Advanced BioEnergy, LLC - FORM 10-Q

Advanced BioEnergy, LLC - FORM 10-Q - May 13, 2016

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EX-32 - EX-32 - Advanced BioEnergy, LLC	d190884dex32.htm
EX-31 - EX-31 - Advanced BioEnergy, LLC	d190884dex31.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-52421

ADVANCED BIOENERGY, LLC

(Exact name of Registrant as Specified in its Charter)

Delaware

20-2281511

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

8000 Norman Center Drive, Suite 610

Bloomington, Minnesota 55437

(763) 226-2701

(Address, including zip code, and telephone number, including area code, of Registrant’s Principal Executive Offices)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 1, 2016, the number of outstanding units was 25,410,851.

ADVANCED BIOENERGY, LLC

FORM 10-Q

Index


	Page
Part I. Financial Information
Item 1. Financial Statements		3
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statement of Changes in Members’ Equity		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4. Controls and Procedures		30
Part II. Other Information
Item 1. Legal Proceedings		30
Item 1A. Risk Factors		30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 3. Defaults Upon Senior Securities		31
Item 4. Mine Safety Disclosure		31
Item 5. Other Information		31
Item 6. Exhibits		31
Signatures		32
Exhibit Index		33

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands)


	March 31,			September 30,
	2016			2015
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	14,367		$	16,566
Accounts receivable:
Trade accounts receivable		5,187			3,990
Other receivables		201			117
Inventories		4,675			4,621
Prepaid expenses		945			743
Restricted cash		1,532			4,612

Total current assets		26,907			30,649

Property and equipment, net		35,819			41,155
Other assets		868			984

Total assets	$	63,594		$	72,788

LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Accounts payable	$	3,592		$	5,379
Accrued expenses		2,591			2,318
Current portion of long-term debt (stated principal amount of $3,916 and $2,024 at March 31, 2016 and September 30, 2015, respectively)		3,916			5,654

Total current liabilities		10,099			13,351

Other liabilities		7			21
Long-term debt (stated principal amount of $25,683 and $27,000 at March 31, 2016 and September 30, 2015, respectively)		25,683			27,000

Total liabilities		35,789			40,372

Members’ equity:
Members’ capital, no par value, 25,410,851 units issued and outstanding		48,638			48,638
Accumulated deficit		(20,833	)		(16,222	)

Total members’ equity		27,805			32,416

Total liabilities and members’ equity	$	63,594		$	72,788

See notes to consolidated financial statements.

ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Statements of Operations

(Dollars in thousands, except per unit data)

(Unaudited)


	Three Months Ended						Six Months Ended
	March 31,			March 31,			March 31,			March 31,
	2016			2015			2016			2015
Net sales
Ethanol and related products	$	36,102		$	37,110		$	73,180		$	74,602
Other		—			161			183			411

Total net sales		36,102			37,271			73,363			75,013
Cost of goods sold		38,325			39,380			76,268			73,842

Gross profit (loss)		(2,223	)		(2,109	)		(2,905	)		1,171
Selling, general and administrative expenses		920			889			1,669			1,640

Operating (loss)		(3,143	)		(2,998	)		(4,574	)		(469	)
Other income, net		18			32			299			234
Interest income		5			6			41			12
Interest expense		(313	)		(34	)		(377	)		(68	)

Net (loss)	$	(3,433	)	$	(2,994	)	$	(4,611	)	$	(291	)

Weighted average units outstanding - basic and diluted		25,411			25,411			25,411			25,411

(Loss) per unit - basic and diluted	$	(0.14	)	$	(0.12	)	$	(0.18	)	$	(0.01	)

See notes to consolidated financial statements.

ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Statement of Changes in Members’ Equity

For the Six Months Ended March 31, 2016

(Dollars in thousands)

(Unaudited)


	Member		Members’		Accumulated
	Units		Capital		Deficit			Total
MEMBERS’ EQUITY - September 30, 2015		25,410,851	$	48,638	$	(16,222	)	$	32,416
Net loss		—		—		(4,611	)		(4,611	)

MEMBERS’ EQUITY - March 31, 2016		25,410,851	$	48,638	$	(20,833	)	$	27,805

See notes to consolidated financial statements

ADVANCED BIOENERGY, LLC & SUBSIDIARIES

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)


	Six Months Ended
	March 31,			March 31,
	2016			2015
Cash flows from operating activities:
Net (loss)	$	(4,611	)	$	(291	)
Adjustments to reconcile net (loss) to operating activities cash flows:
Depreciation		5,678			5,470
Amortization of deferred financing costs		35			44
Amortization of deferred revenue and rent		(14	)		(14	)
Amortization of additional carrying value of debt		(699	)		(792	)
Loss on disposal of assets		2			—
(Gain) on troubled debt restructuring		(322	)		(183	)
Change in working capital components:
Accounts receivable		(1,281	)		(350	)
Inventories		(54	)		(328	)
Prepaid expenses		(202	)		(345	)
Accounts payable		(1,787	)		1,622
Accrued expenses		273			(550	)

Net cash provided by (used in) operating activities		(2,982	)		4,283

Cash flows from investing activities:
Purchase of property and equipment		(368	)		(2,272	)
Proceeds from sale of assets		24			—
Change in other assets		116			67
Change in restricted cash		3,080			1,201

Net cash provided by (used in) investing activities		2,852			(1,004	)

Cash flows from financing activities:
Payments on debt		(32,069	)		(5,069	)
Proceeds from debt		30,000			—

Net cash (used in) financing activities		(2,069	)		(5,069	)

Net (decrease) in cash and cash equivalents		(2,199	)		(1,790	)
Beginning cash and cash equivalents		16,566			21,982

Ending cash and cash equivalents	$	14,367		$	20,192

Supplemental disclosure of cash flow information:
Cash paid for interest	$	—		$	840

See notes to consolidated financial statements.

ADVANCED BIOENERGY, LLC & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016 and 2015

(Unaudited)

1. Organization and Significant Accounting Policies

The consolidated financial statements include the accounts of Advanced BioEnergy, LLC (“ABE” or the “Company”) and its wholly owned subsidiaries, ABE Fairmont, LLC (“ABE Fairmont”) and ABE South Dakota, LLC (“ABE South Dakota”). Substantially all of the assets of ABE Fairmont were sold in December 2012 and the subsidiary is now inactive. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015. The financial information as of March 31, 2016 and the results of operations for the three and six months ended March 31, 2016 are not necessarily indicative of the results for the fiscal year ending September 30, 2016. In the opinion of management, the interim financial statements reflect all normal recurring adjustments necessary for fair presentation.

The Company currently owns three ethanol production facilities in the U.S. with a combined production capacity of 85 million gallons per year. The Company acquired existing facilities in Aberdeen, South Dakota (9 million gallons) and Huron, South Dakota (32 million gallons) in November 2006 and began operations at the 44 million gallon Aberdeen expansion facility in January 2008. In April 2016, the Company ceased operations at its smaller, nine million gallon facility in Aberdeen due to inefficiencies at this older plant and capital expenditures required to keep the plant in operating condition, coupled with the weak margin environment. The net book value of the nine million gallon facility is $1.9 million. The Company has not made a final decision on whether it will resume operations at this facility in the future.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash balances are maintained in bank depositories and periodically exceed federally insured limits. The Company has not experienced losses in these accounts. Prior to the December 2015 debt refinancing, the Company segregated cash restricted for debt service and classified these funds according to the future anticipated use of the funds. Restricted cash at September 30, 2015 included cash held for debt service under the terms of its prior debt agreement and a deposit for a rail car sublease. Restricted cash at March 31, 2016 included a deposit for a rail car sublease.

Receivables

Credit sales are made to a relatively small number of customers with no collateral required. Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual receivables and considering a customer’s financial condition, credit history and current economic conditions. Receivables are written off if deemed uncollectible. Recoveries of receivables previously written off are recorded when received. There was no allowance for doubtful accounts recorded at March 31, 2016 or September 30, 2015.

Inventories

Ethanol inventory, raw materials, work-in-process and parts inventory are valued using methods that approximate the lower of cost (first-in, first-out) or net realizable value (NRV). Distillers grains and related products are stated at net realizable value. In the valuation of inventories and purchase and sale commitments, the Company determines NRV by estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Property and Equipment

Property and equipment is carried at cost less accumulated depreciation computed using the straight-line method over the estimated useful lives:


Office equipment			3-7 Years
Process equipment			10 Years
Buildings			40 Years

Maintenance and repairs are charged to expense as incurred; major improvements and betterments are capitalized. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount on the asset group may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the estimated fair value on that date.

Commodity Sales and Purchase Contracts, Derivative Instruments

The Company currently does not enter into commodity futures and exchange-traded commodity options contracts for the sale of its products or purchases of its inputs. However, the Company does enter into forward sales contracts for ethanol, distillers grains and corn oil, and purchase contracts for corn and natural gas. The Company classifies these sales and purchase contracts as normal sales and purchase contracts and accordingly they are not marked to market. These contracts provide for the sale or purchase of an item other than a financial instrument or derivative instrument that will be delivered in quantities expected to be sold or used over a reasonable period in the normal course of business.

Revenue Recognition

Ethanol revenue is recognized when product title and all risk of ownership is transferred to the customer as specified in the contractual agreements with the marketers. Under the terms of the marketing agreements, revenue is recognized when product is loaded into rail cars or trucks for shipment. Revenue from the sale of co-products is recorded when title and all risk of ownership transfers to customers. Co-products are normally shipped free on board (“FOB”) shipping point. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, commissions due to the marketers are deducted from the gross sale price at the time of payment. Interest income is recognized as earned.

Income per Unit

Basic and diluted income per unit is computed using the weighted-average number of units outstanding during each period presented.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Income Taxes

The Company has elected to be treated as a partnership for tax purposes and generally does not incur income taxes. Instead, the Company’s earnings and losses are included in the income tax returns of the members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. The Company files income tax returns in the U.S. federal and various state jurisdictions.

Risks and Uncertainties

The supply and demand for ethanol are affected by federal and state legislation and regulation, most significantly the Renewable Fuels Standard (“RFS”), and any changes in legislation or regulation could cause the demand for ethanol to decline or its supply to increase, which could have a material adverse effect on our business, results of operations and financial condition, and our ability to operate at a profit.

On November 30, 2015, the EPA announced final Renewable Volume Obligation (“RVO”) requirements for the RFS for calendar years 2014, 2015 and 2016. Although the new RVO requirements set are above the proposed reductions, they are below the original requirements set by the RFS. Opponents of ethanol such as large oil companies will likely continue their efforts to repeal or reduce the RFS through lawsuits or lobbying of Congress. Successful reduction or repeal of the blending requirements of the RFS could result in a significant decrease in ethanol demand.

As of January 2015, domestic ethanol production capacity was approximately 15.6 billion gallons according to the Renewable Fuels Association (“RFA”). Reduction of blending requirements could reduce the demand for and price of ethanol. If demand for ethanol decreases, it could materially adversely affect our business, results of operations and financial condition.

Ethanol has historically traded at a discount to gasoline, however with the recent decline in oil prices ethanol is currently trading at a premium to gasoline causing a disincentive for discretionary blending of ethanol beyond the required blend rate. Consequently, there may be a negative impact on ethanol pricing and demand, which could result in a material adverse effect on our business, results of operations and financial condition.

2. Inventories

A summary of inventories is as follows (in thousands):


	March 31,		September 30,
	2016		2015
Chemicals	$	755	$	778
Work in process		817		892
Ethanol		1,322		1,258
Distillers grain		48		63
Supplies and parts		1,733		1,630

Total	$	4,675	$	4,621

3. Property and Equipment

A summary of property and equipment is as follows (in thousands):


	March 31,			September 30,
	2016			2015
Land	$	1,811		$	1,811
Buildings		10,203			10,157
Process equipment		107,060			106,919
Office equipment		1,582			1,551
Construction in process		136			35

		120,792			120,473
Accumulated depreciation		(84,973	)		(79,318	)

Property and equipment, net	$	35,819		$	41,155

4. Long-term Debt

A summary of long-term debt is as follows (in thousands, except percentages):


	March 31,
	2016			March 31,			September 30,
	Interest Rate			2016			2015
ABE South Dakota:
Senior debt principal - variable		3.93	%	$	30,000		$	29,000
Restructuring fee		N/A			—			3,024
Deferred financing costs		N/A			(401	)		—
Additional carrying value of restructured debt		N/A			—			630

Total outstanding					29,599			32,654

Additional carrying value of restructured debt		N/A			—			(630	)

Stated principal				$	29,599		$	32,024

The estimated maturities of debt are as follows (in thousands):


Due By March 31:	Senior Debt Principal		Deferred Financing Costs			Total
2017	$	4,000	$	(84	)	$	3,916
2018		4,000		(85	)		3,915
2019		4,000		(84	)		3,916
2020		4,000		(85	)		3,915
2021		14,000		(63	)		13,937

Total debt	$	30,000	$	(401	)	$	29,599

2010 Senior Credit Agreement for the South Dakota Plants

ABE South Dakota entered into an Amended and Restated Senior Credit Agreement (the “2010 Senior Credit Agreement”), effective as of June 18, 2010, and amended on December 9, 2011, which was accounted for under troubled debt restructuring rules. The 2010 Senior Credit Agreement was executed among ABE South Dakota, the lenders from time to time party thereto, and an Administrative Agent and Collateral Agent. The 2010 Senior Credit Agreement converted the outstanding principal amount of the loans and certain other amounts under interest rate protection agreements to a senior term loan. The interest accrued on outstanding term and working capital loans under the previous credit agreement were reduced to zero. ABE South Dakota agreed to pay a $3.0 million restructuring fee to the lender due at the earlier of March 31, 2016 and the date on which the loans were repaid in full. ABE South Dakota recorded the restructuring fee as non-interest bearing debt on its consolidated balance sheets. See “Additional Carrying Value of Restructured Debt” below.

In December 2015, ABE South Dakota refinanced the 2010 Senior Credit Agreement. In connection with closing, ABE South Dakota paid in full all amounts outstanding under the 2010 Senior Credit Agreement, including $29.0 million of principal, accrued interest, the $3.0 restructuring fee, and the waiver fee of $68,750, and all security interests of the prior lenders were extinguished.

Additional Carrying Value of Restructured Debt

Since the future maximum undiscounted cash payments on the 2010 Senior Credit Agreement (including principal, interest and the restructuring fee) exceeded the adjusted carrying value at the time of the June 2010 restructuring, no gain for the forgiven interest was recorded, the carrying value was not adjusted and the modification of terms was accounted for on a prospective basis, via a new effective interest calculation, amortized over the life of the note, offsetting interest expense.

As a result of debt pre-payments made during the six months ended March 31, 2015 and the final payoff of the 2010 Senior Credit Agreement in December 2015, the carrying value of the debt exceeded the scheduled principal and interest payments remaining over the term of the loan. As a result, gains of $0.3 million and $0.2 million were recognized in the six months ended March 31, 2016 and 2015, respectively.

2015 Senior Credit Agreement for the South Dakota Plants

On December 29, 2015, ABE South Dakota entered into a Master Credit Agreement (“2015 Credit Agreement”) with AgCountry Farm Credit Services, PCA as lender, (“AgCountry”) to refinance its existing 2010 Senior Credit Agreement. On December 29, 2015, the Company also entered into (i) a First Supplement to the 2015 Credit Agreement covering a $10.0 million Revolving Term Facility and (ii) a Second Supplemental covering a $20.0 million Term Loan. The transaction funded on December 30, 2015.

The $20.0 million Term Loan has a variable interest rate (“Variable Rate”) equal to the one-month LIBOR rate plus a “Margin” of 350 basis points. The applicable LIBOR interest rate at March 31, 2016 was 0.43%. Beginning April 1, 2016, the Company must make its first quarterly principal payment of $1.0 million, plus accrued interest, on the Term Loan. The Term Loan will be fully amortized over five years with the final payment on January 1, 2021. The Company may elect one or more fixed or adjustable interest rates, rather than the Variable Rate, based on AgCountry’s cost of funds at the time of the election, plus the Margin. Any election must apply to $1.0 million or more owing on the Term Loan. At March 31, 2016, the balance of the Term Loan was $20.0 million.

The $10.0 Revolving Term Facility also has a Variable Rate equal to the one-month LIBOR rate plus an initial Margin of 350 basis points. Borrowings under the Revolving Term Facility may be advanced, repaid and re-borrowed during the term. The Company will make quarterly interest payments on the Revolving Term Facility, with the full principal amount outstanding due on January 1, 2021. Under the Revolving Term Facility, the Company is required to pay unused commitment fees of 50 basis points. At March 31, 2016, the balance of the Revolving Term Facility was $10.0 million.

The Margin will (i) decrease to 3.25% when the aggregate principal balance of all outstanding loans and the unfunded commitment level is $20.0 million or less, and (ii) decrease to 3.00% when this amount is $15.0 million or less.

ABE South Dakota, LLC also entered into a Security Agreement with AgCountry under which borrowings under the 2015 Credit Agreement are secured by substantially all of ABE South Dakota’s assets. AgCountry holds a first priority security interest and mortgage in all inventory, accounts receivable, intangibles, equipment, fixtures, buildings, and a first mortgage in land owned or leased by ABE South Dakota.

The 2015 Credit Agreement also includes customary financial and non-financial covenants that limit capital expenditures, distributions and debt and require minimum working capital, owner’s equity, debt to EBITDA, and fixed charge coverage ratios.

ABE Letter of Credit

The Company has a $1.5 million irrevocable and non-transferable standby letter of credit related to a rail car sublease. This letter of credit is collateralized by $1.5 million of cash in a restricted account, which has been classified as restricted cash.

5. Major Customers

ABE South Dakota has ethanol marketing agreements with NGL Energy Partners, LP (“NGL”), a diversified energy business. These ethanol marketing agreements require that we sell to NGL all of the denatured fuel-grade ethanol produced at the South Dakota plants. The term of these ethanol marketing agreements expires on June 30, 2016.

ABE South Dakota is party to a co-product marketing agreement with Dakotaland Feeds, LLC (“Dakotaland Feeds”), whereby Dakotaland Feeds markets the local sale of distillers’ grains produced at the ABE South Dakota Huron plant to third parties for an agreed upon commission. ABE South Dakota has a marketing agreement with Gavilon to market the dried distillers’ grains from the Aberdeen plant, effective July 1, 2013 until July 31, 2016. ABE South Dakota self-markets the wet distillers’ grains produced at the Aberdeen plant.

Sales and receivables from the ABE South Dakota’s major customers were as follows (in thousands):


	As of and for the Six Months Ending		As of and for the Six Months Ending		As Of
	March 31,		March 31,		September 30,
	2016		2015		2015
NGL Energy - Ethanol
Six months revenues	$	58,685	$	59,185
Receivable balance at period end		4,250			$	3,272
Gavilon - Distillers Grains
Six months revenues	$	7,670	$	7,857
Receivable balance at period end		276			$	384
Dakotaland Feeds - Distillers Grains
Six months revenues	$	6,020	$	6,040
Receivable balance at period end		490			$	206

6. Risk Management

The Company is exposed to a variety of market risks, including the effects of changes in commodity prices and interest rates. These financial exposures are monitored and managed by the Company as an integral part of its overall risk management program. The Company’s risk management program seeks to reduce the potentially adverse effects that the volatility of these markets may have on its current and future operating results. To reduce these effects, the Company generally attempts to fix corn purchase prices and related sale prices of ethanol, distillers’ grains and corn oil, with forward purchase and sale contracts to lock in future operating margins. In addition to entering into unpriced fixed contracts to purchase 207,000 bushels of corn, the Company had entered into the following fixed price forward contracts at March 31, 2016:

Commodity

Type

Quantity

Amount (in 000’s)

Period Covered Through

Ethanol

Sale

1,872,000 gallons

2,374

April 30, 2016

Distillers grains

Sale

15,691 tons

681

April 30, 2016

Corn oil

Sale

47,000 lbs

April 30, 2016

Unrealized gains and losses on forward contracts, in which delivery has not occurred, are deemed “normal purchases and normal sales” and therefore are not marked to market in the financial statements.

7. Parent Financial Statements

The following financial information represents the unconsolidated financial statements of Advanced BioEnergy, LLC (“ABE”) as of March 31, 2016 and September 30, 2015, and for the three and six months ended March 31, 2016 and 2015. ABE’s ability to receive distributions from ABE South Dakota is based on the terms and conditions in ABE South Dakota’s credit agreements. Under the 2010 Credit Agreement, ABE South Dakota was allowed to make equity distributions (other than certain tax distributions) to ABE only upon ABE South Dakota meeting certain financial conditions and if there was no more than $25 million of principal outstanding on the senior term loan. Under the 2015 Credit Agreement, ABE South Dakota is allowed to distribute up to 40% of pre-tax net income in a given year, but must meet all loan covenants before and after any distribution. There were no distributions from ABE South Dakota during the last three fiscal years.

Advanced BioEnergy, LLC (Unconsolidated)

Balance Sheets

(Unaudited)


	March 31,			September 30,
	2016			2015
	(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	5,064		$	8,158
Restricted cash		1,532			1,500
Prepaid expenses		—			6

Total current assets		6,596			9,664

Property and equipment, net		125			211
Other assets:
Investment in ABE Fairmont		—			108
Investment in ABE South Dakota		21,364			22,717
Other assets		32			32

Total assets	$	28,117		$	32,732

LIABILITIES AND MEMBERS’ EQUITY
Liabilities:
Accounts payable	$	15		$	—
Accrued expenses		290			295
Other liabilities		7			21

Total liabilities		312			316
Members’ equity:
Members’ capital, no par value, 25,410,851 units issued and outstanding		48,638			48,638
Accumulated deficit		(20,833	)		(16,222	)

Total members’ equity		27,805			32,416

Total liabilities and members’ equity	$	28,117		$	32,732

Advanced BioEnergy, LLC (Unconsolidated)

Statements of Operations

(Unaudited)


	Three Months Ended						Six Months Ended
	March 31,			March 31,			March 31,			March 31,
	2016			2015			2016			2015
	(Dollars in thousands)						(Dollars in thousands)
Equity in earnings (losses) of consolidated subsidiary	$	(3,212	)	$	(2,776	)	$	(4,353	)	$	33
Selling, general and administrative expenses		(226	)		(224	)		(293	)		(335	)

Operating (loss)		(3,438	)		(3,000	)		(4,646	)		(302	)
Other expense		—			—			(6	)		—
Interest income		5			6			41			11

Net (loss)		(3,433	)		(2,994	)		(4,611	)		(291	)

Advanced BioEnergy, LLC (Unconsolidated)

Statements of Cash Flows

(Unaudited)


	Six Months Ended
	March 31,			March 31,
	2016			2015
	(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	(4,611	)	$	(291	)
Adjustments to reconcile net income (loss) to operating activities cash flows:
Depreciation		59			68
Equity in earnings of consolidated subsidiaries		4,353			(33	)
Loss on disposal of fixed assets		2			—
Amortization of deferred revenue and rent		(14	)		(14	)
Change in working capital components:
Accounts receivable		6			—
Prepaid expenses		—			(12	)
Accounts payable and accrued expenses		10			(24	)

Net cash (used in) operating activities		(195	)		(306	)

Cash flows from investing activities:
Proceeds from sale of assets		25			—
Change in restricted cash		(32	)		—

Net cash (used in) investing activities		(7	)		—

Cash flows from financing activities:
Distribution to members		(2,892	)		—

Net cash (used in) financing activities		(2,892	)		—

Net (decrease) in cash and cash equivalents		(3,094	)		(306	)
Beginning cash and cash equivalents		8,158			8,988

Ending cash and cash equivalents	$	5,064		$	8,682

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations, performance and prospects. All statements that are not historical or current facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Certain of these risks and uncertainties are described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended September 30, 2015 and in this Form 10-Q. These risks and uncertainties include, but are not limited to, the following:

•

our operational results are subject to fluctuations in the prices of grain, utilities and ethanol, which are affected by various factors including weather, production levels, supply, demand, changes in technology and government support and regulations;

•

our margins can have fluctuated in the past and could become negative, which may affect our ability to meet current obligations and debt service requirements at our ABE South Dakota entity;

•

our risk mitigation strategies could be unsuccessful and could materially harm our results;

•

our cash distributions depend upon our future financial and operational performance and will be affected by debt covenants, reserves and operating expenditures;

•

ethanol may trade at a premium to gasoline at times, as it is now, causing a disincentive for discretionary blending of ethanol beyond the rates required to comply with the RFS. Consequently, there may be a negative impact on ethanol pricing and demand;

•

current government mandated standards such as the RFS may be reduced or eliminated, and legislative acts taken by state governments such as California related to low-carbon fuels that include the effects of indirect land use, may have an adverse effect on our business;

•

alternative fuel additives may be developed that are superior to, or cheaper than ethanol;

•

transportation, storage and blending infrastructure may become impaired, preventing ethanol from reaching markets;

•

our operating facilities may experience technical difficulties and not produce the gallons of ethanol expected;

•

our units are subject to a number of transfer restrictions, and although our units are now listed on an internet-based matching platform, we cannot ensure that a market will ever develop for our units;

•

there are limits on the ability of our ABE South Dakota subsidiary to make distributions to ABE due to restrictions in this subsidiary’s credit facility;

•

anti-dumping and countervailing duties investigations by the Chinese government into U.S. distillers grains exported to China could result in reduced export demand for distillers grains and have a negative impact on domestic distillers grain prices;

•

the supply of ethanol rail cars in the market has fluctuated in recent years and may affect our ability to obtain new tanker cars or negotiate new leases at a reasonable fee when our current leases expire; and

•

an increase in rail traffic congestion throughout the United States primarily due to the increase in cargo trains carrying shale oil, which, from time to time, has and may continue to affect our ability to return our tanker rail cars to the Aberdeen and Huron plants on a timely basis. Delays in returning rail cars to our plants may affect our ability to operate our plants at full capacity due to ethanol storage capacity constraints.

You can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed from time to time with the U.S. Securities and Exchange Commissions, which we refer to as the SEC, that advise interested parties of the risks and factors that may affect our business.

General

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements included herewith and notes to the consolidated financial statements thereto.

Overview

Advanced BioEnergy, LLC (“Company,” “we,” “our,” “Advanced BioEnergy” or “ABE”) was formed in 2005 as a Delaware limited liability company. Our business consists of producing ethanol and co-products, including wet, modified and dried distillers’ grains, as well as corn oil. Ethanol is a renewable, environmentally clean fuel source that is produced at numerous facilities in the United States, mostly in the Midwest. In the U.S., ethanol is produced primarily from corn and then blended with unleaded gasoline in varying percentages. The ethanol industry in the U.S. has grown significantly as the use of ethanol reduces harmful auto emissions, enhances octane ratings of the gasoline with which it is blended, offers consumers a cost-effective choice, and decreases the amount of crude oil in the U.S. needs to import from foreign sources.

To execute our business plan, we acquired ABE South Dakota, LLC (f/k/a/ Heartland Grain Fuels, LP) in November 2006, which owned existing ethanol production facilities in Aberdeen and Huron, South Dakota. We commenced construction of our expansion facility in Aberdeen, South Dakota in April 2007, and commenced operations in January 2008. Our production operations are carried out primarily through our operating subsidiary ABE South Dakota, which owns and operates facilities in Aberdeen and Huron, South Dakota. In April 2016, the Company ceased operations at its smaller, nine million gallon facility in Aberdeen due to inefficiencies at this older plant and capital expenditures required to keep the plant in operating condition, coupled with the weak margin environment. The Company has not made a final decision on whether it will resume operations at this facility in the future.

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Based on the related business nature and expected financial results, the Company’s plants are aggregated into one reporting segment.

DRY MILL PROCESS

Dry mill ethanol plants produce ethanol primarily by processing corn. Other possible feeds are grain sorghum, or other cellulosic materials. The corn is conveyed directly from the seller to the plant where it is weighed and transferred to a scalper to remove rocks, cobs, and other debris. The corn is then fed to a hammer mill where it is ground into flour and conveyed into a slurry tank. Water, heat and enzymes are added to the flour in the slurry tank to start the process of converting starch from the corn into sugar. The slurry is pumped to a liquefaction tank where additional enzymes are added. These enzymes continue the starch-to-sugar conversion. The grain slurry is pumped into fermenters, where yeast is added to begin the batch-fermentation process. Fermentation is the process of the yeast converting the sugar into alcohol and carbon dioxide. After the fermentation is complete, a vacuum distillation system removes the alcohol from the corn mash. The 95% (190-proof) alcohol from the distillation process is then transported to a molecular sieve system, where it is dehydrated to 100% alcohol (200 proof). The 200-proof alcohol is then pumped to storage tanks and blended with a denaturant, usually natural gasoline. The 200-proof alcohol and 2.0-2.5% denaturant constitute denatured fuel ethanol.

Corn mash left over from distillation is pumped into a centrifuge for dewatering. The liquid from the centrifuge, known as thin stillage, is then pumped from the centrifuges to an evaporator, where it is concentrated into a syrup. The solids that exit the centrifuge, known as the wet cake, are conveyed to the dryer system. Syrup is added to the wet cake as it enters the dryer, where moisture is removed. The process produces distillers’ grains with solubles, which is used as a high-protein/fat animal-feed supplement. Dry-mill ethanol processing creates three forms of distillers’ grains: wet distillers’ grains with solubles, known as wet distillers’ grains; modified wet distillers’ grains with solubles, known as modified distillers’ grains; and dry distillers’ grains with solubles, known as dry distillers’ grains. Wet and modified distillers’ grains have been dried to approximately 65% and 50% moisture levels, respectively, and are predominately sold to nearby markets. Dried distillers’ grains have been dried to 11% moisture, have an almost indefinite shelf life and may be sold and shipped to more distant markets.

The Company also produces corn oil by processing evaporated thin stillage through a disk stack style centrifuge. Corn oil has a lower density than water or solids that make up the syrup. The centrifuges separate the relatively light oil from the heavier components of the syrup, eliminating the need for significant retention time. De-oiled syrup is returned to the process for blending into wet, modified, or dry distillers’ grains. The corn oil is then pumped into storage tanks before being loaded onto trucks for sale.

FACILITIES

The table below provides a summary of our ethanol plants in operation as of March 31, 2016:


Location	Estimated Annual Ethanol Production		Estimated Annual Distillers Grains Production(1)		Estimated Annual Corn Processed		Primary Energy Source
	(Million gallons)		(000’s Tons)		(Million bushels)
Aberdeen, SD(2)		9		27		3.2		Natural Gas
Aberdeen, SD(2)		44		134		15.7		Natural Gas
Huron, SD		32		97		11.4		Natural Gas

Consolidated		85		258		30.3

(1)	Our plants produce and sell wet, modified and dried distillers’ grains. The stated quantities are on a fully dried basis operating at full production capacity.

(2)

Our plant at Aberdeen consists of two production facilities that operate on a separate basis. In April 2016, the Company ceased operations at its smaller, nine million gallon facility in Aberdeen due to inefficiencies at this older plant and capital expenditures required to keep the plant in operating condition, coupled with the weak margin environment. The Company has not made a final decision on whether it will resume operations at this facility in the future.

In October 2015, we amended the existing lease agreement for our corporate headquarters. Under the amended lease, we agreed to lease approximately 4,400 square feet for our corporate and administrative staff in Bloomington, Minnesota, through September 2021. The base rent is $19.00 per square foot, or approximately $7,000 per month for the twelve month period beginning July 1, 2016, with annual increases of $.50 per square foot. We believe this space will be sufficient for our needs until the end of the lease period.

We believe that each of the operating facilities is in adequate condition to meet our current and future production goals. We believe that these plants are adequately insured for replacement cost plus related disruption expenditures.

We pledged a first-priority security interest in and first lien on substantially all of the assets of the ABE South Dakota plants to the collateral agent for the senior creditors of these plants.

Plan of Operations through March 31, 2017

Over the next twelve months, we will continue our focus on operational improvements at our South Dakota operating facilities. These operational improvements include exploring methods to improve ethanol yield per bushel and increasing production output at each of our plants, continued emphasis on safety and environmental regulation, reducing our operating costs, and optimizing our margin opportunities through prudent risk-management policies.

Results of Operations for the Quarter Ended March 31, 2016 Compared to Quarter Ended March 31, 2015

The following table reflects quantities of our products sold at average net prices as well as bushels of corn ground and therms of natural gas burned at average costs for the quarters ended March 31, 2016 and 2015 for our South Dakota plants only:


	Three Months				Three Months
	March 31, 2016				March 31, 2015
	Quantity		Average Price		Quantity		Average Price
Product Sales Information	(In thousands)				(In thousands)
Ethanol (gallons)		23,479	$	1.22		21,499	$	1.29
Distillers grains (tons)		59	$	116.15		64	$	144.29
Corn Oil (pounds)		2,367	$	0.25		1,216	$	0.21

Product Cost Information	Quantity		Average Cost		Quantity		Average Cost
Corn (bushels)		8,202	$	3.27		7,631	$	3.50
Natural Gas (therms)		618	$	2.55		607	$	4.57

Net Sales

Net sales for the quarter ended March 31, 2016 were $36.1 million, compared to $37.3 million for the quarter ending March 31, 2015, a decrease of $1.2 million or 3%. Ethanol gallons sold increased by 9%, while ethanol prices decreased 5% for the quarter ended March 31, 2016, compared to the prior quarter ended March 31, 2015. As a percentage of net sales, ethanol sales were 79% and 74% and distillers’ sales were 19% and 25%, for the quarters ending March 31, 2016 and March 31, 2015, respectively.

Cost of Goods Sold

Cost of goods sold for the quarter ended March 31, 2016 was $38.3 million, compared to $39.4 million for the quarter ended March 31, 2015, a decrease of $1.1 million. Our primary costs in the production of ethanol and related co-products are corn and natural gas. A $0.1 million increase in corn costs offset by a $1.2 decrease in natural gas costs represented a majority of the decrease in cost of goods sold in the quarter ended March 31, 2016. Corn costs represented 70% and 68% of cost of sales for the quarters ended March 31, 2016 and 2015, respectively. Corn prices decreased 7% during the three-month period ending March 31, 2016 compared to the prior year quarter. We used 7% more corn in the three-month period ending March 31, 2016, compared to the three months ended March 31, 2015. The increase in corn bushels used was the result of higher production in the current period.

Natural gas costs represented 4% and 7% of total cost of sales for the quarters ending March 31, 2016 and 2015, respectively. The cost of natural gas per mmbtu decreased by 44% to $2.55 for the quarter ended March 31, 2016 compared to the previous year quarter. Prices were lower in the current quarter due to record natural gas storage levels in November and warmer than average fall temperatures which limited demand. Our natural gas consumption increased by 2% due to increased production in the quarter ending March 31, 2016 versus the quarter ending March 31, 2015.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses are comprised primarily of recurring administrative personnel compensation, legal, technology, consulting, insurance and accounting fees.

Overall selling, general and administrative costs stayed consistent at $0.9 million for the quarter ending March 31, 2016, versus the prior year quarter. As a percentage of net sales, selling, general and administrative expenses were 2.5% and 2.4% of net sales, for the quarters ending March 31, 2016 and 2015, respectively.

Interest Expense

Interest expense for the quarter ending March 31, 2016 was $313,000, compared to $34,000 for the quarter ending March 31, 2015. The lower interest expense for the prior year quarter was a result of debt prepayments described in the following paragraph. The interest expense for the quarter ending March 31, 2015 related to our long-term debt was $383,000 plus $22,000 of amortization of deferred waiver fees, which was offset by $371,000 of amortization of additional carrying value of long-term debt. The amortization of additional carrying value is netted against interest expense on our income statement, thereby significantly reducing the interest expense reported on our income statement.

As a result of the debt sweep payments made during fiscal years 2014 and 2015 and the final payoff of the 2010 Credit Agreement in December 2015, the carrying value of the debt exceeded the scheduled principal and interest payments remaining over the term of the loan. As a result of the prepayments made during the quarter ended March 31, 2015, a gain of approximately $11,000 was recognized as other income during the three months ended March 31, 2015. Since the remaining scheduled principal and interest payments were equal to the carrying amount, the amortization of the additional carrying value offset the majority of the interest expense on our long-term debt until the refinancing occurred in December 2015. Therefore, the amount of interest expense we reported on our income statement during this period was minimal.

Results of Operations for the Six Months Ended March 31, 2016 Compared to Six Months Ended March 31, 2015

The following table reflects quantities of our products sold at average net prices as well as bushels of corn ground and therms of natural gas burned at average costs for the six months ended March 31, 2016 and 2015 for our South Dakota plants only:


	Six Months				Six Months
	March 31, 2016				March 31, 2015
	Quantity		Average Price		Quantity		Average Price
Product Sales Information	(In thousands)				(In thousands)
Ethanol (gallons)		46,053	$	1.27		41,322	$	1.43
Distillers grains (tons)		121	$	110.21		120	$	123.01
Corn Oil (pounds)		5,122	$	0.21		2,846	$	0.23

Product Cost Information	Quantity		Average Cost		Quantity		Average Cost
Corn (bushels)		16,113	$	3.32		14,697	$	3.28
Natural Gas (therms)		1,231	$	2.53		1,180	$	4.59

Net Sales

Net sales for the six months ended March 31, 2016 were $73.4 million, compared to $75.0 million for the six months ending March 31, 2015, a decrease of $1.6 million or 2%. The decrease was a result of lower net selling prices of 11% and 10% for ethanol and distillers’, respectively. The decline in ethanol and distillers prices is the result of various factors including but not limited to market demand for these products and overall gasoline prices and demand. Ethanol gallons sold increased by 11% for the six months ended March 31, 2016, compared to the prior six months ended March 31, 2015. As a percentage of net sales, ethanol sales were 80% and 79% and distillers’ sales were 18% and 20%, for the six months ending March 31, 2016 and March 31, 2015, respectively. Ethanol gallons sold were affected by overall rail service issues in the six months ended March 31, 2015, which directly affected our ability to maintain production rates at various times. The addition of the ethanol storage at the Aberdeen plant, which became operational in January 2015, mitigated the production issue in the subsequent periods.

Cost of Goods Sold

Cost of goods sold for the six months ended March 31, 2016 was $76.3 million, compared to $73.8 million for the six months ended March 31, 2015, an increase of $2.5 million. Our primary costs in the production of ethanol and related co-products are corn and natural gas. A $5.3 million increase in corn costs offset by a $2.3 million decrease in natural gas costs represented a majority of the incline in cost of goods sold in the six months ended March 31, 2016. Corn costs represented 70% and 65% of cost of sales for the six months ended March 31, 2016 and 2015, respectively. Corn prices increased 1% during the six-month period ending March 31, 2016 compared to the prior year six months. We used 10% more corn in the six month period ending March 31, 2016, compared to the six months ended March 31, 2015 as a result of higher production.

Natural gas costs represented 4% and 7% of total cost of goods sold for the six months ended March 31, 2016 and 2015, respectively. The cost of natural gas per mmbtu decreased by $2.06 per mmbtu, or 45% for the six months ending March 31, 2016 compared to the prior year period. Prices were lower in the current period due to record natural gas storage levels in November and warmer than average fall temperatures which limited demand. Natural gas consumption decreased 4% for the six months ending March 31, 2016 compared to the prior year period.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses are comprised primarily of recurring administrative personnel compensation, legal, technology, consulting, insurance and accounting fees.

Overall selling, general and administrative costs remained consistent with the prior year period. As a percentage of net sales, selling, general and administrative expenses for the six months ending March 31, 2016 increased to 2.3%, compared to 2.2% for the six months ended March 31, 2015.

Interest Expense

Interest expense for the six months ending March 31, 2016 was $377,000, compared to $68,000 for the prior year period. The interest expense for the six months ending March 31, 2016 related to our long-term debt was $618,000 plus $44,000 of amortization of deferred waiver fees and $21,000 of amortization of deferred financing costs, which was offset by $306,000 of amortization of additional carrying value of long-term debt. The lower interest expense for the six months ending March 31, 2015 was a result of debt prepayments described in the following paragraph. The interest expense for the six months ending March 31, 2015 related to our long-term debt was $816,000 plus $44,000 of amortization of deferred waiver fees, which was offset by $792,000 of amortization of additional carrying value of long-term debt. The amortization of additional carrying value is netted against interest expense on our income statement, thereby significantly reducing the interest expense reported on our income statement.

As a result of the debt sweep payments made during fiscal year 2014 and 2015 and the final payoff of the 2010 Credit Agreement in December 2015, the carrying value of the debt exceeded the scheduled principal and interest payments remaining over the term of the loan. As a result of the prepayments made during the six months ending March 31, 2016, a gain of approximately $323,000 was recognized as Other Income during the six months ending March 31, 2016. As a result of the prepayments made during the six months ending March 31, 2015, a gain of approximately $183,000 was recognized as Other Income during the six months ending March 31, 2015. Since the remaining scheduled principal and interest payments were equal to the carrying amount, the amortization of the additional carrying value offset the majority of the interest expense on our long-term debt until the refinancing occurred in December 2015. Therefore, the amount of interest expense we reported on our income statement during this period was minimal.

Changes in Financial Position for the Six Months ended March 31, 2016

Current Assets

The $3.7 million decrease in current assets at March 31, 2016 compared to September 30, 2015 was primarily due to the $3.1 million restructuring and waiver fee paid at the time of the debt refinancing in December 2015 and capital additions of $0.4 million.

Property, Plant and Equipment

The $5.3 million decrease in property, plant and equipment at March 31, 2016 compared to September 30, 2015, was primarily due to recognizing $5.7 million of depreciation expense in the current period, offset by $0.4 million of capital expenditures.

Current Liabilities

Accounts payable and accrued expenses decreased by $1.5 million at March 31, 2016 compared to September 30, 2015 primarily due to timing of payments to vendors.

Current Portion of Long-Term Debt and Long-term Debt

The current portion of long-term debt decreased by $1.8 million to $3.6 million at March 31, 2016 compared to September 30, 2015. The decrease was due to due to (i) our payment of the restructuring and waiver fee of $3.1 million at the time of the debt refinancing in December 2015, (ii) the amortization of $65,000 of deferred waiver and financing fees, and (iii)

$78,000 of the current portion of deferred financing costs incurred at the time of the 2015 debt refinancing that we are amortizing over the term of the loan. These items were offset by $307,000 in amortization of additional carrying value of long-term debt, a $323,000 of gain recognition related to the carrying value of long-term debt, and a $1.0 million increase in the annual debt amortization of the 2015 Credit Agreement versus the 2010 Credit Agreement.

Long-term debt increased by $1.3 million at March 31, 2016 compared to September 30, 2015. This increase was due to $1.0 million additional debt incurred at the time of the refinancing and $0.3 million of long-term deferred financing costs.

TRENDS AND UNCERTAINTIES AFFECTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS

Overview

Ethanol is currently blended with gasoline to meet regulatory standards as a clean air additive, an octane enhancer, a fuel extender and a gasoline alternative. According to the Renewable Fuels Association (“RFA”), as of January 2016, the estimated ethanol production capacity in the United States was 15.6 billion gallons per year, with approximately 0.5 billion gallons currently idle. The demand for ethanol is affected by what is commonly referred to as the “blending wall,” which is a regulatory cap on the amount of ethanol that can be blended into gasoline. The blend wall affects the demand for ethanol, and as industry production capacity reaches the blend wall, the supply of ethanol in the market may surpass the demand. Assuming current gasoline usage in the U.S. at 143 billion gallons per year and a blend rate of 10% ethanol and 90% gasoline, the current blend wall is approximately 14.3 billion gallons of ethanol per year.

Ethanol is most commonly sold as E10, the 10 percent blend of ethanol for use in all American automobiles. Increasingly, ethanol is also available as E85, a higher percentage ethanol blend for use in flexible fuel vehicles. To further drive growth in ethanol usage, Growth Energy, an ethanol industry trade association, requested a waiver from the Environmental Protection Agency (“EPA”) to increase the allowable amount of ethanol blended into gasoline from the current 10% level to a 15% level. In June 2012, the EPA approved E15 for use in vehicles with model years 2001 and later. Although regulatory and infrastructure issues remain in many states, E15 is now available in limited locations in at least twelve states per the RFA.

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol, distillers’ grains and natural gas. As a result of price volatility for these commodities, our operating results may fluctuate substantially. The price and availability of corn are subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, weather, federal policy and foreign trade. Because the market price of ethanol is not always directly related to corn prices, at times ethanol prices may lag movements in corn prices and compress the overall margin structure at the plants. As a result, operating margins may become negative and we may be forced to shut down our plants.

We focus on locking in margins based on a cash flows model that continually monitors market prices of corn, natural gas and other input costs against prices for ethanol and distillers grains at each of our production facilities. We create offsetting positions by using a combination of derivative instruments, fixed-price purchases and sales, or a combination of strategies in order to manage risk associated with commodity price fluctuations. Our primary focus is not to manage general price movements, for example minimize the cost of corn consumed, but rather to lock in favorable margins whenever possible. In the quarter ended March 31, 2016, the average Chicago Opis Spot Ethanol Assessment was $1.44 per gallon and the average NYMEX RBOB spot gasoline price was $1.43 per gallon, or approximately $0.01 per gallon below ethanol prices.

Federal policy has a significant impact on ethanol market demand. Ethanol blenders previously benefited from incentives that encouraged usage and a tariff on imported ethanol that supported the domestic industry, both of which have now expired. Additionally, the Environmental Protection Agency’s Renewable Fuels Standard (“RFS”) mandates increased level of usage of both corn-based and cellulosic ethanol. Any adverse ruling on, or legislation affecting, RFS mandates in the future could have an adverse impact on short-term ethanol prices and our financial performance in the future.

The ethanol industry and our business depend upon continuation of the federal and state ethanol supports such as the RFS. We believe the ethanol industry expanded due to these federal mandates, policies, and incentives. These government mandates have supported a market for ethanol that might disappear without these programs. Alternatively, the government mandates may be continued at lower levels than those at which they currently exist. In addition, state regulatory activity may also negatively affect the consumption of corn-based ethanol in certain domestic markets such as California, due to low-carbon fuel standards that take into consideration the effects caused by indirect land use.

The Renewable Fuels Standard

The RFS” is a national program that imposes requirements with respect to the amount of renewable fuel produced and used in the United States. The RFS was revised by the EPA in July 2010 (“RFS2”) and applies to refineries, blenders, distributors and importers. We believe the RFS2 program has and will continue to increase the market for renewable fuels, such as ethanol, as a substitute for petroleum-based fuels. The RFS2 required that 16.55 billion gallons be sold or dispensed in 2013,

increasing to 36.0 billion gallons by 2022, representing 7% of the anticipated gasoline and diesel consumption in 2022. In 2013, RFS2 required refiners and importers to blend renewable fuels totaling at least 9.74% of total fuel volume, of which 8.12% of total fuel volume, or 13.8 billion gallons, could be derived from corn-based ethanol. The remainder of the requirement is to be met by non-corn related advanced renewable fuels such as cellulosic ethanol and biomass-based biodiesel.

On November 30, 2015, the EPA announced final Renewable Volume Obligations (“RVO’s”) for calendar years 2014, 2015 and 2016. The final RVO’s for corn-based ethanol blending exceeded the RVO reductions proposed in June 2015, but remained below the original blending requirements set by the RFS. The reductions to the RVO numbers proposed in June 2015 were above historical production levels, but well below current ethanol supply and production capacity. The industry heavily advocated for increased RVO numbers in order to break through the “blend wall” that is established when the production capacity of the industry exceeds the mandated blending of corn-based ethanol. The final RVO numbers for corn-based ethanol were closer to current production capacity, but still below the original statutory requirements. Current ethanol production capacity is approximately 14.8 billion gallons per the RFA. Final RVO requirements for 2015 and 2016 that can be met with corn-based ethanol are 14.05 and 14.51 billion gallons, respectively.

The following chart illustrates the potential United States ethanol demand based on the schedule of minimum usage established by the program through the year 2022 (in billions of gallons).


			Cellulosic						RFS Requirement
	Total Renewable		Ethanol		Biodiesel				That Can Be Met
	Fuel		Minimum		Minimum		Advanced		With Corn-Based
Year	Requirement		Requirement		Requirement		Biofuel		Ethanol
2015 (1)		20.50		3.00		—		5.50		15.00
2015 (2)		16.30		0.11		1.70		2.90		13.40
2015 (3)		16.93		0.12		1.73		2.88		14.05
2016 (1)		22.25		4.25		—		7.25		15.00
2016 (2)		17.40		0.21		1.80		3.40		14.00
2016 (3)		18.11		0.23		1.90		3.61		14.50
2017		24.00		5.50		—		9.00		15.00
2018		26.00		7.00		—		11.00		15.00
2019		28.00		8.50		—		13.00		15.00
2020		30.00		10.50		—		15.00		15.00
2021		33.00		13.50		—		18.00		15.00
2022		36.00		16.00		—		21.00		15.00

(1)	Original statutory volumes.

(2)	Proposed EPA Renewable Fuel Standards for 2015 and 2016 issued June 2015.

(3)	FINAL EPA Renewable Fuel Standards for 2015 and 2016 issued November 2015.

The RFS2 went into effect on July 1, 2010 and requires certain gas emission reductions for the entire lifecycle, including production of fuels. The greenhouse gas reduction requirement generally does not apply to facilities that commenced construction prior to December 2007. If this changes and our plants must meet the standard for emissions reduction, it may impact the way we procure feed stock and modify the way we market and transport our products.

Ethanol Competition

The ethanol we produce is similar to ethanol produced by other plants. The RFA reports that as of January 2016, current U.S. ethanol production capacity was approximately 15.6 billion gallons per year. On a national level, there are numerous other production facilities with which we are in direct competition, many of whom have greater resources than we do. As of April 2016, South Dakota had 15 ethanol plants producing an aggregate of 1.0 billion gallons of ethanol per year.

The largest ethanol producers include: Abengoa Bioenergy Corp.; Archer Daniels Midland Company; Cargill, Inc.; Flint Hills Resources, LP; Green Plains Renewable Energy, Inc.; POET, LLC and Valero Renewable Fuels. Producers of this size may have an advantage over us from economies of scale and stronger negotiating positions with purchasers. We market our ethanol primarily on a regional and national basis. We believe that we are able to reach the best available markets through the

use of experienced ethanol marketers and by the rail delivery methods we use. Our plants compete with other ethanol producers on the basis of price, and, to a lesser extent, delivery service. We believe that we can compete favorably with other ethanol producers due to our proximity to ample grain, natural gas, electricity and water supplies at favorable prices.

Competition from Alternative Fuels

Alternative fuels and alternative ethanol production methods are continually under development. The major oil companies have significantly greater resources than we have to develop alternative products and to influence legislation and public perception of ethanol. New ethanol products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages and harm our business.

Ethanol Marketing

ABE South Dakota has marketing agreements (“Ethanol Marketing Agreements”) with NGL Energy Partners, LP (“NGL”), a diversified energy business. The Ethanol Marketing Agreements require that we sell to NGL all of the denatured fuel-grade ethanol produced at the South Dakota plants. The term of the Ethanol Marketing Agreements expires on June 30, 2016.

CO-PRODUCTS

Sales of distillers’ grains have represented 19% and 25% of our revenues for the quarters ended March 31, 2016 and 2015, respectively. When the plants are operating at capacity, they produce approximately 258,000 tons of dried distillers’ grains equivalents per year, approximately 16-17 pounds per bushel of corn used. Distillers’ grains are a high-protein, high-energy animal feed supplement primarily marketed to the dairy and beef industry, as well as the poultry and swine markets. Dry mill ethanol processing creates three forms of distillers’ grains: wet distillers’ grains with solubles, known as wet distillers’ grains; modified wet distillers’ grains with solubles, known as modified distillers’ grains; and dry distillers’ grains with solubles. Wet and modified distillers’ grains have been dried to approximately 65% and 50% moisture levels, respectively, and are predominately sold to nearby markets. Dried distillers’ grains have been dried to 11% moisture, have an almost indefinite shelf life and may be sold and shipped to more distant markets.

In April 2012, we installed corn oil extraction technology at our Aberdeen plant and are currently evaluating potential future installation at our Huron plant. Corn oil systems are designed to extract non-edible corn oil during the thin stillage evaporation process immediately prior to production of distillers’ grains. Corn oil is produced by processing evaporated thin stillage through a disk stack style centrifuge. Corn oil has a lower density than the water or solids that make up the syrup. The centrifuges separate the relatively light oil from the heavier components of the syrup, eliminating the need for significant retention time. De-oiled syrup is returned to the process for blending into wet, modified, or dry distillers’ grains.

Industrial uses for corn oil include feedstock for biodiesel, livestock feed additives, rubber substitutes, rust preventatives, inks, textiles, soaps and insecticides. Our corn oil is primarily sold by truck to biodiesel manufacturers.

Competition

In the sales of distillers’ grains, we compete with other ethanol producers, as well as a number of large and smaller suppliers of competing animal feed. We believe the principal competitive factors are price, proximity to purchasers and product quality. Currently we derive 65% of our distillers’ grain revenues from the sale of dried distillers’ grains, which have an indefinite shelf life and can be transported by truck or rail, and 35% from the sale of modified or wet distillers’ grains, which have a shorter shelf life and are typically sold in local markets via truck.

We compete with other ethanol producers in the sale of corn oil. Many producers have added corn oil technology to their facilities.

Co-Product Marketing

ABE South Dakota has a marketing agreement with Dakotaland Feeds, LLC (“Dakotaland Feeds”) to market and sell the ethanol co-products produced at the Huron plant. ABE South Dakota has a marketing agreement with Gavilon, LLC (“Gavilon”) for dried distillers’ grains produced at the Aberdeen plants which became effective July 1, 2013. The marketing agreement with Gavilon requires Gavilon to use commercially reasonable efforts to purchase substantially all of the dried distillers’ grains produced at the Aberdeen plants through July 31, 2016. The Aberdeen plant self-markets its wet and modified distillers’ grains.

ABE South Dakota has an agreement with Gavilon Ingredients, LLC, to market all the corn oil produced by the Aberdeen plant through September 30, 2016.

LIQUIDITY AND CAPITAL RESOURCES

Financing and Existing Debt Obligations

During quarter ended March 31, 2016, we conducted our business activities and plant operations through the parent company, Advanced BioEnergy, and its primary operating subsidiary, ABE South Dakota. ABE Fairmont has minimal activity following the December 2012 sale of the Fairmont facility. The liquidity and capital resources for each entity are based on the entity’s existing financing arrangements and capital structure. There are provisions contained in the financing agreements at ABE South Dakota preventing cross-default or collateralization between operating entities. Advanced BioEnergy is highly restricted in its ability to use the cash and other financial resources of ABE South Dakota for the benefit of Advanced BioEnergy, with the exception of allowable distributions as defined in the ABE South Dakota financing agreements.

Advanced BioEnergy, LLC (“ABE”)

ABE had cash and cash equivalents of $5.1 million on hand at March 31, 2016. On December 30, 2015, in connection with the refinancing of the ABE South Dakota debt, ABE made an equity contribution of $3.0 million to ABE South Dakota. ABE South Dakota then used these funds to satisfy certain obligations of the 2010 Senior Credit Agreement. ABE did not have any debt outstanding as of March 31, 2016. Until June 2014, ABE’s primary source of operating cash came from charging a monthly management fee to ABE South Dakota for management services provided to ABE South Dakota. These management services included include risk management, accounting and finance, human resources and other general management related responsibilities.

Due to personnel reductions and other changes in the Company since December 2012, the Company re-evaluated the administrative services agreement with ABE South Dakota. The outcome of the re-evaluation resulted in termination of the administrative services agreement as of June 30, 2014 in conjunction with an overall change in the Company structure. The change in Company structure resulted in ABE employees becoming direct employees of ABE South Dakota. Accordingly, beginning in July 2014, ABE South Dakota no longer pays the Company a management fee for services.

From time to time, ABE may also receive certain allowable distributions from ABE South Dakota based on the terms and conditions in its senior credit agreement. ABE did not receive any distribution from ABE South Dakota for its fiscal 2015 financial results.

Under the 2015 Credit Agreement, ABE South Dakota is allowed to distribute up to 40% of pre-tax net income in a given year, but must meet all loan covenants before and after any distribution. There were no distributions from ABE South Dakota during the last three fiscal years.

We believe ABE has sufficient financial resources available to fund current operations and capital expenditure requirements for at least the next 12 months.

ABE Fairmont

ABE Fairmont had no cash or cash equivalents on hand at March 31, 2016.

ABE Fairmont has agreed to cooperate with Flint Hills Resources, LLC with respect to post-closing matters, including completing the transfer of certain railway lines. The Company anticipates that ABE Fairmont will remain in existence as a separate entity until it completes all its obligations under the asset purchase agreement and other ongoing agreements, except to the extent that the Company determines that it can perform these obligations itself after the liquidation of ABE Fairmont.

ABE South Dakota

ABE South Dakota had cash and cash equivalents of $9.3 million on hand at March 31, 2016. As of March 31, 2016, ABE South Dakota had interest-bearing term debt outstanding of $30.0 million.

interest accrued on outstanding term and working capital loans under the previous credit agreement were reduced to zero. ABE South Dakota agreed to pay a $3.0 million restructuring fee to the lender due at the earlier of March 31, 2016 and the date on which the loans were repaid in full. ABE South Dakota recorded the restructuring fee as non-interest bearing debt on its consolidated balance sheets.

During the quarter ended December 31, 2015, ABE South Dakota refinanced the 2010 Senior Credit Agreement. In connection with closing, ABE South Dakota paid in full all amounts outstanding under the 2010 Senior Credit Agreement, including $29.0 million of principal, accrued interest, the $3.0 restructuring fee, and the waiver fee of $68,750, and all security interests of the prior lenders were extinguished.

The $20.0 million Term Loan has a variable interest rate (“Variable Rate”) equal to the one-month LIBOR rate plus a “Margin” of 350 basis points. The applicable LIBOR interest rate at March 31, 2016 was 0.43%. Beginning April 1, 2016, the Company began making quarterly principal payments of $1.0 million, plus accrued interest, on the Term Loan. The Term Loan will be fully amortized over five years with the final payment on January 1, 2021. The Company may elect one or more fixed or adjustable interest rates, rather than the Variable Rate, based on AgCountry’s cost of funds at the time of the election, plus the Margin. Any election must apply to $1.0 million or more owing on the Term Loan.

At March 31, 2016, ABE South Dakota had working capital of $10.5 million. Net working capital, increased by $0.1 million since September 2015.

CASH FLOWS

The following table shows our cash flows for the six months ended March 31, 2016 and 2015:


	Six Months Ended March 31
	2016			2015
	(In thousands)
Net cash provided by (used in) operating activities	$	(2,982	)	$	4,283
Net cash provided by (used in) investing activities		2,852			(1,004	)
Net cash (used in) financing activities		(2,069	)		(5,069	)

Cash Flow from Operations

Cash flows used in operating activities for the six months ending March 31, 2016 were approximately $3.0 million compared to $4.3 million provided by the prior year period, a decline of $7.3 million. Lower operating margins accounted for the majority of the overall decline in cash flows from operating activities.

Cash Flow from Investing Activities

Cash flows provided by investing activities for the six months ending March 31, 2016 were approximately $2.9 million compared to $1.0 million used in the prior year period. The current year six months included a $3.1 million change in restricted cash in connection with the refinancing; this cash was restricted under the prior credit agreement and became unrestricted at the time of the debt refinancing. This was offset by a net of $0.3 million in additions to property and equipment. The prior year six months included $2.2 million in additions to property and equipment, offset by a $1.2 million change in restricted cash used to fund the property and equipment purchases.

Cash Flow from Financing Activities

Cash flows used in financing activities for the six months ending March 31, 2016 were $2.1 million compared to $5.1 million for the prior year period. The current year period included long-term debt payments of $29.0 million and a restructuring and waiver fee payment of $3.1 million, offset by $30.0 million in proceeds from debt. Cash used in financing activities in the prior year period included long-term debt payments of $5.0 million and a $0.1 million waiver fee payment.

CREDIT ARRANGEMENTS

Long-term debt consists of the following (in thousands, except percentages):


	March 31, 2016 Interest Rate			March 31, 2016			September 30, 2015
ABE South Dakota:
Senior debt principal - variable		3.93	%	$	30,000		$	29,000
Restructuring fee		N/A			—			3,024
Deferred financing costs		N/A			(401	)		—
Additional carrying value of restructured debt		N/A			—			630

Total outstanding					29,599			32,654

Additional carrying value of restructured debt		N/A			—			(630	)

Stated principal				$	29,599		$	32,024

The estimated maturities of debt are as follows (in thousands):


Due By March 31:	Senior Debt Principal		Deferred Financing Costs			Total
2017	$	4,000	$	(84	)	$	3,916
2018		4,000		(85	)		3,915
2019		4,000		(84	)		3,916
2020		4,000		(85	)		3,915
2021		14,000		(63	)		13,937

Total debt	$	30,000	$	(401	)	$	29,599

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Note 1 to our consolidated financial statements contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions. Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment. We used our knowledge and experience about past events and certain future assumptions to make estimates and judgments involving matters that are inherently uncertain and that affect the carrying value of our assets and liabilities. We believe that of our significant accounting policies, the following are noteworthy because changes in these estimates or assumptions could materially affect our financial position and results of operations:

Revenue Recognition

Ethanol revenue is recognized when product title and all risk of ownership is transferred to the customer as specified in the contractual agreements with the marketers. Under the terms of the marketing agreements with NGL (f/k/a Gavilon), revenue is recognized when product is loaded into rail cars or trucks for shipment. Revenue from the sale of co-products is recorded when title and all risk of ownership transfers to customers. Co-products are normally shipped free on board (“FOB”) shipping point. Interest income is recognized as earned. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, commissions due to the marketers are deducted from the gross sale price at the time of payment.

Inventories

Commodity Sales and Purchase Contracts, Derivative Instruments

The Company currently does not enter into commodity futures and exchange-traded commodity options contracts for the sale of its products or purchases of its inputs. However, the Company does enter into forward sales contracts for ethanol, distillers and corn oil, and purchase contracts for corn and natural gas. The Company classifies these sales and purchase contracts as normal sales and purchase contracts and accordingly these contracts are not marked to market. These contracts provide for the sale or purchase of an item other than a financial instrument or derivative instrument that will be delivered in quantities expected to be sold or used over a reasonable period in the normal course of business.

Property and Equipment

Property and equipment is carried at cost less accumulated depreciation computed using the straight-line method over the estimated useful lives:


Office equipment			3-7 Years
Process equipment			10 Years
Buildings			40 Years

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements.

GOVERNMENT PROGRAMS AND TAX CREDITS

The State of South Dakota pays an incentive to operators of ethanol plants to encourage the growth of the ethanol industry. The Huron plant is eligible to receive an aggregate of $9.7 million, payable up to $1 million per year. The amounts are dependent on annual allocations by the State of South Dakota and the number of eligible plants. ABE South Dakota has received $182,685 in fiscal 2016.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

COMMODITY PRICE RISK

We consider market risk to be the impact of adverse changes in market prices on our results of operations. We are subject to significant market risk with respect to the price of ethanol and corn. For the quarter ended March 31, 2016, sales of ethanol represented 79% of our total revenues and corn costs represented 70% of total cost of goods sold. In general, ethanol prices are affected by the supply and demand for ethanol, the cost of ethanol production, the availability of other fuel oxygenates, the regulatory climate and the cost of alternative fuels such as gasoline. The price of corn is affected by weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors. At March 31, 2016, the price per gallon of ethanol and the price per bushel of corn on the CBOT were $1.44 and $3.52 respectively.

We are also subject to market risk on the selling prices of our distillers’ grains, which represented 19% of our total revenues for the quarter ended March 31, 2016. These prices fluctuate seasonally when the price of corn or other cattle feed alternatives fluctuate in price. The average dried distillers’ grains spot price for local customers was $97 per ton at March 31, 2016.

We are also subject to market risk with respect to our supply of natural gas that we consume in the ethanol production process. Natural gas costs represented 4.1% of total cost of sales for the quarter ended March 31, 2016. The price of natural gas is affected by overall supply, weather conditions and general economic, market and regulatory factors. At March 31, 2016, the price of natural gas on the NYMEX was $1.96 per mmbtu.

To reduce price risk caused by market fluctuations in the cost and selling prices of related commodities, we have entered into forward purchase/sale contracts. We entered into forward sales contracts which guaranteed prices on 26% of our ethanol gallons sold through April 2016. At March 31, 2016 we had entered into forward sale contracts representing 73% of our expected distillers’ grains production output through April 2016.

The following represents a sensitivity analysis that estimates our annual exposure to market risk with respect to our current corn and natural gas requirements and ethanol sales. Market risk is estimated as the potential impact on operating income resulting from a hypothetical 10% change in the fair value of our current corn and natural gas requirements and ethanol sales, net of corn and natural gas forward contracts used to hedge market risk with respect to our current corn and natural gas requirements. The results of this analysis, which may differ from actual results, are as follows:


	Estimated at Risk Volume (1)		Units		Hypothetical Change in Price			Spot Price(2)		Change in Annual Operating Income
	(In millions)									(In millions)
Ethanol		76.5		gallons		10.0	%	$	1.44	$	11.0
Distillers grains		0.2		tons		10.0	%		97.00		1.9
Corn		30.3		bushels		10.0	%		3.52		10.7
Natural gas		2.4		mmbtus		10.0	%		1.96		0.5

(1)

The volume of ethanol at risk is based on the assumption that we will enter into contracts for 10% of our expected annual gallons capacity of 85 million gallons. The volume of distillers’ grains at risk is based on the assumption that we will enter into contracts for 9% of our expected annual distillers’ grains production of 258,000 tons. The volume of corn is based on the assumption that we will enter into forward contracts for none of our estimated current 30.3 million bushel annual requirement. The volume of natural gas is based on the assumption that we will continue to lock in none of our estimated gas usage.

(2)	Current spot prices include the CBOT price per gallon of ethanol, the local price per bushel of corn, the NYMEX price per mmbtu of natural gas and our listed local advertised dried distillers’ grains price per ton as of March 31, 2016.

INTEREST RATE/FOREIGN EXCHANGE RISK

Our future earnings may be affected by changes in interest rates due to the impact those changes have on our interest expense on borrowings under our credit facility. As of March 31, 2016, we had $30.0 million of outstanding borrowings with variable interest rates. With each 1% increase in interest rates we will incur additional annual interest charges of $0.3 million.

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer, who is also our chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our chief executive officer, who is also our chief financial officer, concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officer, to allow timely decisions regarding required disclosures.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There are no material changes from risk factors as previously discussed in our September 30, 2015 Annual Report on Form 10-K. and our subsequent quarterly reports on Form 10-Q, except as follows:

Chinese investigations into United States distillers grains exports into China could negatively affect the demand and pricing for distillers grains.

In January 2016, China’s Ministry of Commerce (“MOC”) launched anti-dumping and countervailing duties investigations into U.S. distillers grains being imported into China. The anti-dumping investigation is in response to claims made by Chinese producers that U.S. distillers grains were being sold at prices below normal value, thereby damaging the domestic industry. The countervailing duties investigation is in response to claims that U.S. distillers grain exports are subsidized by the U.S. government.

China is the world’s largest importer of distillers grain, and accounted for 50 percent of the U.S. distillers exports in 2015. We cannot estimate the exact effect these investigations will have on the overall domestic distillers grains market. However, the U.S. is the world’s largest exporter of distillers grains, and if the investigations should result in any findings and the MOC takes action, it could reduce distillers grains prices in the domestic market by decreasing worldwide demand for distillers grains.

We have entered into exclusive agreements with various third parties for the purchase of our principal raw material and the sale and distribution of our products under agreements that expire in calendar 2016. If we are unable to extend these agreements, it could have a material adverse effect on us.

We currently have an agreement with South Dakota Wheat Growers under which we purchase all the corn we use to produce ethanol at our South Dakota plants. This agreement expires in November 2016. In addition, we have entered into agreements for the marketing and sale of the ethanol, corn oil and substantially all the distillers grains we produce at our South Dakota plants. These various agreements expire during the period from June 30, 2016 through September 30, 2016.

Although we currently believe that we will be able to enter into new, comparable agreements with each of these parties, or other parties, if we are unable to enter into new agreements on substantially the same or more favorable terms with these parties, or with other parties, it may have a material adverse effect on our operations.

If we are unable to comply with one or more of the financial covenants under our 2015 Credit Agreement at September 30, 2016, or obtain a waiver from these requirements, it could have material adverse effect on our financial conditions.

The Company’s ABE South Dakota subsidiary is required to comply with financial covenants under the 2015 Credit Agreement with AgCountry as of September 30, 2016, the end of its fiscal year. The Company believes that ABE South Dakota has sufficient liquidity and capital resources to meet all of its principal and interest payment obligations under the 2015 Credit Agreement. The 2015 Credit Agreement includes customary financial and non-financial covenants. Compliance with these covenants is highly dependent on our overall financial results. Our financial results are affected by industry-wide market conditions, among other things, which can fluctuate significantly. In the event market conditions are unfavorable, the Company may not be able to achieve the necessary financial results and therefore may not be able to meet one or more of its covenant requirements. In the event the Company is not able to meet one or more of its covenant requirements, the Company would make every effort to obtain a waiver from the lender. There can be no assurance the Company will be able to meet all of the covenant requirements or obtain a waiver, which may result in the lender declaring a default under the 2015 Credit Agreement and exercising its remedies, including an acceleration of the indebtedness.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX


Exhibit No.	Description	Method of Filing

31	Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer, Financial and Accounting Officer.	Filed Electronically

32	Section 1350 Certifications.	Filed Electronically

101	The following materials from Advanced BioEnergy’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL: (i) Consolidated Balance Sheets at March 31, 2016 and September 30, 2015 ; (ii) Consolidated Statements of Operations for the three and six months ended March 31, 2016 and March 31, 2015; (iii) Consolidated Statements of Changes in Member’s Equity for the six months ended March 31, 2016; (iv) Consolidated Statements of Cash Flows for the six months ended March 31, 2016 and 2015; and (v) Notes to the Consolidated Financial Statements.	Filed Electronically

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company