**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-QSB**

 
| **ý**                                                                                                                                                                                                                                  | ** ** | **Quarterly report under Section 13 or  15(d) of the Securities Exchange Act of 1934.** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                        |
| **For the  fiscal quarter ended December 31, 2005**                                                                                                                                                                                    |
|                                                                                                                                                                                                                                        |
| **OR**                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                        |
| **o**                                                                                                                                                                                                                                       | ** ** | **Transition report under Section 13 or  15(d) of the Exchange Act.**                   |
|                                                                                                                                                                                                                                        |
| **For the  transition period from                   to                  .** |

 

**Commissionfile number 333-125335**

 

**ADVANCEDBIOENERGY, LLC**

(Exact name of small businessissuer as specified in its charter)

 
| **Delaware**                                                        | ** ** | **20-2281511**                           |
|---------------------------------------------------------------------|------------|------------------------------------------|
| **(State or other jurisdiction of  incorporation or organization)** | ** ** | **(I.R.S. Employer Identification No.)** |

 

**137 N. 8thStreet, Geneva, Nebraska 68361**

(Address of principal executiveoffices)

 

**(402)759-3773**

(Issuer’s telephone number)

 

Check whether the issuer:  (1) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.
|   | ý  Yes              o  No |
|--------|--------------------------------------------------------------------------------------------------------------------------|

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).
|   | o  Yes              ý  No |
|--------|--------------------------------------------------------------------------------------------------------------------------|

 

Statethe number of shares outstanding for each of the issuer’s classes of commonequity as of the latest practicable date:

 

As of February 14, 2006 there were 625,000 units outstanding.

 
| Transitional Small Business Disclosure  Format (Check one): | o  Yes              ý  No |
|-------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|

 

 

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**INDEX**

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

 

2

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**PART I.****                           ****FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements.**

 

**ADVANCED BIOENERGY, LLC**

**(A DEVELOPMENT STAGE COMPANY)**

**BALANCE SHEETS (UNAUDITED)**

 
| ** **                                                                              | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                              | ** ** | **2005**              | ** ** | **2005**               | ** ** |
|                                                                                    |       |                  |       |                   |       |
| **ASSETS**                                                                              |       |                  |       |                   |       |
|                                                                                    |       |                  |       |                   |       |
| **CURRENT ASSETS**                                                                      |       |                  |       |                   |       |
| Cash                                                                                    |       | $                     | 354,514    |                   | $          | 893,587 |   |
| Prepaid expenses                                                                        |       | 43,532                |       | 58,230                 |       |
| Other receivable                                                                        |       | —                |       | 2,358                  |       |
|                                                                                    |       |                  |       |                   |       |
| **TOTAL CURRENT ASSETS**                                                                |       | 398,046               |       | 954,175                |       |
|                                                                                    |       |                  |       |                   |       |
| **PROPERTY AND EQUIPMENT**                                                              |       |                  |       |                   |       |
| Land                                                                                    |       | 1,412,000             |       | —                 |       |
| Office equipment                                                                        |       | 38,685                |       | 38,685                 |       |
| Leasehold improvement                                                                   |       | 8,513                 |       | 8,513                  |       |
| Construction in process                                                                 |       | 128,672               |       | —                 |       |
|                                                                                    |       | 1,587,870             |       | 47,198                 |       |
| Less accumulated depreciation                                                           |       | (5,537                | )          | (2,275                 | )          |
|                                                                                    |       | 1,582,333             |       | 44,923                 |       |
|                                                                                    |       |                  |       |                   |       |
| **OTHER ASSETS**                                                                        |       |                  |       |                   |       |
| Land option deposits                                                                    |       | 10,000                |       | 30,000                 |       |
| Deposit                                                                                 |       | 1,400                 |       | 26,400                 |       |
| Deferred offering and financing costs                                                   |       | 630,562               |       | 354,013                |       |
|                                                                                    |       | 641,962               |       | 410,413                |       |
|                                                                                    |       |                  |       |                   |       |
| **TOTAL ASSETS**                                                                        |       | $                     | 2,622,341  |                   | $          | 1,409,511 |   |
|                                                                                    |       |                  |       |                   |       |
| **LIABILITIES AND MEMBERS’ EQUITY**                                                |       |                  |       |                   |       |
|                                                                                    |       |                  |       |                   |       |
| **CURRENT LIABILITIES**                                                                 |       |                  |       |                   |       |
| Accounts payable                                                                        |       | $                     | 262,075    |                   | $          | 193,673 |   |
| Accrued expenses                                                                        |       | 25,210                |       | 5,972                  |       |
| Note payable                                                                            |       | 1,270,800             |       | —                 |       |
|                                                                                    |       |                  |       |                   |       |
| **TOTAL CURRENT LIABILITIES**                                                           |       | 1,558,085             |       | 199,645                |       |
|                                                                                    |       |                  |       |                   |       |
| **COMMITMENTS AND CONTINGENCIES**                                                       |       |                  |       |                   |       |
|                                                                                    |       |                  |       |                   |       |
| **MEMBERS’ EQUITY**                                                                |       |                  |       |                   |       |
| Members’ capital, no par value, authorized 20,000,000  units, issued 625,000 units |       | 3,174,098             |       | 3,174,098              |       |
| Loss accumulated during development stage                                               |       | (1,268,175            | )          | (914,232               | )          |
| Unearned unit compensation, 84,167 and 105,000  units, respectively                     |       | (841,667              | )          | (1,050,000             | )          |
|                                                                                    |       | 1,064,256             |       | 1,209,866              |       |
| ** **                                                                              |       |                  |       |                   |       |
| **TOTAL LIABILITIES AND MEMBERS’ EQUITY**                                          |       | $                     | 2,622,341  |                   | $          | 1,409,511 |   |

 

See notes to unaudited financial statements.

 

3

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**ADVANCED BIOENERGY, LLC**

**(A DEVELOPMENT STAGE COMPANY)**

**STATEMENTS OF OPERATIONS (UNAUDITED)**

 
| ** **                                    | ** ** | ** **                 | ** ** | **Period from**               | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| ** **                                    | ** ** | ** **                 | ** ** | **Inception**                 | ** ** |
| ** **                                    | ** ** | **Three Months Ended**     | ** ** | **(January 4, 2005) to** | ** ** |
| ** **                                    | ** ** | **December 31, 2005** | ** ** | **December 31, 2005**    | ** ** |
| ** **                                    |       |                       |       | ** **                    |       |
| **REVENUES**                                  |       | $                          | —     |                          | $          | — |   |
|                                          |       |                       |       |                          |       |
| **OPERATING EXPENSES**                        |       |                       |       |                          |       |
| Start-up expenses                             |       | 226,268                    |       | 950,018                       |       |
| Accounting                                    |       | 7,116                      |       | 10,881                        |       |
| Consulting fees                               |       | 12,172                     |       | 85,838                        |       |
| Legal                                         |       | 10,177                     |       | 44,968                        |       |
| Directors’ meetings and expenses         |       | 24,368                     |       | 64,597                        |       |
| Office expenses                               |       | 11,997                     |       | 18,822                        |       |
| Office labor                                  |       | 25,163                     |       | 35,544                        |       |
| Payroll tax expense                           |       | 2,867                      |       | 3,588                         |       |
| Insurance                                     |       | 16,022                     |       | 23,363                        |       |
| Utilities                                     |       | 3,616                      |       | 7,806                         |       |
| Rent                                          |       | 2,100                      |       | 4,200                         |       |
| Advertising and promotion                     |       | 1,028                      |       | 4,220                         |       |
| Licenses and fees                             |       | —                     |       | 662                           |       |
| Depreciation                                  |       | 3,262                      |       | 5,537                         |       |
| Miscellaneous                                 |       | 804                        |       | 1148                          |       |
|                                          |       | 346,960                    |       | 1,261,192                     |       |
|                                          |       |                       |       |                          |       |
| **LOSS FROM OPERATIONS**                      |       | (346,960                   | )          | (1,261,192                    | )          |
|                                          |       |                       |       |                          |       |
| **OTHER INCOME (EXPENSE)**                    |       |                       |       |                          |       |
| Other income                                  |       | 12,000                     |       | 12,000                        |       |
| Rent income                                   |       | 500                        |       | 500                           |       |
| Interest expense                              |       | (19,483                    | )          | (19,483                       | )          |
|                                          |       |                       |       |                          |       |
| **LOSS ACCUMULATED DURING DEVELOPMENT STAGE** |       | $                          | (353,943   | )                             | $          | (1,268,175 | ) |
|                                          |       |                       |       |                          |       |
| **Weighted Average Units Outstanding**        |       | 499,167                    |       | 397,548                       |       |
|                                          |       |                       |       |                          |       |
| **Net Loss Per Unit - Basic and Diluted**     |       | $                          | (0.71      | )                             | $          | (3.19 | ) |

 

See notes to unauditedfinancial statements.

 

4

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**ADVANCEDBIOENERGY, LLC**

**(ADEVELOPMENT STAGE COMPANY)**

**STATEMENTSOF CASH FLOWS (UNAUDITED)**

 
| ** **                                                                            | ** ** | ** **                 | ** ** | **Period from**               | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------|------------|
| ** **                                                                            | ** ** | **Three**                  | ** ** | **Inception**                 | ** ** |
| ** **                                                                            | ** ** | **Months Ended**           | ** ** | **(January 4, 2005)**    | ** ** |
| ** **                                                                            | ** ** | **December 31, 2005** | ** ** | **to December 31, 2005** | ** ** |
| **OPERATING ACTIVITIES**                                                              |       |                       |       |                          |       |
| Net loss                                                                              |       | $                          | (353,943   | )                             | $          | (1,268,175 | ) |
| Adjustments to reconcile net loss to net  cash (used in) operating activities         |       |                       |       |                          |       |
| Depreciation                                                                          |       | 3,262                      |       | 5,537                         |       |
| Consulting services exchanged for  membership units                                   |       | 208,333                    |       | 833,333                       |       |
| Changes in assets and liabilities                                                     |       |                       |       |                          |       |
| Prepaid expenses                                                                      |       | 14,698                     |       | (43,532                       | )          |
| Other receivable                                                                      |       | 2,358                      |       | —                        |       |
| Accounts payable                                                                      |       | (123,993                   | )          | 63,240                        |       |
| Accrued expenses                                                                      |       | 19,238                     |       | 25,210                        |       |
| **NET CASH (USED IN) OPERATING ACTIVITIES**                                           |       | (230,047                   | )          | (384,387                      | )          |
|                                                                                  |       |                       |       |                          |       |
| **INVESTING ACTIVITIES**                                                              |       |                       |       |                          |       |
| Payment of deposit                                                                    |       | —                     |       | (1,400                        | )          |
| Purchase of property and equipment                                                    |       | (121,200                   | )          | (168,398                      | )          |
| Payment of land option deposits                                                       |       | —                     |       | (30,000                       | )          |
| **NET CASH (USED IN) INVESTING ACTIVITIES**                                           |       | (121,200                   | )          | (199,798                      | )          |
|                                                                                  |       |                       |       |                          |       |
| **FINANCING ACTIVITIES**                                                              |       |                       |       |                          |       |
| Proceeds from sale of membership units                                                |       | —                     |       | 1,500,000                     |       |
| Payment of costs of raising capital                                                   |       | —                     |       | (19,462                       | )          |
| Payment of deferred offering and financing  costs                                     |       | (187,826                   | )          | (541,839                      | )          |
| ** **                                                                            |       |                       |       |                          |       |
| **NET CASH PROVIDED BY (USED IN) FINANCING  ACTIVITIES**                              |       | (187,826                   | )          | 938,699                       |       |
|                                                                                  |       |                       |       |                          |       |
| **NET INCREASE (DECREASE) IN CASH**                                                   |       | (539,073                   | )          | 354,514                       |       |
|                                                                                  |       |                       |       |                          |       |
| **CASH - beginning of period**                                                        |       | 893,587                    |       | —                        |       |
|                                                                                  |       |                       |       |                          |       |
| **CASH - end of period**                                                              |       | $                          | 354,514    |                          | $          | 354,514 |   |
|                                                                                  |       |                       |       |                          |       |
| **SUPPLEMENTAL DISCLOSURES OF NONCASH  INVESTING AND FINANCING ACTIVITIES**           |       |                       |       |                          |       |
| ** **                                                                            |       |                       |       |                          |       |
| Accounts payable incurred for cost of  raising capital                                |       | $                          | —     |                          | $          | 6,440 |   |
|                                                                                  |       |                       |       |                          |       |
| Accounts payable incurred for deferred  offering and financing costs                  |       | $                          | 63,723     |                          | $          | 63,723 |   |
|                                                                                  |       |                       |       |                          |       |
| Accounts payable incurred for construction  in process                                |       | $                          | 128,672    |                          | $          | 128,672 |   |
|                                                                                  |       |                       |       |                          |       |
| Offering consulting services received in  exchange for membership units               |       | $                          | —     |                          | $          | 25,000 |   |
|                                                                                  |       |                       |       |                          |       |
| Offering and financing consulting services  received in exchange for membership units |       | $                          | —     |                          | $          | 841,667 |   |
|                                                                                  |       |                       |       |                          |       |
| Land option applied to land purchase                                                  |       | $                          | 20,000     |                          | $          | 20,000 |   |
|                                                                                  |       |                       |       |                          |       |
| Land acquired through issuance of note  payable                                       |       | $                          | 1,270,800  |                          | $          | 1,270,800 |   |
|                                                                                  |       |                       |       |                          |       |
| Deposit transferred to deferred offering  and financing costs                         |       | $                          | 25,000     |                          | $          | — |   |

 

See notes to unaudited financial statements.

 

5

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**ADVANCEDBIOENERGY, LLC**

**(ADEVELOPMENT STAGE COMPANY)**

**NOTES TO UNAUDITED FINANCIAL STATEMENTS**

 

**NOTE A:  SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

Theaccompanying financial statements as of December 31, 2005 and for the three months then ended and for theperiod from inception (January 4, 2005) to December 31, 2005 areunaudited and reflect all adjustments (consisting only of normal recurringadjustments) which are, in the opinion of management, necessary for a fairpresentation of the financial position and operating results for the interimperiods.  The interim financial statements should be read inconjunction with the audited financial statements and notes thereto, containedin the Company’s Special Report under section 15(d) of the SecuritiesExchange Act of 1934 for the period ended September 30, 2005.  The results of operations for the threemonths ended December 31, 2005 and the period from inception (January 4,2005) to December 31, 2005 are not necessarily indicative of the resultsfor the fiscal year ending September 30, 2006.

 

**PRINCIPAL BUSINESS ACTIVITY**– Advanced BioEnergy, LLC is a developmentstage Delaware limited liability company (the Company).  The Company was organized in January 2005to pool investors to build a 100 million gallon ethanol plant to be locatednear Fairmont, Nebraska.  Construction isprojected to begin in 2006.  As of December 31,2005, the Company is in the development stage with its efforts beingprincipally devoted to organizational and equity-raising activities.

 

**UNEARNED UNIT COMPENSATION** – Subsequent to the seed capital offering,the original two members received compensation in the form of the restrictedequity units valued at $1.25 million (equivalent to $10 per unit which iscomparable to the price of purchased units) for their efforts in developing theproject.   The restriction will beremoved as services are provided and selected milestones are achieved.  The earned portion of $1.25 million is beingexpensed as start-up expenses.  As of December 31,2005, $833,333 had been earned and expensed with the remaining $416,667included as unearned unit compensation.  TheCompany also issued 42,500 in restricted membership units valued at $425,000(equivalent to $10 per unit which is comparable to the price of purchasedunits) to a related development consulting company.  The $425,000 will be netted against theproceeds from the capital-raising efforts or deferred as loan cost andamortized over the term of the related debt. The determination of the amount to allocate as offering cost and loancost will be made as services are provided. Currently, any unearned amount is being presented as unearned unitcompensation.

 

**DEFERRED OFFERING AND FINANCING COSTS**– The Company defers costs incurred to raiseequity and debt financing until the related equity or debt is issued.  At the time of issuance of such equity, thedeferred offering costs are netted against the proceeds received.  Once the financing is secured and principalpayments begin, the deferred financing costs will be amortized over the term ofthe debt.  If the equity and debtfinancing does not occur, such costs will be expensed.  These deferred costs totaled $630,562 at December 31,2005.  

 

TheCompany has offset $25,902 of deferred offering costs against the equityproceeds raised under a private placement memorandum.

 

**LOSS PER UNIT**– Basic and diluted loss per unit are computedusing the weighted average number of vested units outstanding during theperiod, including vested restricted units. Unvested restricted units are considered unit equivalents; however, theyhave not been included in the computation of diluted loss per unit as theireffect would be anti-dilutive.  Theeffect of the unit distribution discussed in Note B has been retroactivelyapplied to the weighted average units outstanding in the loss per unitcomputation as if it happened at inception. 

 

**RESTRICTED STOCK** – The Company has issued restricted units tocertain directors for services outside their role as directors at fair valueunder the Financial Accounting Standards Board (FASB) Statement No. 123.  All restricted units issued are subject tovarious restriction requirements.  Of the625,000 membership units issued, 305,000 units are subject to a lock-upagreement between the two founding members and a related party developmentcompany.  The lock-up agreement prohibitsthe transfer of the shares until May 2008. Of the 625,000 units issued, 320,000 units are unrestricted, 179,167 arevested restricted and 125,833 are unvested restricted.

 

**CASH HELDIN ESCROW BY THIRD PARTIES** – Proceeds from the membership offeringdiscussed in Note B will not be recorded by the Company until the Company hasan unassilable right to the prioceeds. The cash will be

 

6

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held in escrowuntil the earliest of (1) receipt of $33,662,500 or more in offeringproceeds and a written debt financing commitment for an amount ranging from$63,675,000 to $97,337,500 depending on the amount of incentives and othergrants received; (2) November 10, 2006; or (3) termination orabandonment of the offering, at which point the cash would be returned.

 

**NOTEB:  MEMBERS’ EQUITY**

 

The Company was formed on January 4, 2005 tohave a perpetual life.  It was initiallycapitalized by its members who contributed an aggregate of $550,000 for 165,000membership units.  The Company initiallyhas one class of membership units with the board of directors having theauthority to create additional classes of units if deemed necessary.

 

The Company issued a confidential privateplacement memorandum (seed capital offering) in February 2005, for thesale of 450,000 membership units, including the 165,000 units originallycontributed, with no stated minimum requirement.  The minimum investment for a potential investorwas 5,000 units or $50,000, with increments of 500 units or $5,000,thereafter.  The entire purchase amountwas due upon subscribing.  The Companyreceived subscriptions for the $1,500,000 and closed the offering on April 14,2005 for the purpose of funding the development, organizational and offeringexpenses.  The Company also issued anadditional 7,500 units for services provided in connection with this privateoffering.

 

The initial board of directors authorized aunit distribution to the seed capital members equal to two additional units forevery one unit issued and outstanding at the time the seed capital offering wasclosed.  This has been accounted forsimilar to a stock split with retroactive adjustment to the number of sharesoutstanding as if it occurred at inception.

 

Subsequent to the unit distribution, theCompany issued 42,500 restricted membership units to a related developmentconsultant company for services discussed in Note C.  The restriction on the units provide for thereturn of the units if the Company does not begin construction of the projecton or before December 31, 2007 or files Articles of Dissolution beforebeginning construction of the project.

 

The Company also issued an additional 125,000restricted membership units to the two initial members of the Company forservices discussed in Note D.  Therestrictions on these units are removed equally upon the Company reaching threeseparate milestones.  These milestonesrelate to the filing of an SB-2 with the Securities and Exchange Commission(SEC), executing a definitive financing agreement, and production of ethanolfrom the completed project.  At December 31,2005, 83,333 units remain restricted from the original issuance of 125,000units even though some of the Compensation relating to the restricted units hasbeen amortized.

 

The Company filed a Form SB-2 RegistrationStatement with the SEC which became effective November 10, 2005.  The offering is for a minimum of 3,366,250and a maximum of 6,732,500 membership units for sale at $10 per unit.  There is a minimum purchase of 2,500 unitswith additional units to be purchased in increments of 100.  The offering will end no later than the datethe maximum units are sold or November 10, 2006, whichever occursfirst.  The Company may also end theoffering any time after the minimum number of units has been sold and prior to November 10,2006.  The unit sales proceeds will beheld in an escrow account until the receipt of the minimum offering and awritten debt financing commitment, November 10, 2006, or termination orabandonment of the offering.  

 

The Company has received approximately 6,000,000membership unit subscriptions related to the capital-raising efforts discussedabove.  In connection with thesubscriptions, approximately 10% was received and is being held in escrow, withnotes receivable given for the unpaid subscriptions.  The amounts held in escrow and remainingreceivables are subject to certain triggering events before the escrow can bereleased and remaining proceeds collected.

 

7

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**NOTEC:  RELATED PARTY TRANSACTIONS**

 

The Company paid a development consultingcompany owned by two of its directors for assistance with negotiatingcontracts, planning the equity marketing effort and securing debtfinancing.  As of December 31, 2005,the Company had incurred consulting charges of approximately $496,000, whichincludes 42,500 restricted units issued for services valued at $425,000 thathave been included in unearned unit compensation in members’ equity.  See the agreement terms in Note D.  

 

The Company hadaccounts payable to related parties totaling $16,807 as of December 31,2005.

 

A member of theCompany is currently the president of the Company’s primary bank depository.

 

**NOTED:  COMMITMENTS AND CONTINGENCIES**

 

Design build

 

Thetotal cost of the project, including the construction of the ethanol plant andstart-up expenses, is expected to approximate $132,500,000.  The Company anticipates funding thedevelopment of the ethanol plant by raising additional equity of at least$33,662,500 and securing financing for up to $97,337,500.  The amount of debt financing needed dependson the amount of equity raised in the offering. Currently, the Company has signed a letter of intent with an unrelatedcontractor to design and build the ethanol plant at a total contract price ofapproximately $98,000,000 which is contingent upon raising the equity andobtaining adequate financing.  

 

Thereare no assurances that the Company will be able to obtain the necessary debtfinancing, other financing or grants sufficient to capitalize the project.

 

Loancommitment

 

InDecember 2005, the Company received a commitment from a lender to financethe balance of the construction of the ethanol plant.  Terms include a $58,500,000 term loan and a$21,000,000 revolving loan with a variable rate of interest on both loans ofLIBOR plus 3.4 % or prime plus .5%.  Thevariable rates will be reduced by 50 basis points upon satisfaction of certaincash flow requirements and subject to annual profitability.

 

Theterm loan provides for advances until May 1, 2007 with principal paymentsto commence on December 20, 2007 and quarterly thereafter with anyremaining balance due September 2014.

 

Therevolving loan requires semiannual $4,000,000 payments to commence on the firstday of the month beginning approximately six months after repayment of the termloan, March 2015, with a final maturity of March 2017.

 

Thecommitment also includes an annually renewable $5,000,000 seasonal operatingloan.

 

Thereis an origination fee of .5% of the aggregate term commitments and .25% of theseasonal commitment and an annual administration fee of $35,000 which ispayable each November 1 beginning in 2006.

 

Land

 

TheCompany exercised two options and purchased 260 acres (112 acres and 148 acres)of land in Fillmore County, Nebraska, for a total of $1,412,000.  The Company paid $141,200, which included$20,000 of previous deposits and a note

 

8

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payablewas issued for the remaining $1,270,800 with interest at the rate of 7% perannum to be paid quarterly. The note is due at the time the Company obtainsfinancing or April 15, 2006, whichever occurs first.

 

TheCompany also has options to purchase approximately 87 acres and 103 acres ofland in Fillmore County, Nebraska, for $478,500 and $566,500,respectively.  The Company deposited$5,000 of earnest money with unrelated parties for each of these options.  The initial options extend until August 1,2006.  If the options are exercisedduring the time permitted, the $5,000 deposit will be applied to the purchaseprice.

 

Consulting

 

TheCompany has an agreement with a related party for assistance with negotiationof contracts, planning of the equity marketing effort and securing debtfinancing.  The agreement began uponexecution and shall continue through the closing date as defined in theagreement.  The development consultantreceived compensation as follows: 7,500 unrestricted membership units atexecution, $1,500 per week from execution through the closing of the equityfinancing and $375 per day after the closing of the equity financing, plusreimbursement of approved expenses up to a weekly maximum reimbursement of$750.  In addition, the developmentconsultant received compensation of 42,500 restricted membership unitssubsequent to the close of the seed capital offering.  The Company may only terminate this agreementfor cause as defined in the consulting agreement.  The consultant may terminate this agreementwith fourteen days’ written notice.  

 

The Company has an agreement to compensatethe original two members of the Company for development fees in a total sum of1% of the total project cost to be paid in member units in exchange for theirefforts to organize and develop the project. These fees are currently estimated at $1,325,000 or 132,500 units ofwhich 125,000 units were issued on May 19, 2005 and any additional unitswill be issued and earned upon substantial completion of construction of theplant based on the actual project costs. These membership units will be considered restricted until certainrequirements within the agreement are reached. If the Company files Articles of Dissolution or another event preventssuccessful ethanol production by the Company, these members will be required toreturn the restricted units to the Company without payment of consideration. 

 

9

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**Item 2.  Management’s Discussionand Analysis and Plan of Operation.**

 

**ForwardLooking Statements**

 

This report containsforward-looking statements that involve future events, our future performanceand our expected future operations and actions.  In some cases you canidentify forward-looking statements by the use of words such as “may,” “will,” “should,”“anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,”“predict,” “hope,” “potential,” “continue,” or the negative of these terms orother similar expressions.  These forward-looking statements are only ourpredictions and involve numerous assumptions, risks and uncertainties,including, but not limited to those listed below and those business risks andfactors described elsewhere in this report and our other Securities andExchange Commission (“SEC”) filings:  

 

•                  Our ability toobtain the debt and equity financing necessary to construct and operate ourplant;

 

•                  Changes in ourbusiness strategy, capital improvements or development plans;

 

•                  Constructiondelays and technical difficulties in constructing the plant;

 

•                  Changes in theenvironmental regulations that apply to our plant site and operations;

 

•                  Ability to securemarketing services for the ethanol and distillers grains we expect to produce;

 

•                  Changes ingeneral economic conditions or the occurrence of certain events causing aneconomic impact in the agriculture, oil or automobile industries;

 

•                  Changes in theavailability and price of natural gas and corn, and the market for distillersgrains;

 

•                  Changes infederal and/or state laws (including the elimination of any federal and/orstate ethanol tax incentives);

 

•                  Overcapacitywithin the ethanol industry;

 

•                  Changes andadvances in ethanol production technology; and

 

•                  Competition fromalternative fuel additives.

 

Our actual results oractions could and likely will differ materially from those anticipated in theforward-looking statements for many reasons, including the reasons described inthis report.  We are not under any duty to update the forward-lookingstatements contained in this report.  We cannot guarantee future results,levels of activity, performance or achievements.  We caution you not toput undue reliance on any forward-looking statements, which speak only as ofthe date of this report.  You should read this report and the documentsthat we reference in this report and have filed as exhibits, completely andwith the understanding that our actual future results may be materiallydifferent from what we currently expect.  We qualify all of ourforward-looking statements by these cautionary statements.

 

**Overview**

 

Advanced BioEnergy, LLC is a development-stage Delaware limitedliability company.  It was formed on January 4,2005, for the purpose of raising capital to develop, construct, own and operatea 100 million gallon per year ethanol plant near Fairmont, Nebraska.   We are also exploring opportunities todevelop one or more additional ethanol plants in other locations.   Wehave not yet engaged in the production of ethanol and distillers grains.  Based upon engineering specifications fromFagen, Inc., we expect the ethanol plant once built will processapproximately 36 million bushels of corn per year into 100 million gallons ofdenatured fuel grade ethanol, 321,000 tons of dried distillers grains withsolubles and 296,000 tons of raw carbon dioxide gas.  Construction of the project is expected totake 15 months from the date our registered offering closes. We anticipatecompletion of plant construction during summer of 2007.

 

We expect the project will cost approximately $132,500,000 tocomplete.  This includes approximately $98,000,000to build the plant and an additional $34,500,000 in other capital expendituresand working capital.  We have enteredinto a non-binding letter of intent with Fagen, Inc. of Granite Falls,Minnesota, for the design and construction of our proposed ethanol plant for aprice of $98,000,000, exclusive of any change orders we may approve. We havealso entered into a Phase I and Phase II Engineering Services Agreement withFagen Engineering, LLC for the performance of certain engineering and designservices. We have no other definitive agreements for the

 

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design and construction of our plant.  As a result, our anticipated totalproject cost is not a firm estimate and is expected to change from time to timeas the project progresses.   

 

We plan to finance ourproject with a combination of equity and debt capital.  We raised $1,500,000 of seed capital in aprivate placement exempt from federal and state registration for the purpose offunding our development, organizational and offering expenses.  We filed a Registration Statement on Form SB-2 with the SEC whichbecame effective on November 10, 2005 and intend to raise a minimum of $33,662,500 anda maximum of $67,325,000 in our registered offering.  Wefiled a Post Effective Amendment to our Form SB-2 Registration Statementwith the SEC on February 10, 2006 to address certain changes and additionsto our original prospectus.  Thesechanges include giving our board of directors discretion to invest a portion ofthe equity in the construction and development of additional plants in otherlocations, in the event that we raise equity in our registered offering inexcess of that needed to fund the construction of the plant located nearFairmont, Nebraska.  If our board ofdirectors chooses not to invest excess funds in additional plants, we intend toretain the funds for general corporate uses, including, but not limited toupgrading plant technology and exploring the use of alternative fuelsources.  In no event will the equityraised exceed our maximum offering amount of $67,325,000.

 

As part of our amendment to our prospectus, we havedecided to allow investors who submitted subscriptions prior to receiving theamendment to withdraw their subscriptions if they choose.  Our Post Effective Amendment to our Form SB-2Registration Statement has not yet been declared effective by the SEC.

 

Depending on the levelof equity raised in our registered offering and the amount of any grants we maybe awarded, we will need to obtain senior debt financing, grants and incentivesranging from approximately $63,675,000 to $97,337,500 in order to fullycapitalize the project.  We expect to usea combination of senior and subordinate credit facilities.  We have obtained a commitment letter fromCoBank, headquartered in Greenwood Village, Colorado and Farm Credit Servicesof America headquartered in Omaha, Nebraska for senior debt financing. However,this commitment is not a binding agreement for the senior debt financing.  If we do not secure the necessary debtfinancing, we will not be able to construct our proposed ethanol plant and mayhave to abandon our business.   Inaddition to the senior debt financing, we intend to obtain subordinate debtfinancing in the form of approximately $7,000,000 in subordinate exemptfacilities revenue bonds issued by the County of Fillmore, State ofNebraska.  However, no definitiveagreement has been reached, and even if a definitive agreement is reached withthe County of Fillmore, the County may not issue the bonds and we may notreceive bond proceeds.  

 

We also anticipate receiving approximately $7,000,000in tax increment financing and a $350,000 Community Development Block Grant. Howeverthere are no assurances that we will be able to obtain the necessary appprovalsfor the tax increment financing or the grant.

 

We are still in thedevelopment stage, and until the proposed ethanol plant is operational, we willgenerate no revenue. We anticipate that accumulated losses will continue toincrease until the ethanol plant is operational.   Since we have not yet becameoperational, we do not yet have comparable income, production and sales data.  Accordingly, we do not provide a comparison ofour financial results between reporting periods in this report.  

 

**Plan of Operation for the Next 12 Months**

 

We expect to spend atleast the next 12 months focused on (1) project capitalization; and (2) development,plant construction and preparing for start-up operations.  Assuming the successful completion of theregistered offering and the related debt financing, we expect to havesufficient cash on hand to cover all costs associated with construction of theproject, including, but not limited to, site acquisition and development,utilities, construction and equipment acquisition.  Up until financial close of our debtfacilities, we expect to have enough cash from our seed capital proceeds tocover our costs through this period, including staffing, office costs, audit,legal, compliance and staff training.  Inthe event we do not have sufficient cash from our seed capital proceeds, we mayseek interim financing until we close our registered offering and secure debtfinancing.  We estimate that we will needapproximately $132,500,000 to complete the project.  However, we may invest additional funds inthe development of one or more additional ethanol plants if we are able toraise equity in our registered offering in excess of what is needed to fund theplant in Fairmont, Nebraska.

 

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*Project Capitalization*

* *

We have issued a total of 150,000 units to ourseed capital investors at a price of $10 per unit, for total unit proceeds of$1,500,000.  In addition, we distributed2,500 units to BioEnergy Capital Consultants for services provided as ourproject development and equity consultant. Following the close of the seedcapital private placement, we issued an additional 305,000 units as a result ofa distribution of two units for every one unit issued and outstanding to all ofthe unit holders.  We issued 125,000 restrictedunits as payment of a total project development fee to Revis L. Stephenson, IIIand Robert W. Holmes for their efforts to organize and develop the company, andthe transfer of 42,500 restricted units to BioEnergy Capital Consultants, LLCfor a total of 50,000 units including 5,000 shares from the unit distributionto that consultant discussed above.  We expect our seed capital to supply us withenough cash to cover our costs, including staffing, office costs, audit, legal,compliance and staff training, until we procure debt financing.  If we do not have adequate cash, we may seekinterim financing.

 

We filed a Registration Statement on Form SB-2with the SEC which became effective on November 10, 2005.  We also registered units for sale in thestates of Florida, Iowa, Kansas, Kentucky Nebraska, South Dakota and Wisconsinand are in the process of registering units in Colorado, Missouri and New York.  The offering is for a minimum of 3,366,250units and a maximum of 6,732,500 units at a price of $10 per unit. There is aminimum purchase of 2,500 units to participate in the offering with additionalunits to be purchased in increments of 100 units. The minimum aggregateoffering amount is $33,662,500 and the maximum aggregate offering amount is$67,325,000.  After the offering, therewill be 3,991,250 units issued if we sell the minimum number of units offeredin this offering and 7,357,500 units issued if we sell the maximum numberof units offered in this offering. This includes 625,000 units issued in ourprevious private placement, of which 450,000 units were issued to our seedcapital unit holders, 50,000 units were issued to our development consultant(including 42,500 restricted units) and 125,000 restricted units were issued totwo of our directors as a development fee. 

 

The offering will end no later than the date onwhich the maximum units have been sold or on November 10, 2006, whicheveroccurs first.  We may also decide to endthe offering any time after we have sold the minimum number of units and priorto November 10, 2006.  If we decideto abandon the project for any reason, we will terminate the offering.  The proceeds from the sale of units will beheld in escrow.  We will not releasefunds from the escrow account until specific conditions are satisfied.  Those conditions are (1) thesubscription proceeds in the escrow account equals or exceeds the minimumoffering amount of $33,662,500, exclusive of interest; (2) we obtain awritten debt financing commitment for debt financing ranging from $63,675,000to $97,337,500 depending on the level of equity raised and the amount ofsubordinated debt; (3) we elect, in writing, to terminate the escrowagreement; and 4) an affidavit prepared by our escrow agent has been sent tothe states in which we have registered units stating that the conditions setout in (1) and (2) have been met.  As of February 13, 2006, we have receivedsubscriptions of 6,461,000 units and deposited proceeds in the escrow account.

 

We filed a Post Effective Amendment to our Form SB-2Registration Statement with the SEC on February 10, 2006 to addresscertain changes and additions to our original prospectus.  The amended prospectus contains among otherthings the following changes from and additions to our original prospectusdated November 10, 2005:

 

•                  We are exploring opportunities to develop oneor more additional ethanol plants.  In the event that we raise equity inexcess of that needed to fund the construction of the plant located nearFairmont, Nebraska, in the discretion of our Board of Directors, we may investin the construction of additional plants in other locations.  In no eventwill we raise equity exceeding the maximum offering amount.  If our Boardof Directors chooses not to invest excess funds in additional plants, we intendto retain the funds for general corporate uses, including, but not limited toupgrading plant technology and exploring the use of alternative fuel sources.

 

•                  We intend to register the units for sale inColorado and Missouri in addition to Florida, Iowa, Kansas, Kentucky, Nebraska,South Dakota, and Wisconsin.  Furthermore, we will register as abroker-dealer in New York.

 

•                  We intend to obtain subordinated debtfinancing in the form of subordinate exempt facilities revenue bonds issued bythe County of Fillmore, State of Nebraska and have entered into an arrangementwith Oppenheimer & Co. headquartered in New York, New York to act as aplacement agent for the bonds.  However no definitive agreement has beenreached, and even if a definitive agreement is reached with the County ofFillmore, the County may not issue the bonds and we may not receive bondproceeds.

 

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•                  We have obtained a commitment letter fromCoBank, headquartered in Greenwood Village, Colorado and Farm Credit Servicesof America, headquartered in Omaha, Nebraska for senior debt financing. However we have no binding contracts in place.

 

•                  Our audited financial statements as of September 30,2005.

 

•                  We have exercised two options near Fairmont,Nebraska and have entered real estate contracts to purchase the property. We have also commenced improvements at our site in preparation for constructionof our plant.

 

•                  Investors who submit subscriptions prior toreceipt of the original prospectus will be permitted to withdraw theirsubscriptions and will be entitled to any interest earned on those funds lessescrow fees. In no event will the refund be less than the principal amount ofthe investment.

 

•                  We have adopted our Third Amended andRestated Operating Agreement effective February 1, 2006.

 

Our Post Effective Amendment to our Form SB-2Registration Statement has not yet been declared effective by the SEC.

 

On December 6, 2005, we obtained a conditionalwritten commitment for senior debt financing from CoBank and Farm CreditServices of America for senior debt financing. The written commitment provides for a credit facility consisting of$58,500,000 term loan and a $21,000,000 revolving term facility.  The rate of interest on borrowed funds willbe at the lender’s announced prime rate plus one-half percent (0.5%) or LIBOR(1, 3, 6, or 9 month) plus 3.4%, subject to financial covenants, certain feesand convertibility of loans, as provided for in the final loan documents.  The interest on borrowed funds will becalculated on a 360 day basis.  Thesenior loan will be a secured by all of our real property, includingreceivables and inventories. We expect to use senior debt financing toconstruct the proposed ethanol plant. However, the debt financing commitment is nonbinding and only obligatesthe lender to lend us the debt financing that we need if we satisfy all theconditions of the commitment. These conditions may include, among others, thetotal cost of the project being within a specified amount, the receipt ofengineering and construction contracts acceptable to the lender, evidence ofthe issuance of all permits, acceptable insurance coverage and titlecommitment, the contribution of a specified amount of equity and attorneyopinions. 

 

We are seeking approximately $7,000,000 in taxincrement financing from the Village of Fairmont, Nebraska. Tax incrementfinancing is a program created by state statute and provides city councils thepower to use all of the real property tax resulting from the increase intaxable valuation due to the construction of new industrial or commercialfacilities to provide economic incentives. We must obtain approval from thecity council of the Village of Fairmont, Nebraska, or any other governing bodyof the city in which we locate the plant in order to receive tax incrementfinancing. There is no guarantee that tax increment financing will be approved.If it is not approved, we will require additional equity.  We expect to receive a $350,000 CommunityDevelopment Block Grant, which must be used for infrastructure costs. We havenot yet received approval for the Community Development Block Grant and we haveno assurance that these funds will be available to us.

 

Weintend to obtain subordinate debt financing in the form of subordinate exemptfacilities revenue bonds issued by the County of Fillmore, State of Nebraska inthe amount of $7,000,000.   We have engagedOppenheimer & Co. Inc. to act as investment banker/placement agent forthe structuring and sale of exempt facility revenue bonds issued by the Countyof Fillmore, State of Nebraska.  Oppenheimer &Co. Inc. will have the exclusive right for 120 days from the date of the letteragreement to act as placement agent in return for a fee in the amount of threepercent (3%) multiplied by the principal amount of the exempt facility revenuebonds in the initial bond offering sold by Oppenheimer & Co. Inc.  The fee is contingent upon a successfulcompletion of the sale and closing of the exempt facility revenue bonds.  No definitive agreement with the County ofFillmore has been reached regarding the exempt facilities revenue bonds, and even if a definitive agreement isreached with the County of Fillmore, the County may not issue the bonds and wemay not receive bond proceeds.

 

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*Plant construction and start-up of plant operations*

* *

Constructionof the project is expected to take 15 months from the date our registeredoffering closes. We anticipate completion of plant construction during summerof 2007.  We plan to negotiate andexecute finalized contracts needed in connection with the construction of theethanol plant, provision of necessary electricity, natural gas and other powersources and marketing agreements for ethanol and distillers grains. Assumingthe successful completion of our registered offering and our obtaining thenecessary debt financing, we expect to have sufficient cash on hand to coverconstruction and related start-up costs necessary to make the plantoperational. In the event that we do not have sufficient cash, we may seekinterim financing.  We estimate that wewill need approximately $98,000,000 to construct the plant and a total ofapproximately $132,500,000 to cover all capital expenditures necessary tocomplete the project, make the plant operational and produce revenue.

 

We anticipate buildingour plant near Fairmont, Nebraska, in southeastern Nebraska.  On February 18, 2005, we acquired a realestate option from WDB, Inc., a Nebraska corporation, to purchase between75 and 112 acres of land near Fairmont, Nebraska. We paid $10,000 for thisoption. This option allowed us to purchase between 75 and 112 acres for $6,000per acre.  In October 2005, weexercised this option and purchased 112 acres from WDB, Inc. for a totalof $672,000. We paid $57,200 plus the $10,000 deposit that was previously paidfor a total of $67,200. The remaining $604,800 was recorded as a note payable,with interest at a rate of 7% per annum to be paid quarterly, and is due at thetime we obtain financing or April 15, 2006, whichever occurs first.

 

On April 26, 2005, we acquired a real estateoption from Doris Gwen Ogden to purchase approximately 148 acres in FillmoreCounty, Nebraska. We paid $10,000 for this option. This option agreementallowed us to purchase approximately 148 acres for a total purchase price of$740,000.  During October 2005, weexercised this option and purchased 148 acres from Doris Gwen Ogden for a totalof $740,000. We paid $64,000 plus the $10,000 deposit that was previously paidfor a total of $74,000. The remaining $666,000 was recorded as a note payable,with interest at the rate of 7% per annum to be paid quarterly, and is due atthe time we obtain financing or April 15, 2006, whichever occurs first.

 

These two parcels of real estate make up our primaryplant site.  However, we also still havetwo additional real estate options on an alternate site which we have notexercised.

 

In December 2005, we commenced site preparationfor construction of our ethanol plant. We have engaged Nilex Construction, LLC of Englewood, Colorado to supplyand install vertical wick drains and horizontal strip drains to our plant site.  We have also engaged Gana Trucking of Martel,Nebraska to provide dirt work and site preparation.

 

Wehave executed a non-binding letter of intent with Fagen, Inc. inconnection with the design construction and operation of the ethanolplant.  We expect to pay Fagen, Inc. $98,000,000 in exchange for theseservices.  We are currently in the process of negotiating a legally bindingdesign-build contract with Fagen, Inc. but have not yet entered into adefinitive agreement and there is no assurance that we will be able to do so.  

 

We have executed a Phase I and Phase II EngineeringServices Agreement with Fagen Engineering, LLC an entity related to ourdesign-builder Fagen, Inc. for the performance of certain engineering anddesign work. Fagen Engineering, LLC performs the engineering services forprojects constructed by Fagen, Inc. In exchange for certain engineeringand design services, we have agreed to pay Fagen Engineering, LLC $92,500,which will be credited against the total design build costs.

 

*Permitting and RegulatoryActivities*

 

Weapplied for and obtained the Storm Water Discharge Permit and Storm WaterPollution Prevention Program (General NPDES Permits) in December 2005.  We are in the process of obtaining the Minor Construction Permit for Air Emissions.  We have applied for public review and expectto complete the application process and receive the Minor Construction Permit for Air Emissionsin the next fiscal quarter.  Weexpect to prepare the application for the Waste Water National Pollutant Discharge Elimination System Permits(INPDES Permit) in the near future and to have obtained the INPDESpermit prior to commencing operations of the plant, as required.  We alsoexpect to apply to the Bureau of Alcoholand Tobacco and Firearms for an alcohol fuel producer’s permit prior tocommencing operations of the plant.  Weanticipate that we will have the spill prevention, control and counter measuresplan and risk management plan complete in the near future. 

 

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*Trends and Uncertainties Impacting the EthanolIndustry and Our Future Operations*

* *

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

 

We expect ethanol sales to constitute the bulk ofour future revenues. Ethanol prices have recently been much higher than their10 year average. However, due to the increase in the supply of ethanolfrom the number of new ethanol plants scheduled to begin production and theexpansion of current plants, we do not expect current ethanol prices to besustainable in the long term. Areas where demand may increase are new marketsin New Jersey, Pennsylvania, Maryland, Massachusetts, North Carolina, SouthCarolina, Michigan, Tennessee, Louisiana and Texas. Minnesota may also generateadditional demand due to the recent passage of state legislation mandating a20% ethanol blend in its gasoline. Montana passed a similar mandate this year,but it will not go into effect until 60 million gallons of ethanol areproduced in the state.

 

We expect to benefit from federal ethanol supportsand federal tax incentives. Changes to these supports or incentives couldsignificantly impact demand for ethanol. In late July 2005, the U.S. Houseof Representatives and the U.S. Senate passed the Energy Policy Act of 2005,containing a Renewable Fuel Standard (“RFS”). President George W. Bush signedthe measure in to law on August 8, 2005. The RFS is a national flexibleprogram that does not require that any renewable fuels be used in anyparticular area or state, allowing refiners to use renewable fuel blends inthose areas where it is most cost-effective. The RFS will begin at 4 billion gallons in 2006, and increase to7.5 billion gallons by 2012. According to the Renewable Fuels Association,the Act is expected to lead to about $6 billion in new investment inethanol plants across the country. An increase in the number of new plants willbring an increase in the supply of ethanol. Thus, while this Act may causeethanol prices to increase in the short term due to additional demand, futuresupply could outweigh the demand for ethanol in the future. This would have anegative impact on our earnings in the long term.

 

Although the Act did not impose a national ban ofMTBE, its failure to include liability protection for manufacturers of MTBEcould result in refiners and blenders using ethanol as an oxygenate rather thanMTBE to satisfy the reformulated gasoline oxygenate requirement. While this maycreate increased demand in the short-term, we do not expect this to have a longterm impact on the demand for ethanol as the Act repeals the Clean Air Act’s 2%oxygenate requirement for reformulated gasoline immediately in California and270 days after enactment elsewhere.

 

Demand for ethanol may also increase as a result ofincreased consumption of E85 fuel. E85 fuel is a blend of 70% to 85% ethanoland gasoline. According to the Energy Information Administration, E85consumption is projected to increase from a national total of 11 milliongallons in 2003 to 47 million gallons in 2025. E85 is used as an aviationfuel and as a hydrogen source for fuel cells. In the United States, there arecurrently about 3 million flexible fuel vehicles capable of operating onE85 and 400 retail stations supplying it. Automakers have indicated plans toproduce an estimated 2 million more flexible fuel vehicles per year.

 

Ethanol production continues to grow as additionalplants become operational. Demand for ethanol has been supported by higher oilprices and its refined components and by clean air standards mandated byfederal agencies have required highly populated areas to blend ethanol intotheir gasoline supplies as an oxygenate. The intent of the air standards is toreduce harmful emissions into the atmosphere. These mandates have beenchallenged in several metropolitan areas, and are currently being reviewed bythe courts. In the future, the combination of additional supply, successfulchallenges to the clean air standards and stagnant or reduced demand may damageour ability to generate revenues and maintain positive cash flows.

 

The current Nebraska ethanol incentive programrequires ethanol production prior to June 30, 2004. Because we were notoperational as of June 30, 2004, we do not qualify for the Nebraskaethanol production tax credit of $0.18 per gallon. This may cause our plant tobe less competitive than other Nebraska ethanol plants that are eligible toreceive the tax credit or ethanol plants operating in other states that provideethanol supports or tax incentives. The current program is scheduled to expireon June 30, 2012.

 

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*Technology Developments*

* *

A new technology has recently been introduced, toremove corn oil from concentrated thin stillage (a by-product of “dry milling”ethanol processing facilities) which would be used as an animal feed supplementor possibly as an input for bio-diesel production. Although the recovery of oilfrom the thin stillage may be economically feasible, it fails to produce theadvantages of removing the oil prior to the fermentation process. The FWS Groupof Companies, headquartered out of Canada with offices in the United States, iscurrently working on a starch separation technology that would economicallyseparate a corn kernel into its main components. The process removes the germ,pericarp and tip of the kernel leaving only the endosperm of kernel for theproduction of ethanol. This technology has the capability to reduce dryingcosts and the loading of volatile organic compounds. The separated germ wouldalso be available through this process for other uses such as high oil feeds orbio-diesel production. Each of these new technologies is currently in its earlystages of development. There is no guarantee that either technology will besuccessful or that we will be able to implement the technology in our ethanolplant.

 

*Trends and Uncertainties Impacting the Corn andNatural Gas Markets and Our Future Cost of Goods Sold*

* *

We expect our future cost of goods sold will consistprimarily of costs relating to the corn and natural gas supplies necessary toproduce ethanol and distillers grains for sale. The 2005 corn crop wasthe second largest corn crop on record with national production atapproximately 11.11 billion bushels with Iowa production at approximately 2.2billion bushels.  This should allow ethanol plants to purchasecorn cheaply throughout 2006, which widened profit margins for many ethanolplants in the current year. We do not expect corn prices to remain this low.Variables such as planting dates, rainfall, and temperatures will likely causemarket uncertainty and create corn price volatility throughout the year.Although we do not expect to begin operations until summer 2007, we expectthese same factors will continue to cause volatility in the price of corn,which will significantly impact our cost of goods sold.

 

Natural gas is also an important input commodity toour manufacturing process. We estimate that our natural gas usage will beapproximately 10% to 15% of our annual total production cost. We use naturalgas to dry our distillers grain products to moisture contents at which they canbe stored for long periods of time, and can be transported greater distances.Dried distillers grains have a much broader market base, including the westerncattle feedlots, and the dairies of California and Florida. Recently, the priceof natural gas has risen along with other energy sources. Natural gas pricesare considerably higher than the 10-year average. In late August 2005,Hurricane Katrina caused dramatic damage to areas of Louisiana, which is thelocation of one of the largest natural gas hubs in the United States. As thedamage from the hurricane became apparent, natural gas prices substantiallyincreased. It is currently unknown how the damage will affect intermediate andlong term prices of natural gas. Future hurricanes in the Gulf of Mexico couldcause similar or greater uncertainty. We look for continued volatility in thenatural gas market. Any ongoing increases in the price of natural gas willincrease our cost of production and may negatively impact our future profitmargins.

 

**Liquidity and Capital Resources**

 

*Estimated Sources of Funds*

 

The following schedule setsforth our estimated sources of funds to build the ethanol plant expected to bebuilt near Fairmont, Nebraska.  This schedule could change in thefuture depending on the amount of equity raised in our registered offering andwhether we receive grants or tax increment financing.  The schedule mayalso change depending on the level of senior and subordinated debt incurred.

 
| **Sources of  Funds****(1)** | ** ** | ** ** | ** **  | **Percent** | ** ** |
|------------------------------|------------|------------|-------------|-------------|------------|
| Unit  Proceeds (2)           |       | $          | 53,000,000  |        | 40.00      | % |
| Senior Debt  Financing (3)   |       | $          | 79,500,000  |        | 60.00      | % |
| **Total Sources of Funds**   |       | $          | 132,500,000 |        | 100.00     | % |

 

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(1)                                                    The amount of estimated unit proceeds andsenior debt financing will be adjusted depending on the level of grants,subordinate debt and tax increment financing we obtain.

 

(2)                                                    In the event that we raise equity in ourregistered offering in excess of that needed to fund the construction of theplant located near Fairmont, Nebraska, in the discretion of our board ofdirectors, we may invest the additional funds in the construction anddevelopment of additional plants in other locations.  If our board of directors chooses not toinvest excess funds in additional plants, we intend to retain the funds forgeneral corporate uses, including, but not limited to upgrading planttechnology and exploring the use of alternative fuel sources.

 

(3)                                                    We currently have a nonbinding commitment froma senior lender for senior debt financing in the amount of $79,500,000 and arenegotiating final agreements.  However,these definitive documents have not yet been finalized and there is noassurance that they will be.  Even if wedo enter into final agreements, they may not be upon the terms we expect.

 

We do not expect to begin substantial plantconstruction activity before closing our equity offering and satisfying theloan commitment conditions and closing the loan transaction.  

 

*Estimated Uses of Proceeds*

* *

The following is ourestimate of our costs and expenditures for the ethanol plant expected to bebuilt near Fairmont, Nebraska over the next 12 months.  These estimates are based on discussions withFagen, Inc. and ICM Inc.  Thefollowing figures are intended to be estimates only, and the actual use offunds may vary significantly from the descriptions given below due to a varietyof factors described elsewhere in this report. 

 

| **Use of  Proceeds**                     | ** ** | **Amount** | ** **      | **Percent** | ** ** |
|------------------------------------------|------------|------------|-----------------|-------------|------------|
| Plant  construction                      |       | $          | 98,000,000      |        | 73.962     | % |
| Land                                     |       | 1,700,000  |            | 1.283       | %          |
| Site Development  Costs                  |       | 4,230,000  |            | 3.193       | %          |
| Railroad  Infrastructure                 |       | 3,110,000  |            | 2.347       | %          |
| Fire  Protection / Water Supply          |       | 950,000    |            | 0.717       | %          |
| Water  treatment system                  |       | 580,000    |            | 0.438       | %          |
| Administrative  Building                 |       | 350,000    |            | 0.264       | %          |
| Office  Equipment                        |       | 100,000    |            | 0.076       | %          |
| Computers,  Software, Network            |       | 180,000    |            | 0.136       | %          |
| Construction  performance bond           |       | 550,000    |            | 0.415       | %          |
| Construction  insurance costs            |       | 200,000    |            | 0.151       | %          |
| Construction  contingency                |       | 1,740,000  |            | 1.313       | %          |
| Capitalized  interest                    |       | 2,000,000  |            | 1.509       | %          |
| Rolling  stock                           |       | 400,000    |            | 0.302       | %          |
| **Start up costs:**                      |       |       |            |        |       |
| Financing costs                          |       | 800,000    |            | 0.604       | %          |
| Organization costs                       |       | 1,660,000  |            | 1.253       | %          |
| Pre Production period costs              |       | 950,000    |            | 0.717       | %          |
| Inventory—Spare parts               |       | 600,000    |            | 0.453       | %          |
| Inventory—Working capital           |       | 6,000,000  |            | 4.528       | %          |
| Inventory—corn                      |       | 4,000,000  |            | 3.02        | %          |
| Inventory—chemicals and ingredients |       | 650,000    |            | 0.491       | %          |
| Inventory—Ethanol                   |       | 2,950,000  |            | 2.226       | %          |
| Inventory—Distillers Grains         |       | 800,000    |            | 0.604       | %          |
| **Total**                                | ** ** | **$**      | **132,500,000** | ** **  | **100**    | **%** |

 

We expect the total funding required for the plantto be $132,500,000, which includes $98,000,000 to build the plant and$34,500,000 for other project development costs including land, sitedevelopment, utilities, start-up costs, capitalized fees and interest,inventories and working capital. Our use of proceeds is measured from our dateof inception and we have already incurred some of the related expenditures. Weexercised two options near Fairmont, Nebraska and have entered into real estatecontracts to purchase the property.  Wealso have secured two other options which make up our alternate site.  We have commenced improvements at our site inpreparation for construction of our plant. 

 

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In addition, in the event that we raise equity inour registered offering in excess of that needed to fund the construction ofthe plant located near Fairmont, Nebraska, in the discretion of our board ofdirectors, we may invest the additional funds in the construction anddevelopment of additional plants in other locations.  If our board of directors choose not toinvest excess funds in additional plants, we intend to retain the funds forgeneral corporate uses, including, but not limited to upgrading planttechnology and exploring the use of alternative fuel sources.

* *

*Quarterly and from Inception Financial Results*

* *

As of December 31, 2005, we have total assetsof $2,622,341 consisting primarily of cash, prepaid expenses, property andequipment and deferred offering and financing costs. We have currentliabilities of $1,558,085 consisting primarily of accounts payable and notespayable. Since our inception through December 31, 2005, we have anaccumulated loss of $1,268,175. Total members’ equity as of December 31,2005, was $1,064,256. Since our inception, we have generated no revenue fromoperations. For the three months ended December 31, 2005 and the periodfrom inception to December 31, 2005, we had net losses of $353,943 and $1,268,175,respectively, primarily due to start-up business costs.

 

Startup costs of $226,268 and $950,018 include theamortization of unearned unit compensation of $208,333 and $833,333 for thethree months ended December 31, 2005 and the period from inception to December31, 2005, respectively.

 

Based on our business plan and current constructioncost estimates, we believe the total project will cost approximately$132,500,000. We are seeking to raise a minimum of $33,662,500 and a maximum of$67,325,000 of equity in our registered offering. Depending on the level ofequity raised in our registered offering, we expect to require debt financing,incentives and grants ranging from a minimum of $63,675,000 to a maximum of$97,337,500.

 

**Critical Accounting Estimates**

 

Management uses estimates and assumptions inpreparing our financial statements in accordance with U.S. generally acceptedaccounting principles. These estimates and assumptions affect the reportedamounts of assets and liabilities, the disclosure of contingent assets andliabilities, and the reported revenues and expenses.

 

We will defer offering costs until the sale of unitsis completed. Upon issuance of the units, these costs will be netted againstthe proceeds received. If the offering is not completed, such costs will beexpensed.

 

The Company issued restricted units to related parties.  The restrictions are removed as services areprovided and selected milestones are achieved. The earned portion is being expensed as startup expenses or will benetted against the proceeds from capital raising efforts or deferred as loancosts and amortized over the term of the related debt.  Any unearned amount is being presented asunearned unit compensation.

 

**Employees**

 

Prior to completion ofthe plant construction and commencement of operations, we intend to hireapproximately 45 full-time employees. We currently have two full-time hourlyoffice employees.  We expect thatapproximately five of our employees will be involved primarily in managementand administration, and the remainder will be involved primarily in plantoperations. 

 

The following tablerepresents some of the anticipated positions within the plant and the minimumnumber of individuals we expect will be full-time personnel: 

 

| **Position**                               | ** ** | **# Full-Time  Personnel** | ** ** |
|--------------------------------------------|------------|----------------------------|------------|
| General  Manager                           |       | 1                          |       |
| Plant  Manager                             |       | 1                          |       |
| Bookkeeper                                 |       | 1                          |       |
| Secretary                                  |       | 1                          |       |
| Commodity  Specialist                      |       | 1                          |       |
| Lab Manager                                |       | 1                          |       |
| Lab  Assistant                             |       | 2                          |       |
| Utilities,  Maintenance and Safety Manager |       | 1                          |       |
| Licensed  Boiler Operator                  |       | 2                          |       |
| Welder                                     |       | 1                          |       |
| Electrician                                |       | 1                          |       |
| Electrician  Technician                    |       | 1                          |       |
| Maintenance  Worker                        |       | 4                          |       |
| Production  Team Leaders                   |       | 6                          |       |
| Team  Production I                         |       | 6                          |       |
| Team  Production II                        |       | 6                          |       |
| Rail  Attendant                            |       | 2                          |       |
| Truck  Attendant                           |       | 4                          |       |
| Grain  Sampling & Records         |       | 1                          |       |
| Entry Level  Floater                       |       | 2                          |       |
| **TOTAL**                                  | ** ** | **45**                     | ** ** |

 

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**Off Balance Sheet Arrangements.**

 

We currently have no off-balance sheetarrangements.

 

**Item 3.**  **Controls and Procedures**

 

Our management, including our President (theprincipal executive officer), Revis L. Stephenson, III, along with our Treasurer,(the principal financial officer), Robert W. Holmes, have reviewed andevaluated the effectiveness of our disclosure controls and procedures as of December 31,2005.  Based upon this review andevaluation, these officers believe that our disclosure controls and proceduresare effective in ensuring that material information related to us is recorded,processed, summarized and reported within the time periods required by theforms and rules of the Securities and Exchange Commission.    

 

Our management, consisting of our principalexecutive officer and principal financial officer, have reviewed and evaluatedany changes in our internal control over financial reporting that occurred as ofDecember 31, 2005 and there has been no change that has materiallyaffected or is reasonably likely to materially affect our internal control overfinancial reporting.  

 

**PART II.****                                                OTHERINFORMATION**

 

**Item 1.**  **Legal Proceedings**

 

None.

 

**Item 2.**  **Unregistered Sales of Equity Securities and Use ofProceeds**

 

We filed a RegistrationStatement on Form SB-2 with the SEC which became effective on November 10,2005.  We also registered units for salein the states of Florida, Iowa, Kansas, Kentucky Nebraska, South Dakota andWisconsin and are in the process of registering units in Colorado, Missouri andNew York.  The offering is for a minimumof 3,366,250 units and a maximum of 6,732,500 units at a purchase price of $10per unit. There is a minimum purchase of 2,500 units to participate in theoffering with additional units to be purchased in increments of 100 units. Theminimum aggregate offering amount is $33,662,500 and the maximum aggregateoffering amount is $67,325,000.  Allproceeds from the registered offering have been placed in escrow pending theoccurrence of certain events.  Therefore,at this time we have no use of proceeds to report.

 

**Item 3.**  **Defaults Upon Senior Securities**

 

None.

 

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

 

Subsequent to the end of this reporting period, aspecial meeting of our members was held on February 1, 2006 at which themembers approved certain amendments to the our operating agreement.  Information regarding changes to our operatingagreement has been provided in a Current Report on Form 8-K filed with theSEC on February 2, 2006 and incorporated by reference herein.

 

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**Item 5.**  **Other Information**

 

**None.**

 

**Item6.**  **Exhibits**

 

(a)           Thefollowing exhibits are filed as part of this report: 

 
| **Exhibit No.** | ** ** | **Exhibit**                                                                                                                                                                                                                                     |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2                  |       | Third Amended and Restated Operating Agreement of  the registrant filed as part of Post Effective Amendment No. 1 to  registrant’s registration statement filed on form SB-2 and incorporated by  reference herein.                   |
|                 |       |                                                                                                                                                                                                                                            |
| 10.1                 |       | Letter Agreement with  Oppenheimer & Co. Inc. dated November 22, 2005 filed as part of  Post Effective Amendment No. 1 to registrant’s registration statement  filed on form SB-2 and incorporated by reference herein. |
|                 |       |                                                                                                                                                                                                                                            |
| 10.2                 |       | Real Estate Contract with Doris Gwen Ogden dated  October 18, 2005 filed as part of Post Effective Amendment  No. 1 to registrant’s registration statement filed on form SB-2 and  incorporated by reference herein.             |
|                 |       |                                                                                                                                                                                                                                            |
| 10.3                 |       | Real Estate Contract with WDB, Inc. dated  October 20, 2005 filed as part of Post Effective Amendment  No. 1 to registrant’s registration statement filed on form SB-2 and  incorporated by reference herein.               |
|                 |       |                                                                                                                                                                                                                                            |
| 10.4                 |       | Notice of Real Estate Agreements filed as  part of Post Effective Amendment No. 1 to registrant’s registration  statement filed on form SB-2 and incorporated by reference herein.                                                    |
|                 |       |                                                                                                                                                                                                                                            |
| 31.1                 |       | Certificate Pursuant to 17 CFR  240.13a-14(a).                                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                            |
| 31.2                 |       | Certificate Pursuant to 17 CFR  240.13a-14(a).                                                                                                                                                                                                  |
|                 |       |                                                                                                                                                                                                                                            |
| 32.1                 |       | Certificate Pursuant to 18 U.S.C.  § 1350.                                                                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                            |
| 32.2                 |       | Certificate Pursuant to 18 U.S.C.  § 1350.                                                                                                                                                                                            |

 

**SIGNATURES**

 

In accordancewith the requirements of the Exchange Act, the registrant caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 

 
|       | ** **              | **ADVANCED BIOENERGY, LLC**                             |
|------------|-------------------------|---------------------------------------------------------|
| ** ** | ** **              | ** **                                              |
| ** ** | ** **              | ** **                                              |
| Date:      | February 14,  2006 |                                                    | /s/ Revis L. Stephenson, III |
|       |                    |                                                    | Revis L. Stephenson, III |
|       |                    |                                                    | President and Chief Executive Officer  (Principal Executive Officer) |
|       |                    |                                                    |   |
|       |                    |                                                    |   |
| Date:      | February 14,  2006 |                                                    | /s/ Robert W. Holmes |
|       |                    | Robert W. Holmes                                        |
|       |                    | Treasurer  (Principal Financial and Accounting Officer) |

 

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