**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-QSB**

 
| **ý** | ** ** | **Quarterly  report under Section 13 or 15(d) of the Securities Exchange Act of 1934.**                                                                                                                                                                     |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                        |
|       |       | **For the  quarter ended March 31, 2006**                                                                                                                                                                                                                   |
|       |       |                                                                                                                                                                                                                                                        |
| **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**

** **

**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

(Exact name of small business issuer asspecified in its charter)

 

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

 

**W1231Tessmann Drive,  Friesland, Wisconsin53935-0247**

(Address of principal executive offices)

 

**(920) 348-5016**

(Issuer’s telephone number)

** **

Check whether the issuer:  (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 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. | ý Yes | o No |
|-------------------------------------|------------|------|

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).
|   | o Yes | ý No |
|--------|-------|-----------|

 

State the number of sharesoutstanding for each of the issuer’s classes of common equity as of the latestpracticable date:  As ofMay 12, 2006 there were 28,780 membership units outstanding.

 
| Transitional Small Business Disclosure Format (Check one): | o Yes | ý No |
|------------------------------------------------------------|-------|-----------|

 

 

----

 

**INDEX**

 
| **PART I.**                                                                        | **FINANCIAL INFORMATION** | ** ** |
|------------------------------------------------------------------------------------|---------------------------|------------|
| ** **                                                                         | ** **                |
| **Item 1.  Financial Statements.**                                            | ** **                |
| **Item 2.  Management’s  Discussion and Analysis and Plan of Operation** | ** **                |
| **Item 3.  Controls and  Procedures**                                         | ** **                |
| ** **                                                                         | ** **                |
| **PART  II.**                                                                      | **OTHER  INFORMATION**    | ** ** |
| ** **                                                                         | ** **                |
| **Item 1.  Legal Proceedings**                                                | ** **                |
| **Item 2.  Unregistered Sales of Equity Securities and  Use of Proceeds**     | ** **                |
| **Item 3.  Defaults Upon Senior Securities**                                  | ** **                |
| **Item 4.  Submission of Matters to a Vote of Security  Holders**             | ** **                |
| **Item 5.  Other Information**                                                | ** **                |
| **Item 6.  Exhibits**                                                         | ** **                |
| ** **                                                                         | ** **                |
| **SIGNATURES**                                                                     | ** **                |

 

2

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**PARTI.     FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

 

CondensedBalance Sheet

 
| ** **                                            | ** ** | **March 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------|------------|
| ** **                                            | ** ** | **2006**           | ** ** |
| ** **                                            | ** ** | **(Unaudited)**    | ** ** |
| **ASSETS**                                            |       |               |       |
| ** **                                            |       |               |       |
| **Current Assets**                                    |       |               |       |
| Cash and cash equivalents                             |       | $                  | 416,025    |   |
| Restricted cash                                       |       | 67,850             |       |
| Trade account receivable                              |       | 4,403,421          |       |
| Federal and State program receivables                 |       | 762,084            |       |
| Prepaid expenses and other assets                     |       | 515,715            |       |
| Inventory                                             |       | 1,618,718          |       |
| Total current assets                                  |       | 7,783,813          |       |
|                                                  |       |               |       |
| **Property, Plant and Equipment**                     |       |               |       |
| Land and land improvements                            |       | 5,747,367          |       |
| Office equipment                                      |       | 368,743            |       |
| Administration building                               |       | 429,317            |       |
| Plant and process equipment                           |       | 46,502,801         |       |
| Total property, plant and equipment                   |       | 53,048,228         |       |
| Less accumulated depreciation                         |       | 4,154,171          |       |
| Net property, plant and equipment                     |       | 48,894,057         |       |
|                                                  |       |               |       |
| **Other Assets**                                      |       |               |       |
| Debt issuance costs, net of accumulated  amortization |       | 533,971            |       |
| Other                                                 |       | 1,000              |       |
| Total other assets                                    |       | 534,971            |       |
|                                                  |       |               |       |
| **Total Assets**                                      |       | $                  | 57,212,841 |   |

 

Notes to FinancialStatements are an integral part of this Statement.

 

3

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| ** **                                                           | ** ** | **March 31,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                           | ** ** | **2006**           | ** ** |
| ** **                                                           | ** ** | **(Unaudited)**    | ** ** |
| **LIABILITIES AND MEMBERS’ EQUITY**                             |       |               |       |
|                                                                 |       |               |       |
| **Current Liabilities**                                              |       |               |       |
| Current maturities of long-term debt                                 |       | $                  | 2,994,772  |   |
| Revolving line of credit                                             |       | 1,398,094          |       |
| Accounts payable                                                     |       | 2,753,994          |       |
| Derivative instruments                                               |       | 281,556            |       |
| Accrued liabilities                                                  |       | 400,225            |       |
| Total current liabilities                                            |       | 7,828,641          |       |
|                                                                 |       |               |       |
| **Long-Term Debt, less current maturities**                          |       | 13,529,117         |       |
|                                                                 |       |               |       |
| **Commitments and Contingencies**                                    |       |               |       |
|                                                                 |       |               |       |
| **Members’ Equity**                                             |       |               |       |
| Member contributions, net of costs related  to capital contributions |       | 27,696,394         |       |
| Retained earnings                                                    |       | 8,158,689          |       |
| Total members’ equity                                           |       | 35,855,083         |       |
|                                                                 |       |               |       |
| **Total Liabilities and Members’ Equity**                       |       | $                  | 57,212,841 |   |

 

Notes to FinancialStatements are an integral part of this Statement.

 

4

----

 

**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

 

CondensedStatement of Operations

 
| ** **                                                                 | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                 | ** ** | **March 31,**     | ** ** | **March 31,**     | ** ** |
| ** **                                                                 | ** ** | **2006**               | ** ** | **2005**               | ** ** |
| ** **                                                                 | ** ** | **(Unaudited)**        | ** ** | **(Unaudited)**        | ** ** |
|                                                                       |       |                   |       |                   |       |
| **Revenues**                                                               |       | $                      | 22,726,555 |                   | $          | — |   |
|                                                                       |       |                   |       |                   |       |
| **Cost of Goods Sold**                                                     |       | 17,428,968             |       | —                 |       |
|                                                                       |       |                   |       |                   |       |
| **Gross Profit**                                                           |       | 5,297,587              |       | —                 |       |
|                                                                       |       |                   |       |                   |       |
| **Operating Expenses**                                                     |       | 570,211                |       | 365,107                |       |
|                                                                       |       |                   |       |                   |       |
| **Operating Income (Loss)**                                                |       | 4,727,376              |       | (365,107               | )          |
|                                                                       |       |                   |       |                   |       |
| **Other Income (Expense)**                                                 |       |                   |       |                   |       |
| Grant income                                                               |       | —                 |       | 75,651                 |       |
| Interest income                                                            |       | 67,456                 |       | —                 |       |
| CCC Bio–Energy income                                                 |       | 287,084                |       | —                 |       |
| Interest expense                                                           |       | (395,810               | )          | (38                    | )          |
| Unrealized loss on derivative instruments                                  |       | —                 |       | 164,545                |       |
| Miscellaneous income                                                       |       | 17,314                 |       | —                 |       |
| Total other income (expense), net                                          |       | (23,956                | )          | 240,158                |       |
|                                                                       |       |                   |       |                   |       |
| **Net Income (Loss)**                                                      |       | $                      | 4,703,420  |                   | $          | (124,949 | ) |
|                                                                       |       |                   |       |                   |       |
| **Net Income (Loss) Per Unit**(28,780  weighted average units outstanding) |       | $                      | 163.43     |                   | $          | (4.34 | ) |
|                                                                       |       |                   |       |                   |       |
| Distribution Per Unit                                                      |       | $                      | 200.00     |                   | —     |   |
|                                                                            |            |                        |            |                        |            |  |  |  |

 

Notes to FinancialStatements are an integral part of this Statement.

 

5

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**UNITEDWISCONSIN GRAIN PRODUCERS, LLC**

 

CondensedStatements of Cash Flows

 
| ** **                                                                  | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                  | ** ** | **March 31,**     | ** ** | **March 31,**     | ** ** |
| ** **                                                                  | ** ** | **2006**               | ** ** | **2005**               | ** ** |
| ** **                                                                  | ** ** | **(Unaudited)**        | ** ** | **(Unaudited)**        | ** ** |
| **Cash Flows from Operating Activities**                                    |       |                   |       |                   |       |
| Net Income (Loss)                                                           |       | $                      | 4,703,420  |                   | $          | (124,949 | ) |
| Adjustments to reconcile net income (loss)  to net cash used in operations: |       |                   |       |                   |       |
| Depreciation and amortization                                               |       | 1,192,212              |       | 8,535                  |       |
| (Gain)/loss on derivative instruments                                       |       | 379,024                |       | (164,545               | )          |
| Grant income                                                                |       |                   |       | (75,651                | )          |
| Changes in assets and liabilities:                                          |       |                   |       |                   |       |
| Restricted Cash                                                             |       | 12,430                 |       |                   |       |
| Derivative instruments                                                      |       | (186,274               | )          | 276,071                |       |
| Accounts receivable                                                         |       | (1,473,985             | )          | 4,383                  |       |
| Inventory                                                                   |       | (207,971               | )          |                   |       |
| Prepaid expenses                                                            |       | (9,595                 | )          | (13,655                | )          |
| Accounts payable                                                            |       | (326,127               | )          | 327,477                |       |
| Accrued liabilities                                                         |       | 40,580                 |       | 76,217                 |       |
| Net cash provided by operating activities                                   |       | 4,123,714              |       | 313,883                |       |
|                                                                        |       |                   |       |                   |       |
| **Cash Flows from Investing Activities**                                    |       |                   |       |                   |       |
| Capital expenditures                                                        |       | (180,492               | )          | (33,486                | )          |
| Payments for construction in process                                        |       | —                 |       | (419,767               | )          |
| Net cash used in investing activities                                       |       | (180,492               | )          | (453,253               | )          |
|                                                                        |       |                   |       |                   |       |
| **Cash Flows from Financing Activities**                                    |       |                   |       |                   |       |
| Proceeds from revolving line of credit                                      |       | 1,398,094              |       | —                 |       |
| Proceeds from grants for operating expenses                                 |       | —                 |       | 67,133                 |       |
| Proceeds from grants for capital  expenditures                              |       | —                 |       | 263,563                |       |
| Proceeds from construction loan                                             |       | —                 |       | 531,940                |       |
| Payments for long term debt                                                 |       | (7,955,768             | )          | (442                   | )          |
| Payments for debt issuance costs                                            |       | —                 |       | (14,910                | )          |
| Payment of member distribution                                              |       | (5,756,000             | )          | —                 |       |
| Net cash provided by (used in) financing  activities                        |       | (12,313,674            | )          | 847,284                |       |
|                                                                             |            |                        |            |                        |            |  |  |

 

Notes to FinancialStatements are an integral part of this Statement.

 

6

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| ** **                                                                    | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                    | ** ** | **March 31,**     | ** ** | **March 31,**     | ** ** |
| ** **                                                                    | ** ** | **2006**               | ** ** | **2005**               | ** ** |
| ** **                                                                    | ** ** | **(Unaudited)**        | ** ** | **(Unaudited)**        | ** ** |
| ** **                                                                    | ** ** | ** **             | ** ** | ** **             | ** ** |
| **Net Increase (Decrease) in Cash**                                           |       | (8,370,452             | )          | 707,914                |       |
| ** **                                                                    |       |                   |       |                   |       |
| **Cash and Cash Equivalents**–  Beginning of Period                      |       | 8,786,477              |       | 9,068                  |       |
|                                                                          |       |                   |       |                   |       |
| **Cash and Cash Equivalents**–  End of Period                            |       | $                      | 416,025    |                   | $          | 716,982 |   |
|                                                                          |       |                   |       |                   |       |
| **Supplemental Cash Flow Information**                                        |       |                   |       |                   |       |
|                                                                          |       |                   |       |                   |       |
| Cash paid during the period for:                                              |       |                   |       |                   |       |
| Interest                                                                      |       | $                      | 395,810    |                   | $          | 38 |   |
|                                                                          |       |                   |       |                   |       |
| **Noncash Investing and Financing Activities**                                |       |                   |       |                   |       |
|                                                                          |       |                   |       |                   |       |
| Capital expenditures and construction in  process funded by construction loan |       | $                      | —     |                   | $          | 4,916,471 |   |
|                                                                          |       |                   |       |                   |       |
| Operating expenses funded by construction  loan                               |       | $                      | —     |                   | $          | 1,200 |   |
|                                                                          |       |                   |       |                   |       |
| Construction in process in grants  receivable                                 |       | $                      | —     |                   | $          | 205,096 |   |
|                                                                          |       |                   |       |                   |       |
| Construction in process in accounts payable                                   |       |                   |       |                   | $          | 4,164,764 |   |
|                                                                          |       |                   |       |                   |       |
| Debt issuance costs in accounts payable                                       |       | $                      | —     |                   | $          | 671 |   |

 

Notes to FinancialStatements are an integral part of this Statement.

 

7

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

 

Notesto Unaudited Financial Statements

 

March31, 2006 and 2005

 

**1.  SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

Theaccompanying unaudited condensed financial statements have been preparedpursuant to the rules and regulations of the Securities and ExchangeCommission.  Certain information and footnote disclosures normallyincluded in annual financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America have beencondensed or omitted as permitted by such rules and regulations.  Thesefinancial statements and related notes should be read in conjunction with thefinancial statements and notes thereto included in the Company’s auditedfinancial statements for the year ended December 31, 2005, contained in theCompany’s annual report on Form 10-KSB for 2005.

 

Inthe opinion of management, the interim condensed financial statements reflectall adjustments considered necessary for fair presentation.  Theadjustments made to these statements consist only of normal recurringadjustments.

 

*Nature of Business*

 

United Wisconsin Grain Producers LLC (a Wisconsin limited liabilitycompany) is a 40 million gallon ethanol plant located near the town ofFriesland in the township of Randolph, Wisconsin. The company sells itsproduction of ethanol and distillers grains, a co-product of ethanolproduction, within the United States.

 

The Company was organized in November of 2001 to pool investors, someof whom provide a corn supply on a commercial basis. The Company was adevelopmental stage entity prior to commencing operations on May 5, 2005.

 

*Accounting Estimates*

 

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

 

*Revenue Recognition*

 

The Company recognizes revenue at the time title to the goods and allrisks of ownership transfer to the customer, which generally occurs uponshipment to the customer or when the customer picks up the goods. TheCompany records revenue from federal and state incentive programs related tothe production of ethanol when the Company has sold the ethanol and completedall the known requirements of the applicable incentive program.

 

*Cash and Cash Equivalents*

 

The Company considers all highly liquid debt instruments purchased witha maturity of three months or less to be cash equivalents. The Companymaintains its accounts primarily at two financial institutions. At timesthroughout the year, the Company’s cash and cash equivalents balances mayexceed amounts insured by the Federal Deposit Insurance Corporation.

 

*Restricted Cash*

 

The Company is required to deposit cash into a restricted cash accountby the Company’s broker as discussed below.

 

8

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*Trade Accounts Receivable*

 

Tradeaccounts receivable are recorded at their estimated net realizable value, netof an allowance for doubtful accounts. The Company extends credit tocustomers for sales of ethanol and distillers grain in the normal course ofbusiness. Credit is extended based on an on-going evaluation of a customer’s financialconditions and generally no collateral is required. If payment is not receivedon a timely basis in accordance with the Company’s credit terms it isconsidered past due. Management performs on-going credit evaluations ofcustomers and maintains allowances for potential credit losses when required. AtMarch 31, 2006, the Company believes all receivables are fully collectible andno allowance for doubtful accounts is deemed necessary.

 

*Inventory*

 

Inventory consists of raw materials, work in process, and finishedgoods. Corn is the primary raw material and along with other raw materials, isstated at the lower of average cost or market. Finished goods consist ofethanol and distillers grains produced, and are stated at the lower offirst-in, first-out, (FIFO method) cost or market.

 

*Property, Plant and Equipment*

 

Property, plant and equipment are stated at the lower of cost orestimated value. Depreciation is computed over estimated useful lives by theuse of the straight-line method. Maintenance and repairs are expensed asincurred; major improvements and betterments are capitalized.

 

The Company reviews its property, plant and equipment for impairmentwhenever events indicate that the carrying amount of the asset may not berecoverable. An impairment loss is measured as the amount by which the carryingamount of the asset exceeds its fair value.

 

*Debt Issuance Costs*

 

Costs associated with the issuance of the construction loan discussedin Note 3 are recorded as deferred loan costs, net of accumulated amortization.Loan costs are amortized to operations over the life of the term note using theeffective interest method.

 

*Derivative Instruments*

 

TheCompany enters into derivative contracts to hedge the Company’s exposure toprice risk related to forecasted corn and natural gas purchases and forwardcorn purchase contracts.  The Company does not typically enter intoderivative instruments other than for hedging purposes.  All derivativecontracts are recognized as of March 31, 2006 at their fair market value. Althoughthe Company believes its derivative positions are economic hedges, none havebeen designated as a hedge for accounting purposes.

 

TheCompany has recorded a liability of $281,556 as of March 31, 2006. The Companyhas also recorded a combined realized and unrealized loss on derivativeinstruments of $379,025 related to its derivative contracts for the threemonths ended March 31, 2006 and a gain of $164,545 recorded during the threemonth period ended March 31, 2005. As the Company had not commenced operationsas of March 31, 2005, the gains were included in other income and reclassed tocost of sales after operations began in the second quarter of 2005. The Companyis required to maintain cash balances at its broker related to derivativeinstrument positions. At March 31, 2006, restricted cash totaled $67,850 and isnot included in the cash and cash equivalents on the balance sheet or thestatements of cash flows.

 

*Grants*

 

The Company recognizes grant income as other income for reimbursementof expenses incurred upon complying with the conditions of the grant.  Forreimbursements of capital expenditures, the grants are recognized as areduction of the cost of the asset upon complying with the conditions of thegrant.

 

9

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*Government Incentive Payments*

 

Forthe first quarter ended March 31, 2006 the Company recorded as other income$287,084 from the Commodity Credit Corporation Bioenergy Program, a departmentof the United States Department of Agriculture.  The Company was noteligible for Bioenergy Program payments prior to commencement of production inMay 2005.

 

*Fair Value of Financial Instruments*

 

Thecarrying value of cash and equivalents and restricted cash approximates theirfair value.

 

TheCompany believes the carrying amount of derivative instruments approximatesfair value based on current market prices.

 

Itis not currently practicable to estimate fair value of the notes payable to thelending institution. Because these agreements contain certain unique terms,covenants, and restrictions, as discussed in Note 3, there are no readilydeterminable similar instruments on which to base an estimate of fair value.

 

*Income Taxes*

 

TheCompany is treated as a partnership for federal and state income tax purposes,and generally does not incur income taxes. Instead its earnings and losses areincluded in the income tax returns of its members. Therefore, no provision orliability for federal or state income taxes has been included in thesefinancial statements.

 

**2. INVENTORY**

 

Inventoryconsists of the following at March 31, 2006:

 
| Raw materials   |   | $       | 537,820   |   |
|-----------------|--------|---------|-----------|--------|
| Work in process |   | 167,676 |      |
| Finished Goods  |   | 913,222 |      |
| Total           |   | $       | 1,618,718 |   |

 

**3. BANK FINANCING**

 

On February 26, 2004 the Company closed on a construction loan from afinancial institution.  The construction loan for $33,024,200 wasconverted on July 15, 2005 into two loans with the first loan a $4,000,000revolving loan and the second with a $29,024,200 term loan.  The term ofthe loans is five years with a ten-year amortization.  The term loan wasconverted under the variable rate option at an initial rate of 6.96% andadjusted on the first of each month to a rate of 7.32% as of March 31, 2006. Thefunds or a portion thereof can be converted to a fixed rate at anytime asprescribed in the loan agreement. As of March 31, 2006, the Company hadoutstanding debt of $16,523,889, on the term loan and outstanding debt of$1,398,094 on the revolving loan. The Company pays 0.50% interest on the unusedportion of the revolving loan instrument.

 

OnMarch 9, 2006 the Company amended its Amended and Restated Construction andRevolving Loan Agreement dated February 17, 2005 with AgStar FinancialServices, PCA. The Second Amended and Restated Construction and Revolving LoanAgreement increased the revolving commitment amount to $9,000,000 and amendsthe revolving note to be payable in full on July 1, 2010. In addition, theCompany requested that $5,000,000 of the new term revolver be applied as aspecial principal payment against the Company’s existing term loan.

 

Thereis an annual facility fee of $40,000 beginning at the conversion of theconstruction loan to the facility term note and upon each anniversary for fouryears.  If any of the senior debt is prepaid in whole or in part, withinthree years following the date of the agreement; a prepayment penalty appliesexcept as allowed for in the March 9, 2006 amendment. Prepayment penalties of3%, 2% and 1% of the amount prepaid will apply in the first, second and thirdyear, respectively.

 

10

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Theseloans are subject to protective covenants requiring the Company to maintainvarious financial ratios, are secured by all business assets, and requireadditional loan payments based on excess cash flow.  The Company has notviolated any financial debt covenants during the three months ending March 31,2006 or in the year 2005 and the Company believes the likelihood of default ofthe financial debt covenants in the next quarter to be remote. The loan issecured by substantially all the Company’s assets.

 

OnMarch 8, 2006 the Board approved a proposal from a lender to refinance theexisting term debt and revolving loan commitment at a fixed rate of 7.40% forfive years with a ten year amortization. However they have not yet entered intoany definitive agreements for this debt financing.

 

Long term debt consists of the following:

 
| ** **                        | ** ** | **March 31, 2006** | ** ** |
|-----------------------------------|------------|------------------------------|------------|
|                              |       |                         |       |
| Bank Financing                    |       | $                            | 16,523,889 |   |
|                              |       |                         |       |
| Less: amounts due within one year |       | 2,994,772                    |       |
|                              |       |                         |       |
| Totals                            |       | $                            | 13,529,117 |   |

 

Theestimated maturities of long term debt at March 31, 2006 are as follows:

 

| 2006  |   | $         | 2,994,772  |   |
|-------|--------|-----------|------------|--------|
| 2007  |   | 3,224,135 |       |
| 2008  |   | 3,475,563 |       |
| 2009  |   | 3,744,262 |       |
| 2010  |   | 3,085,157 |       |
| Total |   | $         | 16,523,889 |   |

 

**4.  RELATED PARTY TRANSACTIONS**

 

In the three months ending March 31, 2006 and March 31, 2005, theCompany had incurred $12,532 and $14,722, respectively, in director fees andrelated expense. Included in accounts payable at March 31, 2006 and March 31,2005 is $4,400 to ten members and $3,748 to eight members, respectively.

 

**5.  MEMBERS’ EQUITY**

 

As specified in the Company’s operating agreement, the Company has oneclass of membership units. The Company is authorized to issue up to 28,000membership units in addition to the 1,280 seed capital units issued prior tothe Company’s initial registered offering.

 

As of March 31, 2006 and March 31, 2005 the Company had 28,780 unitsoutstanding. On February 10, 2006, our directors declared a cash distributionof $200 per membership unit of record at the close of business on February 10,2006. The distribution totaled $5,756,000 and was distributed to our members inMarch 2006.

 

**6.  COMMITMENTS AND CONTINGENCIES**

 

*Corn and Natural Gas Contracts*

 

At March 31, 2006, the Company had forward corn purchase contractstotaling approximately 13,000,000 bushels for various delivery periods fromApril 2006 to November 2008 of which approximately 40% are with members. Theprices on these contracts range from $1.91 to $2.63 per bushel or have a basislevel established by the CBOT futures between $-0.10 and $-0.29. At March 31,2006, the Company had forward contracts to purchase approximately 603,200million British thermal units (MMBTU) of natural gas during the months of Aprilthrough October 2006 at an average price of approximately $7.73 per MMBTU.

 

11

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

** **

**ForwardLooking Statements**

 

This report contains historical information, as wellas forward-looking statements that involve known and unknown risks and relateto future events, our future financial performance, or our expected futureoperations and actions. In some cases, you can identify forward-lookingstatements 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 terms or other similarexpressions. These forward-looking statements are only our predictions basedupon current information and involve numerous assumptions, risks anduncertainties. Our actual results or actions may differ materially from theseforward-looking statements for many reasons, including the reasons described inthis report. While it is impossible to identify all such factors, factors thatcould cause actual results to differ materially from those estimated by usinclude:

 

 
| • |   | Overcapacity  within the ethanol industry;                                                                            |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|
| • |   | Actual  ethanol and distillers grains production varying from expectations;                                           |
| • |   | Availability  and costs of products and raw materials, particularly corn and natural gas;                             |
| • |   | Changes  in the price and market for ethanol and distillers grains;                                                   |
| • |   | 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:  |
|   |   | •                                                                                                                | national,  state or local energy policy; |
|   |   | •                                                                                                                | federal  ethanol tax incentives; |
|   |   | •                                                                                                                | 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;                                                                                    |
| • |   | Changes  in plant production capacity or technical difficulties in operating the  plant;                              |
| • |   | Costs  of construction and equipment;                                                                                 |
| • |   | Changes  in our business strategy, capital improvements or development plans;                                         |
| • |   | Results  of our hedging strategies;                                                                                   |
| • |   | Changes  in interest rates or the availability of credit;                                                             |
| • |   | 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.                                                   |
| • |   | Other  factors described elsewhere in this report.                                                                    |

 

The cautionary statements referred to in thissection also should be considered in connection with any subsequent written ororal forward-looking statements that may be issued by us or persons acting onour behalf. We undertake no duty to update these forward-looking statements,even though our situation may change in the future. Furthermore, we cannotguarantee future results, events, levels of activity, performance, orachievements. We caution you not to put undue reliance on any forward-lookingstatements, which speak only as of the date of this report.  You shouldread this report and the documents that we reference in this report and havefiled as exhibits, completely and with the understanding that our actual futureresults may be materially different from what we currently expect.  Wequalify all of our forward-looking statements by these cautionary statements.

 

**Overview**

 

United Wisconsin Grain Producers, LLC was formed as a Wisconsin limitedliability company on November 2, 2001, for the purpose of constructing andoperating a 40 million gallon per year ethanol plant near Friesland, Wisconsin.Since May 2005, we have been engaged in the production of ethanol anddistillers grains.

 

12

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Our revenues are derived fromthe sale and distribution of our ethanol and distillers grains throughout thecontinental United States.

 

We expect to fund our operations during the next 12 months using cash flowfrom continuing operations and our credit facilities.

 

We are subject to industry-wide factors that affect our operating andfinancial performance. Our operating results are largely driven by the pricesat which we sell ethanol and distillers grain and the costs related to theirproduction. Historically, the price of ethanol tends to fluctuate in the samedirection as the price of unleaded gasoline and other petroleum products. Surplusethanol supplies also tend to put downward price pressure on ethanol. Inaddition, the price of ethanol is generally influenced by factors such asgeneral economic conditions, the weather, and government policies and programs.The price of distillers grains is generally influenced by supply and demand,the price of substitute livestock feed, such as corn and soybean meal, andother animal feed proteins. Surplus grain supplies also tend to put downwardprice pressure on distillers grains. In addition, our revenues are alsoimpacted by such factors as our dependence on one or a few major customers whomarket and distribute our products; the intensely competitive nature of ourindustry; possible legislation at the federal, state and/or local level; andchanges in federal ethanol tax incentives.

 

Our two largest costs of production are corn and natural gas. Both ofthese costs are affected by factors largely out of our control. The cost ofcorn is affected primarily by supply and demand factors such as cropproduction, carryout, exports, government policies and programs, risk managementand weather. Natural gas prices fluctuate with the energy complex in general. Overthe last few years, natural gas prices have trended higher than average and itappears prices will continue to trend higher due to the high price ofalternative fuels such as fuel oil. Our costs of production are affected by thecost of complying with the extensive environmental laws that regulate ourindustry.

 

**Results of Operations**

 

***Financial summary and Analysis of the three monthperiod ended March 31, 2006 and 2005***

 

The following table shows the results of ouroperations and the percentage of revenues, cost of goods sold, operatingexpenses and other items to total revenues in our statement of operations forthe three months ended March 31, 2006 and 2005:

 
| ** **                | ** ** | **Quarter Ended  March 31, 2006  (Unaudited)** | ** ** | **Quarter Ended  March 31, 2005  (Unaudited)** | ** ** |
|---------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                | ** ** | **Amount**                                                    | ** ** | **%**                                                         | ** ** | **Amount** | ** ** | **%** | ** ** |
| **Income Statement Data** | ** ** | ** **                                                    | ** ** | ** **                                                    |       | ** ** |   |   |   |
| Revenues                  |       | $                                                             | 22,756,555 |                                                          | 100.0      |   | $ | — |   | 100.0 |   |
|                      |       |                                                          |       |                                                          |       |   |   |   |   |
| Cost of Goods Sold        |       | $                                                             | 17,428,968 |                                                          | 76.6       |   | $ | — |   |   |   |
|                      |       |                                                          |       |                                                          |       |   |   |   |   |
| Gross Profit              |       | $                                                             | 5,297,587  |                                                          | 23.3       |   | $ | — |   |   |   |
|                      |       |                                                          |       |                                                          |       |   |   |   |   |
| Operating Expenses        |       | $                                                             | 570,211    |                                                          | 2.5        |   | $ | 365,107 |   |   |   |
|                      |       |                                                          |       |                                                          |       |   |   |   |   |
| Operating Income          |       | $                                                             | 4,727,376  |                                                          | 20.8       |   | $ | (365,107 | ) |   |   |
|                      |       |                                                          |       |                                                          |       |   |   |   |   |
| Other Income (Expense)    |       | $                                                             | (23,956    | )                                                             | (0.1       | ) | $ | 240,158 |   |   |   |
|                      |       |                                                          |       |                                                          |       |   |   |   |   |
| **Net Income (Loss)**     |       | $                                                             | 4,703,420  |                                                          | 20.7       |   | $ | (124,949 | ) |   |   |

 

*Revenues*.Revenues from operations for the three month period ended March 31, 2006totaled approximately $22,756,555 resulting from the sale of ethanol anddistillers grains. In the three month period ended March 31, 2006, ethanolcomprised 88.3 percent of our sales and DDGS comprised 11.7 percent of oursales. Asof

 

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the quarter endedMarch 31, 2005, we had not engaged in ethanol production.  As a result, wewere not generating revenue in the quarter ending March 31, 2005.

 

Ethanolprices, which experienced a seasonal decline in the fourth quarter of 2005,started rising again in the three month period ending March 31, 2006. Managementcurrently expects short-term ethanol prices to remain higher in the short-termthan historical averages. However, management believes the industry will needto continue to grow demand in order to sustain these higher price levels. Accordingto the Renewable Fuels Association, as of April 27, 2006 there were 97 ethanolplants in operation nationwide with the capacity to produce more than 4.4billion gallons annually, with an additional 35 new plants and nine expansionsunder construction expected to add an additional estimated 2.2 billion gallonsof annual production capacity. Unless the new supply is equally met withdemand, downward pressure on ethanol prices could occur. If ethanol pricesstart to decline, our earnings will decline in the process, especially if corncosts fail to remain low and stable. Areas where demand for ethanol mayincrease are new markets in New Jersey, Pennsylvania, Massachusetts, NorthCarolina, South Carolina, Michigan, Tennessee, Louisiana and Texas.

 

Ourrevenues and profits are impacted by federal ethanol supports and taxincentives, such as VEETC and RFS. Changes to these supports or incentivescould significantly impact demand for ethanol. The passage of the VolumetricEthanol Excise Tax Credit (“VEETC”) is expected to provide the flexibilitynecessary to expand ethanol blending into higher blends of ethanol such as E85,E diesel and fuel cell markets. In addition, the most recent ethanol supportsare contained in the Energy Policy Act of 2005. Most notably, the Act creates aRenewable Fuels Standard (“RFS”) which is expected to favorably impact theethanol industry by enhancing both the production and use of ethanol. The RFSis a national flexible program that does not require that any renewable fuelsbe used in any particular area or state, allowing refiners to use renewablefuel blends in those areas where it is most cost-effective. The RFS requiresrefiners to use 4 billion gallons of renewable fuels in 2006, increasing to 7.5billion gallons by 2012.

 

On December 28, 2005, the EPA released interim rulesgoverning the implementation of the 2006 RFS requirement. The EPA’s interimrule imposes a collective compliance approach, which means the requirement for2006 fuel use is determined in the aggregate rather than on arefiner-by-refiner basis. The EPA adopted this approach for 2006 becausecurrent uncertainties regarding the RFS might result in unnecessarily highcosts of compliance if each party was required to independently comply. Althoughthere is not a requirement for individual parties to demonstrate compliance in2006, the EPA found that increases in ethanol production and projections forfuture demand indicate that the 2006 volume is likely to be met. However, inthe unlikely event that the RFS is not met in 2006, the EPA expects to adjustthe volume requirement in 2007 to cover the deficit. There are no otherconsequences for failure to collectively meet the 2006 standard. The EPAexpects to promulgate more comprehensive regulations by August 8, 2006, but theinterim rules and collective compliance approach are expected to apply for theentire 2006 calendar year. In 2007 and subsequent years, the EPA expects tospecifically identify liable parties, determine the applicable RFS, and developa credit trading program. Further, the standards for compliance, record-keepingand reporting are expected to be clarified.

 

Since the current nationalethanol production capacity exceeds the 2006 RFS requirement, it is management’sbelief that other market factors are primarily responsible for current ethanolprices.  Accordingly, it is possible that the RFS requirements may notsignificantly impact ethanol prices in the short-term.  For instance, ifgasoline prices continue to trend higher, consumers will look for lower pricedalternative fuels. The Consumer Federation of America recently published areport that states that consumers could save up to $0.08 per gallon at the pumpif ethanol were blended at 10%.  Since ethanol blended fuel is a cheaperalternative for consumers, the demand for such ethanol blended fuel couldincrease thus increasing the overall demand for ethanol.  This couldpositively affect our earnings. However, the RFS increased requirement of 7.5billion by 2012 is expected to support ethanol prices in the long term.  Agreater supply of ethanol on the market from additional plants and plantexpansions could reduce the price we are able to charge for our ethanolespecially if supply outpaces demand.  This would negatively impact ourearnings.

 

Demandfor ethanol may remain strong as a result of increased consumption of E85 fuel.E85 fuel is a blend of 70% to 85% ethanol and gasoline. According to the EnergyInformation Administration, E85 consumption is projected to increase from anational total of 11 million gallons in 2003 to 47 million gallons in 2025. E85can be used as an aviation fuel, as reported by the National Corn GrowersAssociation, and as a hydrogen source for fuel

 

14

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cells. According to the Renewable FuelsAssociation, there are currently more than 5 million flexible fuel vehiclescapable of operating on E85 in the United States and automakers such as Fordand General Motors have indicated plans to produce several million moreflexible fuel vehicles per year. The American Coalition for Ethanol reportsthat there are currently approximately 600 retail gasoline stations supplyingE85. However, this remains a relatively small percentage of the total number ofU.S. retail gasoline stations, which is approximately 170,000.

 

Thesales price for our distillers grains has remained relatively unchanged in thethree month period ended March 31, 2006. The price of distillers grains waslargely due to a decrease in the price of corn and soybeans, which are thecomponents of distillers grains’ principal competition in the feed markets,namely corn and soybean meal. The lower corn and soybean prices were the resultof an abundant supply of grains and feed protein due to a large grain harvestin 2005, the second largest on record, and a large grain carryout in 2006. Distillersgrains prices are expected to remain low in the foreseeable future unless theprice of corn and soybean meal increases.

 

Ourproduction and shipment of modified wet distillers grains increased over thethree month period ending March 31, 2006 resulting in increased revenues.

 

*Cost of Goods Sold*. Our cost of goods sold from the production of ethanol and distillersgrains is primarily made up of raw grains expenses and energy expenses (naturalgas and electricity). Cost of goods sold for the three month period ended March31, 2006 totaled approximately $17,428,968. As of the quarter ended March 31, 2005, wehad not engaged in ethanol production.  As a result, we did not have anycost of goods sold in the three month period ending March 31, 2005.

 

The 2005 national corn crop was the second largeston record with national production at approximately 11.11 billion bushels,exceeded only by the 2004 crop (at approximately 11.8 billion bushels).  Thisresulted in lower corn prices in the fourth quarter of 2005 and lower cost ofgoods sold. In the three month period ended March 31, 2006 however our cost ofgoods sold increased due to an increase in the cost of corn. An increase incorn exports as well as sustained domestic usage may increase total demand forcorn and result in upward pressure on corn prices. Additionally, corn is nowbeing viewed as an “energy commodity” as opposed to strictly a “grain commodity”.This increased exposure on ethanol has placed upward pressure on the cornprices. Any increase in the price of corn would have a negative impact on ourcost of goods sold. In addition, we expect the grain market to begin focusingon prospects for the 2006 crop, where variables such as rainfall, plantingdates, and temperatures will likely cause market uncertainty and create cornprice volatility as the growing season begins.  Recently, many marketanalysts are predicting lower U.S. corn acreage this year due to higherfertilizer prices caused by high natural gas prices, decreased domesticfertilizer production and increased global demand for fertilizers. Although carryout supplies for 2006 marketing year appear adequate, anyproduction shortfall during the 2006 growing season will create volatility andmay increase our cost of corn.

 

Natural gas is also an important input to ourmanufacturing process.  We estimate that our natural gas usage isapproximately 122,000 million British thermal units (“MMBTU”) per month. We use natural gas to dry our distillers grains products to moisture contentsat which they can be stored for long periods and transported greater distances,so that we can market them to broader livestock markets, including poultry andswine markets in the continental UnitedStates.  Natural gas has recently been available only at pricesexceeding historical averages. The prices are increasing our costs ofproduction.  Although natural gas prices trended lower in the three monthperiod ended March 31, 2006, we expect natural gas prices to remain high orincrease given the unpredictable market situation.  This could increaseour gas costs substantially, which will adversely impact our cost of goods sold.We have secured a marketing firm and energy consultant for our natural gas andwill work with them on an on-going basis to mitigate our exposure to volatilegas prices.

 

Costof goods sold includes a loss of $379,025 for the three month period endingMarch 31, 2006 related to our corn and natural gas derivativeinstruments.  We recognize the gains or losses that result from thechanges in the value of our derivative instruments in cost of goods sold as thechanges occur.  As corn and natural gas prices fluctuate, the value of ourderivative instruments are impacted, which affects our financialperformance.  We anticipate continued volatility in our cost of goods solddue to the timing of the changes in value of the derivative instrumentsrelative to the cost and use of the commodity being hedged.

 

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*Operating Expenses*. Operating expenses for the three month period ended March 31, 2006totaled approximately $570,211. Operating expenses for the three month periodended March 31, 2005, totaled $365,107.  The increase in operatingexpenses from the three month period ended March 31, 2005 to the three monthperiod ended March 31, 2006 was primarily due to the fact that we were not yetproducing ethanol in the three month period ended March 31, 2005.

 

*Operating Income*. Operatingincome for the three month period ended March 31, 2006 totaled approximately$4,727,376. As of the three month period ended March 31, 2005, we were not yetoperational. As a result, we incurred an operating loss of $365,107 in thethree month period ending March 31, 2005.

 

*Other Income (Expense)*. Our otherincome and expense for the three month period ended March 31, 2006 was anexpense of $23,956. The expense was primarily due to $395,810 in interestexpense, partially offset by $67,456 of interest income and $287,084 of theUSDA Commodity Credit Corporation Bioenergy Program payments.

 

Payments under the Bioenergy Program are based uponincreases in ethanol production relative to previous years.  Due to thefact we only had a partial year of operation in fiscal year 2005, we receivedadditional program payments in fiscal year 2006.  However, based upon thereductions in Bioenergy Program payments made during 2005, we do not expect toreceive the maximum award of $7.5 million. The receipt of these additionalprogram payments is subject to the continued availability of program funds,which may be reduced as a result of increased participation in the program bynew and expanding plants as well as decreased federal funding.  Inaddition, the accrued income from the Bioenergy Program is significantly lessthan the amount we are eligible for based on our production.  Thisreduction is attributed to an increase in the number of eligible participantsin the program, which reduces our share of the payments.  We do not anticipatereceiving unpaid amounts for past pro rata reductions.  The receipt ofthese additional program payments is subject to the continued availability ofprogram funds, which may be reduced as a result of increased participation inthe program by new and expanding plants as well as decreased federalfunding.  The Bioenergy Program was scheduled to expire onSeptember 30, 2006. Funding for the program is subject to an annualapportionment. See “***Bioenergy Program Payments***”below. However, the CCC recently announced that its funds would be exhausted inthe third quarter of the government fiscal year and that the program wouldterminate as of June 30, 2006.

 

***Financial Condition for the ThreeMonths Ended March 31, 2006.***

 

Assets totaled $57,212,841 on March 31, 2006. Currentassets totaled $7,783,813 on March 31, 2006. Current liabilities totaled$7,828,641 on March 31, 2006. Long term debt, net of current maturities,totaled $13,529,117 on March 31, 2006. Although the current ratio is less thanone, we expect to be able to satisfy all our obligations through cash flow fromoperations.

 

**Liquidity and Capital Resources**

 

The following table shows cash flows for thethree months ended March 31, 2006 and 2005:

 
| ** **                                            | ** ** | **Three Months Ended March 31** | ** **  |
|-------------------------------------------------------|------------|-----------------------------------------------------|-------------|
| ** **                                            | ** ** | **2006**                                            | ** **  | **2005** | ** ** |
| Net cash from operating activities                    |       | $                                                   | 4,123,714   |   | $ | 313,883 |   |
| Net cash (used for) investing activities              |       | $                                                   | (180,492    | ) | $ | (453,253 | ) |
| Net cash provided by (used for) financing  activities |       | $                                                   | (12,313,674 | ) | $ | 847,284 |   |

 

*Cash Flow From Operations*

 

The increase in net cash flow provided fromoperating activities for the three months ended March 31, 2006 compared tothree months ended March 31, 2005 was primarily due to our plant beingoperational in the three month period ended March 31, 2006.  Our capitalneeds are being adequately met through cash from our operating activities andour current credit facilities.

 

16

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*Cash Flow From InvestingActivities*

 

The decrease in net cash flow used in investingactivities for the three months ended March 31, 2006 compared to same period in2005 was primarily due the absence of construction costs in the three monthperiod ended March 31, 2006.

 

Management estimates that approximately $2,000,000in capital expenditures will be made in the next twelve months for generalimprovements, all of which are expected to be financed from a portion of cashflows from operations and additional debt financing.

 

On January 9, 2006, the Board of Directors approvedplans to proceed with the installation of an E85 blend station. The cost of theproject is expected to be approximately $65,000, which will be financed usingour operating cash flow to fund the required capital expenditure.  The installation began in March 2006 and we anticipate that it will becompleted by June 2006.

 

*Cash Flow From FinancingActivities**.*

 

We used cash to pay down our debt by $7,955,768 forthe three months ended March 31, 2006 compared to $442 for the same period in2005. During the three months ended March 31, 2006 we made a member distributionin the amount of $5,756,000.

 

### ***Short-Term and Long-Term Debt Sources***

### ** **

In February 2004, we entered into a$33,024,200 credit facility with AgStar Financial Services, PCA of Rochester,Minnesota. The credit facility is secured by substantially all of our assets. InJuly 2005 we converted our construction loan into two loans. The first loan isa term loan of $29,024,200. The second loan is a $4,000,000 revolving loan. Theterm loan of $29,024,200 is for five years with a ten-year amortization. Paymentson the converted term loan are paid in monthly installments including principaland interest. The variable interest rate on the converted term loan is equal tothe monthly LIBOR plus 2.75%. This variable interest rate may be adjusteddownward depending on our level of owners’ equity as reported in our monthlyfinancial statements. At a level of ownership equity equal to 50%, but lessthan 55% the interest rate will decrease by 0.50%. At a level of ownershipequity equal to 45%, but less than 50%, the interest rate will decrease by 1.0%.At a future date, we can elect to allocate a portion of the term loan to afixed interest rate. Depending on the anticipated movements in interest ratesand overall credit environment, we may elect to make that allocation. Intereston the revolving loan of $4,000,000 accrues at a rate equal to the monthlyLIBOR plus 2.75%. However, this interest rate may be adjusted downward in thesame manner as the term loan depending on our level of owners’ equity.

 

As of March 31, 2006, we had outstanding debtof $16,523,889 and an interest rate of 7.32% on the converted term loan. As ofMarch 31, 2006, we had an outstanding debt of $1,398,094 on the revolving loan.

 

On March 9, 2006 we amended our Amended andRestated Construction and Revolving Loan Agreement dated February 17, 2005 withAgStar Financial Services, PCA. The Second Amended and Restated Constructionand Revolving Loan Agreement increased the revolving commitment amount to$9,000,000 and amends the revolving note to be payable in full on July 1, 2010.In addition, we requested that $5,000,000 of the new term revolver be appliedas a special principal payment against our existing term loan.

 

There is an annual facility fee of $40,000beginning at the conversion of the construction loan to the facility term noteand upon each anniversary for four years. If any of the senior debt is prepaidin whole or in part, within three years following the date of the agreement; aprepayment penalty applies except as allowed for in the March 9, 2006 amendment.Prepayment penalties of 3%, 2%, and 1% of the amount prepaid will apply in thefirst, second and third year, respectively.

 

These loans are subject to protectivecovenants requiring us to maintain various financial ratios and require additionalloan payments based on excess cash flow. Specifically, the loans are subject toa covenant restricting membership distributions to 65% of the previous year’snet income less government incentive program payments. However, our seniorlender waived this covenant and permitted us to distribute 76% of the previousyear’s net

 

17

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income less government incentive programpayments to our members in March 2006. The loan is secured by substantially allof the Company’s assets.

 

On March 8, 2006 our board of directorsapproved a proposal from a lender to refinance the existing term debt andrevolving loan commitment at a fixed rate of 7.40% for five years with a tenyear amortization. However we have not yet entered into any definitiveagreements for this debt financing and there is no guarantee that we will beable to do so.

 

*BioenergyProgram Payments*

 

We have enrolled in the USDA Commodity CreditCorporation’s Bioenergy program. Under the USDA CCC Bioenergy program, theCommodity Credit Corporation will reimburse eligible ethanol producers of lessthan 65 million gallons of bioenergy in the amount of one bushel of corn forevery two and one-half bushels of corn used for the increased production ofethanol. No eligible producer may receive more than $7.5 million underthe program. Because we qualify as an eligible producer and annually utilize atleast 15 million bushels of corn in the increased production of ethanol, wecould potentially receive the maximum award of $7.5 million. However, theCommodity Credit Corporation may award only $100 million annually for fiscalyears 2005 through 2006, and any award we receive may be reduced based upon thevolume of applications from other eligible producers.

 

For the three months ended March 31, 2006, werecorded Bioenergy Program income of $287,084. Based upon the reductions inBioenergy Program payments made during 2005, we do not expect to receive themaximum award of $7.5 million in 2006. On January 23, 2006, the USDA FarmService Agency issued a letter outlining the funding factors for the BioenergyProgram for the government fiscal year 2006. The OMB apportioned the BioenergyProgram $60 million for the fiscal year 2006 and the apportionment includes arestriction that the funds may only be used during the 2006 fiscal year. Thissame restriction has applied for the last three fiscal year programapportionments. As a result of this restriction, $34.5 million of the $60million apportionment was used for the fourth quarter fiscal year 2005 paymentsleaving only $25.5 million available for the first three quarters of fiscalyear 2006, or $8.5 million per quarter. The program payment limitation remainsat five percent of the program’s available funding, $1.275 million for 2006.

 

Based upon the recent increase in national ethanolproduction and the funding factors outlined above, we anticipate a pro ratareduction in aggregate payments to all eligible producers. We anticipate thepro rata reduction to be in the range of 10% to 15%. Thus we do not expect toreceive the maximum award of $7.5 million. We estimate an additional $100,000to be received in 2006. In addition, the Bioenergy Program was scheduled toexpire on September 30, 2006. However, the CCC recently announced that itsfunds would be exhausted in the third quarter of the government fiscal year andthat the program would terminate as of June 30, 2006

 

**Member Distribution**

 

On February 10, 2006, our directors declared a cash distribution of$200 per membership unit of record at the close of business on February 10,2006. The distribution totaled $5,756,000 and was distributed to our members inMarch 2006.

 

**Off Balance Sheet Arrangements.**

 

We currently do not have any off-balance sheet arrangements.

 

**Item 3.****           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 March 31,2006. Based upon this review and evaluation, these officers believe that ourdisclosure controls and procedures are effective in ensuring that materialinformation related to us is recorded, processed, summarized and reportedwithin the time periods required by the forms and rules of the Securities andExchange Commission.

 

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Our management, consisting of our principal executive officer andprincipal financial officer, have reviewed and evaluated any changes in ourinternal control over financial reporting that occurred as of March 31, 2006and there has been no change that has materially affected or is reasonablylikely to materially affect our internal control over financial reporting.

 

**PARTII.       OTHER INFORMATION**

 
| **Item 1.** | ** ** | **Legal Proceedings**                                                     |
|-------------|------------|---------------------------------------------------------------------------|
|        |       |                                                                      |
|        |       | None.                                                                     |
|        |       |                                                                      |
| **Item 2.** | ** ** | **Unregistered Sales of Equity Securities and  Use of Proceeds**          |
|        |       |                                                                      |
|        |       | None.                                                                     |
|        |       |                                                                      |
| **Item 3.** | ** ** | **Defaults Upon Senior Securities**                                       |
|        |       |                                                                      |
|        |       | None.                                                                     |
|        |       |                                                                      |
| **Item 4.** | ** ** | **Submission of Matters to a Vote of Security  Holders**                  |
|        |       |                                                                      |
|        |       | None.                                                                     |
|        |       |                                                                      |
| **Item 5.** | ** ** | **Other Information**                                                     |
|        |       |                                                                      |
|        |       | None.                                                                     |
|        |       |                                                                      |
| **Item 6.** | ** ** | **Exhibits**                                                              |
|        |       |                                                                      |
|        |       | (a)   The following exhibits  are filed as part of this report: |

 
| **Exhibit  No.** | ** ** | **Exhibit**                                                                                                                                                                                                                                        |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                               |
| 10.1             |       | Second Amended and Restated Construction  and Revolving Loan Agreement dated March 1, 2006. Filed as Exhibit 99.1 to  registrant’s report on Form 8-K (Commission File 000-50733) filed March 15,  2006 and incorporated by reference herein. |
|             |       |                                                                                                                                                                                                                                               |
| 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:      | May 15, 2006                                                          |   | /s/ J.F. Robertson |   |
|       |                                                                  |   | J.F. Robertson |   |
|       |                                                                  |   | Chief Executive Officer  (Principal Executive Officer) |
|       |                                                                  |   |   |   |
|       |                                                                  |   |   |   |
| Date:      | May 15, 2006                                                          |   | /s/ Barb Bontrager |   |
|       | Barb Bontrager                                                        |   |
|       | Chief Financial Officer  (Principal Financial and Accounting Officer) |

 

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