**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

** **

**FORM10-QSB**

 

QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:   **DECEMBER 31, 2006**

Commission File Number:000-52421

 

**ADVANCED BIOENERGY, LLC**

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

 

| **Delaware**                     |   | **10201  Wayzata Boulevard, Suite 250** |   | **20-2281511**       |
|----------------------------------|--------|-----------------------------------------|--------|----------------------|
| (State or Other  Jurisdiction of |   | **Minneapolis,  Minnesota 55305**       |   | (I.R.S. Employer     |
| Incorporation or  Organization)  |   | **(877)  651-1166**                     |   | Identification  No.) |
|                             |   | (Address, including zip code, and       |   |                 |
|                             |   | telephone number, including area code,  |   |                 |
|                             |   | of Principal Executive Offices)         |   |                 |

 

 

Check whether the issuer (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes þNo o

 

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

 

Indicate the number of units outstanding of each ofthe issuer’s classes of common equity, as of the latest practicable date:  8,613,481 membership units outstanding as ofFebruary 5, 2007.

 

Transitional Small Business Disclosure Format (checkone):  Yes  o  No  þ

 

 

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**ADVANCEDBIOENERGY, LLCQUARTERLY PERIOD ENDED DECEMBER 31, 2006Index**
| PART  I. FINANCIAL INFORMATION |   |                                                                                                               |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|
| Item  1.                       |   | Financial  Statements                                                                                              |   |   |
|                           |   | Condensed Consolidated Balance Sheets                                                                              |   |   |
|                           |   | Condensed Consolidated Statements of Operations                                                                    |   |   |
|                           |   | Condensed Consolidated Statements of Cash Flows                                                                    |   |   |
|                           |   | Condensed Consolidated Statement of Changes in Members’  Equity                                               |   |   |
|                           |   | Notes to Condensed Consolidated (Unaudited) Financial  Statements                                                  |   |   |
| Item 2.                        |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations and Plan of Operations |   |   |
| 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               |   |                                                                                                               |   |
|                           |   |                                                                                                               |   |   |

 

 

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**PART I.  FINANCIALINFORMATION**

**Item 1.  FinancialStatements**

**ADVANCEDBIOENERGY, LLC & SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**

**(dollars inthousands)**
| ** **                                  | ** ** | **December 31,** | ** **  | ** **             | ** ** |
|---------------------------------------------|------------|-----------------------|-------------|------------------------|------------|
| ** **                                  | ** ** | **2006**              | ** **  | **September 30,** | ** ** |
| ** **                                  | ** ** | **(Unaudited)**       | ** **  | **2006**               | ** ** |
| **Assets**                                  |       |                  |        |                   |       |
| Current Assets                              |       |                  |        |                   |       |
| Cash and cash  equivalents                  |       | $                     | 7,763       |                   | $          | 10,814 |   |
| Accounts  Receivable:                       |       |                  |        |                   |       |
| Trade accounts  receivables                 |       | 3,286                 |        | —                 |       |
| Due from broker                             |       | 5,995                 |        | —                 |       |
| Other                                       |       | 257                   |        | 152                    |       |
| Inventories                                 |       | 3,000                 |        | —                 |       |
| Derivative  financial instruments           |       | 6,121                 |        | —                 |       |
| Prepaid expenses                            |       | 481                   |        | 130                    |       |
| **Total  current assets**                   | ** ** | **25,903**            | ** **  | **11,096**             | ** ** |
| ** **                                  |       |                  |        |                   |       |
| **Other Assets**                            |       |                  |        |                   |       |
| Restricted cash  held in escrow             |       | 7,848                 |        | —                 |       |
| Cash held for  plant construction           |       | —                |        | 32,500                 |       |
| Financing and  deferred offering costs, net |       | 1,584                 |        | 1,220                  |       |
| Investments                                 |       | 633                   |        | —                 |       |
| Intangible                                  |       | 2,812                 |        | 2,812                  |       |
| Goodwill                                    |       | 15,925                |        | —                 |       |
| Other assets                                |       | 329                   |        | 66                     |       |
| Property and equipment  , net               |       | 127,427               |        | 39,909                 |       |
| **Total Assets**                            | ** ** | **$**                 | **183,461** | ** **             | **$**      | **87,603** | ** ** |

** **

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** **
| ** **                                                  | ** ** | **December 31,** | ** **  | ** **             | ** ** |
|-------------------------------------------------------------|------------|-----------------------|-------------|------------------------|------------|
| ** **                                                  | ** ** | **2006**              | ** **  | **September 30,** | ** ** |
| ** **                                                  | ** ** | **(Unaudited)**       | ** **  | **2006**               | ** ** |
| **Liabilities  and Members’ Equity**                   |       |                  |        |                   |       |
| Current  Liabilities                                        |       |                  |        |                   |       |
| Accounts payable                                            |       | $                     | 23,843      |                   | $          | 15,681 |   |
| Accrued expenses                                            |       | 819                   |        | 372                    |       |
| Derivative financial instruments                            |       | 4,257                 |        | —                 |       |
| Current portion of long-term debt                           |       | 2,250                 |        | —                 |       |
| **Total current liabilities**                               | ** ** | **31,169**            | ** **  | **16,053**             | ** ** |
|                                                        |       |                  |        |                   |       |
| Long-term debt                                              |       | 45,750                |        | 7,000                  |       |
| Minority  Interest                                          |       | 8,233                 |        | —                 |       |
| ** **                                                  |       |                  |        |                   |       |
| **Members’  Equity**                                   |       |                  |        |                   |       |
| Members’  capital, no par value, authorized 20,000,000 |       |                  |        |                   |       |
| Units, 8,613,481 and 7,165,600 units outstanding at         |       |                  |        |                   |       |
| December 31, 2006 and September 30, 2006,  respectively.    |       | 95,852                |        | 66,821                 |       |
| Retained earnings  (deficit)                                |       | 2,635                 |        | (2,033                 | )          |
| Deferred  compensation                                      |       | (178                  | )           | (238                   | )          |
| ** **                                                  | ** ** | ** **            | ** **  | ** **             | ** ** |
| **Total  Liabilities and Members’ Equity**             | ** ** | **$**                 | **183,461** | ** **             | **$**      | **87,603** | ** ** |

 

See notes to condensed consolidated financialstatements.

 

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**ADVANCEDBIOENERGY, LLC & SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**
| ** **                                      | ** ** | **Three Months Ended December 31,**                         | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                                                        | ** ** | **2005** | ** ** |
| ** **                                      | ** ** | **(dollars in thousands, except per share data)** | ** ** |
| **Net Sales**                                   |       |                                                                            |       |   |   |
| Ethanol and  related products                   |       | $                                                                               | 10,237     |   | $ | — |   |
| Other                                           |       | 215                                                                             |       | 12 |   |
| **Total Net Sales**                             | ** ** | **10,452**                                                                      | ** ** | **12** | ** ** |
| Cost of goods sold                              |       | 2,774                                                                           |       | — |   |
| **Gross profit**                                | ** ** | **7,678**                                                                       | ** ** | **12** | ** ** |
| Selling, general and  administrative            |       | 2,516                                                                           |       | 347 |   |
| **Operating  income (loss)**                    | ** ** | **5,162**                                                                       | ** ** | **(335** | **)** |
| **Other income (expense):**                     |       |                                                                            |       |   |   |
| Interest income                                 |       | 357                                                                             |       | — |   |
| Interest expense                                |       | (476                                                                            | )          | (19 | ) |
| **Net income (loss) before  minority interest** | ** ** | **5,043**                                                                       | ** ** | **(354** | **)** |
| Minority interest                               |       | (375                                                                            | )          | **—** | ** ** |
| **Net income (loss)**                           | ** ** | **$**                                                                           | **4,668**  | ** ** | **$** | **(354** | **)** |
|                                            |       |                                                                            |       |   |   |
| Basic Weighted Average  Units Outstanding       |       | 7,883,038                                                                       |       | 499,167 |   |
| Dilutive Weighted  Average Units Outstanding    |       | 7,933,874                                                                       |       | 499,167 |   |
| Income (loss) per Unit  — Basic            |       | $                                                                               | 0.59       |   | $ | (0.71 | ) |
| Income (loss) per Unit — Diluted           |       | $                                                                               | 0.59       |   | $ | (0.71 | ) |

 

See notes to condensed consolidated financialstatements.

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**ADVANCED BIOENERGY, LLC &SUBSIDIARIES**

**CondensedConsolidated Statements of Changes in Members’ Equity**

**For the period from September 30,2006 to December 31, 2006**

 
| ** **                                                                        | ** ** | **Members' Capital** | ** ** | **Retained Earnings  (Deficit)** | ** ** | **Deferred  Compensation** | ** ** | **Total Members'  Equity** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------|------------|---------------------------------------|------------|----------------------------|------------|---------------------------------|------------|
| ** **                                                                        | ** ** | ** **                | ** ** | ** **                            | ** ** | ** **                 | ** ** | ** **                      | ** ** |
| **MEMBERS' EQUITY - September 30,  2006**                                         | ** ** | **$**                     | **66,821** | ** **                            | **$**      | **(2,032**                 | **)**      | **$**                           | **(238**   | **)** | **$** | **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                                            |       | —                    |       | —                                |       | 59                         |       | 59                              |       |
|                                                                              |       |                      |       |                                  |       |                       |       |                            |       |
| Unit  compensation expense                                                        |       | 73                        |       | —                                |       | —                     |       | 73                              |       |
|                                                                              |       |                      |       |                                  |       |                       |       |                            |       |
| Net income                                                                        |       | —                    |       | $                                     | 4,668      |                       | —     |                            | 4,668      |   |
|                                                                              |       |                      |       |                                  |       |                       |       |                            |       |
| **MEMBERS' EQUITY - December 31, 2006**                                           | ** ** | **$**                     | **95,852** | ** **                            | **$**      | **2,636**                  | ** ** | **$**                           | **(179**   | **)** | **$** | **98,308** | ** ** |

 

See notes to condensed consolidated financial statements.

 

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**ADVANCEDBIOENERGY, LLC & SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**
| ** **                                                                                          | ** ** | **Three Months Ended**     | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                          | ** ** | **December 31,**                | ** ** |
| ** **                                                                                          | ** ** | **2006**                             | ** ** | **2005** | ** ** |
| ** **                                                                                          | ** ** | **(Dollars in Thousands)** | ** ** |
| Cash Flows from  Operating Activities                                                               |       |                                 |       |   |   |
| Net income  (loss)                                                                                  |       | $                                    | 4,668      |   | $ | (354 | ) |
| Adjustments to  reconcile net income (loss) to net cash (used in) operating activities:             |       |                                 |       |   |   |
| Depreciation                                                                                        |       | 847                                  |       | 3 |   |
| Services  exchanged for membership units                                                            |       | 897                                  |       | — |   |
| Consulting  services exchanged for membership units                                                 |       | 60                                   |       | 208 |   |
| Unit  compensation expense                                                                          |       | 73                                   |       | — |   |
| Unrealized gain  on derivative financial instruments                                                |       | 1,561                                |       | — |   |
| Minority  Interest of net income of subsidiary                                                      |       | 375                                  |       | — |   |
| Changes in  working capital components net of effects of acquisition of Heartland Grain  Fuels, L.P |       |                                 |       |   |   |
| (Increase)                                                                                          |       |                                 |       |   |   |
| Receivables                                                                                         |       | (6,669                               | )          | — |   |
| Inventories                                                                                         |       | (1,098                               | )          | — |   |
| Prepaid Expenses                                                                                    |       | (219                                 | )          | 15 |   |
| Decrease                                                                                            |       |                                 |       |   |   |
| Accounts payable                                                                                    |       | (96                                  | )          | (124 | ) |
| Accrued expenses                                                                                    |       | (569                                 | )          | 19 |   |
| **Net  cash (used in) operating activities**                                                        |       | (3,292                               | )          | (230 | ) |
| Cash Flows from  investing Activities                                                               |       |                                 |       |   |   |
| Purchase of land  options and deposits                                                              |       | (263                                 | )          | — |   |
| Purchase of  Heartland Grain Fuels, LP, net of cash required                                        |       | (6,924                               | )          |   |   |
| Purchase of  property and equipment                                                                 |       | (3,149                               | )          | (121 | ) |
| Payments for  construction in progress                                                              |       | (25,043                              | )          |   |   |
| Decrease in cash  for plant construction and cash held in escrow                                    |       | 32,446                               |       | — |   |
| **Net  used in investing activities**                                                               |       | (2,933                               | )          | (121 | ) |
| Cash Flows from  financing activities                                                               |       |                                 |       |   |   |
| Proceeds from  long-term debt                                                                       |       | 3,448                                |       | — |   |
| Payment of  deferred offering and financing costs                                                   |       | (274                                 | )          | (188 | ) |
| **Net  cash provided by (used in) financing activities**                                            |       | 3,174                                |       | (188 | ) |
| **Net  (decrease) in cash and cash equivalents**                                                    |       | (3,051                               | )          | (539 | ) |
| Cash and Cash  Equivalents                                                                          |       |                                 |       |   |   |
| Beginning                                                                                           |       | 10,814                               |       | 894 |   |
| Ending                                                                                              |       | $                                    | 7,763      |   | $ | 355 |   |

 

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** **
| **Supplemental  Disclosure of Non Cash Investing and Financing Actvities** |   |   |   |   |   |
|----------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Accounts payable incurred for deferred offering and  financing costs       |   | $      | 335    |   | $      | 64 |   |
| Membership units issued for acquisition of assets                          |   | $      | 28,061 |   |   |   |
| Accounts payable incurred for construction in  process                     |   | $      | 18,483 |   | $      | 129 |   |
| Financing costs amortized to construction in  progress                     |   | $      | 47     |   |   |   |
| 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     |   |
| **Supplemental  Disclosure of Cash Flow Information:**                     |   |   |   |   |   |
| Cash paid for  interest, including interest capitalized of $118            |   | $      | 794    |   |   |   |

 

See notes to condensed consolidated financialstatements.

 

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**ADVANCEDBIOENERGY, LLC & SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)**

**1.**   Organizationand Significant Accounting Policies

The accompanying condensed consolidated financialstatements of Advanced BioEnergy, LLC (the “Company”) and its subsidiaries asof December 31, 2006 and for the three months ended December 31, 2006 and 2005are unaudited and reflect all adjustments (consisting only of normal recurringadjustments) which are, in the opinion of management, necessary for a fairpresentation of the financial position and operating results for the interimperiods.  The interim financial statements should be read in conjunctionwith the audited financial statements and notes thereto, contained in theCompany’s Annual Report on Form 10-KSB for the year ended September 30,2006.  The results of operations for the three months endedDecember 31, 2006 are not necessarily indicative of the results for thefiscal 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 income (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”) and the majorityinterest in both Heartland Grain Fuels LP (“HGF”) and  Dakota Fuels, Inc. HGF is a Delaware limitedpartnership formed in 1991.  ABE acquireda 53.315% ownership interest in HGF on November 8, 2006  (See Note 2). All significant intercompanyaccount balances and transactions have been eliminated.  The operations of HGF have been included inthe these financial statements from the time of the acquisition. Prior to theacquistion of HGF, the Company was a development stage company.

The Company was organized to build ethanol plants andundertake other biofuel projects. Construction of a 100 million gallon per yearethanol plant near Fairmont, Nebraska is under way and is expected to becompleted in August 2007. A 100 million gallon per year ethanol plant tobe located near Argos, Indiana is in the design stage, and a 100 million gallonper year ethanol plant to be located near Northfield, Minnesota is in thedevelopment stage.

**AccountingEstimates**

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

**Restricted CashHeld in Escrow**

In connection with the purchase of HGF, the cashportion of the second closing has been placed in escrow.  Any interest income earned is being added tocash held in escrow balance.

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**RevenueRecognition**

Revenue from the production of ethanol and relatedproducts is recorded when title transfers to customers.  Ethanol and related products are generallyshipped free on board (FOB) shipping point. Collectibility of revenue is reasonably assured based on historicalevidence of collectibility between the Company and its customers.  Interest income is recognized as earned.  Shipping costs billed to customers are includedgross in revenue and cost of sales.

In accordance with the Company’s agreements for themaketing and sale of ethanol and related products, commissions due to themarketers are deducted from the gross sale price at the time payment isremitted to the company. Ethanol and related product sales are recorded, net ofcommissions of approximately $  and nonefor the three months ended December 31, 2006 and 2005, respectively.

**Investments**

The Company has equity investments interest in threeprivate companies in unrelated industries. The Company’s interest represents less than 20% of the ownership of suchcompanies, and the Company has no financial obligations to such companies.  The investments are being accounted for underthe cost method of accounting and accordingly, unredeemed patronage dividendsreceived in the form of capital stock or other equities are added to theinvestment and distributions received from the investments are recorded as areduction in the investment account.

**Receivables**

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

**Inventories**

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

**Goodwill**

The Company records as goodwill the excess of purchaseprice over the fair value of the identifiable net assets acquired.  SFAS No. 142, Goodwill and Other IntangibleAssets, prescribes a two-step process for impairment testing of goodwill, whichis performed annually, as well as when an event triggering impairment may haveoccurred.  The first step tests forimpairment, while the second step, if necessary, measures the impairment.  No indicators of impairment were identifiedduring the three months ended December 31, 2006.

**Income (Loss) perUnit**

Basic and diluted income and (loss) per unit arecomputed using the weighted-average number of vested units outstanding duringthe period. Unvested units and units held in escrow are considered unitequivalents and are included in diluted income per unit.  For the three

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months ended December 31, 2005 unvested units andunits held in escrow have not been included in the computation of diluted lossper unit as their effect would be anti-dilutive.

**DerivativeInstruments**

The Company has entered into derivative contracts tohedge the Company’s exposure to price risk related to forecasted corn purchasesand forecasted ethanol sales.  Thesederivative contracts are to be accounted for under Statement of FinancialAccounting Standard (SFAS) No. 133, “Accounting for Derivative Instrumentsand Hedging Activities.” SFAS No. 133 establishes accounting and reportingstandards for derivative instruments, including certain derivative instrumentsembedded in other contracts, and for hedging activities. It requires that anentity recognize all derivatives as either assets or liabilities in the statementof financial position and measure those instruments at fair value. If certainconditions are met, a derivative may be specifically designated as (a) ahedge of the exposure to changes in the fair value of a recognized asset orliability or an unrecognized firm commitment, (b) a hedge of the exposureto variable cash flows of a forecasted transaction, or (c) a hedge of theforeign currency exposure of a net investment in a foreign operation, anunrecognized firm commitment, an available-for-sale security, or aforeign-currency-denominated forecasted transaction.

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 unrealizedgains of $1.9 million related to derivative contracts recorded on the balancesheet as of December 31, 2006.  There wereno derivative as of December 31, 2005.

**Fair value offinancial instruments**

Financial instruments include cash and cashequivalents, receivables, accounts payable, accrued expenses, long-term debtand derivative instruments.  Managementbelieves the fair value of each of these instruments approximates theircarrying value in the balance sheet as of the balance sheet date.  The fair value of derivative instruments isbased on quoted market price and the fair value of other current financialinstruments is estimated to approximate carrying value due to the short-termnature of these instruments.  The fairvalue of the long-term debt is estimated based on anticipated interest rateswhich management believes would currently be available to the Company forsimilar issues of debt, taking into account the current credit risk of theCompany and the other market factors.

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**Recently Issued Accounting Standards**

In July 2006, the FASB issued InterpretationNo. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes, anInterpretation of SFAS No. 109.” FIN 48 creates a single model to addressuncertainty in tax positions and clarifies the accounting for income taxes byprescribing the minimum recognition threshold a tax position is required tomeet before being recognized in the financial statements. FIN 48 also providesguidance on derecognition, measurement, classification, interest and penalties,accounting in interim periods, disclosure and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006.  The company is currently assessing the impactof adoption of FIN 48.

In September 2006, the FASB issued SFAS No. 157, “FairValue Measurements.” SFAS No. 157 establishes a framework for measuringfair value in generally accepted accounting principles, clarifies thedefinition of fair value within that framework, and expands disclosures aboutthe use of fair value measurements. SFAS No. 157 is intended to increaseconsistency and comparability among fair value estimates used in financialreporting. As such, SFAS No. 157 applies to all other accountingpronouncements that require (or permit) fair value measurements, except for themeasurement of share-based payments. SFAS No. 157 does not apply toaccounting standards that require (or permit) measurements that are similar to,but not intended to represent, fair value. Fair value, as defined in SFASNo. 157, is the price to sell an asset or transfer a liability andtherefore represents an exit price, not an entry price. The exit price is theprice in the principal market in which the reporting entity would transact.Further, that price is not adjusted for transaction costs. SFAS No. 157 iseffective for fiscal years beginning after November 15, 2007, and interimperiods within those fiscal years. SFAS No. 157 will be appliedprospectively as of the beginning of the fiscal year in which it is initiallyapplied. The Company is currently assessing the impact of adoption of SFASNo.157.

**2.**   Acquisitionof HGF

On November 8, 2006, the Company acquired 53.315% ofthe partnership interest in HGF. The results of HGF’s operations have beenincluded in the condensed consolidated financial statements since that date.HGF owns and operates a nine million gallons per year dry mill corn-processingethanol plant in Aberdeen, South Dakota, the Aberdeen plant, and a thirtymillion gallons per year dry mill corn processing ethanol plant in Huron, SouthDakota, the Huron plant.  The Companyalso has an agreement to purchase, subject to certain closing conditions, theremaining interest in the limited partnership of HGF, which would result in theCompany owning 100% of the partnership interest in HGF.

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 perunit, and direct costs of the acquisition of $430,000. There is no establishedmarket for the Company’s units.  The perunit fair value for the units issued in the transaction was determined by theCompany’s board of directors 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

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effective date of the acquisition and the results ofoperations have been included in the unaudited condensed consolidatedstatements of operations since the acquisition date. In accordance with SFASNo. 142, “Goodwill and Other Intangible Assets,” goodwill recorded as aresult of the acquisition will be subject to an annual impairment test and willnot be amortized. The allocation of any identifiable intangible assets, goodwilland other amounts of HGF has not been finalized and any required adjustmentswill be recorded as necessary when the information becomes available. Thedetermination of final amounts is subject to receipt of a third party appraisaland other factors.

The followingtable summarizes the estimated preliminary fair values of the assets acquiredand liabilities 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                                                       |   | 15,925                                     |   |   |
|                                                           |   |                                       |   |   |
| Total assets acquired                                          |   | 88,454                                     |   |   |
| Current liabilities                                            |   | (8,645                                     | )      |   |
| Long-term debt                                                 |   | (34,552                                    | )      |   |
| Minority interest                                              |   | (7,858                                     | )      |   |
|                                                           |   |                                       |   |   |
| Fair value of  assets and liabilities assumed and accrued, net |   | $                                          | 37,399 |   |   |

 

We paid approximately $430,000 in acquisition relatedcosts, which included legal and accounting fees, and other related costs, allof these costs were paid as of December 31, 2006.

 

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The following table presents our consolidated resultsof operations on an unaudited proforma basis as if the acquisitions had takenplace at the beginning of the periods presented (in thousands, except per shareamounts):
|                                               |   | **Three Months Ended  December 31** |       |     |
|----------------------------------------------------|--------|----------------------------------------------------|------------|----------|
|                                               |   | **2006**                                           | ** ** | **2005** |   |   |
|  Revenues                                     |   | $                                                  | 18,596     |     | $ | 9,263 |   |   |
|  Net income                                   |   | $                                                  | 5,283      |     | $ | 14 |   |   |
|                                               |   |                                               |       |     |   |   |
|  Basic earnings per unit                      |   | $                                                  | 0.62       |     | $ | 0.01 |   |   |
|  Basic weighted average units outstanding     |   | 8.4                                                |       | 1.9      |   |   |
|  Diluted earnings per unit                    |   | $                                                  | 0.62       |     | $ | 0.01 |   |   |
|  Dilutive weighted average  units outstanding |   | 8.5                                                |       | 1.99     |   |   |

 

The unaudited pro forma data gives effect to actualoperating results prior to the acquisitions. No effect has been given to costreductions or operating synergies in this presentation. As a result, theunaudited pro forma results of operations are for comparative purposes only andare not necessarily indicative of the results that would have been obtained ifthe acquisition had occurred as of the beginning of the periods presented orthat may occur in the future.

**3.**   Inventories

A summary of inventories at December 31, 2006 andSeptember 30, 2006 is as follows (in thousands):
| ** **         | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|--------------------|------------|-----------------------|------------|------------------------|------------|
| ** **         | ** ** | **2006**              | ** ** | **2006**               | ** ** |
| ** **         | ** ** | **(unaudited)**       | ** ** | ** **             | ** ** |
| Supplies and parts |       | 841                   |       | —                 |       |
| Chemicals          |       | 152                   |       | —                 |       |
| Work in process    |       | 1,177                 |       | —                 |       |
| Ethanol            |       | 736                   |       | —                 |       |
| Distrillers grain  |       | 94                    |       | —                 |       |
| Total              |       | $                     | 3,000      |                   | $          | — |   |
|                    |            |                       |            |                        |            |  |  |

 
| ** **                  | ** ** | **December 31, 2006** | ** ** | **September 30, 2006** | ** ** |
|-----------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **(unaudited)**                 | ** ** | **(unaudited)**                  | ** ** |
| Land                        |       | 1,701                           |       | 1,460                            |       |
| Buildings                   |       | 5,577                           |       | —                           |       |
| Process equipment           |       | 42,491                          |       | —                           |       |
| Office equipment            |       | 527                             |       | 324                              |       |
| Construction in process     |       | 78,009                          |       | 38,156                           |       |
|                        |       | 128,305                         |       | 39,940                           |       |
| Accumulated  depreciation   |       | (878                            | )          | (31                              | )          |
| Property and equipment, net |       | 127,427                         |       | 39,909                           |       |

 

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**4:**   LongTerm Debt

Long-term debt consists of the following at December31, 2006 and September 30, 2006 (in thousands):
| ** **                                                                                                                                                                            | ** ** | **December 31,  2006** | ** ** | **September 30,  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                            | ** ** | ** **                  | ** ** | ** **                   | ** ** |
| Subordinate  Exempt Facilities Revenue Bonds                                                                                                                                          |       | $                           | 7,000      |                         | $          | 7,000 |   |
|                                                                                                                                                                                  |       |                        |       |                         |       |
| Term commitment,  revolving term loan with a quarterly commitment reduction of $750,000  starting September 1, 2011, with the balance due on June 1, 2013 bearing  interest at 7.708% |       | 6,750                       |       | —                       |       |
|                                                                                                                                                                                  |       |                        |       |                         |       |
| Term commitment,  revolving term loan with a quarterly commitment reduction of $750,000  starting May 1, 2007, with the balance due on June 1, 2013 bearing interest  at 8.0%         |       | 34,250                      |       | —                       |       |
|                                                                                                                                                                                  |       |                        |       |                         |       |
|                                                                                                                                                                                  |       | 48,000                      |       | 7,000                        |       |
| Less amounts due  within one year                                                                                                                                                     |       | (3,000                      | )          |                         |       |
|                                                                                                                                                                                  |       |                        |       |                         |       |
| Long-term debt                                                                                                                                                                        |       | $                           | 45,000     |                         | $          | 7,000 |   |

 

Theestimated maturities of long-term debt at December 31, 2006 are as follows (inthousands):

| 2007                  |   | $      | 2,250  |   |
|-----------------------|--------|--------|--------|--------|
| 2008                  |   | 3,000  |   |
| 2009                  |   | 3,000  |   |
| 2010                  |   | 815    |   |
| 2011                  |   | 5,315  |   |
| Thereafter            |   | 30,620 |   |
|                  |   |   |   |
| Total long-term  debt |   | $      | 48,000 |   |

 

Term notes are secured by a first mortgage lien infavor of CoBank, ACB covering real property owned by HGF, together with asecurity interest in favor of covering substantially all personal propertyowned by HGF, including receivables, inventories and equipment subject toperfected security interests.  HGF alsohas an equity investment of approximately $500,000 in CoBank, ACB atDecember 31, 2005, which is held by CoBank, ACB as additional collateral.

Restrictive covenants in the loan agreements providefor, among other things, (1) restrictions on incurring additionalindebtedness, (2) restrictions on the ability to mortgage, pledge, assignor grant security interest in any assets to any other party, (3) minimumworking

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capital balances of at least $3.5 million, except thatin determining current assets, any available commitment not considered due inthe next year may be included, (4) minimum net worth balances of at least$12.5 million, and (5) restrictions on scheduled payments made to lessorsduring each fiscal year.

The Company has $7.0 million of Subordinate ExemptFacilities Revenue Bonds outstanding under a subordinated loan and trustagreement with the County of Fillmore, Nebraska and Wells Fargo, N.A. The loanagreement is collateralized by the Nebraska plant assets.

The Company has agreed to repay the loan by makingloan payments to the issuer in an amount equal to the aggregate principalamount of the loan from time to time outstanding, and the premium, if any, andinterest thereon at maturity, upon redemption, upon acceleration, or whenotherwise payable. The Company’s obligation to make the loan payments under theloan and trust agreement is evidenced by its execution and delivery of apromissory note. The Company’s repayment of the loan and the security for theloan are subordinate to the Company’s senior loan and credit facility. Annualprincipal payments of $815,000 are required starting in December 2010through December 2016, with the remainder due December 2017.

**5.**   DebtFinancing

On February 17, 2006, the Company entered into a$79.5 million loan agreement with CoBank, a lending institution, consisting ofa $58.5 million term loan and a $21.0 million revolving term loan. In addition,the Company also received a $5.0 million revolving credit facility forfinancing eligible grain inventory and equity in Chicago Board of Trade futurespositions. The loan agreement is collateralized by substantially all the assetsof the Company. As of December 31, 2006, the Company has not drawn on theseloans.

The Company has assigned all rights and obligationsunder its loan agreements to ABE Fairmont. Immediately following suchassignment, the agreements were amended to extend the period during which ABEFairmont may draw down funds, to shorten the period for repayment and to extendthe period during which a prepayment fee would be owed.

The term loan has interest rate options of a base rateplus one-half percent, a fixed rate quoted by the lender or LIBOR plus 3.4% perannum. Advances are available until May 1, 2007 with principal payments tocommence on December 20, 2007 and quarterly thereafter with any remainingbalance due on September 20, 2014 at the latest.

The revolving loan has interest rate options of a baserate plus one-half percent, a fixed rate quoted by the lender or LIBOR plus3.4% per annum. The Company is required to pay a commitment fee on the dailyunused portion of the commitment at a rate of .0625% per annum. The loan iseffective through March 1, 2017.

The revolving credit facility has interest rateoptions of a base rate, a fixed rate quoted by the lender or LIBOR plus 3.1%per annum. The Company is required to pay a commitment fee on the daily unusedportion of the commitment at a rate of .25% per annum. The loan is effectivethrough March 1, 2008.

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Effective November 20, 2006, ABE Fairmont alsoentered into additional loan agreements, the effect of which is to provide anadditional $6.5 million term loan and an additional $4.0 million revolving termloan for construction of the Nebraska plant. The loan must be repaid in full onJune 1, 2009.

ABE Fairmont may select a rate of interest at CoBank’sannounced base rate plus 0.5%, a fixed rate to be quoted by CoBank, or at LIBORplus 3.4% per annum.

ABE Fairmont may select a rate of interest for therevolving credit facility at CoBank’s announced base rate, a fixed rate to bequoted by CoBank, or at LIBOR plus 3.1% per annum.

CoBank 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 CoBank,evidence of the issuance of all permits, acceptable insurance coverage andtitle commitment, the contribution of at least $49.1 million of equity (lessany tax increment financial 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 the $58.5 million revolvingterm loan as follows: 25 equal quarterly installments of $2,250,000 with thefirst installment due February 20, 2008 and the last installment dueFebruary 20, 2014, followed by a final installment in an amount equal tothe remaining unpaid principal balance on May 20, 2014. For each fiscalyear ending in 2007 through 2010, ABE Fairmont must pay an additional amountequal to the lessor of $6 million or 75% of its free cash flow, not to exceed$12 million in the aggregate for all such payments.

On the earlier of December 1, 2014 or six monthsfollowing complete repayment of the $58.5 million term loan, ABE Fairmont willbegin repayment of the $21.0 million loan in $5.0 million increments due everysix months. ABE Fairmont will repay the revolving credit facility the earlierof March 1, 2008 or 12 months after the date on which ABE Fairmont borrowsfunds.

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 except for each fiscal yearcommencing with the fiscal year ending September 30, 2007, ABE Fairmontmay make a distribution of 50% of ABE Fairmont’s net profit for the applicablefiscal year if (i) the lender has received audited financial statements for theapplicable fiscal year and (ii) ABE Fairmont has made the requiredadditional cash flow payment for the fiscal year. ABE Fairmont must also be incompliance with all financial ratio requirements and loan covenants before andafter any distributions to the Company.

**6.**   Majorcustomer and Commitments

HGF also entered into a marketing agreement withAventine, where Aventine  is required topurchase all of the ethanol produced at HGF’s South Dakota plants at a priceper gallon determined through a pooling of HGF’s and other producers’ ethanolthat is sold by Aventine to third parties, less a commission based on the netpooled price.  Sales for the three monthsended

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December 31, 2006 and 2005 were approximately $16.4million and none, respectively.  Relatedaccounts receivable as of  December 31,2006 and 2005 was approximately $2.8 million and none, respectively. HGF is aparty to 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.

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.  Purchases for three months ended December 31,2006 and 2005 were approximately $10.8 million and none, respectively. Relatedaccounts payable as of  December 31, 2006and 2005 was approximately $1.3 million and none, respectively.

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

**7.**   Riskmanagement

The Company’s activities expose it to a variety ofmarket risks, including the effects of changes in commodity prices and interestrates.  These financial exposures aremonitored and managed by the Company as an integral part of its overallrisk-management program.  The Company’srisk management program focuses on the unpredictability of financial andcommodities markets and seeks to reduce the potentially adverse effects thatthe volatility of 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 to reduce it net position of merchandisable agricultural commodityinventories and forward cash purchase and sales contracts and uses exchangetraded futures contracts to reduce price risk. Exchange-traded futures contracts are valued at market price.  Changes in market price are recorded in costof goods sold or revenues.  At December31, 2006 and September 30, 2006 net unrealized gains of $1.9 million and none,respectively, are classified as derivative financial instruments on the balancesheets. Net realized and unrealized gains (losses) for the three months endedDecember 31, 2006 and 2005 included in revenue were $250,000 and none, andamounts included in cost of goods sold were $6.5 million and none,respectively.

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.

**8.Subsequent Event**

On February 7, 2007, ABE Northfield, LLC, our whollyowned subsidiary, entered into a lump-sum design-build agreement with Fagen,Inc. that sets forth the terms on which Fagen will construct a 100 milliongallons per year dry mill corn-processing ethanol plant to be located nearNorthfield, Minnesota.

**ITEM 2.****               ****MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND PLANOF OPERATION**

**Information regarding 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 below and in theother documents that we file with the Securities Exchange Commission, such asour Annual Report on Form 10-KSB for the year ended September 30, 2006 andour proposed registered securities offering on Form SB-2 (RegistrationStatement 333-137299) filed on February 7, 2007. As of the date of this form10QSB the Company’s SB-2 Registration Statement (Registration No. 333-137299)has not been declared effective by the Securities and Exchange Commission.These forward-looking statements reflect our view only as of the date of thisreport. We cannot guarantee future results, levels of activity, performance, orachievement. We do not undertake any obligation to update or correct anyforward-looking statements.

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**EXECUTIVEOVERVIEW**

*Business*

We are a Delaware limited liability company formed onJanuary 4, 2005 for the purpose of constructing and operating plants toproduce ethanol and distillers grains, as well as to operate other relatedbio-fuel businesses.  Since we onlyrecently became operational as a result of our acquisition of Heartland GrainFuels, LP (“HGF”) (see Note 2 to our Condensed Consolidated FinancialStatements), we do not yet have comparable income, production and sales datafor the three months ended December 31, 2006. Accordingly, we do not provide a comprehensivecomparison of our financial results between reporting periods in this10QSB.  If you undertake your own comparison of the first three months offiscal 2007, it is important 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. We are also planning to construct a 100 million gallonsper year dry mill corn-processing ethanol plant to be located near Argos,Indiana, known as the Indiana plant, a 100 million gallons per year dry millcorn-processing ethanol plant to be located near Northfield, Minnesota, knownas the Minnesota plant and a 40 million gallons per year dry millcorn-processing ethanol plant expansion in Aberdeen, South Dakota, known as theAberdeen plant expansion. We do not expect to generate any revenue from a plantuntil that plant is completely constructed and operational.

*Acquisition ofHeartland Grain Fuels, LP (HGF)*

On November 8, 2006, we closed on the acquisitionof approximately 53% of the ownership interests in HGF, and we have agreed topurchase the balance of such interests, subject to certain closing conditions.HGF owns two existing ethanol plants, the Aberdeen and Huron plants, and plansto expand the Aberdeen plant.

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 February 7, 2007, soil sub-surfacestabilization had begun at the expansion site, existing structures have beenrelocated to accommodate the expanded facilities, land has been acquired forthe expansion and utilities have been installed. The Aberdeen plant expansionis expected to be complete during the first calendar quarter of 2008.

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 14.8 million bushelsof corn per year upon completion of the Aberdeen plant expansion. HGF hasentered into a grain origination agreement with South Dakota Wheat Growers toprovide this corn.

HGF sellsthe ethanol it produces to Aventine Renewable Energy, Inc. (“Aventine”)pursuant to an ethanol marketing agreement. Under the terms of this agreement,Aventine is required to purchase all of the ethanol produced at HGF’s SouthDakota plants at a price per gallon determined through a pooling of HGF’s andother producers’ ethanol that is sold by Aventine to third parties, less acommission based on the net pooled price. This ethanol marketing agreement willexpire on November 30, 2008; however,

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theagreement automatically renews for successive one-year terms unless terminatedby either party upon one year’s prior written notice. Aventine distributes HGF’sethanol by truck and rail.

HGF is aparty to 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. DakotalandFeeds distributes HGF’s ethanol co-products by truck.

*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 inSeptember 2007. We expect the Nebraska plant will cost approximately$151.6 million to complete. This includes approximately $98.0 million (notincluding approximately $2 million allowance for change orders) to build theplant and an additional $51.6 million in other capital expenditures, start-upcosts, working capital and interest. We are still in the construction phase,and until the Nebraska plant is operational, we will generate no revenue fromthe Nebraska plant.

*Aberdeen PlantExpansion*

Based upon engineering specifications produced by ICM,the Aberdeen plant expansion will annually consume approximately 14.8 millionbushels of corn and annually produce approximately 40 million gallons of fuelgrade ethanol and  128,000 tons ofdistillers grains for animal feed. We currently estimate that construction willbe completed by the first quarter of 2008, which assumes we successfullycomplete the Company’s proposed offering as filed with the Securities andExchange Commission on Form SB-2 (Registration No. 333-137299) and obtain ourdebt financing, and all necessary permits, to complete the construction of theAberdeen plant expansion.

We expect the Aberdeen plant expansion will costapproximately $78.0 million to complete. This includes start-up costs, workingcapital and interest. We will generate no revenue from the Aberdeen plantexpansion until construction is completed. This 10-QSB should be read in conjunction with the Company’s proposedoffering as filed with the Securities and Exchange Commission on Form SB-2 (RegistrationNo. 333-137299) Registration Statement as amended.

*Indiana Plant*

Based upon engineering specifications produced by ICM,the Indiana plant will annually consume approximately 36 million bushels ofcorn and annually produce approximately 110 million gallons of fuel gradeethanol and 321,000 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 Company’s proposed offering as filedwith the 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$175.0 million to complete. This includes start-up costs, working capital andinterest. We are still in the development phase, and until the proposed Indianaplant is operational, we will generate no revenue from the Indiana

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plant.  This10-QSB should be read in conjunction with the Company’s Form SB-2 RegistrationStatement as amended.

*MinnesotaPlant*

Based upon engineering specifications, the Minnesotaplant will annually consume approximately 36 million bushels of corn andannually produce approximately 100 million gallons of fuel grade ethanol and321,000 tons of distillers grains for animal feed. We currently estimatethat it will take 14 to 16 months from the date that we begin construction,which assumes we successfully complete the Company’s proposed offering as filedwith the Securities and Exchange Commission on Form SB-2 (Registration No.333-137299) and obtain our additional equity and debt financing, and allnecessary permits, to complete the construction of the Minnesota plant. Weexpect the Minnesota plant will cost approximately $122.5 million toconstruct and have not yet determined the start-up costs for the Minnesotaplant. We are still in the early planning phase, and until the proposedMinnesota plant is operational, we will generate no revenue from the Minnesotaplant.

*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. If we decide to takeadvantage of one or more of these opportunities, we may use a portion of theequity from this offering, or we may issue additional equity, which coulddilute outstanding. Additionally, we may incur additional significant debtobligations in order to fund new construction or acquisitions. Any proposedadditional plants or businesses may also impose substantial additional demandson the time and attention of our directors and officers. If we decide to buildor acquire one or more additional plants or enter into other biofuelbusinesses, we may not be successful, which could lead to a decline in ourprofitability.

***Selected Proforma Financial Data***

 

The following unauditedpro forma condensed consolidated statements of income for the periods presentedare based on the historical financial statements of Advanced BioEnergy and HeartlandGrain Fuels. The unaudited pro forma consolidated financial statements giveeffect to the acquistion which closed on November 8, 2006. The unaudited proforma consolidated financial statements have been prepared using the purchasemethod of accounting as if the transaction had been completed as of thebeginning of the periods presented for purposes of the combined consolidatedstatements of income. 
|                                      | ** ** | **Proforma**                                            | ** ** |
|--------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                           | ** ** | **Three Months Ended December 31,** | ** ** |
| ** **                           | ** ** | **2006**                                                | ** ** | **2005** | ** ** |
| ** **                           | ** ** | **(unaudited)**                                         | ** ** | **(unaudited)** | ** ** |
|                                 |       |                                                    |       |   |   |
| (In thousands)                       |       |                                                    |       |   |   |
| Net sales                            |       | $                                                       | 18,596     |   | $ | 9,263 |   |
| Gross profit                         |       | 9,098                                                   |       | 1,028 |   |
| Gross profit%                        |       | 48.9                                                    | %          | 11.1 | % |
| Selling, general  and administrative |       | 2,620                                                   |       | 543 |   |
| Net Income                           |       | $                                                       | 5,283      |   | $ | 14 |   |

Three Months Ended December 31, 2006 Compared to ThreeMonths Ended December 31, 2005 

**Net sales**

Sales for the threemonths ended December 31, 2006 were $18.6 million, compared to $9.3 million forthe three months ended December 31, 2005, an increase of $9.3 million or 107%.The increase in sales was primarily the result of increased production at theHuron plant during the three months ended December 31, 2006 as a result of theexpansion. The Huron expansion was completed in August 2006 and resulted in anincrease to 30 million gallons from 12 million gallons. During the same periodethanol prices were approximately $0.33 cents per gallon higher during thefirst three months of 2006 compared to the same period in 2005. 

Sales from co-productsincreased $0.7 million, or 74%, to $1.7 million for the three months endedDecember 31, 2006 from $1.0 million for the three months ended December 31,2005. The increase in co-product sales was primarily the result of the Huron expansion.The selling price of co-product sales was effected by the weaker livestockprotein feed market due to an excess supply of soybean co-products whichoff-set the increase sales volume. 

**Gross profit**

Gross profit for threemonths ended December 31, 2006 was $9.1 million, compared to $1.0 million forthe three months ended December 31, 2005, an increase of $8.1 million or785%.  The increase is primarily due tothe realized and unrealized gains of $6.3 million resulting from the Company’sderivative financial instruments. Ethanol prices increased $0.33 for the periodending December 31, 2006 compared to the same period in 2005, which added thegross profit figure as well. 

Corn costs increased $7.1million, or 192%, to $10.8 million for the three months ended December 31, 2006from $3.7 million for the three months ended December 31, 2005. Corn costsrepresented 68.0% of cost of sales for the three months ended December 31, 2006and 48.3% of cost of sales for the three months ended December 31, 2005. Theincrease in corn costs was due to an increase in number and bushels purchasedas a result of the Huron expansion, as well as the fact that average corn costsincreased $1.36 per bushel for the first three months of 2006 compared to thesame period in 2005. 

Natural gas costsremained relatively flat when comparing 2006 to 2005.  Those costs were $2.3 million and accountedfor 15% of costs of sales for the three months ended December 31, 2006 and were$2.3 million and 29% of cost of sales for the three months ended December 31,2005.  Even though our natural gas volumeincreased due to the Huron expansion, that was offset entirely by a lower costper therm of natural gas in 2006 compared to 2005. 

The remaining $0.7million increase in cost of sales was largely due to increased depreciation,wages and benefits and denaturant costs in 2006 when compared to 2005 dueprimarily to the expansion of the Huron plant. 

Selling, General, andAdministration 

Selling, general, andadministration expenses increased approximately 2,077 million for the threemonths ended December 31,2006 due to compensation expense of approximately .9million related to units issued resulting from consulting agreements enteredinto the connection with the HGF acquisition. The remaining increase was due toadditional resources and related costs that ABE incurred from acquisition andcontinued increase in the HGF employee count. 

**PLAN OF OPERATIONTHROUGH DECEMBER 2007**

We expect to spend the period of time concluding inDecember 2007 focused primarily on operation of HGF’s Aberdeen and Huronplants, as well as expansion of the Aberdeen plant, plant construction for theNebraska plant, project capitalization, site development and plant constructionfor the Indiana plant, and project capitalization and site acquisition anddevelopment 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.

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As of February 11, 2007, the Company (including HGF)has 55 full-time employees and 1 part-time employee and anticipates addingapproximately 43 additional employees in connection with the commencement ofoperations at the Nebraska plant in September 2007. We also plan to hireadditional employees as our company expands.

**Debt Financing forthe Aberdeen Plant Expansion**

In the event HGF requires additional liquidity inorder to continue to fund the expansion of its Aberdeen facility prior to ourobtaining proceeds from the offering or completion of our acquisition of HGF,our wholly owned subsidiary, HGF Acquisition, has obtained a commitment fromKruse Investments for a $5 million loan due July 1, 2007 and secured byall of the ownership interests in HGF owned by HGF Acquisition. Dakota Fuels,the general partner of HGF, and the senior lender to HGF have agreed to permitHGF to borrow, and HGF Acquisition has agreed to loan the $5 millionobtained from the loan from Kruse Investments, on an unsecured basis,subordinate to Dakota Fuels and the senior lender to HGF.

We intend to use a portion of our proceeds from ourproposed registered securities offering on Form SB-2 (Registration Statement333-137299) filed on February 7, 2007 to repay this loan. As of the date ofthis form 10QSB the Company’s SB-2 Registration Statement (Registration No.333-137299) has not been declared effective by the Securities and ExchangeCommission.

**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 and/or local level;changes in federal ethanol tax incentives and the cost of complying withextensive environmental 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 producedin the state.

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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, theEnergy Policy Act of 2005 was signed into law containing a renewable fuelstandard, known as the RFS. The RFS is a national program that will ensure thatgasoline sold or introduced into commerce in the United States contains aparticular volume of renewable fuel. The program will apply to refineries,blenders, distributors and importers as appropriate, but will not restrict thegeographic areas in which renewable fuels may be used. The applicable volume ofrenewable fuel under the RFS will begin at 4 billion gallons in 2006 andincrease to 7.5 billion gallons by 2012. According to the Renewable FuelsAssociation, the Energy Policy Act is expected to lead to approximately $6billion in new investment in ethanol plants across the country. An increase inthe number of new plants will bring an increase in the supply of ethanol. Thus,while the Energy Policy Act may cause ethanol prices to increase in the shortterm due to additional demand, supply could outweigh the demand for ethanol inthe 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 flexiblefuel vehicles 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 metropolitanarea, Baton Rouge, Louisiana, the courts have sent the issue back to the EPAfor reconsideration as to whether the RFG requirement should apply to thatarea. In the future, the combination of additional supply, successful challengesto the application of the RFG program and stagnant or reduced demand may damageour ability to generate revenues and maintain positive cash flows.

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

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for the ethanol we produce, which could negativelyaffect our ability to sell our product and negatively 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 theendosperm of kernel for the production of ethanol. This technology has thecapability to reduce drying costs and the loading of volatile organiccompounds. The separated germ would also be available through this process forother uses such as high oil feeds or bio-diesel production. Each of these newtechnologies is currently in its early stages of development. There is noguarantee that either technology will be successful or that we will be able toimplement the technology 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, municipal solid waste and energy crops. This trend is driven bythe fact that cellulose-based biomass is generally cheaper than corn, andproducing ethanol from cellulose-based biomass would create opportunities toproduce ethanol in areas that are unable to grow corn. If an efficient methodof producing ethanol from cellulose-based biomass is developed, we may not beable to compete effectively. We do not believe it will be cost-effective toconvert the existing South Dakota plants or the ethanol plants we are proposingto build into plants that will use cellulose-based biomass to produce ethanol.If we are unable to produce ethanol as cost effectively as cellulose-basedproducers, our ability to generate revenue will be negatively impacted.

**LIQUIDITY ANDCAPITAL RESOURCES**

As of December 31, 2006, we have total assets ofapproximately $184.8 million consisting primarily of cash, prepaid expenses,deferred offering and financing costs and construction in progress. We havecurrent liabilities of approximately $33.3 million consisting primarily of ouraccounts payable and derivative Financial Instruments and long-term debt ofapproximately $45 million consisting of our tax-exempt and

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subordinated bonds and other debt financing. Since ourinception through December 31, 2006 we have retained earnings of approximately$2.6 million. Total members’ equity as of December 31, 2006 was approximately $98.3million. Prior to the acquisition of HGF, the Company was a development stagecompany. Prior to this most recent quarter , we have generated no revenue fromoperations. For the period from inception to September 30, 2006, we had anet loss of approximately $2.0 million, primarily due to start-up businesscosts and related professional fees.

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 believe the Minnesota plant will cost approximately$122.5 million to construct. We have not yet determined the constructionand start-up costs for the Minnesota plant. We believe we have sufficientequity, debt financing, government incentives and grants to complete theNebraska plant. We expect to require significant equity and debt financing tocomplete the Indiana and Minnesota plants and Aberdeen plant expansion.

**Senior CreditFacility for the Nebraska Plant**

Effective February 17, 2006, we entered into aloan agreement 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 us a $5.0 millionrevolving credit facility for financing eligible grain inventory and equity inChicago Board of Trade futures positions, which will not be effective until webegin operations. Farm Credit has appointed CoBank, ACB, to serve as its agentwith regard to these loans.

Effective November 10, 2006, we assigned all ourrights and obligations under the loan agreements described in the precedingparagraph to our wholly owned subsidiary, ABE Fairmont, LLC. Immediatelyfollowing this assignment, Farm Credit and ABE Fairmont amended thoseagreements to extend the period during which ABE Fairmont may draw down funds,to shorten the period for their repayment and to extend the period during whicha prepayment fee would be owed.

Effective November 20, 2006, ABE Fairmont andFarm Credit also entered into additional loan agreements, the effect of whichis to provide an additional $6.5 million term loan, known as term loan C, andan additional $4.0 million revolving term loan, known as term loan D forconstruction of the Nebraska plant. The terms and conditions of these loanagreements are substantially similar to those described above.

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 unusedportion of the grain inventory and futures revolving credit facility. ABEFairmont paid an origination fee of $72,500 to Farm Credit for term loan C. Acommitment fee at a rate of 0.625% per annum is payable on a monthly basis onthe unused portion of term loan D.

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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 $49.1 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 a final installment in an amount equal to the remaining unpaidprincipal balance on May 20, 2014. For each fiscal year ending in 2007through 2010, ABE Fairmont must pay an additional amount equal to the lesser of$6 million or 75% of its free cash flow, not to exceed $12 million in theaggregate for all of these cash flow payments.

On the earlier of December 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.

In November 2006, we assigned all of our right,title and interest in the Nebraska plant to ABE Fairmont. The loans owed toFarm Credit are secured by a first mortgage on all of ABE Fairmont’s realestate and a lien on all of ABE Fairmont’s personal property. ABE Fairmont hasagreed to purchase $1,000 worth of stock in Farm Credit Services of America,ACA that will also be pledged as security for the loans. If ABE Fairmontprepays any portion of term loan A or term loan B through a refinancing priorto July 1, 2009, ABE Fairmont will pay a prepayment charge of 3% of theamount prepaid in addition to certain surcharges. If ABE Fairmont prepays anyportion of term loan C or term loan D through a refinancing prior toJune 1, 2009, ABE Fairmont will pay a prepayment charge of 3% of theamount 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 AdvancedBioEnergy of 50% of ABE Fairmont’s net profit for the applicable fiscal year ifFarm Credit has received audited financial statements for the applicable fiscalyear and (ii) ABE Fairmont may make distributions to Advanced BioEnergyexceeding 50% of its net income if it has made the required cash flow paymentfor that fiscal year. ABE

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Fairmont must also be in compliance with all financialratio requirements and loan covenants before and after any distributions toAdvanced 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 CountySubordinate Exempt Facilities Revenue Bonds for the Nebraska Plant**

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

We agreed to repay the loan by making loan payments toFillmore County in an amount equal to the aggregate principal amount of thebonds from time to time outstanding, and the premium, if any, and interestthereon on December 1, 2017, upon redemption, upon acceleration or whenotherwise payable. Our obligation to make the loan payments under the loan andtrust agreement is evidenced by the execution and delivery of a promissorynote. Repayment of the bonds and the security for the bonds is subordinate toour senior credit facility with CoBank and Farm Credit.

The proceeds of the bonds are to be used, in order(i) to provide 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) topay interest during construction in an amount approximately equal to 20 months’interest on the bonds; and (iv) to pay a portion of the costs of issuanceof the bonds.

Defaults under the loan and trust agreement include,but are not limited to: (i) failure to pay any installment of principal orany payment of interest or premium on the loan or the note; (ii) failureto observe or perform any of the covenants, agreements or conditionscontained in the loan and trust agreement or in the security documents; and(iii) falseness of any representation or warranty in any material adverserespect as of the time made or given. Upon the occurrence of a default, WellsFargo may declare all loan repayments for the remainder of the term of theloan and trust agreement to be immediately due and payable by us andmay declare the entire outstanding principal balance of the loan, togetherwith all interest accrued thereon, to be due and payable and take whateveraction at law or in equity to collect the loan repayments then due andthereafter to become due or to enforce performance and observance of anyobligation, agreement or covenant under the loan and trust agreement. However,the ability of Wells Fargo to take these actions upon default is also subjectto certain terms and conditions found in a debt subordination agreement betweenCoBank, us and Wells Fargo.

The bonds are secured by a subordinate deed of trustand security agreement granted by us to Wells Fargo pursuant to which weconveyed to Wells Fargo a mortgage lien on the real property

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and fixtures constituting the Nebraska plant andsecurity interests in all tangible personal property located on the mortgagedreal property or used in connection with the Nebraska plant as security forrepayment of the bonds. The lien of the subordinate deed of trust shall besubordinate to the lien of a deed of trust and security agreement given by usin favor of CoBank and Farm Credit.

**Tax IncrementFinancing for the Nebraska Plant**

We are seeking net proceeds of approximately $5.3million in tax increment financing from the Village of Fairmont, Nebraska. Taxincrement financing is a program created by state statute that provides citycouncils 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. We obtained approval fromthe city council of the Village of Fairmont of the redevelopment agreement inFebruary 2006 and we anticipate that closing of the tax incrementfinancing will occur in February 2007. However, there is no guarantee that wewill obtain tax increment financing or that if we do it will be in the amountcurrently anticipated.

**CommunityDevelopment Block Grant for the Nebraska Plant**

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

**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 (including working capital) will cost approximately $78.0 million, webelieve the Indiana plant construction and start-up (including working capital)will cost approximately $175.0 million, and we do not yet have cost estimatesfor the Minnesota plant. We are seeking to raise a maximum of $100.0 million ofequity in our proposed registered securities offering. Depending on the levelof equity 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.

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If we receive proceeds from the offering prior toapproval of the Heartland transaction by Heartland Producers, we intend toinvest proceeds from the offering as necessary in order to continue funding theAberdeen plant expansion pending closing of the Heartland transaction. Theterms of and our ability to make this investment would be subject to approvalof the Dakota Fuels board and may be subject to the approval of the seniorlender to Heartland Grain Fuels, neither of which we control. If we do not receiveproceeds from the offering by February 2007, we will need to raise subordinateddebt in order for Heartland Grain Fuels to continue funding the Aberdeen plantexpansion as scheduled. If we are able to raise subordinated debt, we plan oncontributing funds as needed in the form of debt or equity to Heartland GrainFuels in order to enable it to continue funding the Aberdeen plant expansion.We are in the process of exploring various alternatives for subordinated debtfinancing, but there are no assurances that we will be able to obtainsubordinated debt financing on acceptable terms or at all or if we can obtainit, whether we will be able to obtain the approvals necessary to finance theAberdeen plant expansion.

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 facility,cash generated from operations, primarily from our South Dakota plants,assuming that Heartland Grain Fuels makes distributions, and the proceeds fromour proposed registered securities offering. However, if capital requirements forour business strategy change, or other factors change our capital requirements,we may need to seek additional debt or equity financing in the public orprivate markets. There is no assurance that financing will be available to uson acceptable terms or at all.

**INTEREST RATE RISK**

Our earnings in the future may be affected by changesin interest rates due to the impact those changes have on our interest expenseon borrowings under our credit facility. Our outstanding subordinated exemptfacilities revenue bonds carry a fixed rate of interest. As ofDecember 31, 2006, we had no floating rate indebtedness. We have notcontracted for any derivative financial instruments. We have no internationalsales. Substantially all of our purchases are denominated in U.S. dollars.

**HEDGING AND OTHERRISK MITIGATION STRATEGIES**

We manage our exposure to various risks through a riskmanagement policy, which calls for the quantification and evaluation ofmarket-based risk. We also have a risk management

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committee that monitors compliance with the riskmanagement policy and advises the board of directors on forward pricing andrisk management issues.

To mitigate price risk caused by market fluctuationsin commodities such as corn, ethanol, natural gas and distillers grains, we mayenter into exchanged traded commodities futures, options, cash contracts andover-the-counter instruments from time to time. These hedging instruments alsoexpose us to unrealized gains and losses, which are offset by physicalpositions in the cash market. Fixed price contracts present the risk offinancial loss in situations of default by the other party.

**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**

The Company has no off-balance sheet arrangements.

**SUMMARY OFCRITICAL ACCOUNTING POLICIES**

Management uses estimates and assumptions in preparingour financial statements in accordance with generally accepted accountingprinciples. These estimates and assumptions affect the reported amounts ofassets and liabilities, the disclosure of contingent assets and liabilities andthe reported revenues and expenses.

**RevenueRecognition**

Revenue from the production of ethanol and itsco-products is recorded when title transfers to customers. Ethanol and itsco-products are generally shipped FOB from the Company’s plants. In accordancewith the Company’s marketing agreements, sales are recorded net of commissionsretained at the time payment is remitted.

**DerivativeInstruments and Hedging Activities**

Statement of Financial Accounting Standards No. 133, *Accounting for Derivative Instruments and HedgingActivities*, requires a company to evaluate its contracts todetermine whether the contracts are derivatives. Certain derivative contractsmay be exempt under SFAS No. 133 as normal purchases or normal sales, which arecontracts that provide for the purchase or sale of something other than afinancial instrument or derivative instrument that will be delivered inquantities expected to be used or sold over a reasonable period in the normalcourse of business. At this time, the Company’s forward contracts related tothe purchase of corn and natural gas are considered normal purchases and,therefore, are exempted from the accounting and reporting requirements of SFASNo. 133.

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Subsequent to our seed capital offering, our originaltwo members received compensation in the form of restricted equity units valuedat $1.25 million (equivalent to $10per unit) for their efforts in developing the Nebraska plant. The restrictionwill be removed as services are provided and selected milestones are achieved.The earned portion of the $1.25 million is being expensed as start-up expenses.As of December 31, 2006, $1,071,429 had been earned and expensed with theremaining $178,571 included in unearned compensation.

We will defer offering costs relating to our proposedregistered securities offering until the sale of units is completed. Uponissuance of the units, these costs will be netted against the proceedsreceived. If our proposed registered securities offering is not completed, suchcosts will be expensed.

**STATE OF SOUTHDAKOTA INCENTIVES**

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. Heartland Grain Fuels generally receives payment between$700,000 and $800,000 per plant per year. This incentive terminated for theAberdeen plant in 2004. The amounts are dependent on annual allocations by theState of South Dakota and the number of eligible plants. Heartland Grain Fuelsexpects this incentive to terminate for the Huron plant in 2011. HeartlandGrain Fuels does not expect to receive this incentive for the Aberdeen plantexpansion.

**POSSIBLE FUTURE GRANTS, GOVERNMENT PROGRAMS, TAXCREDITS AND TAX INCREMENT FINANCING**

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 mutuallyexclusive. Under some state and federal programs, awards are not made toapplicants in cases where construction on the project has started prior to theaward date. There is no guarantee that applications will result in awards ofgrants or loans.

**ITEM 3.**   CONTROLS AND PROCEDURES

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

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**PART II.**   OTHERINFORMATION

**ITEM 1.   LEGAL PROCEEDINGS**

None.

**ITEM 2.   UNREGISTERED SALESOF EQUITY SECURITIES AND USE OF PROCEEDS**

Not applicable.

**ITEM 3.   DEFAULTS UPONSENIOR SECURITIES**

Notapplicable.

**ITEM 4.   SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

None.

**ITEM 5.   OTHER INFORMATION**

None.

**ITEM 6.   EXHIBITS**
| Exhibit  No. | ** ** | **Description**                                                                                                                                                                                                                                                           | ** ** | **Method of  Filing**          |
|--------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|
| 2.1          |       | Partnership Interest Purchase Agreement with HGF  Acquisition, LLC, Aventine Renewable Energy, Inc., Dakota  Fuels, Inc., South Dakota Wheat Growers Association, Heartland  Producers, LLC, and Heartland Grain Fuels, L.P. dated as of November 7,  2006 |       | Incorporated by  Reference (1) |
|         |       |                                                                                                                                                                                                                                                                      |       |                           |
| 2.2          |       | Partnership Interest and Stock Purchase Agreement  with HGF Acquisition, LLC, Heartland Grain Fuels, L.P, Heartland Producers,  LLC, South Dakota Wheat Growers Association and Dakota Fuels, Inc. dated  as of November 7, 2006                                |       | Incorporated by  Reference (2) |
|         |       |                                                                                                                                                                                                                                                                      |       |                           |
| 3.1          |       | Certificate of Formation                                                                                                                                                                                                                                                  |       | Incorporated by  Reference (3) |
|         |       |                                                                                                                                                                                                                                                                      |       |                           |
| 3.2          |       | Third Amended and Restated Operating Agreement of  the Registrant                                                                                                                                                                                                         |       | Incorporated by  Reference (4) |

 

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|        |   |                                                                                                                                                                                                          |   |                            |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|
| 10.1   |   | Letter of Intent with ICM, Inc. dated  December 19, 2006*                                                                                                                                           |   | Incorporated by  Reference (5)  |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.2   |   | Investor Rights Agreement with South Dakota Wheat  Growers Association dated as of November 7, 2006                                                                                                      |   | Incorporated by  Reference (6)  |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.3   |   | Employment Agreement with Richard Peterson dated  October 17, 2006                                                                                                                                       |   | Incorporated by  Reference (7)  |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.4   |   | Restricted Unit Agreement with Stephenson  Holdings, Inc. dated November 7, 2006                                                                                                                    |   | Incorporated by  Reference (8)  |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.5   |   | Restricted Unit Agreement with Gales  Holdings, Inc. dated November 7, 2006                                                                                                                         |   | Incorporated by  Reference (9)  |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.6   |   | South Dakota Grain Fuels. L.P. Agreement of Limited  Partnership dated August 27, 1991                                                                                                                   |   | Incorporated by  Reference (10) |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.7   |   | Amendment to the Agreement of Limited Partnership of  Heartland Grain Fuels, L.P. dated November 8, 2006                                                                                                 |   | Incorporated by  Reference (11) |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.8   |   | Master Loan Agreement between Farm Credit Services  of America, FLCA and ABE Fairmont, LLC dated as of November 20, 2006                                                                                 |   | Incorporated by  Reference (12) |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.9   |   | Construction and Term Loan Supplement to the Master  Loan Agreement between Farm Credit Services of America, FLCA and ABE  Fairmont, LLC entered into as of November 20, 2006                            |   | Incorporated by  Reference (13) |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.10  |   | Construction and Revolving Term Loan Supplement to  the Master Loan Agreement between Farm Credit Services of America, FLCA and  ABE Fairmont, LLC entered into as of November 20, 2006                  |   | Incorporated by  Reference (14) |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.11  |   | Amendment to the Construction and Term Loan  Supplement to the Master Loan Agreement between Farm Credit Services of  America, FLCA and ABE Fairmont, LLC entered into as of November 20, 2006           |   | Incorporated by  Reference (15) |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.12  |   | Amendment to the Construction and Revolving Term  Loan Supplement to the Master Loan Agreement between Farm Credit Services of  America, FLCA and ABE Fairmont, LLC entered into as of November 20, 2006 |   | Incorporated by  Reference (16) |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.13  |   | Administrative Agency Agreement among Farm Credit  Services of America, FLCA, CoBank, ACB and ABE Fairmont, LLC dated as of  November 20, 2006                                                           |   | Incorporated by  Reference (17) |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.14  |   | Ethanol Marketing Agreement between Heartland Grain  Fuels, L.P. and Williams Ethanol Services, Inc. dated  November 30, 2000, as amended*                                                     |   | Incorporated by  Reference (18) |
|   |   |                                                                                                                                                                                                          |   |                            |
| 10.15  |   | By-Product Marketing Agreement between Heartland  Grain Fuels L.P. and Dakotaland Feeds, LLC dated February 1,  2001*                                                                          |   | Incorporated by  Reference (19) |

 

33

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| 10.16  |   | Grain Origination Agreement between Heartland Grain  Fuels, L.P. and South Dakota Wheat Growers Association dated  November 8, 2006* |   | Incorporated by  Reference (20) |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|
|   |   |                                                                                                                                           |   |                            |
| 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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*                    Materialhas been omitted pursuant to a request for confidential treatment and thesematerials have been filed separately with the Commission.

(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 3.1 to the Registrant’s Registration Statementon Form SB-2 (Registration No. 333-125335), filed with the Commission on May23, 2005.

(4)             Incorporatedherein by reference to Exhibit 3.2 to the Registrant’s Post-Effective AmendmentNo. 1 to Registration Statement on Form SB-2 (Registration No. 333-125335),filed with the Commission on February 10, 2006.

(5)             Incorporatedherein by reference to Exhibit 10 to the Registrant’s Current Report onForm 8-K, filed on December 22, 2006 (File No. 333-125335).

(6)             Incorporatedherein by reference to Exhibit 10 to the Registrant’s Current Report onForm 8-K, filed on November 8, 2006 (File No. 333-125335).

(7)             Incorporatedherein by reference to Exhibit 10 to the Registrant’s Current Report onForm 8-K, filed on November 9, 2006 (File No. 333-125335).

(8)             Incorporatedherein by reference to Exhibit 10.1 to the Registrant’s Current Report onForm 8-K, filed on November 7, 2006 (File No. 333-125335).

(9)             Incorporatedherein by reference to Exhibit 10.2 to the Registrant’s Current Report onForm 8-K, filed on November 7, 2006 (File No. 333-125335).

(10)       Incorporatedherein by reference to Exhibit 10.30 to the Registrant’s Registration Statementon Form SB-2 (Registration No. 333-137299), filed with the Commission on February6, 2007.

(11)       Incorporatedherein by reference to Exhibit 10.31 to the Registrant’s Registration Statementon Form SB-2 (Registration No. 333-137299), filed with the Commission onFebruary 6, 2007.

(12)       Incorporatedherein by reference to Exhibit 10.1 to the Registrant’s Current Report onForm 8-K, filed on November 28, 2006 (File No. 333-125335).

(13)       Incorporatedherein by reference to Exhibit 10.2 to the Registrant’s Current Report onForm 8-K, filed on November 28, 2006 (File No. 333-125335).

(14)       Incorporatedherein by reference to Exhibit 10.3 to the Registrant’s Current Report onForm 8-K, filed on November 28, 2006 (File No. 333-125335).

(15)       Incorporatedherein by reference to Exhibit 10.4 to the Registrant’s Current Report onForm 8-K, filed on November 28, 2006 (File No. 333-125335).

34

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(16)       Incorporatedherein by reference to Exhibit 10.5 to the Registrant’s Current Report onForm 8-K, filed on November 28, 2006 (File No. 333-125335).

(17)       Incorporatedherein by reference to Exhibit 10.6 to the Registrant’s Current Report onForm 8-K, filed on November 28, 2006 (File No. 333-125335).

(18)       Incorporatedherein by reference to Exhibit 10.38 to the Registrant’s Registration Statementon Form SB-2 (Registration No. 333-137299), filed with the Commission onFebruary 6, 2007.

(19)       Incorporatedherein by reference to Exhibit 10.39 to the Registrant’s Registration Statementon Form SB-2 (Registration No. 333-137299), filed with the Commission onFebruary 6, 2007.

(20)       Incorporatedherein by reference to Exhibit 10.40 to the Registrant’s Registration Statementon Form SB-2 (Registration No. 333-137299), filed with the Commission onFebruary 6, 2007.

35

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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: February 14, 2007 | By:        | */s/ Revis L Stephenson III*                 | * * |
|                    |       | Revis L. Stephenson III                      | * * |
|                    |       | Chairman and Chief Executive Officer         | * * |
|                    |       | (Principal Executive Officer)                | * * |
|                    |       |                                         |
| Date: February 14, 2007 | By:        | */s/ Richard Peterson*                       | * * |
|                    |       | Richard Peterson                             | * * |
|                    |       | Chief Financial Officer                      | * * |
|                    |       | (Principal Financial and Accounting Officer) |

 

36

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**EXHIBIT INDEX**
| Exhibit   No. | ** ** | **Description**                                                                                                                                                                                                                                                           | ** ** | **Method of  Filing**      |
|---------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|
| 2.1           |       | Partnership Interest Purchase Agreement with HGF  Acquisition, LLC, Aventine Renewable Energy, Inc., Dakota  Fuels, Inc., South Dakota Wheat Growers Association, Heartland  Producers, LLC, and Heartland Grain Fuels, L.P. dated as of November 7,  2006 |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 2.2           |       | Partnership Interest and Stock Purchase Agreement  with HGF Acquisition, LLC, Heartland Grain Fuels, L.P, Heartland Producers,  LLC, South Dakota Wheat Growers Association and Dakota Fuels, Inc. dated  as of November 7, 2006                                |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 3.1           |       | Certificate of Formation                                                                                                                                                                                                                                                  |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 3.2           |       | Third Amended and Restated Operating Agreement of  the Registrant                                                                                                                                                                                                         |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.1          |       | Letter of Intent with ICM, Inc. dated  December 19, 2006*                                                                                                                                                                                                       |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.2          |       | Investor Rights Agreement with South Dakota Wheat  Growers Association dated as of November 7, 2006                                                                                                                                                                  |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.3          |       | Employment Agreement with Richard Peterson dated  October 17, 2006                                                                                                                                                                                                   |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.4          |       | Restricted Unit Agreement with Stephenson  Holdings, Inc. dated November 7, 2006                                                                                                                                                                                |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.5          |       | Restricted Unit Agreement with Gales  Holdings, Inc. dated November 7, 2006                                                                                                                                                                                     |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.6          |       | South Dakota Grain Fuels. L.P. Agreement of Limited  Partnership dated August 27, 1991                                                                                                                                                                               |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.7          |       | Amendment to the Agreement of Limited Partnership of  Heartland Grain Fuels, L.P. dated November 8, 2006                                                                                                                                                             |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.8          |       | Master Loan Agreement between Farm Credit Services  of America, FLCA and ABE Fairmont, LLC dated as of November 20, 2006                                                                                                                                             |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.9          |       | Construction and Term Loan Supplement to the Master  Loan Agreement between Farm Credit Services of America, FLCA and ABE  Fairmont, LLC entered into as of November 20, 2006                                                                                        |       | Incorporated by  Reference |
|          |       |                                                                                                                                                                                                                                                                      |       |                       |
| 10.10         |       | Construction and Revolving Term Loan Supplement to  the Master Loan Agreement between Farm Credit Services of America, FLCA and  ABE Fairmont, LLC entered into as of November 20, 2006                                                                              |       | Incorporated by  Reference |

 

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|        |   |                                                                                                                                                                                                          |   |                       |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|
| 10.11  |   | Amendment to the Construction and Term Loan  Supplement to the Master Loan Agreement between Farm Credit Services of  America, FLCA and ABE Fairmont, LLC entered into as of November 20, 2006           |   | Incorporated by  Reference |
|   |   |                                                                                                                                                                                                          |   |                       |
| 10.12  |   | Amendment to the Construction and Revolving Term  Loan Supplement to the Master Loan Agreement between Farm Credit Services of  America, FLCA and ABE Fairmont, LLC entered into as of November 20, 2006 |   | Incorporated by  Reference |
|   |   |                                                                                                                                                                                                          |   |                       |
| 10.13  |   | Administrative Agency Agreement among Farm Credit  Services of America, FLCA, CoBank, ACB and ABE Fairmont, LLC dated as of  November 20, 2006                                                           |   | Incorporated by  Reference |
|   |   |                                                                                                                                                                                                          |   |                       |
| 10.14  |   | Ethanol Marketing Agreement between Heartland Grain  Fuels, L.P. and Williams Ethanol Services, Inc. dated  November 30, 2000, as amended*                                                     |   | Incorporated by  Reference |
|   |   |                                                                                                                                                                                                          |   |                       |
| 10.15  |   | By-Product Marketing Agreement between Heartland  Grain Fuels L.P. and Dakotaland Feeds, LLC dated February 1,  2001*                                                                          |   | Incorporated by  Reference |
|   |   |                                                                                                                                                                                                          |   |                       |
| 10.16  |   | Grain Origination Agreement between Heartland Grain  Fuels, L.P. and South Dakota Wheat Growers Association dated  November 8, 2006*                                                                |   | Incorporated by  Reference |
|   |   |                                                                                                                                                                                                          |   |                       |
| 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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*                    Materialhas been omitted pursuant to a request for confidential treatment and thesematerials have been filed separately with the Commission.

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