain tons produced and sold from the Huronexpansion.

**Gross profit**

Our gross profitfor six months ended March 31, 2007 was $45,000, compared to a $2.4 milliongross profit for the six months ended March 31, 2006, a decrease of $2.3million or 98.1%. The decrease was primarily due of losses on our derivativefinancial instruments of $4.9 million during the six months ended March 31,2007. We did not engage in hedging activity for the six months ended March 31,2006.

Corn costsincreased $16.1 million, or 211.5%, to $23.8 million for the six months endedMarch 31, 2007 from $7.6 million for the six months ended March 31, 2006. Corncosts represented 78.5% of cost of sales for the six months ended March 31,2007 and 44.3% of cost of sales for the six months ended March 31, 2006. Theincrease in corn costs was due to an increase in the number of bushelspurchased as a result of the Huron expansion as well as a increase of $1.54 perbushel to $3.39 for the first six months of 2007 compared to the same period in2006.

Natural gas costsincreased $509,400 to $4.9 million in the six months ended March 31, 2007compared to March 31, 2006. Natural gas costs as a percent of cost of salesdeclined dramatically from 25.2% in the six months ended March 31, 2006 to 16.1%in the six months ended March 31, 2007, as a result of a decrease in gas pricesand efficiencies at the new Huron expansion. Most of the distiller grainsgenerated from the Huron expansion are sold wet, which requires less naturalgas during the drying phase.

**Selling, General, and Administration**

Selling, general,and administration expenses increased approximately $3.3 million to $4.4million, for the six months ended March 31, 2007 due to compensation,consulting and system fees incurred related to the HGF acquisition, fundraisingand development of the Fairmont plant facility.

**PLAN OF OPERATIONTHROUGH MARCH 2008**

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

We believe we have sufficient cash on hand to coverall costs associated with construction of the Nebraska plant, including, butnot limited to, site development, utilities, construction and equipmentacquisition. We will need to raise additional debt and equity to makesignificant progress on our other goals.

As of April 30, 2007, we (including HGF) have 60full-time employees and anticipate adding approximately 39 additional employeesin connection with the commencement of operations at the Nebraska plant inAugust 2007. We also plan to hire additional employees as our company expands.

**Debt Financing forthe Aberdeen Plant Expansion**

We have obtained fromKruse Investments a $5 million loan due July 1, 2007, secured by all of theownership interests in HGF owned by HGF Acquisition. We have loaned the $5 millionobtained from the loan from Kruse Investments to HGF, on an unsecured basis,subordinate to Dakota Fuels and the senior lender to HGF. The proceeds of theloan are being used to fund the Aberdeen plant expansion. We intend to use aportion of our proceeds from our proposed registered securities offering onForm SB-2 (Registration Statement 333-137299) to repay this loan. As of thedate of this Form 10-QSB our SB-2 Registration Statement (Registration No. 333-137299)has not been declared effective by the Securities and Exchange Commission.

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On April 20, 2007, weentered into a note purchase agreement with a third party which is an affiliateof an existing investor, pursuant to which we issued a $10 million 15%subordinated convertible promissory note. We also granted this third party a40-day option to purchase an additional 15% subordinated convertible promissorynote of up to $25 million. The proceeds of the initial $10 million note will beused for continuing construction of our Aberdeen expansion facility.

**TRENDS AND UNCERTAINTIES IMPACTING THE ETHANOLINDUSTRY AND OUR FUTURE OPERATIONS**

We are subject to industry-wide factors that affectthe operating and financial performance of the South Dakota plants and willaffect the operating and financial performance of the plants under developmentonce they begin operations. These factors include, but are not limited to, theavailable supply and cost of corn from which the ethanol and distillers grainsis processed; the cost of natural gas, which is used in the production process;dependence on our ethanol marketer and distillers grains marketer to market anddistribute our products; the intensely competitive nature of the ethanolindustry; possible legislation at the federal, state or local level; changes infederal ethanol tax incentives and the cost of complying with extensiveenvironmental laws that regulate our industry.

We expect ethanol sales to constitute the bulk of ourrevenues. Ethanol prices have recently been much higher than their ten-yearaverage. However, due to the increase in the supply of ethanol from the numberof new ethanol plants scheduled to begin production and the expansion ofcurrent plants, we do not expect current ethanol prices to be sustainable inthe long term. Areas where we believe demand may increase are new markets inNew Jersey, Pennsylvania, Maryland, Massachusetts, North Carolina, SouthCarolina, Michigan, Tennessee, Louisiana and Texas. Minnesota may also generateadditional demand due to the recent passage of state legislation mandating a20% ethanol blend in its gasoline. Montana passed a similar mandate, but itwill not go into effect until 55 million gallons of ethanol are produced in thestate.

We expect to benefit from federal ethanol supports andfederal tax incentives. Changes to these supports or government incentivescould significantly impact demand for ethanol. On August 8, 2005, the EnergyPolicy 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 gasolinesold or introduced into commerce in the United States contains a particularvolume of renewable fuel. The program will apply to refineries, blenders,distributors and importers as appropriate, but will not restrict the geographicareas in which renewable fuels may be used. The applicable volume of renewablefuel under the RFS will begin at 4 billion gallons in 2007 and increase to 7.5billion gallons by 2012. According to the Renewable Fuels Association, theEnergy Policy Act is expected to lead to approximately $6 billion in newinvestment in ethanol plants across the country. An increase in the number ofnew plants will bring an increase in the supply of ethanol. Thus, while theEnergy Policy Act may cause ethanol prices to increase in the short term due toadditional demand, supply could outweigh the demand for ethanol in the future.This would have a negative impact on our earnings in the long term.

Demand for ethanol may increase as a result ofincreased consumption of E85 fuel. E85 fuel is a blend of 85% ethanol and 15%unleaded gasoline for use in flexible fuel vehicles (FFVs). According toestimates of the Energy Information Administration, E85 consumption increasedfrom a national total of 12.4 million gallons in 2000 to 23 million gallons in2004. In the United States, there are currently about 3 million flexible fuelvehicles capable of operating on E85 and over 1,000 retail stations supplyingit. Automakers have indicated plans to produce an estimated 2 million moreflexible fuel vehicles per year.

Ethanol production continues to grow as additionalplants become operational. Demand for ethanol has been supported by higherprices for oil and its refined components and by the federal Clean Air Act andfederal regulations requiring the use of reformulated gasoline, known as RFG.RFG, which often contains ethanol, must be used in metropolitan areas with themost severe air pollution and in other areas where air quality is not inattainment with national standards. The Clean Air Act and federal regulationsalso require the use of oxygenated gasoline during the winter months in certainurban areas to reduce carbon monoxide emissions. The intent of the reformulatedgasoline and oxygenated gasoline requirements is to reduce harmful emissionsinto the air. The application of the reformulated gasoline requirement to atleast two metropolitan areas has been challenged and is currently at variousstages of review. The EPA is engaged in rulemaking that will resolve the issuefor Atlanta and will likely result in the eventual phase-out of the RFGrequirement for Atlanta. The comment period for this rulemaking has closed, butno final rule has been issued. With respect to the other metropolitan area,Baton Rouge, Louisiana, the courts have sent the issue back to the EPA forreconsideration as to whether the RFG requirement should apply to that area. Inthe future, the combination of additional supply, successful challenges to theapplication of the RFG program and stagnant or reduced demand may damage ourability to generate revenues and maintain positive cash flows.

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Consumer resistance to the use of ethanol may affectthe demand for ethanol, which could affect our ability to market our productand reduce the value of your investment. Certain individuals believe that useof ethanol will have a negative impact on prices at the pump. Many also believethat ethanol adds to air pollution and harms car and truck engines. Still otherconsumers believe that the process of producing ethanol actually uses morefossil energy, such as oil and natural gas, than the amount of ethanol that isproduced. These consumer beliefs could potentially be wide-spread. If consumerschoose not to buy ethanol, it would affect the demand for the ethanol weproduce, which could negatively affect our ability to sell our product andnegatively affect our profitability.

We expect ethanol prices will be positively impactedby blenders and refineries increasing their use of ethanol in response toenvironmental liability concerns about methyl tertiary butyl ether or MTBE andincreased consumer acceptance and exposure of ethanol.

**TECHNOLOGYDEVELOPMENTS**

A new technology has recently been introduced toremove corn oil from concentrated thin stillage (a by-product of “dry milling”ethanol processing facilities). The oil could then be used as an animal feedsupplement or possibly as an input for bio-diesel production. Although therecovery of oil from the thin stillage may be economically feasible, it failsto produce the advantages of removing the oil prior to the fermentationprocess. The FWS Group of Companies, headquartered out of Canada with officesin the United States, is currently working on a starch separation technologythat would economically separate a corn kernel into its main components. Theprocess removes the germ, pericarp and tip of the kernel, leaving only the endospermof kernel for the production of ethanol. This technology has the capability toreduce drying costs and the loading of volatile organic compounds. Theseparated germ would also be available through this process for other uses suchas high oil feeds or bio-diesel production. Each of these new technologies iscurrently in its early stages of development. There is no guarantee that eithertechnology will be successful or that we will be able to implement thetechnology in our ethanol plants.

Most ethanol is currently produced from corn and otherraw grains, such as milo or sorghum—especially in the Midwest. The currenttrend in ethanol production research is to develop an efficient method ofproducing ethanol from cellulose-based biomass, such as agricultural waste,forest residue, and municipal solid waste and energy crops. This trend isdriven by the fact that cellulose-based biomass is generally cheaper than corn,and producing ethanol from cellulose-based biomass would create opportunitiesto produce ethanol in areas that are unable to grow corn. If an efficientmethod of producing ethanol from cellulose-based biomass is developed, we maynot be able to compete effectively. We do not believe it will be cost-effectiveto convert the existing South Dakota plants or the ethanol plants we areproposing to build into plants that will use cellulose-based biomass to produceethanol. If we are unable to produce ethanol as cost effectively ascellulose-based producers, our ability to generate revenue will be negativelyimpacted.

**LIQUIDITY ANDCAPITAL RESOURCES**

In the six months ended March 31, 2007 we generated$38.9 million of cash from financing activites and used $25.9 million forinvesting activities and $17.8 million for operations. As of March 31, 2007, wehave total assets of approximately $212.6 million. We have current liabilitiesof approximately $74.8 million consisting primarily of our accounts payable andderivative financial instruments and debt obligations maturing within twelvemonths of approximately $41.5 million. Since our inception through March 31,2007, we have a retained deficit of approximately $9.0 million. Total members’equity as of March 31, 2007 was approximately $86.8 million. Prior to theacquisition of HGF, we were a development stage company and had generated norevenue from operations.

Based on our business plan and current constructioncost estimates, we believe the Nebraska plant will cost approximately $151.6million to construct and start operations, the Indiana plant will costapproximately $175.0 million to construct and start operations and the Aberdeenplant expansion will cost approximately $78.0 million to construct and startoperations. We have not yet determined the construction and start-up costs forthe Minnesota plant. We believe we have sufficient equity, debt financing,government incentives and grants to complete the Nebraska plant. We expect torequire significant equity and debt financing to complete the Indiana andMinnesota plants and Aberdeen plant expansion.

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Long-term debt consisted of the following at March 31,2007 and September 30, 2006 (in thousands):
| ** **                                | ** ** | **Interest  Rate** | ** ** | **March 31,  2007** | ** ** | **September 30  2006** | ** ** | **Additional  Financing  Available at  March, 31,  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             |       | 12%                |       | 4,000                    |       | —                      |       | 1,000                                                               |       |
| ABE Fairmont  term commitment .           |       | 8.75%              |       | 24,153                   |       | —                      |       | 64,935                                                              |       |
| ABE Seasonal  line                        |       | 8.75%              |       | —                   |       | —                      |       | 5,000                                                               |       |
| Total  Outstanding                        |       |               |       | 77,153                   |       | 7,000                       |       | $                                                                   | 70,935     |   |
| Less: Amounts  due within one year        |       |               |       | (41,500                  | )          | 0                           |       |                                                                |       |
|                                      |       |               |       |                     |       |                        |       |                                                                |       |
| Long-Term Debt                            |       |               |       | $                        | 35,653     |                        | $          | 7,000                                                               |       |   |   |

 

The estimatedmaturities of long-term debt on or before March 31, are as follows (inthousands):
| 2008                 |   | $     | 41,500 |   |
|----------------------|--------|-------|--------|--------|
| 2009                 |   | 9,000 |   |
| 2010                 |   | 9,000 |   |
| 2011                 |   | 4,718 |   |
| 2012                 |   | 3,065 |   |
| Thereafter           |   | 9,870 |   |
| Total long-term debt |   | $     | 77,153 |   |

 

**Senior Credit Facility for the South Dakota Plants**

Dakota Fuels, our wholly owned subsidiary and the generalpartner of HGF, previously entered into loan agreements with Farm Creditestablishing a senior credit facility with Farm Credit for HGF. Farm Credit hasappointed CoBank, ACB, to serve as its agent with regard to these loans. HeartlandGrain Fuels borrowed the entire $42.0 million available under the facilitythrough a $6.8 million revolving term loan and multiple advance term loansupplements of $35.2 million. The revolving term loan bears interest at 7.708%per annum and has quarterly commitment reductions of $750,000 startingSeptember 1, 2011, with the balance due June 1, 2013. Amounts borrowed underthe advance term loan supplements mature on January 20, 2008 and bear interestat 8.0% per annum. Dakota Fuels’ obligations under the loan agreements areguaranteed by HGF and secured by a first lien on all equity that Dakota Fuelsmay now own or hereafter acquire in HGF and on all now owned or subsequentlyacquired personal property of Dakota Fuels. HGF’s guarantee is secured by afirst lien on all now owned and subsequently acquired personal property andreal estate of HGF. The loan agreements contain customary covenants, includingminimum net worth and working capital requirements for HGF, restrictions onadditional indebtedness, restrictions on mortgages, liens pledges orassignments of assets and restrictions on scheduled payments to lessors. Inaddition, HGF and Dakota Fuels are required to provide to CoBank on or before January2008 a refinance plan acceptable to CoBank. The loan agreements also containcertain customary events of default including defaults based on cross-defaultsto other indebtedness.

**Loan From Kruse Investment Company**

Our wholly owned subsidiary, HGF Acquisition, has obtained a$5.0 million loan from Kruse Investment Company due March 1, 2008, secured byall of the ownership interests in HGF owned by HGF Acquisition. All outstandingamounts accrue interest at 12% per annum. At March 31, 2005, HGF Acquisitionhad drawn $4.0 million from Kruse Investments and has since drawn the remaining$1.0 million. HGF Acquisition has loaned the $5.0 million obtained from KruseInvestments to HGF on an unsecured basis, subordinate to the senior lender toHGF. The proceeds of the loan are being used to fund the Aberdeen plantexpansion. Following release of the proceeds of our proposed public offeringfrom escrow, we intend to use a portion of the offering proceeds to repay thisloan. HGF Acquisition pledged its equity interests in Dakota Fuels and HGF ascollateral. HGF Acquisition is prohibited from selling transferring or pledgingits assets while this debt is outstanding.

**Subordinated Convertible Debt Financing**

On April 20, 2007, we entered into a note purchase agreementwith Ethanol Investment Partners, LLC, an affiliate of Tennessee EthanolPartners, LP, an existing investor in our company, pursuant to which we issuedto Ethanol Investment Partners a $10 million 15% subordinated convertiblepromissory note. We also granted Ethanol Investment Partners an optionexercisable until June 13, 2007 to purchase an additional 15% subordinatedconvertible promissory note of up to $25 million.

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The proceeds of the initial $10 million note will be usedfor continuing construction of the Aberdeen plant expansion. We will loan theproceeds of the note to HGF Acquisition on an unsecured basis, and HGFAcquisition will in turn loan up to $10 million to HGF on an unsecured basis ifCo-Bank consents to this loan. Co-Bank has previously approved debt of HGF toHGF Acquisition in an aggregate principle amount not to exceed $10 million. Asof May 14, 2007, HGF has $10 million of debt outstanding payable to HGFAcquisition, $5 million of which was originally loaned to HGF Acquisition fromKruse Investments; therefore, Co-Bank will need to approve an additional $5 millionof debt to HGF Acquisition to allow for the initial $10 million note fromEthanol Investment Partners to be fully utilized for the continuingconstruction of the Aberdeen plant expansion. HGF believes its existing sourcesof liquidity, including the $10 million already loaned to it by HGFAcquisition, will be sufficient to fund its operating activities and theAberdeen plant expansion through the end of June 2007.

The notes bear interest at 15% per annum compoundedquarterly and will mature on the later of one year from the date of issue ofthe initial note or, if a follow on investment is made, one year from the dateof the follow on investment. The principal and accrued but unpaid interest onthe note are convertible into our membership units at the lesser of (a) $16.00per unit or (b) the price per unit that is equal to the lowest price per unitat which units are sold by us in any public or private offering during theperiod that the notes are outstanding, at the option of Ethanol InvestmentPartners in the event we elect to prepay the notes and convert automatically atmaturity.

In the note purchase agreement, we agreed that, providedthat a note is outstanding or has been converted into units, our board ofdirectors will at our next annual meeting and thereafter for so long as EthanolInvestment Partners owns a note or the units issued upon conversion, requireeach of our directors and executive officers to (a) recommend to our members atany meeting of the members at which directors are elected, the election of onenominee of Ethanol Capital Management (an affiliate of Ethanol InvestmentPartners) to the board, (b) vote the membership units they own or control atany time to elect the Ethanol Capital Management nominated person to the board,and (c) not take any action to remove the Ethanol Capital Management nomineefrom the board. Each of our directors and executive officers executed anddelivered to Ethanol Investment Partners a voting agreement evidencing theseboard rights. We also granted Ethanol Investment Partners board observation andinspection rights in connection with their investment.

Finally, in connection with the issuance of the note, weentered into a letter agreement with Ethanol Investment Partners pursuant towhich we agreed, subject to approval from South Dakota Wheat Growers, to enterinto a registration rights agreement that will grant them up to two demand andunlimited piggyback registration rights under certain circumstances.

**Senior Credit Facility for the Nebraska Plant**

Effective February 17, 2007, we entered into a loanagreement with Farm Credit establishing a senior credit facility with FarmCredit 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 revolvingterm loan, known as term loan B. Farm Credit also extended to the Company a$5.0 million revolving credit facility for financing eligible grain inventoryand equity in Chicago Board of Trade futures positions, which will not beeffective until we begin operations. Farm Credit has appointed CoBank, ACB, toserve as its agent with regard to these loans We assigned all our rights andobligations under the loan agreements described in the preceding paragraph toour wholly owned subsidiary, ABE Fairmont, LLC.

ABE Fairmont and Farm Credit also entered intoadditional 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 millionrevolving term loan, known as term loan D for construction of the Nebraskaplant. The terms and conditions of these loan agreements are substantiallysimilar to those described above. The Company issued a letter of credit for thepurchase of rail cars to Trinity Industries Leasing Company for $912,000,effectively reducing the financing available from Term Loan D.

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

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

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Farm Credit is only obligated to lend the funds forconstruction 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/yieldguarantee from the design engineer and contractor acceptable to Farm Credit,evidence of the issuance of all permits, acceptable insurance coverage andtitle commitment, the contribution of at least $60.0 million of equity (lessany tax increment financing proceeds and the proceeds we receive from the saleof 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: 25equal quarterly installments of $2,250,000 with the first installment dueFebruary 20, 2008 and the last installment due February 20, 2014, followed by afinal installment in an amount equal to the remaining unpaid principal balanceon May 20, 2014. For each fiscal year ending in 2007 through 2010, ABE Fairmontmust pay an additional amount equal to the lesser of $6 million or 75% of itsfree cash flow, not to exceed $12 million in the aggregate for all of thesecash flow payments.

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

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

The loans owed to Farm Credit are secured by a firstmortgage on all of ABE Fairmont’s real estate and a lien on all of ABE Fairmont’spersonal property. ABE Fairmont has agreed to purchase $1,000 worth of stock inFarm Credit Services of America, ACA that will also be pledged as security forthe loans. If ABE Fairmont prepays any portion of term loan A or term loan Bthrough a refinancing prior to July 1, 2009, ABE Fairmont will pay a prepaymentcharge of 3% of the amount prepaid in addition to certain surcharges. If ABEFairmont prepays any portion of term loan C or term loan D through arefinancing prior to June 1, 2009, ABE Fairmont will pay a prepayment charge of3% of the amount prepaid in addition to certain surcharges.

While the credit facilities are outstanding, ABEFairmont will be subject to certain financial loan covenants consisting ofminimum working capital, minimum net worth and maximum debt service coverageratios. After the construction phase, ABE Fairmont will not be allowed to makecapital expenditures of more than $600,000 without prior approval. ABE Fairmontis also prohibited from making distributions to Advanced BioEnergy except asfollows: (i) for each fiscal year commencing with the fiscal year ending September30, 2007, ABE Fairmont may make a distribution to Advanced BioEnergy of 50% ofABE Fairmont’s net profit for the applicable fiscal year if Farm Credit hasreceived audited financial statements for the applicable fiscal year and (ii) ABEFairmont may make distributions to Advanced BioEnergy exceeding 50% of its netincome if it has made the required cash flow payment for that fiscal year. ABEFairmont must also be in compliance with all financial ratio requirements andloan covenants before and after any distributions to Advanced BioEnergy.

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

**Fillmore County Subordinate Exempt Facilities Revenue Bonds for theNebraska Plant**

On April 1, 2006, we entered into a loan and trust agreementwith the County of Fillmore, State of Nebraska and Wells Fargo, N.A. whereinFillmore County issued and sold $7.0 million of subordinate exempt facilitiesrevenue bonds, the interest on which is expected to be exempt from inclusion asgross income of the holder of the bonds for federal and state income taxpurposes. Fillmore County has loaned the proceeds from the sale of these bondsto us, the net proceeds of which equal approximately $5.6 million.

We agreed to repay the loan by making annual principalpayments of $815,000 starting in December 2010 and continuing until December2016, with the balance and any interest thereon paid on December 1, 2017, orupon redemption, upon acceleration or when otherwise payable. Our obligation tomake the loan payments under the loan and trust agreement is evidenced by theexecution and delivery of a promissory note. Repayment of the bonds and thesecurity for the bonds is subordinate to our senior credit facility with CoBankand Farm Credit.

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

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Defaults under the loan and trust agreement include, but arenot limited to: (i) failure to pay any installment of principal or any paymentof interest or premium on the loan or the note; (ii) failure to observe orperform any of the covenants, agreements or conditions contained in the loanand trust agreement or in the security documents; and (iii) falseness of anyrepresentation or warranty in any material adverse respect as of the time madeor given. Upon the occurrence of a default, Wells Fargo may declare all loanrepayments for the remainder of the term of the loan and trust agreement to beimmediately due and payable by us and may declare the entire outstandingprincipal balance of the loan, together with all interest accrued thereon, tobe due and payable and take whatever action at law or in equity to collect theloan repayments then due and thereafter to become due or to enforce performanceand observance of any obligation, agreement or covenant under the loan andtrust agreement. However, the ability of Wells Fargo to take these actions upondefault is also subject to certain terms and conditions found in a debtsubordination agreement between CoBank, us and Wells Fargo.

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

**Tax Increment Financing for the Nebraska Plant**

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 providescity councils the power to use all of the real property tax resulting from theincrease in taxable valuation due to the construction of new industrial orcommercial facilities to provide economic incentives.

**Community Development Block Grant for the Nebraska Plant**

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

**FUTURE CAPITALREQUIREMENTS**

We believe that we have secured sufficient funds tocomplete construction and start-up of the Nebraska plant. Our future capitalrequirements will primarily depend on the cost and timing to complete theAberdeen plant expansion, Indiana plant and Minnesota plant and the number ofadditional plants we construct or acquire, the timing of those plant openingsor acquisitions within a given fiscal year and the need to fund operatinglosses, as well as the terms of any other corporate opportunities we undertake.These requirements will include costs directly related to constructing oracquiring new ethanol plants and may also include costs necessary to ensurethat our infrastructure, including technology and distribution capabilities, isable to support multiple plants. We can provide no assurances at this time asto the timing of such an expansion, or whether such an expansion will occur.

Based on our business plan and current constructioncost estimates, we believe the Aberdeen plant expansion construction andstart-up costs will cost approximately $78.0 million, we believe the Indianaplant construction and start-up (including working capital) will costapproximately $175.0 million, and we do not yet have cost estimates for theMinnesota plant. We are seeking to raise a maximum of $100.0 million of equityin our proposed registered securities offering. Depending on the level ofequity raised in our proposed registered securities offering, we expect torequire significant debt financing to fund the Aberdeen plant expansion and theIndiana plant, as well as additional equity and debt financing to fund theMinnesota plant. If we raise only the $40.0 million minimum in our proposedregistered securities offering, we will need to raise significant additionalequity financing, at least $51 million,, to complete the Indiana plant. Even ifwe raise $100.0 million in our proposed registered securities offering, we willstill need to raise significant additional equity financing to construct theMinnesota plant.

If we do not receive proceeds from the offering oradditional funds from the Subordinated Convertible Debt financing by June 30,2007, we will need to raise additional subordinated debt in order for HeartlandGrain Fuels to continue funding the Aberdeen plant expansion as scheduled. Ifwe are able to raise subordinated debt, we plan on contributing funds as neededto Heartland Grain Fuels in order to enable it to continue funding the Aberdeenplant expansion. We are in the process of exploring various alternatives forsubordinated debt financing, but there are no assurances that we will be ableto obtain subordinated debt financing on acceptable terms or at all or if wecan obtain it, whether we will be able to obtain the approvals necessary tofinance 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 Indiana plant or theMinnesota plant and there is no assurance that we will be able to secure thisfinancing. Completion of the Indiana plant relies entirely on our ability toattract these loans and close on sufficient funds in our proposed registeredsecurities offering. Completion of the Minnesota plant relies in part on ourability to raise sufficient equity and debt financing.

With the placement of the subordinated exemptfacilities revenue bonds to Fillmore County, we have an obligation that mayrequire funding if our cash flows from operations will not cover repayment ofthese bonds.

We intend to satisfy our capital requirements infiscal 2007 with existing cash and funds available under our credit facilities,cash generated from operations, primarily from our South Dakota plants and theproceeds from our proposed registered securities offering. However, if capitalrequirements for our business strategy change, or other factors change ourcapital requirements, we may need to seek additional debt or equity financingin the public or private markets. There is no assurance that financing will beavailable to us on acceptable terms or at all.

**SUMMARY OFCRITICAL ACCOUNTING POLICIES AND ESTIMATES**

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

**Revenue Recognition**

Revenue from theproduction of ethanol and its co-products is recorded when title transfers tocustomers. Ethanol and its co-products are generally shipped FOB from ourplants. In accordance with our marketing agreements, sales are recorded net ofcommissions retained at the time payment is remitted.

**Derivative Instruments and HedgingActivities**

Statement ofFinancial Accounting Standards No. 133, *Accountingfor Derivative Instruments and Hedging Activities*, requires acompany to evaluate its contracts to determine whether the contracts arederivatives. Certain derivative contracts may be exempt under SFAS No. 133 asnormal purchases or normal sales, which are contracts that provide for thepurchase or sale of something other than a financial instrument or derivativeinstrument that will be delivered in quantities expected to be used or soldover a reasonable period in the normal course of business. At this time, ourforward contracts related to the purchase of corn and natural gas areconsidered normal purchases and, therefore, are exempted from the accounting andreporting requirements of SFAS No. 133.

**Inventories**

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

**QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FOR HGF**

We consider marketrisk to be the impact of adverse changes in market prices on its results ofoperations. We are subject to significant market risk with respect to the priceof ethanol and corn. For the six months ended March 31, 2007, sales of ethanolrepresented 86.2% of our total sales and corn costs represented 77.4% of totalcost of sales. In general, ethanol prices are affected by the supply and demandfor gasoline, the availability of other fuel oxygenates and the regulatoryclimate. The price of corn is affected by weather conditions and other factorsaffecting crop yields, farmer planting decisions and general economic, marketand regulatory factors. Traditionally, we have not been able to pass alongincreased corn costs to our ethanol customers. At March 27, 2007, the price pergallon of ethanol and the price per bushel of corn on the Chicago Board ofTrade were $2.30 and $3.92, respectively.

We are alsosubject to market risk with respect to our supply of natural gas that isconsumed in the ethanol production process. Natural gas costs represented 15%of total cost of sales for the six months ended March 31, 2006. The price ofnatural gas is affected by weather conditions and general economic, market andregulatory factors. At March 27, 2007, the price of natural gas on the New YorkMercantile Exchange was $7.50 per MMBtu.

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To reduce pricerisk caused by market fluctuations in the cost of corn and natural gas, we haveentered into forward purchase contracts. As of March 31, 2007, we had enteredinto forward purchase contracts representing approximately 75% of our currentcorn requirements, and guaranteed prices for our natural gas representingapproximately 11% of our current natural gas usage. As of March 31, 2007, wehad not entered into any transactions in an effort to mitigate risks associatedwith changes in the price of ethanol for our current production at HGF.

The followingrepresents a sensitivity analysis that estimates our annual exposure to marketrisk with respect to our corn and natural gas requirements and ethanol sales.Market risk is estimated as the potential impact on operating income resultingfrom a hypothetical 10.0% change in the fair value of our current corn andnatural gas requirements and ethanol sales, net of corn and natural gas forwardcontracts used to hedge market risk with respect to our current corn andnatural gas requirements. The results of this analysis, which may differ fromactual results, are as follows: 
|             | ** ** | **Estimated**          | ** ** | ** ** | ** ** | **Hypothetical**   | ** ** | ** **   | ** ** | **Change in Annual** | ** ** |
|-------------|------------|------------------------|------------|------------|------------|--------------------|------------|--------------|------------|--------------------------------|------------|
| ** **  | ** ** | **Volume(1)**          | ** ** | ** ** | ** ** | **Change in** | ** ** | **Spot**     | ** ** | **Operating Income**      | ** ** |
| ** **  | ** ** | **(in millions)** | ** ** | **Units**  | ** ** | **Price**          | ** ** | **Price(2)** | ** ** | **(in millions)**         | ** ** |
| Corn        |       |                   | 3.6        |       |       | bushels            |       | 10.0%        |       |                           | $          | 3.92 |   |   | $1.4 |   |
| Natural Gas |       |                   | 0.98       |       |       | MMBtu              |       | 10.0%        |       |                           | $          | 7.5 |   |   | $0.7 |   |
| Ethanol     |       |                   | 39.0       |       |       | gallons            |       | 10.0%        |       |                           | $          | 2.30 |   |   | $9.0 |   |

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(1)             Thevolume of corn is based on the assumption that we will enter into forwardcontracts for 75% of our estimated current 14.4 million bushel annualrequirement. The volume of natural gas is based on the assumption that we willenter into forward contracts for 11% of our estimated 1,100,000 MMBtu annualrequirement. The volume of ethanol is based on the current aggregate capacityof the Aberdeen and Huron plants. We expect that as our production capacityincreases, we will be exposed to additional market risk with respect to corn,natural gas and ethanol prices.

(2)              Current spot pricesinclude the CBOT price per gallon of ethanol and the price per bushel of cornas of March 27, 2007 and NYMEX price per MMBtu of natural gas as of March 27,2007.

**INTEREST RATE /FOREIGN EXCHANGE RISK**

Our future earnings may be affected by changes ininterest rates due to the impact those changes have on our interest expense onborrowings under our credit facility. As of March 31, 2007, we had $66.2million 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 ofour purchases are denominated in U.S. dollars.

**IMPACT OFINFLATION**

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

**OFF-BALANCE SHEETARRANGEMENTS**

We have no off-balance sheet arrangements.

**GOVERNMENT PROGRAMS, TAX CREDITS AND TAX INCREMENTFINANCING**

The State of South Dakota pays an incentive tooperators 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 $1million per year. The amounts are dependent on annual allocations by the Stateof South Dakota and the number of eligible plants. HGF generally receivedpayment between $700,000 and $800,000 for the Huron plant per year and expectsthis incentive to terminate for the plant in 2011.

The State of South Dakota has depleted all fundsavailable for its fiscal year ended June 30, 2007, and therefore no relatedreceivable has been recorded in our financial statements. This incentiveterminated for the Aberdeen plant in 2004 and we do not expect to receive thisincentive for the Aberdeen plant expansion.

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

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**ITEM 3.**   CONTROLS AND PROCEDURES

As of the end of theperiod covered by this report, we conducted an evaluation, under thesupervision and with the participation of our chief executive officer and chieffinancial officer, of our disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on thisevaluation, our chief executive officer and chief financial officer concludedthat our disclosure controls and procedures are effective to ensure thatinformation required to be disclosed by us in reports that we file or submitunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in Securities and Exchange Commission rules andforms. There were no changes in our internal control over financial reportingduring our most recently completed fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

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**PART II. ** OTHERINFORMATION

**ITEM 1.**** ****LEGALPROCEEDINGS**

None.

**ITEM 2.****  ****UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

None.

**ITEM 3.****  ****DEFAULTS UPON SENIOR SECURITIES**

Not applicable.

**ITEM 4.****  ****SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS**

None.

**ITEM 5.****  ****OTHER INFORMATION**

None.

**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         |       | Credit Agreement by and Between HGF Acquisition, LLC  and Kruse Investment Company, Inc. dated February 12, 2007. |       | Incorporated by  Reference (3) |
| 10.2         |       | Security Agreement between HGF Acquisition, LLC and  Kruse Investment Company, Inc. dated February 12, 2007.      |       | Incorporated by  Reference (4) |
| 10.3         |       | Note Purchase Agreement between the Registrant and  Ethanol Investment Partners, LLC dated April 20, 2007.        |       | Incorporated by  Reference (5) |
| 10.4         |       | Form of 15% Subordinated Convertible Promissory Note  to be issued to Ethanol Investment Partners, LLC.           |       | Incorporated by  Reference (6) |

 

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| 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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(1)             Incorporatedherein by reference to Exhibit 2.1 to the Registrant’s Current Report onForm 8-K, filed on November 8, 2006 (File No. 333-125335).

(2)             Incorporatedherein by reference to Exhibit 2.2 to the Registrant’s Current Report onForm 8-K, filed on November 8, 2006 (File No. 333-125335).

(3)             Incorporatedherein by reference to Exhibit 10.1 to the Registrant’s Registration Statementon Form 8-K (Registration No. 333-137299), filed with the Commission onFebruary 16, 2007.

(4)             Incorporatedherein by reference to Exhibit 10.2 to the Registrant’s Registration Statementon Form 8-K (Registration No. 333-137299), filed with the Commission onFebruary 16, 2007.

(5)             Incorporatedherein by reference to Exhibit 4.1 to the Registrant’s Registration Statementon Form 8-K (Registration No. 333-137299), filed with the Commission on April26, 2007.

(6)             Incorporatedherein by reference to Exhibit 4.2 to the Registrant’s Registration Statementon Form 8-K (Registration No. 333-137299), filed with the Commission on April26, 2007.

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. 
|                    | ** ** | **ADVANCED BIOENERGY, LLC**                  |
|--------------------|------------|----------------------------------------------|
|               | ** ** | ** **                                   |
|               | ** ** | ** **                                   |
| Date: May 15, 2007 | By:        | */s/ Revis L Stephenson III*                 | * * |
|               |       | Revis L. Stephenson III                      |
|               |       | Chairman and Chief Executive Officer         |
|               |       | (Principal Executive Officer)                |
|               |       |                                         |
| Date: May 15, 2007 | By:        | */s/ Richard Peterson*                       | * * |
|               |       | Richard Peterson                             |
|               |       | Chief Financial Officer                      |
|               |       | (Principal Financial and Accounting Officer) |

 

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