UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2007; or

¨ 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: 000-49773

HUSKER AG, LLC

(Exact name of registrant as specified in its charter)

Nebraska	47-0836953
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

54048 Highway 20

Plainview, Nebraska 68769

(402) 582-4446

(Address and telephone number 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 and Exchange Act of 1934 during the proceeding 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  x

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 14, 2007, the Company had 30,130 membership units issued and outstanding.

HUSKER AG, LLC

INDEX TO 10-Q FOR THE QUARTERLY

PERIOD ENDED MARCH 31, 2007

PAGE

PART I	FINANCIAL INFORMATION
	ITEM 1.	FINANCIAL STATEMENTS:
		BALANCE SHEETS	1
		STATEMENTS OF INCOME	2
		STATEMENTS OF CASH FLOWS	3
		NOTES TO FINANCIAL STATEMENTS	5
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	17
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
	ITEM 4.	CONTROLS AND PROCEDURES	36
PART II	OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	38
	ITEM 1A.	RISK FACTORS	38
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	45
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	45
	ITEM 5.	OTHER INFORMATION	45
	ITEM 6.	EXHIBITS	45
		SIGNATURES	46

ITEM 1: FINANCIAL STATEMENTS

Husker Ag, LLC

Balance Sheets

March 31, 2007 and December 31, 2006

	March 31, 2007		December 31, 2006
	(Unaudited)
Assets
Current Assets
Cash	$	1,357,234	$	2,805,489
Restricted cash		3,320,478		841,643
Interest bearing deposit		500,000		—
Repurchase agreement		4,104,288		1,884,890
Total cash and cash equivalents		9,282,000		5,532,022
Certificates of deposit		1,506,067		—
Accounts receivable – Trade		2,226,062		1,533,573
Inventories		1,521,672		1,083,518
Trading securities		8,602,500		12,750,000
Option and futures contracts		1,779,100		1,888,405
Prepaid expenses		308,461		545,767
Total current assets		25,225,862		23,333,285
Property and Equipment, at cost
Land		84,318		84,318
Plant buildings and equipment		31,696,731		31,696,731
Other equipment		618,474		607,865
Office building		215,673		215,673
Vehicles		200,329		111,905
Construction in progress		26,215,294		12,059,939
		59,030,819		44,776,431
Less accumulated depreciation		9,037,956		8,446,383
		49,992,863		36,330,048
Investments		295,301		294,905
Other Assets
Debt origination costs, net of accumulated amortization; March 31, 2007 - $16,657 and December 31, 2006 - $10,523		349,188		29,133
Deposit on construction		2,363,597		3,548,382
	$	78,226,811	$	63,535,753
Liabilities and Members’ Equity
Current Liabilities
Accounts payable	$	4,766,922	$	5,860,948
Current maturities of long-term debt		2,344,388		2,336,651
Retainage payable		1,111,265		487,694
Margin account		185,750		330,439
Option and futures contracts		153,707		—
Distribution payable		2,109,100		—
Accrued property taxes		319,815		255,852
Accrued expenses		275,465		221,228
Total current liabilities		11,266,412		9,492,812
Long-term Debt		7,733,569		8,330,165
Members’ Equity – 30,130 and 15,318 Units		59,226,830		45,712,776
	$	78,226,811	$	63,535,753

See Notes to Financial Statements

1

Husker Ag, LLC

Statements of Income

Three Months Ended March 31, 2007 and 2006

(Unaudited)

	2007			2006
Net Sales
Ethanol sales	$	14,556,815		$	12,010,900
Distillers grain sales		2,774,537			1,598,720
Energy production credits		418,775			398,138
		17,750,127			14,007,758
Cost of Sales		9,665,837			7,532,104
Cost of Sales-Related Parties		1,577,319			969,331
Loss (Gain) on Option and Futures Contracts		1,147,023			(250,994	)
Total Cost of Sales		12,390,179			8,250,441
Gross Profit		5,359,948			5,757,317
Selling, General and Administrative Expenses		587,145			511,293
Income from Operations		4,772,803			5,246,024
Other Income (Expense)
Other income		51,909			2,150
Unrealized gain (loss) on securities		(4,147,500	)		—
Interest income		237,430			84,019
Interest expense		—			(243,027	)
		(3,858,161	)		(156,858	)
Income before Equity in Net Income of Affiliate		914,642			5,089,166
Equity in Net Income of Affiliate		—			13,231
Net Income	$	914,642		$	5,102,397
Basic Earnings Per Membership Unit	$	32.30		$	333.10
Weighted Average Units Outstanding		28,319			15,318
Distributions Declared Per Membership Unit	$	70		$	150

See Notes to Financial Statements

2

Husker Ag, LLC

Statements of Cash Flows

Three Months Ended March 31, 2007 and 2006

(Unaudited)

	2007			2006
Operating Activities
Net income	$	914,642		$	5,102,397
Items not requiring (providing) cash
Depreciation and amortization expense		597,706			548,828
Unrealized loss on trading securities		4,147,500			—
Equity in net income of affiliate		—			(13,231	)
Interest earned on certificates of deposit		(6,463	)		(9,308	)
Loss (gain) on option and futures contracts		1,147,023			(250,994	)
Changes in
Accounts receivable		(692,489	)		(618,336	)
Inventories		(438,153	)		(81,945	)
Margin account		(1,028,700	)		153,700
Prepaid expenses		237,306			40,757
Accounts payable and accrued expenses		(13,888	)		(71,543	)
Net cash provided by operating activities		4,864,484			4,800,325
Investing Activities
Proceeds from sale of certificates of deposit		—			1,021,932
Payments for purchase of investment in affiliate		—			(4,500,000	)
Payments for purchase of certificates of deposit		(1,500,000	)		—
Purchases of property and equipment and deposit		(13,407,970	)		(834,305	)
Net cash used in investing activities		(14,907,970	)		(4,312,373	)
Financing Activities
Issuance of long-term debt		—			4,500,000
Deferred financing costs for rights offering		(103,488	)		—
Equity raised in rights offering		14,812,000			—
Payments on long-term debt		(588,859	)		(1,200,680	)
Payment of debt origination costs		(326,189	)		—
Net cash provided by financing activities		13,793,464			3,299,320
Increase in Cash and Cash Equivalents		3,749,978			3,787,272
Cash and Cash Equivalents, Beginning of Period		5,532,022			5,127,782
Cash and Cash Equivalents, End of Period	$	9,282,000		$	8,915,054

See Notes to Financial Statements

3

Husker Ag, LLC

Statements of Cash Flows—Continued

Three Months Ended March 31, 2007 and 2006

		2007		2006
Supplemental Cash Flows Information
Interest paid (net of amount capitalized)	$	—	$	232,693
Supplemental Schedule of Non-Cash Investing and Financing Activities
Accounts payable incurred for site development and construction in progress	$	4,577,087	$	—
Distributions payable	$	2,109,100	$	2,297,700

See Notes to Financial Statements

4

Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Husker Ag, LLC (the Company), a Nebraska Limited Liability Company, was formed August 29, 2000 and is located in Plainview, Nebraska. Prior to formation of the LLC, the Company operated as a partnership. The Company was organized to obtain equity investors and debt financing to construct, own and operate an ethanol plant with an annual production capacity of approximately 27 million gallons. Construction began in 2001 and operations commenced in March 2003. The Company’s products include fuel grade ethanol sold in limited markets throughout the United States and distillers grain sold in surrounding counties in Nebraska. The Company extends unsecured credit to its customers, with credit extended to one customer of approximately 37.4% and 50% of trade accounts receivable as of March 31, 2007 and December 31, 2006, respectively. Substantially all ethanol sales are made to one broker.

Basis of Presentation

The accompanying financial statements reflect all adjustments that are, in the opinion of the Company’s management, necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist only of normal recurring adjustments. The balance sheet as of December 31, 2006 has been derived from the audited balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto in the Company’s Form 10-K Annual Report 2006 filed with the Securities and Exchange Commission. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

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

Inventories

Inventories are stated at the lower of cost or market. Cost on raw materials is determined using last cost and average cost under the first-in, first-out (FIFO) method. Cost on finished goods is determined using average cost under the FIFO method. Inventories were comprised of the following at:

	March 31, 2007		December 31, 2006
Raw materials, parts, enzymes and additives	$	867,225	$	706,872
Work-in-progress		277,719		247,788
Finished goods		376,728		128,858
	$	1,521,672	$	1,083,518

5

Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 1: Nature of Operations and Summary of Significant Accounting Policies—continued

Other Assets

The deposit on construction amount is comprised of a $4,475,000 deposit requirement with ICM, Inc. for the construction of a 40 million gallon plant. Two million dollars was required at the time of signing the Letter of Intent, which was executed on April 4, 2006. An additional $2 million was required when the Company’s members approved the plant expansion project. The supermajority vote was obtained on June 26, 2006 at the 2006 Annual Meeting of Members and payment was remitted on June 28, 2006. The final deposit payment of $475,000 was made upon the signing of a Notice to Proceed dated October 15, 2006. Of this total deposit amount, $2,111,403 has been reclassified to Construction in progress as a part of progress payments made to ICM, Inc as of March 31, 2007. The total cost for the plant expansion is estimated to be $63,325,000 of which $44,284,000 is related to the Company’s contract with ICM.

Debt Origination Costs

On January 5, 2007, the Company entered into a long-term debt financing with Union Bank and Trust Company requiring loan origination costs totaling $326,189 to be capitalized and amortized over approximately ten years (the life of the loan) using the straight-line method.

On February 23, 2005, the Company refinanced its long-term debt requiring loan origination costs totaling $39,656 to be capitalized and are amortized over approximately seven years (the life of the loan) using the straight-line method. Debt origination costs, net of accumulated amortization, amounted to $349,188 and $29,133 at March 31, 2007 and December 31, 2006, respectively. Amortization expense for the periods ending March 31, 2007 and 2006 was $6,134 and $1,397 respectively.

Investments

The Company’s securities investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings. Unrealized holding losses on such securities, which were reported on the Company’s income statement during the three months ending March 31, 2007 was $4,147,500.

Securities investments that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and recorded at amortized cost in investments and other assets.

Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders’ equity.

6

Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 1: Nature of Operations and Summary of Significant Accounting Policies—continued

Investments in securities are summarized as follows at March 31, 2007:

	Cost Basis		Accrued Interest		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Trading securities:
Common stock	$	5,995,234	$	—	$	2,607,266	$	—	$	8,602,500
Held-to-maturity:
Debt instruments (maturity greater than one year)		243,364		396		6,240		—		250,000
Available-for-sale securities		51,541		—		—		—		51,541
	$	6,290,139	$	396	$	2,613,506	$	—	$	8,904,041

On December 28, 2005, the Company purchased a 24.1% ownership interest in Val-E Ethanol, LLC, a development stage company for $6,000,000. The investment was recorded at an amount equal to the Company’s equity in Val-E Ethanol, LLC’s net assets as of the acquisition date less the Company’s equity in Val-E Ethanol’s net losses from the acquisition date. Financial position and results of operations of Val-E Ethanol prior to the exchange agreement are summarized below:

	March 31, 2006
Current assets	$	16,178,780
Property and other long-term assets		11,074,717
Total assets		27,253,497
Current liabilities		2,393,834
Net assets	$	24,859,663
	Three months ended March 31, 2006
Net sales	$	—
Net income	$	27,988

On May 2, 2006, the Company executed a Membership Interest Purchase Agreement with US BioEnergy Corporation for 3,000,000 shares of common stock of US BioEnergy in exchange for the Company’s 24.1% ownership in Val-E Ethanol. With the occurrence of this transaction, the investment is being recorded using the cost basis method of accounting as disclosed below. On December 12, 2006, US Bio Energy did an initial public offering with a reverse stock split of 4 for 1. The Company holds 750,000 shares in common stock of US Bio Energy, Inc. operating in the ethanol industry as trading securities.

The Company purchased a United States Treasury Note on December 15, 2006 with a face value of $250,000 that has been pledged to the Tobacco and Trade Bureau as collateral for the ATF bond for plant operations. The Treasury note matures on January 15, 2009 and bears interest at a fixed rate of 3.25%.

7

Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 1: Nature of Operations and Summary of Significant Accounting Policies—continued

It is the accounting policy of the Company, to account for investments using the equity method of accounting when the investment represents 20% - 50% ownership of the investment entity. The Company uses the cost basis method when the investment is less than 20% ownership of the investment entity.

On November 3, 2006, Husker Ag executed a Subscription Agreement to purchase two shares of Ethanol Risk Management, SPC, Ltd., a Cayman Islands insurance company (ERM). This is a captive insurance company which provides a portion of the property and casualty insurance for its owners. Husker Ag invested $51,541 total to participate in the two available “Portfolios” (one for property insurance and one for general liability and workers compensation or casualty insurance) for less than 4 percent ownership.

Property and Equipment

Property and equipment are depreciated over the estimated useful life of each asset which ranges from 3 to 30 years. Annual depreciation is primarily computed using the straight-line method.

The Company capitalized interest costs as a component of construction in progress, based on weighted-average rates for borrowing. Total interest incurred each year was:

	2007		2006
Interest costs incurred	$	163,578	$	243,027
Interest costs charged to expense		—		243,027
Total interest capitalized	$	163,578	$	—

It is the Company’s accounting policy to capitalize interest on capital expenditures. In accordance with this policy for the period ended March 31, 2007, $163,578 of interest has been capitalized using the Company’s average interest rate and has been included in the Construction in progress account on the balance sheet.

Earnings Per Membership Unit

For purposes of calculating basic earnings per membership unit, units subscribed and issued by the Company are considered outstanding on the effective date of issue. For purposes of calculating diluted earnings per membership unit, units subscribed for but not issued by the Company are also included in the computation of outstanding membership units. All membership units which have not been released from the escrow agent are not included in computation of outstanding membership units.

Note 2: Members’ Equity

In March 2007, the Company’s Board of Directors declared a cash distribution of $70 per membership unit to all members of record as of April 1, 2007 payable on or before April 6, 2007. A distribution payable in the amount of $2,109,100 was recorded by the Company as of March 31, 2007 by a charge to members’ equity.

There are significant transfer restrictions on transferability of membership unit. The Company’s Operating Agreement, as well as relevant portions of the Nebraska Limited Liability Company Act and regulations of the Internal Revenue Service (IRS) significantly restricts the transfer of the

8

Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 2: Members’ Equity—continued

membership units. Unit holders cannot assign or transfer a membership unit without approval from the Company’s Board of Directors and the transfer or assignment must comply with applicable Nebraska laws and IRS regulations. Members are not personally liable for any debts or losses of the Company beyond their respective capital contribution.

The Board of Directors will not approve transfers if the Board determines the transfer would cause the Company to be treated as a “publicly traded partnership.” Any transfers of membership units in violation of the publicly traded partnership rules or without the prior consent of the Board of Directors will be null and void.

Note 3: Commitments and Related Parties

At March 31, 2007, the Company had entered into agreements to purchase 5,819,435 bushels of corn at an average price of $3.66 per bushel to be delivered between April 2007 and October 2009. Ninety one contracts totaling 1,269,200 bushels are with related parties.

At March 31, 2007 the Company had contracts for the sale of approximately 12,435,000 gallons of ethanol with prices ranging from $1.71 to $2.20 per gallon with delivery from April through December 2007.

The Company has committed to purchase various equipment related to a grain bin expansion. The cost of the expansion is estimated to be $1,500,000. Of the estimated costs, there has been $1,433,229 expended for the grain bin project as of March 31, 2007.

The Company has transactions in the normal course of business with various members. Significant related party transactions affecting the financial statements are approximately as follows:

	March 31, 2007		December 31, 2006
Balance Sheets
Accounts receivable	$	131,800	$	146,900
Accounts payable		56,000		234,500
	Three Months Ended March 31, 2007		Three Months Ended March 31, 2006
Statements of Income
Distillers grain sales	$	422,000	$	241,000
Corn purchases		1,577,000		969,000

9

Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 4: Long-term Debt

Long-term debt consists of the following as of:

	March 31, 2007		December 31, 2006
Note payable to Union Bank and Trust Company due in monthly principal installments of $119,050 plus accrued interest. The note bears interest at a fixed rate of 6.2% for five years. On February 22, 2010 the interest will be adjusted to a fixed rate of 3% above the Treasury 2 year Constant Maturity Rate. The note matures on February 22, 2012 and is collateralized by substantially all assets of the Company and a first deed of trust on real property.		6,904,700		7,261,850
Note payable to Northeast Nebraska Public Power District due in monthly installments of $3,438 through June 2013. The note bears interest at a fixed rate of 4.127%. The note is collateralized by a letter of credit in the amount of $260,643 expiring March 1, 2008. The letter of credit requires the Company to maintain cash at the bank in an amount equal to the letter of credit.		226,916		234,833
Note payable to Union Bank and Trust Company due in monthly installments of $89,497.01. The note bears interest at a fixed rate of 6.85% for five years. The note matures on January 4, 2011 and is collateralized by substantially all assets of the Company and a first deed of trust on real property.		2,946,341		3,170,133
Total long-term debt		10,077,957		10,666,816
Less current maturities		2,344,388		2,336,651
	$	7,733,569	$	8,330,165

The Company has a line of credit, with maximum available borrowings of $5,000,000, expiring May 31, 2007. At March 31, 2007 and December 31, 2006, there were no borrowings against the line. The line is collateralized by a security agreement dated February 22, 2005 and a first deed of trust on real property. The line bears interest at a variable interest rate of Wall Street Journal Prime plus 0.75% making 9.0% the effective interest rate at March 31, 2007. Interest is payable monthly. The Company also has a letter of credit with Midwest Bank N.A. in the amount of $75,000, expiring September 1, 2007, to be used to serve the Company’s natural gas obligations. The letter of credit requires the Company to maintain cash at the bank in an amount equal to the letter of credit.

10

Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 4: Long-term Debt—continued

Future annual maturities of long-term debt as of March 31, 2007 are as follows:

Year Ending March 31,	Long-Term Debt
2007	$	2,344,388
2008		2,423,256
2009		2,493,574
2010		1,537,946
2011		1,228,619
Thereafter		50,174
	$	10,077,957

On January 5, 2007, the Company signed a Credit Agreement with Union Bank and Trust Company, Lincoln, Nebraska (Union Bank), whereby Union Bank agreed, subject to the terms and conditions set forth in the Credit Agreement, to provide the Company up to $35,000,000 of debt financing to be used for the construction of the Company’s plant expansion project. This plant expansion project, which commenced in October 2006, will add approximately 40 million gallons per year of ethanol production capacity to the Company’s existing operations. As of March 31, 2007, the $35,000,000 was available to be drawn as discussed below.

Union Bank made the following loans to the Company on January 5, 2007, pursuant to the Credit Agreement and the resultant promissory notes:

Construction Loan—multiple advance loan during the construction period with maximum borrowings of $25,000,000. Advances for construction are available under the Construction Loan until Substantial Completion of the plant expansion project, as defined in the Credit Agreement, or February 15, 2008, whichever occurs first. The Credit Agreement requires the Company to pay interest on the outstanding principal indebtedness on a quarterly basis during the construction period and thereafter until converted into a term loan. Six months following Substantial Completion of the plant expansion project, the Construction Loan will convert into a term loan which would be repayable on a quarterly basis over a 7-year period, subject to the possible mandatory additional payments described below.

Revolving Loan—multiple advance revolving loan with maximum borrowings of $10,000,000. Advances are restricted to the construction of the plant expansion project, and are available under the Revolving Loan until the expiration of 39 months after the Construction Loan has been paid in full or matures, whichever occurs first, but no later than June 1, 2018. The Credit Agreement requires the Company to pay interest on the outstanding principal indebtedness on a quarterly basis during this loan advancement period. Three months after the final maturity or payment of the Construction Loan, whichever is earlier, but no later than September 1, 2015, the Revolving Loan will convert into a term loan which would be repayable on a quarterly basis over a 3-year period, subject to the possible mandatory additional payments described below.

Under the Credit Agreement, the Company must use its equity funds prior to incurring indebtedness under either of the loans. Union Bank has required the Company to inject a minimum of 40% equity into the plant expansion project (that is, the equity must equal at least 40% of the total of amount of equity and indebtedness).

In addition, the Credit Agreement imposes a number of conditions which must be met by the Company on an on-going basis prior to Union Bank’s disbursement of loan funds under either loan. Union Bank has broad powers of discretion with respect to its disbursement of funds under either loan, depending upon the Company’s compliance with the Credit Agreement covenants and conditions.

11

Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 4: Long-term Debt—continued

Additional material terms of the debt financing from Union Bank are as follows:

Interest Rate. The Credit Agreement provides for the same interest rate for both loans. Until the first principal payment is due under the Construction Loan (six months after Substantial Completion), each of the loans will accrue interest at the one month London Interbank Offered Rate (LIBOR) plus 3.00% adjusted monthly.

Subject to performance pricing indicated below, when the first principal payment is due under the Construction Loan, each of the loans will accrue interest at the three month LIBOR plus 3.00% adjusted monthly.

The Credit Agreement states that performance pricing will be available after the principal payments begin on the Construction Loan based upon the Company’s member equity position. Depending on the percentage of the Company’s total members’ equity to total assets, Union Bank will reduce the interest rate on the Company’s loans by as much as 70 basis points or .70%. Adjustments will be completed on an annual basis based on the Company’s audited financial statements. Interest will be adjusted in accordance with the following rate index:

Minimum Members’ Equity Ratio*	3-Month LIBOR Plus the Following Adder
40%	3.00%
50%	2.55%
60%	2.30%

* — Members’ equity ratio is defined as total members’ equity divided by total assets.

When the first payment is due under the Construction Loan, the Credit Agreement provides that Husker Ag may select a fixed interest rate for one or both of the loans based on the Federal Home Loan Bank (FHLB) 3-year or 5-year fixed advance rate plus 3.00%.

Collateral. These loans, along with the Company’s existing debt with Union Bank, are secured by a first mortgage on the Company’s real estate and plant, as well as a first security interest on all accounts receivable, inventory, equipment, fixtures, and on all personal property and general intangibles.

Financing Costs. The Credit Agreement requires the Company to pay a .75% origination fee ($262,500), plus third party expenses, such as title insurance, legal fees, appraisal and filing fees. The actual total financing costs were approximately $326,000 and will be amortized over the life of loans.

Prepayment Penalty. The loans are subject to a prepayment penalty if refinanced with another lender (3.0% penalty if refinanced during the first three years of principal payments; 1.0% penalty thereafter). Otherwise, the Company may pay off either or both of these loans without penalty. However, if the Company selects the fixed rate option, the Credit Agreement requires a minimum 2.0% prepayment penalty for any prepayments.

Mandatory Additional Principal Payments—Free Cash Flow. In addition to the scheduled principal payments provided above, the Company would be required to make an annual payment applied to principal in an amount equal to 10% of available Free Cash Flow.

These payments would be capped at $1.5 million per year with a maximum aggregate payment of $5 million over the life of the loans. This additional payment would be applied to scheduled principal installments in inverse order of maturity on these new loans. If the amount of any such additional payment would result in a covenant default, the amount of payment will be reduced to an amount that would not cause covenant default.

12

Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 4: Long-term Debt—continued

Free Cash Flow is defined as the Company’s annual net income, minus an amount equal to 36% of the net income (as an estimated tax rate); plus the respective calendar year depreciation and amortization expense; minus allowed capital expenditures and principal payments to Union Bank and other authorized creditors.

Covenants/restrictions. The primary financial covenants and restrictions, all determined in accordance with generally accepted accounting principles, as applied on a consistent basis, would include the following:

• Beginning with the month in which Substantial Completion occurs, the Company must maintain working capital of not less than $6,000,000; this calculation will include any unadvanced portion of the Company’s existing revolving term commitment of $5,000,000.

• Beginning three months after Substantial Completion and quarterly thereafter, the Company must maintain a debt service coverage ratio of not less than 1.5:1 measured quarterly based on a rolling 4 quarter average (this ratio is defined as net income plus depreciation and amortization; minus extraordinary gain/loss divided by current principal of long term debt).

• Beginning on January 5, 2007, the Company must have a minimum tangible net worth (total assets minus intangible assets and minus total liabilities, as defined by GAAP) of not less than $34,800,000. The Company shall maintain minimum tangible net worth of no less than the amount that will not allow members’ equity to be below 49%.

• All distributions to the Company’s members would be subject to prior approval by 66.67% of all financial institutions participating in these loans (determined by the dollar amount of the Company’s total indebtedness to Union Bank and its participants). Before granting any such approval, Union Bank would require the Company to be in compliance with each of the loan covenants before and after the distribution.

• Other than for the construction of the plant expansion project, the Company must obtain approval from Union Bank for any capital improvements in excess of $1,700,000.00, subject to annual revision.

• Cash distributions could be paid out up to three times per year in April (based on March year-to-date financial results), August or September (based on June year-to-date results) and December (based on November year-to-date results). The Company’s distributions will be limited to the distribution schedule below:

Minimum Members’ Equity Ratio	Maximum Distribution of Earnings
40%	50%
50%	60%
60%	70%

• When a distribution is approved above the estimated 36% tax rate (the assumed normal effective tax rate of the Company’s members as determined by Union Bank), an amount equal to 10% of the amount above the 36% rate would be applied to the outstanding principal balance of the new loans, to be applied to scheduled principal installments in inverse order of maturity on these new loans.

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Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 4: Long-term Debt—continued

Default. Each of these new loans may be accelerated upon default. However, the Credit Agreement provides the Company with a right to cure any default. Default provisions include, among other things, (i) the Company’s failure to pay amounts when due; and (ii) the Company’s failure to perform any material condition or to comply with any material promise or covenant of the Credit Agreement or any of the related loan documents.

Note 5: Rights Offering

On June 26, 2006, at the Annual Meeting of Members, the members approved a proposed plant expansion. To help finance the plant expansion, the Company proceeded with a rights offering where each member of the Company as of August 1, 2006, the record date, was offered a nontransferable subscription right to subscribe to one membership unit for each unit held at a subscription price of $1,000 per unit. As of the record date, there were 15,318 membership units outstanding, and the total rights offering was for a maximum of 15,318 units or $15,318,000.

On September 5, 2006, the Company filed a Registration Statement with the Securities and Exchanges Commission registering up to 15,318 subscription rights and 15,318 membership units in the Company. This Registration Statement, which was amended on October 11, 2006, and October 23, 2006, was approved and declared effective by Securities and Exchange Commission on October 25, 2006.

On or about October 27, 2006, the Company provided a prospectus to each of its members of record as of August 1, 2006. The prospectus was the formal written offer to existing members of the Company (as of the record date) of the right to subscribe to newly issued membership units on a pro rata basis, based on each member’s percentage ownership interest in the Company.

In accordance with the terms of the Registration Statement, the Company retained the right to extend the rights offering beyond the initial expiration date of November 30, 2006, and the Board of Directors extended the right to exercise the subscription rights through December 18, 2006. These subscription rights were subject to acceptance by the Company’s Board of Directors after the Company obtained debt financing to help pay for the plant expansion project.

On January 5, 2007, the Company signed a Credit Agreement with Union Bank and Trust Company, Lincoln, Nebraska (Union Bank), whereby Union Bank agreed, subject to the terms of the Credit Agreement, to provide up to $35,000,000 of debt financing for the plant expansion project (Note 4). Thereafter, on January 12, 2007, the Board of Directors accepted the subscription rights and issued the membership certificates upon receipt of the funds from the escrow agent.

In the rights offering, the Company sold a total of 14,812 subscription rights and 14,812 membership units for total proceeds in the amount of $14,812,000, with 506 membership units remaining unsold.

As of January 12, 2007, after the completion of the rights offering, the Company has 30,130 membership units issued and outstanding (Note 9).

As of December 31, 2006, Union Bank, as escrow agent, held $14,812,000 in an escrow account on behalf of those members that properly exercised their subscription rights. In accordance with the terms of the Registration Statement, the funds in this escrow account were not the Company’s property, and the Company had no right to such funds until it was able to secure debt financing (on January 5, 2007) and the subscriptions were accepted by the Company (as of January 12, 2007).

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Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 5: Rights Offering—continued

The Company will apply the net proceeds from the rights offering to the payment of the Company’s design build contractor for the design and construction of the plant expansion project.

Note 6: Energy Production Incentive Credits

The Company is currently participating in a state energy production credit program. Under this program, the Company earns a credit of $0.18 per gallon of ethanol produced, not to exceed 15,625,000 gallons annually and no more than 125,000,000 gallons over a consecutive 96-month period. The program expires June 30, 2012. Credits earned under the state program for the three month periods ended March 31, 2007 and 2006 were $418,775 and $398,138.

Credits earned under the aforementioned state energy production program are included in net sales in the accompanying statements of income.

Note 7: Contingencies

Husker Ag, LLC is subject to various federal, state and local environmental laws and regulations that govern emissions of air pollutants; discharges or water pollutants; and generation, handling, storage and disposal of hazardous substances. The Company is also subject to potential liabilities arising under state laws that require responsible parties to remediate releases of hazardous or solid waste constituents into the environment associated with past or present activities. The Company continues to operate under an amended construction air permit. Emission test results are currently under review by Nebraska DEQ for consideration of an operating air permit. The construction air permit was approved and issued on April 9, 2007.

Note 8: Plant Expansion Project; Design-Build Agreement

The Company’s current plant expansion project, which was approved by the Company’s members at the 2006 Annual Meeting of Members held on June 26, 2006, will add approximately 40 million gallons per year of ethanol production capacity to the Company’s existing operations. The total cost of the project is estimated to be approximately $63 million.

On July 25, 2006, the Company executed an Agreement between Owner and Design/Builder on the Basis of a Stipulated Price (the Design-Build Agreement) with ICM, Inc., an ethanol plant design build contractor located in Colwich, Kansas (ICM). Under the Design-Build Agreement, ICM is responsible for the design, construction and start-up of a stand-alone dry mill fuel-grade ethanol plant that would add 40 million gallons per year of ethanol production capacity to the Company’s existing operations. Under the terms of the Design-Build Agreement, the Company will pay ICM approximately $44,284,000 for the design and construction of this expansion, subject to adjustments made in accordance with the general conditions of the agreement. ICM began construction on the plant expansion project in October 2006, and the Company anticipates that the project will be completed before the end of 2007.

Note 9: Earnings per Membership Unit—Rights Offering Impact

The following transaction occurred after December 31, 2006, which, had they taken place during fiscal 2006, would have changed the number of membership units used in the computations of earnings per membership unit. There were 14,812 membership units issued in a rights offering closed on January 12, 2007 (Note 5).

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Husker Ag, LLC

Notes to Financial Statements

March 31, 2007

Note 9: Earnings per Membership Units—Rights Offering Impact—continued

Earnings per membership unit

	First Quarter 2007		First Quarter 2006
Net income available to membership units	$	914,642	$	5,102,397
Outstanding membership units		30,130		15,318
Weighted-average membership units		28,319		15,318
Basic earnings per membership unit	$	32.30	$	333.10
Diluted earnings per membership unit	$	30.35	$	333.10

Note 10: Subsequent Events

On April 26, 2007, the Company, entered into a Grain Procurement Agreement (the “Agreement”) with J.E. Meuret Grain Co., Inc., a Nebraska corporation (“Meuret”) pursuant to which Meuret shall exclusively, subject to certain pre-existing relationships, provide the Company with No. 2 yellow corn meeting certain specifications described in the Agreement in the full amount necessary for the operation of the Company’s plant as well as the pending expansion.

The term of the Agreement began on April 26, 2007 and will continue for an initial term of three years. Meuret began providing grain to the Company immediately. The Agreement will be automatically renewed for additional terms of two years unless either party provides notice of termination at least four months prior to the end of the initial term or any subsequent renewal term. The Agreement provides that the base price for the grain, less any discounts, shall be the posted cash price on the day of delivery plus a service fee multiplied by the net bushels of grain delivered.

When the Company paid the cash distribution of $2,109,100 to its members on or about April 6, 2007, the Company was in noncompliance with one of its loan covenants with Union Bank and Trust Company. While the Company’s new Credit Agreement with Union Bank requires lender approval prior to making any distributions to the Company’s members, the Company’s Loan Agreements for its loans outstanding at March 31, 2007, require lender approval for distributions in excess of 35% of the Company’s net income determined on both a year-to-date and annual basis. On March 26, 2007, the Company requested loan approval for this distribution and correctly informed the Bank that the proposed distribution was within the 35% distribution guideline. On March 27, 2007, Union Bank approved the distribution subject to the Company’s projections through the end of March.

However, based on certain quarter-end adjustments to the Company’s net income, the distribution was in excess of the 35% distribution guideline (the distribution totaled approximately 40.2% of the net income for the quarter). On April 4, 2007, the Company notified the bank that it had exceeded the 35% distribution guideline and requested a one-time waiver of the covenant. While Union Bank would not waive the covenant, on May 7, 2007, the bank informed the Company that it would take no action for this violation. The Company was back in compliance with this loan covenant before the end of April 2007.

Note 11: Recent Accounting Pronouncements

The Financial Accounting Standards Board (FASB) recently issued FASB Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities". This Statement generally permits entities to choose to measure many financial instruments and certain other items at fair value to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is effective for the Company beginning November 15, 2007.

FASB also recently issued FASB No. 157, "Fair Value Measurements". This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. This Statement is effective for the Company beginning November 15, 2007. The Company is currently reviewing these pronouncements for application to its accounting procedures.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Husker Ag and its representatives may from time to time make written or oral forward-looking statements, including statements made in this report, that represent Husker Ag’s expectations or beliefs concerning future events, including statements regarding future sales, future profits and other results of operations, the continuation of historical trends, the sufficiency of cash balances and cash generated from operating and financing activities for Husker Ag’s future liquidity and capital resource needs, and the effects of any regulatory changes. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Husker Ag cautions you that any forward-looking statements made by Husker Ag in this report, in other reports filed by Husker Ag with the Securities and Exchange Commission or in other announcements by Husker Ag are qualified by certain risks and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Such risks and factors include, but are not limited to, the risk factors set forth in the section below entitled “RISK FACTORS”.

Overview

The Company owns and operates an ethanol plant located near Plainview, Nebraska. Husker Ag’s business consists of the production of ethanol and an ethanol co-product, distillers grains. The Company began grinding corn and producing ethanol in March 2003. Currently the ethanol plant converts roughly ten million bushels of corn into approximately 28 million gallons of ethanol per year. The ethanol plant also currently produces and sells over 160,000 tons of modified wet distillers grain on an annual basis.

Husker Ag’s operating results are largely driven by the prices at which it sells ethanol and distillers grain and the costs related to its production. The price of ethanol and distillers grain is influenced by factors such as supply and demand, prices of unleaded gasoline and substitute products, weather, government policies and programs, and foreign trade. Although federal and state government support programs have been a significant source of revenue and income since Husker Ag began production in March of 2003, the federal program is now much less significant because of the means by which the program structures, funds, and conditions the payments (see “Energy Production Credits” under “Results of Operations for the three months ended March 31, 2007 and 2006” below for further discussion of this issue). With respect to the various costs in the production process, the two most significant are the costs of corn and natural gas. The cost of natural gas and corn is affected by factors such as supply and demand, weather, government policies and programs, foreign trade, and the risk management or hedging strategy used to protect against the price volatility of these commodities. See “Quantitative and Qualitative Disclosures about Market Risk” below for additional information.

Results of Operations for the three months ended March 31, 2007 and 2006

The following table shows sales and revenues, cost of sales, gain or loss on options, operating expenses and other items as a percentage of total sales and revenues as derived from the Company’s Statements of Income for the three months ended March 31, 2007 and 2006. This table should be read in conjunction with the Company’s financial statements and accompanying notes under Item 1 of this Form 10-Q:

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	Three Months Ended March 31, 2007					Three Months Ended March 31, 2006
Sales and revenues	$	17,750,127		100.0	%	$	14,007,758		100.0	%
Cost of sales		(11,243,156	)	(63.3	%)		(8,501,435	)	(60.7	%)
Gain (loss) on option and futures contracts		(1,147,023	)	(6.5	%)		250,994		1.8	%
Gross profit		5,359,948		30.2	%		5,757,317		41.1	%
Selling, general and administrative expenses		(587,145	)	(3.3	%)		(511,293	)	(3.6	%)
Operating income		4,772,803		26.9	%		5,246,024		37.5	%
Interest expense		—		0.0	%		(243,027	)	(1.8	%)
Unrealized loss on securities		(4,147,500	)	(23.4	%)		—		0.0	%
Interest and other income		289,339		1.6	%		86,169		0.6	%
Income before equity in net income of affiliate		914,642		5.1			5,089,166		36.3	%
Equity in net income of affiliate		—		0.0	%		13,231		0.1	%
Net income	$	914,642		5.1	%	$	5,102,397		36.4	%

Net Sales

The Company’s net sales include ethanol sales, distillers grain sales and energy production credits. For the three months ended March 31, 2007 and 2006, ethanol sales comprised 82.0% and 85.7%, respectively, of total net sales. Distillers grain sales comprised 15.6% and 11.4% of the Company’s total net sales for the quarter ended March 31, 2007 and 2006, respectively; while federal and state energy production credits make up the remaining 2.4% and 2.9% of the Company’s total net sales for the first quarter of 2007 and 2006, respectively.

Net sales for the three months ended March 31, 2007 increased by approximately 26.7% over the same period from the prior year. This increase in net sales for the first quarter of 2007 compared to the first quarter of 2006 resulted from an increase in ethanol sales of over $2.5 million, an increase of approximately $1.2 million in distillers grain sales. These individual categories of net sales are discussed further below.

Ethanol Sales

Ethanol sales for the first quarter of 2007 increased by 21.2% over the same period from the prior year. This was primarily due to an increase of 14.7% in the average price received per gallon for the first quarter of 2007 over the first quarter of 2006 coupled with a 5% increase in gallons sold.

The vast majority of ethanol sold during the first quarter of 2007 was sold pursuant to a forward contract. At March 31, 2007, the Company had forward contracts for the sale of approximately 11.6 million gallons of ethanol with fixed prices ranging from $1.71 to $2.20 per gallon and 812,000 gallons at variable prices to be delivered through December 2007.

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Distillers Grain Sales

Sales of distillers grain increased by approximately $1.2 million, or 73.5% for the first quarter of 2007 compared to the first quarter of 2006. This sales increase is largely due to a 65.8% increase in the average selling price of distillers grain for the first quarter of 2007 compared to the first quarter of 2006. The price of distillers grain has a relationship to the price of corn, and the Company’s average price of corn increased by over 44.3% for the first quarter of 2007 compared to the same period in 2006. This is increase also partially stemmed from a 4.8% increase in the production of distillers grain.

Energy Production Credits

Energy production credits are derived entirely from the State of Nebraska. Net sales included approximately $419,000 of energy production credits for the three months ended March 31, 2007, which is approximately $21,000 more than the net production credits earned in the first quarter of 2006. Variances in the Company’s state credits from one quarter over a prior year quarter are largely due to the Company’s production during the period, and therefore this increase is due to a 5% increase in ethanol production for the first quarter of 2007 compared to the first quarter of 2006. While the Company may earn marginally more or less credits from the State of Nebraska in one quarter versus another, the state credits earned by the Company on an annual basis have remained relatively constant historically (see discussion regarding the Nebraska credit program below). The Company expects that the producer credits from the State of Nebraska should remain relatively consistent for the remainder of 2007 (subject to appropriate financing by the Nebraska Legislature; see “Risk Factors” below).

The Company’s net income for the first quarter of 2007 without the energy production credits included in net sales would have been approximately $496,000 (compared to actual net income of approximately $915,000).

Energy Credits—Nebraska Program. LB 536, a State of Nebraska legislative bill which came into law on May 31, 2001, established a production tax credit of 18¢ per gallon of ethanol produced during a 96 consecutive month period by newly constructed ethanol facilities in production prior to June 30, 2004. The tax credit is only available to offset Nebraska motor fuels excise taxes. The tax credit is transferable and therefore Husker Ag transfers credits received to a Nebraska gasoline retailer who then reimburses Husker Ag for the face value of the credit amount less a handling fee. On March 24, 2003, Husker Ag entered into an agreement with Rite Way Oil & Gas Co., Inc. (“Rite Way”) pursuant to which Husker Ag may transfer up to $500,000 in ethanol production credits to Rite Way per month. Rite Way then pays Husker Ag the credit amount less a handling fee. No producer can receive tax credits for more than 15,625,000 gallons of ethanol produced in one year and no producer will receive tax credits for more than 125 million gallons of ethanol produced over the consecutive 96 month period. The minimum production level for a plant to qualify for credits is 100,000 gallons of ethanol annually. The production incentive is scheduled to expire June 30, 2012. Assuming the Company continues to produce at least 15,625,000 gallons of ethanol annually, this producer tax credit could result in payments of up to $2,812,500 to the Company annually, subject to the statutory maximum limit. Any changes to existing state law, regulations or programs could have an adverse effect on the Company’s revenue. See “Risk Factors” below.

This program may not have sufficient funds to cover the allocations to eligible producers in future years. Husker Ag is currently unable to predict whether there may be a funding shortfall and what the effect such a shortfall would have on the Company’s allocation.

Gain/Loss on Option and Futures Contracts

In an attempt to minimize the effects of the volatility of corn and natural gas costs and other inputs on operating profits, in the past 24 months, Husker Ag has taken hedging positions in corn and natural gas futures and option markets. Similarly, in an attempt to minimize the effects of market volatility of the Company’s gas-plus forward contracts for the sale of ethanol, Husker Ag has also taken hedging positions in unleaded gas futures and options markets.

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Hedging means protecting the price at which the Company buys corn and natural gas and the price at which it will sell its products in the future. It is a way to attempt to reduce the risk caused by price fluctuation. The effectiveness of hedging activities is dependent upon, among other things, the cost of corn, natural gas and unleaded gas as well as Husker Ag’s ability to sell sufficient amounts of ethanol and distillers grain to utilize all of the commodities subject to the option and futures contracts. Hedging activities can result in costs to the Company because price movements in grain, natural gas and unleaded gas contracts are highly volatile and are influenced by many factors which are beyond the Company’s control.

The Company enters into option and futures contracts, which are designated as hedges of specific volumes of corn and natural gas projected to be used in the manufacturing process and ethanol expected to be sold. The Company uses derivative financial instruments to manage the exposure to price risk related to corn and natural gas purchases and ethanol sales. The Company currently does not meet the requirements for cash flow hedging under FASB 133. The Company has entered into a risk management agreement with FC Stone, LLC (“FC Stone”), a commodities risk management firm, under which FC Stone provides the Company with advice, assistance and a price risk management program for corn products necessary for the operation of the plant. See “Quantitative and Qualitative Disclosures about Market Risk” below for additional information.

Until April 2007, the Company had also retained Husker Trading, Inc. to originate and acquire corn for plant usage rather than hiring an on-site commodities manager. Husker Trading, Inc. was responsible for the consistent scheduling of grain deliveries and to establish and fill forward contracts through grain elevators. It also coordinated grain deliveries between the railroad, participating elevators and producers, and it negotiated price protection with hedging specialists.

On April 26, 2007, the Company terminated its agreement with Husker Trading, Inc. and retained J.E. Meuret Grain Co., Inc., to exclusively provide the Company with its corn needs for the operation of the Company’s existing plant as well as the pending expansion. See Note 10 to the Company’s Financial Statements included above for additional information regarding the Company’s corn procurement agreement with J.E. Meuret Grain Co., Inc.

In February 2004, the Husker Ag Board of Directors adopted a Risk Management Policy, which established a Risk Management Committee to serve as the liaison between management and Board regarding forward pricing and risk management issues. The Risk Management Committee is currently comprised of General Manager Seth Harder, and Board members Robert Brummels, Stanley Gyberg, Mike Kinney, David Stearns and Leonard Wostrel. The Risk Management Policy also establishes position limits and forward pricing guidelines with respect to risk exposure for corn, distillers grain, denaturant and natural gas, as well as approval procedures for management and the Risk Management Committee, approved commodity transaction instruments, and reporting and accounting function verification requirements.

The Company uses natural gas as its main source of energy. Natural gas prices have historically fluctuated significantly. An increase in the price of natural gas has a direct impact on the Company’s costs to produce ethanol. For this reason, in January 2005, the Company began purchasing option and futures contracts on natural gas for the first time. However, the Company did not enter into any option and futures contracts on natural gas during 2006 or the first quarter of 2007, and did not have any such contracts outstanding on March 31, 2007. During the first quarter of 2007, the Company renewed its participation in the management procurement fund with Cornerstone Energy through March 2008. This fund is intended to help even out the price fluctuations in the Company’s natural gas purchases.

In the first quarter of 2006, a relatively small percentage of the Company’s forward contracts for the sale of ethanol were priced as “gas-plus” contracts where the Company receives a price per gallon of ethanol sold equal to the then average unleaded gas price per gallon plus a fixed amount. Since unleaded gas prices fluctuate, decreases in gasoline prices cause the Company’s revenues on these gas-plus contracts to decrease. Therefore, as part of its hedging strategy, the Company began purchasing option and futures contracts on unleaded gas for the first time in January 2005.

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The Company’s net income for the three months ended March 31, 2007, included net realized and unrealized loss on option and futures contracts in the amount of $1,147,023. This amount consists of a loss of $993,316 on corn contracts and a loss of $153,707 on unleaded gas contracts.

Market conditions during the first quarter of 2007 were very unfavorable for the Company’s option and futures contracts on corn. The Company cannot predict whether it will realize gains or losses on option and futures contracts in the future.

By comparison, the Company’s net income for the three months ended March 31, 2006, included net realized gain on option and futures contracts in the amount of $250,994. This amount consists of a gain on contracts on corn of $225,139 and a gain on contracts on unleaded gas of $25,855. This gain on unleaded gas contracts resulted from contracts purchased in 2005 which closed in the first quarter of 2006. Market conditions for corn during the first quarter of 2006 were relatively favorable for the Company’s option and futures contracts creating this gain.

Cost of Sales

Husker Ag’s cost of sales includes production expenses. For the three months ended March 31, 2007 and 2006, the Company’s cost of sales (excluding any gain or loss on option and futures contracts), as a percentage of total net sales, was 63.3% and 60.7%, respectively. In actual dollars, cost of sales increased by 32.3% percent from the first quarter of 2007 compared to the first quarter of 2006. Cost of sales primarily consists of purchases of corn and both natural gas and natural gasoline. Natural gas is used in the production process while natural gasoline is used as a denaturant. Corn costs comprised 58.1% and 59.4% of total cost of sales for the three months ended March 31, 2007 and 2006 respectively. Natural gas and the denaturant made up 17.3% and 22.1% of total cost of sales for the first quarter of 2007 and 2006, respectfully.

Cost of sales increased partially due to the Company’s increase in ethanol production of approximately 5%. However, the primary reason for the increase in cost of sales is the increase of over 44% in the Company’s average price of corn for the first quarter of 2007 compared to the first quarter of 2006. As a result of the increased production and corn prices, the Company’s corn costs increased by approximately $2.3 million in the three months ended March 31, 2007 compared to the first quarter in 2006. In addition, natural gas and denaturant costs increased approximately $322,000 due to increased production and increased energy costs.

Depending upon the corn and gas markets, the Company expects to continue to experience efficiencies in the operation of its plant during the remainder of 2007. However, the Company’s cost of sales is largely dependent upon the corn and gas markets. See “Risk Factors” below.

Selling, General and Administrative Expenses

For the three months ended March 31, 2007 and 2006, the Company’s selling, general and administrative expenses, as a percentage of total net sales excluding energy production credits, were 3.4% and 3.8%, respectively. The Company’s selling, general and administrative expenses increased by $76,000 or 14.8% for the first quarter of 2007 compared to 2006. This increase was largely due to the Company’s recent engagement of an independent consulting firm that is performing a review and assessment of the Company’s internal controls in an effort to help bring Husker Ag in compliance with the Sarbanes Oxley Act for 2008 and to otherwise strengthen Husker Ag’s internal controls.

For the remainder of 2007, Husker Ag anticipates that selling, general and administrative expenses will remain in a range consistent with prior years as a percentage of the Company’s net sales excluding energy production credits, with the exception of additional expenditures for Sarbanes Oxley compliance. However, the Company also expects to experience some nonrecurring administrative expenses over the next 6 to 9 months due to the plant expansion project. See “General Developments” below for a description of the plant expansion project.

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Interest and Other Income; and Unrealized Loss on Securities

Interest and other income for the three months ended March 31, 2007, consisted of approximately $237,000 of interest income, an unrealized loss on securities of approximately $4.1 million and $52,000 of other income. For the three months ended March 31, 2006, the Company had interest income of approximately $84,000 and other income of $2,150. Interest income was slightly higher in the first quarter of 2007 primarily due to higher interest rates, and the Company’s investment of some of its available cash in short-term certificates of deposit, and the rights offering proceeds.

The unrealized loss on securities of $4.1 million is an adjustment of the Company’s US BioEnergy stock to fair market value in accordance with GAAP treatment for trading securities. By way of comparison, during 2006, all in the fourth quarter, Husker Ag reported an unrealized gain on securities of approximately $6.8 million for this investment. See “General Developments” below for additional information on the Company’s investment in US BioEnergy.

Interest Expense

All of the interest incurred during the first quarter of 2007 was capitalized for the plant expansion project currently under construction (see the financial statements and specifically Note 1). As a result, interest expense for the three months ended March 31, 2007 was $0. Total interest incurred for the first quarter of 2007 amounted to approximately $164,000, compared to total interest incurred in the approximate amount of $243,000 for the three months ended March 31, 2006. Therefore, interest costs actually decreased by approximately $80,000 due to a significant reduction in the Company’s outstanding debt for the first quarter of 2007 compared to the first quarter of 2006. See the section entitled “Liquidity and Capital Resources” below for discussion on the Company’s long-term debt.

Equity in Net Income or Loss of Affiliate

In December 2005, the Company purchased a 24.1% membership interest in Val-E Ethanol, LLC’s equity. Val-E Ethanol, LLC is a Fagen/ICM 45 million gallon ethanol plant in Ord, Nebraska. The Company reported income of $13,231 from its affiliate for the first quarter 2006.

See “General Developments” below for a description of the Company’s exchange of its interest in Val-E Ethanol, LLC for 3,000,000 shares of common stock in US BioEnergy Corporation in May 2006 (later converted to 750,000 shares pursuant to a 1 for 4 reverse stock split). As a result of this exchange, the Company did not report any income from this affiliate after May 2006.

Net Income

Net income for Husker Ag for the three months ended March 31, 2007 was approximately $915,000 consisting mostly of income from operations of approximately $4.8 million, along with approximately $52,000 of other income and $237,000 of interest income, and offset by approximately $4.1 million of unrealized loss on securities.

By comparison, the Company experienced net income for the three months ended March 31, 2006 in the approximate amount of $5.1 million, largely due to income from operations of approximately $5.25 million, along with approximately $13,000 equity in net income of affiliate, $2,150 of other income and $84,000 of interest income, partially offset by interest expense in the approximate amount of $243,000.

For the reasons set forth above, the Company’s net income for the first quarter of 2007 was approximately $4.2 million less than the first quarter of 2006. The primary reason for this decrease is the unrealized loss of over $4.1 million from the Company’s investment in US BioEnergy Corporation.

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Liquidity and Capital Resources

The Company’s liquidity and capital resources will be affected in the short-term by its plant expansion which is discussed in detail below. See “General Developments” below for further discussion on this proposed expansion.

As of March 31, 2007, the Company had current assets of approximately $25.2 million, including cash and cash equivalents of approximately $9.3 million and the Company had total assets of approximately $78.2 million. As of March 31, 2007, the Company had current liabilities totaling approximately $11.3 million. As of March 31, 2007, the Company’s ratio of current assets to current liabilities was 2.23 to one, compared to 2.45 to one as of December 31, 2006.

As of March 31, 2007, the Company had total members’ equity of approximately $59.2 million, or $1,965.71 per unit. This compares to total members’ equity of approximately $45.7 million, or $2,984.25 per unit as of December 31, 2006, and approximately $27.4 million, or $1,790.29 per unit as of March 31, 2006. Members’ equity increased by approximately $13.5 million during the three months of 2007 due to net income for the period in the amount of approximately $915,000, approximately $14.8 million of capital from the rights offering, offset by distributions declared and paid in the amount of $2,109,100.

Cash Flow from Operating Activities. The operating activities of Husker Ag for the three months ended March 31, 2007, generated approximately $4.9 million of net cash flow. The net cash from operating activities includes, among several other material items, net income in the approximate amount of $915,000.

Cash Flow from Investing Activities. For the three months ended March 31, 2007, net cash used in investing activities totaled approximately $14.9 million which included $1.5 million to purchase certificates of deposit and approximately $13.4 million to purchase property and equipment.

Cash Flow from Financing Activities. Cash provided by financing activities for the three months ended March 31, 2007, totaled approximately $13.8 million, which consisted of proceeds from the rights offering of approximately $14.8 million offset by rights offering costs ($103,488), debt origination costs ($326,189) and net payments on long-term debt ($588,859).

Primary Company Debt. Prior to February 23, 2005, the senior and primary lender for Husker Ag was Stearns Bank, N.A., St. Cloud, Minnesota (“Stearns Bank”). The Company financed the construction of its ethanol plant through Stearns Bank. From October 3, 2002 through December 31, 2003, the Company borrowed a total of $19,827,860 from Stearns Bank under its construction loan. On January 20, 2004, the Company converted its construction loan into three permanent loans. In June 2004, the Company paid off the smallest of the three loans (original principal amount of $1,505,900).

On February 22, 2005, the Company signed a Commercial Loan Agreement with Union Bank and Trust Company, Lincoln, Nebraska (“Union Bank”) and Midwest Bank National Association, Plainview, Nebraska (“Midwest Bank”), whereby Union Bank and Midwest Bank agreed to loan Husker Ag the funds necessary to refinance the Company’s outstanding obligations with Stearns Bank and to provide the Company with a revolving line of credit. On February 23, 2005, Husker Ag used the proceeds from its new loan with Union Bank, along with approximately $5.8 million of its cash reserves, to pay off its obligation to Stearns Bank in full. The total payoff was approximately $15.8 million which included a prepayment penalty of approximately $310,000.

As part of this refinancing, Midwest Bank provided the Company with a multiple advance revolving line of credit loan with maximum borrowings of $5,000,000. On February 22, 2006, Midwest Bank extended the Company’s revolving line of credit until April 30, 2006. On May 23, 2006, the Company executed a Commercial Loan Agreement and related promissory note with Union Bank for a revolving line of credit with maximum borrowings of $5,000,000, replacing the Company’s revolving line of credit provided by Midwest Bank.

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Since that date, Union Bank has been the Company’s primary and sole lender. On March 31, 2007, the Company had the following outstanding loan obligations with Union Bank:

1. Term Loan—single advance term loan in the amount of $10,000,000. This term note is amortized over a seven year period with a final maturity date of February 22, 2012. This note is payable in equal monthly installments of $119,050 plus interest. The interest rate on this note is fixed at 6.20% for the first five years. Thereafter, the interest rate will be the then 2-year Treasury Constant Maturity Rate plus 3.00%.

2. Line of Credit—multiple advance revolving line of credit loan with maximum borrowings of $5,000,000. Interest is due monthly on this revolving line of credit. This note will accrue interest at the Wall Street Journal Prime Rate plus 0.75% adjusted every time this index rate changes (the WSJ Prime Rate was last changed to 8.25% on June 29, 2006, with a resultant interest rate of 9.00% as of March 31, 2007). Principal is due at maturity on or before May 31, 2007. Husker Ag intends to utilize this line of credit when needed for operating purposes. The Company had not borrowed any money from Union Bank pursuant to this line of credit as of March 31, 2007.

3. Val-E Loan—single advance term loan in the amount of $4,500,000. On December 28, 2005, Husker Ag executed a new Commercial Loan Agreement and related promissory note with Union Bank for a single advance term loan in the amount of $4,500,000 (the “Val-E Loan”). This Val-E Loan provided Husker Ag the funds necessary to purchase a 24.1% equity interest in Val-E Ethanol, LLC. See “General Developments” below for further discussion on this investment including an update on the Company’s recent exchange of this investment for an investment in another company. The proceeds from the Val-E Loan were wired to Husker Ag on or about January 4, 2006. This term note is amortized over a sixty (60) month period commencing February 4, 2006, with a final maturity date of January 4, 2011. The interest rate is fixed at 6.85% per year for the term of the note. On January 31, 2006, Husker Ag used the proceeds from this term loan for the balance of its purchase of its membership interest in Val-E Ethanol, LLC; the Company had also paid $1,500,000 of its own cash for this investment.

Union Bank Loan Terms. These loans with Union Bank are secured by a first mortgage on the Company’s real estate and plant, as well as a first security interest on all accounts receivable, inventory, equipment, fixtures, and on all personal property and general intangibles. The primary term loan and the Val-E Loan are each subject to a 3% prepayment penalty if refinanced with another lender. Otherwise, Husker Ag may pay off the loans without penalty.

Loan Covenants. Each of these Commercial Loan Agreements with Union Bank require lender approval prior to making distributions to Husker Ag members in excess of 35% of the Company’s net income determined on both a year-to-date and annual basis. Distributions may be made up to this 35% limitation without lender approval so long as Husker Ag complies with certain conditions including compliance with all financial loan covenants determined after giving effect to such distribution. In addition, Husker Ag must obtain prior approval from Union Bank for any capital improvements in excess of $2,800,000 for 2007; such capital improvement limit may be amended annually with the approval of Union Bank. This limit will need to be increased for the pending plant expansion project. The Commercial Loan Agreements also impose a number of other covenants, stating that Husker Ag must maintain: (i) a minimum tangible net worth of $20,500,000; (ii) working capital of not less than $2,500,000; and (iii) a debt coverage ratio of 1.2:1 measured at the end of each year (“debt coverage ratio” is defined as net income plus depreciation plus interest on term debt divided by principal plus interest on term debt).

While these loan terms and covenants remain in effect, the Company will be subject to additional terms and more restrictive loan covenants pursuant to its Credit Agreement with Union Bank signed on January 5, 2007, for purposes of financing the plant expansion project. Those terms and covenants are explained in detail below. As explained below, some of these terms and covenants are effective as of January 5, 2007, while others are not effective until the plant expansion is completed.

When the Company paid the cash distribution of $2,109,100 to its members on about April 6, 2007, Husker Ag was in noncompliance with one of its loan covenants with Union Bank. This distribution

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amounted to approximately 40% of Husker Ag’s year-to-date net income, which is in excess of the 35% distribution guideline in the Company’s loan covenants. On May 7, 2007, Union Bank notified the Company that while it would not waive the covenant, the bank would not take any action for this violation. Husker Ag was back in compliance with this loan covenant before the end of April 2007. See Note 10 to the Company’s Financial Statements included above for additional information regarding the Company’s violation of its loan covenant.

Plant Expansion Loan. On January 5, 2007, the Company signed a Credit Agreement with Union Bank, whereby Union Bank agreed, subject to the terms and conditions set forth in the Credit Agreement, to provide the Company up to $35,000,000 of debt financing to be used for the construction of the Company’s plant expansion project. See “General Developments” below for information regarding the plant expansion project. Husker Ag had not borrowed any money from Union Bank pursuant to this Credit Agreement as of March 31, 2007.

On January 5, 2007, the Company had the following loan commitments with Union Bank pursuant to the Credit Agreement and the resultant promissory notes:

1. Construction Loan—multiple advance loan during the construction period with maximum borrowings of $25,000,000. Advances for construction are available under the Construction Loan until Substantial Completion of the plant expansion project, as defined in the Credit Agreement, or February 15, 2008, whichever occurs first. The Credit Agreement requires the Company to pay interest on the outstanding principal indebtedness on a quarterly basis during the construction period and thereafter until converted into a term loan. Six months following Substantial Completion of the plant expansion project, the Construction Loan will convert into a term loan which would be repayable on a quarterly basis over a 7-year period, subject to the possible mandatory additional payments described below.

2. Revolving Loan—multiple advance revolving loan with maximum borrowings of $10,000,000. Advances are restricted to the construction of the plant expansion project, and are available under the Revolving Loan until the expiration of 39 months after the Construction Loan has been paid in full or matures, whichever occurs first, but no later than June 1, 2018. The Credit Agreement requires the Company to pay interest on the outstanding principal indebtedness on a quarterly basis during this loan advancement period. Three months after the final maturity or payment of the Construction Loan, whichever is earlier, but no later than September 1, 2015, the Revolving Loan will convert into a term loan which would be repayable on a quarterly basis over a 3-year period, subject to the possible mandatory additional payments described below.

Under the Credit Agreement, the Company must use its equity funds prior to incurring indebtedness under either of the loans. Union Bank has required the Company to inject a minimum of 40% equity into the plant expansion project (that is, the equity must equal at least 40% of the total of amount of equity and indebtedness). In addition, the Credit Agreement imposes a number of conditions which must be met by the Company on an on-going basis prior to Union Bank’s disbursement of loan funds under either loan. Union Bank has broad powers of discretion with respect to its disbursement of funds under either loan, depending upon the Company’s compliance with the Credit Agreement covenants and conditions.

Additional material terms of the debt financing from Union Bank are as follows:

Interest Rate. The Credit Agreement provides for the same interest rate for both loans. Until the first principal payment is due under the Construction Loan (six months after Substantial Completion), each of the loans will accrue interest at the one month London Interbank Offered Rate (LIBOR) plus 3.00% adjusted monthly.

Subject to performance pricing indicated below, when the first principal payment is due under the Construction Loan, each of the loans will accrue interest at the three month LIBOR plus 3.00% adjusted monthly.

The Credit Agreement states that performance pricing will be available after the principal payments begin on the Construction Loan based upon the Company’s member equity position. Depending on the

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percentage of the Company’s total members’ equity to total assets, Union Bank will reduce the interest rate on the Company’s loans by as much as 70 basis points or .70%. Adjustments will be completed on an annual basis based on the Company’s audited financial statements. Interest will be adjusted in accordance with the following rate index:

Minimum Members’ Equity Ratio*	3-Month LIBOR Plus the Following Adder
40%	3.00%
50%	2.55%
60%	2.30%

* — Members’ equity ratio is defined as total members’ equity divided by total assets.

When the first payment is due under the Construction Loan, the Credit Agreement provides that Husker Ag may select a fixed interest rate for one or both of the loans based on the Federal Home Loan Bank (FHLB) 3-year or 5-year fixed advance rate plus 3.00%.

Collateral. These new loans are secured by a first mortgage on the Company’s real estate and plant, as well as a first security interest on all accounts receivable, inventory, equipment, fixtures, and on all personal property and general intangibles.

Prepayment Penalty. The loans are subject to a prepayment penalty if refinanced with another lender (3.0% penalty if refinanced during the first three years of principal payments; 1.0% penalty thereafter). Otherwise, the Company may pay off either or both of these loans without penalty. However, if the Company selects the fixed rate option, the Credit Agreement requires a minimum 2.0% prepayment penalty for any prepayments.

Mandatory Additional Principal Payments—Free Cash Flow. In addition to the scheduled principal payments provided above, the Company would be required to make an annual payment applied to principal in an amount equal to 10% of available Free Cash Flow. These payments would be capped at $1.5 million per year with a maximum aggregate payment of $5 million over the life of the loans. This additional payment would be applied to scheduled principal installments in inverse order of maturity on these new loans If the amount of any such additional payment would result in a covenant default, the amount of payment will be reduced to an amount that would not cause covenant default.

“Free Cash Flow” is defined as the Company’s annual net income, minus an amount equal to 36% of the net income (as an estimated tax rate); plus the respective calendar year depreciation and amortization expense; minus allowed capital expenditures and principal payments to Union Bank and other authorized creditors.

Covenants/restrictions. The primary financial covenants and restrictions, all determined in accordance with generally accepted accounting principles, as applied on a consistent basis, would include the following:

• Beginning with the month in which Substantial Completion occurs, the Company must maintain working capital of not less than $6,000,000; this calculation will include any unadvanced portion of the Company’s existing revolving term commitment of $5,000,000.

• Beginning three months after Substantial Completion and quarterly thereafter, the Company must maintain a debt service coverage ratio of not less than 1.5:1 measured quarterly based on a rolling 4 quarter average (this ratio is defined as net income plus depreciation and amortization; minus extraordinary gain/loss divided by current principal of long term debt).

• Beginning on January 5, 2007, the Company must have a minimum tangible net worth (total assets minus intangible assets and minus total liabilities, as defined by GAAP) of not less than $34,800,000. The Company shall maintain minimum tangible net worth of no less than the amount that will not allow members’ equity to be below 49%.

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• All distributions to the Company’s members would be subject to prior approval by 66.67% of all financial institutions participating in these loans (determined by the dollar amount of the Company’s total indebtedness to Union Bank and its participants). Before granting any such approval, Union Bank would require the Company to be in compliance with each of the loan covenants before and after the distribution.

• Other than for the construction of the plant expansion project, the Company must obtain approval from Union Bank for any capital improvements in excess of $1,700,000.00, subject to annual revision.

• Cash distributions could be paid out up to three times per year in April (based on March year-to-date financial results), August or September (based on June year-to-date results) and December (based on November year-to-date results). The Company’s distributions will be limited to the distribution schedule below:

Minimum Members’ Equity Ratio	Maximum Distribution of Earnings
40%	50%
50%	60%
60%	70%

• When a distribution is approved above the estimated 36% tax rate (the assumed normal effective tax rate of the Company’s members as determined by Union Bank), an amount equal to 10% of the amount above the 36% rate would be applied to the outstanding principal balance of the new loans, to be applied to scheduled principal installments in inverse order of maturity on these new loans.

Management believes that its cash reserves and cash from operations are adequate to meet its operational expenses and short and long-term debt repayment obligations.

General Developments

Expansion of Plant

The Company’s current plant expansion project, which was approved by the Company’s members at the 2006 Annual Meeting of Members held on June 26, 2006, will add approximately 40 million gallons per year of ethanol production capacity to the Company’s existing operations. The total cost of the project is estimated to be approximately $63 million.

The Company anticipates that it will finance the plant expansion project partially from the net proceeds received from our rights offering (approximately $14.7 million) and partially from the debt financing from our primary lender (approximately $35 million). The remainder of the cost for the project will need to be financed out of our available cash resources from current earnings, if any. See “Rights Offering” below under this Item 1 for information regarding the Company’s rights offering. See “Liquidity and Capital Resources” above for information regarding the Company’s debt financing for this project.

On July 25, 2006, the Company executed an Agreement between Owner and Design/Builder on the Basis of a Stipulated Price (the “Design-Build Agreement”) with ICM, Inc., an ethanol plant design build contractor located in Colwich, Kansas (“ICM”). Under the Design-Build Agreement, ICM is responsible for the design, construction and start-up of a stand-alone dry mill fuel-grade ethanol plant that would add 40 million gallons per year of ethanol production capacity to the Company’s existing operations. This expansion is adjacent to the Company’s existing plant and will result in the Company’s total plant capacity exceeding 60 million gallons per year.

Under the terms of the Design-Build Agreement, the Company will pay ICM approximately $44,284,000 for the design and construction of this expansion, subject to adjustments made in accordance with the general conditions of the agreement. As part of the agreement, the Company also entered into a limited

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License Agreement with ICM to use the technology and information in the design and construction of the plant expansion. ICM began construction on the plant expansion project in October 2006, and the Company anticipates that the project will be completed before the end of 2007.

The Design-Build Agreement required the Company to pay ICM a down payment in the amount of 10% of the total contract price, which was paid in full by October 15, 2006. Thereafter, the Company makes payments to ICM on a progress billing basis, based upon periodic applications for payment for all work performed as of the date of the application. The Company will retain 5% of the amount submitted in each application for payment. Upon substantial completion of the entire project, as defined in the agreement, the Company will release all retained amounts, less an amount equal to $500,000 plus the reasonable cost to complete all remaining items. When the new plant meets the performance criteria set forth in the agreement, which includes the requirement that the new plant operate at a rate of 40 million gallons per year of ethanol based on a seven-day performance test, the Company will release the $500,000 retainage.

A copy of the Design-Build Agreement was attached as an exhibit to the Company’s Form 10-Q for the period ended June 30, 2006 which was filed with the SEC on August 14, 2006.

Rights Offering

On June 26, 2006, at the Husker Ag Annual Meeting of Members, the members approved a proposed plant expansion. To help finance the plant expansion, the Company proceeded with a rights offering where each member of the Company as of August 1, 2006, the record date, was offered a nontransferable subscription right to subscribe to one membership unit for each unit held at a subscription price of $1,000 per unit. As of the record date, there were 15,318 membership units outstanding, and the total rights offering was for a maximum of 15,318 units or $15,318,000.

On September 5, 2006, the Company filed a Registration Statement with the SEC registering up to 15,318 subscription rights and 15,318 membership units in the Company. This Registration Statement, which was amended on October 11, 2006, and October 23, 2006, was approved and declared effective by the SEC on October 25, 2006.

On or about October 27, 2006, the Company provided a prospectus to each of its members of record as of August 1, 2006. The prospectus was the formal written offer to existing members of the Company (as of the record date) of the right to subscribe to newly issued membership units on a pro rata basis, based on each member’s percentage ownership interest in the Company. A copy of the final prospectus was filed with the SEC on October 27, 2006, and is available on the SEC’s website at www.sec.gov. The Company’s Registration Statement, as amended, and related exhibits are also available on the SEC’s website.

In accordance with the terms of the Registration Statement, the Company retained the right to extend the rights offering beyond the initial expiration date of November 30, 2006, and the Board of Directors extended the right to exercise the subscription rights through December 18, 2006. These subscription rights were subject to acceptance by the Company’s Board of Directors after the Company obtained debt financing to help pay for the plant expansion project.

On January 5, 2007, the Company signed a Credit Agreement with Union Bank and Trust Company, Lincoln, Nebraska (Union Bank), whereby Union Bank agreed, subject to the terms of the Credit Agreement, to provide up to $35,000,000 of debt financing for the plant expansion project. See “Liquidity and Capital Resources” above for additional information regarding this new loan. Thereafter, on January 12, 2007, the Board of Directors accepted the subscription rights and issued the membership certificates upon receipt of the funds from the escrow agent.

In the rights offering, the Company sold a total of 14,812 membership units for total proceeds in the amount of $14,812,000, with 506 subscription rights remaining unsubscribed and 506 membership units remaining unsold.

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As of January 12, 2007, after the completion of the rights offering, the Company has 30,130 membership units issued and outstanding.

The Company will apply the net proceeds from the rights offering to the payment of the Company’s design build contractor for the design and construction of the plant expansion project.

Loss of Federal Small Producer’s Tax Credit. The Company’s members have received the benefits of the federal small producer’s tax credit which is a $.10 per gallon of ethanol tax credit available for ethanol produced at plants with 60 million gallons or less of annual capacity. For the past several years, many members have been eligible to deduct from their federal income tax $.10 per gallon on the first 15 million gallons produced annually. The amount of any such credit received by a member must be included in the gross income of the member for tax purposes. Upon completion of the plant expansion project, Husker Ag will no longer qualify as a small producer and the small producer tax credit will end for Husker Ag members in the year that the Company’s total production capacity surpasses the 60 million gallon limit. The small producer tax credit is otherwise scheduled to sunset December 31, 2010.

Exchange of Investment in Val-E Ethanol, LLC for Investment in US BioEnergy Corporation

In December 2005, the Company purchased a 24.1% interest in Val-E Ethanol, LLC, a Nebraska limited liability company (“Val-E Ethanol”), which was created to construct, own and operate a 45-million gallon per year ethanol plant located near Ord, Nebraska (which was completed in 2006). The Company purchased 1,200 units of Val-E Ethanol for $5,000 per unit for an aggregate total of $6,000,000. Husker Ag borrowed $4,500,000 for the purchase of this interest.

Platte Valley Fuel Ethanol, LLC, a Nebraska limited liability company, was then the majority owner of Val-E Ethanol. On February 16, 2006, US BioEnergy Corporation, a Brookings, South Dakota based corporation (“US BioEnergy”), announced that it was acquiring Platte Valley Fuel Ethanol, LLC. That transaction closed on April 30, 2006. Subsequent to that announcement, US BioEnergy offered to acquire the remaining membership interests in Val-E Ethanol for shares of common stock in US BioEnergy. The Company and each of the other minority owners of Val-E Ethanol agreed to this proposed exchange.

As a result, on May 2, 2006, the Company executed a Membership Interest Purchase Agreement with US BioEnergy, whereby the Company agreed to exchange its entire interest in Val-E Ethanol for 3,000,000 shares of common stock of US BioEnergy.

US BioEnergy is an entity that intends to continue to build, own and operate biofuel plants. More information about US BioEnergy is available on its website at www.USbioenergy.net.

On August 3, 2006, US BioEnergy filed a Form S-1 Registration Statement with the Securities and Exchange Commission (the “SEC”) announcing its intention to proceed with an initial public offering (“IPO”). In December 2006, the SEC declared US BioEnergy’s registration statement effective and US BioEnergy completed its IPO. US BioEnergy’s stock is currently listed on the NASDAQ Stock Market under the symbol “USBE”.

Following a 1 for 4 reverse stock split that occurred concurrently with the IPO, the number of Husker Ag’s shares in US BioEnergy was reduced from 3,000,000 to 750,000 shares.

However, Husker Ag’s shares in US BioEnergy are “restricted securities” under Rule 144 of the Securities Act of 1933, or Rule 144, which may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144. In addition to any restrictions on the sale of Husker Ag’s shares in US BioEnergy under federal securities laws, the Company entered into a lock-up agreement with US BioEnergy in September 2006. Under this agreement, except for certain specified exceptions, Husker Ag may not sell or otherwise transfer its shares in US BioEnergy for 180 days after the date that the final prospectus is filed with the SEC by US BioEnergy. As a result, Husker Ag will not be able to sell its shares in US BioEnergy until June 2007.

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The Company holds these 750,000 shares in common stock of US BioEnergy as trading securities. See Note 1 to the Company’s Financial Statements included above for additional information regarding the Company’s accounting for this investment.

Certain Relationships and Related Transactions

Conflicts of interest may arise in the future as a result of the relationships between and among its members, officers, directors and their affiliates, although its officers and directors have fiduciary duties to Husker Ag. Husker Ag does not have a committee of independent directors or members or an otherwise disinterested body to consider transactions or arrangements that result from conflicts of interest, although as noted below, material affiliated transactions are governed by the Company’s Affiliated Transactions Policy. The Company’s Operating Agreement permits Husker Ag to enter into agreements with directors, officers, members and their affiliates, provided that any such transactions are on terms no more favorable to the directors, officers, members (or their affiliates) than generally afforded to non-affiliated parties in a similar transaction.

The Company has adopted an Affiliated Transactions Policy, which provides as follows concerning transactions with affiliated persons or entities:

All material affiliated transactions and loans will be made or entered into on terms that are no less favorable to the Company than those that can be obtained from unaffiliated third parties, and that all material affiliated transactions and loans, or any forgiveness of loans must:

(a) be approved by a majority of the Company’s independent directors who do not have an interest in the transaction(s); or

(b) be approved by the affirmative vote of members holding a majority of the outstanding membership interests, excluding the membership interests of members having an interest in the transaction(s); or

(c) be established to have been fair to the Company when the transaction is judged according to the circumstances at the time of the commitment.

Notwithstanding anything in the Affiliated Transactions Policy to the contrary, all sales of corn and other feedstock by directors, officers, members or other affiliated parties to the Company, and all purchases of ethanol, distillers’ grains and other co-products by directors, officers, members or other affiliated parties from the Company, shall not require any of the approvals described above, provided, the purchase or sale price is equal to the then current market price and the transaction is on terms no less favorable than those that can be obtained from unaffiliated third parties.

In the normal course of business the Company sells to and purchases from its board of directors, members and key employees under normal terms and conditions and in accordance with the Company’s Affiliated Transactions Policy. See Note 3 of the financial statements for additional information on related party transactions.

Customers

Management does not consider the Company’s business to be dependent on a single customer or a few customers, and the loss of any of our customers would not have a material adverse effect on our results. However, as of March 31, 2007, the Company had receivables from Eco-Energy, Inc. (“Eco-Energy”) amounting to 37.4% of the total trade receivables. Eco-Energy is a re-seller of ethanol and therefore its customers are indirectly a part of the Company’s customer base. While the Company acknowledges the potential credit risk from this large customer, the Company currently has sufficient demand for its products and management would expect to find other customers should Eco-Energy’s purchases from the Company decrease for any reason. See the section entitled “Marketing and Distribution Methods—Ethanol” below for information regarding the Company’s agreement with Eco-Energy.

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Marketing and Distribution Methods

Ethanol

Commencing June 1, 2005, the Company entered into the Risk Management and Ethanol Marketing Contract (the “2005 Marketing Agreement”) with FC Stone, LLC, an Iowa limited liability company (“FC Stone”), and Eco-Energy, Inc., a Tennessee corporation (“Eco-Energy”) pursuant to which FC Stone provides the Company with a full service price risk management program, and Eco-Energy purchases the Company’s entire output of ethanol in good faith at fair market rates for the term of the agreement. The current term of the 2005 Marketing Agreement expires on September 30, 2007, and will be replaced by the 2007 Marketing Agreement (defined below).

On May 14, 2007, Husker Ag approved a new Risk Management and Ethanol Marketing Contract (the “2007 Marketing Agreement”) with FC Stone and Eco-Energy, which will replace the 2005 Marketing Agreement on October 1, 2007. The 2007 Marketing Agreement will be automatically renewed unless the Company provides notice of termination prior to June 1, 2009.

The Company has had an on-going relationship with Eco-Energy and FC Stone since 2002. Under both the 2005 and 2007 Marketing Agreement, Eco-Energy markets ethanol for an agreed-upon fee, which includes the cost of the rail shipment and collects the sales amount from the ultimate customers, remitting the net sales price to the Company within three business days after the sale. The 2007 Marketing Agreement is substantially the same as the 2005 Marketing Agreement, except that it will allow Husker Ag to sell up to 5,000 gallons per month to local customers.

On October 5, 2006, the Company entered into a new Risk Management and Ethanol Marketing Contract (the “New Plant Agreement”) with FC Stone and Eco-Energy pursuant to which Eco-Energy purchases the Company’s entire output of ethanol for the 40 million gallon plant expansion in good faith at fair market rates for the term of the agreement subject to the Company’s sale of up to 5,000 gallons per month to local customers and sale of ethanol at any Company-owned E-85 station. This New Plant Agreement applies only to the Company’s proposed 40 million gallon plant expansion and does not apply to the Company’s existing plant. The New Plant Agreement does not amend or supersede the 2005 Marketing Agreement and was not affected by the 2007 Marketing Agreement for the existing plant.

As a re-seller of ethanol, Eco-Energy’s customers are indirectly a part of the Company’s customer base. Eco-Energy markets and sells most of its ethanol throughout the United States, primarily by rail. The target market area for the ethanol produced at the Company’s ethanol plant includes local, regional and national markets. The local and regional markets include the State of Nebraska, as well as markets in South Dakota, Kansas, Missouri, Colorado, Minnesota, Illinois, Iowa, California, New Mexico and Oregon.

Distillers Grain

The dry milling process that produces ethanol also produces distillers grain, which are primarily used as a high protein animal feed. The price of distillers grain generally varies with grain prices, so that increases in grain costs are partially offset by increases in distillers grain prices. Husker Ag is currently producing almost entirely distillers modified wet grain which is marketed and sold primarily to feedlots, cattle feeders and dairies within a 120-mile radius of the ethanol plant.

On January 25, 2004, the Husker Ag Board of Directors adopted a Policy on Marketing which, among other things, provides that commencing April 1, 2004, no employee of Husker Ag, no member of the Board of Directors, and no person performing marketing functions for the Company, shall haul or have any ownership interest in trucks or entities which haul the Company’s products. During 2004, Husker Ag hired a full-time employee to undertake primary responsibility for the sale and marketing of distillers grain.

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Government Regulation and Environmental Matters

The operations of Husker Ag are subject to various federal, state and local laws and regulations with respect to environmental matters, including air and water quality and underground fuel storage tanks. Husker Ag believes it is currently in substantial compliance with environmental laws and regulations. Protection of the environment requires Husker Ag to incur expenditures for equipment, processes and permitting. If Husker Ag were found to have violated federal, state or local environmental regulations, the Company could incur liability for cleanup costs, damage claims from third parties and civil or criminal penalties that could materially adversely affect its business.

The Company filed an application with the Nebraska Department of Environmental Quality (the “NDEQ”) for its National Pollutant Discharge Elimination System (NPEDS) waste water permit on August 2, 2002, and received its waste water permit from the NDEQ and such permit was effective February 26, 2003. As of December 31, 2006, the NDEQ had not yet issued Husker Ag its Air Quality Operating Permit. Therefore, the Company has been subject to its Construction Permit which was issued in January 2002. Before being modified in 2005, this permit limited production at the plant to 25,000,000 gallons of denatured alcohol.

Because Husker Ag elected to purchase a thermal oxidizer rather than use a boiler, the NDEQ determined that the Husker Ag Air Quality Operating Permit needed modification to include the impact of the thermal oxidizer on the plant’s dispersion modeling. The Company completed stack testing as required under the NDEQ regulations and submitted the results of such testing on October 24, 2003. The submission also included a request to increase the ethanol production permitted under the permit to approximately 27,000,000 gallons of denatured alcohol per year. The Air Quality Operating Permit was submitted to the NDEQ on March 3, 2004. The NDEQ required the Company to comply with certain conditions including the paving of the plant roadways. This paving was completed in April 2005.

For the twelve months ended December 31, 2004, Husker Ag produced more than 25,000,000 gallons of denatured alcohol, which exceeded its Construction Permit limit. The Company informed the NDEQ of this matter. The Company does not expect any penalty for exceeding its limit in 2004. During 2005, prior to receiving its modified permit, Husker Ag operated its plant at a rate of 25,000,000 gallons, or less, of denatured alcohol per year. On February 25, 2005, the Company submitted a modification to the construction permit application requesting a limit of approximately 32,000,000 gallons per year and the Company received approval for the modified construction air permit from the NDEQ on June 13, 2005. This modified permit allowed the Company to increase its production.

During October and November 2005, Husker Ag conducted compliance testing as required by the NDEQ to determine whether it was operating in compliance with its modified air permit issued June 13, 2005. The Company submitted the final results of such testing in December 2005. The preliminary results from this test were favorable and indicated that the plant is in compliance with the limits of its modified construction air permit issued June 13, 2005. During the fourth quarter of 2006, the NDEQ notified the Company that it will be operating on the modified construction air permit until the plant expansion has been completed. Husker Ag anticipates that it will have a resolution to its operating permit application upon completion of the plant expansion and successful compliance testing which is currently anticipated by the end of 2007. In the meantime, Husker Ag believes that it is in compliance with its modified air permit.

Plant expansion update. On November 9, 2006, the Director of the NDEQ issued an Order of Variance providing a variance from a state law requiring the Company to obtain a new construction air permit before beginning construction on the plant expansion. In its Order, the Director found that the start of concrete work would be unnecessarily delayed by cold winter weather if the Company was required to wait for a new permit. The Order of Variance provides that Husker Ag may commence its plant expansion without a construction air permit, provided that the Company may not operate the new plant until the NDEQ issues a new construction air quality permit for the expansion. This Order does not replace or otherwise affect the Company’s current modified construction air permit which covers the existing plant. Unless terminated earlier by its terms, the Order of Variance shall terminate and expire on November 9, 2007.

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During 2006, Husker Ag filed a formal application with the NDEQ for permission to modify its existing plant in accordance with the plant expansion project, such application requesting a limit of 76,000,000 of annual ethanol production. In accordance with the Nebraska Air Quality Regulations, notice of our application was given to the public on February 12 2007, with the 30 day public notice period having ended on March 13, 2007. On April 9, 2007, the NDEQ issued a new construction air permit to Husker Ag.

Employees

As of May 15, 2007, Husker Ag had a total of 31 employees managing and operating the ethanol plant facility. Husker Ag is not subject to any collective bargaining agreements and has not experienced any work stoppages. Husker Ag management considers its relationship with its employees to be good.

Books and Records

Husker Ag currently relies on its internal staff for the maintenance of its books and records. Husker Ag has employed an internal accountant, who is primarily responsible for the maintenance of its accounting books and records. Such person is assisted by full time office administrative personnel, all of whom are responsible for compliance with the rules and regulations promulgated under the Securities and Exchange Act of 1934 concerning the maintenance of accurate books and records.

Off-Balance Sheet Arrangements

At March 31, 2007, the Company did not have any arrangements which meet the definition of an off-balance sheet arrangement as provided in the SEC regulations. However, other off-balance sheet arrangements are disclosed in Note 3 of the Company’s financial statements.

Critical Accounting Policies

The Securities and Exchange Commission (“SEC” or the “Commission”) recently issued disclosure guidance for “critical accounting policies”. The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Accounts Receivable

Accounts receivable are stated at the amount billed to customers. If necessary, the Company will provide an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions.

Inventories

Inventories are stated at the lower of cost or market. Cost of raw materials, work-in-progress and finished goods are determined using last cost and average cost under the first-in, first-out (FIFO) method.

Revenue Recognition

Revenue from the sale of the Company’s products is recognized when title passes based on delivery or shipping terms. The Company records revenue from federal and state incentive programs related to the production of ethanol when the Company has produced the ethanol and completed all the requirements of the applicable incentive program.

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Derivative Instruments

The Company enters into option and futures contracts, which are designated as hedges of specific volumes of corn expected to be used in the manufacturing process. The Company uses derivative financial instruments to manage the exposure to price risk related to corn purchases. The Company does not typically enter into derivative instruments for any reason other than cash flow hedging purposes. The option and futures contracts are recorded on the Company’s balance sheet at fair value. On the date that the contract is entered into, the Company designates the option or contract as a hedge of variable cash flows of certain forecasted purchases of corn used in the manufacturing process (a “cash flow hedge”). The Company formally documents relationships between the option and futures contracts, which serve as the hedging instruments, and the hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. When it is determined that an option or futures contract is not highly effective as a hedge or has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. Changes in the fair value of option and futures contracts that are highly effective and are designated and qualify as cash flow hedges are recorded in other comprehensive loss. Gains and losses that are realized will be recognized in the statement of income when the related corn purchased is recognized in cost of sales.

Currently, option and futures contracts on corn purchased by the Company do not meet the requirements for cash flow hedging treatment. As a result, changes in the market value of option and futures contracts are recorded on the income statement in gain/loss on option and futures contracts.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the potential loss arising from adverse changes in market rates and prices. Certain market risks are inherent in the ethanol business with respect to commodity prices, from both an input (corn, natural gas, etc.) and output (ethanol and distillers grain) perspective. The Company is also exposed to market risk from changes in interest rates.

Commodity Price Risk

Husker Ag uses derivative financial instruments as part of an overall strategy to manage market risk. It uses forward, option and futures contracts to hedge changes to the commodity prices of ethanol, corn, natural gas and unleaded gas. The Company does not typically enter into derivative instruments for any reason other than cash flow hedging purposes; it does not enter into these derivative financial instruments for trading or speculative purposes. (For additional information, see “Gain/Loss on Option and Futures Contracts” above under “Results of Operations for the three months ended March 31, 2007 and 2006”).

Husker Ag produces ethanol and its co-product, distillers grain, from corn, and as such is sensitive to changes in the price of corn. The price and availability of corn are subject to significant fluctuations depending upon a number of factors which affect commodity prices in general, including crop conditions, weather, governmental programs and foreign purchases. Because the market price of ethanol is not related to grain prices, ethanol producers are generally not able to compensate for increases in the cost of corn through adjustments in prices charged for their ethanol.

Husker Ag also uses natural gas and unleaded gas in the production process, and as such is sensitive to changes in the price of both natural gas and unleaded gas. The price of natural gas and unleaded gas is influenced by a variety of factors including political events, OPEC actions, weather factors as well as general market supply and demand.

The Company attempts to reduce the market risk associated with fluctuations in the price of corn and natural gas by employing a variety of risk management strategies. Strategies include the use of derivative financial instruments such as futures and options initiated on the Chicago Board of Trade and/or the New York Mercantile Exchange, as well as incorporating the use of forward cash contracts or basis contracts.

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As of March 31, 2007, the Company owned option or futures contracts for the purpose of hedging corn and unleaded gas—not natural gas. However, the Company has owned such contracts in the past for the purposes of hedging its natural gas purchases. Moreover, in January 2007, Husker Ag purchased a contract to hedge its gas-plus contract that was purchased in December 2006.

Although Husker Ag believes that its hedge positions accomplish an economic hedge against future purchases, they do not qualify for hedge accounting, which would match the gain or loss on the Company’s hedge positions to the specific commodity purchase or sale being hedged. Husker Ag is using fair value accounting for its hedge positions, which means as the current market price of the Company’s hedge positions changes, the gains and losses are immediately recognized on the Company’s income statement as gain or loss on option and futures contracts. Based on long and short positions on corn held by the Company at March 31, 2007, a 10% increase or decrease in the cash price of corn would impact the fair value of the Company’s derivative instruments by approximately $1,750,000.

The Company’s immediate recognition of hedging gains and losses can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged. As of March 31, 2007, the fair value of the Company’s derivative instruments for corn is a net asset in the amount of $1,439,643. There are several variables that could affect the extent to which the Company’s derivative instruments are impacted by price fluctuations in the cost of corn, natural gas or unleaded gas. However, commodity cash prices will likely have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.

To manage corn price risk, the Company’s hedging strategy is generally designed to establish a price ceiling and floor for its corn purchases. The upper limit of loss on the Company’s futures contracts is the difference between the contract price and the cash market price of corn at the time of the execution of the contract. The upper limit of loss on the Company’s exchange traded and over-the-counter option contracts is limited to the amount of the premium that the Company paid for the options.

Before the plant expansion begins operations, the Company estimates that its expected corn usage is approximately ten million bushels per year for the production of approximately 28 million gallons of ethanol. As of March 31, 2007, Husker Ag had cash, futures, and option contract price protection in place for approximately 88.3% of the Company’s expected corn usage through December 2007; and as of March 31, 2007, Husker Ag also had approximately 27% of its expected corn usage protected by cash purchase contracts through October 2009. As corn prices move in reaction to market trends, Husker Ag’s income statement may be affected depending on the impact such market movements have on the value of the Company’s derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects but they are undertaken with the purpose of producing long-term positive results for the Company.

To help manage the Company’s natural gas price risk, Company is participating in the management procurement fund with Cornerstone Energy. This fund is a diversified portfolio fund program for the purpose of assisting Husker Ag in managing price volatility. It is intended to enable Husker Ag to purchase natural gas with a commodity price based upon a combination of fixed and variable pricing options. In March 2007, the Company renewed its agreement with Cornerstone Energy through March 2008.

The Company is also exposed to market risk from changes in ethanol prices. To manage this risk, the Company has entered into ethanol sale agreements with its customers to provide ethanol in the future at a fixed price. As of March 31, 2007, the Company had forward contracts in place for the sale of approximately 12,435,000 gallons of ethanol to be delivered through December 2007. Husker Ag may continue to sell ethanol into 2008 to attempt to further reduce the Company’s risk for price decreases. See “Risk Factors” above for additional information regarding this price risk.

In addition, in the past, the Company has purchased option and futures contracts on unleaded gas to hedge its outstanding gas-plus contracts for the sale of ethanol. The purpose of these contracts is to

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partially offset any losses recognized on such unleaded gas contracts with a corresponding increase in the value of the Company’s then outstanding gas-plus forward contracts for the sale of ethanol. As noted above, the Company had only one gas-plus contract with related option and futures contracts on unleaded gas outstanding at March 31, 2007.

Interest Rate Risk

The Company’s interest rate risk exposure pertains primarily to its long-term debt and its line of credit. As of March 31, 2007, Husker Ag has approximately $9.9 million outstanding in long-term debt with Union Bank and Trust Company. The interest rate on the Company’ primary note with Union Bank, approximately $6.9 million of this total debt, is fixed at 6.2% through February 2010, at which time the interest rate will be adjusted to the then 2-year Treasury Constant Maturity Rate plus 3.00%. The Val-E Loan, which accounts for the majority of the remaining debt in the approximate amount of $2.9 million as of March 31, 2007, has a fixed interest rate of 6.85% through January 2011. The Company’s revolving line of credit, which has not been used as of March 31, 2007, is with Union Bank, and carries a variable rate of interest equal to the Wall Street Journal Prime Rate plus 0.75% adjusted monthly.

On January 5, 2007, Husker Ag entered into a Credit Agreement with Union Bank for a maximum loan balance of $35 million to help finance the plant expansion. Subject to performance pricing described above, this debt will accrue interest at the three month LIBOR plus 3.00% adjusted monthly. When payments are scheduled to begin on this debt, Husker Ag may select a fixed interest rate for all or a portion of this debt on the Federal Home Loan Bank 3-year or 5-year advanced rate plus 3.00%. The Company will make this decision based upon market conditions at the time.

Husker Ag manages its interest rate risk by monitoring the effects of market changes on interest rates and using fixed rate debt. In February 2005, the Company refinanced its variable rate debt with the aforementioned loan with a fixed rate for five years. See “Liquidity and Capital Resources” above under Item 2 of this Part I for additional information regarding the Company’s debt.

ITEM 4: CONTROLS AND PROCEDURES

a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. In connection with the preparation of this Form 10-Q, management considered the weaknesses discussed below and the remedial actions taken by the Company to address such weaknesses. After consideration of the aforementioned factors, the Company’s Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as currently in effect are not effective at the reasonable assurance level in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) accumulated and communicated to Company management (including the Principal Executive Officer and Principal Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

The Principal Executive Officer and Principal Financial Officer have identified material weaknesses in the Company’s controls over the financial reporting processes including the accurate reporting and disclosure of amounts and other disclosure items in our financial statements. In addition, these officers have concluded that the Company has a material weakness in both its lack of segregation of duties for its accounting functions and in its failure to establish adequate monitoring controls to ensure that information generated for financial reporting purposes is complete and accurate.

These material weaknesses in the Company’s disclosure controls and procedures were first identified and reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, which was filed on May 15, 2005. These weaknesses were identified by our Principal Financial Officer and our

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then Principal Executive Officer in conjunction with the evaluation of the Company’s disclosures and procedures that was performed as of March 31, 2005. The officers identified these material weaknesses in conjunction with their discussions with the Company’s audit committee and its then independent accountants. Due to the limited size and technical accounting experience of our accounting staff, the Company has had weaknesses in its disclosure controls and procedures since it commenced operations in 2003. However, the Principal Executive Officer and Principal Financial Officer did not identify these weaknesses as material until the evaluation of the Company’s disclosure controls and procedures that was performed as of March 31, 2005.

As of March 31, 2007, the Principal Executive Officer and Principal Financial Officer have identified the following specific material weaknesses in the Company’s controls over its financial reporting processes:

1. The Company had insufficient qualified personnel resources and technical accounting expertise within the accounting function to accurately report, disclose and/or resolve certain accounting matters as of March 31, 2007. As a direct result of this weakness, it was necessary for the Company’s independent accountants to propose certain changes to our financial statements related to reclassifications related to capitalized interest and misstatements of prior period amounts in the Notes. Specifically, in the Company’s internally prepared financial statements, (i) the amount of capitalized interest was overstated; and (i) the disclosure of prior period amounts in Note 3 related to Commitments and Related Parties were incorrect.

2. Due to the limited number of personnel involved in the processing of accounting data (Husker Ag currently has three employees devoted full time to the accounting function), and specifically in the number of personnel involved in the preparation and review of financial information for inclusion within the financial statements, the Company did not maintain the proper segregation of duties and oversight over financial reporting.

In light of the foregoing, management is in the process of developing additional procedures to help address these issues. As of March 31, 2007, the Company had taken the following remedial actions:

1. The Company has engaged Milo Belle Consultants, LLC as an independent accounting consulting firm to assess the Company’s internal controls as well as its financial reporting function. Milo Belle was hired to assist the Company with its internal controls and procedures including the Company’s efforts to segregate duties with a limited accounting staff. At the completion of its assessment, Milo Belle is expected to work with the Company’s management in the design of necessary remediation of the noted weaknesses. This engagement is expected to be completed, along with the proposed recommendations and remediation, during the second quarter of 2007.

2. To address the weakness in our financial reporting function, the Company continues to pursue several options for an external review of the drafted financial statements by qualified personnel before being submitted to the Company’s independent accountants.

3. The Company has appropriate accounting personnel pursuing continuing education and training to improve their skill and abilities and to become more qualified in the financial reporting function

Management believes that the foregoing actions have improved and will continue to improve the Company’s disclosure controls and procedures. Husker Ag’s management, with the oversight of the audit committee, will continue to identify and take steps to remedy any material weaknesses and enhance the overall design and capability of the Company’s control environment.

(b) Changes in Internal Controls: During the Company’s first fiscal quarter ended March 31, 2007, we have taken the actions set forth above that are intended to help remediate the material weaknesses

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identified above. Specifically, we engaged a professional accounting consulting firm; pursued a professional external review of our financial statements before submission to our independent accountants; and pursued continuing education for our accounting staff. Other than the changes identified above, there have not been any significant changes in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management can not assure that the changes implemented in the Company’s internal control over financial reporting during the first quarter of 2007 have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The Company has not been informed of any material pending legal proceedings.

ITEM 1A: RISK FACTORS

Husker Ag’s business is not diversified and this could reduce the value of the membership units.

Husker Ag’s success depends largely upon its ability to profitably operate its ethanol business, while the success of the plant expansion depends largely upon the Company’s ability to timely complete and profitably operate its expanded ethanol business. Husker Ag does not have any other lines of business or other sources of revenue if it is unable to manufacture ethanol and distillers grain. If economic or political factors adversely affect the market for ethanol, the value of its membership units could decline because the Company has no other line of business to fall back on if the ethanol business declines. Husker Ag’s business would also be significantly harmed if its ethanol plant, with or without the expansion, could not operate at full capacity for any extended period of time.

Husker Ag faces intense competition from competing ethanol and other fuel additive producers.

Competition in the ethanol industry is intense. Husker Ag faces formidable competition in every aspect of its business from established producers of ethanol, including Archer Daniels Midland Company and Cargill, Inc., and from other companies that are seeking to develop large-scale ethanol plants and alliances. For 2006, the top ten producers accounted for approximately 44% of the ethanol production capacity in the U.S. according to the Renewable Fuels Association (the “RFA”), a national trade association for the ethanol industry. A number of Husker Ag’s competitors are divisions of substantially larger enterprises and have substantially greater financial resources than the Company.

Husker Ag expects competition to increase as the ethanol industry becomes more widely known and demand for ethanol increases. Most new ethanol plants in development across the country are independently owned. In addition, various investors could heavily invest in ethanol production facilities and oversupply ethanol, resulting in higher raw material costs and lower ethanol price levels that could materially adversely affect Husker Ag’s business, results of operations and financial condition.

Any increase in domestic or foreign competition could cause Husker Ag to reduce its prices and take other steps to compete effectively, which could materially adversely affect Husker Ag’s business, results of operations and financial condition.

The rapid growth of production capacity in the ethanol industry creates some market uncertainty for the ethanol industry.

Domestic ethanol production capacity has increased steadily from 1.7 billion gallons per year in January of 1999 to 5.5 billion gallons per year in January 2007. In addition, there is a significant amount of

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capacity being added to the ethanol industry. According to the RFA, approximately 6.0 billion gallons per year of production capacity was under construction at the end of 2006. This capacity is being added to address anticipated increases in demand. However, demand for ethanol may not increase as quickly as expected or to a level that exceeds supply, or at all. Husker Ag cannot determine what effect this increase in production will have upon the demand or price of ethanol. At a minimum, this increased capacity creates some uncertainty for the ethanol industry. If the ethanol industry has excess capacity and such excess capacity results in a fall in prices, it will have a material adverse effect on Husker Ag’s business, results of operations and financial condition.

Excess capacity may result from the increases in capacity coupled with insufficient demand. Demand could be impaired due to a number of factors, including regulatory developments and reduced U.S. gasoline consumption. Reduced gasoline consumption could occur as a result of increased gasoline or oil prices. For example, price increases could cause businesses and consumers to reduce driving or acquire vehicles with more favorable gasoline mileage. Demand for ethanol can also fall if gasoline prices decrease because ethanol is used as a potential substitute for gasoline.

The increased production of ethanol could have other adverse effects as well. For example, the increased production will also lead to increased supplies of co-products from the production of ethanol, such as distillers grain. Those increased supplies could lead to lower prices for those co-products. Also, the increased production of ethanol has resulted in increased demand for corn which has in turn led to increases in the price of corn, resulting in higher costs of production and lower profits.

Husker Ag’s business is highly dependent on commodity prices. These prices are subject to significant volatility and uncertainty, so Husker Ag’s results could fluctuate significantly.

Husker Ag’s results of operations, financial position and business outlook will continue to be substantially dependent on commodity prices, especially prices for corn, natural gas, ethanol and unleaded gasoline. Prices for these commodities are generally subject to significant volatility and uncertainty. As a result, the Company’s future results may fluctuate substantially, and it may experience periods of declining prices for its products and increasing costs for its raw materials, which could result in lower profits. Husker Ag may continue to attempt to offset a portion of the effects of such fluctuations by entering into forward contracts to supply ethanol or to purchase corn, natural gas or other items or by engaging in transactions involving hedging contracts, but these activities involve substantial costs and substantial risks and may be ineffective to mitigate these fluctuations.

The spread between ethanol and corn prices can vary significantly.

Husker Ag’s gross margins will depend principally on the spread between ethanol and corn prices. In recent periods, the spread between ethanol and corn prices has been at a historically high level, driven in large part by high oil prices and historically low corn prices. However, more recently the price of corn has increased significantly, reducing such gross margins. The spread between the price of a gallon of ethanol and the price of the amount of corn required to produce a gallon of ethanol may not remain at, or return to, recent high levels and fluctuations will continue to occur. Any reductions in the spread between ethanol and corn prices, whether as a result of an increase in corn prices or a reduction in ethanol prices, could have a material adverse effect on Husker Ag’s business, results of operations and financial condition.

Husker Ag’s business is dependent upon the availability and price of corn. Significant disruptions in the supply of corn will have a material adverse effect on Husker Ag’s business, results of operations and financial condition. In addition, since the Company generally cannot pass on increases in corn prices to its customers, continued periods of historically high corn prices will also materially adversely affect Husker Ag’s business, results of operations and financial condition.

Corn is the principal raw material used by the Company to produce ethanol and distillers grain. Because ethanol competes with fuels that are not corn-based, Husker Ag generally is unable to pass along increased corn costs to its customers, and accordingly, rising corn prices tend to produce lower profit

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margins. At certain levels, corn prices would make ethanol uneconomical to use in fuel markets. The price of corn is influenced by weather conditions (including droughts) and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors, including government policies and subsidies with respect to agriculture and international trade, and global and local supply and demand. The price of corn has fluctuated significantly in the past and may fluctuate significantly in the future.

In addition, increasing domestic ethanol capacity could boost demand for corn and result in increased corn prices. In 2006, corn bought by ethanol plants represented nearly 17% of the total domestic corn supply for that year according to results reported by the National Corn Growers Association, and this percentage is expected to increase as additional ethanol capacity comes online. The significant increase in domestic ethanol capacity under construction could outpace increases in corn production, which may increase corn prices and significantly impact the Company’s profitability.

At a more local level, the price Husker Ag pays for corn could also increase as a result of the pending expansion at the current plant location or if other ethanol production facilities were built in the same general vicinity. Husker Ag may also have difficulty from time to time in purchasing corn on economical terms due to supply shortages. Any supply shortage could require Husker Ag to suspend operations until corn became available at economical terms. Suspension of operations could have a material adverse effect on Husker Ag’s business, results of operations and financial condition.

The Company also attempts to reduce the risks related to corn price volatility through the futures and option markets. However, these hedging transactions also involve risk to the Company’s business.

The market for natural gas is subject to market conditions that create uncertainty in the price and availability of the natural gas that Husker Ag utilizes in the ethanol manufacturing process.

Husker Ag relies upon third-parties for its supply of natural gas, which is consumed in the manufacture of ethanol. The prices for and availability of natural gas are subject to volatile market conditions. These market conditions often are affected by factors beyond Husker Ag’s control such as weather conditions (including hurricanes), overall economic conditions and foreign and domestic governmental regulation and relations. Significant disruptions in the supply of natural gas could impair Husker Ag’s ability to manufacture ethanol for its customers. Further, increases in natural gas prices could have a material adverse effect on Husker Ag’s business, results of operations and financial condition.

Due to capacity constraints in the natural gas pipeline from Grand Island, Nebraska to the Company’s plant site, Husker Ag does not currently have sufficient firm transportation for the natural gas required for its expansion. While the Company anticipates that in the short-term it will be able to acquire sufficient natural gas for its operating needs through the released market, neither Kinder Morgan nor our natural gas provider Cornerstone Energy can guarantee that our natural gas supply will be uninterrupted.

In an effort to secure firm transportation for our anticipated future natural gas needs, in February 2007, Husker Ag entered into a Precedent Agreement with Kinder Morgan Interstate Gas Transmission LLC (“Kinder Morgan”) whereby Husker Ag agreed, subject to the terms of the Precedent Agreement, to enter into a 10-year Firm Transportation Service Agreement providing for firm interstate natural gas transportation service to be provided by Kinder Morgan for Husker Ag. Husker Ag agreed to contract for 3,500 MMBtus per day which is the anticipated need for the expansion. The Precedent Agreement also allows Husker Ag to pay for its share of Kinder Morgan’s capacity expansion project and related facilities over a ten-year period at the “negotiated reservation rate” of $0.6250 per MMBtu per month.

Kinder Morgan’s obligation under the Precedent Agreement is subject to several conditions including sufficient firm capacity subscription from other consumers, all appropriate and final government approvals, and all rights-of-way and other surface required to site and maintain the pipeline facilities. Given these conditions, Husker Ag does not expect this new pipeline to be in place until late 2008. If Kinder Morgan abandons this project, Husker Ag would be forced to rely on the released natural gas market and may be required to pursue alternative solutions to its long terms natural gas needs.

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Fluctuations in the selling price and production cost of gasoline may reduce Husker Ag’s profit margins.

Ethanol is marketed both as a fuel additive to reduce vehicle emissions from gasoline and as an octane enhancer to improve the octane rating of gasoline with which it is blended. As a result, ethanol prices are influenced by the supply and demand for gasoline and Husker Ag’s business, future results of operations and financial condition may be materially adversely affected if gasoline demand or price decreases.

The price of distillers grain is affected by the price of other commodity products, such as soybeans, and decreases in the price of these commodities could decrease the price of distillers grain.

Distillers grain compete with other protein-based animal feed products. The price of distillers grain may decrease when the price of competing feed products decrease. The prices of competing animal feed products are based in part on the prices of the commodities from which they are derived. Downward pressure on commodity prices, such as corn and soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers grain. Because the price of distillers grain is not tied directly to production costs, decreases in the price of distillers grain will result in Husker Ag generating less revenue and lower profit margins.

The use and demand for ethanol and its supply are highly dependent on various federal and state legislation and regulation, 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 Husker Ag’s business, results of operations and financial condition.

Various federal and state laws, regulations and programs have led to increased use of ethanol in fuel. For example, certain laws, regulations and programs provide economic incentives to ethanol producers and users. These laws, regulations and programs are constantly changing. Federal and state legislators and environmental regulators could adopt or modify laws, regulations or programs that could adversely affect the use of ethanol. These laws, regulations or programs will continue in the future.

Federal regulations concerning tax incentives or other federal incentive programs could expire or change which could have a material adverse effect on Husker Ag’s business, results of operations and financial condition.

The cost of producing ethanol has historically been significantly higher than the market price of gasoline. The production of ethanol is made significantly more competitive with regular gasoline by federal tax incentives. Before January 1, 2005, the federal excise tax incentive program allowed gasoline distributors who blended ethanol with gasoline to receive a federal excise tax rate reduction for each blended gallon they sold. If the fuel was blended with 10% ethanol, the refiner/marketer paid $0.052 per gallon less tax, which equated to an incentive of $0.52 per gallon of ethanol. The $0.52 per gallon incentive for ethanol was reduced to $0.51 per gallon in 2005 and is scheduled to expire (unless extended) in 2010. The federal ethanol tax incentives may not be renewed in 2010 or they may be renewed on different terms.

Husker Ag may also receive benefits from other federal incentive programs. For example, historically, Husker Ag has received incentive payments to produce ethanol from the United States Department of Agriculture, or USDA, under its Commodity Credit Corporation Bioenergy Program. Under this program, Husker Ag received payments of approximately $4.6 million and $2.2 million in 2003 and 2004, respectively. However, Husker Ag did not receive any substantial payments under this program during 2005 or 2006. The USDA program expired on June 30, 2006, and existing or future incentive programs may also expire or be eliminated. The elimination or significant reduction in the federal ethanol tax incentive or other programs benefiting ethanol could have a material adverse effect on Husker Ag’s business, results of operations and financial condition.

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Nebraska state producer incentives may be unavailable or could be modified which could have a material adverse effect on Husker Ag’s business, results of operations and financial condition.

In 2001 the State of Nebraska enacted LB 536, a legislative bill which established a production tax credit of 18¢ per gallon of ethanol produced during a 96 consecutive month period by newly constructed ethanol facilities in production prior to June 30, 2004. The tax credit is only available to offset Nebraska motor fuels excise taxes. The tax credit is transferable and therefore Husker Ag transfers credits received to a Nebraska gasoline retailer who then reimburses Husker Ag for the face value of the credit amount less a handling fee. No producer can receive tax credits for more than 15,625,000 gallons of ethanol produced in one year and no producer will receive tax credits for more than 125 million gallons of ethanol produced over the consecutive 96 month period. The minimum production level for a plant to qualify for credits is 100,000 gallons of ethanol annually. Husker Ag has entered into a written agreement with the Tax Commissioner on behalf of the State of Nebraska pursuant to which Husker Ag agreed to produce ethanol at its designated facility and the State of Nebraska agreed to furnish the producer tax credits in accordance with the terms of the law.

The production incentive is scheduled to expire June 30, 2012. Assuming Husker Ag continues to produce at least 15,625,000 gallons of ethanol annually, this producer tax credit could result in payments of up to $2,812,500 to the Company annually, subject to the statutory maximum limit. Any changes to existing state law, regulations or programs could have an adverse effect on Husker Ag’s revenue.

In recent years, because of State of Nebraska budget shortfalls, various tax credit provisions in effect in Nebraska, including LB 536, came under increased scrutiny from the Nebraska Unicameral. As a result there can be no assurance that the Nebraska legislature will not in enact new legislation in the future which would revise LB 536, or otherwise adversely impact ethanol plants, such as Husker Ag’s plant, which are to benefit from LB 536.

Husker Ag believes there are a number of existing projects in Nebraska that are also eligible for LB 536 payments which will require the legislature to increase funding for the producer incentive program through either an increase in general fund appropriation or other sources such as the grain check-off program. Despite the Company’s written agreement with the State of Nebraska, the Nebraska legislature could reduce or eliminate the producer tax credits at any time; however, a reduction or elimination in payments to Husker Ag contrary to the terms of its written agreement would constitute a breach of the contract by the State of Nebraska. The State of Nebraska could also impose taxes on the ethanol plants to provide additional funds for the ethanol production incentive fund. If the State of Nebraska established such a tax, Husker Ag could be for example, required to pay taxes on the distillers grain it produces, which could have a material adverse impact on Husker Ag’s business, results of operations and financial condition.

On February 6, 2004, the Nebraska Attorney General issued an opinion concerning certain proposed legislation which was then before the Nebraska legislature, in which the Attorney General concluded that the “statute authorizing execution of these agreements specifically binds the State to provide such [ethanol tax] credits under the law in effect at the time of execution of the agreements.” In the opinion of Husker Ag, the Attorney General opinion provides support for Husker Ag’s position that it is important that the State of Nebraska continue to meet its obligations in accordance with the terms of the Company’s written agreement.

During April 2006, Governor Heineman signed LB 968 which calls for additional general fund transfers to the Ethanol Production Incentive Cash (EPIC) Fund in the amount of $5 million for both fiscal years 2005-2006 and 2006-2007. This is in addition to the transfers approved in 2005 totaling $20.5 million through fiscal year 2011-2012. The EPIC Fund is used to offset the cost of providing incentives to ethanol producers. While this is a positive step toward the funding of the Nebraska state producer incentives, estimates of the state’s total liability for ethanol production credits range from $100 million to $200 million.

The Company cannot predict whether the State of Nebraska will continue to be able to meet its obligations under LB 536. The elimination or significant reduction in this state incentive program could have a material adverse effect on Husker Ag’s business, results of operations and financial condition.

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Update for 2007 Legislative Session: The 2007 Nebraska Unicameral legislative session is expected to end on or about May 31, 2007. The legislature is currently considering funding mechanisms to help ensure that LB 536 remains funded. However, none of the applicable legislative bills have come to a final vote by the legislature as of May 14, 2007. The legislature is expected to continue to debate, and possibly vote on, one or more ethanol related bills during the second quarter of 2007.

The effect of the Renewable Fuels Standard, or RFS, in the recent Energy Policy Act of 2005 on the ethanol industry is uncertain.

The use of fuel oxygenates, including ethanol, was mandated through regulation, and much of the forecasted growth in demand for ethanol was expected to result from additional mandated use of oxygenates. Most of this growth was projected to occur in the next few years as the remaining markets switch from MTBE to ethanol. The recently enacted energy bill, however, eliminated the mandated use of oxygenates and instead established minimum nationwide levels of renewable fuels (ethanol, biodiesel or any other liquid fuel produced from biomass or biogas) to be included in gasoline or diesel. Because biodiesel and other renewable fuels in addition to ethanol are counted toward the minimum usage requirements of the RFS, the elimination of the oxygenate requirement for reformulated gasoline may result in a decline in ethanol consumption, which in turn could have a material adverse effect on Husker Ag’s business, results of operations and financial condition.

Technological advances could significantly decrease the cost of producing ethanol or result in the production of higher-quality ethanol, and if Husker Ag is unable to adopt or incorporate technological advances into its operations, both Husker Ag’s current and proposed ethanol plant could become uncompetitive or obsolete.

Husker Ag expects that technological advances in the processes and procedures for processing ethanol will continue to occur. It is possible that those advances could make the processes and procedures that Husker Ag utilizes at its ethanol plant (and intend to use in the new expansion) less efficient or obsolete, or cause the ethanol it produces to be of a lesser quality. These advances could also allow the Company’s competitors to produce ethanol at a lower cost than Husker Ag. If the Company is unable to adopt or incorporate technological advances, its ethanol production methods and processes could be less efficient than those of its competitors, which could cause both Husker Ag’s existing and expanded ethanol plant to become uncompetitive.

Ethanol production methods are also constantly advancing. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass such as agricultural waste, forest residue, and municipal solid waste. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Continued increases in the price of corn, or sustained high corn prices, could decrease the relative attractiveness of corn-based ethanol where alternatives exist, thereby adversely affecting Husker Ag’s business, operating results or financial condition. Another trend in ethanol production research is to produce ethanol through a chemical process rather than a fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. Although current technology does not allow these production methods to be competitive, new technologies may develop that would allow these methods to become viable means of ethanol production in the future. If the Company is unable to adopt or incorporate these advances into its operations, Husker Ag’s cost of producing ethanol could be significantly higher than those of its competitors, which could make Husker Ag’s ethanol plant obsolete.

Husker Ag is subject to extensive environmental regulation and operational safety regulations that could result in higher than expected compliance costs and liabilities.

The operations of Husker Ag are subject to various federal, state and local laws and regulations with respect to environmental matters, including air and water quality and underground fuel storage tanks. Ethanol production involves the emission of various airborne pollutants, including particulate matters, carbon monoxide, oxides of nitrogen, volatile organic compounds and sulfur dioxide.

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To construct the plant expansion and operate the expanded business after its completion, Husker Ag needs appropriate permits from the Nebraska Department of Environmental Quality (the “NDEQ”). (See section above entitled “Government Regulation and Environmental Matters” for information regarding Husker Ag’s permit process with the NDEQ.)

Even if Husker Ag receives all required permits from the State of Nebraska, it may be subject to regulations on emissions from the United States Environmental Protection Agency (the “EPA”). Further, EPA and Nebraska’s environmental regulations are subject to change and often such changes are not favorable to industry. Consequently, even if Husker Ag has the proper permits now, it may be required to invest or spend considerable resources to comply with future environmental regulations.

The Company’s failure to comply or the need to respond to threatened actions involving environmental laws and regulations may adversely affect its business, operating results or financial condition. As an operational company, Husker Ag has developed procedures for the proper handling, storage, and transportation of finished products and materials used in the production process and for the disposal of waste products. In addition, state or local requirements may also restrict the Company’s production and distribution operations. Husker Ag could incur significant costs to comply with applicable laws and regulations as production and distribution activity increases. Protection of the environment will require Husker Ag to incur expenditures for equipment or processes.

Members may be required to pay taxes on their share of Husker Ag’s income even if it makes no distributions to members.

Husker Ag expects to continue to be treated as a partnership for federal income tax purposes unless there is a change of law or trading in the membership units is sufficient to classify Husker Ag as a “publicly traded partnership.” This means that Husker Ag will pay no income tax and all profits and losses will “pass-through” to its members who will pay tax on their share of Husker Ag’s profits. Husker Ag’s members may receive allocations of taxable income that exceed any cash distributions made, if any. This may occur because of various factors, including but not limited to, accounting methodology, lending covenants that restrict Husker Ag’s ability to pay cash distributions, or its decision to retain or use the cash generated by the business to fund its operating activities and obligations. Accordingly, members may be required to pay income tax on the allocated share of Husker Ag’s taxable income with personal funds, even if the members receive little or no cash distributions from the Company.

Husker Ag’s plant expansion project could suffer delays or defects in plant construction that could postpone our ability to generate revenues on the expanded plant.

Construction projects often involve delays. If it takes longer to obtain necessary permits or construct the plant than we anticipate, it would delay our ability to generate revenues from the expansion. Moreover, there is no assurance that defects in materials and/or workmanship of the project will not occur. Under the terms of our Design-Build Agreement with ICM, we have warranties that are limited in scope. Husker Ag will be relying on our design build contractor to satisfy its warranties, and these warranties may not provide adequate resources if there are defects in materials and/or workmanship. Notwithstanding any warranties, such defects could delay the commencement of operations, or if discovered after operations have commenced, could cause us to halt or discontinue operations of the plant expansion.

To ensure compliance with requirements imposed by the Internal Revenue Service, the Company informs you that any U.S. federal tax advice contained in this Form 10-Q is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any matters addressed herein.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

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ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5: OTHER INFORMATION

None.

ITEM 6: EXHIBITS

Exhibit Index

Exhibit No.	Description	Method of Filing
3.1	Articles of Organization, as amended	Incorporated by reference to the Company’s Form 10-QSB for the period ended June 30, 2002 filed on August 14, 2002
3.2	Second Amended and Restated Operating Agreement of the Company, dated as of August 31, 2005, and including Amendment Nos. 1 through 11	Incorporated by reference to the Company’s Form 10-Q for the period ended September 30, 2005 filed on November 14, 2005
31(i).1	Certification of Principal Executive Officer required by Rule 13a-14(a) and 15d-14(a)	Filed herewith
31(i).2	Certification of Principal Financial Officer required by Rule 13a-14(a) and 15d-14(a)	Filed herewith
32.1	Section 1350 Certifications	Filed herewith

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SIGNATURES

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

Date: May 14, 2007.	By:	/s/ Mike Kinney
		Mike Kinney, Chairman of the Board, President and Director
		(Principal Executive Officer)

Date: May 14, 2007.	By:	/s/ Robert E. Brummels
		Robert E. Brummels, Treasurer and Director
		(Principal Financial Officer)

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