**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-QSB**

**QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2006**

**CommissionFile Number:**  **333-125335**

**ADVANCEDBIOENERGY, LLC**

(Exact name of SmallBusiness Issuer as Specified in its Charter)

| **Delaware**                     |   | **10251  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)        |   |                 |

 

**137 N. 8****th Street**

**Geneva,Nebraska**

(FormerAddress, if Changed Since Last Report)

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 x No o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes oNo x

Indicate the number ofunits outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date:  7,165,600membership units outstanding as of August 14, 2006.

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

 

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**ADVANCEDBIOENERGY, LLCQUARTERLY PERIOD ENDED JUNE 30, 2006Index**
| PART  I. FINANCIAL INFORMATION |   |                                                            |
|--------------------------------|--------|-----------------------------------------------------------------|
| Item 1.                        |   | Financial  Statements                                           |   |   |
|                           |   | Consolidated Balance Sheets                                     |   |   |
|                           |   | Consolidated Statements of  Operations                          |   |   |
|                           |   | Consolidated Statement of  Changes in Members’ Equity      |   |   |
|                           |   | Consolidated Statements of  Cash Flows                          |   |   |
|                           |   | Notes to Consolidated  Unaudited Financial Statements           |   |   |
| Item 2.                        |   | Management’s  Discussion and Analysis or Plan of Operation |   |   |
| Item 3.                        |   | Controls  and Procedures                                        |   |   |
|                           |   |                                                            |   |   |
| PART II.  OTHER INFORMATION    |   |                                                            |
| Item 1.                        |   | Legal  Proceedings                                              |   |   |
| Item 2.                        |   | Unregistered  Sales of Equity Securities and Use of Proceeds    |   |   |
| Item 3.                        |   | Defaults  Upon Senior Securities                                |   |   |
| Item 4.                        |   | Submission  of Matters to a Vote of Security Holders            |   |   |
| Item 5.                        |   | Other  Information                                              |   |   |
| Item 6.                        |   | Exhibits                                                        |   |   |
|                           |   |                                                            |   |   |
|  SIGNATURES               |   |                                                            |

 

----

**PART I.  FINANCIAL INFORMATION**

**ITEM 1. FINANCIAL STATEMENTS**

**ADVANCEDBIOENERGY, LLC & SUBSIDIARY(A DEVELOPMENT STAGE COMPANY)CONSOLIDATED BALANCE SHEETS (UNAUDITED)**
| ** **                                                                                                           | ** ** | **June 30,** | ** ** | **September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                                                                                                           | ** ** | **2006**          | ** ** | **2005**               | ** ** |
| **ASSETS**                                                                                                           | ** ** | ** **        | ** ** | ** **             | ** ** |
|                                                                                                                 |       |              |       |                   |       |
| **CURRENT ASSETS**                                                                                                   | ** ** | ** **        | ** ** | ** **             | ** ** |
| Cash and cash  equivalents                                                                                           |       | $                 | 14,420,730 |                   | $          | 893,587 |   |
| Prepaid expenses                                                                                                     |       | 28,333            |       | 58,230                 |       |
| Other receivable                                                                                                     |       | 46,522            |       | 2,358                  |       |
|                                                                                                                 |       |              |       |                   |       |
| **TOTAL  CURRENT ASSETS**                                                                                            |       | 14,495,585        |       | 954,175                |       |
| ** **                                                                                                           | ** ** | ** **        | ** ** | ** **             | ** ** |
| **PROPERTY AND EQUIPMENT**                                                                                           | ** ** | ** **        | ** ** | ** **             | ** ** |
| Land                                                                                                                 |       | 1,420,847         |       | —                 |       |
| Office equipment                                                                                                     |       | 200,217           |       | 38,685                 |       |
| Leasehold  improvement                                                                                               |       | 8,513             |       | 8,513                  |       |
| Construction in  process                                                                                             |       | 12,771,411        |       | —                 |       |
|                                                                                                                 |       | 14,400,988        |       | 47,198                 |       |
| Less accumulated  depreciation                                                                                       |       | (17,667           | )          | (2,275                 | )          |
|                                                                                                                 |       | 14,383,321        |       | 44,923                 |       |
|                                                                                                                 |       |              |       |                   |       |
| **OTHER ASSETS**                                                                                                     | ** ** | ** **        | ** ** | ** **             | ** ** |
| Cash for plant  construction                                                                                         |       | 43,000,000        |       | —                 |       |
| Land option  deposits                                                                                                |       | 55,000            |       | 30,000                 |       |
| Other assets                                                                                                         |       | 58,400            |       | 26,400                 |       |
| Financing costs                                                                                                      |       | 825,004           |       | 354,013                |       |
| Intangible                                                                                                           |       | 2,811,531         |       | —                 |       |
|                                                                                                                 |       | 46,749,935        |       | 410,413                |       |
|                                                                                                                 |       |              |       |                   |       |
| **TOTAL ASSETS**                                                                                                     |       | $                 | 75,628,841 |                   | $          | 1,409,511 |   |
|                                                                                                                 |       |              |       |                   |       |
| **LIABILITIES AND MEMBERS’ EQUITY**                                                                             | ** ** | ** **        | ** ** | ** **             | ** ** |
|                                                                                                                 |       |              |       |                   |       |
| **CURRENT LIABILITIES**                                                                                              | ** ** | ** **        | ** ** | ** **             | ** ** |
| Accounts payable                                                                                                     |       | $                 | 3,512,103  |                   | $          | 193,673 |   |
| Accrued expenses                                                                                                     |       | 204,269           |       | 5,972                  |       |
|                                                                                                                 |       |              |       |                   |       |
| **TOTAL  CURRENT LIABILITIES**                                                                                       |       | 3,716,372         |       | 199,645                |       |
| ** **                                                                                                           | ** ** | ** **        | ** ** | ** **             | ** ** |
| **LONG-TERM DEBT**                                                                                                   |       | 7,000,000         |       | —                 |       |
| ** **                                                                                                           | ** ** | ** **        | ** ** | ** **             | ** ** |
| **MEMBERS’ EQUITY**                                                                                             | ** ** | ** **        | ** ** | ** **             | ** ** |
| Members’  capital, no par value, authorized 20,000,000 units, issued 7,165,600 and  625,000 units, respectively |       | 66,771,932        |       | 3,174,098              |       |
| Deficit  accumulated during development stage                                                                        |       | (1,561,844        | )          | (914,232               | )          |
| Unearned  compensation                                                                                               |       | (297,619          | )          | (1,050,000             | )          |
|                                                                                                                 |       | 64,912,469        |       | 1,209,866              |       |
|                                                                                                                 |       |              |       |                   |       |
| **TOTAL LIABILITIES AND MEMBERS’ EQUITY**                                                                       |       | $                 | 75,628,841 |                   | $          | 1,409,511 |   |

 

Seenotes to unaudited consolidated financial statements.

3

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**ADVANCEDBIOENERGY, LLC & SUBSIDIARY(A DEVELOPMENT STAGE COMPANY)CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**
| ** **                                     | ** ** | ** **                  | ** ** | ** **        | ** ** | ** **                      | ** ** | ** **                  | ** ** | **Period From**    | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|-------------------|------------|---------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| ** **                                     | ** ** | ** **                  | ** ** | **Three**         | ** ** | **Period From**            | ** ** | ** **                  | ** ** | **Inception**           | ** ** |
| ** **                                     | ** ** | ** **                  | ** ** | **Months**        | ** ** | **Inception**                   | ** ** | **Nine**                    | ** ** | **(January 4,**    | ** ** |
| ** **                                     | ** ** | **Three Months**       | ** ** | **Ended**         | ** ** | **(January 4, 2005)** | ** ** | **Months**                  | ** ** | ** 2005) to** | ** ** |
| ** **                                     | ** ** | **Ended**                   | ** ** | **June 30,** | ** ** | **to**                          | ** ** | **Ended**                   | ** ** | **June 30,**       | ** ** |
| ** **                                     | ** ** | **June 30, 2005** | ** ** | **2006**          | ** ** | **June 30, 2005**     | ** ** | **June 30, 2006** | ** ** | **2006**                | ** ** |
|                                           |       |                        |       |              |       |                            |       |                        |       |                    |       |
| **REVENUES**                                   |       | $                           | —     |              | $          | —                          |       | $                           | —     |                    | $          | — |   | $ | — |   |
| ** **                                     | ** ** | ** **                  | ** ** | ** **        | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **              | ** ** |
| **OPERATING  EXPENSES**                        | ** ** | ** **                  | ** ** | ** **        | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **              | ** ** |
| Start-up expenses                              |       | 428,795                     |       | 64,729            |       | 501,275                         |       | 350,521                     |       | 1,074,272               |       |
| Accounting                                     |       | 580                         |       | 41,297            |       | 2,260                           |       | 101,366                     |       | 105,131                 |       |
| Consulting fees                                |       | 47,071                      |       | 22,640            |       | 57,754                          |       | 88,834                      |       | 162,500                 |       |
| Legal                                          |       | 9,438                       |       | 181,096           |       | 28,957                          |       | 279,443                     |       | 314,233                 |       |
| Directors’ meetings and expenses          |       | 7,517                       |       | 64,036            |       | 19,738                          |       | 127,428                     |       | 167,657                 |       |
| Meetings and travel expenses                   |       | —                      |       | 19,676            |       | —                          |       | 21,654                      |       | 21,654                  |       |
| Office expenses                                |       | 704                         |       | 15,854            |       | 2,510                           |       | 32,026                      |       | 38,988                  |       |
| Office labor                                   |       | —                      |       | 226,403           |       | —                          |       | 311,764                     |       | 322,145                 |       |
| Payroll tax expense                            |       | —                      |       | 14,305            |       | —                          |       | 19,121                      |       | 19,842                  |       |
| Insurance                                      |       | 22                          |       | 16,688            |       | 22                              |       | 48,227                      |       | 55,568                  |       |
| Utilities                                      |       | 912                         |       | 3,648             |       | 2,093                           |       | 10,463                      |       | 14,653                  |       |
| Rent                                           |       | —                      |       | 2,100             |       | —                          |       | 6,300                       |       | 8,400                   |       |
| Advertising and promotion                      |       | 770                         |       | —            |       | 770                             |       | 1,028                       |       | 4,220                   |       |
| Licenses and fees                              |       | 44                          |       | 200               |       | 44                              |       | 6,850                       |       | 7,657                   |       |
| Depreciation                                   |       | —                      |       | 6,405             |       | —                          |       | 12,859                      |       | 15,134                  |       |
| Bank charges                                   |       | —                      |       | 4,360             |       | —                          |       | 19,593                      |       | 19,634                  |       |
| Crop expense                                   |       | —                      |       | 7,653             |       | —                          |       | 7,653                       |       | 7,653                   |       |
| Miscellaneous                                  |       | —                      |       | 4,105             |       | 22                              |       | 7,748                       |       | 7,769                   |       |
|                                           |       | 495,853                     |       | 695,195           |       | 615,445                         |       | 1,452,878                   |       | 2,367,110               |       |
|                                           |       |                        |       |              |       |                            |       |                        |       |                    |       |
| **LOSS  FROM OPERATIONS**                      |       | (495,853                    | )          | (695,195          | )          | (615,445                        | )          | (1,452,878                  | )          | (2,367,110              | )          |
| ** **                                     | ** ** | ** **                  | ** ** | ** **        | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **              | ** ** |
| **OTHER  INCOME (EXPENSE)**                    | ** ** | ** **                  | ** ** | ** **        | ** ** | ** **                      | ** ** | ** **                  | ** ** | ** **              | ** ** |
| Other income                                   |       | —                      |       | —            |       | —                          |       | 12,000                      |       | 12,000                  |       |
| Rent income                                    |       | —                      |       | 750               |       | —                          |       | 2,000                       |       | 2,000                   |       |
| Interest income                                |       | —                      |       | 668,620           |       | —                          |       | 840,417                     |       | 840,417                 |       |
| Interest expense                               |       | —                      |       | —            |       | —                          |       | (49,151                     | )          | (49,151                 | )          |
|                                           |       |                        |       |              |       |                            |       |                        |       |                    |       |
| **LOSS  ACCUMULATED DURING DEVELOPMENT STAGE** |       | $                           | (495,853   | )                 | $          | (25,825                         | )          | $                           | (615,445   | )                       | $          | (647,612 | ) | $ | (1,561,844 | ) |
|                                           |       |                        |       |              |       |                            |       |                        |       |                    |       |
| **Weighted  Average Units Outstanding**        |       | 467,810                     |       | 6,700,502         |       | 291,911                         |       | 2,595,319                   |       | 1,487,134               |       |
|                                           |       |                        |       |              |       |                            |       |                        |       |                    |       |
| **Net Loss Per Unit - Basic and  Diluted**     |       | $                           | (1.06      | )                 | $          | (0.00                           | )          | $                           | (2.11      | )                       | $          | (0.25 | ) | $ | (1.05 | ) |

 

Seenotes to unaudited consolidated financial statements.

4

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**ADVANCED BIOENERGY, LLC &SUBSIDIARY(A DEVELOPMENT STAGE COMPANY)CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY (UNAUDITED)Period from January 4, 2005 (Date of Inception)to June 30, 2006**
| ** **                                                                               | ** ** | ** **        | ** **     | **Deficit**     | ** ** | ** **       | ** ** | ** ** | ** **     |
|------------------------------------------------------------------------------------------|------------|-------------------|----------------|-----------------|------------|------------------|------------|------------|----------------|
| ** **                                                                               | ** ** | ** **        | ** **     | **Accumulated** | ** ** | ** **       | ** ** | ** ** | ** **     |
| ** **                                                                               | ** ** | ** **        | ** **     | **During**      | ** ** | ** **       | ** ** | ** ** | ** **     |
| ** **                                                                               | ** ** | **Members’** | ** **     | **Development** | ** ** | **Unearned**     | ** ** | ** ** | ** **     |
| ** **                                                                               | ** ** | **Capital**       | ** **     | **Stage**       | ** ** | **Compensation** | ** ** | **Total**  | ** **     |
|                                                                                     |       |              |           |            |       |             |       |       |           |
| **MEMBERS’  EQUITY - January 4, 2005**                                              | ** ** | **$**             | **—**     | ** **      | **$**      | **—**       | ** ** | **$**      | **—**     | ** ** | **$** | **—** | ** ** |
| ** **                                                                               | ** ** | ** **        | ** **     | ** **      | ** ** | ** **       | ** ** | ** ** | ** **     |
| Issuance of 450,000 membership units                                                     |       | 1,500,000         |           | —          |       | —           |       | 1,500,000  |           |
| Issuance of 7,500 membership units                                                       |       | 25,000            |           | —          |       | —           |       | 25,000     |           |
| Issuance of 125,000 restricted membership units                                          |       | 1,250,000         |           | —          |       | (1,250,000       | )          | —     |           |
| Issuance of 42,500 restricted membership units                                           |       | 425,000           |           | —          |       | (425,000         | )          | —     |           |
| Amortization of unearned compensation                                                    |       | —            |           | —          |       | 625,000          |       | 625,000    |           |
| Costs of raising capital incurred in connection with  private placement memorandum       |       | (25,902           | )              | —          |       | —           |       | (25,902    | )              |
|                                                                                     |       |              |           |            |       |             |       |       |           |
| Net loss                                                                                 |       | —            |           | (914,232        | )          | —           |       | (914,232   | )              |
|                                                                                     |       |              |           |            |       |             |       |       |           |
| **MEMBERS’  EQUITY - September 30, 2005**                                           | ** ** | **$**             | **3,174,098**  | ** **      | **$**      | **(914,232**     | **)**      | **$**      | **(1,050,000** | **)** | **$** | **1,209,866** | ** ** |
| ** **                                                                               | ** ** | ** **        | ** **     | ** **      | ** ** | ** **       | ** ** | ** ** | ** **     |
| Issuance of 6,048,400 membership units                                                   |       | 60,484,000        |           | —          |       | —           |       | 60,484,000 |           |
| ** **                                                                               | ** ** | ** **        | ** **     | ** **      | ** ** | ** **       | ** ** | ** ** | ** **     |
| Amortization of unearned compensation                                                    |       | —            |           | —          |       | 752,381          |       | 752,381    |           |
|                                                                                     |       |              |           |            |       |             |       |       |           |
| Cost of raising capital – incurred in connection with  private placement memorandum |       | (1,068,166        | )              | —          |       | —           |       | (1,068,166 | )              |
|                                                                                     |       |              |           |            |       |             |       |       |           |
| Issuance of 492,200 membership units, of which  75,000 units are held in escrow          |       | 4,172,000         |           | —          |       | —           |       | 4,172,000  |           |
|                                                                                     |       |              |           |            |       |             |       |       |           |
| Unit compensation expense                                                                |       | 10,000            |           | —          |       | —           |       | 10,000     |           |
|                                                                                     |       |              |           |            |       |             |       |       |           |
| Net loss                                                                                 |       | —            |           | (647,612        | )          | —           |       | (647,612   | )              |
|                                                                                     |       |              |           |            |       |             |       |       |           |
| **MEMBERS’ EQUITY - June 30, 2006**                                                 | ** ** | **$**             | **66,771,932** | ** **      | **$**      | **(1,561,844**   | **)**      | **$**      | **(297,619**   | **)** | **$** | **64,912,469** | ** ** |

 

Seenotes to unaudited consolidated financial statements.

5

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**ADVANCED BIOENERGY, LLC &SUBSIDIARY(A DEVELOPMENT STAGE COMPANY)CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**
| ** **                                                                                        | ** ** | **Period From**                    | ** ** | ** **                  | ** ** | **Period From**                | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|
| ** **                                                                                        | ** ** | **Inception**                           | ** ** | **Nine Months**        | ** ** | **Inception**                       | ** ** |
| ** **                                                                                        | ** ** | **(January 4, 2005) to** | ** ** | **Ended**                   | ** ** | **(Jan 4, 2005) to** | ** ** |
| ** **                                                                                        | ** ** | **June 30, 2005**             | ** ** | **June 30, 2006** | ** ** | **June 30, 2006**         | ** ** |
| **OPERATING  ACTIVITIES**                                                                         | ** ** | ** **                              | ** ** | ** **                  | ** ** | ** **                          | ** ** |
| Net loss                                                                                          |       | $                                       | (615,445   | )                           | $          | (647,612                            | )          | $ | (1,561,844 | ) |
| Adjustments to reconcile net loss to net cash (used  in) operating activities:                    |       |                                    |       |                        |       |                                |       |
| Depreciation                                                                                      |       | —                                  |       | 15,392                      |       | 17,667                              |       |
| Unit compensation expense                                                                         |       |                                    |       | 10,000                      |       | 10,000                              |       |
| Consulting services exchanged for membership units                                                |       | 416,666                                 |       | 327,381                     |       | 952,381                             |       |
| Changes in assets and liabilities, net of effects  from purchase of Indiana Renewable Fuels, LLC: |       |                                    |       |                        |       |                                |       |
| Prepaid expenses and other current assets                                                         |       | —                                  |       | 35,232                      |       | (22,998                             | )          |
| Other receivables                                                                                 |       |                                    |       | (44,164                     | )          | (46,522                             | )          |
| Accounts payable                                                                                  |       | 35,587                                  |       | 98,675                      |       | 291,985                             |       |
| Accrued expenses                                                                                  |       | —                                  |       | 198,297                     |       | 204,269                             |       |
| **NET  CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES**                                          |       | (163,192                                | )          | (6,799                      | )          | (155,062                            | )          |
|                                                                                              |       |                                    |       |                        |       |                                |       |
| **INVESTING  ACTIVITIES**                                                                         | ** ** | ** **                              | ** ** | ** **                  | ** ** | ** **                          | ** ** |
| Payment of deposit                                                                                |       | (700                                    | )          | —                      |       | (1,400                              | )          |
| Purchase of other assets                                                                          |       | —                                  |       | (57,000                     | )          | (57,000                             | )          |
| Purchase of property and equipment                                                                |       | —                                  |       | (9,804,388                  | )          | (9,851,223                          | )          |
| Increase in cash, for plant construction                                                          |       | —                                  |       | —                      |       | —                              |       |
| Payment of land option deposits                                                                   |       | (30,000                                 | )          | (35,000                     | )          | (65,000                             | )          |
| **NET  CASH USED IN INVESTING ACTIVITIES**                                                        |       | (30,700                                 | )          | (9,896,388                  | )          | (9,974,623                          | )          |
|                                                                                              |       |                                    |       |                        |       |                                |       |
| **FINANCING  ACTIVITIES**                                                                         | ** ** | ** **                              | ** ** | ** **                  | ** ** | ** **                          | ** ** |
| Net cash received from acquisition                                                                |       | —                                  |       | 1,306,287                   |       | 1,306,287                           |       |
| Proceeds from sale of membership units                                                            |       | 1,500,000                               |       | 60,484,000                  |       | 61,984,000                          |       |
| Payments on short-term debt                                                                       |       | —                                  |       | (1,270,800                  | )          | (1,270,800                          | )          |
| Proceeds from long-term debt                                                                      |       |                                    |       | 7,000,000                   |       | 7,000,000                           |       |
| Payment of deferred offering and financing costs                                                  |       | (121,544                                | )          | (1,089,157                  | )          | (1,469,072                          | )          |
| **NET  CASH PROVIDED BY FINANCING ACTIVITIES**                                                    |       | 1,378,456                               |       | 66,430,330                  |       | 67,550,415                          |       |
| ** **                                                                                        | ** ** | ** **                              | ** ** | ** **                  | ** ** | ** **                          | ** ** |
| **NET  INCREASE IN CASH AND CASH EQUIVALENTS**                                                    |       | 1,184,564                               |       | 56,527,143                  |       | 57,420,730                          |       |
| ** **                                                                                        | ** ** | ** **                              | ** ** | ** **                  | ** ** | ** **                          | ** ** |
| **CASH  AND CASH EQUIVALENTS - beginning of period**                                              |       | —                                  |       | 893,587                     |       | —                              |       |
| ** **                                                                                        | ** ** | ** **                              | ** ** | ** **                  | ** ** | ** **                          | ** ** |
| **CASH  AND CASH EQUIVALENTS - end of period**                                                    |       | $                                       | 1,184,564  |                        | $          | 57,420,730                          |       | $ | 57,420,730 |   |

 

See notes to unaudited consolidated financialstatements.

6

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| **SUPPLEMENTAL  DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES**  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accounts payable incurred for cost of raising  capital                      |       | $          | 85,872     |       | $          | —     |       | $ | — |   |
| ** **                                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Membership units issued for acquisition                                     |       | $          | —     |       | $          | 4,172,000  |       | $ | 4,172,000 |   |
|                                                                        |       |       |       |       |       |       |       |
| Accounts payable incurred for construction in  process and office equipment |       | $          | —     |       | $          | 3,214,372  |       | $ | 3,214,372 |   |
|                                                                        |       |       |       |       |       |       |       |
| Offering consulting services received in exchange  for membership units     |       | $          | —     |       | $          | —     |       | $ | 25,000 |   |
|                                                                        |       |       |       |       |       |       |       |
| Consulting services received in exchange for  membership units              |       | $          | —     |       | $          | —     |       | $ | 952,381 |   |
|                                                                        |       |       |       |       |       |       |       |
| Land option applied to land purchase                                        |       | $          | —     |       | $          | 20,000     |       | $ | 20,000 |   |
|                                                                        |       |       |       |       |       |       |       |
| Land acquired through issuance of note payable                              |       | $          | —     |       | $          | —     |       | $ | 1,270,800 |   |
|                                                                        |       |       |       |       |       |       |       |
| Deposit transferred to financing costs                                      |       | $          | —     |       | $          | 25,000     |       | $ | 25,000 |   |
|                                                                        |       |       |       |       |       |       |       |
| Unearned compensation provided as cost of raising  capital                  |       | $          | —     |       | $          | 425,000    |       | $ | 425,000 |   |
|                                                                        |       |       |       |       |       |       |       |
| Deferred  offering cost transferred to cost of raising capital              |       | $          | —     |       | $          | 1,043,166  |       | $ | 1,043,166 |   |

 

Seenotes to unaudited consolidated financial statements.

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**ADVANCEDBIOENERGY, LLC & SUBSIDIARY(A DEVELOPMENT STAGE COMPANY)NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE A:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

The accompanying financial statements as of June 30,2006 and the three and nine months then ended and for the period from inception(January 4, 2005) to June 30, 2006 are unaudited and reflect all adjustments(consisting only of normal recurring adjustments) which are, in the opinion ofmanagement, necessary for a fair representation of the financial position andoperating results for the interim periods. The interim financial statements should be read in conjunction with theaudited financial statements and notes thereto, contained in the Company’sSpecial Report under section 15(d) of the Securities Exchange Act of 1934 forthe period ended September 30, 2005.  Theresults of operations for the three and nine months ended June 30, 2006 and theperiod from inception (January 4, 2005) to June 30, 2006 are not necessarilyindicative of the results for the fiscal year ending September 30, 2006.

**PRINCIPAL BUSINESS ACTIVITY**–Advanced BioEnergy, LLC (“ABE”) and its wholly owned subsidiary, IndianaRenewable Fuels, LLC (“IRF”), are a development stage limited liability company(collectively, the “Company”).  TheCompany was organized to build ethanol plants and undertake other biofuelprojects.  Construction on a 100 milliongallons per year ethanol plant near Fairmont, Nebraska is underway and isexpected to be completed in August 2007. A 100 million gallons per year ethanol plant to be located nearRochester, Indiana is in the design stage and a 100 million gallons per yearethanol plant to be located near Northfield, Minnesota is in the developmentstage.

**ACQUISITION** - On May 11, 2006,ABE entered into an Agreement and Plan of Merger that provides, among otherthings, for ABE’s wholly owned subsidiary to be merged with and into IRF.  As a result of the merger, which closed onJune 15, 2006, the outstanding membership units of IRF could be converted,at the election of each individual holder of IRF membership units, into theright to receive either:  (a) 500 ABEmembership units or (b) $5,000 in cash. As a result of the merger, the outstanding membership units of IRF wereconverted into an aggregate of 492,200 membership units of ABE, of which 75,000are held in escrow, and $25,000 in cash (see Note F).  The units held in escrow will be releasedupon successful completion of the following: the Company’s successfully raising adequate equity to fund constructionof the Indiana plant, execution of a written agreement between the Company andthe landfill located near the Indiana plant providing for the purchase anddelivery of methane to the Indiana plant and establishing terms on which railtransportation will be provided to the Indiana plant.

**UNEARNED UNIT COMPENSATION** –Subsequent to the Company’s seed capital offering, the original two membersreceived compensation in the form of restricted equity units valued at $1.25million (equivalent to $10 per unit) for their efforts in developing theCompany’s plant to be located near Fairmont, Nebraska.  The restriction will be removed as servicesare provided and selected milestones are achieved.  The earned portion of the $1.25 million isbeing expensed as start-up expenses.  Asof June 30, 2006, $952,381 had been earned and expensed with the remaining$297,619 included as unearned compensation.

**CASH AND CASH EQUIVALENTS**– TheCompany considers all highly liquid investments with a maturity of three monthsor less to be cash equivalents.  TheCompany’s cash balances are maintained in bank depositories and periodicallyexceed federally insured limits.  TheCompany has not experienced losses in these accounts.

**FAIR VALUE OF FINANCIAL INSTRUMENTS**– The carrying amounts for accounts payable and accrued expenses approximatefair value.

**FINANCING COSTS**–The financing costs will be amortized over the term of the debt.

**LOSS PER UNIT**– Basic and diluted loss per unit arecomputed using the weighted-average number of vested units outstanding duringthe period.  Unvested restricted unitsand units held in escrow are considered unit equivalents; however, they havenot been included in the computation of diluted loss per unit as their effectwould be anti-dilutive.

**RESTRICTED STOCK**– The Company has issued restricted units tocertain directors for services outside their role as directors at fair valueunder the Financial Accounting Standards Board (FASB) Statement No. 123.  All restricted units issued are subject tovarious restriction requirements.  Of the625,000 membership units issued, 305,000 units are subject to lock-up agreementbetween the two founding members and a related party development company.  The lock-up agreement prohibits the transferof the shares until May 2008.  Of the625,000 units issued, 320,000 units are unrestricted, 263,333 are vestedrestricted and 41,667 are unvested restricted.

**PROPERTYAND EQUIPMENT** – Property and equipment is statedat the lower of cost or fair value. Maintenance and repairs are charged to expense as incurred; majorimprovements and betterments are capitalized. Depreciation is computed using the straight-line method over theestimated useful lives.

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Construction in progress consists of expenditures forconstruction of the Nebraska ethanol plant. These expenditures will be depreciated using the straight-line methodover various estimated useful lives once construction is completed and theassets are placed into service.

**CASH, FOR PLANT CONSTRUCTION** –The cash that will be used for the construction of the ethanol plant has beenclassified as long-term according to its estimated use.

**NOTE B: RELATED PARTY TRANSACTIONS**

The Company paid a development consulting company owned by twoof its directors for assistance with negotiating contracts, planning the Spring2006 equity marketing effort and securing debt financing.  As of June 30, 2006, the Company had incurredconsulting charges of approximately $496,000.

A director of the Company is currently the president of one of the Company’sbank depositories.

**NOTE C: FINANCING**

On March 8, 2006, the Company entered into a $79.5 millionloan agreement with a lending institution consisting of a $58.5 million termloan and a $21.0 million revolving term loan. In addition, the Company also received a $5.0 million revolving creditfacility for financing eligible grain inventory and equity in Chicago Board ofTrade futures positions.

The term loan has interest rate options of a base rate plusone-half percent, a fixed rate quoted by the lender or LIBOR plus 3.4% perannum.  Advances are available until May1, 2007 with principal payments to commence on December 20, 2007 and quarterlythereafter with any remaining balance due on September 20, 2014 at the latest.

The revolving 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.  The Company is required to pay acommitment fee on the daily unused portion of the commitment at a rate of..0625% per annum.  The loan is effectivethrough March 1, 2017.

The revolving credit facility has interest rate options of abase rate, a fixed rate quoted by the lender or LIBOR plus 3.1% per annum.  The Company is required to pay a commitmentfee on the daily unused portion of the commitment at a rate of .25% perannum.  The loan is effective thru March1, 2008.

On April 27, 2006, the Company entered into a loan and trustagreement with the County of Fillmore, Nebraska and Wells Fargo, N.A. toreceive $7.0 million of Subordinate Exempt Facilities Revenue Bonds.

The Company has agreed to repay the loan by making loanpayments to the issuer in an amount equal to the aggregate principal amount ofthe bonds from time to time outstanding, and the premium, if any, and interestthereon at maturity, upon redemption, upon acceleration or when otherwisepayable.  The Company’s obligation tomake the loan payments under the loan and trust agreement is evidenced by itsexecution and delivery of a promissory note. The Company’s repayment of the bonds and the security for the bonds issubordinate to the Company’s senior loan and credit facility.  Principal payments are required starting inDecember 2009 through December 2017.

**NOTE D: COMMITMENTS AND CONTINGENCIES**

Constructioncontracts

The total cost of the Nebraska plant, including theconstruction of the ethanol plant and start-up expenses, is expected toapproximate $142.0 million.  The Companyhas a lump-sum design-build agreement with a related party general contractorfor $98.0 million, with the price to be adjusted based on changes agreed uponby the Company.  The design-buildagreement includes a provision whereby the general contractor receives an earlycompletion bonus for each day the construction is complete prior to theestimated completion date up to a maximum amount.  The contract may be terminated by the Companyupon a ten day written notice subject to payment for work completed,termination fees and any applicable costs and retainage.  As of June 30, 2006, the Company has incurred$9.0 million of these costs of which $1.8 million is included in accountspayable.

The total cost of the Indiana plant, including theconstruction of the ethanol plant and start-up expenses, is expected toapproximate $165.0 million for a natural gas powered ethanol plant.  Currently, the Company has signed a letter ofintent with a related contractor to design and build the ethanol plant, whichwill terminate on December 31, 2007 unless the basic size, design of thefacility and specific site have been determined.  In addition, the letter of intent willterminate on December 31, 2008 unless at least 10% of the necessary equity hasbeen raised.

In March 2006, the Company entered into an agreement with acontractor for grading and draining services for its Nebraska plant.  The cost of the services will beapproximately $1.2 million.

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The Company has an agreement with an electric company toprovide electrical service to its Nebraska plant.  The Company is required to make anon-refundable payment in aid of construction for the facilities the electricalcooperative will install for the benefit of the Company.  The amount of this payment will beapproximately $1.2 million.  The Companyis to pay $0.6 million prior to placing the order for the substation and thebalance of approximately $0.6 million upon the completion of the constructionof all facilities.  The agreement shallremain in effect for a term of five years from the initial billing period andwill be renewed automatically thereafter on an annual basis unless terminatedby either party giving 12 months written notice.

On May 5, 2006, the Company entered into a track materialpurchase agreement to purchase relay rail, joint bards, tie plates, cross tieand reconditioned turnouts.  The purchaseprice of this track material is approximately $1.6 million.

On May 5, 2006, the Company entered into a real estatepurchase agreement with Fillmore Western Railway Company (Fillmore) for thepurchase by the Company of certain property, including all real property andthe 100-foot railroad right of way, including any “extra width” railroad rightof way, and all other easements appurtenant to the use of the real estate,together with all track, ties, ballast, other track material and otherimprovements thereon owned, possessed, or claimed by Fillmore from milepost 1.7to milepost 3.7 on the Fillmore line.  Inaddition, pursuant to the real estate purchase agreement, Fillmore conveyed tothe Company an easement to use Fillmore’s right of way from milepost 3.7 toTurkey Creek for the purpose of underground pipeline and other utilities.  The purchase price for the property is$500,000 to be paid at closing.  Thepurchase price for the easement is $10,000.

Land

The Company has various options to purchase approximately 190acres in Nebraska, 375 acres in Indiana and 70 acres in Minnesota for a totalof approximately $1.0 million, $2.8 million and $2.9 million, respectively.

Consulting 

The Company has an agreement with a related party forassistance with negotiation of contracts, planning of the Company’s equitymarketing effort and securing debt financing. The agreement began upon execution and shall continue through theclosing date as defined in the agreement. The development consultant will receive compensation as follows: 7,500 unrestrictedmembership units at execution, $1,500 per week from execution through theclosing of the equity financing (which occurred in May 2006) and $375 per dayafter the closing of the equity financing, plus reimbursement of approvedexpenses up to a weekly maximum reimbursement of $750.  In addition, the development consultantreceived compensation of 42,500 restricted membership units subsequent to theclose of the Company’s seed capital offering. The Company may only terminate this agreement for cause as defined inthe consulting agreement.  The consultantmay terminate this agreement with 14 days’ written notice.

The Company has an agreement to compensate the original twomembers of the Company for development fees in a total sum of 1% of the total projectcost for the Company’s plant under construction near Fairmont, Nebraska to bepaid in membership units in exchange for their efforts to organize and developthis project.  These fees are currentlyestimated at $1,325,000 or 132,500 units of which 125,000 units were issued onMay 19, 2005 and any additional units will be issued and earned uponsubstantial completion of construction of the plant based on the actual projectcosts.  These membership units will be consideredrestricted until certain requirements within the agreement are reached.  If the Company files articles of dissolutionor another event prevents successful ethanol production by the Company, thesemembers will be required to return the restricted units to the Company withoutpayment of consideration.

Employment agreements

In April 2006, the Company entered into an employmentagreement with a member who is Chairman and Chief Executive Officer of theCompany.  The employee is to receive anannual base salary of $300,000 plus benefits. In addition he is eligible to receive an annual performance bonus, astrategic bonus (payable in units) and the use of an automobile provided by theCompany.  The term of the agreement isfor a period of three years from the effective date of the agreement withsuccessive automatic one year extensions.

In April 2006, the Company entered into an employmentagreement with a member who is President and Chief Operating Officer of theCompany.  The employee is to receive anannual base salary of $250,000 plus benefits. In addition, he is eligible to receive an annual performance bonus, astrategic bonus (payable in units), the use of an automobile provided by theCompany and reimbursement for moving expenses up to $70,000.  As a signing bonus, the employee received theright to acquire 30,000 units.  Theseunits would be issued in an amount equal to 6,000 units on each anniversary ofthe effective date, with termination of employment resulting in forfeiture ofthe right to receive any units that remain unissued.  The term of the agreement is for a period ofthree years from the effective date of the agreement with successive automaticone year extensions.  The Company willrecognize $300,000 of unit compensation expense over the term of the agreement.

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Marketing agreement

In May 2006, the Company entered into a marketing agreement topurchase distillers dried grains with solubles (DDGS) the Company is expectedto produce.  The buyer agrees to pay theCompany a percentage of the selling price minus an amount per ton.  The agreement commences when the Companybegins producing DDGS and continues for one year initially and thereafter maybe terminated by either party with 120 days written notice.

**NOTE E:  SUBSEQUENT EVENTS**

Constructioncontracts

On July 14, 2006, theCompany entered into an agreement for installation of the auger cast piling forits Fairmont, Nebraska ethanol plant for approximately $0.9 million. 

Marketing agreement

In July 2006, the Company entered into a marketing agreementfor the sale of all of the ethanol that the Company’s Fairmont, Nebraska plantproduces.  The Company will receive aprice equal to the actual sale price less expenses and a marketing fee chargedper gallon.  The initial term of theagreement is for at least 12 months beginning on the first day of the month ofthe first shipment of ethanol and ending at the end of March or end ofSeptember, whichever occurs first, following the twelve month period.  After the initial term, it will automaticallyrenew for successive one year terms unless terminated by either party upon 90days’ written notice.  The agreement mayalso be terminated for an uncured breach, intentional misconduct or upon mutualagreement of the parties.

**NOTE F:  ACQUISITION**

Effective June 15, 2006, the Company acquired all of theoutstanding units of IRF.  The aggregatepurchase price was $4,197,000 of which $4,172,000 was paid by the issuance of417,200 ABE units and $25,000 was paid in cash. The purchase price was allocated based on the fair value of the netassets acquired as follows:

| Assets acquired:                       |   |      |      |
|----------------------------------------|--------|-----------|-----------|
| Cash                                   |   | $         | 1,331,287 |   |
| Prepaid expenses                       |   | 5,335     |      |
| Land options                           |   | 10,000    |      |
| Intangible assets                      |   | 2,811,531 |      |
| Property and equipment                 |   | 44,593    |      |
|                                   |   | 4,202,746 |      |
| Liabilities  assumed, accounts payable |   | (5,746    | )         |
| **Net  purchase price**                |   | $         | 4,197,000 |   |

As discussed in Note A, the Company also has 75,000 units valued at$750,000 that are held in escrow and being treated as contingent considerationthat will be recognized when released from escrow.

**ITEM 2.  MANAGEMENT’S DISCUSSIONAND ANALYSIS OR PLAN OF OPERATION**

**FORWARD-LOOKINGSTATEMENTS**

The followingdiscussion may contain forward-looking statements regarding us, our businessprospects and our results of operations that are subject to certain risks anduncertainties posed by many factors and events that could cause our actualbusiness, prospects and results of operations to differ materially from thosethat may be anticipated by such forward-looking statements.  Factors that could cause or contribute tosuch differences include, but are not limited to, those described in the “RiskFactors” section of the final prospectus relating to our initial publicoffering, as filed with the Securities and Exchange Commission.  Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of the dateof this report.  We undertake noobligation to revise any forward-looking statements in order to reflect eventsor circumstances that may subsequently arise. Readers are urged to carefullyreview and consider the various disclosures made by us in this report and inour other reports filed with the Securities and Exchange Commission that adviseinterested parties of the risks and factors that may affect our business.

The interim financial statements filed onthis Form 10-QSB and the discussions contained herein should be read inconjunction with the financial statements and notes included in the finalprospectus relating to our initial public offering, as filed with theSecurities and Exchange Commission, which includes audited financial statementsfor our fiscal period from inception through September 30, 2005.

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**OVERVIEW**

We are a start-up Delaware limited liability companyformed on January 4, 2005 for the purpose of constructing and operating plantsto produce ethanol and distillers grains, as well as to operate other relatedbiofuel businesses.  We are currentlyconstructing a 100 million gallons per year ethanol plant near Fairmont,Nebraska, known as the Nebraska plant. We do not expect to generate any revenue until we have a plant that iscompletely constructed and operational. We are also planning to construct a 100 million gallons per year drymill corn-processing ethanol plant to be located near Rochester, Indiana, knownas the Indiana plant, as well as a 100 million gallons per year dry millcorn-processing ethanol plant to be located near Northfield, Minnesota, knownas the Minnesota plant.  In the future,we may explore the possibility of developing and building, or acquiring, one ormore additional ethanol plants, or we may choose to enter other biofuelbusinesses.

**PLAN OF OPERATIONS THROUGHSEPTEMBER 2007**

We expect to spend the period of time concluding inSeptember 2007 focused primarily on project capitalization and plant constructionfor the Nebraska plant, project capitalization, site acquisition anddevelopment and plant construction for the Indiana plant, and projectcapitalization and site acquisition and development for the Minnesota plant.

We expect to have sufficient cash on hand to cover allcosts associated with construction of the Nebraska plant, including, but notlimited to, site acquisition and development, utilities, construction andequipment acquisition.

As of August 10, 2006, we have five full-timeemployees and anticipate adding approximately 45 additional employees inconnection with the commencement of operations at the Nebraska plant inSeptember 2007.  We also plan to hireadditional employees as our company expands.

**Nebraska Plant**

Based upon engineering specifications produced byFagen, Inc., the design-builder for the Nebraska plant, the Nebraska plant willannually consume approximately 36 million bushels of corn and annually produceapproximately 100 million gallons of fuel grade ethanol and 321,000 tons of distillersgrains for animal feed. We currently estimate completing the construction ofthe Nebraska plant in September 2007.  Weexpect the Nebraska plant will cost approximately $142.0 million to complete.This includes approximately $98.0 million to build the plant and an additional$44.0 million in other capital expenditures, start-up costs, working capitaland interest. We are still in the construction phase, and until the Nebraskaplant is operational, we will generate no revenue. We anticipate that accumulatedlosses will continue to increase until the Nebraska plant is operational.

*Project capitalization*

We estimate that we will need approximately $142.0million to complete the Nebraska plant and commence operations.  These estimates are based on discussions withFagen, Inc. and ICM, Inc., who is providing the technology necessary toconstruct the Nebraska plant.  Thefollowing figures are intended to be estimates only, and the actual use offunds may vary significantly from the descriptions given below due to changesto our design or to a variety of other factors described elsewhere in thisreport.

| Nebraska Plant                      | ** ** |
|------------------------------------------|------------|
| **Use of Proceeds**            | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Plant  construction                      |       | $ | 98,500,000 |   | 69.366 | % |
| Land                                     |       | 1,700,000 |   | 1.197 | % |
| Site development  costs                  |       | 6,100,000 |   | 4.296 | % |
| Natural gas  pipeline                    |       | 4,000,000 |   | 2.817 | % |
| Railroad  infrastructure                 |       | 7,100,000 |   | 5.000 | % |
| Fire protection  / Water supply          |       | 950,000 |   | 0.669 | % |
| Water treatment  system                  |       | 580,000 |   | 0.408 | % |
| Administrative  building                 |       | 450,000 |   | 0.317 | % |
| Office equipment                         |       | 100,000 |   | 0.070 | % |
| Computers,  software, network            |       | 180,000 |   | 0.127 | % |
| Construction  insurance costs            |       | 210,000 |   | 0.148 | % |
| Construction  contingency                |       | 1,120,000 |   | 0.789 | % |
| Capitalized  interest                    |       | 2,000,000 |   | 1.408 | % |
| Rolling stock                            |       | 400,000 |   | 0.282 | % |
| **Start-up  costs:**                     |       |   |   |   |   |
| Financing costs                          |       | 1,000,000 |   | 0.704 | % |
| Organization costs                       |       | 1,660,000 |   | 1.169 | % |
| Pre production period costs              |       | 950,000 |   | 0.669 | % |
| Inventory—Spare parts               |       | 600,000 |   | 0.423 | % |
| Inventory—Working capital           |       | 6,000,000 |   | 4.225 | % |
| Inventory—Corn                      |       | 4,000,000 |   | 2.817 | % |
| Inventory—Chemicals and ingredients |       | 650,000 |   | 0.458 | % |
| Inventory—Ethanol                   |       | 2,950,000 |   | 2.077 | % |
| Inventory—Distillers grains         |       | 800,000 |   | 0.563 | % |
| **Total**                                |       | $ | 142,000,000 |   | 100 | % |
|                                          |            |  |  |  |  |  |  |

 

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InMay, we raised $59.4 million net of offering expenses through the sale ofunits.

EffectiveFebruary 17, 2006, we entered into a loan agreement with Farm CreditServices of America, FLCA, known as Farm Credit, establishing a senior creditfacility with Farm Credit for the construction of the Nebraska plant. Theconstruction financing is in the amount of $79.5 million consisting of a $58.5million term loan and a $21.0 million revolving term loan.  Farm Credit has also established a $5.0million revolving credit facility for financing eligible grain inventory andequity in Chicago Board of Trade futures positions that will not be effectiveuntil we begin operations. CoBank, ACB has been appointed by Farm Credit toserve as its agent with regard to these loans. Farm Credit is only obligated to lend the funds for construction ifcertain conditions are satisfied. These conditions include, among others, thetotal cost of the project being within a specified amount, the receipt ofengineering and construction contracts and a process/yield guarantee from thedesign engineer and contractor acceptable to Farm Credit, evidence of theissuance of all permits, acceptable insurance coverage and title commitment,the contribution of at least $53.0 million of equity and the delivery ofattorney opinions.

On April 27,2006, we entered into a loan and trust agreement with the County of Fillmore,State of Nebraska, known as Fillmore County, and Wells Fargo, N.A. whereinFillmore County will issue and sell $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 agreed to then loan the proceeds fromthe sale of these bonds to us.

We are seekingapproximately $7.0 in tax increment financing from the Village of Fairmont,Nebraska.  Tax increment financing is aprogram created by state statute and provides city councils with the power touse all of the real property tax resulting from the increase in taxablevaluation due to the construction of new industrial or commercial facilities toprovide economic incentives. We obtained approval from the city council of theVillage of Fairmont of the redevelopment agreement in February 2006 and weanticipate that annexation of our plant site will be completed and closing willoccur in the third calendar quarter of 2006. However, there is no guaranteethat we will obtain tax increment financing or that if we do it will be in theamount currently anticipated.

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

*Plant construction and start-up of Nebraska plantoperations*

InOctober 2005, we purchased 112 acres of land near Fairmont, Nebraska fromWDB, Inc. for $672,000.  DuringOctober 2005, we purchased 148 acres of land in Fillmore County, Nebraskafrom Doris Gwen Ogden for $740,000.  OnApril 6, 2006, we conveyed a right-of-way to Fillmore County, Nebraska, byquitclaim deed, of certain property in order that the entry road to theNebraska plant is widened.

In December 2005, we commenced site preparation forconstruction of the Nebraska plant. Our plant site consists of two adjacentparcels. We selected the site because of its location relative to existinggrain production, accessibility to road and rail transportation and proximityto major population centers. The site is near the mainline BNSF railroad. Inaddition, the site is also in close proximity to the intersection of U.S.Highway 6 and 81. Our activities for the next 12 months will includecompletion of final design and development of the plant. We also plan tonegotiate and execute final contracts concerning the provision of necessarynatural gas and marketing agreements for distillers grains.

We have engaged Nilex Construction, LLC to supply andinstall vertical wick drains and horizontal strip drains to our plantsite.  We have also engaged Gana Truckingto provide dirt work and site preparation.

EffectiveMarch 16, 2006, we entered into a lump-sum design-build agreement withFagen to establish a 100 million gallons per year dry grain ethanolproduction facility on our plant site. Under the terms of the lump-sumdesign-build agreement, Fagen guarantees that the plant will operate at a rateof 100 million gallons per year of denatured fuel grade ethanol.  We expect that the plant will besubstantially complete by September 2007, which is approximately 14 to16 months after commencement of construction. Under the terms of thelump-sum design-build agreement, we will pay Fagen $98.0 million, subject toany mutually agreed-upon adjustments and subject to a credit for any sums paidto Fagen Engineering, LLC for engineering performed pursuant to the phase I andphase II engineering services agreement. Fagen and Fagen Engineering, LLC arerelated entities.

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On May 5,2006, we entered into a track material purchase agreement with The Tie Yard OfOmaha to purchase relay rail, joint bards, tie plates, cross tie andreconditioned turnouts for approximately $1.6 million.  On May 5, 2006, we entered into a realestate purchase agreement with Fillmore Western Railway Company for thepurchase of certain property for railroad right of way and track material, aswell as an easement to use their right of way for the purpose of undergroundpipeline and other utilities. The purchase price for the property is $500,000to be paid at closing.

On April 25,2006, we entered into a contract for electric service with Perennial PublicPower District, a public corporation and political subdivision of the State ofNebraska, whereby Perennial will supply all of the electric power and energyneeded by the Nebraska plant. Perennial has agreed to install and maintain thesubtransmission line and substation facilities needed for electric service.

**Indiana Plant**

*Project capitalization*

On June 15, 2006 we acquired Indiana RenewableFuels, LLC, an Indiana limited liability company, through the merger of ourwholly owned subsidiary with and into Indiana Renewable Fuels, LLC.  Indiana Renewable Fuels has a letter ofintent with Fagen to construct a 100 million gallons per year dry millcorn-processing ethanol plant near Rochester, Indiana.  We estimate that we will need approximately$165.0 million to cover all capital expenditures necessary to construct andcomplete the Indiana plant, make the Indiana plant operational, provide workingcapital for the plant and produce revenue.

*Indiana site acquisition and development*

We expect to continue work on the preliminary designand development of our proposed Indiana plant, obtaining the necessary constructionpermits, identifying potential sources of financing and negotiating the cornsupply, ethanol and distillers grains marketing, utility and othercontracts.  Assuming we obtain thenecessary financing to complete the Indiana plant, we expect to completeconstruction of the proposed Indiana plant and commence operations in the thirdcalendar quarter of 2008.

**Minnesota Plant**

We have entered into a verbal agreement with Fagen toenter into a letter of intent to construct a 100 million gallons per year drymill corn-processing ethanol plant near Northfield, Minnesota.  Over the next 12 months, we expect tocontinue work on the preliminary design and development of our proposedMinnesota plant, obtaining the necessary construction permits, identifyingpotential sources of financing and negotiating the design-build, corn supply,ethanol and distillers grains marketing, utility and other contracts.

**Trendsand Uncertainties Impacting the Ethanol Industry and Our Future Operations**

If we are able to build the plants and beginoperations, we will be subject to industry-wide factors that affect ouroperating and financial performance. These factors include, but are not limitedto, the available supply and cost of corn from which our ethanol and distillersgrains will be processed; the cost of natural gas, which we will use in theproduction process; dependence on our ethanol marketer and distillers grainsmarketer to market and distribute our products; the intensely competitivenature of the ethanol industry; possible legislation at the federal, stateand/or local level; changes in federal ethanol tax incentives and the cost ofcomplying with extensive environmental laws that regulate our industry.

We expect ethanol sales to constitute the bulk of ourfuture revenues. Ethanol prices have recently been much higher than their tenyear average. However, due to the increase in the supply of ethanol from thenumber of 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, Philadelphia, Baltimore, Boston, North Carolina, South Carolina,Michigan, Nashville, Baton Rouge and Houston. 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 60 million gallons of ethanol are produced in thestate.

We expect to benefit from federal ethanol supports andfederal tax incentives. Changes to these supports or incentives couldsignificantly impact demand for ethanol. On August 8, 2005, the Energy PolicyAct of 2005 was signed into law containing a renewable fuel standard, known asthe RFS. The RFS is a national flexible program that does not require that anyrenewable fuels be used in any particular area or state, allowing refiners touse renewable fuel blends in those areas where it is most cost-effective.  The RFS will begin at 4 billion gallons in2006, and increase to 7.5 billion gallons by 2012. According to the RenewableFuels Association, the Energy Policy Act is expected to lead to approximately$6 billion in new investment in ethanol plants across the country. An increasein the 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 theshort term due to additional demand, future supply could outweigh the demandfor ethanol in the future. This would have a negative impact on our earnings inthe long term.

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Although the Energy Policy Act did not impose anational ban of MTBE, we believe its failure to include liability protectionfor manufacturers of MTBE could result in refiners and blenders using ethanolas an oxygenate rather than MTBE to satisfy the reformulated gasoline oxygenaterequirement. While this may create increased demand in the short term, we donot expect this to have a long term impact on the demand for ethanol as theEnergy Policy Act repeals the Clean Air Act’s 2% oxygenate requirement forreformulated gasoline immediately in California and 270 days after enactmentelsewhere.

Demand for ethanol may also increase as a result ofincreased consumption of E85 fuel. E85 fuel is a blend of 70% to 85% ethanoland gasoline. According to the Energy Information Administration, E85consumption is projected to increase from a national total of 11 milliongallons in 2003 to 47 million gallons in 2025. E85 is used as an aviation fueland as a hydrogen source for fuel cells.

Ethanol production continues to grow as additionalplants become operational. Demand for ethanol has been supported by higher oilprices and its refined components and by clean air standards mandated byfederal agencies that require highly populated areas to blend ethanol intotheir gasoline supplies as an oxygenate. The intent of the air standards is toreduce harmful emissions into the atmosphere. These mandates have beenchallenged in several metropolitan areas, and are currently being reviewed bythe courts. In the future, the combination of additional supply, successfulchallenges to the clean air standards 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 product andnegatively affect our profitability. Certain individuals believe that use ofethanol will have a negative impact on prices at the pump. Many also believethat ethanol adds to air pollution and harms car and truck engines. Still otherconsumers believe that the process of producing ethanol actually uses morefossil energy, such as oil and natural gas, than the amount of ethanol that isproduced. These consumer beliefs could potentially be wide-spread. If consumerschoose not to buy ethanol, it would affect the demand for the ethanol weproduce which could negatively affect our ability sell our product and negativelyaffect our profitability.

**TRENDSAND UNCERTAINTIES IMPACTING THE CORN AND NATURAL GAS MARKETS AND OUR FUTURECOST OF GOODS SOLD**

If we are able tobuild the plants and begin operations, we will be subject to industry-widefactors that affect our operating and financial performance. These factorsinclude, but are not limited to, the available supply and cost of corn fromwhich our ethanol and distillers grains will be processed; the cost of naturalgas, which we will use in the production process; dependence on our ethanolmarketer and distillers grains marketer to market and distribute our products;the intensely competitive nature of the ethanol industry; possible legislationat the federal, state and/or local level; changes in federal ethanol tax incentivesand the cost of complying with extensive environmental laws that regulate ourindustry.

We expect ethanolprices will be positively impacted by blenders and refineries increasing theiruse of ethanol in response to environmental liability concerns about MTBE andincreased consumer acceptance and exposure of ethanol. For instance, ifgasoline prices continue to trend higher, consumers will look for lower pricedalternative fuels. The Consumer Federation of America recently published areport that states that consumers could save up to $0.08 per gallon at the pumpif ethanol were blended at 10%. Since ethanol blended fuel is a cheaperalternative for consumers, the demand for such ethanol blended fuel couldincrease, thus increasing the overall demand for ethanol. This could positivelyaffect our earnings. However, the recent voluntary shift away from MTBE toethanol has put increased focus on America’s ethanol and gasoline supplies.Legislation was recently introduced in the Senate and House of Representativethat would strike the $0.54 secondary tariff on imported ethanol due toconcerns that the recent spikes in retail gasoline prices are a result ofethanol supplies. Management believes these concerns over ethanol supplies aremisguided. The Energy Information Administration estimates that 130,000 barrelsper day of ethanol will be needed to replace the volume of MTBE refiners havechosen to remove from the gasoline pool. The most recent Energy InformationAdministration report shows that U.S. ethanol production has soared to 302,000barrels per day in February 2006, clearly enough ethanol to meet the new MTBEreplacement demand while continuing to supply existing markets. Further,ethanol production capacity continues to increase as new plants come on-line.Nevertheless, if the legislation is passed, the price of ethanol may decrease,negatively affecting our earnings.

Demand for ethanolmay also increase as a result of increased consumption of E85 fuel. E85 fuel isa blend of 70% to 85% ethanol and gasoline. According to the Energy InformationAdministration, E85 consumption is projected to increase from a national totalof 11 million gallons in 2003 to 47 million gallons in 2025. E85 isused as an aviation fuel and as a hydrogen source for fuel cells. In the UnitedStates, there are currently about 3 million flexible fuel vehicles capableof operating on E85 and 400 retail stations supplying it. Automakers haveindicated plans to produce an estimated 2 million more flexible fuelvehicles per year.

Ethanol productioncontinues to grow as additional plants become operational. Demand for ethanolhas been supported by higher oil prices and its refined components and by cleanair standards mandated by federal agencies requiring highly populated areas toblend ethanol into their gasoline supplies as an oxygenate. The intent of theair standards is to reduce harmful emissions into the atmosphere. Thesemandates have been challenged in several metropolitan areas, and are currentlybeing reviewed by the courts. In the future, the combination of additionalsupply, successful challenges to the clean air standards and stagnant orreduced demand may

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damage our ability togenerate revenues and maintain positive cash flows.

**TECHNOLOGY DEVELOPMENTS**

A new technologyhas recently been introduced to remove corn oil from concentrated thin stillage(a by-product of “dry milling” ethanol processing facilities) that would beused as an animal feed supplement or possibly as an input for bio-dieselproduction. Although the recovery of oil from the thin stillage may beeconomically feasible, it fails to produce the advantages of removing the oilprior to the fermentation process. The FWS Group of Companies, headquarteredout of Canada with offices in the United States, is currently working on astarch separation technology that would economically separate a corn kernelinto its main components. The process removes the germ, pericarp and tip of thekernel leaving only the endosperm of kernel for the production of ethanol. Thistechnology has the capability to reduce drying costs and the loading ofvolatile organic compounds. The separated germ would also be available throughthis process for other uses such as high oil feeds or bio-diesel production.Each of these new technologies is currently in its early stages of development.There is no guarantee that either technology will be successful or that we willbe able to implement the technology in our ethanol plants.

**LIQUIDITY AND CAPITAL RESOURCES**

As of June 30, 2006, we have total assets ofapproximately $75.6 million consisting primarily of cash, prepaid expenses,deferred offering and financing costs and construction in progress. We havecurrent liabilities of approximately $3.7 million consisting primarily of ouraccounts payable and long-term liabilities of $7.0 million consisting of oursenior credit facility and other debt financing. Since our inception throughJune 30, 2006, we have an accumulated deficit of approximately $1.6million.  Total members’ equity as ofJune 30, 2006, was approximately $64.9 million. Since our inception, we havegenerated no revenue from operations. For the period from inception to June 30,2006, we had a net loss of approximately $1.6 million, primarily due tostart-up business costs and related professional fees.

Based on our business plan and current constructioncost estimates, we believe the Nebraska plant will cost approximately $142.0million to construct and start operations and the Indiana plant will costapproximately $165.0 million to construct and start operations.  We have not yet determined the constructionand start-up costs for the Minnesota plant. We believe we have sufficient equity, debt financing, incentives andgrants to complete the Nebraska plant. We expect to require significant equity financing, debt financing,incentives and grants to complete the Indiana and Minnesota plants.

**Senior Credit Facility**

EffectiveFebruary 17, 2006, we entered into a loan agreement with Farm Creditestablishing a senior credit facility with Farm Credit for the construction ofa 100 million gallon per year ethanol plant. The construction financing is inthe amount of $79.5 million consisting of a $58.5 million term loan and a $21.0million revolving term loan. Farm Credit has also established 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. CoBank, ACB, has been appointed by Farm Credit to serve asits agent with regard to these loans.

We may select arate of interest on the borrowed funds at the lender’s announced base rate plus0.5%, a fixed rate to be quoted by the lender, or at LIBOR (1, 2, 3, 6, 9 or 12months) plus 3.4%, which will be calculated on a 360 day basis. We paid anorigination fee of $397,500 to Farm Credit for the term loan and a commitmentfee at a rate of .0625% per annum payable on a monthly basis on the unusedportion of the revolving term loan. For the revolving credit facility, we paidan origination fee of $12,500 and a commitment fee of .025% per annum payableon a monthly basis on the unused portion of the revolving credit facility.

Farm Credit isonly obligated to lend the funds for construction if certain conditions aresatisfied. These conditions include, among others, the total cost of theproject being within a specified amount, the receipt of engineering andconstruction contracts and a process/yield guarantee from the design engineerand contractor acceptable to Farm Credit, evidence of the issuance of allpermits, acceptable insurance coverage and title commitment, the contributionof at least $53.0 million of equity (less any tax increment financing proceedsand the proceeds we receive from the sale of subordinate exempt facilities revenuebonds issued by Fillmore County, Nebraska) and the delivery of attorneyopinions.

We must repay theterm construction loan as follows: 27 equal, consecutive, quarterlyinstallments of $2.125 million with the first installment due onDecember 20, 2007 and the last installment due on June 20, 2014,followed by a final installment in an amount equal to the remaining unpaidprincipal balance on September 20, 2014. During the term of the loan, weare required to pay an annual amount equal to 65% of our free cash flow foreach year, not to exceed $4.5 million in any fiscal year. These payments willcontinue until an aggregate sum of $9.0 million has been received by FarmCredit.

On the earlier ofMarch 1, 2015 or six months following repayment the term loan, we willbegin repayment of the revolving construction loan in $4.0 million incrementswith the final payment due March 1, 2017. We will repay the revolvingcredit facility the

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earlier of March 1,2008 or 12 months after the date on which we borrow the funds.

The loans aresecured by a first mortgage on our real estate and a lien on all of ourpersonal property. We have agreed to purchase $1,000 worth of stock in FarmCredit Services of America, ACA that will also be pledged as security for theloans. If we prepay any portion of the construction loans prior toFebruary 1, 2009, we will pay a prepayment charge of 3% in addition tocertain surcharges.

During the term ofthe loans, we will be subject to certain financial loan covenants consisting ofminimum working capital, minimum net worth and maximum debt service coverageratios.  After the construction phase, we will only be allowed to makeannual capital expenditures up to $600,000 annually without prior approval. Wewill also be prohibited from making distributions to our members; however, foreach fiscal year commencing with the fiscal year ending September 30, 2007, wemay make a distribution to our members of 50% of the net profit for that fiscalyear after our lender has received audited financial statements for the fiscalyear. We may exceed 50% only if we have made the required free cash flowpayment for that fiscal year. We must be in compliance with all financial ratiorequirements and loan covenants before and after any distributions to the members.

Upon an occurrenceof an event of default or an event that will lead to our default, Farm Creditmay upon notice terminate its commitment to loan funds and declare the entireunpaid principal balance of the loans, plus accrued interest, immediately dueand payable. An event of default includes, but is not limited to, our failureto make payments when due, insolvency, any material adverse change in ourfinancial condition or our breach of any of the covenants, representations orwarranties we have given in connection with the transaction.

**Fillmore County Subordinate Exempt FacilitiesRevenue Bonds**

On April 27,2006, we entered into a loan and trust agreement with Fillmore County and WellsFargo, N.A. wherein Fillmore County will issue and sell $7.0 million ofsubordinate exempt facilities revenue bonds, the interest on which is expectedto be exempt from inclusion as gross income of the holder of the bonds forfederal and state income tax purposes. Fillmore County has agreed to then loanthe proceeds from the sale of these bonds to us.

We agreed to repaythe loan by making loan payments to Fillmore County in an amount equal to theaggregate principal amount of the bonds from time to time outstanding, and thepremium, if any, and interest thereon at maturity, upon redemption, uponacceleration or when otherwise payable. Our obligation to make the loanpayments under the loan and trust agreement is evidenced by the execution anddelivery of a promissory note. Repayment of the bonds and the security for thebonds is subordinate to our senior credit facility with CoBank and Farm Credit.

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

Defaults under theloan and trust agreement include, but are not limited to: (i) failure topay any installment of principal or any payment of interest or premium on theloan or the note; (ii) failure to observe or perform any of thecovenants, agreements or conditions contained in the loan and trust agreementor in the security documents; and (iii) falseness of any representation orwarranty in any material adverse respect as of the time made or given. Upon theoccurrence of a default, Wells Fargo may declare all loan repayments forthe remainder of the term of the loan and trust agreement to be immediately dueand payable by us and may declare the entire outstanding principal balanceof the loan, together with all interest accrued thereon, to be due and payableand take whatever action at law or in equity to collect the loan repaymentsthen due and thereafter to become due or to enforce performance and observanceof any obligation, agreement or covenant under the loan and trust agreement.However, the ability of Wells Fargo to take these actions upon default is alsosubject to certain terms and conditions found in a debt subordination agreementbetween CoBank, us and Wells Fargo.

The bonds aresecured by a subordinate deed of trust and security agreement granted by us toWells Fargo pursuant to which we conveyed to Wells Fargo a mortgage lien on thereal property and fixtures constituting the Nebraska plant and securityinterests in all tangible personal property located on the mortgaged realproperty or used in connection with Nebraska plant as security for repayment ofthe bonds. The lien of the subordinate deed of trust shall be subordinate tothe lien of a deed of trust and security agreement given by us in favor ofCoBank and Farm Credit.

The bonds will be purchasedby Oppenheimer & Co. In exchange for certain compensation, Oppenheimer& Co. agreed to purchase the bonds, subject to the terms of a bond purchaseagreement between Fillmore County, our company and Oppenheimer & Co. Thebond purchase agreement provides that Oppenheimer & Co. shall purchase allbonds if any are purchased. We indemnify Oppenheimer & Co. and FillmoreCounty under the bond purchase agreement against certain liabilities, includingcertain liabilities under federal and state securities laws.

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**Tax Increment Financing**

We are seekingapproximately $7.0 million in tax increment financing from the Village ofFairmont, Nebraska.  Tax incrementfinancing is a program created by state statute and provides city councils thepower to use all of the real property tax resulting from the increase intaxable valuation due to the construction of new industrial or commercialfacilities to provide economic incentives. We obtained approval from the citycouncil of the Village of Fairmont of the redevelopment agreement inFebruary 2006 and we anticipate that annexation of our plant site will becompleted and closing will occur in the third calendar quarter of 2006.However, there is no guarantee that we will obtain tax increment financing orthat if we do it will be in the amount currently anticipated.

**Community Development Block Grant**

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

**FutureCapital Requirements**

We believe that wehave secured sufficient funds to complete construction and start-up of theNebraska plant.  Our future capitalrequirements will primarily depend on the cost and timing to complete theIndiana plant and Minnesota plant and the number of additional plants weconstruct or acquire, the timing of those plant openings or acquisitions withina given fiscal year and the need to fund operating losses, as well as the termsof any other corporate opportunities we undertake. These requirements willinclude costs directly related to constructing or acquiring new ethanol plantsand may also include costs necessary to ensure that our infrastructure,including technology and distribution capabilities, is able to support multipleplants.  We can provide no assurances atthis time as to the timing of such an expansion, or whether such an expansionwill occur.

Based on our business plan and current constructioncost estimates, we believe the Indiana plant construction and start-up(including working capital) will cost approximately $165.0 million and we donot yet have cost estimates for the Minnesota plant.  We expect to require significant equity anddebt financing, incentives and grants to fund these plants.

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 these plants relies in large part on our ability toattract sufficient equity and debt financing.

Withthe placement of the subordinated exempt facilities revenue bonds to FillmoreCounty, we have an obligation that may require funding if our cash flows fromoperations will not cover repayment of these bonds.

We intend tosatisfy our capital requirements in fiscal 2006 in part with existing cash andfunds available under our credit facility. We anticipate that we will need to seek additional debt or equity financingin the public or private markets. There is no assurance that financing will beavailable to us on acceptable terms.

#### **INTERESTRATE RISK**

Our earnings areaffected by changes in interest rates due to the impact those changes have onour interest expense on borrowings under our credit facility. Our outstandingsubordinated exempt facilities revenue bonds carry a fixed rate of interest. Asof June 30, 2006, we had no floating rate indebtedness. We have not contractedfor any derivative financial instruments. We have no international sales.  Substantially all of our purchases aredenominated in U.S. dollars.

**IMPACT OF INFLATION**

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

**CRITICALACCOUNTING POLICIES**

Management uses estimatesand assumptions in preparing our financial statements in accordance withgenerally accepted accounting principles. These estimates and assumptionsaffect the reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities and the reported revenues and expenses.

**POSSIBLE FUTURE GRANTS,GOVERNMENT PROGRAMS, TAX CREDITS 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 projectdevelopment grant from the U.S. Department of Agriculture. Although we mayapply under several programs simultaneously and may be awarded grants or otherbenefits from more than one program, it must be noted that some combinations ofprograms are mutually exclusive. Under some state and federal programs, awardsare not made to

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applicants in cases where construction on the projecthas started prior to the award date. There is no guarantee that applicationswill result in awards of grants or loans.

A legislative bill was introduced in the 2005 Nebraskalegislature that offered any new Nebraska ethanol producer not in production onor before the effective date of the act a tax credit of 8 cents per gallon ofethanol up to 75 million gallons over 72 consecutive months with a maximumcredit of $6.0 million per plant. The bill has been carried over until the 2006legislative session. There is no assurance that the Nebraska legislature willapprove this ethanol incentive legislation or any other type of ethanolincentive legislation. In addition, we cannot guarantee that our project willbe able to benefit from any ethanol incentive program that may be enacted bythe Nebraska legislature.

**ITEM3.  CONTROLS AND PROCEDURES**

**DisclosureControls and Procedures**

As of the end ofthe period covered by this report, we conducted an evaluation, under thesupervision and with the participation of the principal executive officer andprincipal financial and accounting officer, of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities ExchangeAct of 1934).  Based on this evaluation,the principal executive officer and principal financial and accounting officerconcluded that our disclosure controls and procedures are effective to ensurethat information required to be disclosed by us in reports that we file orsubmit under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms.

**InternalControl Over Financial Reporting**

There was nochange in our internal control over financial reporting identified inconnection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of theSecurities Exchange Act of 1934 that occurred during the period covered by thisreport that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

**PART II.  OTHER INFORMATION**

**ITEM 1.  LEGALPROCEEDINGS**

None.

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

Not applicable.

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

Not applicable.

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

None.

**ITEM 5.  OTHERINFORMATION**

None.

**ITEM 6. EXHIBITS**
| Exhibit No. | ** ** | **Description**          | ** ** | **Method of Filing**          |
|-------------|------------|--------------------------|------------|-------------------------------|
| 3.1         |       | Certificate of Formation |       | Incorporated By Reference (1) |

 

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| 3.2    |   | Third Amended and Restated Operating Agreement of  the Registrant                                     |   | Incorporated By Reference (2) |
|--------|--------|-------------------------------------------------------------------------------------------------------|--------|-------------------------------|
|   |   |                                                                                                  |   |                          |
| 10     |   | Ethanol Fuel Marketing Agreement with Renewable  Products Marketing Group, L.L.C. dated July 19, 2006 |   | Filed Herewith*               |
|   |   |                                                                                                  |   |                          |
| 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)             Incorporated hereinby reference to Exhibit 3.1 to the Registrant’s Registration Statement on FormSB-2 (Registration No. 333-125335), filed with the Commission on May 23, 2005.

(2)             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.

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
|                        | **ADVANCED BIOENERGY, LLC** |
|------------------------|-----------------------------|
|                   | ** **                  |
|                   | ** **                  |
| Date: August 14,  2006 | By:                         | *Revis L Stephenson III* | * * |
|                   | * *                    | Revis L. Stephenson III  Chairman and Chief Executive Officer  (Principal Executive Officer) |
|                   | * *                    |   |
|                   | * *                    |   |
| Date: August 14,  2006 | By:                         | *Robert W. Holmes* | * * |
|                   | * *                    | Robert W. Holmes  Treasurer  (Principal Financial and Accounting Officer) |

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**EXHIBITINDEX**
| Exhibit No. | ** ** | **Description**                                                                                       | ** ** | **Method of Filing**      |
|-------------|------------|-------------------------------------------------------------------------------------------------------|------------|---------------------------|
| 3.1         |       | Certificate of Formation                                                                              |       | Incorporated By Reference |
|        |       |                                                                                                  |       |                      |
| 3.2         |       | Third Amended and Restated Operating Agreement of  the Registrant                                     |       | Incorporated By Reference |
|        |       |                                                                                                  |       |                      |
| 10          |       | Ethanol Fuel Marketing Agreement with Renewable  Products Marketing Group, L.L.C. dated July 19, 2006 |       | Filed Herewith*           |
|        |       |                                                                                                  |       |                      |
| 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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