ck0001325740-10q_20190331.htm

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☑ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

	March 31,			September 30,
	2019			2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,019		$	12,727
Accounts receivable:
Trade accounts receivable		4,858			4,198
Other receivables		262			192
Inventories		5,730			4,922
Prepaid expenses		1,049			732
Total current assets		15,918			22,771
Property and equipment, net		34,591			32,211
Other assets		452			452
Total assets	$	50,961		$	55,434
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable	$	4,675		$	4,635
Accrued expenses		1,688			2,615
Current portion of long-term debt (stated principal amount of $2,500 and $1,000 at March 31, 2019 and September 30, 2018, respectively)		2,381			905
Total current liabilities		8,744			8,155
Other liabilities		981			23
Long-term debt (stated principal amount of $18,547 and $19,000 at March 31, 2019 and September 30, 2018, respectively)		18,419			18,833
Total liabilities		28,144			27,011
Members' equity:
Members' capital, no par value, 25,410,851 units issued and outstanding		44,826			44,826
Accumulated deficit		(22,009	)		(16,403	)
Total members' equity		22,817			28,423
Total liabilities and members' equity	$	50,961		$	55,434

	Three Months Ended						Six Months Ended
	March 31,			March 31,			March 31,			March 31,
	2019			2018			2019			2018
Net sales
Ethanol and related products	$	33,119		$	33,769		$	65,071		$	64,267
Total net sales		33,119			33,769			65,071			64,267
Cost of goods sold		34,580			33,836			68,806			64,745
Gross loss		(1,461	)		(67	)		(3,735	)		(478	)
Selling, general and administrative expenses		802			751			1,566			1,441
Operating loss		(2,263	)		(818	)		(5,301	)		(1,919	)
Other income		17			128			147			131
Interest income		1			1			2			2
Interest expense		(253	)		(195	)		(454	)		(396	)
Net loss	$	(2,498	)	$	(884	)	$	(5,606	)	$	(2,182	)
Weighted average units outstanding - basic and diluted		25,411			25,411			25,411			25,411
Loss per unit - basic and diluted	$	(0.10	)	$	(0.03	)	$	(0.22	)	$	(0.09	)

	Six Months Ended
	Member		Members'		Accumulated
	Units		Capital		Deficit			Total
MEMBERS' EQUITY - September 30, 2018		25,410,851	$	44,826	$	(16,403	)	$	28,423
Net loss		-		-		(5,606	)		(5,606	)
MEMBERS' EQUITY - March 31, 2019		25,410,851	$	44,826	$	(22,009	)	$	22,817

	Three Months Ended
	Member		Members'		Accumulated
	Units		Capital		Deficit			Total
MEMBERS' EQUITY - December 31, 2018		25,410,851	$	44,826	$	(19,511	)	$	25,315
Net loss		-		-		(2,498	)		(2,498	)
MEMBERS' EQUITY - March 31, 2019		25,410,851	$	44,826	$	(22,009	)	$	22,817

	Six Months Ended
	Member		Members'		Accumulated
	Units		Capital		Deficit			Total
MEMBERS' EQUITY - September 30, 2017		25,410,851	$	44,826	$	(13,346	)	$	31,480
Net loss		-		-		(2,182	)		(2,182	)
MEMBERS' EQUITY - March 31, 2018		25,410,851	$	44,826	$	(15,528	)	$	29,298

	Three Months Ended
	Member		Members'		Accumulated
	Units		Capital		Deficit			Total
MEMBERS' EQUITY - December 31, 2017		25,410,851	$	44,826	$	(14,644	)	$	30,182
Net loss		-		-		(884	)		(884	)
MEMBERS' EQUITY - March 31, 2018		25,410,851	$	44,826	$	(15,528	)	$	29,298

	Six Months Ended
	March 31,			March 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(5,606	)	$	(2,182	)
Adjustments to reconcile net loss to operating activities cash flows:
Depreciation		1,934			1,931
Amortization of deferred financing costs		54			49
Amortization of deferred rent		(4	)		(4	)
Change in working capital components:
Trade accounts receivable		(660	)		1,041
Other receivables		(70	)		577
Inventories		(808	)		(415	)
Prepaid expenses		(317	)		(324	)
Accounts payable		171			243
Accrued expenses		35			278
Net cash provided by (used in) operating activities		(5,271	)		1,194
Cash flows from investing activities:
Purchase of property and equipment		(4,445	)		(896	)
Change in other assets		-			304
Net cash used in investing activities		(4,445	)		(592	)
Cash flows from financing activities:
Payments on debt		(1,000	)		(2,425	)
Proceeds from debt		2,047			-
Payment of deferred financing costs		(39	)		(39	)
Net cash provided by (used in) financing activities		1,008			(2,464	)
Net decrease in cash, cash equivalents and restricted cash		(8,708	)		(1,862	)
Beginning cash, cash equivalents and restricted cash		12,727			19,804
Ending cash, cash equivalents and restricted cash	$	4,019		$	17,942
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest of $131 thousand and $0 thousand in the six months ended March 31, 2019 and March 31, 2018, respectively	$	384		$	365
Supplemental disclosure of non-cash financing and investing activities:
Accounts payable and accrued expenses related to fixed assets	$	562		$	158

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

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018. The financial information as of March 31, 2019 and the results of operations for the three and six months ended March 31, 2019 are not necessarily indicative of the results for the fiscal year ending September 30, 2019. In the opinion of management, the interim financial statements reflect all normal recurring adjustments necessary for fair presentation.

The Company currently owns two ethanol production facilities in Aberdeen and Huron, South Dakota with a combined nameplate production capacity of 80 million gallons per year.

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash balances are maintained in bank depositories and periodically exceed federally insured limits. The Company has not experienced losses in these accounts.

The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of these same amounts shown in the consolidated statement of cash flows (in thousands):

Financial instruments include cash, cash equivalents and restricted cash, accounts receivable, accounts payable, accrued expenses, and long-term debt. The fair value of the long-term debt is estimated on level 3 inputs based on current anticipated interest rate that management believes would currently be available to the Company for similar debt, taking into account the current credit risk of the Company and other market factors. Based on these factors, the fair value of the long-term debt is currently estimated at carrying value. Excluding cash and cash equivalents, the fair value of the other financial instruments are estimated to approximate carrying value due to the short-term nature of these instruments, and are considered to be Level 3 inputs.

Credit sales are made to a relatively small numbers of customers with no collateral required. Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual receivables and considering a customer’s financial condition, credit history and current economic conditions. Receivables are written off if deemed uncollectible. Recoveries of receivables previously written off are recorded when received. There was no allowance for doubtful accounts recorded at March 31, 2019 or September 30, 2018.

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

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

Interest capitalized in property and equipment was $131,000 and $0 for the six months ended March 31, 2019 and 2018, respectively.

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

The Company enters into forward sales contracts for ethanol, distillers and corn oil, and purchase contracts for corn and natural gas. The Company classifies these sales and purchase contracts as normal sales and purchase contracts and accordingly these contracts are not marked to market. These contracts provide for the sale or purchase of an item other than a financial instrument or derivative instrument that will be delivered in quantities expected to be sold or used over a reasonable period in the normal course of business.

In addition, certain derivative financial instruments that meet the criteria for derivative accounting treatment also qualify for a scope exception to derivative accounting, as they are considered normal purchases and sales. The availability of this exception is based on the assumption that the Company has the ability and it is probable that it will deliver or take delivery of the underlying item. Derivatives that are considered to be normal purchases and sales are exempt from derivative accounting treatment, and are accounted for under accrual accounting.

Effective October 1, 2018, the Company adopted the new guidance of Accounting Standard Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (Topic 606) using the modified retrospective approach. Topic 606 requires the Company to recognize revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which ABE expects to be entitled in exchange for those goods or services. The new guidance requires the Company to apply the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation. The Company generally recognizes revenue at a point in time. The majority of the Company’s contracts with customers have one performance obligation and a contract duration of one year or less. The adoption of this new guidance did not result in any change to our recognition of revenue.

The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are recognized when control of the promised goods is are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods.

We disclose disaggregation of revenue according to product line, along with accounts receivable from contracts with customers, in Note 5.

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

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

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

In February 2016, the ASC was amended and a new accounting standard, ASC Topic 842, “Leases,” was issued to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. To meet that objective, the new standard requires recognition of the assets and liabilities that arise from leases. Accordingly, a lessee will recognize a right-of-use (“ROU”) asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The lease liability will initially be measured at the present value of the future minimum lease payments over the lease term. The ROU asset will initially be measured as the sum of the initial lease liability, initial costs directly attributable to negotiating and arranging the lease, and any payments made by the lessee to the lessor at or before the lease commencement date less any lease incentives received. Lessees can make an accounting policy election by class of underlying asset not to recognize a ROU asset and corresponding lease liability for leases with a term of 12 months or less. Accounting by lessors will remain largely unchanged from current U.S. GAAP. There are practical expedients which relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The transition guidance also provides specific guidance for sale and leaseback transactions, build-to-suit leases, leveraged leases, and amounts previously recognized in accordance with the business combinations guidance for leases. The new standard is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We have not completed the evaluation of the effect this standard will have on our financial statements, but we believe that adopting this standard may have a material effect on our assets and liabilities due to the recognition of right-of-use assets and liabilities on our consolidated balance sheet. The Company is continuing its assessment, which may identify additional effects that adoption of this standard may have on its consolidated financial statements and related disclosures.

	March 31,			September 30,
	2019			2018
Land	$	1,838		$	1,811
Buildings		7,786			8,168
Process equipment		109,569			110,348
Other equipment		668			636
Office equipment		495			1,239
Construction in process		7,635			3,561
		127,991			125,763
Accumulated depreciation		(93,400	)		(93,552	)
Property and equipment, net	$	34,591		$	32,211

	March 31,
	2019	March 31,			September 30,
	Interest Rate	2019			2018
ABE South Dakota:
Senior debt principal - fixed	6.32%	$	9,000		$	-
Senior debt principal - variable	6.02%		12,047			20,000
Deferred financing costs	N/A		(247	)		(262	)
Total outstanding		$	20,800		$	19,738

	Senior Debt		Deferred
Due By March 31:	Principal		Financing Costs			Total
2020	$	2,500	$	(119	)	$	2,381
2021		18,000		(95	)		17,905
2022		547		(10	)		537
2023		-		(9	)		(9	)
2024		-		(9	)		(9	)
Thereafter		-		(5	)		(5	)
Total debt	$	21,047	$	(247	)	$	20,800

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

The $20.0 million Term Loan had a fixed interest rate (“Fixed Rate”) at March 31, 2019. On October 26, 2018, the Company elected to lock in a fixed rate of 6.4%, rather than a variable rate, on the remaining balance of the Term Loan. On January 2, 2019, the Company entered into an Interest Rate Conversation Agreement with AgCountry, under which the Fixed Rate of 6.4% was reduced to 6.32% for the remainder of the loan term. The Company may elect one or more fixed or adjustable interest rates, rather than a variable rate, based on AgCountry’s cost of funds at the time of the election, plus a margin of 350 basis points. Any election must apply to $1.0 million, plus accrued interest, on the Term Loan. On April 1, 2016, the Company began making quarterly principal payments of $1.0 million, plus accrued interest, on the Term Loan. The Term Loan was originally scheduled to be fully amortized over five years with the final payment on January 1, 2021. As described below, the payments originally due in January, April, and July 2019 have been deferred and are now due at the end of the term, or January 1, 2021. At March 31, 2019, the balance of the Term Loan was $9.0 million.

The $10.0 Revolving Term Facility has a variable interest Rate (“Variable Rate”) equal to the one-month LIBOR rate plus an initial Margin of 350 basis points. At March 31, 2019, the Variable Rate was equal to the one-month LIBOR rate of 2.52% plus a Margin of 350 basis points. Borrowings under the Revolving Term Facility may be advanced, repaid and re-borrowed during the term. The Company is required to make quarterly interest payments on the Revolving Term Facility, with the full principal amount outstanding due on January 1, 2021. Under the Revolving Term Facility, the Company is required to pay unused commitment fees of 50 basis points. At March 31, 2019, the balance of the Revolving Term Facility was $10.0 million.

The Margin will (i) decrease to 3.25% when the aggregate principal balance of all outstanding loans and the unfunded commitment level is $20.0 million or less, and (ii) decrease to 3.00% when this amount is $15.0 million or less. At March 31, 2019, the principal balance of all outstanding loans was $20.8 million, and the unfunded commitment level was $3.0 million.

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

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

On March 13, 2018, ABE South Dakota entered into the Fourth Supplement to the 2015 Credit Agreement (“2018 Term Loan”) with AgCountry to finance a grain storage and receiving facility at the Aberdeen plant. The agreement provides for a $5.0 million multiple advance credit facility. The loan has a variable interest rate equal to the one-month LIBOR rate plus a “Margin” of 350 basis points. During the construction period, the Company is required to make quarterly interest payments in arrears on the first day of each quarter. Upon completion of construction, the Company will be required to make quarterly principal payments in the amount of $250,000 per quarter, plus accrued interest. The 2018 Term Loan will be fully amortized over five years, with the final payment due on July 1, 2024. At March 31, 2019, $2.0 million had been drawn on the 2018 Term Loan, and $47,000 in loan fees and closing costs had been incurred and have been classified as deferred financing costs. These deferred financing costs will be amortized as interest expense over the term of the 2018 Term Loan.

As a result of a depressed margin environment in fiscal 2018, ABE South Dakota requested waivers for certain specific Events of Default at September 30, 2018, and requested covenant amendments for specific future covenants for which ABE South Dakota projected possible non-compliance. Although ABE South Dakota’s lender, AgCountry Farm Credit Services, PCA, granted the waivers and covenant amendments via the Third and Fourth Amendments to the 2015 Credit Agreement, as discussed below, we cannot project with certainty that we will meet all covenant obligations, as amended, if depressed margins continue for an extended period of time. If ABE South Dakota is unable to comply with the amended covenants, we cannot ensure that our lender will grant us future waivers, which could result in a material adverse effect upon our business, results of operations and financial condition.

On October 19, 2018, ABE South Dakota entered into a Limited Waiver and Third Amendment to the 2015 Credit Agreement (“Third Amendment”) to waive certain Events of Default related to covenant compliance as of September 30, 2018 and temporarily amend certain future covenants. The Third Amendment included the following covenant waiver and amendments: (i) the Fixed Charge Coverage Ratio was waived as of September 30, 2018, reduced to a ratio of 1.00:1.00 as of September 30, 2019, and reverts back to 1.15:1.00 at September 30, 2020, (ii) the Working Capital Covenant was reduced to $10 million at September 30, 2018 and December 31, 2018, $9 million at March 31, 2019 and June 30, 2019, then increased to $10 million at September 30, 2019 and $12 million at September 30, 2020 and all times thereafter, (iii) the Capital Expenditures covenant was increased to $8.0 million for the year ending September 30, 2019, and reverts back to $2.0 million for all subsequent years, and (iv) the outstanding Debt to EBITDA Ratio was waived at September 30, 2018 and will revert back to the requirement that it be less than 4:00:1:00 on the last day of each fiscal year end beginning September 30, 2019.

On December 28, 2018, ABE South Dakota entered into a Limited Waiver and Deferral Agreement and Fourth Amendment to the 2015 Credit Agreement (“Fourth Amendment”) to defer three future principal payments and waive and temporarily amend certain future covenants. The Fourth Amendment included the following covenant waivers and amendments:

Due to the Third and Fourth Amendments described above, ABE South Dakota evaluated projected covenant compliance for the 12 month period following March 31, 2019. Based on this evaluation, ABE South Dakota determined compliance over the next 12 month period is reasonably possible and, as a result, has recognized debt as both current (when payment is due within 12 months of year-end) and long-term on its financial statements.

In connection with the execution of a rail car sublease, the Company, as parent of ABE South Dakota agreed to post a $2.5 million irrevocable and non-transferable standby letter of credit in May 2012 for the benefit of its ethanol marketer as security for the payment obligations of ABE South Dakota. The Company deposited $2.5 million in a restricted account as collateral for this letter of credit and classified it as restricted cash. Effective May 15, 2014, the letter of credit and corresponding deposit of collateral was decreased by $1.0 million in conjunction with an amendment to the rail car sublease. Effective June 27, 2016, the letter of credit and corresponding deposit of collateral was decreased by $0.5 million in conjunction with an amendment to the rail car sublease. Effective July 31, 2018, the letter of credit was terminated and the corresponding collateral requirement was eliminated.

ABE South Dakota has ethanol marketing agreements with NGL Crude Logistics LLC (“NGL”), a diversified energy business. These ethanol marketing agreements require that we sell to NGL all of the denatured fuel-grade ethanol produced at the South Dakota plants. The term of these ethanol marketing agreements were set to expire on June 30, 2019. On April 1, 2019, the agreements were amended to change the term to month to month, with three months written notice by either party required to terminate the agreement.

ABE South Dakota is party to a co-product marketing agreement with Dakotaland Feeds, LLC (“Dakotaland Feeds”), under which Dakotaland Feeds markets the local sale of wet distillers grains produced at the ABE South Dakota Huron plant and modified distillers produced at the Aberdeen plant to third parties for an agreed-upon commission. ABE South Dakota has a marketing agreement with Gavilon to market the dried distillers grains produced at the Aberdeen and Huron plants through July 31, 2019. ABE South Dakota self-markets its wet and a small portion of modified distillers grains produced at the Aberdeen plant.

ABE South Dakota is party to an agreement with Gavilon to market all the corn oil produced by the Huron and Aberdeen plants through November 30, 2019 and September 30, 2019, respectively.

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

	As of and for the Three and Six Months Ending		As of and for the Three and Six Months Ending		As Of
	March 31,		March 31,		September 30,
	2019		2018		2018
NGL - Ethanol
Three months revenues	$	24,627	$	25,972
Six months revenues		48,329		49,463
Receivable balance at period end		3,826		2,005	$	3,274
Gavilon - Corn Oil & Distillers Grains
Three months revenues	$	4,321	$	3,633
Six months revenues		8,984		7,444
Receivable balance at period end		385		360	$	385
Dakotaland Feeds - Distillers Grains
Three months revenues	$	3,826	$	3,772
Six months revenues		7,225		6,410
Receivable balance at period end		557		591	$	499

The Company is exposed to a variety of market risks, including the effects of changes in commodity prices and interest rates. These financial exposures are monitored and managed by the Company as an integral part of its overall risk management program. The Company’s risk management program seeks to reduce the potentially adverse effects that the volatility of these markets may have on its current and future operating results. To reduce these effects, the Company generally attempts to fix corn purchase prices and related sale prices of ethanol, distillers grains and corn oil, with forward purchase and sale contracts to lock in future operating margins. The Company had entered into the following fixed price forward contracts at March 31, 2019:

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

The following financial information represents the unconsolidated financial statements of Advanced BioEnergy, LLC (“ABE”) as of March 31, 2019 and September 30, 2018, and for the six months ended March 31, 2019 and 2018. ABE’s ability to receive distributions from ABE South Dakota is based on the terms and conditions in ABE South Dakota 2015 Credit Agreement. Under the 2015 Credit Agreement, ABE South Dakota is allowed to make equity distributions of up to 40% of its net income and may distribute up to 100% of its net income if it achieves and maintains an owner’s equity ratio of at least 60% and working capital of at least $15 million. There were no distributions from ABE South Dakota during the last three fiscal years.

	March 31,			September 30,
	2019			2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	699		$	1,220
Prepaids		54			-
Total current assets		753			1,220
Property and equipment, net		21			25
Other assets:
Investment in ABE South Dakota		22,180			27,303
Other assets		32			32
Total assets	$	22,986		$	28,580
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Accrued expenses	$	150		$	134
Other liabilities		19			23
Total liabilities		169			157
Members' equity:
Members' capital, no par value, 25,410,851 units issued and outstanding		44,826			44,826
Accumulated deficit		(22,009	)		(16,403	)
Total members' equity		22,817			28,423
Total liabilities and members' equity	$	22,986		$	28,580

	Three Months Ended						Six Months Ended
	March 31,			March 31,			March 31,			March 31,
	2019			2018			2019			2018

Equity in losses of consolidated subsidiary	$	(2,255	)	$	(731	)	$	(5,123	)	$	(1,892	)
Selling, general and administrative expenses		(244	)		(184	)		(485	)		(323	)
Operating loss		(2,499	)		(915	)		(5,608	)		(2,215	)
Other income		-			30			-			30
Interest income		1			1			2			3
Net loss	$	(2,498	)	$	(884	)	$	(5,606	)	$	(2,182	)

	Six Months Ended
	March 31,			March 31,
	2019			2018

Cash flows from operating activities:
Net loss	$	(5,606	)	$	(2,182	)
Adjustments to reconcile net loss to operating activities cash flows:
Depreciation		4			17
Equity in losses of consolidated subsidiaries		5,123			1,892
Amortization of deferred revenue and rent		(4	)		(3	)
Change in working capital components:
Prepaid expenses		(54	)		(51	)
Accrued expenses		16			(9	)
Net cash used in operating activities		(521	)		(336	)
Cash flows from investing activities:
Net cash used in investing activities		-			-
Cash flows from financing activities:
Distribution to unit holders		-			-
Net cash used in financing activities		-			-
Net decrease in cash, cash equivalents and restricted cash		(521	)		(336	)
Beginning cash, cash equivalents and restricted cash		1,220			1,725
Ending cash, cash equivalents and restricted cash	$	699		$	1,389

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

This Quarterly Report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations, performance and prospects. All statements that are not historical or current facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Certain of these risks and uncertainties are described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended September 30, 2018 and in this Form 10-Q. These risks and uncertainties include, but are not limited to, the following:

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

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

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

To execute our business plan, in November 2006 we acquired ABE South Dakota, LLC (f/k/a Heartland Grain Fuels, LP), which owned existing ethanol production facilities in Aberdeen and Huron, South Dakota. We commenced construction of our expansion facility in Aberdeen, South Dakota in April 2007, and commenced operations in January 2008. Our production operations are carried out primarily through our operating subsidiary ABE South Dakota, which owns and operates ethanol facilities in Aberdeen and Huron, South Dakota.

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

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

Corn mash left over from distillation is pumped into a centrifuge for dewatering. The liquid from the centrifuge, known as thin stillage, is then pumped from the centrifuges to an evaporator, where it is concentrated into a syrup. The solids that exit the centrifuge, known as the wet cake, are conveyed to the dryer system. Syrup is added to the wet cake as it enters the dryer, where moisture is removed. The process produces distillers grains with solubles, which is used as a high-protein/fat animal-feed supplement. Dry-mill

ethanol processing creates three forms of distillers grains: wet distillers grains with solubles, known as wet distillers grains; modified wet distillers grains with solubles, known as modified distillers grains; and dry distillers grains with solubles, known as dry distillers grains. Wet and modified distillers grains have been dried to approximately 65% and 50% moisture levels, respectively, and are predominately sold to nearby markets. Dried distillers grains have been dried to 11% moisture, have an almost indefinite shelf life and may be sold and shipped to more distant markets.

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

The table below provides a summary of our ethanol plants in operation as of March 31, 2019:

Estimated

Annual

Estimated

Annual

Distillers

Annual

Ethanol

Grains

Corn Oil

Corn

Primary

Location

Opened

Production (1)

Production(2)

Processed

Energy Source

(Million gallons)

(000's Tons)

(000's lbs)

(Million bushels)

Aberdeen, SD (3)

January 2008

134

11,561

15.7

Natural Gas

Huron, SD

September 1999

5,717

11.4

Natural Gas

Consolidated

231

17,278

27.1

In October 2015, we amended the existing lease agreement for our corporate headquarters. Under the amended lease, we agreed to lease approximately 4,400 square feet for our corporate and administrative staff in Bloomington, Minnesota, through September 2021. The base rent is $19.00 per square foot, or approximately $7,000 per month for the twelve month period beginning July 1, 2018, with annual increases of $.50 per square foot. We believe this space will be sufficient for our needs until the end of the lease period.

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

Under the ABE South Dakota, LLC security agreement with AgCountry (defined below), AgCountry holds a first priority security interest and mortgage in all inventory, accounts receivable, intangibles, equipment, fixtures, buildings, and a first mortgage in land owned or leased by ABE South Dakota.

Over the next year, we will continue our focus on operational improvements at our South Dakota operating facilities, including completion of the grain storage and receiving facility we are constructing at our Aberdeen plant. These operational improvements include exploring methods to improve ethanol yield per bushel and increasing production output at each of our plants, continuing emphasis on safety and environmental regulation, reducing our operating costs, and optimizing our margin opportunities through prudent risk-management policies.

Results of Operations for the Quarter Ended March 31, 2019 Compared to Quarter Ended March 31, 2018

The following table reflects quantities of our products sold at average net prices as well as bushels of corn ground and therms of natural gas burned at average costs for three months ended March 31, 2019 and 2018:

	Three Months				Three Months
	March 31, 2019				March 31, 2018
	Quantity		Average Price		Quantity		Average Price
Product Sales Information	(In thousands)				(In thousands)
Ethanol (gallons)		21,417	$	1.15		21,051	$	1.23
Distillers grains (tons)		53	$	141.20		52	$	135.69
Corn Oil (pounds)		4,915	$	0.21		4,560	$	0.17

Net sales for the quarters ended March 31, 2019 and 2018 were $33.1 million and $33.8 million, respectively. Ethanol gallons sold increased by 2%, while ethanol prices decreased by 7% for the quarter ended March 31, 2019, compared to the prior quarter ended March 31, 2018. As a percentage of net sales, ethanol sales were 74% and 77% and distillers sales were 22% and 21%, for the quarters ending March 31, 2019 and March 31, 2018, respectively.

Cost of goods sold for the quarter ended March 31, 2019 were $34.6 million, compared to $33.8 million for the quarter ended March 31, 2018, an increase of $0.8 million. Our primary costs in the production of ethanol and related co-products are corn and natural gas. A $2.0 million increase in corn costs, partially offset by a $0.4 million decrease in repairs and maintenance due to timing of plant shutdowns and a $0.3 million decrease in rail car lease, represented a majority of the increase in cost of goods sold in the quarter ended March 31, 2018. Corn costs represented 75% and 71% of cost of sales for each of the quarters ended March 31, 2019 and 2018, respectively. Corn prices increased 7% during the three-month period ending March 31, 2019 compared to the prior year quarter. We used 1% more corn in the three-month period ending March 31, 2019 than in the three months ended March 31, 2018.

Natural gas costs represented 6% of total cost of sales for each of the quarters ending March 31, 2019 and 2018. The cost of natural gas per mmbtu was consistent in the quarter ended March 31, 2019 compared to the previous year quarter. Our natural gas consumption in the quarter ending March 31, 2019 remained consistent with consumption in the quarter ending March 31, 2018.

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

Overall selling, general and administrative costs were $0.8 million for each of the quarters ended March 31, 2019 and 2018. As a percentage of net sales, selling, general and administrative expenses were 2.4% and 2.2% of net sales, for each of the quarters ending March 31, 2019 and 2018, respectively.

Interest expense for the quarter ended March 31, 2019 was $253,000 compared to $195,000 for the quarter ended March 31, 2018. The higher interest expense was the result of higher interest rates and higher interest bearing debt outstanding compared to the prior year quarter.

Results of Operations for the Six Months Ended March 31, 2019 Compared to Six Months Ended March 31, 2018

The following table reflects quantities of our products sold at average net prices as well as bushels of corn ground and therms of natural gas burned at average costs for the six months ended March 31, 2019 and 2018:

	Six Months				Six Months
	March 31, 2019				March 31, 2018
	Quantity		Average Price		Quantity		Average Price
Product Sales Information	(In thousands)				(In thousands)
Ethanol (gallons)		43,153	$	1.12		40,898	$	1.22
Distillers grains (tons)		108	$	133.43		104	$	123.71
Corn Oil (pounds)		10,720	$	0.22		9,118	$	0.18

Net sales for the six months ended March 31, 2019 were $65.1 million, compared to $64.3 million for the six months ended March 31, 2018 an increase of $0.8 million or 1%. Ethanol gallons sold increased by 6% while prices decreased 8% for the six months ended March 31, 2019, compared to the prior six months ended March 31, 2018. As a percentage of net sales, ethanol sales were 74% and 77% and distillers sales were 22% and 20%, for the six months ending March 31, 2019 and March 31, 2018, respectively.

Cost of goods sold for the six months ended March 31, 2019 were $68.8 million, compared to $64.7 million for the six months ended March 31, 2018, an increase of $4.1 million. Our primary costs in the production of ethanol and related co-products are corn and natural gas. A majority of the increase in cost of goods sold in the six months ended March 31, 2019 was the result of a $6.3 million increase in corn costs, partially offset by a $0.7 million decrease in natural gas costs and a decrease of $0.6 million in repairs and maintenance. Corn costs represented 74% and 69% of cost of sales for the six months ended March 31, 2019 and 2018, respectively. Corn prices increased 9% during the six-month period ending March 31, 2019 compared to the six-month period ending March 31, 2018. We used 5% more corn in the six month period ending March 31, 2019 compared to the six months ended March 31, 2018, partly as a result of more production days.

Natural gas costs represented 6% and 8% of total cost of goods sold for the six months ended March 31, 2019 and 2018, respectively. The cost of natural gas per mmbtu decreased by $0.70 per mmbtu, or 15% for the six months ending March 31, 2019 compared to the prior year period. Natural gas consumption increased 1% for the six months ending March 31, 2019 compared to the six months ending March 31, 2018.

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

Overall selling, general and administrative costs for the six months ended March 31, 2018 were $1.6 million compared to $1.4 million for the prior year six months. As a percentage of net sales, selling, general and administrative expenses for the six months ending March 31, 2019 increased to 2.4%, compared to 2.2% for the six months ending March 31, 2018.

Interest expense for the six months ending March 31, 2019 was $454,000, compared to $396,000 for the prior year period. The higher interest expense for the current six months was the result of higher interest rates and a higher level of interest bearing debt outstanding in the fiscal 2019 period.

The $6.9 million decrease in current assets at March 31, 2019 compared to September 30, 2018 was primarily due to a net loss of $5.6 million, $2.4 million capital expenditures net of loan proceeds and $0.7 million increase in trade receivables and other receivables, mostly due to timing differences.

The $2.4 million increase in property, plant and equipment at March 31, 2019 compared to September 30, 2018, was primarily due to capital expenditures of $4.4 million, primarily due to construction of new grain storage and receiving facilities at our Aberdeen plant, partially offset by $1.9 million of depreciation expense in the current fiscal year.

Accounts payable and accrued expenses decreased by $0.9 million at March 31, 2019 compared to September 30, 2018 primarily due to timing of payments to vendors.

The current portion of long-term debt increased by $1.5 million at March 31, 2019 compared to September 30, 2018. The current portion of long-term debt was lower at September 30, 2018 due to deferral of three future principal payments previously due on January 1, April 1, and July 1, 2019 as the result of the Fourth Amendment to the Credit Agreement. At March 31, 2019, $1.0 million in 2015 Credit Agreement payments and $0.5 million in 2018 Term Loan payments became current.

Long-term debt decreased by $0.4 million at March 31, 2019 compared to September 30, 2018. This decrease was due to a $1.0 million debt payment made in October 2018 and $1.5 million in long-term debt becoming current, offset by $2.0 million drawn on the 2018 Term Loan.

TRENDS AND UNCERTAINTIES AFFECTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS

Ethanol is currently blended with gasoline to meet regulatory standards as a clean air additive, an octane enhancer, a fuel extender and a gasoline alternative. According to the Renewable Fuels Association (“RFA”), as of January 2019, current annualized U.S. ethanol production capacity in operation was approximately 16.0 billion gallons per year, with actual annualized production around 15.7 billion gallons per year. The demand for ethanol is affected by what is commonly referred to as the “blending wall,” which is a regulatory cap on the amount of ethanol that can be blended into gasoline. The blend wall affects the demand for ethanol, and as industry production capacity reaches the blend wall, the supply of ethanol in the market may surpass the demand. Assuming current gasoline usage in the U.S. at 142.98 billion gallons per year and a blend rate of 10% ethanol and 90% gasoline, the current blend wall is approximately 14.3 billion gallons of ethanol per year.

Ethanol is most commonly sold as E10, the 10 percent blend of ethanol that can be used in all American automobiles. Increasingly, ethanol is also available as E15, which is a higher octane fuel with a 15 percent blend of ethanol. In June 2012, the EPA approved E15 for use in vehicles with model years 2001 and later. According to the RFA, this group of approved vehicles makes up 90 percent of all vehicles on the road today. Although regulatory issues remain in many states, E15 is now available in limited locations in 29 states. Ethanol is also available as E85, a higher percentage ethanol blend for use in flexible fuel vehicles.

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

We focus on locking in margins based on a cash flows model that continually monitors market prices of corn, natural gas and other input costs against prices for ethanol and distillers grains at each of our production facilities. We create offsetting positions by using a combination of derivative instruments, fixed-price purchases and sales, or a combination of strategies to manage risk associated with commodity price fluctuations. Our primary focus is not to manage general price movements, for example, minimize the cost of corn consumed, but rather to lock in favorable margins whenever possible. In the quarter ended March 31, 2019, the average Chicago OPIS Spot Ethanol Assessment was $1.32 per gallon and the average NYMEX RBOB spot gasoline price was $1.59 per gallon, or approximately $0.27 per gallon above ethanol prices.

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

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

The Renewable Fuels Standard (“RFS”) is a national program that imposes requirements with respect to the amount of renewable fuel produced and used in the U.S. The RFS was revised by the EPA in July 2010 (“RFS2”) and applies to refineries, blenders, distributors and importers. We believe the RFS2 program has and will continue to increase the market for renewable fuels, such as ethanol, as a substitute for petroleum-based fuels. The RFS2 required that 16.55 billion gallons be sold or dispensed in 2013, increasing to 36.0 billion gallons by 2022, representing 7% of the anticipated gasoline and diesel consumption in 2022. In 2013, RFS2 required refiners and importers to blend renewable fuels totaling at least 9.74% of total fuel volume, of which 8.12% of total fuel volume, or 13.8 billion gallons, could be derived from corn-based ethanol. The remainder of the requirement is to be met by non-corn related advanced renewable fuels such as cellulosic ethanol and biomass-based biodiesel. The RFS requirement for corn-based ethanol was capped at 15.0 billion gallons starting in 2015.

As of October 2018, current annualized ethanol production is approximately 16.2 billion gallons per the RFA. On November 30, 2017, the EPA announced the final rule for the 2018 Renewable Volume Obligations (“RVO”s), which was set at 15.0 billion gallons for corn-based ethanol. This rule was set at 100% of the original conventional biofuel requirement of 15.0 billion gallons, but has a reduction in the amount of advanced biofuels required. On June 26, 2018 the EPA announced proposed RVOs for 2019, which include 15.0 billion gallons for corn-based ethanol, consistent with both the 2018 RVOs and the original statutory volumes. On November 30, 2018 the EPA announced the final RVOs for 2019. The final RVOs for 2019 were consistent with the volumes proposed in June, with an increase only in advanced biofuel volumes to 4.92 billion gallons from the proposed 4.88 billion gallons. The 15.0 billion gallons that can be met with corn-based ethanol remains the same as the June 2018 proposal and the original statutory volumes.

The following chart illustrates the potential U.S. ethanol demand based on the schedule of minimum usage established by the RFS2 program through the year 2022 (in billions of gallons).

			Cellulosic						RFS Requirement
	Total Renewable		Ethanol		Biodiesel				That Can Be Met
	Fuel		Minimum		Minimum		Advanced		With Corn-Based
Year	Requirement		Requirement		Requirement		Biofuel		Ethanol
2018 (1)		26.00		7.00		-		11.00		15.00
2018 (2)		19.29		0.29		2.10		4.29		15.00
2019 (1)		28.00		8.50		-		13.00		15.00
2019 (3)		19.88		0.38		2.10		4.88		15.00
2019 (4)		19.92		0.42		2.10		4.92		15.00
2020		30.00		10.50		2.43		15.00		15.00
2021		33.00		13.50		-		18.00		15.00
2022		36.00		16.00		-		21.00		15.00

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

On December 22, 2017, H.R. 1, originally known as the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”), was signed into law. The 2017 Tax Reform Act includes significant changes to the taxation of business entities, including a permanent reduction to the federal corporate income tax rate from 35% to 21% effective in 2018 and changes to deductibility of interest on debt obligation. The impact of the 2017 Tax Reform Act on the Company is minimal because the Company is a pass-through entity.

The ethanol we produce is similar to ethanol produced by other plants. The RFA reports that as of January 2019, current annualized U.S. ethanol production capacity in operation was approximately 16.0 billion gallons per year, with current annualized production around 15.7 billion gallons per year. On a national level, there are numerous other production facilities with which we are in direct competition, many of whom have greater resources than we do. As of January 2019, South Dakota had 15 ethanol plants producing an aggregate of 1.1 billion gallons of ethanol per year.

The largest ethanol producers include: Archer Daniels Midland Company; Cargill, Inc.; Flint Hills Resources, LP; Green Plains Renewable Energy, Inc.; POET, LLC and Valero Renewable Fuels. Producers of this size may have an advantage over us from economies of scale and stronger negotiating positions with purchasers. We market our ethanol primarily on a regional and national basis. We believe that we are able to reach the best available markets through the use of experienced ethanol marketers and by the rail delivery methods we use. Our plants compete with other ethanol producers on the basis of price, and, to a lesser extent, delivery service. We believe that we can compete favorably with other ethanol producers due to our proximity to ample grain, natural gas, electricity and water supplies at favorable prices.

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

ABE South Dakota has ethanol marketing agreements with NGL Crude Logistics LLC (“NGL”), a diversified energy business. These ethanol marketing agreements require that we sell to NGL all of the denatured fuel-grade ethanol produced at the South Dakota plants. These ethanol marketing agreements by their terms were set to expire on June 30, 2019. On April 1, 2019, the agreements were amended to change the term to month to month, with three months written notice by either party required to terminate the agreement.

Sales of distillers grains have represented 22% and 21% of our revenues for the quarters ended March 31, 2019 and 2018, respectively. When the plants are operating at capacity, they produce approximately 231,000 tons of dried distillers grains equivalents per year, approximately 15-16 pounds per bushel of corn used. Distillers grains are a high-protein, high-energy animal feed supplement primarily marketed to the dairy and beef industry, but also to the poultry and swine markets. Dry mill ethanol processing creates three forms of distillers grains: wet distillers grains with solubles, known as wet distillers grains; modified wet distillers grains with solubles, known as modified distillers grains; and dry distillers grains with solubles. Wet and modified distillers grains have been dried to approximately 65% and 50% moisture levels, respectively, and are predominately sold to nearby markets. Dried distillers grains have been dried to 11% moisture, have an almost indefinite shelf life and may be sold and shipped to more distant markets. In this Form 10-Q, we sometimes refer to these products as “distillers grains” or “distillers.”

We installed corn oil extraction technology at our Aberdeen plant in 2012 and at our Huron plant in October 2016. Corn oil systems are designed to extract non-edible corn oil during the thin stillage evaporation process immediately prior to production of distillers grains. Corn oil is produced by processing evaporated thin stillage through a disk stack style centrifuge. Corn oil has a lower density than the water or solids that make up the syrup. The centrifuges separate the relatively light oil from the heavier components of the syrup, eliminating the need for significant retention time. De-oiled syrup is returned to the process for blending into wet, modified, or dry distillers grains.

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

In the sales of distillers grains, we compete with other ethanol producers, as well as a number of large and smaller suppliers of competing animal feed. We believe the principal competitive factors are price, proximity to purchasers and product quality. Currently we derive 62% of our distillers grain revenues from the sale of dried distillers grains, which have an indefinite shelf life and can be transported by truck or rail, and 38% from the sale of modified or wet distillers grains, which have a shorter shelf life and are typically sold in local markets via truck.

We compete with other ethanol producers in the sale of corn oil. We ship all of the corn oil at our facilities via truck. Many ethanol producers have added corn oil technology to their facilities.

ABE South Dakota has a marketing agreement with Dakotaland Feeds, LLC (“Dakotaland Feeds”) to market wet distillers grains produced at the Huron plant and modified distillers produced at the Aberdeen plant. ABE South Dakota has a marketing agreement with Gavilon Ingredients, LLC (“Gavilon”) for dried distillers grains produced at the Huron and Aberdeen plants that became effective July 1, 2013. The marketing agreement requires Gavilon to use commercially reasonable efforts to purchase substantially all of the dried distillers grains produced at the Huron and Aberdeen plants through July 31, 2019. The Aberdeen plant self-markets its wet and a small portion of modified distillers grains.

ABE South Dakota is party to an agreement with Gavilon to market all the corn oil produced by the Huron and Aberdeen plants through November 30, 2019 and September 30, 2019, respectively.

During the quarter ended March 31, 2019, we conducted our business activities and plant operations through the parent company, Advanced BioEnergy, and its primary operating subsidiary, ABE South Dakota. ABE Fairmont has had minimal activity since the December 2012 sale of the Fairmont facility. The liquidity and capital resources for each entity are based on the entity’s existing financing arrangements and capital structure. Advanced BioEnergy is highly restricted in its ability to use the cash and other financial resources of ABE South Dakota for the benefit of Advanced BioEnergy, with the exception of allowable distributions under the 2015 Credit Agreement with AgCountry.

ABE had cash and cash equivalents of $0.7 million on hand at March 31, 2019. ABE did not have any debt outstanding as of March 31, 2019.

From time to time, ABE may receive certain allowable distributions from ABE South Dakota, subject to compliance with the terms and conditions of the 2015 Credit Agreement. ABE will not receive any distribution from ABE South Dakota for its fiscal 2018 financial results and has not received any in fiscal 2019.

In connection with the execution of a rail car sublease, the Company, as parent of ABE South Dakota, agreed to post a $2.5 million irrevocable and non-transferable standby letter of credit in May 2012 for the benefit of NGL Crude Logistics, LLC (“NGL” f/k/a Gavilon) as security for the payment obligations of ABE South Dakota under certain agreements with NGL. The Company deposited $2.5 million in a restricted account as collateral for this letter of credit and classified it as restricted cash. Effective May 15, 2014, the letter of credit and corresponding deposit of collateral was decreased by $1.0 million in conjunction with an amendment to the rail car sublease. Effective June 27, 2016, the letter of credit and corresponding deposit of collateral was decreased by $0.5 million in conjunction with an amendment to the rail car sublease. Effective July 31, 2018, the letter of credit was terminated and the corresponding collateral requirement was eliminated.

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

During the quarter ended March 31, 2018, ABE Fairmont completed its obligations to Flint Hills Resources, LLC with respect to post-closing matters, including completing the transfer of certain railway lines. The Company is currently in the process of dissolving the ABE Fairmont entity.

ABE South Dakota had cash and cash equivalents of $3.3 million on hand at March 31, 2019. As of March 31, 2019, ABE South Dakota had interest-bearing term debt outstanding of $21.0 million.

The $20.0 million Term Loan had a fixed interest rate (“Fixed Rate”) at March 31, 2019. On October 26, 2018, the Company elected to lock in a fixed rate of 6.40%, rather than a variable rate, on the remaining balance of the Term Loan. On January 2, 2019, the Company entered into an Interest Rate Conversion Agreement with AgCountry, under which the Fixed Rate of 6.40% was reduced to 6.32%. The Company may elect one or more fixed or adjustable interest rates, rather than a variable rate, based on AgCountry’s cost of funds at the time of election, plus a margin of 350 basis points. Any election must apply to $1.0 million or more owing on the Term Loan. On April 1, 2016, the Company began making quarterly principal payments of $1.0 million, plus accrued interest, on the Term Loan. The Term Loan was originally scheduled to be fully amortized over five years with the final payment on January 1, 2021. As described below, the payments originally due in January, April and July 2019 have been deferred and are now due at the end of the term, or January 1, 2021. At March 31, 2019, the balance of the Term Loan was $9.0 million.

The $10.0 Revolving Term Facility has a variable interest rate (“Variable Rate”) equal to the one month LIBOR rate plus an initial Margin of 350 basis points. At March 31, 2019, the Variable Rate was equal to the one-month LIBOR rate of 2.52% plus a Margin of 350 basis points. Borrowings under the Revolving Term Facility may be advanced, repaid and re-borrowed during the term. The Company is required to make quarterly interest payments on the Revolving Term Facility, with the full principal amount outstanding due on January 1, 2021. Under the Revolving Term Facility, the Company is required to pay unused commitment fees of 50 basis points. At March 31, 2019, the balance on the Term Loan was $10.0 million.

On March 13, 2018, ABE South Dakota entered into the Fourth Supplement to the 2015 Credit Agreement (“2018 Term Loan”) with AgCountry to finance a grain storage and receiving facility at the Aberdeen plant. The agreement provides for a $5.0 million multiple advance credit facility. The loan has a variable interest rate equal to the one-month LIBOR rate plus a “Margin” of 350 basis points. During the construction period, the Company is required to make quarterly interest payments in arrears on the first day of each quarter. Upon completion of construction, the Company will be required to make quarterly principal payments in the amount of $250,000 per quarter, plus accrued interest. The 2018 Term Loan will be fully amortized over five years, with the final payment on July 1, 2024. At March 31, 2019, $2.0 million funds had been drawn on the 2018 Term Loan, and $47,000 in loan fees and closing costs had been incurred and have been classified as deferred financing costs. These deferred financing costs will be amortized as interest expense over the term of the 2018 Term Loan.

As a result of a depressed margin environment in fiscal 2018, ABE South Dakota requested waivers for specific Events of Default at September 30, 2018, and requested covenant amendments for specific future covenants for which ABE South Dakota projected possible non-compliance. Although ABE South Dakota’s lender, AgCountry Farm Credit Services, PCA, granted the waivers and covenant amendments via the Third and Fourth Amendments to the 2015 Credit Agreement, as discussed below, we

cannot project with certainty that we will meet all covenant obligations, as amended, if depressed margins continue for an extended period of time. If ABE South Dakota is unable to comply with the amended covenants, we cannot ensure that our lender will grant us future waivers, which could result in a material adverse effect upon our business, results of operations and financial condition.

The following table shows our cash flows for the six months ended March 31, 2019 and 2018:

Cash flows used in operating activities for the six months ending March 31, 2019 were approximately $5.3 million compared to $1.2 million provided by the prior year period, a decrease of $6.5 million. Lower operating margins accounted for the majority of the overall decrease in cash flows from operating activities.

Cash flows used in investing activities for the six months ending March 31, 2019 were approximately $4.4 million compared to $0.6 million used in investing activities for the prior year period. The current year six months included $4.4 million in additions to property and equipment. The prior year six months included a net of $0.9 million in additions to property and equipment offset by $0.3 million of patronage income.

Cash flows provided by financing activities for the six months ending March 31, 2019 were $1.0 million compared to $2.5 million used in for the prior year period. The current period included long-term debt payments of $1.0 million on the 2015 Credit Agreement. The prior year period included long-term debt payments of $2.0 million on the 2015 Credit Agreement and $0.4 million debt payments on the 2016 Term Loan.

	March 31,
	2019	March 31,			September 30,
	Interest Rate	2019			2018
ABE South Dakota:
Senior debt principal - fixed	6.32%	$	9,000		$	-
Senior debt principal - variable	6.02%		12,047			20,000
Deferred financing costs	N/A		(247	)		(262	)
Total outstanding		$	20,800		$	19,738

	Senior Debt		Deferred
Due By March 31:	Principal		Financing Costs			Total
2020	$	2,500	$	(119	)	$	2,381
2021		18,000		(95	)		17,905
2022		547		(10	)		537
2023		-		(9	)		(9	)
2024		-		(9	)		(9	)
Thereafter		-		(5	)		(5	)
Total debt	$	21,047	$	(247	)	$	20,800

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

Effective October 1, 2018, the Company adopted the new guidance of ASC Topic 606, “Revenue from Contracts with Customers,” (Topic 606) using the modified retrospective approach. Topic 606 requires the Company to recognize revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance requires the Company to apply the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation. The Company generally recognizes revenue at a point in time. The majority of the Company’s contracts with customers have one performance obligation and a contract duration of one year or less. The adoption of this new guidance did not result in any change to our recognition of revenue.

The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are recognized when control of the promised goods are services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

We disclose disaggregation of revenue according to product line, along with accounts receivable from contracts with customers, in Note 5.

On occasion, the Company has entered into derivative contracts to hedge the Company’s exposure to price risk related to forecasted corn purchases and forecasted ethanol sales. Accounting for derivative contracts requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.

Although the Company believes its derivative positions are economic hedges, it has not designated any of these positions as hedges for accounting purposes and has recorded its derivative positions on its balance sheet at their fair value, with changes in fair value recognized in current period earnings.

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

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

Our future earnings may be affected by changes in interest rates due to the impact those changes have on our interest expense on borrowings under our credit facility. As of March 31, 2019, we had $12.0 million of outstanding borrowings with variable interest rates. With each 1% increase in interest rates we will incur additional annual interest charges of $0.12 million.

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

We believe that inflation has not had a material impact on our results of operations since inception. We cannot ensure that inflation will not have an adverse impact on our operating results and financial condition in future periods.

We consider market risk to be the impact of adverse changes in market prices on our results of operations. We are subject to significant market risk with respect to the price of ethanol and corn. For the quarter ended March 31, 2019, sales of ethanol represented 74% of our total revenues and corn costs represented 75% of total cost of goods sold. In general, ethanol prices are affected by the supply and demand for ethanol, the cost of ethanol production, the availability of other fuel oxygenates, the regulatory climate and the cost of alternative fuels such as gasoline. The price of corn is affected by weather conditions and other factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors. At March 31, 2019, the price per gallon of ethanol and the price per bushel of corn on the CBOT were $1.15 and $3.40 respectively.

We are also subject to market risk on the selling prices of our distillers grains, which represented 22% of our total revenues for the quarter ended March 31, 2019. These prices fluctuate seasonally when the price of corn or other cattle feed alternatives fluctuate in price. The average dried distillers grains spot price for local customers was $139.50 per ton at March 31, 2019.

We are also subject to market risk with respect to our supply of natural gas that we consume in the ethanol production process. Natural gas costs represented 6% of total cost of sales for the quarter ended March 31, 2019. The price of natural gas is affected by overall supply, weather conditions and general economic, market and regulatory factors. At March 31, 2019, the price of natural gas on the NYMEX was $2.66 per mmbtu.

To reduce price risk caused by market fluctuations in the cost and selling prices of related commodities, from time to time we have entered into forward purchase/sale contracts. As of March 31, 2019, we entered into forward sales contracts that guaranteed prices on 2% of our ethanol gallons sold. At March 31, 2019, we had outstanding forward sale contracts representing 48% of our expected distillers grains production output through April 2019.

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

									Change in
	Estimated at			Hypothetical					Annual
	Risk			Change in			Spot		Operating
	Volume (1)		Units	Price			Price(2)		Income
	(In millions)								(In millions)
Ethanol		72.0	gallons		10.0	%	$	1.15	$	8.3
Distillers grains		0.2	tons		10.0	%		139.50		2.8
Corn		27.1	bushels		10.0	%		3.40		9.2
Natural gas		2.1	mmbtus		10.0	%		2.66		0.6

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

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

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

There are no material changes from risk factors as previously discussed in our September 30, 2018 Annual Report on Form 10-K.

ABE South Dakota, LLC entered into a Grain Origination Agreement with Agtegra Cooperative (“Agtegra”) under which Agtegra originates, stores and delivers corn to the Aberdeen and Huron plants. Although this agreement allows us to purchase corn from other sources, we have historically not done this. This Grain Origination Agreement automatically renewed for a three-year term in November 2016 and was set to expire in November 2019. On May 4, 2018, we issued a partial notice of termination of this agreement with respect to the Aberdeen plant due to our plans to construct a grain storage and receiving facility. The remaining agreement for the Huron plant by its terms would expire in November 2019, but would automatically renew for a three-year term unless cancelled by either party at least 180 days prior to November 8, 2019, the end of the initial three-year renewal term.

ABE South Dakota and Agtegra entered into an amendment dated as of April 16, 2019, under which they agreed to amend the Grain Origination Agreement effective as November 8, 2019. Under the amendment, (i) ABE South Dakota agreed to pay Agtegra a new lower commission price per bushel of corn purchased, (ii) ABE South Dakota agreed to generally pay Agtegra for grain delivered on the day after delivery; and (iii) the parties agreed that either party may terminate the Grain Origination Agreement at any time after November 8, 2019 upon 24 month written notice. A copy of this Second Amendment dated as of April 16, 2019 to the Grain Origination Agreement between ABE South Dakota and Agtegra is attached as Exhibit 10.1 to this Form 10-Q.

** Portions of this exhibit, as identified by the mark [*] have been omitted because these portions contain information that is both (i) not material and (ii) would likely cause competitive harm if publicly disclosed.

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

	Page
Part I. Financial Information
Item 1. Financial Statements	3
Consolidated Balance Sheets	3
Consolidated Statements of Operations	4
Consolidated Statements of Changes in Members’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	31
Part II. Other Information
Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3. Defaults Upon Senior Securities	32
Item 4. Mine Safety Disclosure	32
Item 5. Other Information	32
Item 6. Exhibits	32
Signatures	34

	March 31,		September 30,
	2019		2018
Chemicals	$	996	$	783
Work in process		744		677
Ethanol		1,840		1,261
Distillers grain		227		416
Supplies and parts		1,923		1,785
Total	$	5,730	$	4,922

Commodity	Type	Quantity	Amount (in 000's)		Period Covered Through
Ethanol	Sale	138,600 gallons	$	180	April 30, 2019
Distillers grains	Sale	9,298 tons		630	April 30, 2019
Corn oil	Sale	400,000 lbs		92	April 30, 2019

Product Cost Information	Quantity		Average Cost		Quantity		Average Cost
Corn (bushels)		7,442	$	3.47		7,373	$	3.24
Natural Gas (therms)		521	$	4.05		521	$	4.07

Product Cost Information	Quantity		Average Cost		Quantity		Average Cost
Corn (bushels)		15,049	$	3.37		14,345	$	3.09
Natural Gas (therms)		1,064	$	4.09		1,052	$	4.79

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☐
Emerging growth company	☐

Office equipment		3-7 Years
Other equipment		1-5 Years
Process equipment		15 Years
Buildings		40 Years

	Six Months Ended March 31
	2019			2018
	(In thousands)
Net cash provided by (used in) operating activities	$	(5,271	)	$	1,194
Net cash used in investing activities		(4,445	)		(592	)
Net cash provided by (used in) financing activities		1,008			(2,464	)


Exhibit
No.	Description	Method of Filing


**10.1	Second Amendment dated as of April 16, 2019 to the Grain Origination Agreement between ABE South Dakota, LLC and Agtegra Cooperative.	Filed Electronically
10.2	Amendment No. 4 dated as of April 1, 2019 to Ethanol Marketing Agreement dated May 4, 2012, as amended, between NGL Crude Logistics LLC, f/k/a Gavilon, LLC and ABE South Dakota, LLC.	Filed Electronically

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

32	Section 1350 Certifications.	Filed Electronically

	ADVANCED BIOENERGY, LLC

Date: May 10, 2019	By:	/s/ Richard R. Peterson
		Richard R. Peterson
		Chief Executive Officer and President, Chief Financial Officer (Duly authorized signatory and Principal Financial Officer)