**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**
| **x**      | ** ** | **Quarterly report under Section 13 or 15(d) of  the Securities Exchange Act of 1934.**                                                                                                                                                                                    |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                       |
| ** ** |       | **For the  quarter ended June 30, 2007**                                                                                                                                                                                                                                   |
|       |       |                                                                                                                                                                                                                                                                       |
| ** ** |       | **OR**                                                                                                                                                                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                       |
| **o**      | ** ** | **Transition report under Section 13 or 15(d) of  the Exchange Act.**                                                                                                                                                                                                      |
|       |       |                                                                                                                                                                                                                                                                       |
| ** ** | ** ** | **For the  transition period from                    to                   ** |

 

**Commissionfile number 000-50733**

**UNITED WISCONSIN GRAIN PRODUCERS,LLC**

(Exact name ofsmall 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**       |
| (Address of  principal executive offices)                        |
|                                                             |
| **(920)  348-5016**                                              |
| (Issuer’s  telephone number)                                |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.
|   | x   Yes          o   No |
|--------|---------------------------------------------------------------------------------------------------------|

 

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

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

 

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

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common equity, as of thelatest practicable date:

As of August 10, 2007, there were 28,780 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**                                                                    | **21**       |
| ** **                                          | ** **                                                                                             |
| **PART  II.  OTHER INFORMATION**          | **21**                                                                                                 |
| ** **                                          | ** **                                                                                             | ** **   |
| ** **                                          | **Item  1. Legal Proceedings**                                                                         | **21**       |
| ** **                                          | **Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds**                               | **22**       |
| ** **                                          | **Item 3. Defaults Upon Senior Securities**                                                            | **22**       |
| ** **                                          | **Item 4. Submission of Matters to a Vote of Security  Holders**                                       | **22**       |
| ** **                                          | **Item  5. Other Information**                                                                         | **22**       |
| ** **                                          | **Item 6. Exhibits**                                                                                   | **22**       |
| ** **                                          | ** **                                                                                             | ** **   |
| **SIGNATURES**                                      | ** **                                                                                             | **23**       |
|                                                     |                                                                                                        |              |  |

** **

2

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**PART I.     FINANCIALINFORMATION**

**Item 1.  Financial Statements.**

**UNITED WISCONSIN GRAIN PRODUCERS,LLC**

Condensed Balance Sheets
| **ASSETS**                                 | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                 | ** ** | **(Unaudited)**         | ** ** | **(Audited)**               | ** ** |
| **Current Assets**                         | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Cash and cash  equivalents                 |       | $                       | 25,769,916 |                        | $          | 29,981,331 |   |
| Restricted cash                            |       | 847,325                 |       | 411,587                     |       |
| Derivative  instruments                    |       | —                  |       | 150,463                     |       |
| Accounts  receivable                       |       | 3,165,720               |       | 4,298,190                   |       |
| Prepaid expenses  and other current assets |       | 890,541                 |       | 937,669                     |       |
| Inventory                                  |       | 2,236,993               |       | 1,702,855                   |       |
| Total current  assets                      |       | 32,910,495              |       | 37,482,095                  |       |
| ** **                                 | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **Property, Plant and Equipment**          | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Land and land  improvements                |       | 5,806,181               |       | 5,806,181                   |       |
| Office equipment                           |       | 450,349                 |       | 447,453                     |       |
| Administration  building                   |       | 488,454                 |       | 488,454                     |       |
| Plant and  process equipment               |       | 47,183,402              |       | 47,100,121                  |       |
| Construction in  process                   |       | 5,996,813               |       | 1,326,435                   |       |
| Total property,  plant and equipment       |       | 59,925,199              |       | 55,168,644                  |       |
| Less accumulated  depreciation             |       | 10,224,112              |       | 7,804,420                   |       |
| Net property,  plant and equipment         |       | 49,701,087              |       | 47,364,224                  |       |
|                                       |       |                    |       |                        |       |
| **Other Assets**                           | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Investment                                 |       | 1,041,346               |       | 100,000                     |       |
| Total other  assets                        |       | 1,041,346               |       | 100,000                     |       |
| ** **                                 | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **Total Assets**                           |       | $                       | 83,652,928 |                        | $          | 84,946,319 |   |

 

Notes to Condensed Financial Statements are anintegral part of this Statement.

3

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Condensed Balance Sheets
| **LIABILITIES AND MEMBERS’ EQUITY**        | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                     | ** ** | **(Unaudited)**         | ** ** | **(Audited)**               | ** ** |
| ** **                                                     | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **Current  Liabilities**                                       | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Current maturities of long-term debt                           |       | $                       | 1,206,073  |                        | $          | 1,164,740 |   |
| Accounts payable                                               |       | 3,033,528               |       | 2,672,641                   |       |
| Derivative instruments                                         |       | 600,349                 |       | —                      |       |
| Accrued liabilities                                            |       | 1,216,255               |       | 1,345,536                   |       |
| Total current liabilities                                      |       | 6,056,205               |       | 5,182,917                   |       |
|                                                           |       |                    |       |                        |       |
| **Long-Term  Debt, less current maturities**                   |       | 13,735,625              |       | 14,349,890                  |       |
|                                                           |       |                    |       |                        |       |
| **Commitments  and Contingencies**                             | ** ** | ** **              | ** ** | ** **                  | ** ** |
| ** **                                                     | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **Members’  Equity, 28,780 units issued and outstanding** |       | 63,861,098              |       | 65,413,512                  |       |
|                                                           |       |                    |       |                        |       |
| **Total  Liabilities and Members’ Equity**                |       | $                       | 83,652,928 |                        | $          | 84,946,319 |   |

 

Notes to Condensed Financial Statements are anintegral part of this Statement.

4

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Condensed Statements of Operations
| ** **                                                          | ** ** | **Quarter Ended  June 30,  2007** | ** ** | **Quarter Ended  June 30,  2006** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                          | ** ** | **(Unaudited)**                             | ** ** | **(Unaudited)**                             | ** ** |
|                                                                |       |                                        |       |                                        |       |
| **Revenues**                                                        |       | $                                           | 28,245,629 |                                        | $          | 30,578,904 |   |
|                                                                |       |                                        |       |                                        |       |
| **Cost of  Goods Sold**                                             |       | 21,525,312                                  |       | 17,680,454                                  |       |
|                                                                |       |                                        |       |                                        |       |
| **Gross  Profit**                                                   |       | 6,720,317                                   |       | 12,898,450                                  |       |
|                                                                |       |                                        |       |                                        |       |
| **Operating  Expenses**                                             |       | 944,819                                     |       | 691,476                                     |       |
| ** **                                                          | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| **Operating  Income**                                               |       | 5,775,498                                   |       | 12,206,974                                  |       |
|                                                                |       |                                        |       |                                        |       |
| **Other  Income (Expense)**                                         | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| Interest income                                                     |       | 248,004                                     |       | 30,561                                      |       |
| CCC Bio-Energy income                                               |       | —                                      |       | 85,008                                      |       |
| Interest expense                                                    |       | (255,185                                    | )          | (521,045                                    | )          |
| Equity in net loss of investment                                    |       | (113,654                                    | )          | —                                      |       |
| Miscellaneous income (expense), net                                 |       | 40,054                                      |       | (503,236                                    | )          |
| Total other expense                                                 |       | (80,781                                     | )          | (908,712                                    | )          |
|                                                                |       |                                        |       |                                        |       |
| **Net  Income**                                                     |       | $                                           | 5,694,717  |                                        | $          | 11,298,262 |   |
| ** **                                                          | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| **Net  Income Per Unit**(28,780 weighted average units outstanding) |       | $                                           | 197.87     |                                        | $          | 392.57 |   |
|                                                                |       |                                        |       |                                        |       |
| **Distribution Per Unit**                                           |       | $                                           | —     |                                        | $          | 200.00 |   |

 

Notes to Condensed Financial Statements are anintegral part of this Statement.

5

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Condensed Statements of Operations
| ** **                                         | ** ** | **Six Months Ended  June 30,  2007** | ** ** | **Six Months Ended  June 30,  2006** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                         | ** ** | **(Unaudited)**                                     | ** ** | **(Unaudited)**                                     | ** ** |
|                                               |       |                                                |       |                                                |       |
| **Revenues**                                       |       | $                                                   | 57,349,959 |                                                | $          | 53,396,611 |   |
|                                               |       |                                                |       |                                                |       |
| **Cost of  Goods Sold**                            |       | 42,601,261                                          |       | 35,109,422                                          |       |
|                                               |       |                                                |       |                                                |       |
| **Gross  Profit**                                  |       | 14,748,698                                          |       | 18,287,189                                          |       |
|                                               |       |                                                |       |                                                |       |
| **Operating  Expenses**                            |       | 1,812,973                                           |       | 1,352,840                                           |       |
| ** **                                         | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| **Operating  Income**                              |       | 12,935,725                                          |       | 16,934,349                                          |       |
|                                               |       |                                                |       |                                                |       |
| **Other  Income (Expense)**                        | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| Interest income                                    |       | 502,921                                             |       | 98,017                                              |       |
| CCC Bio-Energy income                              |       | —                                              |       | 372,092                                             |       |
| Interest expense                                   |       | (541,896                                            | )          | (916,855                                            | )          |
| Equity in net loss of investment                   |       | (113,654                                            | )          | —                                              |       |
| Miscellaneous income (expense)                     |       | 54,490                                              |       | (485,921                                            | )          |
| Total other expense                                |       | (98,139                                             | )          | (932,667                                            | )          |
|                                               |       |                                                |       |                                                |       |
| **Net  Income**                                    |       | $                                                   | 12,837,586 |                                                | $          | 16,001,682 |   |
| ** **                                         | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| **Net  Income Per Unit**(28,780 units outstanding) |       | $                                                   | 446.06     |                                                | $          | 556.00 |   |
|                                               |       |                                                |       |                                                |       |
| **Distributions Per Unit**                         |       | $                                                   | 500.00     |                                                | $          | 200.00 |   |

 

Notes to Financial Statements are an integral part ofthis Statement.

6

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Condensed Statements of Cash Flows
| ** **                                                               | ** ** | **Six Months Ended  June 30,  2007** | ** ** | **Six Months Ended  June 30,  2006** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                               | ** ** | **(Unaudited)**                                     | ** ** | **(Unaudited)**                                     | ** ** |
| **Cash  Flows from Operating Activities**                                | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| Net Income                                                               |       | $                                                   | 12,837,586 |                                                | $          | 16,001,682 |   |
| Adjustments to reconcile net income to net cash  provided by operations: |       |                                                |       |                                                |       |
| Depreciation                                                             |       | 2,419,692                                           |       | 2,406,427                                           |       |
| Write-off of debt issuance costs                                         |       | —                                              |       | 519,406                                             |       |
| Loss on derivative instruments                                           |       | 1,691,892                                           |       | 855,526                                             |       |
| Equity in net loss of investment                                         |       | 113,654                                             |       |                                                |       |
| Changes in assets and liabilities:                                       |       |                                                |       |                                                |       |
| Restricted cash                                                          |       | (435,738                                            | )          | (368,074                                            | )          |
| Derivative instruments                                                   |       | (941,080                                            | )          | (663,363                                            | )          |
| Accounts receivable                                                      |       | 1,132,470                                           |       | (1,880,494                                          | )          |
| Inventory                                                                |       | (534,138                                            | )          | (259,486                                            | )          |
| Prepaid expenses and other current assets                                |       | 47,128                                              |       | (41,353                                             | )          |
| Accounts payable                                                         |       | (263,678                                            | )          | (837,506                                            | )          |
| Accrued liabilities                                                      |       | (129,281                                            | )          | (184,268                                            | )          |
| Net cash provided by operating activities                                |       | 15,938,507                                          |       | 15,548,497                                          |       |
| ** **                                                               | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| **Cash  Flows from Investing Activities**                                | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| Capital expenditures                                                     |       | (113,641                                            | )          | (663,614                                            | )          |
| Payments for construction in process                                     |       | (4,018,349                                          | )          | —                                              |       |
| Purchase of investments                                                  |       | (1,055,000                                          | )          | —                                              |       |
| Net cash used in investing activities                                    |       | (5,186,990                                          | )          | (663,614                                            | )          |
| ** **                                                               | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| **Cash  Flows from Financing Activities**                                | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| Payments on long term debt                                               |       | (572,932                                            | )          | (8,439,281                                          | )          |
| Payment of member distributions                                          |       | (14,390,000                                         | )          | (5,756,000                                          | )          |
| Net cash used in financing activities                                    |       | (14,962,932                                         | )          | (14,195,281                                         | )          |
|                                                                     |       |                                                |       |                                                |       |
| **Net Increase  (Decrease) in Cash**                                     |       | (4,211,415                                          | )          | 689,602                                             |       |
| ** **                                                               | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| **Cash  and Cash Equivalents—**Beginning of Period                  |       | 29,981,331                                          |       | 8,786,477                                           |       |
| ** **                                                               | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| **Cash  and Cash Equivalents—**End of Period                        |       | $                                                   | 25,769,916 |                                                | $          | 9,476,079 |   |
|                                                                     |       |                                                |       |                                                |       |
| **Supplemental  Cash Flow Information**                                  | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| ** **                                                               | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| Interest expense paid                                                    |       | $                                                   | 545,547    |                                                | $          | 916,855 |   |
| Interest capitalized                                                     |       | $                                                   | 27,465     |                                                | $          | — |   |
| Total interest paid                                                      |       | $                                                   | 573,012    |                                                | $          | 916,855 |   |
|                                                                     |       |                                                |       |                                                |       |
| **Noncash  Investing and Financing Activities**                          | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
|                                                                     |       |                                                |       |                                                |       |
| Refinancing of long-term debt                                            |       | $                                                   | —     |                                                | $          | 16,040,376 |   |
| Construction in  process in accounts payable                             |       | $                                                   | 624,565    |                                                | $          | — |   |

 

Notes to Condensed Financial Statements are anintegral part of this Statement.

** **

7

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Condensed Notes toUnaudited Condensed Financial Statements

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

**1.  SUMMARY OF SIGNIFICANTACCOUNTING 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 Grain Producers LLC (a Wisconsinlimited liability company) is a 40 million gallon nameplate ethanol plantlocated near the town of Friesland in the township of Randolph, Wisconsin.  The company sells its production of ethanoland distillers grains, a co-product of ethanol production, within the UnitedStates.  The plant commenced operationsin May of 2005.

*Accounting Estimates*

Management uses estimates and assumptions in preparingthese financial statements in accordance with generally accepted accountingprinciples.  Those estimates and assumptions affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilities,and the reported revenues and expenses. Actual results could differ from those estimates.

*Revenue Recognition*

The Company sells ethanol and related productspursuant to marketing agreements. Revenues are recognized when the customer has taken title, which occurswhen the product is shipped, and has assumed the risks and rewards ofownership, prices are fixed or determinable, and collectibility is reasonablyassured.  The Company’s products areshipped FOB shipping point.

In accordance withthe Company’s agreements for the marketing and sale of ethanol and relatedproducts, marketing fees and commissions due to the marketers are deducted fromthe gross sales price at the time payment is remitted to the Company.  However, in accordance with EITF 99-19,because the Company is the primary obligor in the sales arrangement with thecustomer, these sales and marketing fees and commissions are recorded gross inoperating expenses in the accompanying statements of operations.

The Companyrecords revenue from federal and state incentive programs related to theproduction of ethanol when the Company has sold the ethanol and completed allthe known requirements of the applicable incentive 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 six months ended June 30, 2006has been changed to conform to the classifications used for the three and sixmonths ended June 30, 2007. These reclassifications had no effect on members’equity, net income, or cash flows as previously reported.

**2.  INVENTORY**

Inventory consists of the following:
| ** **      | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------|------------|-----------------------------|------------|---------------------------------|------------|
| Raw materials   |       | $                           | 1,041,136  |                            | $          | 697,081 |   |
| Work in process |       | 275,003                     |       | 126,868                         |       |
| Finished goods  |       | 920,854                     |       | 878,906                         |       |
| Total           |       | $                           | 2,236,993  |                            | $          | 1,702,855 |   |

**3.  DERIVATIVE INSTRUMENTS**

At June 30, 2007, the Company had recorded a liabilityfor derivative instruments related to corn and ethanol option and futurespositions of approximately $600,000 and at December 31, 2006, the Company hadrecorded an asset of approximately $150,000 for derivative instruments relatedto corn and ethanol option and futures positions.  None of these open positions, at June 30,2007 and December 31, 2006 were designated as hedges.  The Company has recorded a combined realizedand unrealized loss on corn hedging of approximately $16,000 and $477,000 forthe quarters ended June 30, 2007 and 2006, respectively and a combined realizedand unrealized loss on corn hedging of approximately $706,000 and $856,000 forthe six months ended June 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 $599,000 for the quarter ended June 20, 2007 and no gain or lossfor the quarter ended June 30, 2006.  Thecombined realized and unrealized loss on ethanol hedging recorded for the sixmonth period ending June 30, 2007 approximated $985,000 and no gain or loss forthe six months ended June 30, 2006.

The company is required to maintain cash balances atits broker related to derivative instrument positions.  At June 30, 2007 and December 31, 2006,restricted cash totaled approximately $847,000 and $412,000, respectively, andis not included in cash and cash equivalents on the balance sheet or thestatements of cash flows.

9

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**4. GOVERNMENT INCENTIVE PAYMENTS**

For the three month period ended June 30, 2007 andJune 30, 2006 the Company recorded as other income $0 and approximately$85,000, respectively, from the Commodity Credit Corporation Bioenergy Program,a department of the United States Department of Agriculture.  TheCommodity Credit Corporation Bioenergy Program was terminated on June 30, 2006therefore the Company does not anticipate recording additional revenue fromthis program.

**5. BANK FINANCING**

On May 25, 2006 the Company closed on a mortgage inthe amount of $21,040,376, which included a revolving credit agreement in theamount of $5,000,000, and a term credit agreement in the amount of $16,040,376with Farmers & Merchants Union Bank to refinance the existing debt withAgStar Financial Services, PCA.  The termdebt consists of a five-year business note in the amount of $16,040,376 at afixed interest rate of 7.4% and requires monthly payments based on a ten-yearamortization beginning July 1, 2006.  As of June 30, 2007 and December 31, 2006, the Company had outstandingdebt of $14,941,698 and $15,514,630, respectively, on the term debt and did nothave any borrowings on the 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 six months ending June30, 2007 or in the year 2006 and the Company believes the likelihood of defaultof the financial debt covenants in the next quarter to be remote.  The loan is secured by substantially all theCompany’s assets.
| **Long term debt consists of the following:** | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Bank financing                                                              |       | $                           | 14,941,698 |                            | $          | 15,514,630 |   |
| Less: amounts due within one year                                           |       | 1,206,073                   |       | 1,164,740                       |       |
| Total long term debt                                                        |       | $                           | 13,735,625 |                            | $          | 14,349,890 |   |

 

The estimated maturitiesof long term debt at June 30, 2007 are as follows:

| 2007  |   | $         | 1,206,073  |   |
|-------|--------|-----------|------------|--------|
| 2008  |   | 1,302,541 |       |
| 2009  |   | 1,403,699 |       |
| 2010  |   | 1,383,426 |       |
| 2011  |   | 9,645,959 |       |
| Total |   | $         | 14,941,698 |   |

 

**6.  MEMBERS’ EQUITY**

As specified in the Company’s operating agreement, theCompany has one class of membership units. The Company is authorized to issue up to 28,000 membership units inaddition to the 1,280 seed capital units issued prior to the Company’s initialregistered offering.

As ofJune 30, 2007 and December 31, 2006 the Company had 28,780 units outstanding.

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**7.  COMMITMENTS ANDCONTINGENCIES**

*Corn and Natural Gas Contracts*

At June 30, 2007, the Company had forward cornpurchase contracts totaling approximately 9.3 million bushels for variousdelivery periods from July 2007 to November 2009 of which approximately 40% arewith members.  The prices on thesecontracts range from $2.22 to $4.24 per bushel or have a basis levelestablished by the CBOT futures between $-0.01 and $-1.67.  At June 30, 2007, the Company had forwardcontracts to purchase approximately 315,200 million British thermal units(MMBTU) of natural gas during the months of July through November 2007 at anaverage price of approximately $7.56 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 June 30, 2007 wereapproximately $5.97 million and are expected to total $6.7 million.  Phase I will increase the expected plantcapacity to 60 million gallons per year. The company is also in the process of adding a new maintenance buildingand expanding the grains shipping and receiving area which is expected to cost$1.5 million in total.  As of June 30,2007 the Company had accumulated costs of approximately $422,450 on theseprojects.

Phase II of the expansion involves post-fermentationcapacity expansion and is expected to increase overall production capacity to80 million gallons by December 2008.  Theestimated cost of Phase II is approximately $40,000,000, although the designand scope of work has not been finalized.

*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 a 28% ownership interest.  FirstMissouri Energy, LLC intends to construct a 55 million gallon per year ethanolplant near Cape Girardeau, Missouri.  Itis presently anticipated that the production of ethanol at this new plant willcommence in the fall of 2008.  As of June30, 2007 the Company has invested $1,155,000 in this project.  The Company is accounting for this investmentusing the equity method of accounting and recorded a net loss of investment ofapproximately $114,000 for both the three and six months ended June 30, 2007.

*Subsequent Event*

On July 10, 2007, the Company’s Board of Directorsdeclared a cash distribution of $136 per membership unit of record at the closeof business on July 10, 2007, subject to the approval of the Company’s primarylender.  The distribution will totalapproximately $3,914,080.  If thedistribution is approved, the distribution is expected to be made during thethird quarter of 2007.

** **

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**Item 2.  Management’s Discussion andAnalysis of Financial Condition and Results of Operation.**

Weprepared the following discussion and analysis to help you better understandour financial condition, changes in our financial condition, and results ofoperations for the period ended June 30, 2007 compared to the same period ofthe prior fiscal year.  This discussionshould be read in conjunction with the financial statements and notes and theManagement’s Discussion and Analysis section for the fiscal year ended December31, 2006, included in the Company’s Annual Report on Form 10-KSB.

**DisclosureRegarding Forward-Looking 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-looking statements by terminology such as “may,” “will,”“should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,”“could,” “hope,” “predict,” “target,” “potential,” or “continue” or thenegative of these terms or other similar expressions.  These forward-looking statements are only ourpredictions based upon current information and involve numerous assumptions,risks and uncertainties.  Our actualresults or actions may differ materially from these forward-looking statementsfor many reasons, including the reasons described in this report.  While it is impossible to identify all suchfactors, factors that could cause actual results to differ materially fromthose 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 generaleconomic conditions impacting the availability and price of corn and naturalgas;

·       Total U.S. consumption of gasoline;

·       Fluctuations in petroleum prices;

·       Costs of construction and equipment;

·       Changes in our business strategy, capitalimprovements or development plans;

·       Financial impacts of our hedgingstrategies;

·       Our ability to generate free cash flow toinvest in our business and service our debt;

·       Changes and advances in ethanolproduction technology; 

·       Competition from alternative fuels andalternative fuel additives; and

·       Other factors described elsewhere in thisreport.

 

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 toupdate these forward-looking statements, even though our situation may changein the future. Furthermore, we cannot guarantee future results, events, levelsof activity, performance, or achievements. 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.

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**Overview**

UnitedWisconsin Grain Producers, LLC was formed as a Wisconsin limited liabilitycompany on November 2, 2001, for the initial purpose of constructing andoperating a 40 million gallon per year nameplate ethanol plant near Friesland,Wisconsin.   We commenced operations inMay 2005.  Since that time, we have beenengaged in the production of ethanol and distillers grains. Our revenues arederived from the sale and distribution of our ethanol throughout thecontinental United States and in the sale and distribution of our distillersgrains locally, throughout the continental United States and overseas.   In December 2006 we commenced constructionof an expansion that, when complete, we expect will increase our productioncapacity to 60 million gallons per year. We expect completion of this expansion in the third quarter of2007.  Following the completion of thisfirst phase of expansion, we anticipate commencing construction of a secondphase of expansion that we expect will increase our production capacity to 80million gallons per year by December 2008.

Weexpect to fund our operations during the next 12 months using cash flow fromcontinuing operations and our credit facilities.  We expect to undertake research anddevelopment activities in the next 12 months in the form of commissioning studieson internal energy generation in conjunction with our plant expansion, inparticular the possibility of using post-fermentation corn solids as an energysource, thereby offsetting our natural gas usage.

Weare subject to industry-wide factors that affect our operating and financialperformance.  Our operating results arelargely driven by the prices at which we sell ethanol and distillers grains andthe costs related to their production. Historically, the price of ethanol tends to fluctuate in the samedirection as the price of unleaded gasoline and other petroleum products.  Surplus ethanol supplies also tend to putdownward pressure on prices.  Inaddition, the price of ethanol is generally influenced by factors such asgeneral economic conditions, the weather, the season, and government policiesand programs.  The price of distillersgrains is generally influenced by supply and demand, seasonal fluctuations andthe price of substitute livestock feed, such as corn and soybean meal and otheranimal feed proteins.  Surplus cornand/or protein supplies tend to put downward pressure on distillers grainspricing.  In addition, our revenues arealso impacted by such factors such as our dependence on one or a few majorcustomers who purchase and distribute our products; the intensely competitivenature of our industry; possible legislative changes at the federal, stateand/or local level; changes in federal ethanol tax incentives; and the rapidgrowth in ethanol production capacity.

Ourtwo largest costs of production are corn and natural gas.  Both of these costs are affected by factorslargely out of our control.  The cost ofcorn is affected primarily by the market’s perception of supply and demandfactors such as crop production, industry year-end inventories, exports,government policies and programs, risk management and weather.  The growth of the ethanol industry itself hasincreased the average price of corn and is expected to continue to increase theaverage price 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 trended higher than average and it appearsprices will continue to remain above previous averages due to the high price ofalternative fuels such as fuel oil.  Ourcosts of production are also affected by the cost of complying with theextensive environmental laws that regulate our industry.

**Results of Operations**

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

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 June 30,2007 and 2006:

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| ** **                          | ** ** | **Three Months Ended  June 30, 2007  (unaudited)** | ** ** | **Three Months Ended  June 30, 2006  (unaudited)** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| **Income Statement Data** | ** ** | **Amount**                                                             | ** ** | **%**                                                                  | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                            |       | $                                                                      | 28,245,629 |                                                                   | 100.0      |   | $ | 30,578,904 |   | 100.0 |   |
|                                |       |                                                                   |       |                                                                   |       |   |   |   |   |
| Cost of Goods Sold                  |       | $                                                                      | 21,525,312 |                                                                   | 76.2       |   | $ | 17,680,454 |   | 57.8 |   |
|                                |       |                                                                   |       |                                                                   |       |   |   |   |   |
| Gross Profit                        |       | $                                                                      | 6,720,317  |                                                                   | 23.8       |   | $ | 12,898,450 |   | 42.2 |   |
|                                |       |                                                                   |       |                                                                   |       |   |   |   |   |
| Operating Expenses                  |       | $                                                                      | 944,819    |                                                                   | 3.3        |   | $ | 691,476 |   | 2.2 |   |
|                                |       |                                                                   |       |                                                                   |       |   |   |   |   |
| Operating Income                    |       | $                                                                      | 5,775,498  |                                                                   | 20.4       |   | $ | 12,206,974 |   | 40.0 |   |
|                                |       |                                                                   |       |                                                                   |       |   |   |   |   |
| Other Expense                       |       | $                                                                      | (80,781    | )                                                                      | 0.2        |   | $ | (908,712 | ) | (3.0 | ) |
|                                |       |                                                                   |       |                                                                   |       |   |   |   |   |
| **Net Income**                      |       | $                                                                      | 5,694,717  |                                                                   | 20.2       |   | $ | 11,298,262 |   | 37.0 |   |

 

*Revenues*.  Revenues from operations for the three monthsended June 30, 2007 totaled $28,245,629. In the three months ended June 30, 2007 ethanol comprised 89% of ourrevenues and DDGS comprised 11% of our revenues.  Revenues from operations for the three monthsended June 30, 2006 totaled $30,578,904, of which ethanol comprised 91% andDDGS comprised 9%.  The decrease inrevenues from operations for the three months ended June 30, 2007 compared tothe three months ended June 30, 2006 is substantially a result of an 11%decrease in the price per gallon of ethanol.

Theprice of ethanol in the three months ending June 30, 2007 was down 11% from theprice for the same three months in 2006. The price of ethanol in the three months ending June 30, 2007 was down8% from the preceding quarter, but remained favorable.  Ethanol prices are lower than their peak inJuly 2006 but continue to exceed historical averages.  Management currently expects short-term andmid-term ethanol prices to remain higher than historical averages due to a highdemand for ethanol which may be contributed to a number of factors, includingthe use of ethanol as an oxygenate to replace MTBE, the high price of gasolineencouraging voluntary blending and the growing recognition of ethanol as analternative energy source.  However, managementbelieves the industry will need to continue to grow demand in order to sustainthese higher prices.  According to theRenewable Fuels Association, as of July 23, 2007 there were 123 ethanol plantsin operation nationwide with the capacity to produce more than 6.4 billiongallons of ethanol annually, with an additional 75 new plants and sevenexpansions under construction expected to add an additional estimated 6.3billion 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 occur.  If ethanol prices continue to decline, ourearnings will also decline, particularly if corn costs rise.

Our revenues include a loss of $599,044 for thethree months ended June 30, 2007related to our ethanol derivative instruments.  We recognize the gains orlosses that result from the changes in the value of our ethanol-relatedderivative instruments in revenues as the changes occur.  As ethanolprices fluctuate, the value of our ethanol-related derivative instrumentschange; which affects our financial performance.  We expect the volatilityin these derivative instruments to continue to have an effect on our revenuesdue to the timing of the changes in value of the derivative instruments relativeto our sales.   These instrumentsare the primary tools of our risk management program for ethanol revenues.

Thesales prices for our distillers grains have remained relatively unchanged forthe three months ended June 30, 2007 compared to the three months ended June30, 2006.  Distillers grains prices areexpected to follow the price of corn for the foreseeable future unless theprice of soybean meal or other protein sources change significantly.  Additionally, an increased supply ofdistillers grains resulting from additional ethanol production may put downwardpressure on distillers grain prices.

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*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 endedJune 30, 2007 totaled $21,525,312 as compared to $17,680,454 for the threemonths ended June 30, 2006.  The 22%increase in cost of goods sold in the three months ended June 30, 2007 ascompared to the same three months the previous year is a net result of a 45%increase in the cost of corn and other ingredients, and a 32% decrease in thecost of natural gas.

The increase in the cost of corn is due to a 45%increase in the price of corn.  Cornprices during the three months ended June 30, 2007 exceeded historical averagesfor several reasons.  During this period,projected carry out stocks of corn available on September 1 were athistorically tight levels.  Demand forcorn from both the export markets and the domestic feed and industrial uses forcorn were also strong, indicating additional acres needed to be allocated tocorn.  The early spring planting seasonbrought about abnormally wet weather to some parts of the country, mainly inthe west, and kept the corn market on edge regarding planting progress andwhether or not all the corn acres would be planted in time.  Today corn planted acres are estimated atnearly 93 million acres, and given a normal growing season will likely producea record corn crop, increasing the total supplies of corn in the fall of2007.  The projected carry out supplieshave also increased, and are projected to be nearly 1.8 billion bushels inSeptember 2008, compared to the projected 1.02 billion bushels for the samedate in 2007.  Although supplies appearto be adequate, changes in yield and demand could cause the market to reactagain with higher prices, which would have a negative impact on our costs ofgoods sold.

Our cost of goods sold includes a loss of $15,923for the three months ended June 30, 2007 related to our corn derivative instruments as compared to a$476,502 loss for the three months ended June 30, 2006.  We recognize the gains or losses that result from thechanges in the value of our corn-related derivative instruments in cost ofgoods sold as the changes occur.  As corn prices fluctuate, the value ofour derivative instruments changes, 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.   These instruments are the primary tools ofour risk management program for corn prices.

Natural gas is also an important input to ourmanufacturing process.  The price andvolume of our natural gas for the three months ended June 30, 2007 decreased32% as compared to the same period in 2006.  We estimate that our natural gas usage is approximately 123,000 millionBritish thermal units (“MMBTU”) per month.  We use natural gas to dry amajority of our distillers grains products to moisture contents at which theycan be stored for longer periods and transported greater distances, so that wecan market them to broader livestock markets, including poultry and swinemarkets in the continental United States and to markets in Asia.  Natural gas has recently beenavailable only at prices exceeding historical averages. These heightened pricesincrease our costs of production.  Although natural gas prices havetrended lower since their peak, we expect natural gas prices to remain higherthan historic values given the higher value of energy sources generally. This could increase our gas costs substantially, which will adversely impactour cost of goods sold.  We have secureda marketing firm and energy consultant for our natural gas supply and willcontinue to work with them on an on-going basis to mitigate our exposure tovolatile gas prices.   We have alsosecured firm pipeline capacity for natural gas delivery of 4,000 MMBTU per day.

*Gross Profit*. Gross profit for the three months ending June 30, 2007 was $6,720,317, a48% decrease from the gross profit of $12,898,450 for the three months endingJune 30, 2006.  This decrease is dueprimarily to an 11% decrease in the selling price of our ethanol (see “Revenues”above) and a 45% increase in our cost of corn (see “Cost of Goods Sold” above).

In the three months ending June 30, 2007, althoughthe spread between the selling price of the ethanol and distillers grains wesold and the cost of the raw materials required to produce our ethanol anddistillers grains was down from the preceding quarter, we still realized afavorable margin.  The spread between theprice we receive for our products and the costs of our raw materials may notcontinue at this favorable rate in the future. The rapidly increasing supply of ethanol may outpace the demand forethanol, placing downward pressure on our selling price and eroding ourmargins.  A decrease in this spread willadversely affect our financial performance.

*Operating Expenses*.  Operating expenses of $944,819 for the threemonths ending June 30, 2007 represented 3.3% of our revenues as compared tooperating expenses of $691,476 for three months ending June 30, 2006, whichrepresented 2.2% of our revenues.  The increase in operating expenses for thethree months ended June 30, 2007 was primarily due to compensation provided toour employees pursuant to our profit sharing employee benefit plan, which weadopted on July 10, 2006.

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*Operating Income*. Operating income for the three months ending June 30, 2007 totaled $5,775,498, or 20% of revenues.  Operating income for the three monthsending June 30, 2006 totaled$12,206,974, or 40% of revenues.  Thedecrease in operating income for the three months ending June 30, 2007 comparedto the three months ending June 30, 2006 is primarily a result of the decreasein “Gross Profit” (discussed above).

*Other Income (Expense)*.  Ourother income (expense) for the three months ending June 30, 2007 was expense of $80,781 as compared to anexpense of $908,712 for the three months ending June 30, 2006.  Ourother income (expense) items at June 30, 2007 consisted primarily of interestincome, interest expense, and a net loss on investment.  Our other income (expense) items at June 30,2006 consisted primarily of a net interest expense and the write-off ofdeferred financing costs which occurred due to our debt refinancing in the 2nd quarter of 2006.  The changes in other income (expense) itemswere due primarily to an increase in interest income and our write-off of thefinancing costs in 2006.

We did not receive any payments from the USDA CCCBioenergy program in the three months ending June 30, 2007 as compared to receiptof payments totaling $85,008 for the three months ending June 30, 2006. Payments under the Bioenergy Program were based upon increases in ethanolproduction relative to the previous year.  The CCC announced that itsfunds would be exhausted in the third quarter of the government’s 2006 fiscalyear and the program terminated as of June 30, 2006.  For this reason, we will not receive anyfurther income from this program.

***Comparison of the six months ended June 30, 2007 and 2006***

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 six months ended June 30, 2007 and 2006:
| ** **                          | ** ** | **Six months Ended  June 30, 2007  (Unaudited)** | ** ** | **Six months Ended  June 30, 2006  (Unaudited)** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| **Income Statement Data** | ** ** | **Amount**                                                           | ** ** | **%**                                                                | ** ** | **Amount** | ** ** | **%** | ** ** |
| Revenues                            |       | $                                                                    | 57,349,959 |                                                                 | 100.0      |   | $ | 53,396,611 |   | 100.0 |   |
|                                |       |                                                                 |       |                                                                 |       |   |   |   |   |
| Cost of Goods Sold                  |       | $                                                                    | 42,601,261 |                                                                 | 74.3       |   | $ | 35,109,422 |   | 65.8 |   |
|                                |       |                                                                 |       |                                                                 |       |   |   |   |   |
| Gross Profit                        |       | $                                                                    | 14,748,698 |                                                                 | 25.7       |   | $ | 18,287,189 |   | 34.2 |   |
|                                |       |                                                                 |       |                                                                 |       |   |   |   |   |
| Operating Expenses                  |       | $                                                                    | 1,812,973  |                                                                 | 3.2        |   | $ | 1,352,840 |   | 2.5 |   |
|                                |       |                                                                 |       |                                                                 |       |   |   |   |   |
| Operating Income                    |       | $                                                                    | 12,935,725 |                                                                 | 22.6       |   | $ | 16,934,349 |   | 31.7 |   |
|                                |       |                                                                 |       |                                                                 |       |   |   |   |   |
| Other Income (Expense)              |       | $                                                                    | (98,139    | )                                                                    | (0.2       | ) | $ | (932,667 | ) | (1.7 | ) |
|                                |       |                                                                 |       |                                                                 |       |   |   |   |   |
| **Net Income**                      |       | $                                                                    | 12,837,586 |                                                                 | 22.4       |   | $ | 16,001,682 |   | 30.0 |   |

 

*Revenues*.  Revenues from operations for the six monthperiod ended June 30, 2007 and 2006 totaled $57,349,959 and $53,396,611,respectively.  The 7.4% increase inrevenues from the six months ended June 30, 2007 compared to the six monthsended June 30, 2006 was primarily due to an increase in production, asdiscussed in “RESULTS OF OPERATIONS — *Comparisonof the three months ended June 30, 2007 and 2006.”*

*Cost of Goods Sold*.  Our cost of goods sold as a percentage ofrevenues were 74.3% and 65.8% for the six months ended June 30, 2007 and 2006,respectively.  The increase in our costof goods sold percentage is primarily due to a 36% increase in the cost ofcorn, as discussed in “RESULTS OF OPERATIONS — *Comparison of the three months ended June 30, 2007 and 2006.”*

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*Operating Expenses*.  Our operating expenses as a percentage ofrevenues resulted in a slight increase to 3.2% from 2.5% for the six monthsended June 30, 2007 as compared to the same period in 2006, as discussed in “RESULTSOF OPERATIONS — *Comparison of the threemonths ended June 30, 2007 and 2006.”*

*Operating Income*.  Ourincome from operations decreased to 22.6% from 31.7% for the six months endedJune 30, 2007 compared to the six months ended June 30, 2006.  Higher corn costs have decreased our marginsfrom the same period in 2006, causing our operating income to represent a lowerpercentage of revenues, as discussed in “RESULTS OF OPERATIONS — *Comparison of the three monthsended June 30, 2007 and 2006.”*

*Other Income (Expense)*.  Ourother income (expense) as a percentage of revenues was an expense of 0.2% andan expense of 1.7% for the six months ended June 30, 2007 and 2006,respectively.  The decrease in netexpense for the six months ending June 30, 2007 is due in part to our reductionin interest expense to $541,896 from $916,855 and our increase in interestincome to $502,921 from $98,017, as compared to the same period in 2006.  There was also a $519,406 write-down of debtfinancing costs in 2006 which we did not realize in 2007.  Further, we did not receive any payments fromthe USDA CCC Bioenergy program in the six months ending June 30, 2007 ascompared to receipt of payments totaling $372,082 for the six months endingJune 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 June 30,2006.  For this reason, we will notreceive any further income from this program.

**Changesin Financial Condition for the Six Months Ended June 30, 2007 Compared to theFiscal Year Ended December 31, 2006.**

Assets totaled $83,709,102 on June 30, 2007, ascompared to $84,946,319 on December 31, 2006. Current assets totaled $32,910,495 on June 30, 2007, as compared to$37,482,095 on December 31, 2006.  Thischange resulted from (i) a reduction in cash and cash equivalents on hand,which is primarily a net result of an increase in cash from operations less the$14,390,000 cash used for our member distribution in February 2007 and (ii) a$485,738 increase in the restricted cash required by our broker for ourderivative instruments.

Current liabilities totaled $6,056,205 on June 30,2007, as compared to $5,182,917 on December 31, 2006. This change resultedprimarily from an increase in accounts payable and from our derivativeinstruments, which is a reflection of the markets at the close of the period incomparison to the prices at the various contracts commencement dates.  Long term debt, net of current maturities,totaled $13,735,625 on June 30, 2007, as compared to $14,349,980 on December31, 2006.  This reduction is a directreflection of the principal payments made on our long-term debt as required byour loan agreement.

Member’s Equity totaled $63,917,272 on June 30,2007, as compared to $65,413,512 on December 31, 2006.  This change is a net result of earnings lessthe $14,390,000 membership distribution paid out in February 2007.

**Liquidityand Capital Resources**

The following table shows cash flows for the sixmonths ended June 30, 2007 and 2006:

|                                            | ** ** | **Six months ended June 30** | ** **  |
|--------------------------------------------|------------|--------------------------------------------------|-------------|
| ** **                                 | ** ** | **2007**                                         | ** **  | **2006** | ** ** |
| Net cash  provided by operating activities |       | $                                                | 15,938,507  |   | $ | 15,548,497 |   |
| Net cash used in  investing activities     |       | $                                                | (5,186,990  | ) | $ | (663,614 | ) |
| Net cash used in  financing activities     |       | $                                                | (14,962,932 | ) | $ | (14,195,281 | ) |

 

*Cash Flow Provided by Operations. *Our net cash flow provided from operatingactivities for the six months ending June 30, 2007 was $15,938,507, as comparedto $15,548,497 for the same period the previous year.  The increase in net cash flow provided fromoperating activities for the six months ending June 30, 2007 compared to thesix months ending June 30, 2006 was primarily due to a decrease in accountsreceivable.  Our capital needs are adequately met through cash from ouroperating activities and our current credit facilities.

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*Cash Flow Used In InvestingActivities. *Our net cash flow used in investing activities for the six months endingJune 30, 2007 constituted expenditures of $5,186,990, as compared toexpenditures of $663,614 for the same period the previous year.  The increase in expenditures for the sixmonths ending June 30, 2007 compared to the six months ending June 30, 2006 isdue to (i) construction in process payments of $4,018,349, most of which is forPhase I of the plant expansion and (ii) the $1,055,000 investment in the FirstMissouri Energy project (discussed below).

Management estimates that approximately $3,500,000in capital expenditures will be made in the next six months for generaloperational improvements in grains shipping, receiving and storage, andconstruction of the new maintenance building; an additional $1,300,000 will bespent to complete Phase I of the plant production expansion.

It is presently estimated an additional $40,000,000will be spent in 2007 and 2008 for Phase II of the plant capacity expansion(See ***“Plant Expansion”***below), all of which is expected to be financed from a portion of cash flowsfrom operations and additional debt financing. Utilizing cash generated from operations for the plant expansion mayimpact our ability to pay out future member distributions.  Our projections are based upon our historicaloperating costs and historical revenues. However, our past financial performance may not accurately predictfuture results.  We currently estimate that both Phase I and Phase II ofthe plant expansion will be complete by December 2008; however, constructionmay not stay on schedule and we may not be able to operate at the expandedproduction levels by the end of 2008.

In addition to capital investment to increase thecapacity and efficiency of our Friesland facility, on February 12, 2007 ourboard approved a $10,000,000 investment for an approximate 28% ownershipinterest in a joint venture to construct and operate a 55 million galloncapacity ethanol plant at Cape Girardeau, Missouri.  As of June 30, 2007 we had paid out a total of$1,155,000 on this project.  We expect topay our remaining capital contribution upon loan closing.

*Cash Flow Used In FinancingActivities. *We used cash to pay down our debt by $572,932 during the six monthsending June 30, 2007 compared to $8,439,281 used for debt payments for the sixmonths ending June 30, 2006.  Theprincipal paid in the three months ending June 30, 2007 was pursuant to theten-year amortization required by our existing loan agreement with Farmers& Merchants Union Bank.  The principalpaid during the three months ending June 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 six months ending June 30, 2007,we made cash distributions to our members in the aggregate amount of$14,390,000 as compared to $5,756,000 in the six months ending June 30, 2006.

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

On May 25, 2006, we signed credit agreements withFarmers & Merchants Union Bank of Friesland, Wisconsin and refinanced ourinitial term debt and revolving loan commitment.  The credit facility is secured bysubstantially all of our assets.   Theterm loan of $16,040,376 is for five years with a ten-year amortization.  Payments on the term loan are paid in monthlyinstallments, including principal and interest. The interest rate is fixed at 7.4% for both the term and revolving loanfor 5 years.  Interest is due monthly onthe revolving loan commitment.

As of June 30, 2007 and December 31, 2006, we hadoutstanding debt of $14,941,698 and $15,514,630, respectively, on the term debtand did not have any borrowings on the revolving loan.

There is an annual facility fee of $20,000 on theterm loan beginning on the closing date, May 25, 2006, and upon eachanniversary until its maturity.  There isan additional $10,000 annual service fee for the revolving credit agreementwhich can be terminated prior to its maturity, thereby discontinuing the servicefee.  No prepayment fees exist on eitherloan.

** **

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These loans are subject to protective covenantsrequiring us to maintain various financial ratios. We are required to maintaina minimum tangible net worth of $24,000,000 and to increase our tangible networth annually by the lesser of $500,000 or an amount equal to retainedearnings.  Our owners’ equity is to be atleast 45% of tangible net assets and we must maintain a working capitalposition of at least $4,000,000.  We mustreceive written approval from our lender to exceed $1,000,000 in annual capitalexpenditures and we must obtain consent prior to making membershipdistributions in excess of 65% of the previous year’s net income, excludingstate and federal incentive payments.  Farmers & Merchants Union Bank approved our member distribution of$14,390,000 in February 2007 and has also approved our anticipated capitalexpenditures in excess of $1,000,000 for 2007. As of June 30, 2007, we are in compliance with all of our financial debtcovenants.  The loan is secured bysubstantially all of the Company’s assets.

**PlantExpansion**

Wehave engaged an engineering firm to assist in developing a plan to increase thedesign capacity of our plant to 80 million gallons of ethanol productionannually from our current name-plate capacity of 40 million gallons per year.  Our current production rate is approximately52 million gallons per year.  The scopeof the project being studied includes shipping and receiving capacityincreases, plant processing capacity increases, additional product storage, andlogistics improvements.  We expect theproject will be completed in at least two phases. Phase I of the plantexpansion was approved in June 2006 and construction began in December2006.  Phase I is expected to result inan increase in production capacity to 60 million gallons annually by September2007.  However, it is possible thatconstruction will not stay on schedule or that we will not be able to operateat expanded production levels by that date.

PhaseI entails increasing the cook and fermentation system capacity by 65%.  On December 15, 2006, the WisconsinDepartment of Natural Resources approved our application for an air pollutioncontrol construction permit to construct the Phase I scope of work andinitially operate our plant up to the increased capacity of 60 million gallonsof ethanol per year.   Sixty milliongallons is the estimated capacity of the downstream processing of raw productsof fermentation.  As of June 30, 2007 wehad incurred approximately $5.4 million in construction-in-process expenses forPhase I of our expansion.

PhaseII of our expansion project involves post-fermentation capacity expansion andis expected to increase overall production capacity to 80 million gallons byDecember 2008.  The estimated cost ofPhase II is approximately $40,000,000, although we have not finalized thedesign and the scope of work at this time. On May 10, 2007 the board approved $1,350,000 million for thecentrifuges and on June 11, 2007 the board approved $16,700,000 for theexpansion of the distillation, dehydration, and evaporation (DD&E) system,both required as part of Phase II of our expansion.  On June 11, 2007, the board also approved$2,000,000 for a distillers grains transport cooling system.

OnOctober 10, 2006 the board approved $535,000 for the construction of a newmaintenance building.  The new buildingis to provide additional area for plant maintenance to minimize lost opportunity due to plant interruptions, allowing themaintenance department to entertain multiple projects simultaneously ranging fromlarge pipe fabrication to complex electrical circuit design.  The construction of this new facility iscurrently underway.  As of June30, 2007 we had made approximately $330,000 in construction-in-process paymentsfor this maintenance building.

OnMay 10, 2007 the board approved $1.1 million for a load-out expansion projectand an additional $1.3 million for increased product storage in our grainshipping, receiving, and storage area. As of June 30, 2007 we had made approximately $100,000 in construction-in-processpayments for these projects.  We expectto have these projects complete in November of this year for use during theupcoming harvest season.

Weexpect to finance the plant expansions through a combination of earnings fromoperations and additional debt financing. This could limit our ability to make member distributions as they haveoccurred in the past.  We may not be ableto finance the projects as anticipated.

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**SubsequentEvents**

OnJuly 10, 2007, our Board of directors declared a cash distribution of $136 permembership unit of record at the close of business on July 10, 2007, subject tothe approval of our primary lender.  The distribution will totalapproximately $3,914,080.  If thedistribution is approved by Farmers & Merchants Union Bank, we expect thedistribution will be made on or about August 15, 2007.

**OffBalance Sheet Arrangements.**

We currently do not have any off-balance sheetarrangements.

**Applicationof Critical Accounting Estimates**

Therewere no material changes in the Company’s accounting estimates during the threeor six months ended June 30, 2007.

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

We are exposed to the impactof market fluctuations associated with commodity prices as discussedbelow.  We have no exposure to foreigncurrency risk, as all of our business is conducted in U.S. Dollars, or tointerest rate risk, as the interest rate for our existing term debt andrevolving 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*.

**CommodityPrice 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 appropriate.  Although we believe ourhedge positions accomplish an economic hedge against our future purchases, theyare not designated as such for hedge accounting purposes, which would match thegain or loss on our hedge positions to the specific commodity purchase beinghedged.  We are marking to market our hedge positions, which means as thecurrent market price of our hedge positions changes, the gains and losses areimmediately recognized in our cost of goods sold.

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.  AtJune 30, 2007 and December 31, 2006, the fair value of our derivativeinstruments for corn and gasoline is a liability in the amount of $600,349 andan asset in the amount of $150,463, respectively.  At December 31, 2006, we held derivativeinstruments for corn, but no ethanol-related derivative instruments.  There are several variables that could affectthe extent to which our derivative instruments are impacted by pricefluctuations in the cost of corn or gasoline. However, it is likely thatcommodity cash prices will have the greatest impact on the derivativeinstruments with delivery dates nearest the current 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.

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We estimate that our expected corn usage (withouttaking into account our expansion) is approximately 17.9 million bushels peryear for the production of 52 million gallons of ethanol.  We have priceprotection in place for a portion of our expected corn usage through November2009 using forward contracts, CBOT futures and options and over-the-counteroption contracts.  As we move forward, additional protection may be necessary. As corn prices move in reaction to market trends and information, our incomestatement will be affected depending on the impact such market movements haveon the value of our derivative instruments.  As we move forward,additional price protection may be required to solidify our margins. Depending on market movements, crop prospects and weather, these priceprotection positions may cause immediate adverse effects, but are expected toproduce 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 315,200 MMBTU of natural gasfor the period July through November 2007 at an average price of approximately$7.56 per MMBTU.  We may also purchaseadditional natural gas requirements for the 2007 calendar year as we attempt tofurther reduce our susceptibility to price increases.

Asensitivity analysis has been prepared to estimate our exposure to corn andgasoline price risk. The table presents the fair value of our derivativeinstruments as of June 30, 2007 and December 31, 2006 and the potential loss infair value resulting from a hypothetical 10% adverse change in such prices.  The fair value of the positions is asummation of the fair values calculated by valuing each net position at quotedmarket prices as of the applicable date. The results of this analysis, whichmay differ from actual results, are as follows:

|                   | ** ** | **Fair Value** | ** ** | **Effect of Hypothetical  Adverse Change —  Market Risk** | ** ** |
|-------------------|------------|---------------------|------------|-----------------------------------------------------------------------------------------|------------|
| June 30, 2007     |       | $                   | (600,349   | )                                                                                       | $          | 60,035 |   |
| December 31, 2006 |       | $                   | 150,463    |                                                                                    | $          | 15,046 |   |

 

**Item 4.**                          Controls and Procedures

Ourmanagement, including our Chief Executive Officer (the principal executiveofficer), J.F. Robertson, along with our Chief Financial Officer, (theprincipal financial officer), Barb Bontrager, have reviewed and evaluated theeffectiveness of our disclosure controls and procedures as of June 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.

Ourmanagement, consisting of our principal executive officer and principalfinancial officer, have reviewed and evaluated any changes in our internalcontrol over financial reporting that occurred as of June 30, 2007 and therehas been no change that has materially affected or is reasonably likely tomaterially affect our internal control over financial reporting.

**PARTII.     OTHER INFORMATION**

**Item 1.**                          LegalProceedings

None.

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**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

We held our annual members meeting on April 14, 2007for the purpose of electing three directors to our board of directors.  We had three nominees for the three vacantdirector positions.  Votes were solicitedin person and by proxy.

*Election of Directors*

 The followingpersons were nominated and the three nominees receiving the greatest number ofvotes were elected to serve on our board of directors until the 2010 annualmembers meeting and until their successors are duly elected and qualified:
| ** ** | ** **                        | ** ** | **Votes For** | ** ** |
|------------|-----------------------------------|------------|---------------|------------|
|       | Carl Benck  (incumbent)           |       | 13,987        |       |
|       | Robert Lange  (incumbent)         |       | 13,945        |       |
|       | Thomas J. Hanley  (non-incumbent) |       | 13,700        |       |

 

IncumbentsCarl Benck and Robert Lange were reelected to the board of directors for threeyear terms expiring in 2010. Non-incumbent Thomas J. Hanley was also elected to the board ofdirectors for a three year term expiring in 2010.  The other directors whose terms of officecontinued after the meeting are Kevin Roche, William Herrmann, Robert Miller,Jerry Franz, Cal Dalton and Berwyn Westra.

**Item 5.**                       OtherInformation

None.

**Item 6.**                       Exhibits

(a)                                  Thefollowing exhibits 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 withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
|        | ** **      | ** ** | **UNITED WISCONSIN GRAIN PRODUCERS, LLC**                              |
|--------|-----------------|------------|------------------------------------------------------------------------|
|   |            |       |                                                                   |   |
|   |            |       |                                                                   |   |
| Date:  | August 14, 2007 |       | /s/ J.F. Robertson                                                     |
|   |            |       | J.F. Robertson                                                         |   |
|   |            |       | Chief Executive Officer  (Principal Executive Officer)                 |   |
|   |            |       |                                                                   |   |
|   |            |       |                                                                   |   |
|   |            |       |                                                                   |   |
| Date:  | August 14, 2007 |       | /s/ Barb Bontrager                                                     |
|   |            |       | Barb Bontrager                                                         |   |
|   |            |       | Chief Financial Officer   (Principal Financial and Accounting Officer) |

 

** **

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