**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 
|                                                                                                                                     |                                                                                    |   |
|------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|--------|
| x                                                                                                                                        | **Quarterly  report under Section 13 or 15(d) of the Securities Exchange Act of 1934.** |
|                                                                                                                                     |                                                                                    |   |
| **For  the quarter ended September 30, 2007**                                                                                            |
|                                                                                                                                     |                                                                                    |   |
| **OR**                                                                                                                                   |
|                                                                                                                                     |                                                                                    |   |
| **o**                                                                                                                                    | **Transition  report under Section 13 or 15(d) of the Exchange Act.**                   |
|                                                                                                                                     |                                                                                    |   |
| **For  the transition period from                   to** |

 

**Commission file number 000-50733**

** **

**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

(Exactname of small business issuer as specified in its charter)

 

| **Wisconsin**                                                    | **39-2032455**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |

 

**W1231 Tessmann Drive, Friesland, Wisconsin 53935-0247**

(Addressof principal executive offices)

 

**(920) 348-5016**

(Issuer’stelephone number)

** **

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

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):

| Large  Accelerated Filer o | Accelerated  Filer o | Non-Accelerated  Filer x |
|---------------------------------|----------------------|--------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).
|   | o  Yes          x  No |
|--------|-----------------------------------------------------------------------------------|

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common equity, as of the latest practicable date:

 

As of November 9, 2007, there were 28,765 membership units outstanding.

 

 

 

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**INDEX**

 
| ** **                                                      | ** **                                                                                              | **Page No.** |
|-----------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|--------------|
| ** **                                                      | ** **                                                                                              | ** **   |
| **PART  I.     FINANCIAL INFORMATION** | ** **                                                                                              | **3**        |
| ** **                                                      | ** **                                                                                              | ** **   |
| ** **                                                      | **Item 1. Financial Statements.**                                                                       | **3**        |
| ** **                                                      | **Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operation** | **12**       |
| ** **                                                      | **Item 3.  Quantitative and Qualitative Disclosures About Market Risk**                                 | **20**       |
| ** **                                                      | **Item 4. Controls and  Procedures**                                                                    | **22**       |
| ** **                                                      | ** **                                                                                              | ** **   |
| **PART II. OTHER  INFORMATION**                                 | ** **                                                                                              | **22**       |
| ** **                                                      | ** **                                                                                              | ** **   |
| ** **                                                      | **Item 1. Legal Proceedings**                                                                           | **22**       |
| ** **                                                      | **Item 1A. Risk Factors**                                                                               | **22**       |
| ** **                                                      | **Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds**                                | **23**       |
| ** **                                                      | **Item 3. Defaults  Upon Senior Securities**                                                            | **23**       |
| ** **                                                      | **Item 4.  Submission of Matters to a Vote of Security Holders**                                        | **23**       |
| ** **                                                      | **Item 5. Other Information**                                                                           | **23**       |
| ** **                                                      | **Item 6. Exhibits**                                                                                    | **23**       |
| ** **                                                      | ** **                                                                                              | ** **   |
| **SIGNATURES**                                                  | ** **                                                                                              | **24**       |
|                                                                 |                                                                                                         |              |  |

** **

2

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**PARTI.     FINANCIAL INFORMATION**

 

**Item1. Financial Statements.**

 

**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

** **

Condensed Balance Sheets

 
| **ASSETS**                                | ** ** | **September 30  2007** | ** ** | **December 31  2006** | ** ** |
|-------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **(Unaudited)**        | ** ** | **(Audited)**         | ** ** |
| **Current Assets**                        | ** ** | ** **             | ** ** | ** **            | ** ** |
| Cash and cash equivalents                 |       | $                      | 23,683,960 |                  | $          | 29,981,331 |   |
| Restricted cash                           |       | 88,500                 |       | 411,587               |       |
| Derivative instruments                    |       | 152,628                |       | 150,463               |       |
| Accounts receivable                       |       | 2,825,267              |       | 4,298,190             |       |
| Prepaid expenses and other current assets |       | 974,841                |       | 937,669               |       |
| Inventory                                 |       | 2,133,665              |       | 1,702,855             |       |
| Total current assets                      |       | 29,858,861             |       | 37,482,095            |       |
|                                      |       |                   |       |                  |       |
| **Property, Plant and Equipment**         | ** ** | ** **             | ** ** | ** **            | ** ** |
| Land and land improvements                |       | 5,806,181              |       | 5,806,181             |       |
| Office equipment                          |       | 482,250                |       | 447,453               |       |
| Administration building                   |       | 510,559                |       | 488,454               |       |
| Plant and process equipment               |       | 47,192,147             |       | 47,100,121            |       |
| Construction in process                   |       | 8,538,218              |       | 1,326,435             |       |
| Total property, plant and equipment       |       | 62,529,355             |       | 55,168,644            |       |
| Less accumulated depreciation             |       | 11,456,221             |       | 7,804,420             |       |
| Net property, plant and equipment         |       | 51,073,134             |       | 47,364,224            |       |
|                                      |       |                   |       |                  |       |
| **Other Assets**                          |       |                   |       |                  |       |
| Investment                                |       | 1,017,400              |       | 100,000               |       |
| Total other assets                        |       | 1,017,400              |       | 100,000               |       |
| ** **                                | ** ** | ** **             | ** ** | ** **            | ** ** |
| **Total Assets**                          |       | $                      | 81,949,395 |                  | $          | 84,946,319 |   |

 

Notes to Condensed UnauditedFinancial Statements are an integral part of this Statement. 

 

3

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

** **

Condensed Balance Sheets

 

 
| ** **                                                                  | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------|------------|-----------------|------------|
| **LIABILITIES AND MEMBERS’ EQUITY**                                    | ** ** | **2007**         | ** ** | **2006**        | ** ** |
|                                                                        |       | **(Unaudited)**  | ** ** | **(Audited)**   |       |
| **Current Liabilities**                                                     | ** ** | ** **       | ** ** | ** **      | ** ** |
| Current maturities of long-term debt                                        |       | $                | 1,238,159  |            | $          | 1,164,740 |   |
| Accounts payable                                                            |       | 1,972,461        |       | 2,672,641       |       |
| Accrued liabilities                                                         |       | 1,134,647        |       | 1,345,536       |       |
| Total current liabilities                                                   |       | 4,345,267        |       | 5,182,917       |       |
|                                                                        |       |             |       |            |       |
| **Long-Term Debt, less current maturities**                                 |       | 13,421,106       |       | 14,349,890      |       |
| ** **                                                                  | ** ** | ** **       | ** ** | ** **      | ** ** |
| **Commitments and Contingencies**                                           | ** ** | ** **       | ** ** | ** **      | ** ** |
| ** **                                                                  | ** ** | ** **       | ** ** | ** **      | ** ** |
| **Members’ Equity,**28,775 and 28,780 units  outstanding, respectively |       | 64,183,022       |       | 65,413,512      |       |
|                                                                        |       |             |       |            |       |
| **Total Liabilities and Members’ Equity**                              | ** ** | $                | 81,949,395 |            | $          | 84,946,319 |   |

 

 

Notes toCondensed Unaudited Financial Statements are an integral part of thisStatement. 

 

 

4

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**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

** **

Condensed Statements ofOperations

 

 
| ** **                                                                                   | ** ** | **Quarter Ended**      | ** **       | **Quarter Ended**      | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------|------------------|------------------------|------------|
| ** **                                                                                   | ** ** | **September 30  2007** | ** **       | **September 30  2006** | ** ** |
| ** **                                                                                   | ** ** | **(Unaudited)**        | ** **       | **(Unaudited)**        | ** ** |
|                                                                                         |       |                   |             |                   |       |
| **Revenues**                                                                                 | ** ** | $                      |  26,714,846 |                   | $          |  29,725,303 |   |
|                                                                                         |       |                   |             |                   |       |
| **Cost of Goods Sold**                                                                       |       | 21,667,111             |             | 17,121,260             |       |
|                                                                                         |       |                   |             |                   |       |
| **Gross Profit**                                                                             |       | 5,047,735              |             | 12,604,043             |       |
|                                                                                         |       |                   |             |                   |       |
| **Operating Expenses**                                                                       |       | 826,488                |             | 695,628                |       |
|                                                                                         |       |                   |             |                   |       |
| **Operating Income**                                                                         |       | 4,221,247              |             | 11,908,415             |       |
|                                                                                         |       |                   |             |                   |       |
| **Other Income (Expense)**                                                                   | ** ** | ** **             | ** **       | ** **             | ** ** |
| Interest income                                                                              |       | 288,163                |             | 169,203                |       |
| CCC Bio-Energy income                                                                        |       | —                 |             | 21,244                 |       |
| Interest expense                                                                             |       | (259,920               | )                | (297,093               | )          |
| Equity in net loss of investment                                                             |       | (23,946                | )                | —                 |       |
| Miscellaneous income (expense), net                                                          |       | 26,210                 |             | 2,385                  |       |
| Total other income (expense)                                                                 |       | 30,507                 |             | (104,261               | )          |
|                                                                                         |       |                   |             |                   |       |
| **Net Income**                                                                               |       | $                      | 4,251,754        |                   | $          |  11,804,154 |   |
| ** **                                                                                   |       |                   |             |                   |       |
| **Net Income Per Unit**(28,778 and 28,780  weighted average units outstanding, respectively) |       | $                      |  147.74     |                   | $          |  410.15 |   |
| ** **                                                                                   | ** ** | ** **             | ** **       | ** **             | ** ** |
| **Distribution Per Unit**                                                                    | ** ** | $                      |  136.00     |                   | $          |  200.00 |   |

 

 

Notes toCondensed Unaudited Financial Statements are an integral part of thisStatement. 

 

5

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**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

** **

Condensed Statements ofOperations

 
| ** **                                                                         | ** ** | **Nine Months Ended**  | ** ** | **Nine Months Ended**  | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                         | ** ** | **September 30  2007** | ** ** | **September 30  2006** | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**        | ** ** | **(Unaudited)**        | ** ** |
| ** **                                                                         | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Revenues**                                                                       | ** ** | $                      | 84,064,805 |                   | $          | 83,121,914 |   |
| ** **                                                                         | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Cost of Goods Sold**                                                             |       | 64,268,372             |       | 52,230,681             |       |
| ** **                                                                         | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Gross Profit**                                                                   |       | 19,796,433             |       | 30,891,233             |       |
|                                                                               |       |                   |       |                   |       |
| **Operating Expenses**                                                             |       | 2,639,461              |       | 2,048,468              |       |
|                                                                               |       |                   |       |                   |       |
| **Operating Income**                                                               |       | 17,156,972             |       | 28,842,765             |       |
|                                                                               |       |                   |       |                   |       |
| **Other Income (Expense)**                                                         | ** ** | ** **             | ** ** | ** **             | ** ** |
| Interest income                                                                    |       | 791,084                |       | 267,220                |       |
| CCC Bio-Energy income                                                              |       | —                 |       | 393,336                |       |
| Interest expense                                                                   |       | (801,816               | )          | (1,213,948             | )          |
| Equity in net loss of investment                                                   |       | (137,600               | )          | —                 |       |
| Miscellaneous income (expense)                                                     |       | 80,700                 |       | (483,537               | )          |
| Total other expense                                                                |       | (67,632                | )          | (1,036,929             | )          |
|                                                                               |       |                   |       |                   |       |
| **Net Income**                                                                     | ** ** | $                      | 17,089,340 |                   | $          | 27,805,836 |   |
| ** **                                                                         | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Net Income Per Unit** (28,780 weighted average  units outstanding, respectively) |       | $                      | 593.79     |                   | $          | 966.15 |   |
| ** **                                                                         | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Distributions Per Unit**                                                         | ** ** | $                      | 636.00     |                   | $          | 200.00 |   |

 

Notes toCondensed Unaudited Financial Statements are an integral part of thisStatement.

 

6

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**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

** **

Condensed Statements of Cash Flows

 
| ** **                                                               | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                               | ** ** | **September 30**      | ** ** | **September 30**      | ** ** |
| ** **                                                               | ** ** | **2007**              | ** ** | **2006**              | ** ** |
| ** **                                                               | ** ** | **(Unaudited)**       | ** ** | **(Unaudited)**       | ** ** |
| **Cash Flows from Operating Activities**                                 | ** ** | ** **            | ** ** | ** **            | ** ** |
| Net Income                                                               |       | $                     | 17,089,340 |                  | $          | 27,805,836 |   |
| Adjustments to reconcile net income to net cash provided by  operations: |       |                  |       |                  |       |
| Depreciation                                                             |       | 3,651,801             |       | 3,629,478             |       |
| Write-off of debt issuance costs                                         |       | —                |       | 519,406               |       |
| Loss on derivative instruments                                           |       | 1,239,312             |       | 348,674               |       |
| Equity in net loss of investment                                         |       | 137,600               |       | —                |       |
| Changes in assets and liabilities:                                       |       |                  |       |                  |       |
| Restricted cash                                                          |       | 323,087               |       | (382,620              | )          |
| Derivative instruments                                                   |       | (1,241,477            | )          | (1,000,380            | )          |
| Accounts receivable                                                      |       | 1,472,923             |       | (1,170,031            | )          |
| Inventory                                                                |       | (430,810              | )          | (176,287              | )          |
| Prepaid expenses and other current assets                                |       | (37,172               | )          | 34,962                |       |
| Accounts payable                                                         |       | (700,180              | )          | (1,034,067            | )          |
| Accrued liabilities                                                      |       | (210,889              | )          | 262,997               |       |
| Net cash provided by operating activities                                |       | 21,293,535            |       | 28,837,968            |       |
|                                                                     |       |                  |       |                  |       |
| **Cash Flows from Investing Activities**                                 | ** ** | ** **            | ** ** | ** **            | ** ** |
| Capital expenditures                                                     |       | (148,928              | )          | (921,250              | )          |
| Payments for construction in process                                     |       | (7,211,783            | )          | (334,253              | )          |
| Purchase of investments                                                  |       | (1,055,000            | )          | (100,000              | )          |
| Repurchase of membership units                                           |       | (15,750               | )          | —                |       |
| Net cash used in investing activities                                    |       | (8,431,461            | )          | (1,355,503            | )          |
| ** **                                                               | ** ** | ** **            | ** ** | ** **            | ** ** |
| **Cash Flows from Financing Activities**                                 | ** ** | ** **            | ** ** | ** **            | ** ** |
| Payments on long term debt                                               |       | (855,365              | )          | (8,686,496            | )          |
| Payment of member distributions                                          |       | (18,304,080           | )          | (11,512,000           | )          |
| Net cash used in financing activities                                    |       | (19,159,445           | )          | (20,198,496           | )          |
|                                                                     |       |                  |       |                  |       |
| **Net Increase (Decrease) in Cash and Cash Equivalents**                 |       | (6,297,371            | )          | 7,283,969             |       |
|                                                                     |       |                  |       |                  |       |
| **Cash and Cash Equivalents— Beginning of Period**                  |       | 29,981,331            |       | 8,786,477             |       |
|                                                                     |       |                  |       |                  |       |
| **Cash and Cash Equivalents— End of Period**                        |       | $                     | 23,683,960 |                  | $          | 16,070,446 |   |
| ** **                                                               | ** ** | ** **            | ** ** | ** **            | ** ** |
| **Supplemental Cash Flow Information**                                   | ** ** | ** **            | ** ** | ** **            | ** ** |
| Interest expensed                                                        |       | $                     | 755,372    |                  | $          | 1,213,949 |   |
| Interest capitalized                                                     |       |                  | 46,444     |                  |       | — |   |
| Total interest paid                                                      |       | $                     | 801,816    |                  | $          | 1,213,949 |   |
|                                                                     |       |                  |       |                  |       |
| **Noncash Investing and Financing Activities**                           | ** ** | ** **            | ** ** | ** **            | ** ** |
| ** **                                                               | ** ** | ** **            | ** ** | ** **            | ** ** |
| Refinancing of long-term debt                                            |       | $                     | —     |                  | $          | 16,040,376 |   |
| Construction in process in accounts payable                              |       | $                     | 887,697    |                  | $          | — |   |

 

Notes toCondensed Unaudited Financial Statements are an integral part of thisStatement. 

** **

 

7

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

 

Notes to Unaudited Condensed Financial Statements

 

September 30, 2007 (unaudited) and December 31, 2006 (audited)

 

 

 

 

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

The accompanying unaudited condensed financial statementshave been prepared pursuant to the rules and regulations of the Securities andExchange Commission.  Certain information and footnote disclosuresnormally included in annual financial statements prepared in accordance withaccounting principles generally accepted in the United States of America havebeen condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction withthe financial statements and notes thereto included in the Company’s auditedfinancial statements for the year ended December 31, 2006, contained in theCompany’s annual report on Form 10-KSB for 2006.

 

In the opinion of management, the interim condensedfinancial statements reflect all adjustments considered necessary for fairpresentation.  The adjustments made to these statements consist only ofnormal recurring adjustments.

 

*Nature of Business*

 

United Wisconsin GrainProducers LLC (a Wisconsin limited liability company) is a 40 million gallonnameplate ethanol plant located near the town of Friesland in the township ofRandolph, Wisconsin.  The company sellsits production of ethanol and distillers grains, a co-product of ethanolproduction, within the United States. The plant commenced operations in May of 2005.

 

*Accounting Estimates*

 

Management uses estimatesand assumptions in preparing these financial statements in accordance withgenerally accepted accounting principles.  Those estimates and assumptionsaffect the reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities, and the reported revenues and expenses.  Actual results could differ from thoseestimates.

 

*Revenue Recognition*

 

The Company sells ethanoland related products pursuant to marketing agreements.  Revenues are recognized when the customer hastaken title, which occurs when the product is shipped, and has assumed therisks and rewards of ownership, prices are fixed or determinable, and collectibility is reasonably assured.  The Company’s products are shipped FOBshipping point.

 

In accordance with the Company’s agreements for themarketing and sale of ethanol and related products, marketing fees andcommissions due to the marketers are deducted from the gross sales price at thetime payment is remitted to the Company. However, in accordance with EITF 99-19, because the Company is theprimary obligor in the sales arrangement with the customer, these sales andmarketing fees and commissions are recorded gross in operating expenses in theaccompanying statements of operations.

 

The Company records revenue from federal and stateincentive programs related to the production of ethanol when the Company hassold the ethanol and completed all the known requirements of the applicableincentive program.

 

*Derivative Instruments*

 

The Company accounts for derivatives in accordancewith Statement of Financial Accounting Standards (SFAS) No. 133, “Accountingfor Derivative Instruments and Hedging Activities”.  SFAS No. 133 requires the recognition ofderivatives in the balance sheet and the measurement of these instruments atfair value.

 

 

8

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In order for a derivative to qualify as a hedge,specific criteria must be met and appropriate documentation maintained.  Gains and losses from derivatives that do notqualify as hedges, or are undesignated, must be recognized immediately inearnings.  If the derivative does qualifyas a hedge, depending on the nature of the hedge, changes in the fair value ofthe derivative will be either offset against the change in fair value of thehedged assets, liabilities, or firm commitments through earnings or recognizedin other comprehensive income until the hedged item is recognized inearnings.  Changes in the fair value ofundesignated derivatives are recorded in cost of goods sold.

 

Additionally, SFAS No. 133 requires a company toevaluate its contracts to determine whether the contracts are derivatives.  Certain contracts that literally meet thedefinition of a derivative may be exempted as “normal purchases or normal sales”.  Normal purchases and normal sales arecontracts that provide for the purchase or sale of something other than afinancial instrument or derivative instrument that will be delivered inquantities expected to be used or sold over a reasonable period in the normalcourse of business.  Contracts that meetthe requirements of normal purchases or sales are documented as normal andexempted from the accounting and reporting requirements of SFAS No. 133, andtherefore, are not marked to market in our financial statements.

 

Cash flows associated with derivative instruments arepresented in the same category on the Condensed Statements of Cash Flows as theitem that is hedged.

 

*Reclassifications*

 

The presentation of certain items in the condensedstatements of operations for the three and nine months ended September 30,2006 has been changed to conform to the classifications used for the three andnine months ended September 30, 2007. These reclassifications had no effect onmembers’ equity, net income, or cash flows as previously reported.

 

**2.  INVENTORY**

 

Inventory consists of the following:

 
| ** **      | ** ** | **September 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------|------------|------------------------|------------|-----------------------|------------|
| Raw materials   |       | $                      | 889,579    |                  | $          | 697,081 |   |
| Work in process |       | 286,771                |       | 126,868               |       |
| Finished goods  |       | 957,315                |       | 878,906               |       |
| Total           |       | $                      | 2,133,665  |                  | $          | 1,702,855 |   |

 

**3.  DERIVATIVE INSTRUMENTS**

 

At September 30, 2007, theCompany had recorded an asset for derivative instruments related to corn andethanol option and futures positions of approximately $152,000 and at December31, 2006, the Company had recorded an asset of approximately $150,000 forderivative instruments related to corn and ethanol option and futurespositions.  None of these open positions,at September 30, 2007 and December 31, 2006 were designated as hedges.  The Company has recorded a combined realizedand unrealized gain on corn hedging of approximately $503,000 and $507,000 forthe quarters ended September 30, 2007 and 2006, respectively and a combined realizedand unrealized loss on corn hedging of approximately $203,000 and $349,000 forthe nine months ended September 30, 2007 and 2006, respectively.  Realized and unrealized gains and lossesrelated to derivative contracts that are related to ethanol sales are includedas a component of revenues.  The Companyrecorded a combined realized and unrealized loss on ethanol hedging ofapproximately $51,000 for the quarter ended September 30, 2007 and no gain orloss for the quarter ended September 30, 2006. The combined realized and unrealized loss on ethanol hedging recordedfor the nine month period ending September 30, 2007 approximated $1,036,000 andno gain or loss for the nine months ended September 30, 2006.

 

 

9

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The company is required tomaintain cash balances at its broker related to derivative instrumentpositions.  At September 30, 2007 andDecember 31, 2006, restricted cash totaled approximately $89,000 and $412,000,respectively, and is not included in cash and cash equivalents on the balancesheet or the statements of cash flows.

 

**4.  GOVERNMENT INCENTIVE PAYMENTS**

 

For the three month period ended September 30, 2007and September 30, 2006 the Company recorded as other income $0 andapproximately $21,000, respectively, from the Commodity Credit CorporationBioenergy Program, a department of the United States Department ofAgriculture.  For the nine month periods ended September 30, 2007 andSeptember 30, 2006 the Company recorded as other income $0 and approximately$393,000, respectively, from the Commodity Credit Corporation BioenergyProgram.  The Commodity CreditCorporation Bioenergy Program was terminated on September 30, 2006 thereforethe Company does not anticipate recording additional revenue from this program.

 

**5.  BANK FINANCING**

 

On May 25, 2006 the Companyclosed on a mortgage in the amount of $21,040,376, which included a revolvingcredit agreement in the amount of $5,000,000, and a term credit agreement inthe amount of $16,040,376 with Farmers & Merchants Union Bank to refinance theexisting debt with AgStar Financial Services, PCA.  The term debt consists of a five-yearbusiness note in the amount of $16,040,376 at a fixed interest rate of 7.4% andrequires monthly payments based on a ten-year amortization beginning July 1,2006.   As of September 30, 2007 andDecember 31, 2006, the Company had outstanding debt of $14,659,265 and$15,514,630, respectively, on the term debt and did not have any borrowings onthe revolving credit commitment.

 

There is an annual service fee of $10,000 for therevolving credit agreement and an annual facility fee of $20,000 that began onthe closing date, May 25, 2006, and continues upon each anniversary untilmaturity.  If the revolving line ofcredit is terminated prior to maturity, the $10,000 annual service fee will nolonger be incurred.  No prepayment feesexist on either loan.

 

These loans are subject to protective covenantsrequiring the Company to maintain various financial ratios.  The Companyhas not violated any financial debt covenants during the nine months endingSeptember 30, 2007 or in the year 2006 and the Company believes the likelihoodof default of the financial debt covenants in the next quarter to beremote.  The loan is secured bysubstantially all the Company’s assets.

 

Long term debt consists of the following:

 
| ** **                        | ** ** | **September 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------------------------|------------|------------------------|------------|-----------------------|------------|
| Bank financing                    |       | $                      | 14,659,265 |                  | $          | 15,514,630 |   |
| Less: amounts due within one year |       | 1,238,159              |       | 1,164,740             |       |
| Total long term debt              |       | $                      | 13,421,106 |                  | $          | 14,349,890 |   |

 

The estimated maturities of long term debt atSeptember 30, 2007 are as follows:

 
| 2008        |   | $         | 1,238,159  |   |
|-------------|--------|-----------|------------|--------|
| 2009        |   | 1,327,329 |       |
| 2010        |   | 1,430,412 |       |
| 2011        |   | 1,017,406 |       |
| 2012        |   | 9,645,959 |       |
|  Total |   | $         | 14,659,265 |   |

 

 

10

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**6.  MEMBERS’ EQUITY**

 

As specified in the Company’soperating agreement, the Company has one class of membership units.  The Company is authorized to issue up to28,000 membership units in addition to the 1,280 seed capital units issuedprior to the Company’s initial registered offering.

 

On June 11, 2007 the boardapproved up to $1 million over the next 12 months to explore/pursue the optionof buying back membership units offered for sale via the UWGP QualifiedMatching Service at the market price.  Asof September 30,2007 the board had approved a unit redemption of five unitseffective September 1, 2007 and a redemption of ten units effective October 1,2007.

 

As of September 30, 2007 andDecember 31, 2006 the Company had 28,775 and 28,780 membership unitsoutstanding, respectively.

 

**7.  COMMITMENTS AND CONTINGENCIES**

 

*Corn and Natural GasContracts*

 

At September 30, 2007, theCompany had forward corn purchase contracts totaling approximately 7.7 millionbushels for various delivery periods from October 2007 to December 2009 ofwhich approximately 40% are with members. The prices on these contracts range from $2.22 to $4.14 per bushel orhave a basis level established by the CBOT futures between $-0.08 and $-0.35.  At September 30, 2007, the Company hadforward contracts to purchase approximately 310,000 million British thermalunits (MMBTU) of natural gas during the months of October through November 2007at an average price of approximately $7.40 per MMBTU.

 

*Plant Expansion*

 

The Company started construction on Phase I of a plantexpansion in December 2006.  Projectcosts for Phase I of the plant expansion through September 30, 2007 were approximately $6.57 millionand are expected to total $6.7 million. Phase I will increase the expected plant capacity to 60 million gallonsper year.  The company is also in theprocess of adding a new maintenance building and expanding the grains shippingand receiving area which is expected to cost $1.5 million in total.  As of September 30, 2007 the Company had accumulated costsof approximately $990,000 on these additional projects.

 

The additional 30 million gallon per year ethanolfacility that we plan to construct involves post-fermentation capacityexpansion and is expected to increase overall production capacity to 90 milliongallons.  The estimated cost of this 30million gallon per year facility is approximately $40 million, although thedesign and scope of work has not been finalized.  As of September 30, 2007 the Company had accumulated costsof approximately $830,000 on this project.

 

*Investment in Missouri Facility*

 

On February 12, 2007 the board of directors approvedup to a $10 million investment in First Missouri Energy LLC which will resultin an estimated 28% ownership interest. First Missouri Energy, LLC intends to construct a 55 million gallon peryear ethanol plant near Cape Girardeau, Missouri.  It is presently anticipated that theproduction of ethanol at this new plant will commence in early 2010.  As of September 30, 2007 the Company has invested $1,155,000in this project.  The Company isaccounting for this investment using the equity method of accounting andrecorded a net loss of investment of approximately $23,946 and $137,600,respectively for the three and nine month periods ended September 30, 2007.

 

 

11

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** **

** **

**Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operation.**

 

We prepared the following discussion and analysis tohelp you better understand our financial condition, changes in our financialcondition, and results of operations for the period ended September 30, 2007compared to the same period of the prior fiscal year.  This discussion should be read in conjunctionwith the financial statements and notes and the Management’s Discussion andAnalysis section for the fiscal year ended December 31, 2006, included in theCompany’s Annual Report on Form 10-KSB.

 

**Disclosure Regarding Forward-LookingStatements**

 

This report containshistorical information, as well as forward-looking statements that involveknown and unknown risks and relate to future events, our future financialperformance, or our expected future operations and actions.  In some cases, you can identifyforward-looking statements by terminology such as “may,” “will,” “should,” “expect,”“plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,”“predict,” “target,” “potential,” or “continue” or the negative of these termsor other similar expressions.  Theseforward-looking statements are only our predictions based upon currentinformation and involve numerous assumptions, risks and uncertainties.  Our actual results or actions may differmaterially from these forward-looking statements for many reasons, includingthe reasons described in this report. While it is impossible to identify all such factors, factors that couldcause actual results to differ materially from those estimated by us include:

 
| • | Incorrect assumptions related to industry growth, overcapacity or  increased competition in the ethanol market in which we operate;                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Fluctuations in the price and market for ethanol and distillers  grains;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| • | Availability and costs of products and raw materials, particularly  corn and natural gas;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| • | Changes in planned production, variations in actual ethanol and  distillers grains production from expectations or technical difficulties in  operating the plant;                                                                                                                                                                                                                                                                                                                                                                                                         |
| • | Our ability to market and our reliance on third parties to market our  products;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| • | Changes in or elimination of governmental laws, tariffs, trade or  other controls or enforcement practices such as:

—  federal ethanol tax  incentives;

—  national, state or local  energy policy;

— legislation  establishing a renewable fuel standard or other legislation mandating the use  of   ethanol or other oxygenate  additives;

— state and federal regulation restricting or banning the use of  MTBE; or

— environmental laws and regulations that apply to our plant  operations and their enforcement; |
| • | Changes in the weather or general economic conditions impacting the  availability and price of corn and natural gas;                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| • | Total U.S. consumption of gasoline;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| • | Fluctuations in petroleum prices;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| • | Costs of construction and equipment;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| • | Changes in interest rates and the availability of credit to support  capital improvements, development, expansion and operations;                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| • | Our liability resulting from litigation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| • | Our ability to retain key employees and maintain labor relations;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| • | Changes in our business strategy, capital improvements or development  plans;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| • | Financial impacts of our hedging strategies;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| • | Our ability to generate free cash flow to invest in our business and  service our debt;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| • | Changes and advances in ethanol production technology;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| • | Competition from alternative fuels and alternative fuel additives;  and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| • | Other factors described elsewhere in this report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

The cautionary statementsreferred to in this section also should be considered in connection with anysubsequent written or oral forward-looking statements that may be issued by usor persons acting on our behalf.  We undertakeno duty to update these forward-looking statements, even though our situationmay change in the future. Furthermore, we cannot guarantee future results,events, levels of activity, performance, or achievements.  We caution you not to put undue reliance onany forward-looking statements, which speak only as of the date of this

 

12

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report.  You should read this reportand the documents that we reference in this report and have filed as exhibitscompletely and with the understanding that our actual future results may bematerially different from what we currently expect.  We qualify all of ourforward-looking statements by these cautionary statements.

 

**Overview**

 

United Wisconsin Grain Producers, LLC was formed as aWisconsin limited liability company on November 2, 2001, for the initialpurpose of constructing and operating a 40 million gallon per year nameplatecapacity ethanol plant near Friesland, Wisconsin.   We commenced operations in May 2005.  Since that time, we have been engaged in theproduction of ethanol and distillers grains. Our revenues are derived from thesale and distribution of our ethanol throughout the continental United Statesand in the sale and distribution of our distillers grains locally, throughoutthe continental United States and overseas.  In December 2006, we commenced construction of an expansion that, whencomplete, we expect will increase our production capacity to 60 million gallonsper year.  We have substantiallycompleted this expansion in this quarter and are continuing to bring the newequipment on-line to utilize the added production capacity to the extentpossible until the second phase of our expansion is complete.  We estimate that we will reach a 60 million gallonproduction rate by December 31, 2007. Following the completion of this expansion, we anticipate commencingconstruction of a 30 million gallon per year ethanol facility.  We are in the process of determining whetherthis 30 million gallon facility will be a stand-alone facility or part of asecond expansion to our existing plant. Definition and design work on this second production capacity increaseproject is presently underway.  Our boardhas approved expenditures for certain processes within this second capacityincrease project which have been defined.  To date we have financed all of our capital projects from operationscash flow.

 

We expect to fund our operations during the next 12months using cash flow from continuing operations and our creditfacilities.  We expect to continue ongoingresearch and development activities in the next 12 months in the form ofcommissioning studies on internal energy generation in conjunction with ourplant production capacity increases, in particular the possibility of usingpost-fermentation corn solids or other renewable fuel as an energy source,thereby offsetting our natural gas usage. This work has postponed the completion date for the 30 million galloncapacity increase.  This is because thedesign of the 30 million gallon per year facility is affected by our energytechnology choice.

 

We are subject to industry-wide factors that affectour operating and financial performance. Our operating results are largely driven by the prices at which we sellethanol and distillers grains and the costs related to their production,particularly corn and natural gas. Historically, the price of ethanol tends to fluctuate in the samedirection as the price of unleaded gasoline and other petroleum products.  However, more recently surplus ethanolsupplies due to increased production capacity in the industry have putsignificant downward pressure on ethanol prices even though unleaded gasolineprices have increased.  In addition, theprice of ethanol is generally influenced by factors such as general economic conditions,the weather, the season, and government policies and programs.  The price of distillers grains is generallyinfluenced by supply and demand, seasonal fluctuations and the price ofsubstitute livestock feed, such as corn and soybean meal and other animal feedproteins.  Surplus corn and/or proteinsupplies tend to put downward pressure on distillers grains pricing.  In addition, our revenues are also impactedby factors such as our dependence on one or a few major customers who purchaseand distribute our primary product; the intensely competitive nature of ourindustry; possible legislative changes at the federal, state and/or locallevel; changes in federal ethanol tax incentives; and the continuing rapidgrowth of ethanol production capacity.

 

                Our two largestcosts of production are corn and natural gas. Both of these costs are affected by factors largely out of ourcontrol.  The cost of corn is affectedprimarily by the market’s perception of supply and demand factors such as cropproduction, industry year-end inventories, exports, government policies andprograms, risk management and weather. The growth of the ethanol industry itself has increased the averageprice of corn and is expected to continue to support the increased averageprice of corn as demand for corn continues to rise.  Natural gas prices fluctuate with the energycomplex in general, but also have independent cost factors such as weather inthe production areas, production disruption, storage levels, pipeline capacityand weather in use areas.  Over the lastfew years, natural gas prices have remained much higher than historicalaverages and it appears prices will continue to remain above previous averagesdue to the high price of alternative fuels such as fuel oil.  Our costs of production are also affected bythe cost of complying with the extensive environmental laws that regulate ourindustry.

 

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**Results of Operations**

 

***Comparison of the three months ended September 30, 2007 and 2006***

 

The following table showsthe results of our operations and the percentage of revenues, cost of goodssold, operating expenses and other items to total revenues in our statement ofoperations for the three months ended September 30, 2007 and 2006:

 
| ** **                 | ** ** | **Three Months Ended**

**September 30, 2007**

**(unaudited)** | ** ** | **Three Months Ended**

**September 30, 2006**

**(unaudited)** | ** ** |
|----------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| **Income  Statement Data** | ** ** | **Amount**                                                      | ** ** | **%**                                                           | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                   |       | $                                                               | 26,714,846 |                                                            | 100.0      |   | $ | 29,725,303 |   | 100.0 |   |
|                       |       |                                                            |       |                                                            |       |   |   |   |   |
| Cost of Goods Sold         |       | $                                                               | 21,667,111 |                                                            | 81.1       |   | $ | 17,121,260 |   | 57.6 |   |
|                       |       |                                                            |       |                                                            |       |   |   |   |   |
| Gross Profit               |       | $                                                               | 5,047,735  |                                                            | 18.9       |   | $ | 12,604,043 |   | 42.4 |   |
|                       |       |                                                            |       |                                                            |       |   |   |   |   |
| Operating Expenses         |       | $                                                               | 826,488    |                                                            | 3.1        |   | $ | 695,628 |   | 2.3 |   |
|                       |       |                                                            |       |                                                            |       |   |   |   |   |
| Operating Income           |       | $                                                               | 4,221,247  |                                                            | 15.8       |   | $ | 11,908,415 |   | 40.1 |   |
|                       |       |                                                            |       |                                                            |       |   |   |   |   |
| Other Income (Expense)     |       | $                                                               | 30,507     |                                                            | 0.1        |   | $ | (104,261 | ) | (0.4 | ) |
|                       |       |                                                            |       |                                                            |       |   |   |   |   |
| **Net Income**             |       | $                                                               | 4,251,754  |                                                            | 15.9       |   | $ | 11,804,154 |   | 39.7 |   |
|                            |            |                                                                 |            |                                                                 |            |  |  |  |  |  |  |  |  |

 

                *Revenues*.  Revenues from operations for the three monthsended September 30, 2007 totaled $26,714,846. In the three months ended September 30, 2007 ethanol comprised 87% ofour revenues and distillers grain sales (DGS) comprised 13% of ourrevenues.  Revenues from operations forthe three months ended September 30, 2006 totaled $29,725,303, of which ethanolcomprised 91% and distillers grains comprised 9%.  The 10% decrease in revenues from operationsfor the three months ended September 30, 2007 compared to the three monthsended September 30, 2006 is a net result of an 18% decrease in the price pergallon of ethanol, which was partially offset by a 4% increase in the gallonsof ethanol sold, and a 32% increase in the price of distillers grains.

 

The price of ethanol in the three months endingSeptember 30, 2007 was down 18% from the price for the same three months in2006.  The price of ethanol in the threemonths ending September 30, 2007 was down 10% from the preceding quarter, butremained favorable.  Ethanol pricescontinued to trend lower than their peak in July 2006 but still exceededhistorical averages.  Managementcurrently expects short-term and mid-term ethanol prices to remain higher thanhistorical averages due to a high demand for ethanol which may be contributedto by a number of factors, including the use of ethanol as an oxygenate toreplace MTBE, the high price of gasoline encouraging voluntary blending ofethanol and the growing recognition of ethanol as an alternative energysource.  However, management believes theindustry will need to continue to grow demand in order to increase or sustaincurrent prices.  According to theRenewable Fuels Association, as of October 30, 2007 there were 131 ethanolplants in operation nationwide with the capacity to produce more than 7.0billion gallons of ethanol annually, with an additional 72 new plants and tenexpansions under construction expected to add an additional estimated 6.5billion gallons of annual production capacity in the next 12 to 18 months.  Unless this new supply is equally met withincreased demand, downward pressure on ethanol prices could continue tooccur.  If ethanol prices continue todecline, our earnings will also decline, particularly if corn prices remainsubstantially higher than historic averages.

 

Our revenues include aloss of $50,760 for the three months ended September 30, 2007 related to ourethanol derivative instruments.  We recognize the gains or losses thatresult from the changes in the value of our ethanol-related derivativeinstruments in revenues as the changes occur.  As ethanol pricesfluctuate, the value of our ethanol-related derivative instruments changes;this affects our financial performance.  We expect the volatility in thesederivative instruments to continue to have an effect on our revenues due to thetiming of the changes in value of the derivative instruments relative to oursales.   These instruments are theprimary tools of our risk management program for ethanol revenues.

 

14

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                The sales pricesfor our distillers grains for the three months ended September 30, 2007 were up32% from the same three months in 2006. The rising cost of corn and other alternative feed sources has pusheddistillers grains prices upward in recent months.  Distillers grains prices are expected tofollow the price of corn for the foreseeable future unless the price of soybeanmeal or other protein sources changes significantly.  Additionally, an increased supply ofdistillers grains resulting from additional ethanol production may put downwardpressure on distillers grains prices.  Todate, additional distillers grains demand has come from increased domesticusage and increased overseas demand for distillers grains.

 

                *Cost of Goods Sold*.  Our cost of goods sold from the production ofethanol and distillers grains is primarily made up of raw grains expenses(corn) and energy expenses (natural gas and electricity).  Cost of goods sold for the three months endedSeptember 30, 2007 totaled $21,667,111 as compared to $17,121,260 for the threemonths ended September 30, 2006.  The 27%increase in cost of goods sold in the three months ended September 30, 2007 ascompared to the same three months the previous year is a net result of a 41%increase in the cost of corn and other ingredients partially offset by a 30%decrease in the cost of production labor. Our decreased cost of production labor is primarily the result ofdecreased costs in connection with our high earnings reward profit-sharingprogram.

 

                The average corn price for the 3rdquarter 2007 was 44% higher than the average for the same quarter in 2006.  The lower prices realized in 2006 were due inpart to forward purchases we had made prior to the 3rd quarter,which ultimately lowered our average price for third quarter 2006.  Corn prices, along with most agriculturalcommodities, have been trending higher for the past year.  Chicago Board of Trade corn futures contractshave traded from a low of $2.70 in early spring 2006 to a high of $4.31 inmid-June 2007.  This $1.61 trading rangeis due to increased volatility surrounding the supply and demand picture forcorn.  A large portion of this volatilitywas due in part to the rapid expansion taking place in the ethanol productionindustry.  Ethanol production facilitieswere experiencing larger than average profit margins, thus encouraging many newfacilities to be constructed throughout the country.  This rapid expansion has brought about asubstantial increase in demand for corn and thus in corn prices. The weakdollar has also promoted strong export sales of corn, adding to the strongdemand picture.  Prices have remainedrelatively higher for a prolonged period, encouraging producers to supplyadequate product to meet this increased demand. The corn crop for 2007 is projected to be nearly 13.3 billion bushels,allowing a projected carryout number of slightly less than 2 billionbushels.  Historically, this is a verylarge carryout volume, but given the projected total future demand, corn hasstruggled to trade at a lower price. Recently, ethanol margins have tightened considerably, which may reducethe domestic demand for corn.  However,current high wheat prices and high soybean prices could lure acres out of cornproduction in 2008, which could increase corn prices and further increase ourcost of goods sold.

 

Our cost of goods soldincludes a gain of $503,339 for the three months ended September 30, 2007 related to our cornderivative instruments as compared to a $506,853 gain for the three monthsended September 30, 2006. We recognize the gains or losses that result from the changes in the value ofour corn-related derivative instruments in cost of goods sold as the changesoccur.  As corn prices fluctuate, the value of our derivative instrumentschanges, which affects our financial performance.  We anticipate continuedvolatility in our cost of goods sold due to the timing of the changes in valueof the derivative instruments relative to the cost and use of the commoditybeing hedged.   These instrumentsare the primary tools of our risk management program for corn prices.

 

Natural gas is also animportant input to our manufacturing process. The price and volume of our natural gas for the three months endedSeptember 30, 2007 remained relatively unchanged as compared to the same periodin 2006.   We estimate that our naturalgas usage is approximately 123,000 million British thermal units (“MMBTU”) permonth.  We use natural gas to dry a majority of our distillers grainsproducts to moisture contents at which they can be stored for longer periodsand transported greater distances, so that we can market them to broaderlivestock markets, including poultry and swine markets in the continental United States and to markets in Asia.  Overthe past two to three quarters natural gas has been available only at pricesexceeding historical averages. These heightened prices increase our costs ofproduction.  Although natural gas prices have trended lower since theirpeak in late 2005, we expect natural gas prices to remain higher than historicprices given the higher prices of energy sources generally.  We expect ournatural gas costs to remain at or near costs experienced over the past fourquarters, which will continue to have a negative impact on our cost of goodssold.  We have secured a marketing firmand energy consultant for our natural gas supply and will continue to work withthem on an ongoing basis to

 

15

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mitigate our exposure to volatile gasprices.   We have also secured firmpipeline capacity for natural gas delivery of 4,000 MMBTU per day.

 

*Gross Profit*.  Gross profit for the three months endingSeptember 30, 2007 was $5,047,735, a 60% decrease from the gross profit of$12,604,043 for the three months ending September 30, 2006.  This decrease is due primarily to an 18%decrease in the selling price of our ethanol (see “Revenues” above) and a 44%increase in our cost of corn (see “Cost of Goods Sold” above).

 

In the three months endingSeptember 30, 2007, although the spread between the selling price of theethanol and distillers grains we sold and the cost of the raw materialsrequired to produce our ethanol and distillers grains was down from thepreceding quarter, we still realized a favorable margin.  The spread between the price we receive forour products and the costs of our raw materials may not continue at thisfavorable rate in the future.  Therapidly increasing supply of ethanol may outpace the demand for ethanol,placing additional downward pressure on our selling price and further erodingour margins.  A decrease in this spreadwill adversely affect our financial performance.

 

*Operating Expenses*. Operating expenses of $826,488 for the three months ending September 30,2007 represented 3.1% of our revenues as compared to operating expenses of$695,628 for three months ending September 30, 2006, which represented 2.3% ofour revenues.  The increasein operating expenses for the three months ended September 30, 2007 was primarilydue to an increase in administrative expenses, including expenses for insurancetied to our expansion and trade organization membership dues.

 

*                OperatingIncome*.  Operatingincome for the threemonths ending September 30, 2007 totaled $4,221,247, or 16%of revenues.  Operating income for the three months ending September 30,2006 totaled $11,908,415, or 40% of revenues.  The decrease in operating income for the three monthsending September 30, 2007 compared to the three months ending September 30,2006 is primarily a result of the decrease in “Gross Profit” (discussed above).

 

*Other Income (Expense)*.  Our other income (expense) for the three months ending September 30,2007 was income of $30,507 as compared to an expense of $104,261 for the three months ending September 30, 2006.  Our other income (expense) items at September 30, 2007 consistedprimarily of interest income, interest expense, and a net loss oninvestment.  Our other income (expense)items at September 30, 2006consisted primarily of a net interest expense. The changes in other income (expense) items were due primarily to anincrease in interest income.

 

We did not receive anypayments from the USDA CCC Bioenergy program in the three months ending September 30, 2007 as compared toreceipt of payments totaling $21,244 for the three months ending September 30, 2006.  Paymentsunder the Bioenergy Program were based upon increases in ethanol productionrelative to the previous year.  The CCC announced that its funds would beexhausted in the third quarter of the government’s 2006 fiscal year and theprogram terminated as of September 30, 2006. For this reason, we will not receive any further income from thisprogram.

 

***Comparison of the nine months ended September 30, 2007 and 2006***

 

The following table showsthe results of our operations and the percentage of revenues, cost of goodssold, operating expenses and other items to total revenues in our statement ofoperations for the nine months ended September 30, 2007 and 2006:

 
| ** **                 | ** ** | **Nine months Ended**

**September 30, 2007**

**(Unaudited)** | ** ** | **Nine months Ended**

**September 30, 2006**

**(Unaudited)** | ** ** |
|----------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| **Income  Statement Data** | ** ** | **Amount**                                                     | ** ** | **%**                                                          | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                   |       | $                                                              | 84,064,805 |                                                           | 100.0      |   | $ | 83,121,914 |   | 100.0 |   |
|                       |       |                                                           |       |                                                           |       |   |   |   |   |
| Cost of Goods Sold         |       | $                                                              | 64,268,372 |                                                           | 76.5       |   | $ | 52,230,681 |   | 62.8 |   |
|                       |       |                                                           |       |                                                           |       |   |   |   |   |
| Gross Profit               |       | $                                                              | 19,796,433 |                                                           | 23.5       |   | $ | 30,891,233 |   | 37.2 |   |
|                       |       |                                                           |       |                                                           |       |   |   |   |   |
| Operating Expenses         |       | $                                                              | 2,639,461  |                                                           | 3.1        |   | $ | 2,048,468 |   | 2.5 |   |
|                       |       |                                                           |       |                                                           |       |   |   |   |   |
| Operating Income           |       | $                                                              | 17,156,972 |                                                           | 20.4       |   | $ | 28,842,765 |   | 34.7 |   |
|                       |       |                                                           |       |                                                           |       |   |   |   |   |
| Other Income (Expense)     |       | $                                                              | (67,632    | )                                                              | (0.1       | ) | $ | (1,036,929 | ) | (1.2 | ) |
|                       |       |                                                           |       |                                                           |       |   |   |   |   |
| **Net Income**             |       | $                                                              | 17,089,340 |                                                           | 20.3       |   | $ | 27,805,836 |   | 33.5 |   |
|                            |            |                                                                |            |                                                                |            |  |  |  |  |  |  |  |  |  |  |  |

 

 

16

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                *Revenues*.  Revenues from operations for the nine monthperiods ended September 30, 2007 and 2006 totaled $84,065,805 and $83,121,914,respectively.  The 1.1% increase inrevenues from the nine months ended September 30, 2007 compared to the ninemonths ended September 30, 2006 was primarily a net result of a 5.6% increasein gallons of ethanol sold, a 6.5% decrease in the selling price of ethanol,and an 18.6% increase in the selling price of our distillers grains.

 

                *Cost of Goods Sold*.  Our cost of goods sold as a percentage ofrevenues were 76.5% and 62.8% for the nine months ended September 30, 2007 and2006, respectively.  The increase in ourcost of goods sold percentage is primarily due to a 39.2% increase in the priceof corn, the reasons for which are further discussed in “RESULTS OF OPERATIONS— *Comparison of the three months ended September 30,2007 and 2006.”*

 

*Operating Expenses*. Our operating expenses as a percentage of revenues resulted in a slightincrease to 3.1% from 2.5% for the nine months ended September 30, 2007 ascompared to the same period in 2006, due primarily to an increase in generaland administrative labor expense and insurance expense.

 

*                OperatingIncome*.  Ourincome from operations as a percentage of revenues decreased to 20.4% from34.7% for the nine months ended September 30, 2007 compared to the nine monthsended September 30, 2006.  Higher corncosts, as discussed in *Cost of Goods Sold*above, have decreased our margins from the same period in 2006, causing ouroperating income to represent a lower percentage of revenues, as discussed also in “RESULTS OFOPERATIONS — *Comparison of the three months ended September 30,2007 and 2006.”*

 

*Other Income (Expense)*.  Our other income (expense) as a percentage ofrevenues was an expense of 0.1% and an expense of 1.2% for the nine monthsended September 30, 2007 and 2006, respectively.  The decrease in net expense for the ninemonths ending September 30, 2007 is due in part to our reduction in interestexpense to $801,816 from $1,213,948 and our increase in interest income to$791,084 from $267,220, as compared to the same period in 2006.  There was also a $519,406 write-down of debtfinancing costs in 2006 and no such cost in the first nine months of 2007.  Further, we did not receive any payments fromthe USDA CCC Bioenergy program in the nine months ending September 30, 2007 ascompared to receipt of payments totaling $393,336 for the nine months endingSeptember 30, 2006.  Payments under the Bioenergy Program are based uponincreases in ethanol production relative to the previous year.  The CCCannounced that its funds would be exhausted in the third quarter of thegovernment’s 2006 fiscal year and the program terminated as of September 30,2006.  For this reason, we will notreceive any further income from this program.

 

**Changes in Financial Condition forthe Nine Months Ended September 30, 2007 Compared to the Fiscal Year EndedDecember 31, 2006.**

 

                Assetstotaled $81,949,395 on September 30, 2007, as compared to $84,946,319 onDecember 31, 2006.  Current assetstotaled $29,858,861 on September 30, 2007, as compared to $37,482,095 onDecember 31, 2006.  This change resultedfrom (i) a reduction in cash and cash equivalents on hand, which is primarily anet result of an increase in cash from operations less the $18,304,080 cashused for our member distributions in February and August 2007 and (ii) a$323,087 decrease in the restricted cash required by our broker for ourderivative instruments.

 

                Currentliabilities totaled $4,345,267 on September 30, 2007, as compared to $5,182,917on December 31, 2006. This change resulted primarily from a decrease inaccounts payable and a decrease in accrued liabilities.  Long term debt, net of current maturities,totaled $13,421,106 on September 30, 2007, as compared to $14,349,980 on

 

 

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December 31, 2006.  This reduction is a direct reflection of theprincipal payments made on our long-term debt as required by our loanagreement.

 

                Member’sEquity totaled $64,183,022 on September 30, 2007, as compared to $65,413,512 onDecember 31, 2006.  This change is a netresult of earnings less the aggregate $18,304,080 membership distributions paidout in February and August  2007 and$15,750 paid out for the repurchase of five membership units.  On June 11, 2007 the boardapproved up to $1 million to explore/pursue the option of buying backmembership units offered for sale at the market price.  As of September 30, 2007, the board hadapproved a unit purchase of five units for $15,750 effective September 1, 2007and a purchase of ten units for $31,000 effective October 1, 2007.  The purchase of ten units effective October1, 2007 has been accounted for as a prepaid expense.

 

**Liquidity and Capital Resources**

 

The following table showscash flows for the nine months ended September 30, 2007 and 2006:

 
| ** **                                | ** ** | **Nine months ended September 30** | ** **  |
|-------------------------------------------|------------|------------------------------------|-------------|
| ** **                                | ** ** | **2007**                           | ** **  | **2006** | ** ** |
| Net cash provided by operating activities |       | $                                  | 21,293,535  |   | $ | 28,837,968 |   |
| Net cash used in investing activities     |       | $                                  | (8,431,461  | ) | $ | (1,355,503 | ) |
| Net cash used in financing activities     |       | $                                  | (19,159,445 | ) | $ | (20,198,496 | ) |
|                                           |            |                                    |             |  |  |  |  |  |  |

 

*Cash Flow Provided by Operations.** *Our net cash flow providedfrom operating activities for the nine months ending September 30, 2007 was$21,293,535, as compared to $28,837,968 for the same period the previousyear.  The decrease in net cash flowprovided from operating activities for the nine months ending September 30,2007 compared to the nine months ending September 30, 2006 was primarily due toa net result of a decrease in net income and an increase in accountsreceivable.  Our capital needs are adequately met through cash from ouroperating activities and our current credit facilities.

 

*Cash Flow Used In Investing Activities.** *Our net cash flow used ininvesting activities for the nine months ending September 30, 2007 constitutedexpenditures of $8,431,461, as compared to expenditures of $1,355,503 for thesame period the previous year.  Theincrease in expenditures for the nine months ending September 30, 2007 comparedto the nine months ending September 30, 2006 is due primarily to (i) constructionin process payments of $7,211,783, most of which is for Phase I of the plantexpansion and (ii) the $1,055,000 investment in the First Missouri Energyproject (discussed below).

 

Management estimates thatapproximately $3,500,000 in capital expenditures will be made in the next sixmonths for general operational improvements in grains shipping, receiving andstorage, and completion of  Phase I ofthe plant production expansion.

 

It is presently estimatedan additional $31,000,000 will be spent over the next twenty months for anadditional 30 million gallon per year facility at our plant site (See ***“Construction in Process”*** below),all of which is expected to be financed from a portion of cash flows fromoperations and additional debt financing.  We are in theprocess of determining whether this 30 million gallon facility will be astand-alone facility or part of an expansion to our existing plant.  Utilizing cash generated from operations forthe plant expansion may impact our ability to pay out future memberdistributions.  Our projections are basedupon our historical operating costs and historical revenues.  However, our past financial performance maynot accurately predict future results.  We currently estimate the 30million gallon per year facility will be complete by June 2009; however,construction may not stay on schedule and we may not be able to operate at theexpanded production levels by June 2009.

 

In addition to capitalinvestment to increase the capacity and efficiency of our Friesland facility,on February 12, 2007 our board approved a $10,000,000 investment for anapproximate 28% ownership interest in a joint venture to construct and operatea 55 million gallon capacity ethanol plant at Cape Girardeau, Missouri.  It is presently anticipated that the production ofethanol at this new plant will commence in early 2010.  As of September 30, 2007we had paid out a total of $1,155,000 on this project.  Our commitment to the project was reduced to$6,285,000 in April 2007.  We expect thatour ownership share will be reduced from 28% due to our lower capital

 

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contribution and expected increase in thetotal equity requirement for the project. We expect to pay our remaining capital contribution upon loan closingonce we are able to obtain debt financing for the project.

 

*Cash Flow Used InFinancing Activities.** *We used cashto pay down our debt by $855,365 during the nine months ending September 30,2007 compared to $8,686,496 used for debt payments for the nine months endingSeptember 30, 2006.  The principal paidin the nine months ending September 30, 2007 was pursuant to the ten-yearamortization required by our existing loan agreement with Farmers &Merchants Union Bank.  The principal paidduring the nine months ending September 30, 2006 included additional principalpayments allowed for by our loan agreement with our previous lender, AgStarFinancial Services, in an effort to reduce debt.  During the nine months ending September 30,2007, we made cash distributions to our members in the aggregate amount of$18,304,080 as compared to $11,512,000 in the nine months ending September 30,2006.

 

                ***Short-Termand Long-Term Debt Sources***

 

On May 25, 2006, we signed credit agreements with Farmers &Merchants Union Bank of Friesland, Wisconsin and refinanced our initial termdebt and revolving loan commitment.  Thecredit facility is secured by substantially all of our assets.   The term loan of $16,040,376 is for fiveyears with a ten-year amortization. Payments on the term loan are paid in monthly installments, includingprincipal and interest.  The interestrate is fixed at 7.4% for both the term and revolving loan for 5 years.  Interest is due monthly on the revolving loancommitment.

 

As of September 30, 2007and December 31, 2006, we had outstanding debt of $14,659,265 and $15,514,630,respectively, on the term debt and did not have any borrowings on the revolvingloan.

 

There is an annualfacility fee of $20,000 on the term loan beginning on the closing date, May 25,2006, and upon each anniversary until its maturity.  There is an additional $10,000 annual servicefee for the revolving credit agreement which can be terminated prior to itsmaturity, thereby discontinuing the service fee.  No prepayment fees exist on either loan.

 

These loans are subject toprotective covenants requiring us to maintain various financial ratios. We arerequired to maintain a minimum tangible net worth of $24,000,000 and toincrease our tangible net worth annually by the lesser of $500,000 or an amountequal to retained earnings.  Our owners’equity is to be at least 45% of tangible net assets and we must maintain aworking capital position of at least $4,000,000.  We must receive written approval from ourlender to exceed $1,000,000 in annual capital expenditures and we must obtainconsent prior to making membership distributions in excess of 65% of theprevious year’s net income, excluding state and federal incentivepayments.   Farmers & Merchants UnionBank approved our member distribution of $14,390,000 in February 2007 and of$3,914,080 in August of 2007 and has also approved our additional anticipatedcapital expenditures in excess of $1,000,000 for 2007.  As of September 30, 2007, we are incompliance with all of our financial debt covenants.  The loan remains secured by substantially allof our assets.

 

**Construction in Process**

 

                Our current annualproduction rate is approximately 52 million gallons.  At the completion of Phase I of our capacityexpansion we expect to reach 60 million gallons per year, the capacitypermitted by our construction permit. Phase I entails increasing the cook and fermentation systemcapacity.  On December 15, 2006, theWisconsin Department of Natural Resources approved our application for an airpollution control construction permit to construct the Phase I scope of workand operate our plant up to a capacity of 60 million gallons of ethanol peryear.   We estimate that we will reachthat rate of production by December 31, 2007; however, it is possible thatconstruction will not stay on schedule or that we will not be able to operateat 60 million gallons per year by the expected date.  As of September 30, 2007 we had incurredapproximately $6.57 million in construction-in-process expenses for Phase I ofour expansion.  We expect to complete thePhase I scope of work within the total budget of $6.7 million.

 

Other plant improvements are currently underway.  The grain storage capacity is being expandedfrom 450,000 bushel to 900,000 bushel, a $1,319,000 project approved by ourboard on May 10, 2007.  A new loadingsystem, including a separate loading bay, will soon be under construction inthe grain receiving area, a $1,124,000

 

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project also approved by our board on May 10, 2007.  A new distillers grains cooling and conveyingsystem is in the final design phase, a $2,050,000 project approved by our boardon June 11, 2007.  Whereas theseimprovements will not increase capacity and they are not part of our “capacityexpansion plans,” they will contribute to operation efficiency and customerservice.  All of these projects are inprogress and as of September 30, 2007 we had incurred approximately $990,000 inconstruction-in-process costs towards their completion.

 

On October 10, 2006 the board approved $535,000 forthe construction of a new maintenance building. The new building is intended to provide additional area for plantmaintenance to minimize lost opportunity due to plantinterruptions, allowing the maintenance department to entertain multipleprojects simultaneously, ranging from large pipe fabrication to complexelectrical circuit design.  The buildingalso reduces risk and improves safety by moving hazardous shop operations outof the process facility.  Theconstruction of this new facility was recently completed within its originalbudget amount.

 

We have engaged an engineering firm to assist indeveloping a plan to add an additional 30 million gallons of productioncapacity at our plant site.   Theestimated cost of this work is approximately $31,000,000, although we have notfinalized the design and the scope of work at this time.  Some capital approvals have been made towardsareas of this project which have been defined. On May 10, 2007 the board approved an expenditure of $1,350,000 for thecentrifuges and on June 11, 2007 the board approved an expenditure of$16,700,000 for the expansion of the distillation, dehydration, and evaporation(DD&E) system.  As of September 30,2007 we have incurred construction-in-process costs of approximately $830,000towards this effort.

 

                All of the fundsexpended thus far have been from income derived from operations.  We expect to finance the added productioncapacity through a combination of earnings from operations and additional debtfinancing.  This could limit our abilityto make member distributions as they have occurred in the past.  We may not be able to finance the projects asanticipated.

 

**Subsequent Events**

 

Our ethanol marketingagreement with RPMG expired by its terms on April 30, 2006. Since that time, wehave continued to market our ethanol through RPMG on a month-to-monthbasis.  On October 11, 2007, we providednotice to RPMG that we no longer intend to utilize the ethanol marketingservices of RPMG after December 31, 2007. Currently RMPG is the sole buyer of all of the ethanol that weproduce.  Although we have hadpreliminary discussions with other ethanol marketers, we have not yet enteredinto a binding agreement with another ethanol marketer to market our ethanolafter December 31, 2007.  If we areunable to reach an agreement with another ethanol marketer we may seek otherarrangements to sell our ethanol, including selling our own product; however,our sales efforts may not achieve results comparable to those achieved by RPMGor that could be achieved by another marketer.

 

**Off Balance Sheet Arrangements.**

 

We currently do not haveany off-balance sheet arrangements.

 

**Application of Critical AccountingEstimates**

 

                There were no material changes in theCompany’s accounting estimates during the three or nine months ended September 30,2007.

 

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk.**

 

Weare exposed to the impact of market fluctuations associated with commodityprices as discussed below.  We have noexposure to foreign currency risk, as all of our business is conducted in U.S.Dollars, or to interest rate risk, as the interest rate for our existing termdebt and revolving loan commitment is fixed at 7.4% until May 2011.  We use derivative financial instruments aspart of an overall strategy to manage market risk.  We use cash, futures and option contracts tohedge changes to the commodity prices of corn and gasoline. We do not enterinto these derivative financial instruments for trading or speculativepurposes, nor do we designate these contracts as hedges for accounting purposespursuant to the requirements of SFAS 133, *Accounting for DerivativeInstruments and Hedging Activities*.

 

**Commodity Price Risk**

 

We are exposed to market risk from changes incommodity prices.  Exposure to commodity price risk results from ourdependence on corn and natural gas in the ethanol production process, and ourreliance on sales of ethanol.  We seek to minimize the risks fromfluctuations in the prices of corn and ethanol through the use of derivativeinstruments.  In practice, as markets move, we actively manage our riskand adjust hedging strategies as

 

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appropriate. Although we believe our hedge positions accomplish an economic hedge againstour future purchases, they are not designated as such for hedge accountingpurposes, which would match the gain or loss on our hedge positions to thespecific commodity purchase being hedged.  We are marking to market ourhedge positions, which means as the current market price of our hedge positionschanges, the gains and losses are immediately recognized in our cost of goodssold.

The immediate recognition of hedging gains and lossescan cause net income to be volatile from quarter to quarter due to the timingof the change in value of the derivative instruments relative to the cost anduse of the commodity being hedged.  AtSeptember 30, 2007 and December 31, 2006, the fair value of our derivativeinstruments for corn and gasoline is an asset in the amount of $152,628 and anasset in the amount of $150,463, respectively. At December 31, 2006, we held derivative instruments for corn, but noethanol-related derivative instruments. There are several variables that could affect the extent to which ourderivative instruments are impacted by price fluctuations in the cost of cornor gasoline. However, it is likely that commodity cash prices will have thegreatest impact on the derivative instruments with delivery dates nearest thecurrent cash price.

To manage our corn price risk, our hedging strategy isdesigned to establish a price ceiling and floor for our corn purchases. We have taken a net long position on our exchange-traded futures and optionscontracts, which allows us to offset increases or decreases in the market priceof corn.  The upper limit of loss on our futures contracts is thedifference between the contract price and the cash market price of corn at thetime of the execution of the contract.  The upper limit of loss on ourexchange-traded and over-the-counter option contracts is limited to the amountof the premium we paid for the option.

We estimate that our expected corn usage (withouttaking into account our additional expansion plans) is approximately 21.5million bushels per year for the production of 60 million gallons ofethanol.  We have price protection in place for a portion of our expectedcorn usage through December 2009 using forward contracts, CBOT futures and optionsand over-the-counter option contracts.  As we move forward, additionalprotection may be necessary.  As corn prices move in reaction to markettrends and information, our income statement will be affected depending on theimpact such market movements have on the value of our derivativeinstruments.  As we move forward, additional price protection may berequired to solidify our margins.  Depending on market movements, cropprospects and weather, these price protection positions may cause immediate adverseeffects, but are expected to produce long-term positive growth for us.

We have also entered into gasoline derivativeinstruments to hedge the variability of ethanol prices.  While not perfectly correlated we have foundthat ethanol and gasoline prices tend to move in tandem.  Therefore, the gasoline contracts the companyhas entered into are intended to offset cash decreases in the price of ethanolwe receive.

To manage our natural gas price risk, we have enteredinto forward contracts to purchase approximately 310,000 MMBTU of natural gasthrough November 2007 at an average price of approximately $7.40 perMMBTU.  We may also purchase additionalnatural gas requirements for the 2007 calendar year as we attempt to furtherreduce our susceptibility to price increases.

A sensitivity analysis has been prepared to estimateour exposure to corn and gasoline price risk. The table presents the fair valueof our derivative instruments as of September 30, 2007 and December 31, 2006and the potential loss in fair value resulting from a hypothetical 10% adversechange in such prices.  The fair value ofthe positions is a summation of the fair values calculated by valuing each netposition at quoted market prices as of the applicable date. The results of thisanalysis, which may differ from actual results, are as follows:

 
| ** **         | ** ** | **Fair Value** | ** ** | **Effect of Hypothetical**

**Adverse Change —Market Risk** | ** ** |
|--------------------|------------|----------------|------------|------------------------------------------------------------------|------------|
| September 30, 2007 |       | $152,628       |       | $15,263                                                          |       |
| December 31, 2006  |       | $150,463       |       | $15,046                                                          |       |

 

 

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**Item 4.   Controls and Procedures**

 

Our management, including our Chief Executive Officer (the principalexecutive officer), J.F. Robertson, along with our Chief Financial Officer,(the principal financial officer), Barb Bontrager, have reviewed and evaluatedthe effectiveness of our disclosure controls and procedures as of September 30,2007.  Based upon this review andevaluation, these officers have concluded that our disclosure controls andprocedures are effective in ensuring that information required to be disclosedin the reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods required by theforms and rules of the Securities and Exchange Commission; and in ensuring thatthe information required to be disclosed in the reports that we file or submitunder the Exchange Act is accumulated and communicated to our management,including our principal executive and principal financial officers, or personsperforming similar functions, as appropriate to allow timely decisionsregarding required disclosure.

 

Our management, consistingof our principal executive officer and principal financial officer, havereviewed and evaluated any changes in our internal control over financialreporting that occurred as of September 30, 2007 and there has been no changethat has materially affected or is reasonably likely to materially affect ourinternal control over financial reporting.

 

**PART II.     OTHERINFORMATION**

 

**Item 1.     LegalProceedings**

 

None.

 

**Item 1A.  Risk Factors**

 

                Thefollowing risk factor is provided due to materials changes from the RiskFactors previously disclosed in the Company’s annual report on Form10-KSB.  The Risk Factor set forth belowshould be read in conjunction with the Risk Factors section and the Management’sDiscussion and Analysis section for the fiscal year ended December 31, 2006included in the Company’s Annual Report on Form 10-KSB.

 

                 ***Carbondioxide may be regulated in the future by the EPA as an air pollutant requiringus to obtain additional permits and install additional environmental mitigationequipment, which could adversely affect our financial performance*. **The United States Supreme Court recentlydecided a case in which it ruled that carbon dioxide is an air pollutant underthe Clean Air Act for the purposes of motor vehicle emissions.  The lawsuit sought to require the EPA toregulate carbon dioxide in vehicle emissions. Similar lawsuits have been filed seeking to require the EPA to regulatecarbon dioxide emissions from stationary sources such as our ethanol plantunder the Clean Air Act.  Our plantproduces a significant amount of carbon dioxide that we currently vent into theatmosphere.  If the EPA regulates carbondioxide emissions by plants such as ours, we may have to apply for additionalpermits or we may be required to install carbon dioxide mitigation equipment ortake other as yet unknown steps to comply with these potentialregulations.  Compliance with any futureregulation of carbon dioxide, if it occurs, could be costly and may prevent usfrom operating the ethanol plant profitably which could decrease or eliminatethe value of our units.

 

                ***We have not yet entered into an agreementwith an ethanol marketer to market our ethanol after December 31, 2007. ***Currently RPMG is the solebuyer of all of the ethanol that we produce. Our ethanol marketing agreement with RPMG expired byits terms on April 30, 2006. Since that time, we have continued to market ourethanol through RPMG on a month-to-month basis. On October 11, 2007, weprovided notice to RPMG that we no longer intend to utilize the ethanolmarketing services of RPMG after December 31, 2007.  Although we have had preliminary discussionswith other ethanol marketers, we have not yet entered into a binding agreementwith another ethanol marketer to market our ethanol after December 31, 2007.  If we reach an agreement with another ethanolmarketer, we will likely have little control over that marketer’s salesefforts.  Our financial performance willlikely be dependent on the financial health of our new marketer, as asignificant portion of our accounts receivable are attributable to our sales ofethanol through our ethanol marketer.  Ifour new marketer was not in a position to purchase and market all of theethanol we produce, we could experience a material loss and we may not have anyreadily available means to sell our ethanol, and our financial performancewould be adversely and materially affected. If we are unable to reach an agreement with another ethanol marketer wemay seek other arrangements to sell our ethanol, including selling our

 

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own product; however, our sales efforts maynot achieve results comparable to those achieved by RPMG or that could beachieved by another marketer.

 

***Increases in the price of corn would reduce ourprofitability.**** *Our resultsof operations and financial condition are significantly affected by the costand supply of corn. Changes in the price and supply of corn are subject to anddetermined by market forces over which we have no control.  The price at which we purchase corn has risensubstantially in the last year and we expect the price to continue to increase.  While the predicted corn yield for the 2007harvest is approximately 13.3 billion bushels, the yield may be smaller thanexpected and new demand for corn may surpass any increase in the corn supply.

 

Increases in demand forcorn from both the world foodstuff markets and from increased production ofethanol have pushed the price of corn. We expect demand for corn from the ethanol industry to continue toexpand.  The Renewable Fuels Associationestimates as ofOctober 30, 2007, there were 131 ethanol plants in operation nationwide withthe capacity to produce approximately 7.0 billion gallons of ethanolannually.  An additional 72 new plantsand ten expansions are currently under construction, which will add anadditional estimated 6.5 billion gallons of annual production capacity.  Approximately 90% of the ethanol produced inthe United States uses corn as its feedstock. This increased supply of ethanol will continue to increase demand forcorn.

 

If the demand for corn continues to increase so will the price we payfor corn.  Since our revenues depend onthe spread between the selling price of our ethanol and the price we pay forcorn, increases in corn prices affect our ability to generate a profit.  This could negatively affect our futureprofitability.

 

***New plants under construction or decreases in the demand forethanol may result in excess production capacity in our industry.***  Thesupply of domestically produced ethanol is at an all-time high.  As of October 30, 2007, there were 131 ethanol plants inoperation nationwide with the capacity to produce approximately 7.0 billiongallons of ethanol annually.  Anadditional 72 new plants and ten expansions are currently under construction,which will add an additional estimated 6.5 billion gallons of annual productioncapacity.  Excess capacity in theethanol industry would have an adverse impact on our results of operations,cash flows and general financial condition.  If the demand for ethanoldoes not grow at the same pace as increases in supply, we would expect theselling price of ethanol to continue to decline.  If excess capacity inthe ethanol industry occurs, the market price of ethanol may decline to a levelthat is inadequate to generate sufficient cash flow to cover our costs.

 

**Item 2.    UnregisteredSales of Equity Securities and Use of Proceeds**

 

                None.

 

**Item 3.     DefaultsUpon Senior Securities**

 

None.

** **

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

 

None.

 

**Item 5.    OtherInformation**

 

**               **None.

 

**Item 6.    Exhibits**

 

(a)                                  The followingexhibits are filed as part of this report:

 
| **Exhibit No.** | ** ** | **Exhibit**                                      |
|-----------------|------------|--------------------------------------------------|
|            |       |                                             |
| 31.1            |       | Certificate  pursuant to 17 CFR 240.13a-14(a).   |
| 31.2            |       | Certificate  pursuant to 17 CFR 240.13a-14(a).   |
| 32.1            |       | Certificate  pursuant to 18 U.S.C. Section 1350. |
| 32.2            |       | Certificate  pursuant to 18 U.S.C. Section 1350. |

 

 

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** **

**SIGNATURES**

 

In accordance with the requirements of theExchange Act, the registrant caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|       | ** **        | **UNITED WISCONSIN GRAIN PRODUCERS, LLC**     |
|------------|-------------------|-----------------------------------------------|
| ** ** | ** **        | ** **                                    |
| Date:      | November 14, 2007 | /s/ J.F. Robertson                            |
|       |              | J.F. Robertson                                |
|       |              | Chief Executive Officer                       |
|       |              | (Principal Executive  Officer)                |
|       |              |                                          |
| Date:      | November 14, 2007 | /s/ Barb Bontrager                            |
|       |              | Barb Bontrager                                |
|       |              | Chief Financial Officer                       |
|       |              | (Principal Financial and  Accounting Officer) |

 

** **

 

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