** **

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

**FORM10-QSB**

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

**FOR THEQUARTERLY PERIOD ENDED:   June 30, 2007**

**Commission File Number: 000-52421**

**ADVANCED BIOENERGY, LLC**

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

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

 

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

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

Indicatethe number of units outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date: 9,848,028 membership unitsoutstanding as of August 10, 2007.

TransitionalSmall Business Disclosure Format (check one): Yes o No þ

 

 

----

**ADVANCED BIOENERGY, LLC**

**FORM 10-QSB**

**Index**
| PART I. FINANCIAL INFORMATION |   |
|-------------------------------|--------|
|                          |   |   |   |
| Item  1.                      |   | Financial  Statements |   |
|                          |   | Consolidated  Balance Sheets | 3 |
|                          |   | Consolidated Statements of Operations | 4 |
|                          |   | Consolidated Statements of Changes in Members’ Equity | 5 |
|                          |   | Consolidated Statements of Cash Flows | 6 |
|                          |   | Notes to Consolidated Financial Statements | 7 |
| Item 2.                       |   | Management’s Discussion and Analysis or Plan of  Operation | 14 |
| Item 3.                       |   | Controls and Procedures | 26 |
|                          |   |   |   |
| PART  II. OTHER INFORMATION   | 26     |
|                          |   |   |   |
| Item  1.                      |   | Legal  Proceedings | 26 |
| Item 2.                       |   | Unregistered Sales of Equity Securities and Use of  Proceeds | 26 |
| Item 3.                       |   | Defaults Upon Senior Securities | 26 |
| Item 4.                       |   | Submission of Matters to a Vote of Security Holders | 26 |
| Item  5.                      |   | Other  Information | 26 |
| Item 6.                       |   | Exhibits | 27 |
|                          |   |   |   |
| SIGNATURES                    | 28     |

 

2

----

**PART I. FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

**ADVANCED BIOENERGY, LLC & SUBSIDIARIES**

**Consolidated Balance Sheets**

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

 

See notes toconsolidated financial statements.

3

----

**ADVANCED BIOENERGY, LLC & SUBSIDIARIES**

**Consolidated Statements of Operations**

**(Unaudited)**

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

 

Seenotes to consolidated financial statements

4

----

**ADVANCED BIOENERGY, LLC & SUBSIDIARIES**

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

**For the Nine Months Ended June 30, 2007**

**(Unaudited)**

**(Dollars inthousands, except member units)**
| ** **                                                                                | ** ** | **Member**

**Units** | ** ** | **Members’**

**Capital** | ** **  | **Retained**

**(Deficit)** | ** ** | **Deferred**

**Compensation** | ** ** | **Total Members’**

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

 

See notes to consolidated financial statements

5

----

**ADVANCED BIOENERGY, LLC & SUBSIDIARIES**

**Consolidated Statements of Cash Flows**

**(Unaudited)**

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

 

See notes to consolidated financial statements.

6

----

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

**1.**   Organizationand Significant Accounting Policies

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

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

The Company was organized to build ethanol plants andundertake other biofuel projects. The Company currently operates a nine milliongallons per year ethanol plant in Aberdeen, South Dakota, and a thirty milliongallons per year ethanol plant in Huron, South Dakota, acquired in connectionwith the HGF acquisition. Construction of a 100 million gallons per yearethanol plant near Fairmont, Nebraska is under way and is expected to becompleted in September 2007. A 40 million gallons per year ethanol plantexpansion in Aberdeen, South Dakota, is underway and is expected to becompleted in December 2007. A 100 million gallon per year ethanol plant to belocated near Argos, Indiana, is in the design stage, and a 100 million gallonper year ethanol plant to be located near Northfield, Minnesota, is in thedevelopment stage.

**Investments**

The Company has equity investments interest in threeprivate cooperatives in unrelated industries. The Company’s interest representsless than 20% of the ownership of such companies and the Company has nofinancial obligations to such companies. The investments are being accountedfor under the equity method of accounting.

**Receivables**

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

**Inventories**

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

**DerivativeInstruments**

The Company has entered into derivative contracts tohedge the Company’s exposure to price risk related to forecasted corn purchasesand forecasted ethanol sales. These derivative contracts are to be accountedfor under Statement of Financial Accounting Standard (SFAS) No. 133, Accountingfor Derivative Instruments and Hedging Activities. SFAS No. 133 establishesaccounting and reporting standards for derivative instruments, includingcertain derivative instruments embedded in other contracts, and for hedgingactivities. It requires that an entity recognize all derivatives as eitherassets or liabilities in the statement of financial position and measure thoseinstruments at fair value. If certain conditions are met, a derivative may be specificallydesignated as (a) a hedge of the exposure to changes in the fair value of arecognized asset or liability or an unrecognized firm commitment, (b) a hedgeof the exposure to variable cash flows of a forecasted transaction, or (c) ahedge of the foreign currency exposure of a net investment in a foreignoperation, an unrecognized firm commitment, an available-for-sale security, or aforeign-currency-denominated forecasted transaction.

7

----

Although the Company believes its derivative positionsare economic hedges, none have been designated as a hedge for accountingpurposes and derivative positions are recorded on the balance sheet at theirfair market value, with changes in fair value recognized in current periodearnings.

**Goodwill**

The Company recordsgoodwill as the excess of purchase price over the fair value of theidentifiable net assets acquired. SFAS No. 142, Goodwill and Other IntangibleAssets, prescribes a two-step process for impairment testing of goodwill, whichis performed annually, as well as when an event triggering impairment may haveoccurred. The first step tests for impairment, while the second step, ifnecessary, measures the impairment. No indicators of impairment were identifiedduring the nine months ended June 30, 2007.

**DeferredIncome**

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

**RevenueRecognition**

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

In accordance with the Company’s agreements for themarketing and sale of ethanol and related products, commissions due to themarketers are deducted from the gross sale price at the time of payment. Commissionswere approximately $1.0 million for the nine months ended June 30, 2007. Nocommissions were paid for the nine months ended June 30, 2006.

**Loss per Unit**

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

**AccountingEstimates**

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

**RecentlyIssued Accounting Standards**

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

8

----

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

**2.**   Acquisition ofHGF

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

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

The acquisition was accounted for under the purchasemethod of accounting, and accordingly, the assets and liabilities acquired wererecorded at their estimated fair values at the effective date of theacquisition and the results of operations have been included in the unauditedconsolidated statements of operations since the acquisition date. In accordancewith SFAS No. 142, Goodwill and Other Intangible Assets, goodwill recorded as aresult of the acquisition will be subject to an annual impairment test and willnot be amortized.

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

 

9

----

**The following table presents ourconsolidated results of operations on an unaudited proforma basis as if theacquisition had taken place at the beginning of the periods presented (inthousands, except share amounts):**
| ** **                                       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **June 30, 2007**      | ** ** | **June 30, 2006**     | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
| ** **                                       | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                 | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| (in thousands,  except per unit data)            |       |                             |       |                            |       |   |   |   |   |
|                                             |       |                             |       |                            |       |   |   |   |   |
| Net sales                                        |       | $                                | 17,762     |                            | $          | 11,983 |   | $ | 48,096 |   | $ | 31,683 |   |
|                                             |       |                             |       |                            |       |   |   |   |   |
| Gross profit (loss)                              |       | (5,344                           | )          | 3,581                           |       | (6,507 | ) | 5,544 |   |
| Gross profit %                                   |       | (30.1                            | )%         | 29.9                            | %          | (13.5 | )% | 17.5 | % |
| Selling, general  and administrative             |       | 2,483                            |       | 866                             |       | 6,931 |   | 1,983 |   |
| Net income  (loss)                               |       | $                                | (7,914     | )                               | $          | 3,003 |   | $ | (14,106 | ) | $ | 3,531 |   |
|                                             |       |                             |       |                            |       |   |   |   |   |
| Income (loss) per unit  — basic and diluted |       | $                                | (0.81      | )                               | $          | 0.32 |   | $ | (1.45 | ) | $ | 0.67 |   |

 

**3.**   Inventoriesand Property and Equipment

A summary of inventories and property and equipment atJune 30, 2007 and September 30, 2006 is as follows (in thousands):
| ** **          | ** ** | **June 30,** | ** ** | **September 30,** | ** ** |
|---------------------|------------|-------------------|------------|------------------------|------------|
| ** **          | ** ** | **2007**          | ** ** | **2006**               | ** ** |
| ** **          | ** ** | **(unaudited)**   | ** ** | ** **             | ** ** |
| Supplies and  parts |       | $                 | 828        |                   | —     |   |
| Chemicals           |       | 129               |       | —                 |       |
| Work in process     |       | 579               |       | —                 |       |
| Ethanol             |       | 498               |       | —                 |       |
| Distillers grain    |       | 42                |       | —                 |       |
| Total               |       | $                 | 2,076      |                   | $          | — |   |
|                     |            |                   |            |                        |            |  |  |

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

 

TheCompany capitalizes interest expense as part of the cost of construction of itsplants and equipment and will be depreciated over the life of the relatedassets. Capitalized interest totaled approximately $3.5 million for nine monthsended June 30, 2007.

**4:**   Long Term Debt

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

10

----

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

 

The estimatedmaturities of long-term debt on or before June 30, are as follows (inthousands):

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

 

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

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

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

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

**Loan From Kruse Investment Company**

HGF Acquisition obtaineda $5.0 million loan from Kruse Investment Company due March 1, 2008, secured byall of the ownership interests in HGF owned by HGF Acquisition and bearinginterest of 12%. HGF Acquisition has loaned the $5.0 million obtained from KruseInvestments to HGF on an unsecured basis, subordinate to the senior lender toHGF. The proceeds of the loan were used to fund a portion of the Aberdeen plantexpansion. HGF Acquisition pledged its equity interests in Dakota Fuels and HGFas collateral. HGF Acquisition is prohibited from selling transferring orpledging its assets while this debt is outstanding.

On July 1, 2007 thecredit agreement was amended to reflect a maturity date of the earlier ofSeptember 30, 2007 or the closing date of a credit facility by Heartland GrainFuels that refinances all existing Heartland Grain Fuels debt and finances theremaining Aberdeen expansion. The amended interest rate was changed to reflect15% per annum after July 1, 2007.

11

----

**Senior CreditFacility for the Nebraska Plant**

Effective February 17, 2007, ABE Fairmont, LLC enteredinto a loan agreement with Farm Credit establishing a senior credit facilitywith Farm Credit for the construction of a 100 million gallons per year ethanolplant. The construction financing is in the amount of $79.5 million consistingof a $58.5 million term loan, known as term loan A, and a $21.0 millionrevolving term loan, known as term loan B. Farm Credit also extended to theCompany a $5.0 million revolving credit facility for financing eligible graininventory and equity in Chicago Board of Trade futures positions, which willnot be effective until the Company begins operations at its Nebraska plant. FarmCredit has appointed CoBank, ACB, to serve as its agent with regard to theseloans.

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

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

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

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

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

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

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

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

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

12

----

fiscal year endingSeptember 30, 2007, ABE Fairmont may make a distribution to Advanced BioEnergyof 50% of ABE Fairmont’s net profit for the applicable fiscal year if FarmCredit has received audited financial statements for the applicable fiscal yearand (ii) ABE Fairmont may make distributions to Advanced BioEnergy exceeding50% of its net income if it has made the required cash flow payment for thatfiscal year. ABE Fairmont must also be in compliance with all financial ratiorequirements and loan covenants before and after any distributions to AdvancedBioEnergy.

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

**Subordinated Convertible Debt Financing**

We issued Ethanol Investment Partners, LLC, anaffiliate of Tennessee Ethanol Partners, LP, an existing investor in ourcompany, $26 million of 15% subordinated convertible promissory notes. Theproceeds will be used for continuing construction of the Aberdeen plantexpansion.

The notes bear interest at 15% per annum compoundedquarterly and will mature in June 2008. The principal and accrued but unpaidinterest on the notes are convertible into our membership units at the lesserof (a) $16.00 per unit or (b) the price per unit that is equal to the lowestprice per unit at which units are sold by us in any public or private offeringduring the period that the notes are outstanding, at the option of EthanolInvestment Partners in the event we elect to prepay the notes and convertautomatically at maturity.

**5.** Major Customer andCommitments

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

HGF also entered into a marketing agreement withAventine, RenewableEnergy, Inc. where Aventine is required to purchase all of the ethanolproduced at HGF’s South Dakota plants at a price per gallon determined througha pooling of HGF’s and other producers’ ethanol that is sold by Aventine tothird parties, less a commission based on the net pooled price. Sales for the threemonths ended June 30, 2007 were approximately $21.5 million and $51.4 million respectively.We did not have any ethanol sales in the periods ended June 30, 2006. Relatedaccounts receivable as of June 30, 2007 and September 30, 2006 wereapproximately $2.9 million and none, respectively. This ethanol marketingagreement will expire on November 30, 2008; however, the agreementautomatically renew for successive one-year term unless terminated by eitherparty upon one year’s prior written notice.

HGF is a party to a by-product marketing agreementwith Dakotaland Feeds, LLC, whereby Dakotaland Feeds will market locally thesale of ethanol co-products produced at HGF’s plants to third parties for anagreed-upon commission. Co product sales for the three and nine months endedJune 30, 2007 were $3.2 million and $5.6 million respectively. We did not have anyco product sales in the periods ended June 30, 2006. Related accounts receivableas of June 30, 2007 and September 30, 2006 were approximately $254,000 andnone, respectively.

**6.** Risk Management

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

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

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

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

13

----

**7. Employee Benefit Plan**

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

**ITEM 2. Management’sDiscussion and Analysis or Plan of Operation**

**InformationRegarding Forward-Looking Statements**

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

**Executive Overview**

***Business***

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

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

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

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

***South Dakota Plants***

HGF owns and operates a nine million gallons per year drymill corn-processing ethanol plant in Aberdeen, South Dakota, known as theAberdeen plant, and a 30 million gallons per year dry mill corn-processingethanol plant in Huron, South Dakota, known as the Huron plant. HGF has anethanol plant with production capacity of 40 million gallons per year underconstruction in Aberdeen, South Dakota, adjacent to its existing plant. Asof July 31, 2007 all sub surface stabilization work on the site has beencompleted, all concrete associated with the main process building has beeninstalled and concrete is now being poured in the ancillary areas. Undergroundelectrical and on site under ground water have been installed. The tankconstruction contractor is now on sight and is erecting fermentation andalcohol storage tanks. A large amount of process equipment has been setallowing for piping and equipment specific electrical to get under way andstructural steel for the main process building is now being erected as well. Thisproject is progressing on its schedule to be operational in December, 2007.

14

----

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

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

HGF sellsthe ethanol it produces to Aventine Renewable Energy, Inc. pursuant to anethanol marketing agreement. Under the terms of this agreement, Aventine isrequired to purchase all of the ethanol produced at HGF’s South Dakota plantsat a price per gallon determined through a pooling of HGF’s and other producers’ethanol that is sold by Aventine to third parties, less a commission based onthe net pooled price. This ethanol marketing agreement will expire on November30, 2008; however, the agreement automatically renews for successive one-yearterms unless terminated by either party upon one year’s prior written notice.

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

***Nebraska Plant***

Based upon engineering specifications produced byFagen, the Nebraska plant will annually consume approximately 36 millionbushels of corn and annually produce approximately 100 million gallons of fuelgrade ethanol and 321,000 tons of distillers grains for animal feed. Wecurrently estimate completing the construction of the Nebraska plant in October2007. We expect the Nebraska plant will cost approximately $154.5 million tocomplete. This includes approximately $125.3 million of expected constructioncosts and an additional $26.3 million in other start-up costs, working capitaland interest. We are still in the construction phase, and until the Nebraskaplant is operational, we will generate no revenue from the Nebraska plant.

***Indiana Plant***

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

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

**MinnesotaPlant**

Based upon engineering specifications, the Minnesotaplant will annually consume approximately 36 million bushels of corn andannually produce approximately 100 million gallons of fuel grade ethanol and321,000 tons of distillers grains for animal feed. We currently estimate thatit will take 14 to 16 months from the date that we begin construction, whichassumes we successfully obtain additional equity and debt financing and allnecessary permits, to complete the construction of the Minnesota plant. Weexpect the Minnesota plant will cost approximately $122.5 million to constructand have not yet determined the start-up costs for the Minnesota plant or thetotal project cost. We are still in the early planning phase, and until theproposed Minnesota plant is operational, we will generate no revenue from theMinnesota plant.

15

----

***Future Plants***

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

**Selected Pro FormaFinancial Data**

The following unaudited pro forma consolidatedstatements of income for the periods presented are based on the historicalfinancial statements of Advanced BioEnergy and HGF. The unaudited pro formaconsolidated financial statements give effect to the acquistion which closed onNovember 8, 2006. Prior to the acquisition of HGF, we were a development stagecompany. The unaudited pro forma consolidated financial statements have beenprepared using the purchase method of accounting as if the transaction had beencompleted as of the beginning of the periods presented for purposes of thecombined consolidated statements of income.
| ** **                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **June 30, 2007**      | ** ** | **June 30, 2006**     | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
| **(in thousands)**              | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                 | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
|                                 |       |                             |       |                            |       |   |   |   |   |
| Net sales                            |       | $                                | 17,762     |                            | $          | 11,983 |   | $ | 48,096 |   | $ | 31,683 |   |
|                                 |       |                             |       |                            |       |   |   |   |   |
| Gross profit (loss)                  |       | (5,344                           | )          | 3,581                           |       | (6,507 | ) | 5,544 |   |
| Gross profit%                        |       | (30.1                            | )%         | 29.9                            | %          | (13.5 | )% | 17.5 | % |
| Selling, general  and administrative |       | 2,483                            |       | 866                             |       | 6,931 |   | 1,983 |   |
| Net income (loss)                    |       | $                                | (7,914     | )                               | $          | 3,003 |   | $ | (14,106 | ) | $ | 3,531 |   |

 

**Pro Forma Three Months Ended June 30, 2007 Compared toPro Forma Three Months Ended June 30, 2006**

**Net Sales**

Net sales for thethree months ended June 30, 2007 were $17.8 million, compared to $11.9 millionfor the three months ended June 30, 2006, an increase of $5.8 million or 32.5%.Net sales increased in the 2007 period as a result of the Huron plant expansioncompleted in August 2006, resulting in an increase from 12 to 30 milliongallons produced annually. During the 2007 period average ethanol pricesdecreased $0.21 cents to $2.07 per gallon compared to the same period in 2006. Thenet increase was offset by a $6.5 million charge for ethanol related hedgingactivity in the three months ended June 30, 2007.

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

**Gross Profit**

Physically deliveredcorn costs increased $9.4 million, or 70.0%, to $13.5 million for the threemonths ended June 30, 2007, from $4.0 million for the three months ended June30, 2006. Corn costs represented 58.6% of cost of sales for the three monthsended June 30, 2007, and 48.0% of cost of sales for the three months ended June30, 2006. The increase in corn costs was due to a 1.8 million bushel increasein corn used, resulting from the Huron expansion as well as a $1.51 increase perbushel to $3.58 in cost per bushel for the three months ended June 2007compared to the same period in 2006 and corn related hedging losses of $3.3million in the three months ended June 30, 2007.

Natural gas costsincreased $844,400 to $2.2 million in the quarter ended June 30, 2007, comparedto the the quarter ended June 30, 2006. Natural gas costs as a percent of costof sales declined from 16.0% in the quarter ended June 30, 2006, to 9.5% in thequarter ended June 30, 2007, as a result of a decrease in gas prices andefficiencies at the new Huron expansion. Most of the distiller grains generatedfrom the Huron expansion are sold wet, which requires less natural gas duringthe drying phase.

16

----

Our gross profitfor three months ended June 30, 2007, was ($5.3 million), compared to grossprofits of $3.6 million for the three months ended June 30, 2006. The decreasewas primarily due to losses on our corn and ethanol related derivativefinancial instruments of $9.8 million during the quarter ended June 30, 2007. Wedid not engage in hedging activity for the three months ended June 30, 2006.

**Selling, General, andAdministration**

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

**Pro Forma Nine Months Ended June30, 2007 Compared to Pro Forma Nine Months Ended June 30, 2006**

**Net Sales**

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

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

**Gross Profit**

Physically deliveredcorn costs increased $25.6 million, or 219.2%, to $37.2 million for the ninemonths ended June 30, 2007, from $11.7 million for the nine months ended June30, 2006. Corn costs represented 69.2% of cost of sales for the nine months endedJune 30, 2007, and 44.6% of cost of sales for the nine months ended June 30,2006. The increase in corn costs was due to an increase in the number ofbushels purchased as a result of the Huron expansion as well as a $1.54 increasein cost per bushel to $3.46 for the first nine months of 2007 compared to thesame period in 2006. These increases were offset by $2.6 million in cornrelated hedging activity gains in the nine months ended June 30, 2007.

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

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

**Selling, General, and Administration**

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

17

----

**Plan of OperationThrough June 2008**

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

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

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

**Debt Financing forthe Aberdeen Plant Expansion**

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

**Trends and Uncertainties Impacting the Ethanol Industryand our Future Operations**

We are subject to industry-wide factors that affectthe operating and financial performance of the South Dakota plants and willaffect the operating and financial performance of the plants under developmentonce they begin operations. These factors include, but are not limited to, theavailable supply and cost of corn from which the ethanol and distillers grainsis processed; the cost of natural gas, which is used in the production process;the intensely competitive nature of the ethanol industry; possible legislationat the federal, state or local level; changes in federal ethanol tax incentivesand the cost of complying with extensive environmental laws that regulate ourindustry.

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

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

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

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

18

----

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

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

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

**Technology Developments**

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

**Liquidity andCapital Resources**

In the nine months ended June 30, 2007 we generated $106.1million of cash from financing activites and used $90.1 million for investingactivities and $5.8 million for operations. As of June 30, 2007, we have totalassets of approximately $289.4 million. We have current liabilities ofapproximately $112.9 million consisting primarily of our accounts payable andderivative financial instruments and debt obligations maturing within twelvemonths of approximately $70.7 million. Since our inception through June 30,2007, we have a retained deficit of approximately $17.7 million. Total members’equity as of June 30, 2007 was approximately $102.2 million. Prior to theacquisition of HGF, we were a development stage company and had generated norevenue from operations.

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

19

----

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

 

The estimatedmaturities of long-term debt on or before June 30, are as follows (inthousands):

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

 

**Debt Financing for the South Dakota Plants**

*Senior CreditFacility*

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

On May 25, 2007, we signed an engagement letter andterm sheet with WestLB AG, New York branch, to provide senior debt financingfor our subsidiary, Heartland Grain Fuels. This proposed senior debt financingwould refinance all outstanding debt, complete the construction financing forthe Aberdeen and Huron plant expansions, and is expected to close in August2007. Under the terms of the engagement, WestLB has agreed to use itscommercially reasonable efforts to structure, arrange and syndicate the seniordebt financing for Heartland Grain Fuels.

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

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

Assuming we successfully close the WestLB senior debtfinancing and the subordinate bond financing described below, we believe thatwe have sufficient cash and financing in place to operate Heartland GrainFuels’ existing plants and complete the construction of the Aberdeen plantexpansion through start-up.

*Subordinate BondFinancing*

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

*Loan From KruseInvestment Company*

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

**On July 1, 2007 the creditagreement was amended to reflect a maturity date of the earlier of September30, 2007 or the closing date of a credit facility by Heartland Grain Fuels thatrefinances all existing Heartland Grain Fuels debt and finances the remainingAberdeen expansion. The amended interest rate was changed to reflect 15% perannum after July 1, 2007.**

20

----

**Subordinated Convertible Debt Financing**

We issued Ethanol Investment Partners, LLC, anaffiliate of Tennessee Ethanol Partners, LP, an existing investor in ourcompany, $26 million of 15% subordinated convertible promissory notes. Theproceeds will be used for continuing construction of the Aberdeen plantexpansion.

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

Provided that a note is outstanding or has beenconverted into units, our board of directors will at our next annual meetingand thereafter for so long as Ethanol Investment Partners owns a note or theunits issued upon conversion, require each of our directors and executiveofficers to (a) recommend to our members at any meeting of the members at whichdirectors are elected, the election of one nominee of Ethanol CapitalManagement (an affiliate of Ethanol Investment Partners) to the board, (b) votethe membership units they own or control at any time to elect the EthanolCapital Management nominated person to the board, and (c) not take any actionto remove the Ethanol Capital Management nominee from the board. Each of ourdirectors and executive officers executed and delivered to Ethanol InvestmentPartners a voting agreement evidencing these board rights. We also grantedEthanol Investment Partners board observation and inspection rights inconnection with their investment.

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

**Nebraska Plant**

**Senior Credit Facility**

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

ABE Fairmont andFarm Credit also entered into additional loan agreements, the effect of whichis to provide an additional $6.5 million term loan, known as term loan C, andan additional $4.0 million revolving term loan, known as term loan D forconstruction of the Nebraska plant. The terms and conditions of these loanagreements are substantially similar to those described above. The Companyissued a letter of credit for the purchase of rail cars to Trinity IndustriesLeasing Company for $912,000, effectively reducing the financing available fromTerm Loan D.

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

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

21

----

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

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

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

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

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

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

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

**Fillmore County Subordinate Exempt Facilities Revenue Bonds**

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

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

22

----

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

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

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

**Tax Increment Financing**

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

**Community Development Block Grant**

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

**Future Capital Requirements**

We believe that we have secured sufficient funds tocomplete construction of the Nebraska plant. However, our capital requirementsfor start up of the Nebraska plant will require us to obtain at least$17 million of additional equity and debt financing to fund start-uprelated activities including working capital. Other future capital requirementswill primarily depend on the cost and timing to complete the Aberdeen plantexpansion, Indiana plant and Minnesota plant and the number of additionalplants we construct or acquire, the timing of those plant openings or acquisitionswithin a given fiscal year and the need to fund operating losses, as well asthe terms of any other corporate opportunities we undertake. These requirementswill include costs directly related to constructing or acquiring new ethanolplants and 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 at this time as to the timing of such anexpansion, or whether such an expansion will occur.

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

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

23

----

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

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

We intend to satisfy our capital requirements in fiscal2007 with existing cash and funds available under our credit facilities, cashgenerated from operations, primarily from our South Dakota plants and theproceeds from future equity and debt financings. However, if capitalrequirements for our business strategy change, or other factors change ourcapital requirements, we may need to seek additional debt or equity financingin the public or private markets. There is no assurance that financing will beavailable to us on acceptable terms or at all.

**Summary of Critical Accounting Policies and Estimates**

Note1 to our consolidated financial statements contains a summary of oursignificant accounting policies, many of which require the use of estimates andassumptions. Accounting estimates are an integral part of the preparation offinancial statements and are based upon management’s current judgment. We usedour knowledge and experience about past events and certain future assumptionsto make estimates and judgments involving matters that are inherently uncertainand that affect the carrying value of our assets and liabilities. We believethat of our significant accounting policies, the following are noteworthybecause changes in these estimates or assumptions could materially affect ourfinancial position and results of operations:

**Revenue Recognition**

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

**Derivative Instruments and HedgingActivities**

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

**Inventories**

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

**Quantitativeand Qualitative Disclosures About Market Risk For Our Current Operations**

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

24

----

represented 89.12% of ourtotal production revenues and corn costs represented 69.2% of total cost ofsales. In general, ethanol prices are affected by the supply and demand forgasoline, the availability of other fuel oxygenates and the regulatory climate.The price of corn is affected by weather conditions and other factors affectingcrop yields, farmer planting decisions and general economic, market andregulatory factors. Traditionally, we have not been able to pass alongincreased corn costs to our ethanol customers. At June 30, 2007, the price pergallon of ethanol and the price per bushel of corn on the Chicago Board ofTrade were $1.95 and $3.29, respectively.

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

To reduce pricerisk caused by market fluctuations in the cost of corn and natural gas, we haveentered into forward purchase contracts. As of June 30, 2007, we had enteredinto forward purchase contracts representing approximately 17% of our currentcorn requirements, and guaranteed prices for our natural gas representingapproximately 12% of our current natural gas usage. As of June 30, 2007, we hadnot entered into any transactions in an effort to mitigate risks associatedwith changes in the price of ethanol for our current production at HGF.

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

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

----

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

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

**Interest Rate / Foreign Exchange Risk**

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

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

**Impact of Inflation**

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

25

----

**Off-Balance Sheet Arrangements**

We have no off-balance sheet arrangements.

**GovernmentPrograms, Tax Credits And Tax Increment Financing**

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

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

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

**ITEM 3.**   Controls and Procedures

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

**PARTII. OTHER INFORMATION**

**ITEM 1.********Legal Proceedings**

None.

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

None.

**ITEM 3.****  ****Defaults Upon Senior Securities**

Not applicable.

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

None.

**ITEM 5.****  ****Other Information**

None.

26

----

**ITEM 6.  ****Exhibits**
| Exhibit  No. | ** ** | **Description**                                                                                                        | ** ** | **Method of Filing**           |
|--------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|
| 3.1          |       | Certificate of Formation                                                                                               |       | Incorporated by  Reference (1) |
| 3.2          |       | Third Amended and Restated Operating Agreement of  the Registrant                                                      |       | Incorporated by  Reference (2) |
| 10.1         |       | Form of 15% Subordinated Convertible Promissory Note  to be issued to Ethanol Investment Partners, LLC.                |       | Incorporated by  Reference (3) |
| 10.2         |       | Employment  Agreement with Perry C. Johnson dated June 25, 2007†                                                  |       | Filed Electronically           |
| 10.3         |       | Registration  Rights Agreement with Ethanol Investment Partners, LLC dated June 25, 2007                               |       | Filed Electronically           |
| 10.4         |       | Credit Agreement  between HGF Acquisition, LLC and Kruse Investment Company, Inc. dated February  12, 2007, as amended |       | Filed Electronically           |
| 10.5         |       | Investor Rights  Agreement with South Dakota Wheat Growers Association dated as of November 7,  2006, as amended       |       | Filed Electronically           |
| 10.6         |       | Lump-Sum  Design-Build Agreement between ABE Northfield, LLC and Fagen, Inc. dated  February 7, 2007, as amended*      |       | Filed Electronically           |
| 31.1         |       | Rule 13a-14(a)/15d-14(a) Certification by Principal  Executive Officer                                                 |       | Filed  Electronically          |
| 31.2         |       | Rule 13a-14(a)/15d-14(a) Certification by Principal  Financial and Accounting Officer                                  |       | Filed  Electronically          |
| 32           |       | Section 1350 Certifications                                                                                            |       | Filed  Electronically          |

----

*       Materialhas been omitted pursuant to a request for confidential treatment and suchmaterials have been filed separately with the SEC.

†       Managementcompensatory plan/arrangement.

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

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

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

27

----

**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.
|                       | ** ** | **ADVANCED BIOENERGY, LLC**                  |
|-----------------------|------------|----------------------------------------------|
|                  | ** ** | ** **                                   |
|                  | ** ** | ** **                                   |
| Date: August 14, 2007 | By:        | */s/ Revis L Stephenson III*                 | * * |
|                  |       | Revis L. Stephenson III                      |
|                  |       | Chairman and Chief Executive Officer         |
|                  |       | (Principal Executive Officer)                |
|                  |       |                                         |
| Date: August 14, 2007 | By:        | */s/ Richard Peterson*                       | * * |
|                  |       | Richard Peterson                             |
|                  |       | Chief Financial Officer                      |
|                  |       | (Principal Financial and Accounting Officer) |

 

----

**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     |
| 10.1         |       | Form of 15% Subordinated Convertible Promissory Note  to be issued to Ethanol Investment Partners, LLC on or about June 20, 2007 |       | Incorporated by  Reference     |
| 10.2         |       | Employment Agreement with Perry C. Johnston dated  July 7, 2007†                                                            |       | Filed  Electronically          |
| 10.3         |       | Registration Rights Agreement with Ethanol  Investment Partners, LLC dated June 25, 2007                                         |       | Filed  Electronically          |
| 10.4         |       | Credit Agreement between HGF Acquistion, LLC and  Kruse Investment Company, Inc. dated February 12, 2007, as amended             |       | Filed  Electronically          |
| 10.5         |       | Investor Rights Agreement with South Dakota Wheat  Growers Association dated as of November 7, 2006, as amended                  |       | Filed  Electronically          |
| 10.6         |       | Lump-Sum Design-Build Agreement between ABE  Northfield, LLC and Fagen, Inc. dated February 7, 2007, as amended*                 |       | Filed  Electronically          |
| 31.1         |       | Rule 13a-14(a)/15d-14(a) Certification by Principal  Executive Officer                                                           |       | Filed  Electronically          |
| 31.2         |       | Rule 13a-14(a)/15d-14(a) Certification by Principal  Financial and Accounting Officer                                            |       | Filed  Electronically          |
| 32           |       | Section 1350 Certifications                                                                                                      |       | Filed  Electronically          |

----

*                    Materialhas been omitted pursuant to a request for confidential treatment and suchmaterials have been filed separately with the SEC.

†                     Managementcompensatory plan/arrangement.

28

----