As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

12/22/06  Advanced BioEnergy, LLC           425                    6:1.4M Advanced BioEnergy, LLC           Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 425         Amendment to Form 8-K                               HTML     33K 
 2: EX-10       Material Contract                                   HTML     48K 
 3: EX-23       Consent of Experts or Counsel                       HTML      7K 
 4: EX-99.1     Miscellaneous Exhibit                               HTML    310K 
 5: EX-99.2     Miscellaneous Exhibit                               HTML    229K 
 6: EX-99.3     Miscellaneous Exhibit                               HTML    247K 

Exhibit 99.2

 

HEARTLAND GRAIN FUELS, L.P.

Aberdeen, South Dakota

BALANCE SHEETS

September 30, 2006 and 2005

(unaudited)

ASSETS

		September 30, 2006			September 30, 2005
CURRENT ASSETS
Cash		$	2,488,339		$	2,872,308
Receivables
Trade		1,802,909			998,410
Other		293,807			247,178
Inventories		1,088,406			547,325
Supplies		305,969			302,802
Prepaid Expenses		25,189			68,488
Total Current Assets		6,004,619			5,036,511
PROPERTY, PLANT AND EQUIPMENT
Land		96,441			96,441
Buildings		10,050,908			9,950,957
Process Equipment		19,907,988			19,477,423
Office Equipment		268,115			236,073
		30,323,452			29,760,894
Accumulated Depreciation		(18,524,758		)	(16,099,406		)
Undepreciated Cost		11,798,694			13,661,488
Construction in Process		29,668,206			2,023,193
Net Property, Plant and Equipment		41,466,900			15,684,681
OTHER ASSETS
Investment in Cooperatives		602,734			522,123
Critical Replacement Parts		564,691			572,830
Total Other Assets		1,167,425			1,094,953
TOTAL ASSETS		$	48,638,944		$	21,816,145

 

1

---

 

LIABILITIES AND PARTNERS’ EQUITY

		September 30, 2006			September 30, 2005
CURRENT LIABILITIES
Current Maturities of Long-Term Debt		$	3,000,000		$	877,220
Payables		2,890,407			1,636,897
Accrued Expenses
Property Taxes		176,899			179,882
Interest		144,669			32,642
Payroll		82,947			69,254
Other		13,651			11,992
Total Current Liabilities		6,308,573			2,807,887
LONG-TERM LIABILITIES
Notes Payable – Net of Current Maturities		18,000,000			4,881,375
PARTNERS’ EQUITY
South Dakota Wheat Growers Association		6,670,537			5,422,924
Heartland Producers, LLC.		6,445,759			5,240,187
Aventine Renewable Energy, Inc.		696,327			566,091
Dakota Fuels, Inc.		113,919			92,613
Current Income		10,403,829			2,805,068
Total Partners’ Equity		24,330,371			14,126,883
TOTAL LIABILITIES AND PARTNERS’ EQUITY		$	48,638,944		$	21,816,145

 

2

---

HEARTLAND GRAIN FUELS, L.P.

Aberdeen, South Dakota

STATEMENT OF INCOME

Nine-Month Periods Ended September 30, 2006 and 2005

(unaudited)

		2006			2005
Sales
Ethanol		$	35,130,730		$	23,941,198
By-Products		2,870,303			3,532,808
Total Sales		38,001,033			27,474,006
Cost of Sales
Raw Materials		21,645,962			20,501,438
Utilities		733,353			664,150
Repairs & Maintenance		492,297			379,178
Lease		61,359			36,428
Personnel Costs		1,688,608			1,460,728
Depreciation		2,046,579			1,350,000
Interest		929,722			318,110
Insurance		224,359			160,471
Property Taxes		168,659			176,782
Permits and Fees		21,691			11,912
Advertising & Promotion		24,967			25,223
Other		57,426			44,274
Total Cost of Sales		28,094,982			25,128,694
Gross Income on Sales		9,906,051			2,345,312
Other Income
State Incentives		506,292			426,153
CCC Bioenergy Payments		317			—
Interest		115,643			49,757
Other		9,586			18,125
Total Other Income		631,838			494,035
Total Gross Income		10,537,889			2,839,347
General & Administrative Expenses		186,654			115,181
Operating Net Income		10,351,235			2,724,166
Patronage Dividend Income		52,594			80,902
Net Income		$	10,403,829		$	2,805,068

 

 

3

HEARTLAND GRAIN FUELS, L.P.
Aberdeen, South Dakota

STATEMENTS OF PARTNERS’ EQUITY
Nine-Month Periods Ended September 30, 2006 and 2005
(unaudited)

		Balance						Current			Balance
		12-31-05			Distributions			Income			09-30-06
South Dakota Wheat Growers Assoc.		$	7,245,313		$	(574,776	)	$	—		$	6,670,537
Heartland Producers, LLC		7,001,167			(555,408		)	—			6,445,759
Aventine Renewable Energy, Inc.		756,327			(60,000		)	—			696,327
Dakota Fuels, Inc.		123,735			(9,816		)	—			113,919
Current Income		0			0			10,403,829			10,403,829
		$	15,126,542		$	(1,200,000	)	$	10,403,829		$	24,330,371

 

		Balance			Current			Balance
		12-31-04			Distributions			Income			09-30-05
South Dakota Wheat Growers Assoc.		$	5,901,904		$	(478,980	)	$	—		$	5,422,924
Heartland Producers, LLC		5,703,027			(462,840		)	—			5,240,187
Aventine Renewable Energy, Inc.		616,091			(50,000		)	—			566,091
Dakota Fuels, Inc.		100,793			(8,180		)	—			92,613
Current Income		0			0			2,805,068			2,805,068
		$	12,321,815		$	(1,000,000	)	$	2,805,068		$	14,126,883

 

4

---

HEARTLAND GRAIN FUELS, L.P.
Aberdeen, South Dakota

STATEMENTS OF CASH FLOWS
Nine-Month Periods Ended September 30, 2006 and 2005
(unaudited)

		2006		2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income		$10,403,829		$2,805,068
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation		2,046,579		1,350,000
Patronage Dividends Received as Equity		(22,030	)	(48,541	)
Change in Assets and Liabilities
Increase in Receivables		(1,185,691	)	(628,903	)
(Increase) Decrease in Inventories		(278,708	)	420,939
Increase in Supplies		(15,060	)	(13,109	)
(Increase) Decrease in Prepaid Expenses		236,679		(51,163	)
Increase in Payables		855,809		543,733
Decrease in Accrued Expenses		(151,597	)	(171,564	)
Net Cash Provided by Operating Activities		11,889,810		4,206,460
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for Property, Plant & Equipment		(23,909,369	)	(2,228,454	)
Decrease in Long-Term Receivables		526		1,767
Increase in Other Assets		(8,845	)	(24,588	)
Net Cash Used in Investing Activities		(23,917,688	)	(2,251,275	)
CASH FLOWS FROM FINANCING ACTIVITIES
Additional Long-Term Borrowing		15,250,000		—
Distributions of Partners’ Equity		(1,200,000	)	(1,000,000	)
Retirement of Long-Term Debt		(8,225	)	(1,758,718	)
Net Cash Provided by Financing Activities		14,041,775		(2,758,718	)
Net Increase (Decrease) in Cash		2,013,897		(803,533	)
Cash — Beginning of the Period		474,442		3,675,841
Cash — End of Period		$2,488,339		$2,872,308
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest		$818,621		$326,938

 

5

---

Notes to Unaudited Financial Statements

Note 1: Organization and Nature of Business

The Partnership is organized as a limited partnership under the laws of the state of Delaware.  The Partnership operates ethanol plants in Aberdeen and Huron, South Dakota with 39,000,000 gallon of production capability.  These plants process corn, which produces ethanol, to be sold for blending with gasoline, and by-products to be used in the manufacturing of feed.

Approximately 92% of the Partnership’s sales and other income were generated by ethanol and E-85 production and marketing and the remaining 8% were from by-product production and other miscellaneous income.

Note 2: Summary of Significant Accounting Policies

The significant accounting practices and policies are summarized below.

UNAUDITED FINANCIAL STATEMENTS

The accompanying financial statements as of September 30, 2006 and September 30, 2005 and the nine months then ended are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair representation of the financial position and operating results for the interim periods.  The interim financial statements should be read in conjunction with the audited financial statements and notes thereto, contained in the registration statement on Form SB-2 to which these financial statements are included.  The results of operations for the nine months ended September 30, 2006 are not necessarily indicative of the results for the fiscal year ending December 31, 2006.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Bad debts are provided for on the reserve method based on historical experience and management’s evaluation of outstanding receivables at the end of the year.  No allowance for doubtful accounts were considered necessary for the nine-month periods ended September 30, 2006 and 2005, respectively.

INVENTORY VALUATIONS

Raw material inventories are valued at the lower of cost (first-in, first-out method) or market price.  Work-in-process and finished goods inventories are valued at market price multiplied by their respective percentage of completion.

6

---

DERIVATIVE FINANCIAL INSTRUMENTS

The Partnership has only limited involvement with derivative financial instruments and does not use them for trading purposes.  They are used to manage well-defined commodity price risks.  The Partnership may use futures, forward, option and swap contracts to reduce the market volatility of grain and finished products.  These contracts permit final settlement by delivery of the specified commodity.  Unrealized gains or losses are recognized in the valuation of the respective commodity’s ending inventory.

ADVERTISING

The Partnership expenses advertising and promotion costs as they are incurred, which amounted to $24,967 and $25,223 for the nine-month periods ended September 30, 2006 and 2005, respectively.

PROPERTY, PLANT AND EQUIPMENT

Land, buildings and equipment are stated at cost.  Depreciation methods and estimated useful lives of assets are discussed in Note 6.

Maintenance and repairs are expensed as incurred. Expenditures for new facilities and those which increase the useful lives of the buildings and equipment are capitalized. When assets are sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and gains or losses on the dispositions are recognized in earnings.

LONG-LIVED ASSETS

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.  When required, impairment losses on assets to be held or used are recognized based on the fair value of the asset and long-lived assets to be disposed of are reported at the lower of their carrying amount or their fair value less selling costs.

ENVIRONMENTAL EXPENDITURES

Environmental compliance costs would include ongoing maintenance, monitoring and similar costs.  Such costs will be expensed as incurred.  Environmental remediation costs would be accrued, except to the extent costs can be capitalized, when environmental assessments and/or remedial efforts are probable, and the cost could be reasonably estimated.  Environmental costs which improve the condition of the property as compared to the condition when constructed or acquired and create future revenue generation are capitalized.

PATRONAGE DIVIDEND INCOME

Patronage dividend income from cooperatives is recognized as income in the year the Partnership receives formal notification from the distributing cooperative.

7

---

INCOME TAXES

The Partnership, as a limited partnership, is not subject to income taxes.  Income is taxed directly to its partners.

DISTRIBUTION OF NET INCOME (LOSS)

In accordance with the Partnership’s agreement of limited partnership, the Partnership will allocate net income (loss) and alcohol credits in accordance with their respective percentage interests.

Note 3: Significant Concentrations of Risk

CREDIT RISK - RECEIVABLES

The Partnership issues credit to customers, substantially all of whom are ethanol wholesalers or E-85 retailers, under industry standard terms without collateral in most cases.

CREDIT RISK - FINANCIAL INSTITUTIONS

The Partnership maintains cash balances with local and national financial institutions, which may at times exceed the $100,000 coverage by the U.S. Federal Deposit Insurance Corporation (FDIC).

Note 4: Related Party Transactions

The Partnership has significant transactions with its limited partners and their affiliates for the nine-month periods ended September 30, 2006 and 2005, respectively which include:

e)              An agreement to purchase corn from a limited partner at their cost plus 10¢ per bushel (11¢ at the Huron facility).

f)                An agreement with a limited partner to market the total output of ethanol produced by the Aberdeen and Huron facilities.

g)             An agreement with a limited partner affiliate to market the total output of by-products produced by the Aberdeen and Huron facilities.

h)             Various purchases, services and financing arrangements.

 

8

Note 5: Inventory

The major components of inventory as of September 30, 2006 and 2005 were as follows:

		2006			2005
Raw Materials		$	116,462		$	102,155
Work in Process		519,738			253,971
Finished Goods		452,206			191,199
		$	1,088,406		$	547,325

 

Note 6: Property, Plant and Equipment

Depreciation is computed over the estimated useful lives of the individual assets using the straight-line method. The estimated useful lives of depreciable assets is as follows:

 

Depreciation expense for the nine-month periods ended September 30, 2006 and 2005 amounted to $2,046,579 and $1,350,000, respectively.

 

Note 7: Investments in Cooperatives

Investments in cooperatives are recorded at cost, plus unredeemed patronage dividends received in the form of capital stock and other equities. Cooperative stocks normally are not transferable, thereby precluding any market value, but they may be used as collateral in securing loans. Any impairment of equities normally is not recognized by the Partnership until formal notification is received. Redemption of these equities is at the discretion of the various organizations. A substantial portion of the business of these cooperatives is dependent upon the agribusiness economic sector.

At September 30, 2006 and 2005, the Partnership had investments in cooperatives as follows:

 

9

---

Note 8: Financing Arrangements

Financing arrangements at September 30, 2006 and 2005 were as follows:

		Interest		Balance
Lender		Rate		2006			2005
Dakota Fuels, Inc.
Aberdeen, South Dakota
Term (RIA475T02-HGF) – $6,750,000 commitment, revolving term loan with a quarterly commitment reduction of $750,000 starting 09-01-11, with the balance due on 06-01-13		7.397	%	$	6,750,000		$	—
Dakota Fuels, Inc.
Term (RIA475T03-HGF) – $15,000,000 commitment, term loan with a quarterly payment of $750,000, starting 09-01-06, with balance due on 06-01-11		8.679	%*	14,250,000			—
CoBank, ACB
Omaha, Nebraska
Term (A475T02B) – Revolving term loan with a quarterly commitment reduction of $375,000 starting 9-01-04, balance due 12-01-08		6.76	%*	—			5,750,000

 

*      Indicates a continuously variable interest rate

10

---

 

		Interest		Balance
Lender		Rate		2006			2005
Dakota Energy Cooperative
Huron, South Dakota
Purchase Agreement
Monthly payment of $185, with balance due 08-31-09		0.00	%	—			8,595
US Bank
St. Paul, Minnesota
Commercial Note – Commitment of $500,000 ending 12-31-06		7.72	%*	—			—
				21,000,000			5,758,595
Less: Current Portion				3,000,000			877,220
Total Long-Term Liabilities				$	18,000,000		$	4,881,375

*    Indicates a continuously variable interest rate

The Partnership, in 2005, entered into an Administrative Agency Agreement with Dakota Fuels, Inc. and CoBank, ACB, where CoBank, ACB has been appointed as the administrative agent for the loan documents and security agreements with the Partnership.  CoBank, ACB has agreed to undertake the obligations as administrative agent for these loans.

The term note (RIA475T02-HGF) with Dakota Fuels, Inc. is a revolving term note that the Partnership may borrow against and repay at their discretion except for any portion of note principal with fixed interest rates.  The revolving term note has fixed interest rates on term debt ranging from 6.40% to 7.29% with a weighted average of 7.397%, which includes $2,000,000 of term debt at the current variable interest rate of 8.50%.

Term notes with Dakota Fuels, Inc. are secured by CoBank, ACB’s first mortgage lien covering real property owned by the Partnership, together with CoBank, ACB’s security agreement under the Uniform Commercial Code covering substantially all personal property owned by the Partnership, including receivables, inventories and equipment subject to perfected security interests.  The Partnership also has $452,829 of equity in CoBank, ACB at September 30, 2006, which is held as additional collateral.

The purchase agreement with Dakota Energy Cooperative is secured by a perfected security interest in Auto-Var Capacitor Banks purchased for the Huron facility.

Restrictive covenants on the loan agreements with Dakota Fuels, Inc. provide, among other things, (1) restrictions on incurring additional indebtedness, (2) restrictions on the ability to mortgage, pledge, assign or grant security interest in any assets to any other party, (3) minimum working capital balances of at least $3,500,000, except that in determining current assets, any available commitment not considered due in the next year may be included, (4) minimum net worth balances of at least $12,500,000, and (5) restrictions on scheduled payments made to lessors during each fiscal year.

11

---

The commercial note with US Bank is unsecured with a variable interest rate (2.5% plus current one month “LIBOR” rate).

Total interest expense charged to operations amounted to $929,722 and $318,110 for the nine-month periods ended September 30, 2006 and 2005, respectively.

Aggregate annual maturities of the long-term debt outstanding at September 30, 2006 are as follows:

 

Note 9: Pension Plans

The Partnership participates in a defined contribution thrift plan (401(k)).  Under the terms of the plan, qualifying employees may elect to contribute to the plan a percentage of their compensation, such contributed compensation may be partially matched by the Partnership, up to a maximum of 4%.  The Partnership contributed $40,884 and $35,273 to the thrift plan for the nine-month periods ended September 30, 2006 and 2005, respectively.

The Partnership participates in the “Co-op Retirement Plan”, administered by the United Benefits Group, which is a multiple-employer defined benefit plan that is funded by contributions from employees and the Partnership.  The Partnership intends to participate in the plan indefinitely; however it may voluntarily discontinue the plan at anytime.  The plan, which has no funding deficiencies, used the aggregate cost method of valuation. Under this method, the normal cost is adjusted each year to reflect the experience under the plan, automatically spreading gains or losses over future years.  The relative position of each employer associated with the plan, with respect to the actuarial present value of accumulated benefits, is not determinable.

The Partnership made contributions and paid administration fees for the defined benefit retirement plans totaling $105,947 and $98,181 for the nine-month periods ended September 30, 2006 and 2005, respectively.

Note 10: Operating Leases

The Partnership has certain cancelable and non-cancelable operating leases and rental agreements on land and equipment of $61,859 and $36,928 for the nine-month periods ended September 30, 2006 and 2005, respectively.

12

---

Note 11: Contingencies and Commitments  

c)              The Partnership is subject to various federal and state regulations regarding the care, delivery and containment of products which the Partnership handles and has handled.  The Company is contingently liable for any associated costs which could arise from the handling, delivery and containment of these products.  These costs cannot be determined at present.  While resolution of any such costs in the future may have an effect on the Company’s financial results for a particular period, management believes any such future costs will not have a material adverse effect on the financial position of the Company as a whole.

d)             The Partnership is aware of initiatives by the EPA seeking to require best available control technology (BACT) on ethanol plants.  The EPA’s position is that ethanol plants are major sources of hazardous air pollutants based upon different test methods from the ones used when the ethanol plants initially obtained air permits.  Under this method, emissions exceed the allowed thresholds.  The EPA is currently reviewing South Dakota ethanol plants.  The EPA has imposed penalties and required BACT installed on ethanol plants in other states.  The EPA and South Dakota DENR have yet to determine what, if any, control technology will be required and whether any enforcement action will commence.

13