** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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** **

**FORM 10-KSB**

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****x                                             Annual reportunder Section 13 or 15(d) of the Securities Exchange Act of 1934.

**For the fiscal year endedDecember 31, 2006**

**o**                                                Transitionreport under Section 13 or 15(d) of the Exchange Act.

**Commission file number 000-50733**

 

**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

(Name of small business issuer 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)

 

Securities registered under Section 12(b) ofthe Exchange Act:

 

**None**

** **

Securities registered under Section 12(g) ofthe Exchange Act:

 

**Membership Units**

** **

Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.  £ Yes    x No

Indicate by check mark if the registrant is not required to file reportspursuant to Section 13 or Section 15(d) of the Act.   £ Yes   x No

Check whether theissuer: (1) filed all reports required to be filed by Section 13 or 15(d) ofthe Exchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.   x Yes   £ No

Check if thereis no disclosure of delinquent filers in response to Item 405 of Regulation S-Bis not contained in this form, and no disclosure will be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB.   x

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

State issuer’srevenues for its most recent fiscal year.  **$111,771,603**

As of December 31,2006, the aggregate market value of the membership units held by non-affiliates(computed solely by reference to the most recent offering price of $1,000 permembership unit, and without reference to recent private transfers) wasapproximately $24,567,000.

As of March 15,2007, there were 28,780 membership units outstanding.

DOCUMENTSINCORPORATED BY REFERENCE

The registrant hasincorporated by reference into Part III of this Annual Report on Form 10-KSBportions of its definitive proxy statement to be filed with the Securities andExchange Commission within 120 days after the close of the fiscal year coveredby this Annual Report.

Transitional Small Business Disclosure Format (Check one):   £ Yes   x No

 

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**INDEX**
| ** **                                                                                                                    | ** ** | Page No. |
|-------------------------------------------------------------------------------------------------------------------------------|------------|---------------|
| **PART 1**                                                                                                                    |       | **4**         |
| **ITEM 1. DESCRIPTION  OF BUSINESS**                                                                                          |       | **4**         |
| **ITEM 1A. RISK FACTORS**                                                                                                     |       | **12**        |
| **ITEM 2. DESCRIPTION  OF PROPERTY**                                                                                          |       | **16**        |
| **ITEM 3. LEGAL PROCEEDINGS**                                                                                                 |       | **18**        |
| **ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**                                                              |       | **18**        |
| ** **                                                                                                                    |       | ** **    |
| **PART II**                                                                                                                   |       | **18**        |
| **ITEM 5. MARKET  FOR MEMBERSHIP UNITS AND RELATED MEMBER MATTERS**                                                           |       | **18**        |
| **ITEM 6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**                                                   |       | **19**        |
| **ITEM 7. FINANCIAL  STATEMENTS**                                                                                             |       | **28**        |
| **ITEM 8. CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES**                            |       | **42**        |
| **ITEM 8A. CONTROLS  AND PROCEDURES**                                                                                         |       | **42**        |
| **ITEM 8B. OTHER  INFORMATION**                                                                                               |       | **42**        |
| ** **                                                                                                                    |       | ** **    |
| **PART III**                                                                                                                  |       | **42**        |
| **ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH  SECTION 16(A) OF THE EXCHANGE ACT** |       | **42**        |
| **ITEM 10. EXECUTIVE  COMPENSATION**                                                                                          |       | **42**        |
| **ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED  MEMBER MATTERS**                      |       | **42**        |
| **ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**                                                                  |       | **42**        |
| **ITEM  13. EXHIBITS AND REPORTS ON FORM 8-K**                                                                                |       | **43**        |
| **ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES**                                                                          |       | **44**        |
| ** **                                                                                                                    |       | ** **    |
| **SIGNATURES**                                                                                                                |       | **45**        |

 

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**CAUTIONARY STATEMENTS REGARDINGFORWARD-LOOKING STATEMENTS**

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

·              Changes in the availability andprice of corn;

·              Ethanol supply in excess ofdemand;

·              Our ability to implement ourexpansion plans;

·              Changes in the environmentalregulations that apply to our plant operations;

·              Changes in our business strategy,capital improvements or development plans;

·              Changes in plant productioncapacity or technical difficulties in operating the plant;

·                                          Changesin general economic conditions or the occurrence of certain events causing aneconomic impact in the agriculture, oil or automobile industries;

·              Lack of transport, storage andblending infrastructure preventing ethanol from reaching high demand markets;

·              Changes in federal and/or statelaws (including the elimination of any federal and/or state ethanol taxincentives);

·              Changes and advances in ethanolproduction technology;

·              Additional ethanol plants built inclose proximity to our ethanol facility in south central Wisconsin;

·              Competition from alternative fueladditives;

·              Changes in interest rates or theavailability of credit;

·              Our ability to generate free cashflow to invest in our business and service our debt; and

·              Our ability to retain keyemployees and maintain labor relations.

 

The cautionary statements referred to in this sectionalso should be considered in connection with any subsequent written or oralforward-looking statements that may be issued by us or persons acting on ourbehalf.  We undertake no duty to updatethese forward-looking statements, even though our situation may change in thefuture. Furthermore, we cannot guarantee future results, events, levels ofactivity, 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.

**AVAILABLE INFORMATION**

Information about us is also available at our websiteat**www.uwgp.com, under “Financial Information,” which includeslinks to reports we have filed with the Securities and Exchange Commission. Thecontents of our website are not incorporated by reference in this Annual Reporton Form 10-KSB.

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**PART 1.**

**ITEM 1.  DESCRIPTION OF BUSINESS**

**Business Development**

United WisconsinGrain Producers, LLC was formed as a Wisconsin limited liability company onNovember 2, 2001 for the purpose of constructing and operating a 40 milliongallon per year ethanol plant near Friesland, Wisconsin.  References to “we,” “us,” “our” and the “Company”refer to United Wisconsin Grain Producers, LLC.   Our revenues are derived from the sale anddistribution of our ethanol and distillers grains throughout the continentalUnited States and overseas.

Since May 2005 wehave been engaged in the production of ethanol and distillers grains at theplant near Friesland, Wisconsin.  Ourplant currently produces approximately 50 to 55 million gallons of ethanol peryear.

On March 9, 2006,we entered into an agreement with AgStar Financial Services, PCA to amend ourAmended and Restated Construction and Revolving Loan Agreement.  The amendment increased the revolvingcommitment amount to $9,000,000 and amended the revolving note so that it ispayable in full on July 1, 2010.  Inaddition, we requested to apply $5,000,000 of the new term revolver as aspecial principal payment against our existing term loan.  On May 25, 2006, we signed credit agreementswith Farmers & Merchants Union Bank of Friesland, Wisconsin and refinancedour existing term debt and revolving loan commitment.  The credit facility is secured bysubstantially all our assets.  The termloan of $16,040,376 is for five years with a ten-year amortization.  Payments on the term loan are made in monthlyinstallments, and include principal and interest.  The interest rate is fixed at 7.4% for boththe term and revolving loan for five years.

On June 7, 2006,our board of directors announced plans to conduct an engineering and feasibilitystudy for increasing plant production capacity to 80 million gallons of ethanolannually.  The project will be completed in at least two phases. Phase I of theplant expansion will cost approximately $6,700,000 and we expect will result inan increase in production capacity to 60 million gallons annually by July2007.  We have engaged ADF Engineering,Inc. to design and manage the construction of the Phase I expansion.  On December 15, 2006 the Wisconsin Departmentof Natural Resources approved our application for an air pollution controlconstruction permit to construct the Phase I scope of work and initiallyoperate our plant up to the increased capacity of 60 million gallons of ethanolper year, and we began construction thereafter. Phase II of our expansion project involves down stream capacityexpansion and will increase overall production capacity to 80 milliongallons.  We will need to obtain anotherconstruction permit from the Wisconsin Department of Natural Resources prior tocommencing the construction of Phase II. The estimated cost of Phase II is approximately $30,000,000, although wehave not engaged any firm to complete the Phase II construction.

We previouslyexplored the possibility of a fractionation project and grains area expansion.  However, changes in the risk and rewardsituation have resulted in a new round of evaluation of the suitability offractionation for our facility, and we are also exploring alternative and/orsupplementary technologies for processing the portion of the corn not used inthe fermentation process for the production of alcohol and/or energy.  The grains area expansion is proceeding asplanned, with an estimated cost of $1,000,000. On October 10, 2006 the board approved $535,000 for the construction ofa new maintenance building, and construction is currently underway.  We have engaged Morton Building, Inc. toconstruct the maintenance building.

We expect to fundour operations during the next 12 months using cash flow from continuingoperations and our credit facilities.

We are subject toindustry-wide factors that affect our operating and financial performance.  These factors include, but are not limitedto, the available supply and cost of corn from which our ethanol and distillersgrains are processed; the cost of natural gas, which we use in the productionprocess; dependence on our ethanol marketer and distillers grains marketer tomarket and distribute our products; sufficient demand for ethanol to maintainfavorable 

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prices; the intensely competitive nature of the ethanol industry;possible legislation at the federal, state, and/or local level; changes infederal ethanol tax incentives and the cost of complying with extensiveenvironmental laws that regulate our industry.

**PrincipalProducts and Markets**

Our ethanol plant is located near Friesland, Wisconsin in ColumbiaCounty, in the south central section of Wisconsin.  We selected the Friesland site because of itslocation to existing grain production, accessibility to road and railtransportation and its close proximity to major highways that connect to majorpopulation centers.

Theprincipal products we produce at the ethanol plant are ethanol and distillersgrains.  Ethanol is ethyl alcohol, a fuelcomponent made primarily from corn and various other grains, and can be usedas: (i) an octane enhancer in fuels; (ii) an oxygenated fuel additive for thepurpose of reducing ozone and carbon monoxide vehicle emissions; and (iii) anon-petroleum-based gasoline substitute. Approximately 95% of all ethanol is used in its primary form forblending with unleaded gasoline and other fuel products.  The implementation of the Federal Clean AirAct has made ethanol fuels an important domestic renewable fuel additive.  Used as a fuel oxygenate, ethanol provides ameans to control carbon monoxide emissions in large metropolitan areas.  The principal purchasers of ethanol aregenerally wholesale gasoline marketers or blenders.  The principal markets for our ethanol arepetroleum terminals in the continental United States.

Theprincipal co-product of the ethanol production process is distillers grains, ahigh protein, high-energy animal feed supplement primarily marketed to thedairy and beef industry.  Distillersgrains contain by-pass protein that is superior to other protein supplementssuch as cottonseed meal and soybean meal. By-pass proteins are more digestible to the animal, thus generatinggreater lactation in milk cows and greater weight gain in beef cattle.  Weproduce two forms of distillers grains at our dry mill ethanol facility:  Distillers Modified Wet Grains (“DMWS”) andDistillers Dried Grains with Solubles (“DDGS”). DMWS is processed corn mash that has been dried to approximately 50%moisture.  DMWS have a shelf life ofapproximately seven days and are often sold to nearby markets.  DDGS is processed corn mash that has beendried to 10% to 12% moisture.  It has alonger shelf life and may be sold and shipped to any market regardless of itsvicinity to our ethanol plant.  Of ourtotal distillers grains production, we currently market about 73% as DDGS and27% as DMWS.  Our plant expansionwill lead to the production of more distillers grains.  This will require us to ship more of ourdistillers grains in the form of DDGS to other markets as our local market willnot be able to absorb the additional production.  We expect after the expansion project toproduce between 80% and 85% of our distillers grains as DDGS and 15% to 20% asDMWS.  This will lead to increasednatural gas usage in the drying process, which is likely to increase our costs.

*Local Ethanol and Distillers Grains Markets* 

As described below in “*DistributionMethods*”, we market and distribute our ethanol through a thirdparty.  Whether or not ethanol producedby our plant is sold in local markets will depend on decisions made by ourmarketers.  We independently market aportion of our dried distillers grains to local livestock producers.  The remainder of our distillers grains ismarketed through a third party.

*Regional Ethanol Markets*

We currently ship 80% of the fuel ethanol we produceby truck, which serves a local market area within a 100-mile radius of ourplant.  In 2006, we added a second truckloading rack to enable us to ship additional ethanol by truck.  A regional market is typically the destinationfor ethanol shipped by rail.  A regionalmarket is one that is outside of the local market, yet within the neighboringstates.  While we currently have access to a local truck market, ourregional market is within a 450-mile radius of our plant and is serviced byrail.  We constructed a railroad spur toour plant so that we may reach regional and national markets with ourproducts.  Because ethanol use results in less air pollution than regulargasoline, regional markets typically include large cities that are subject toanti-smog measures such as either carbon monoxide or ozone non-attainment areas(e.g., Minneapolis, Chicago, and St. Louis). Our location and rail facilities allow us to effectively supply ethanolto these markets.

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*National Ethanol Markets*

According to the Renewable Fuels Associationstatistics, demand for fuel ethanol exceeded 5.37 billion gallons in 2006.  The passage of the Volumetric Ethanol ExciseTax Credit (“VEETC”) is expected to provide the flexibility necessary to expandethanol blending into higher blends such as E85, E diesel and fuel cellmarkets.  In addition, the recentimplementation of a Renewable Fuels Standard (“RFS”) contained in the EnergyPolicy Act of 2005, which was signed into law on August 8, 2005, is expected tofavorably impact the ethanol industry by enhancing both the production anddemand for ethanol into the future.

The RFS began at 4billion gallons in 2006, and increases to 7.5 billion gallons by 2012. The RFSis a national flexible program that does not require that any renewable fuelsbe used in any particular area or state, allowing refiners to use renewablefuel blends in those areas where it is most cost-effective. Recently the UnitedStates Environmental Protection Agency proposed final rules that would fullyimplement the RFS program, including adoption of the RFS and the creation of acredit trading program that would allow some refiners to blend more renewablefuel than is required under the RFS and sell credits to refiners who blend lessrenewable fuel than is required. According to the Renewable Fuels Association, the RFS is expected tolead to approximately $6 billion in new investment in ethanol plants across thecountry. An increase in the number of new plants will bring an increase in thesupply of ethanol and future supply could outweigh the additional demand. Thiswould have a negative impact on our earnings.

Ethanol isfrequently used as an oxygenate for fossil fuels.  Another substance that can be used as anoxygenate in fossil fuels is called MTBE. MTBE is a petroleum-based oxygenate. Current scientific research suggests MTBE causes groundwatercontamination.  As a result, MTBE hasbeen banned in many states but is not yet banned nationally.  Although the Energy Policy Act of 2005 didnot impose a national ban of MTBE, its failure to include liability protectionfor manufacturers of MTBE has resulted in many refiners and blenders usingethanol as an oxygenate rather than MTBE to satisfy the reformulated gasolineoxygenate requirement. While this may create some additional demand in theshort term, the Act repealed the Clean Air Act’s 2% oxygenate requirement forreformulated gasoline immediately in California and 270 days afterenactment elsewhere. The 2% oxygenation requirement expired on May 5,2006.  The Clean Air Act, however, alsocontains an oxygenated fuel requirement for areas classified as carbon monoxidenon-attainment areas. These areas are required to establish an oxygenated fuelsprogram for a period of not less than three months each winter. The minimumoxygen requirement for gasoline sold in these areas is 2.7% by weight. This isthe equivalent of 7.7% ethanol by volume in a gasoline blend. This requirementwas unaffected by the Act and a number of states, including California,participate in this program.

**Distribution Methods**

Weentered into a marketing agreement with Renewable Products Marketing Group, LLC(“RPMG”) in August 2004 for the purposes of marketing and distributing ourethanol.  The agreement commenced in May 2005 and was effective for an initial termof 12 months.  Since the expiration ofthis initial term, both parties to the agreement have elected to renew theagreement under the same terms.  Underthis agreement, our shipments and net rack ethanol price will be pooled with 14other ethanol plants for which RPMG currently markets.  We pay RPMG a pooling fee for ethanoldelivered to the pool and RPMG pays us a netback price per gallon that is basedupon the difference between the pooled average delivered ethanol selling priceand the pooled average distribution expense. These averages are calculated based upon each pool participant’s sellingprice and expense averaged in direct proportion to the volume of ethanolsupplied by each participant to the pool.

Weentered into a marketing agreement with Commodity Specialist Company (“CSC”) inAugust 2004 for the purpose of marketing and selling the dried distillersgrains we produce.  CSC markets our drieddistillers grains shipped via rail and we receive a percentage of the sellingprice actually received by CSC in marketing our distillers grains to itscustomers. We are also independently marketing a portion of our drieddistillers grains to local livestock producers. The initial term of our agreement with CSC was one year, but theagreement is to remain in effect until terminated by either party at itsunqualified option by providing ninety days’ written notice.  Thus far, neither party to the agreement hasprovided such notice.

InApril 2005 we entered into an agreement with Commodity Specialist Company (“CSC”)for the purpose of marketing our modified wet distillers grain products.   The initial term of this agreement was oneyear, but the 

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agreement automatically renews forsuccessive one-year periods unless either party gives at least 120 days priorwritten notice.  Because neither partyhas given such notice thus far, the agreement is still in effect.

**New Products andServices**

Wehave not introduced any new products or services during this fiscal year.

**GovernmentalRegulation and Federal Ethanol Supports**

Federal Ethanol Supports

Ethanol has important applications, primarily as a high-qualityoctane enhancer and an oxygenate capable of reducing air pollution andimproving automobile performance.  Theethanol industry is dependent on several economic incentives to produceethanol, including federal ethanol supports. The most recent ethanol supports are contained in the Energy Policy Actof 2005.  See, “**NationalEthanol Markets**.”

The use of ethanol as an alternative fuelsource has been aided by federal tax policy. On October 22, 2004, President Bush signed H.R. 4520, whichcontained the Volumetric Ethanol Excise Tax Credit (“VEETC”) and amended thefederal excise tax structure effective as of January 1, 2005.  Prior to VEETC, ethanol-blended fuel wastaxed at a lower rate than regular gasoline (13.2 cents on a 10% blend).  Under VEETC, the ethanol excise tax exemptionhas been eliminated, thereby allowing the full federal excise tax of 18.4 centsper gallon of gasoline to be collected on all gasoline and allocated to thehighway trust fund.  This is expected toadd approximately $1.4 billion to the highway trust fund revenue annually.  In place of the exemption, the bill creates anew volumetric ethanol excise tax credit of 5.1 cents per gallon of ethanolblended at 10%.  The VEETC is scheduledto expire on December 31, 2010.

The Energy Policy Act of 2005 expands who qualifiesfor the small ethanol producer tax credit. Under the Energy Policy Act of 2005, the size limitation on theproduction capacity for small ethanol producers increases from 30 million to 60million gallons.  The credit can be takenon the first 15 million gallons of production. The tax credit is capped at $1.5 million per year per producer.  We expect to be eligible for this tax creditfor 2006.  We do not expect to beeligible for this tax credit when our plant expansion is complete because weexpect to produce more than 60 million gallons of ethanol per year.

On December 28, 2005, the Environmental ProtectionAgency released interim rules imposing a 2.78% default provision (equating to 4billion gallons of renewable fuel) of the RFS. The interim rule applies the 2.78% requirement in the aggregate, meaningno refiner individually has to meet the standard, but that the industry as awhole will have to blend at least 2.78% renewable fuels into gasoline thisyear.  Any shortfall in meeting thisrequirement would be added to the 4.7 billion gallon RFS requirement in2007.  Based on current production anddemand, it is likely that more than 4 billion gallons of ethanol and biodieselwas blended in 2006.  On September 7,2006, the EPA issued a proposed rule that would fully implement the RFS.  The proposed rule requires oil refiners touse 4 billion gallons of renewable fuels in 2006.  This quota increases incrementally until 2012when oil refiners will be required to use 7.5 billion gallons of renewablefuels per year.  The proposed rule alsocreates a credit trading system where oil refiners that blend more renewablefuels than they are required can sell credits to refiners who blend lessrenewable fuel than they are required under the RFS.

Effect of Governmental Regulation

Theethanol industry and our business depend upon continuation of the federal ethanolsupports discussed above.  Theseincentives have supported a market for ethanol that might disappear without theincentives.  Alternatively, theincentives may be continued at lower levels than those at which they currentlyexist.  The elimination or reduction ofsuch federal ethanol supports would make it more costly for us to sell ourethanol and would likely reduce our net income and the value of yourinvestment.

The government’s regulation of theenvironment changes constantly.  We are subject to extensive air, water and other environmentalregulations and we have been required to obtain a number of environmentalpermits to construct and operate the plant and to construct our expansion.  It is possible that more stringentfederal or state 

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environmentalrules or regulations could be adopted, which could increase our operating costsand expenses.  It also is possible thatfederal or state environmental rules or regulations could be adopted that couldhave an adverse effect on the use of ethanol. For example, changes in the environmental regulations regarding therequired oxygen content of automobile emissions could have an adverse effect onthe ethanol industry.  Furthermore, plantoperations are governed by the Occupational Safety and Health Administration (“OSHA”).  OSHA regulations may change such that thecosts of operating the plant may increase. Any of these regulatory factors may result in higher costs or otheradverse conditions effecting our operations, cash flows and financialperformance.

Wehave obtained all of the necessary permits to operate the plant including, airpollution construction permits, a pollutant discharge elimination systemgeneral permit, storm water discharge permits, a water withdrawal permit, andan alcohol fuel producer’s permit.  RMT,Inc. has completed the preparation of our spill prevention control andcountermeasures plan.  On August 29, 2006we completed our emissions testing and found that we were in compliance withthe requirements of our original construction permit.  In fiscal year 2006, we incurred costs andexpenses of approximately $500,000 complying with environmental laws, includingthe cost of obtaining permits.  We arecurrently constructing Phase I of our expansion under the construction permitgranted to us on December 15, 2006.  Thispermit allows us to construct and initially operate the plant  up to a capacity of 60 million gallonsannually.  The permit expires in June2008.  We must complete construction workand test our emissions to receive an operating permit.  We will also require a construction permit toconstruct Phase II of our expansion, which we have not yet obtained.  Although we have been successful in obtainingall of the permits currently required, any retroactive change in environmentalregulations, either at the federal or state level, could require us to obtainadditional or new permits or spend considerable resources on complying withsuch regulations.

**Competition**

We are in directcompetition with numerous other ethanol producers, many of whom have greaterresources than we do. We also expect that additional ethanol producers willenter the market if the demand for ethanol continues to increase.  Ethanol is a commodity product, like corn,which means our ethanol plantcompetes with other ethanol producers on the basis of price and, to a lesserextent, delivery service.  We believe wecompete favorably with other ethanol producers due to our proximity to amplegrain supplies and multiple modes of transportation.  In addition, we believe our plant’s locationoffers an advantage over other ethanol producers in that it has ready access byrail to growing ethanol markets, which may reduce our cost of sales.

According to the Renewable FuelsAssociation, as of February 12, 2007, the ethanol industry has grown to 113production facilities in the United States. There are 78 new plants currentlyunder construction along with 7 plant expansions.  The Renewable Fuels Association currentlyestimates that the United States ethanol industry has capacity to produce morethan 5.5 billion gallons of ethanol per year. The new ethanol plants under construction along with the plantexpansions under construction could push United States production of fuelethanol in the near future to more than 11.8 billion gallons per year.  The largest ethanol producers include AbengoaBioenergy Corp., Archer Daniels Midland, Aventine Renewable Energy, Inc., Tate& Lyle, ASAlliances Biofuels, LLC., VeraSun Energy Corporation and HawkeyeRenewables, all of which are each capable of producing more ethanol than weexpect to produce.

Accordingto the Renewable Fuels Association, excluding our facility, there are currentlyfive plants operating in Wisconsin and there are four new plants in variousstages of construction.  Total annualethanol production capacity from operating plants in Wisconsin is currentlyestimated at approximately 230 million gallons per year, but when added to newplant construction and plant expansion, the total is more than 500 milliongallons per year.

The following table identifies themajority of the largest ethanol producers in the United States along with theirproduction capacities.

 

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**U.S. FUELETHANOL PRODUCTION CAPACITYBY TOP PRODUCERSProducers of More Than 150million gallons per year (mmgy)**
| **Company**                                                             | ** ** | **Location**                                                                                       | ** ** | **Current  Capacity  (mgy)** | ** ** | **Under Construction/  Expansions  (mgy)** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-------------------------------------------------|------------|
| Abengoa Bioenergy Corp                                                  |       | York,  NE  Colwich, KS  Portales, NM  Revenna, NE                                                  |       | 55  25  30                   |       | 88                                              |       |
| Aventine Renewable  Energy, Inc.*                                       |       | Pekin,  IL  Aurora, NE                                                                             |       | 207                          |       |                                            |       |
| Archer Daniels Midland*                                                 |       | Decatur,  IL  Cedar Rapids, IA  Clinton, IA  Columbus, NE  Marshall, MN  Peoria, IL  Wallhalla, ND |       | 1,070                        |       | 275                                             |       |
| ASAlliances Biofuels,  LLC                                              |       | Albion,  NE  Linden, IN  Bloomingburg, OH                                                          |       |                         |       | 100  100  100                                   |       |
| Global Ethanol/Midwest  Grain Processors                                |       | Lakota,  IA  Riga, MI                                                                              |       | 95                           |       | 57                                              |       |
| Hawkeye Renewables, LLC                                                 |       | Iowa  Falls, IA  Fairbank, IA  Menlo, IA                                                           |       | 105  115                     |       | 100                                             |       |
| Tate & Lyle                                                         |       | Loudon,  TN  Ft. Dodge, IA                                                                         |       | 67                           |       | 38  105                                         |       |
| The Andersons Clymers  Ethanol, LLC The Andersons Marathon Ethanol, LLC |       | Clymers,  IN  Greenville, OH                                                                       |       |                         |       | 110  110                                        |       |
| US BioEnergy Corp.*                                                     |       | Albert  City, IA  Woodbury, MI  Hankinson, ND  Ord, NE  Central City,  NE Dyersville, IA           |       | 250                          |       | 250                                             |       |
| VeraSun Energy Corporation*                                             |       | Aurora, SD  Ft. Dodge, IA  Charles City, IA  Welcome, MN  Hartely, IA                              |       | 230                          |       | 330                                             |       |

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*                    Individualstate production capacity not reported

Updated: February 12, 2007

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The following table shows U.S. ethanol productioncapacity by state as of January 2007:

Ethanol ProductionCapacity Ranked by State(Largest to Smallest Production Capacity as of January 2007, including currentcapacity and under construction/expansion)
| ** ** | ** ** | ** **          | ** ** | **Ethanol Production Capacity**     | ** ** |
|------------|------------|---------------------|------------|-----------------------------------------------|------------|
| **Rank**   | ** ** | **State**           | ** ** | **(Million Gallons Per Year)** | ** ** |
| 1          |       | Iowa                |       | 3,236.5                                       |       |
| 2          |       | Nebraska            |       | 1,620.5                                       |       |
| 3          |       | Illinois            |       | 1,172.0                                       |       |
| 4          |       | South Dakota        |       | 910.0                                         |       |
| 5          |       | Minnesota           |       | 782.1                                         |       |
| 6          |       | Indiana             |       | 653.0                                         |       |
| 7          |       | Kansas              |       | 507.5                                         |       |
| 8          |       | Wisconsin           |       | 502.0                                         |       |
| 9          |       | Texas               |       | 370.0                                         |       |
| 10         |       | Ohio                |       | 333.0                                         |       |
| 11         |       | Michigan            |       | 262.0                                         |       |
| 12         |       | North Dakota        |       | 233.5                                         |       |
| 13         |       | New York            |       | 164.0                                         |       |
| 14         |       | Missouri            |       | 155.0                                         |       |
| 15         |       | Oregon              |       | 143.0                                         |       |
| 16         |       | Colorado            |       | 125.0                                         |       |
| 17         |       | Tennessee           |       | 105.0                                         |       |
| 18         |       | Georgia             |       | 100.4                                         |       |
| 19         |       | California          |       | 68.0                                          |       |
| 20         |       | Arizona             |       | 55.0                                          |       |
| 21         |       | Washington          |       | 55.0                                          |       |
| 22         |       | Kentucky            |       | 35.4                                          |       |
| 23         |       | New Mexico          |       | 30.0                                          |       |
| 24         |       | Wyoming             |       | 5.0                                           |       |
|       |       | United States Total |       | 11,622.9                                      |       |

 

Source:  Renewable Fuels Association

Updated: January 2007

Ethanol production is also expandinginternationally.  Ethanol produced orprocessed in certain countries in Central America and the Caribbean region iseligible for tariff reduction or elimination upon importation to the UnitedStates under a program known as the Caribbean Basin Initiative.  Large ethanol producers, such as Cargill,have expressed interest in building dehydration plants in participatingCaribbean Basin countries, such as El Salvador, which would convert ethanolinto fuel-grade ethanol for shipment to the United States.  Ethanol imported from Caribbean Basincountries may be a less expensive alternative to domestically produced ethanoland may affect our ability to sell our ethanol profitably.

Ourethanol plant also competes with producers of other gasoline additives havingsimilar octane and oxygenate values as ethanol, such as producers of MTBE, apetrochemical derived from methanol that costs less to 

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produce than ethanol.  Although MTBE has been banned in many statesand certain provisions of the Energy Policy Act of 2005 have made the use ofMTBE unattractive to refiners and blenders, MTBE could affect the selling priceand demand for ethanol.   Alternativefuels, gasoline oxygenates and alternative ethanol production methods are alsocontinually under development.  The majoroil companies have significantly greater resources than we have to market MTBEand other additives, to develop alternative products, and to influencelegislation and public perception of MTBE and ethanol.  These companies also have sufficientresources to begin production of ethanol should they choose to do so.

A number ofautomotive, industrial and power generation manufacturers are developingalternative clean power systems using fuel cells or clean burning gaseousfuels.  Like ethanol, the emerging fuelcell industry offers a technological option to address increasing worldwideenergy costs, the long-term availability of petroleum reserves andenvironmental concerns.  Fuel cells haveemerged as a potential alternative to certain existing power sources because oftheir higher efficiency, reduced noise and lower emissions. Fuel cell industryparticipants are currently targeting the transportation, stationary power andportable power markets in order to decrease fuel costs, lessen dependence oncrude oil and reduce harmful emissions. If the fuel cell and hydrogen industries continue to expand and gainbroad acceptance and hydrogen becomes readily available to consumers for motorvehicle use, we may not be able to compete effectively.  This additional competition could reduce thedemand for ethanol, which would negatively impact our profitability.

**Sourcesof Raw Materials - Corn Feedstock Supply**

Our plant currently uses approximately 17.9 million bushels ofgrain per year or 51,000 bushels per day as the feedstock for its dry millingprocess.  When our plant expansion iscomplete we expect to use approximately 28 million bushels of grain per year or77,000 bushels per day.  Since weare a licensed Wisconsin grain dealer, we intend to buy as much grain aspossible from local producers and from local elevators.  Our commodities manager is responsible forconsistent scheduling of corn deliveries and establishing forward contractswith local producers and through local grain elevators.  The commoditiesmanager coordinates corn deliveries between local producers and elevators.** **We may purchase additional grain from outside of ourtrade area as need and price dictates. Our current storage capacity allows us to store approximately eight days’worth of corn.

Althoughthe area surrounding the plant produces a significant amount of corn and we donot anticipate problems sourcing grain, there is no assurance that a shortagewill not develop, particularly if there were an extended drought or otherproduction problem.  Grain prices are primarily dependent on worldfeedstuffs supply and demand and on U.S. and global corn crop production, whichcan be volatile as a result of a number of factors, the most important of whichare weather, current and anticipated stocks and prices, export prices andsupports and the government’s current and anticipated agricultural policy.  See “MANAGEMENT’S DISCUSSION AND ANALYSIS —Results of Operations — Cost of Sales.”

**Utilities**

Theplant requires a significant and uninterrupted supply of electricity, naturalgas and water to operate.  We haveentered into agreements with providers of these utilities as follows:

*Natural Gas*

Toaccess sufficient supplies of natural gas to operate the plant, Alliant Energyconstructed a connection to a distribution pipeline to connect our facility toan existing Alliant Energy pipeline located approximately 1.5 miles from ourplant location.  The Alliant Energypipeline connects to an interstate pipeline owned by ANR Pipeline Companyapproximately 3.5 miles from Alliant Energy’s pipeline.  We pay a surcharge on the gas volume movedthrough the new pipeline.  We haveentered into a 10 year capacity agreement with ANR Pipeline Company whichgrants us the right to move a guaranteed volume of gas through thepipeline.  We currently use thistransportation capacity in its entirety. We expect to purchase an adequate supply of gas to operate at anexpanded capacity, although this additional volume will not be a primary firmsupply.

Wehave a natural gas purchase agreement with Constellation New Energy ofWaukesaha, Wisconsin to provide natural gas and balancing services.  We engaged Energy Solutions Inc. of Madison,Wisconsin to provide 

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natural gas management services.  Since we commenced operations in May 2005,there have been no interruptions in the supply of natural gas to the plant andall of our natural gas requirements have been met.  See also “MANAGEMENT’SDISCUSSION AND ANALYSIS” for amore detailed discussion of our natural gas supply.

*Electricity*

Electricity is necessary for lighting and powering much of themachinery and equipment used in the production process.  In October 2003, we entered into an agreementwith Adams-Columbia Electric Cooperative for the provision of all electricalenergy required by the plant. At each anniversary date of the first dateservice was provided, the agreement is automatically extended for another threeyear period unless either party gives written notice of intent not to extend.Neither party to the agreement has provided such notice.  We purchase electricity at Adams-ColumbiaElectric Cooperative’s power supply rates then in effect, which are applied toour metered usage.  In addition, we pay amonthly charge of $300 plus a monthly facility surcharge of $2,608 for thesubstation distribution equipment costs. The Cooperative installed and operates a substation at our plant site tofacilitate electrical distribution to our plant.  We have had no interruption or shortages inthe supply of electricity to the plant since operations were commenced in2005.  We have sufficient additionalcapacity from the substation on our property to power our expanded production.

*Water*

Water is a necessary part of the production process.  It is used in the fermentation process and toproduce steam for the cooking, evaporation, and distillation processes.  Our water needs are met through two 500gallon per minute wells located at our plant. Since our operations commenced in 2005 we have had no interruptions orshortages in the supply of water.  Weexpect that our current wells can produce a sufficient supply of water tosupport our operations following our plant expansion.

**Dependence on One ora Few Major Customers**

Asdiscussed above, we have marketing agreements with RPMG and CSC for thepurposes of marketing and distributing our principal products, which consist ofethanol and distillers grains.  We relyon RPMG for the sale and distribution of all of our ethanol and on CSC for thesale and distribution of distillers grain that we do not sell locally.  Therefore, we are highly dependent on RPMGand CSC for the successful marketing of our products.  See “**Distribution Methods**.”

**Research and Development**

We donot conduct any research and development activities associated with thedevelopment of new technologies for use in producing ethanol and distillersgrains.

**Employees**

We currently have 37 full-time employees and three part-timeemployees and do not expect a significant change in this number over the nexttwelve months.  Eleven of our employeesare involved primarily in management and administration.  The remainder are involved primarily in plantoperations.    When plant expansion iscomplete we plan to add approximately five new full-time employees.

**ITEM 1A. RISK FACTORS.**

*You should carefully read and consider the risks anduncertainties below and the other information contained in this report. The risks and uncertainties described below are not the only ones we mayface.  The following risks, together with additional risks anduncertainties not currently known to us or that we currently deem immaterialcould impair our financial condition and results of operation.*

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**Risks Relating to Our Business**

***We have a limited operatinghistory. ***Webegan our business in 2001 and commenced production of ethanol at our plant inMay 2005.  Accordingly, we have a limited operating history from which youcan evaluate our business and prospects.  Our operating results couldfluctuate significantly in the future as a result of a variety of factors,including those discussed through out these risk factors.  Many of thesefactors are outside our control.   As a result of these factors, ouroperating results may not be indicative of future operating results and youshould not rely on them as indications of our future performance.  Inaddition, our prospects must be considered in light of the risks anduncertainties encountered by an early-stage company and in rapidly growingindustries, such as the ethanol industry, where supply and demand may changesubstantially in a short amount of time.

***Our business is not diversified.***  Our success depends largely upon ourability to profitably operate our ethanol plant. We do not have any other linesof business or other sources of revenue if we are unable to operate our ethanolplant and manufacture ethanol and distillers grains.  If economic orpolitical factors adversely affect the market for ethanol, the Company has noother line of business to fall back on if the ethanol business declines. Ourbusiness would also be significantly harmed if its ethanol plant could notoperate at full capacity for any extended period of time.

***Increases in the price of cornor natural gas would reduce our profitability.**** *Our results of operations and financialcondition are significantly affected by the cost and supply of corn and naturalgas. Changes in the price and supply of corn and natural gas are subject to anddetermined by market forces over which we have no control

Ethanol production requires substantial amounts ofcorn. Corn, as with most other crops, is affected by weather, disease and otherenvironmental conditions.  The price of corn is also influenced by generaleconomic, market and government factors.  These factors include weatherconditions, farmer planting decisions, domestic and foreign government farmprograms and policies, global demand and supply and quality.  Changes inthe price of corn can significantly affect our business. Generally, higher cornprices will produce lower profit margins and, therefore, represent unfavorablemarket conditions.  This is especially true if market conditions do notallow us to pass along increased corn costs to our customers.  The priceof corn has fluctuated significantly in the past and may fluctuatesignificantly in the future.   If a period of high corn prices wereto be sustained for some time, such pricing may reduce our ability to generaterevenues because of the higher cost of operating and may make ethanoluneconomical to produce.  We may not be able to offset any increase in theprice of corn by increasing the price of our products.  If we cannotoffset increases in the price of corn, our financial performance may bematerially and adversely affected.

Natural gas has recently been available only atprices exceeding historical averages.  The prices for andavailability of natural gas are subject to volatile market conditions. These market conditions often are affected by factors beyond our control suchas higher prices as a result of colder than average weather conditions, overalleconomic conditions and foreign and domestic governmental regulations andrelations.  Significant disruptions in the supply of natural gas couldimpair our ability to manufacture ethanol for our customers.  Furthermore,increases in natural gas prices or changes in our natural gas costs relative tonatural gas costs paid by competitors may adversely affect our results ofoperations and financial condition.  Weseek to minimize the risks from fluctuations in the prices of corn and naturalgas through the use of hedging instruments.  However, these hedgingtransactions also involve risks to our business.  See “**Risks Relating to Our Business - *Weengage in hedging transactions which involve risks that could harm our business***.”

***The spread between ethanol andcorn prices can vary significantly and we do not expect the spread to remain atrecent high levels. ***Corn costs significantly impact our cost of goods sold.  Our grossmargins are principally dependent upon the spread between ethanol and cornprices.  In recent periods the spread between ethanol and corn prices hasbeen at historically high levels, due in large part to high oil prices and lowcorn prices.  However, this spread has fluctuated significantly in 2005and again in 2006 and may fluctuate significantly in the future.  Anyreduction in the spread between ethanol and corn prices, whether as a result ofan increase in corn prices or a reduction in ethanol prices, would adverselyaffect our results of operations and financial condition.

***Declines in the price of ethanolor distillers grain would significantly reduce our revenues.*** The sales prices of ethanol and distillersgrains can be volatile as a result of a number of factors such as overallsupply and 

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demand, the price of gasoline, level of government support, and theavailability and price of competing products. For instance, the price ofethanol tends to increase as the price of gasoline increases, and the price ofethanol tends to decrease as the price of gasoline decreases. Any lowering ofgasoline prices will likely also lead to lower prices for ethanol, which maydecrease our ethanol sales and reduce revenues.

The price of ethanol has recently been much higherthan its 10-year average. We expect these prices to level out and follow theoil market as supply from new and existing ethanol plants increases to meetincreased demand. Increased production of ethanol may lead to lower prices. Theincreased production of ethanol could have other adverse effects. For example,increased ethanol production could lead to increased supplies of co-productsfrom the production of ethanol, such as distillers grains. Those increasedco-product supplies could outpace demand, which would lead to lower prices forthose co-products. Also, the increased production of ethanol could result inincreased demand for corn. This could result in higher prices for corn and cornproduction creating lower profits. There can be no assurance as to the price ofethanol or distillers grains in the future. Any downward changes in the priceof ethanol and/or distillers grains may result in less revenue which woulddecrease our income and profitability.

***We sell all of the ethanol weproduce to RPMG under our ethanol marketing agreement.**** *RPMG is the solebuyer of all of our ethanol, and we rely heavily on its marketing efforts tosuccessfully sell our product.  BecauseRPMG sells ethanol for a number of other producers, we have limited controlover its sales efforts.  Our financialperformance is dependent upon the financial health of RPMG, as a significantportion of our accounts receivable are attributable to RPMG.  If RPMG breaches the ethanol marketingagreement or is not in the financial position to purchase and market all of theethanol we produce, we could experience a material loss and we may not have anyreadily available means to sell our ethanol, and our financial performance willbe adversely and materially affected.  Ifour agreement with RPMG terminates, we may seek other arrangements to sell ourethanol, including selling our own product; however, our sales efforts may notachieve results comparable to those achieved by RPMG.

***We sell a substantial portion ofthe distillers grains we produce to CSC under our distillers grains marketingagreements.**** *CSC is the sole buyer of all of our distillers grains that we do notindependently sell locally, and we rely heavily on its marketing efforts tosuccessfully sell our product.  BecauseCSC sells distillers grains for a number of other producers, we have limitedcontrol over its sales efforts.  Ourfinancial performance is dependent upon the financial health of CSC, as asignificant portion of our accounts receivable are attributable to CSC.  If CSC breaches the distillers grainsmarketing agreements or is not in the financial position to purchase and marketall of the distillers grains we produce, we could experience a material loss andwe may not have any readily available means to sell our distillers grains, andour financial performance will be adversely and materially affected.  If our agreements with CSC terminates, we mayseek other arrangements to sell our distillers grains, including selling ourown product, but we give no assurance that our sales efforts would achieveresults comparable to those achieved by CSC.

***We engage in hedgingtransactions which involve risks that could harm our business.***  We are exposed to market risk fromchanges in commodity prices.  Exposure to commodity price risk resultsfrom our dependence on corn and natural gas in the ethanol productionprocess.  We seek to minimize the risks from fluctuations in the prices ofcorn, natural gas and ethanol through the use of hedging instruments.  Theeffectiveness of our hedging strategies is dependent upon the cost of corn,natural gas and ethanol and our ability to sell sufficient products to use allof the corn and natural gas for which we have futures contracts.  There isno assurance that our hedging activities will successfully reduce the riskcaused by price fluctuation which may leave us vulnerable to high corn andnatural gas prices. Alternatively, we may choose not to engage in hedgingtransactions in the future and our operations and financial conditions may beadversely affected during periods in which corn and/or natural gas pricesincrease.

Hedging activities themselves can result in costsbecause price movements in corn, natural gas and ethanol contracts are highlyvolatile and are influenced by many factors that are beyond our control. There are several variables that could affect the extent to which ourderivative instruments are impacted by price fluctuations in the cost of cornor natural gas.  However, it is likely that commodity cash prices willhave the greatest impact on the derivatives instruments with delivery datesnearest the current cash price.  We may incur such costs and they may besignificant.

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***Changes and advances in ethanolproduction technology could require us to incur**costs to update our plant or could otherwise hinderour ability to**compete in theethanol industry or operate profitably.***  Advances and changes in the technology of ethanol production areexpected to occur.  Such advances and changes may make the ethanol productiontechnology installed in our plant less desirable or obsolete.  Theseadvances could also allow our competitors to produce ethanol at a lower costthan we are able.  If we are unable to adopt or incorporate technologicaladvances, our ethanol production methods and processes could be less efficientthan our competitors, which could cause our plant to become uncompetitive orcompletely obsolete.  If our competitors develop, obtain or licensetechnology that is superior to ours or that makes our technology obsolete, wemay be required to incur significant costs to enhance or acquire new technologyso that our ethanol production remains competitive.  Alternatively, we maybe required to seek third-party licenses, which could also result in significantexpenditures.  We cannot guarantee or assure you that third-party licenseswill be available or, once obtained, will continue to be available oncommercially reasonable terms, if at all.  These costs could negativelyimpact our financial performance by increasing our operating costs and reducingour net income.

**Risks Related to Ethanol Industry**

***New plants under construction ordecreases in the demand for ethanol may result in excess production capacity inour industry.*** The supply of domestically produced ethanol is at an all-time high.  As of February 12, 2007, 113 ethanol plantsare currently operating in the United States with 78 new ethanol plants invarious stages of completion and 7 expansions of existing plants inprogress.  The United States ethanol industryproduced nearly 5 billion gallons of ethanol in 2006.  Wisconsin alone has six operating ethanolplants with a combined production capacity of approximately 230 million gallonsper year, with four new plants with a combined production capacity of 272million gallons per year in various stages of construction.  Excess capacity in the ethanol industry wouldhave an adverse impact on our results of operations, cash flows and generalfinancial condition.  If the demand for ethanol does not grow at the samepace as increases in supply, we would expect the selling price of ethanol todecline.  If excess capacity in the ethanol industry occurs, the marketprice of ethanol may decline to a level that is inadequate to generatesufficient cash flow to cover our costs.

***We operate in an intenselycompetitive industry and compete with larger, better financed entities whichcould impact our ability to operate profitably.***  There is significant competition amongethanol producers.  There are numerousproducer-owned and privately-owned ethanol plants planned and operatingthroughout the Midwest and elsewhere in the United States.  We also facecompetition from outside the United States. The number of ethanol plants being developed and constructed in theUnited States continues to increase at a rapid pace. The recent passage of theEnergy Policy Act of 2005 included a renewable fuels mandate that we expectwill further increase the number of domestic ethanol productionfacilities.  The largest ethanol producers include Abengoa BioenergyCorp., Archer Daniels Midland, Aventine Renewable Energy, Inc., Tate &Lyle, ASAlliances Biofuels, Hawkeye Renewables, LLC, and VeraSun EnergyCorporation, all of which are each capable of producing more ethanol than weexpect to produce.  If the demand for ethanol does not grow at the samepace as increases in supply, we expect that lower prices for ethanol willresult which may adversely affect our ability to generate profits and adverselyaffect our financial condition.

***Competition from the advancementof alternative fuels may lessen the demand for**ethanol.***  Alternative fuels, gasoline oxygenates and ethanol productionmethods are continually under development. A number of automotive, industrialand power generation manufacturers are developing alternative clean powersystems using fuel cells or clean burning gaseous fuels. Like ethanol, theemerging fuel cell industry offers a technological option to address increasingworldwide energy costs, the long-term availability of petroleum reserves andenvironmental concerns. Fuel cells have emerged as a potential alternative tocertain existing power sources because of their higher efficiency, reducednoise and lower emissions. Fuel cell industry participants are currentlytargeting the transportation, stationary power and portable power markets inorder to decrease fuel costs, lessen dependence on crude oil and reduce harmfulemissions. If the fuel cell and hydrogen industries continue to expand and gainbroad acceptance, and hydrogen becomes readily available to consumers for motorvehicle use, we may not be able to compete effectively. This additionalcompetition could reduce the demand for ethanol, resulting in lower ethanolprices that might adversely affect our results of operations and financialcondition.

***Corn-based ethanol may competewith cellulose-based ethanol in the future,**which could make it more difficult for us to produceethanol on a**cost-effective basis****.*  Most ethanol is currently producedfrom corn and 

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other raw grains, such as milo or sorghum.  This is especially true for the Midwest. Thecurrent trend in ethanol production research is to develop an efficient methodof producing ethanol from cellulose-based biomass, such as agricultural waste,forest residue, municipal solid waste, and energy crops. This trend is drivenby the fact that cellulose-based biomass is generally cheaper than corn, andproducing ethanol from cellulose-based biomass would create opportunities toproduce ethanol in areas which are unable to grow corn. Significant resourcesare being allocated to promote research and development of cellulose-basedethanol.  If an efficient method ofproducing ethanol from cellulose-based biomass is developed, we may not be ableto compete effectively. We do not believe it will be cost-effective to convertour ethanol plant into a plant which will use cellulose-based biomass toproduce ethanol. If we are unable to produce ethanol as cost-effectively ascellulose-based producers, our ability to generate revenue and financialcondition will be negatively impacted.

**C*ompetitionfrom imported ethanol may be a less**expensivealternative to our ethanol.***  Ethanol produced or processed in certain countries in CentralAmerica and the Caribbean region is eligible for tariff reduction orelimination upon importation to the United States under a program known as theCaribbean Basin Initiative. Large ethanol producers, such as Cargill, haveexpressed interest in building dehydration plants in participating CaribbeanBasin countries, such as El Salvador, which would convert ethanol intofuel-grade ethanol for shipment to the United States. Ethanol imported fromCaribbean Basin countries may be a less expensive alternative to domesticallyproduced ethanol. Competition from ethanol imported from Caribbean Basincountries may affect both our ability to sell our ethanol profitably, adverselyaffecting our results of operations and financial condition.  Additionally, Brazil has an establishedethanol market whose exports to the United States could be competitive withus.  This competition could affect ourability to operate profitably.

***Consumer resistance to the useof ethanol based on the belief that ethanol is**expensive, adds to air pollution, harms enginesand/or takes more energy to**producethat it contributes may affect the demand for ethanol.***  Certain individuals believe that useof ethanol will have a negative impact on gasoline prices at the pump. Manyalso believe that ethanol adds to air pollution and harms car and truckengines. Still other consumers believe that the process of producing ethanolactually uses more fossil energy, such as oil and natural gas, than the amountof ethanol that is produced. These consumer beliefs could potentially bewide-spread. If consumers choose not to buy ethanol, it would affect the demandfor the ethanol we produce which could lower demand for our product andnegatively affect our profitability and financial condition.

**RisksRelated to Regulation and Governmental Action**

***Government incentives forethanol production, including federal tax incentives, may be eliminated in thefuture,**which could hinderour ability to operate at a profit.* **The ethanol industry and our business areassisted by various federal ethanol tax incentives, including those included inthe Energy Policy Act of 2005.  See, “**National Ethanol Markets.” **If the federal tax incentives areeliminated or sharply curtailed, we believe that a decreased demand for ethanolwill result, which could negatively affect our profitability and financial condition.  See, “**FederalEthanol Supports**.”

***Changes in environmentalregulations or violations of the regulations could be**expensive and reduce our profitability.***  We are subject to extensive air, waterand other environmental laws and regulations.  In addition some of theselaws require our plant to operate under a number of environmental permits.These laws, regulations and permits can often require expensive pollutioncontrol equipment or operation changes to limit actual or potential impacts tothe environment.  A violation of these laws and regulations or permitconditions can result in substantial fines, damages, criminal sanctions, permitrevocations and/or plant shutdowns.  We may be subject to legalactions brought by environmental advocacy groups and other parties for actualor alleged violations of environmental laws or our permits.  Additionally,any changes in environmental laws and regulations, both at the federal andstate level, could require us to invest or spend considerable resources in orderto comply with future environmental regulations. The expense of compliancecould be significant enough to reduce our profitability and negatively affectour financial condition.

**ITEM 2. DESCRIPTION OF PROPERTY.**

Our ethanol plant is located on approximately 115 acres onWisconsin Highway 33, two miles east of Wisconsin Highway 73.  The plant’s address is W1231 Tessmann Drive, Friesland, Wisconsin 53935.  The plant 

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grinds approximately 17.9 million bushels of corn per year toproduce approximately 50-55 million gallons of ethanol.  Construction of the plant was completed inApril 2005.  The ethanol plant consistsof the following buildings:

·                  A dry bulk products shipping and receiving facility with mainelevators and conveyors of 15,000 bushel per hour capacity, one truck and onecombination truck and rail handling lane, as well as grain storage for 400,000bushels and cleaning, grinding, and dust control equipment.

·                  An ethanol production system which is comprised of a mixingsystem, cooker, liquefaction vessels, three 750,000 gallon fermentors, a900,000 gallon beer well vessel, distillation system, and alcohol driers.  This equipment is arranged in and around theprocess and production building, which also houses the electrical and processcontrol center, control room, maintenance facilities, staff facilities, andoperations management offices.

·                  The ethanol storage area which consists of two 950,000 gallonstorage tanks with floating lids, two shift tanks with a combined capacity of200,000 gallons and an unleaded gasoline storage tank with a capacity of100,000 gallons.  These vessels arecontained within a spill containment area to contain any spills of the contentsof the tanks which might occur.  Thereare catch basins at the rail and truck loading stations which drain into thiscontainment area as well.

·                  An energy building houses the natural gas burning equipmentconsisting of the thermal oxidizer and waste heat steam boiler, and thedistiller grains dryers.

·                  The waste mash processing system consists of four centrifuges, amultistage evaporation system and various stainless steel vessels.

·                  The fire protection system consists of a 470,000 gallon waterstorage tank, two 500 gallon per minute on site water wells, a 2,500 gallon perminute diesel fire pump and underground fire water distribution piping networksupplying a series of hydrants, sprinklers and a deluge system.

·                  A cooling tower installation with four 75 HP cooling fans andthree 200 HP water pumps.

·                  Transportation facilities include 8,000 feet of rail and switches,4,000 of road, a 90x12 foot truck scale, and truck and rail ethanol load outstations.

·                  A 4,200 square foot administration and sales office building,furniture and equipment, parking lot and landscaping.

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

OnJune 7, 2006, our board of directors announced plans to conduct an engineeringand feasibility study for increasing plant production capacity to 80 milliongallons of ethanol annually.  The project will be completed in at least twophases. Phase I of the plant expansion will cost approximately $6,700,000 andwe expect will result in an increase in production capacity to 60 milliongallons annually by July 2007.  We haveengaged ADF Engineering, Inc. to design and manage the construction of the PhaseI expansion.  On December 15, 2006 theWisconsin Department of Natural Resources approved our application for an airpollution control construction permit to construct the Phase I scope of workand initially operate our plant up to the increased capacity of 60 milliongallons of ethanol per year, and we began construction thereafter.  Phase II of our expansion projectinvolves down stream capacity expansion (post-fermentation) and will increaseoverall production capacity to 80 million gallons.  The estimated cost of Phase II isapproximately $30,000,000, although we have not engaged anyone for Phase IIconstruction.

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We previously explored the possibility of afractionation project and grains area expansion.  However, changes in the risk and rewardsituation have resulted in a new round of evaluation of the suitability offractionation for our facility, and we are also exploring alternative and/orsupplementary technologies for processing the portion of the corn not used inthe fermentation process for the production of alcohol and/or energy.  The grains area expansion is proceeding asplanned, with an estimated cost of $1,000,000. On October 10, 2006 the board approved $535,000 for the construction ofa new maintenance building, and construction is currently underway.  We have engaged Morton Building, Inc. toconstruct the maintenance building.

**ITEM3.  LEGAL PROCEEDINGS.**

None.

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS.**

None.

**PART II**

**ITEM 5. MARKET FOR MEMBERSHIP UNITS AND RELATED MEMBER MATTERS.**

There is no public trading market for ourmembership units.  We have created a private qualified online matching service in orderto facilitate trading of our units.  Ouronline matching service consists of an electronic bulletin board that providesinformation to prospective sellers and buyers of our units.  We do not receive any compensation forcreating or maintaining the matching service. We do not become involved in any purchase or sale negotiations arisingfrom our qualified matching service.  Inadvertising our qualified matching service, we do not characterize the Companyas being a broker or dealer or an exchange. We do not give advice regarding the merits or shortcomings of anyparticular transaction.  We do notreceive, transfer or hold funds or securities as an incident of operating theonline matching service.  We do not usethe bulletin board to offer to buy or sell securities other than in compliancewith the securities laws, including any applicable registration requirements.  We have no role in effecting the transactionsbeyond approval, as required under our operating agreement and the issuance ofnew certificates.  So long as we remain apublicly reporting company, information about the Company will be publiclyavailable through the SEC’s filing system. However, if at any time we cease to be a publicly reporting company, wewill continue to make information about the Company publicly available on ourwebsite.

As of December 31, 2006, there are approximately 920holders of record of our membership units. There is no other class of membership units issued or outstanding.

On February 8, 2006 our Board of Directors approved acash distribution of $200 per unit to the holders of membership units of recordat the close of business on February 10, 2006.  The distribution was paidin March 2006.  On July 10, 2006, ourBoard of Directors approved a cash distribution of $200 per unit to the holdersof membership units of record at the close of business on June 30, 2006. The distribution was paid in August 2006. On January 9, 2007, our Board of Directors approved a cash distributionof approximately $500 per unit to the holders of membership units of record atthe close of business on January 9, 2007.  The distribution was paid inFebruary 2007. Revenuesgenerated from plant operations are distributed by the Company to our unitholders in proportion to the number of units held by each unit holder.  A unit holder’s distribution is determined bydividing the number of units owned by such unit holder by the total number ofunits outstanding.   Our board ofdirectors has complete discretion over the timing and amount of distributionsto our unit holders; however, our operating agreement requires the board ofdirectors to endeavor to make cash distributions at such times and in such amountsas will permit our unit holders to satisfy their income tax liability in atimely fashion.  Our expectations withrespect to our ability to make future distributions are discussed in greaterdetail in “MANAGEMENT’S DISCUSSION AND ANALYSIS**.**”   In addition, distributions arerestricted by certain loan covenants in our construction loan and revolvingcredit financing agreements.  These loan covenants andrestrictions are described in greater detail under “MANAGEMENT’S DISCUSSION ANDANALYSIS — Liquidity and Capital Resources.”

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**ITEM6.  MANAGEMENT’S DISCUSSION AND ANALYSIS.**

**ForwardLooking Statements**

This report contains historical information, as wellas forward-looking statements that involve known and unknown risks and relateto future events, our future financial performance, or our expected futureoperations and actions.  In some cases,you can identify forward-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:

·              Overcapacitywithin the ethanol industry;

·              Actualethanol and distillers grains production varying from expectations;

·              Availabilityand costs of products and raw materials, particularly corn and natural gas;

·              Changesin the price and market for ethanol and distillers grains;

·              Ourability to market and our reliance on third parties to market our products;

·              Changes in or elimination ofgovernmental laws, tariffs, trade or other controls or enforcement practicessuch as:

—                                   national,state or local energy policy;

—                                   federalethanol tax incentives;

—                                   legislationestablishing a renewable fuel standard or other legislation mandating the useof ethanol or other oxygenate additives;

—                                   stateand federal regulation restricting or banning the use of MTBE; or

—                                   environmentallaws and regulations that apply to our plant operations and their enforcement;

·              Changesin the weather or general economic conditions impacting the availability andprice of corn and natural gas;

·              TotalU.S. consumption of gasoline;

·              Fluctuationsin petroleum prices;

·              Changesin plant production capacity or technical difficulties in operating the plant;

·              Costsof construction and equipment;

·              Changesin our business strategy, capital improvements or development plans;

·              Resultsof our hedging strategies;

·              Ourability to generate free cash flow to invest in our business and service ourdebt;

·              Changesand advances in ethanol production technology; 

·              Competitionfrom alternative fuels and alternative fuel additives; and

·              Other factors described elsewherein this report.

 

The cautionary statements referred to in this sectionalso should be considered in connection with any subsequent written or oralforward-looking statements that may be issued by us or persons acting on ourbehalf.  We undertake no duty to updatethese forward-looking statements, even though our situation may change in thefuture. Furthermore, we cannot guarantee future results, events, levels ofactivity, 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.

**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 ethanol plant near Friesland,Wisconsin.   Since May 2005, we have beenengaged in the production of ethanol and distillers grains. Our revenues arederived from the sale and distribution of our ethanol and distillers grainsthroughout the continental United States and in the case of distillers grains,shipments overseas.   In December of 2006we 

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commencedconstruction of an expansion that, when complete, we expect will increase ournameplate capacity to 60 million gallons per year.

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 commissioningstudies on internal energy generation in conjunction with our plant expansion,in particular the possibility of using post-fermentation corn solids an as energysource.

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 as our dependence on one or a few major customerswho purchase and distribute our products; the intensely competitive nature ofour industry; possible legislative changes at the federal, state and/or locallevel; changes in federal ethanol tax incentives; and the rapid growth in ethanolproduction 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 demand factorssuch as crop production, industry year end inventories, exports, governmentpolicies 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, storage, pipeline capacity, and weather in use areas.  Over the last few years, natural gas priceshave trended higher than average and it appears prices will continue to remainabove previous averages due to the high price of alternative fuels such as fueloil.  Our costs of production are alsoaffected by the cost of complying with the extensive environmental laws thatregulate our industry.

**Results of Operations**

***Comparison of the fiscal yearsended December 31, 2006 and 2005***

The following table shows the results of ouroperations and the percentage of revenues, cost of goods sold, operatingexpenses and other items to total revenues in our statement of operations forthe fiscal years ended December 31, 2006 and 2005 (It is important to note whencomparing these two periods that the fiscal year ending December 31, 2005represents only 8 months of production since the plant only became operationalin May of 2005):

|                            | ** ** | **Year Ended  December 31, 2006** | ** **  | **Year Ended  December 31, 2005** | ** ** |
|----------------------------|------------|--------------------------------------------------|-------------|--------------------------------------------------|------------|
| ** **                 | ** ** | **Amount**                                       | ** **  | **%**                                            | ** ** | **Amount** | ** ** | **%** | ** ** |
| **Income  Statement Data** | ** ** | ** **                                       | ** **  | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                   |       | $                                                | 111,771,603 |                                             | 100.0      |   | $ | 54,477,045 |   | 100.0 |   |
|                       |       |                                             |        |                                             |       |   |   |   |   |
| Cost of Goods  Sold        |       | $                                                | 67,482,429  |                                             | 60.4       |   | $ | 43,643,191 |   | 80.1 |   |
|                       |       |                                             |        |                                             |       |   |   |   |   |
| Gross Profit               |       | $                                                | 44,289,174  |                                             | 39.6       |   | $ | 10,833,854 |   | 19.9 |   |
|                       |       |                                             |        |                                             |       |   |   |   |   |
| Operating  Expenses        |       | $                                                | 3,383,385   |                                             | 3.0        |   | $ | 2,286,226 |   | 4.2 |   |
|                       |       |                                             |        |                                             |       |   |   |   |   |
| Operating Income           |       | $                                                | 40,905,789  |                                             | 36.6       |   | $ | 8,547,625 |   | 15.7 |   |
|                       |       |                                             |        |                                             |       |   |   |   |   |
| Other Income  (Expense)    |       | $                                                | (887,940    | )                                                | (0.8       | ) | $ | 2,187,770 |   | 4.0 |   |
|                       |       |                                             |        |                                             |       |   |   |   |   |
| **Net Income**             |       | $                                                | 40,017,849  |                                             | 35.8       |   | $ | 10,735,395 |   | 19.7 |   |

 

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*Revenues*.  Revenues from operations for the fiscal yearended December 31, 2006 totaled $111,771,603. In the fiscal year ended December 31, 2006 ethanol comprised 90% of oursales and DDGS comprised 10% of our sales. Revenues from operations for the fiscal year ended December 31, 2005totaled $54,477,045, of which ethanol comprised 89% of our sales and DDGScomprised 11%.  The increase in revenuesfrom operations for the fiscal year ended December 31, 2006 compared to thefiscal year ended December 31, 2005 is substantially a result of a 32% increasein the price per gallon of ethanol and a 57% increase in gallons produced.   The 57% increase in gallons produced is aresult of a full year in production in 2006 as compared to only 8 months ofproduction in 2005 as well as a 7% increase in the average production rate in2006.  The sales price for our distillersgrains has remained relatively unchanged in the fiscal year ended December 31,2006 compared to the previous fiscal year ended December 31, 2005.  Distillers grains prices are expected to remainstable in relation to corn prices for the foreseeable future unless the priceof 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.

Althoughthe price of ethanol continues to exceed historical averages, values havetrended lower since their peak in July of 2006. Management currently expects short-term and mid-term ethanol prices toremain higher than historical averages. However, management believes the industry will need to continue to growdemand in order to sustain these higher values. According to the Renewable Fuels Association, as of February 2, 2007there were 113 ethanol plants in operation nationwide with the capacity toproduce more than 5.5 billion gallons annually, with an additional 76 newplants and seven expansions under construction expected to add an additionalestimated 6.1 billion gallons of annual production capacity in the next 12 to18 months.  Unless the new supply isequally met with increased demand, downward pressure on ethanol prices couldoccur.  If ethanol prices start todecline, our earnings will decline in the process, especially if corn costsrise.  Areas where demand for ethanol mayincrease are new growing markets in New Jersey, Pennsylvania, Massachusetts,North Carolina, South Carolina, Michigan, Ohio, Tennessee, Louisiana, Georgiaand Texas.

Ourrevenues and profits are impacted by federal ethanol supports and taxincentives.  Changes to these supports orincentives could significantly impact demand for and value of ethanol.  The Volumetric Ethanol Excise Tax Credit (“VEETC”)is expected to provide the flexibility necessary to expand ethanol blending intohigher blends of ethanol such as E85, E diesel and fuel cell markets.  In addition, the Energy Policy Act of 2005created a Renewable Fuels Standard (“RFS”) which is expected to favorablyimpact the ethanol industry by enhancing both the production and use ofethanol, at least up to the 7.5 billion gallon mandate required by 2012.  The RFS allows refiners to use renewable fuelblends in those areas where it is most cost-effective.  The RFS required refiners to use 4 billiongallons of renewable fuels in 2006, increasing to 7.5 billion gallons by2012.  The industry surpassed themandated volumes in 2006 and maintained relatively high values.  Although this is a favorable trend for theindustry, it may not continue if future ethanol production outpaces demand andleads to lower ethanol prices.

On September 7, 2006, theEPA proposed rules to govern the implementation of the 2006 RFSrequirement.  The proposed rules wouldrequire that 3.71% of all gasoline sold or dispensed to U.S. motorists in 2007be renewable fuel.  This would be anincrease from the rule issued in December 2005 by the EPA, which implementedthe Energy Policy Act’s default standard of 2.78% for calendar year 2006.  The RFS program is designed to cut petroleumuse by approximately 3.9 billion gallons per year by 2012 and reduce greenhousegas emissions by up to 14 million tons annually.  In addition to preliminary analyses of theeconomic and environmental impacts, the December 2005 regulation explains howindustry is likely to comply with the RFS for 2007 and beyond.  The rule contains compliance tools and acredit trading system that is integral to the overall program.  The system allows renewable fuels to be usedwhere they are most economical, while providing a flexible means for the industryto comply with the standard.  Variousrenewable fuels can be used to meet the requirements of the RFS program,including ethanol and biodiesel.  Whilethe RFS program provides certainty that a minimum amount of renewable fuel willbe consumed in the United States, an even greater quantity can be consumed iffuel producers and blenders choose to do so. In 2006, there was approximately 4.5 billion gallons of renewable fuelconsumed as motor vehicle fuel in the United States.  The RFS program requires that this volumeincrease to at least 7.5 billion gallons by 2012.

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Sincethe current national ethanol production capacity exceeded the 2006 RFSrequirement and will likely meet or exceed the 2007 RFS requirement, it ismanagement’s belief that other market factors are primarily responsible forcurrent ethanol prices.  Accordingly, it is possible that the RFSrequirements may not significantly impact ethanol prices in theshort-term.  The majority of the ethanol produced is blended with gasolineat 10% or less, and is utilized as an oxygenate to make the fuel burn cleanerfor the environment.  Fuel oxygenates arerequired in many areas throughout the United States, where air qualitystandards are difficult to maintain. Methyl Tertiary Butyl Ether (M.T.B.E.) has been a more economicaloxygenate source in the past; however, many M.T.B.E. producers and blendershave chosen to discontinue production or use of the product due to recentelimination of liability protection in the recent RFS legislation.  The rapid phase-out of M.T.B.E. as anoxygenate caused a sharp increase in demand for ethanol to supply the muchlarger oxygenate market in 2006.  Forthis reason, we saw ethanol trading at a large premium to gasoline when ethanolwas sold as blending stock.   At this time,approximately 80% of the M.T.B.E. market volume has been replaced with ethanol,with the balance expected to be replaced by the end of 2007.  A large portion of the rapid increase in thesupply of ethanol is presently being absorbed into this oxygenate market;however, when the industry has met the demand of this market, the price ofethanol may be dictated by traditional fuel prices.   If the supply of ethanol continues toincrease due to the addition of plants and capacity, and demand is not able to maintainthe same pace, there may be a negative impact on the price of ethanol and ourearnings.

Demandfor ethanol may be enhanced as a result of increased consumption of E85 fuel.E85 fuel is a blend of 70% to 85% ethanol and gasoline. According to the EnergyInformation Administration, E85 consumption is projected to increase from anational total of 11 million gallons in 2003 to 47 million gallons in 2025. E85can be used as an aviation fuel, as reported by the National Corn GrowersAssociation, and as a hydrogen source for fuel cells. According to theRenewable Fuels Association, there are currently more than 5 million flexiblefuel vehicles capable of operating on E85 in the United States and automakerssuch as Ford and General Motors have indicated plans to produce several millionmore flexible fuel vehicles per year. The American Coalition for Ethanol reports that there are currentlyapproximately 1,000 retail gasoline stations supplying E85.  However, this remains a relatively smallpercentage of the total number of U.S. retail gasoline stations, which isapproximately 170,000.

Publishedstudies on ethanol indicate that, in high concentrations, it may havesignificantly enhanced corrosive effects versus traditional gasoline.  While there have been no documented reportsof corrosion for UL Listed or Recognized components used with E85, on October5, 2006, Underwriters Laboratories suspended authorization to use the UL Markon components used in dispensing devices that will dispense any alcohol-blendedfuels containing over 15% alcohol until updated certification requirements areestablished and the effected components have been found to comply withthem.  The lack of a UL seal for fillingstation pumps carrying E85 means that some of these stations may be violatingfire codes, and that new stations intending to install E85 systems may needwaivers from local or state fire marshals. It is the decision of each authority having jurisdiction as to whetherexisting E85 dispensing equipment is allowed to remain in service or is takenout of service until additional supporting information is received.  Underwriters Laboratories has not set adeadline for creating standards that could lead to certification, which couldresult in the closure of some existing E85 fueling stations and delay inopening others.

*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 fiscal year endedDecember 31, 2006 totaled $67,482,429 as compared to $43,643,191 for the fiscalyear ended December 31, 2005.  The 55%increase in cost of goods sold in the fiscal year ended December 31, 2006 ascompared to the previous year is primarily a result of a full 12 months ofoperations in 2006 as opposed to eight months in 2005.

While our corn costs remained stable to what weexperienced in 2005, increased emphasis on alternative fuel sources and use ofcorn in the production of ethanol may put upward pressure on corn prices forthe long term.   We avoided the higherprices in the short-term through use of our risk management program, but thereare limits to our ability to avoid sustained increases in the price ofcorn.   Final USDA crop reports reflect a2006 national corn crop of approximately 10.8 billion bushels, compared to a2005 national corn crop of 11.11 billion bushels.  Although the carryoutsupplies for the 2006 marketing year appear adequate, any production shortfallduring the 2007 growing season will create volatility and may increase our costof corn.  Should supplies of corn tightenor be 

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perceived to be tightening, the market will react withhigher prices to encourage producers to plant more acres to corn. These higherprices will have a negative impact to our costs of goods sold.

Cost of goods sold includes a gain of $3,183,371 forthe fiscal year ending December 31, 2006 related to our corn derivativeinstruments.  We recognize the gains or losses that result from thechanges in the value of our derivative instruments in cost of goods sold as thechanges occur.  As corn prices fluctuate, the value of our derivativeinstruments are impacted, which affects our financial performance.  Weanticipate continued volatility in our cost of goods sold due to the timing ofthe changes in value of the derivative instruments relative to the cost and useof the commodity being hedged.  These instruments are the primary tools of our risk management program.

Natural gas is also an important input to ourmanufacturing process.  We estimate that our natural gas usage isapproximately 123,000 million British thermal units (“MMBTU”) per month. We use natural gas to dry a majority of our distillers grains products tomoisture contents at which they can be stored for long periods and transportedgreater distances, so that we can market them to broader livestock markets,including poultry and swine markets in the continental United States and to markets in Asia.  Natural gas has recentlybeen available only at prices exceeding historical averages. These heightenedprices increased our costs of production.  Although natural gas pricestrended lower as the year progressed, we expect natural gas prices to remainhigher than historic value given the higher value of energy sourcesgenerally.  This could increase our gas costs substantially, which willadversely impact our cost of goods sold. We have secured a marketing firm and energy consultant for our naturalgas and will continue to work with them on an on-going basis to mitigate ourexposure to volatile gas prices.

*Gross Profit*.  Gross profit for the fiscal year endedDecember 31, 2006 was approximately $44,289,174 as compared to approximately$10,833,854 for the fiscal year ended December 31, 2005.  This is an increase of 309% for fiscal year2006 as compared to fiscal year 2005. This increase is due primarily to a full year of production in 2006 ascompared to only 8 months of production in 2005, increased efficiency andproduction at the plant, and the favorable spread between the selling prices ofour products and the costs of the raw materials required to produce ourproducts,.

In the fiscal year ended December 31, 2006, we enjoyeda very favorable spread between the selling price of the ethanol and distillersgrains we sold and the cost of the raw materials we require to produce ourethanol and distillers grains.  We do notexpect the spread between the price we receive for our products and the costsof our raw materials to continue to exist at such a favorable rate in thefuture.  A decrease in this spread willadversely affect our financial performance.

*Operating Expenses*.  Operating expenses for the fiscal year endedDecember 31, 2006 totaled approximately $3,383,385, an increase ofapproximately 48% over our operating expenses of $2,286,226 for the fiscal yearended December 31, 2005.    The increase in operating expenses forthe fiscal year ended December 31, 2006 was primarily due to a full twelvemonths of operations as opposed to only eight months in the previous fiscalyear ended December 31, 2005.

*Operating Income*. Operating income for the fiscal year ended December 31, 2006 totaledapproximately $40,905,789.  Operatingincome for the fiscal year ended December 31, 2005 totaled approximately$8,547,625.  The increase inoperating income for fiscal year ended December 31, 2006 compared to the fiscalyear ended December 31, 2005 is substantially a result of a 32% increase in theprice per gallon of ethanol and a 57% increase in production.  The production increase is primarily a resultof twelve months of production in 2006 as opposed to eight months of productionin 2005, as well a 7% increase in year over year average rate of production.

*Other Income (Expense)*.  Ourother income and expense for the fiscal year ended December 31, 2006 was anexpense of $887,940.  Other income andexpense for the fiscal year ended December 31, 2005 was income of$2,187,770.  Our other income and expenseitems consist primarily of USDA Commodity Credit Corporation (CCC) Bioenergyprogram payments and interest expense. The primary reason for the decline of other income and expense items inthe fiscal year of 2006 as compared to the fiscal year of 2005 is the reductionin CCC Bioenergy program payments.

Our USDA Commodity Credit Corporation BioenergyProgram revenue was $393,336 for the fiscal year ended December 31, 2006 ascompared to $2,722,912 for the year ended December 31, 2005.  Paymentsunder the 

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Bioenergy Program are based upon increases in ethanolproduction relative to the previous year.  Since we began operations in May of 2005, the increase in gallons as webegan our second year of operations was significantly less than our first yearof operations, thus reducing the number of gallons eligible for payment.  Furthermore the CCC announced that itsfunds would be exhausted in the third quarter of the government fiscal year andthe program terminated as of June 30, 2006. For this reason, we will not receive any further income from this program.    See***“Bioenergy ProgramPayments”*** below.

***Changes in Financial Conditionfor the Fiscal Year Ended December 31, 2006 Compared to the Fiscal Year EndedDecember 31, 2005.***

Assets totaled $84,946,319 on December 31, 2006, ascompared to $64,915,892 on December 31, 2005. Current assets totaled $37,482,095 on December 31, 2006, as compared to$14,475,144 on December 31, 2005. Current liabilities totaled $5,182,917 on December 31, 2006, as comparedto $5,933,507 on December 31, 2005.  Longterm debt, net of current maturities, totaled $14,349,980 on December 31, 2006,as compared to $22,074,722 on December 31, 2005.

***PlantExpansion***

We have engaged an engineering firm to assist indeveloping a plan to increase the design capacity of our plant to 80 million gallonsof ethanol production annually from our current name-plate capacity of 40million gallons per year.  Our currentproduction rate is approximately 50-55 million gallons per year.  The scope of the project being studiedincludes shipping and receiving capacity increases, plant processing capacityincreases, additional product storage, and logistics improvements.  We expect the project will be completed in atleast two phases. Phase I of the plant expansion was approved in June of 2006and is expected to result in an increase in production capacity to 60 milliongallons annually by July 2007.  However,it is possible that construction will not stay on schedule or that we will notbe able to operate at 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 and initiallyoperate our plant up to the increased capacity of 60 million gallons of ethanolper year.   Sixty million gallons is theestimated capacity of the down stream processing of raw products offermentation.

PhaseII of our expansion project involves down stream capacity expansion and isexpected to increase overall production capacity to 80 million gallons byDecember 2007.  The estimated cost ofPhase II is approximately $30,000,000, although we have not engaged anyone forPhase II construction.  On July 10, 2006the board approved $11,400,000 for a fractionation project and the grains areaexpansion.  Fractionation is a processthat separates the corn kernel into separate components prior to fermentation,allowing a purer stream of starch for fermentation, requiring less water andenergy, and producing a higher throughput of ethanol.  This specific process of fractionation usesnew technology and we may not be able to increase our throughput or reduce ourenergy costs as a result of this investment. Although approved by the board, we have not made any commitment on theprospective purchase of a fractionation system. Changes in the risk and reward situation have resulted in a new round ofevaluation of the suitability of fractionation for our facility.  The unforeseen extent of the increase in cornvalues and decrease in natural gas prices has created a substantially differentview of the likely benefits of such a process. While continuing feasibility analysis of the fractionation project, weare also exploring alternative and/or supplementary technologies for processingthe portion of the corn not used in the fermentation process for the productionof alcohol.   The estimated cost of PhaseII may increase as a result of the elimination of the fractionation process, ifthat were to occur.

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 rangingfrom large pipe fabrication to complex electrical circuit design.  The construction of this new facility iscurrently underway.

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Weexpect to finance the plant expansions through a combination of earnings fromoperation 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.

**Liquidityand Capital Resources**

The following table showscash flows for the fiscal years ended December 31, 2006 and 2005:

|                                            | ** ** | **Fiscal year ended December 31** | ** **  |
|--------------------------------------------|------------|-------------------------------------------------------|-------------|
| ** **                                 | ** ** | **2006**                                              | ** **  | **2005** | ** ** |
| Net cash  provided by operating activities |       | $                                                     | 43,914,660  |   | $ | 11,441,730 |   |
| Net cash used in  investing activities     |       | (2,242,779                                            | )           | (1,176,915 | ) |
| Net cash used in  financing activities     |       | $                                                     | (20,477,027 | ) | $ | (1,487,406 | ) |

 

***Cash Flow from Operations***

Our net cash flowprovided from operating activities for the fiscal year ended December 31, 2006was $43,914,660, as compared to $11,441,730 for the same period the previousyear.  The increase in net cash flowprovided from operating activities for the fiscal year ended December 31, 2006compared to fiscal year ended December 31, 2005 was primarily due to our plantbeing operational for the entire twelve months in 2006 as compared to onlyeight months in 2005 and the increased revenues from higher ethanolprices.  Our capital needs are being adequately met through cash from ouroperating activities and our current credit facilities.

***Cash Flow Used In InvestingActivities***

Our net cash flow used in investing activities for thefiscal year ended December 31, 2006 constituted expenditures of $2,242,779, ascompared to expenditures of $1,176,915 for the same period the previousyear.  The increase in expenditures forthe fiscal year ended December 31, 2006 compared to the fiscal year endedDecember 31, 2005 is primarily due to construction in process payments of$1,168,306 for Phase I of the plant expansion.

Management estimates that approximately $2,000,000 incapital expenditures will be made in the next twelve months for generaloperational improvements, and an additional $7,000,000 to complete Phase I ofthe expansion, construct the new maintenance building and expand the grainreceiving area.

It is further estimated an additional $30,000,000 willbe spent in 2007 and 2008 for Phase II of the expansion (See ***“Plant Expansion”*** above), all ofwhich is expected to be financed from a portion of cash flows from operationsand additional debt financing.  Utilizingcash generated from operations for the plant expansion may impact the abilityto pay out future member distributions. Our projections are based upon our historical operating costs andhistorical revenues.  However, our pastfinancial performance may not accurately predict future results.  Wecurrently estimate that both Phase I and Phase II of the plant expansion willbe complete by December 2007; however, construction may not stay on scheduleand we may not be able to operate at the expanded production levels by the endof 2007.

In addition to capital investment to increase thecapacity and efficiency of our Friesland facility, we continue to investigatefavorable investment opportunities in other renewable fuels plants.

***Cash Flow Used In FinancingActivities***

We used cash to pay down our debt by $8,965,027 duringthe fiscal year ended December 31, 2006 compared to $4,544,543 used for debtpayments for the fiscal year ended December 31, 2005.  During the fiscal year ended December 31,2006 we made cash distributions to our members in the aggregate amount of$11,512,000.  There were no cashdistributions made to our members in 2005.

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

On May 25, 2006,we signed credit agreements with Farmers & Merchants Union Bank ofFriesland, Wisconsin and refinanced our existing term debt and revolving loancommitment.  The credit facility issecured by substantially all of our assets.  The term loan of $16,040,376 is for five years with a ten-yearamortization.  Payments on the term loanare paid in monthly installments including principal and interest.  The interest rate is fixed at 7.4% for boththe term and revolving loan for 5 years. Interest is due monthly on the revolving loan commitment.

As of December 31, 2006,we had outstanding debt of $15,514,630 on the term debt and did not have anyborrowings on the revolving loan.

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

These loans are subjectto protective covenants requiring us to maintain various financial ratios. Weare required to maintain a minimum tangible net worth of $24,000,000 and toincrease our tangible net worth annually by the lesser of $500,000 or an amountequal to retained earnings.  Our owners’equity is to be at least 45% of tangible net assets and we must maintain aworking capital position of at least $4,000,000.  We must receive written approval from ourlender to exceed $1,000,000 in annual capital expenditures and we must obtainconsent prior to making membership distributions in excess of 65% of theprevious year’s net income, excluding state and federal incentivepayments.   On June 25, 2006, Farmers& Merchants Union Bank approved our August 2006 membership distributiontotaling $5,756,000.  Farmers &Merchants Union Bank has also approved our capital expenditures in excess of$1,000,000 for 2006 and has requested this same approval for 2007.  As of December 31, 2006, we are in compliancewith all of our financial debt covenants. The loan is secured by substantially all of the Company’s assets.

***Bioenergy Program Payments***

We were enrolled in theUSDA Commodity Credit Corporation’s Bioenergy program.  Under the USDA CCC Bioenergy program, theCommodity Credit Corporation reimbursed eligible ethanol producers of less than65 million gallons of bioenergy in the amount of one bushel of corn for everytwo and one-half bushels of corn used for the increased production of ethanol.  No eligible producer was able to receive morethan $7.5 million under the program. Because we qualified as an eligibleproducer and annually utilize at least 15 million bushels of corn in theincreased production of ethanol, we were potentially eligible to receive the maximumaward of $7.5 million.  However, theCommodity Credit Corporation was able to award only $100 million annually forfiscal years 2005 through 2006, and any award we received was reduced basedupon the volume of applications from other eligible producers.  Furthermore, CCC’s funds were exhausted inthe third quarter of the government fiscal year, and the program terminated asof June 30, 2006.

For the fiscal year ended December 31, 2006, werecorded Bioenergy Program income of $393,336 and we do not anticipate any morerevenue from the Bioenergy Program since it was terminated on June 30, 2006.

***Subsequent Events***

OnJanuary 9, 2007, our directors declared a cash distribution of $500 permembership unit of record at the close of business on January 9, 2007.  The distribution totaled approximately$14,390,000 and was distributed to our members on February 15, 2007.  Farmers & Merchants Union Bank approvedthis distribution.

OnFebruary 12, 2007, our directors approved a $10,000,000 equity investment inanother ethanol production facility under development.  However, we have not advanced any funds forthis investment and we do not plan to do so until the project achieves certainfinancing milestones, including a debt financing commitment.

26

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**OffBalance Sheet Arrangements.**

We currently do not haveany off-balance sheet arrangements.

**Application of CriticalAccounting Estimates**

Management uses estimatesand assumptions in preparing our financial statements in accordance withgenerally accepted accounting principles. These estimates and assumptions affect the reported amounts of assetsand liabilities, the disclosure of contingent assets and liabilities, and thereported revenues and expenses.  We didnot have any critical accounting estimates as of the fiscal year ended December31, 2006.

27

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**ITEM 7.  FINANCIAL STATEMENTS.**

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

United Wisconsin Grain Producers, LLC

Friesland, Wisconsin

Wehave audited the accompanying balance sheet of United Wisconsin GrainProducers, LLC as of December 31, 2006 and the related statements ofoperations, changes in members’ equity, and cash flows for the years endedDecember 31, 2006 and 2005.  Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

We conducted ouraudits in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of United Wisconsin Grain Producers,LLC as of December 31, 2006 and the results of its operations and its cashflows for the years ended December 31, 2006 and 2005 in conformity with U.S.generally accepted accounting principles.

/s/Boulay, Heutmaker, Zibell & Co. P.L.L.P.

Certified PublicAccountants

Minneapolis, Minnesota

March15, 2007

28

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

BalanceSheet

 
| ** **                                 | ** ** | **December 31,  2006** | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|
| **ASSETS**                                 |       |                        |       |
| **Current Assets**                         | ** ** | ** **                  | ** ** |
| Cash and cash  equivalents                 |       | $                           | 29,981,331 |   |
| Restricted cash                            |       | 411,587                     |       |
| Derivative instruments                     |       | 150,463                     |       |
| Trade accounts  receivable                 |       | 4,298,190                   |       |
| Prepaid expenses  and other current assets |       | 937,669                     |       |
| Inventory                                  |       | 1,702,855                   |       |
| Total current  assets                      |       | 37,482,095                  |       |
|                                       |       |                        |       |
| **Property, Plant and Equipment**          | ** ** | ** **                  | ** ** |
| Land and land  improvements                |       | 5,806,181                   |       |
| Office equipment                           |       | 447,453                     |       |
| Administration  building                   |       | 488,454                     |       |
| Plant and process  equipment               |       | 47,100,121                  |       |
| Construction in  process                   |       | 1,326,435                   |       |
| Total property  and equipment              |       | 55,168,644                  |       |
| Less accumulated  depreciation             |       | 7,804,420                   |       |
| Net property,  plant and equipment         |       | 47,364,224                  |       |
|                                       |       |                        |       |
| **Other Assets**                           | ** ** | ** **                  | ** ** |
| Investment                                 |       | 100,000                     |       |
| Total other  assets                        |       | 100,000                     |       |
|                                       |       |                        |       |
| **Total  Assets**                          |       | $                           | 84,946,319 |   |

 

Notesto Financial Statements are an integral part of this Statement.

 

29

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| ** **                                                     | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------|------------|
| **LIABILITIES AND MEMBERS’ EQUITY**                       |       |                        |       |
|                                                           |       |                        |       |
| **Current Liabilities**                                        | ** ** | ** **                  | ** ** |
| Current  maturities of long-term debt                          |       | $                           | 1,164,740  |   |
| Accounts payable                                               |       | 2,672,641                   |       |
| Accrued  liabilities                                           |       | 1,345,536                   |       |
| Total current  liabilities                                     |       | 5,182,917                   |       |
|                                                           |       |                        |       |
| **Long-Term Debt, less current  maturities**                   |       | 14,349,890                  |       |
|                                                           |       |                        |       |
| **Commitments and Contingencies**                              | ** ** | ** **                  | ** ** |
| ** **                                                     | ** ** | ** **                  | ** ** |
| **Members’ Equity, 28,780 units  issued and outstanding** |       | 65,413,512                  |       |
|                                                           |       |                        |       |
| **Total Liabilities and Members’  Equity**                |       | $                           | 84,946,319 |   |

 

Notesto Financial Statements are an integral part of this Statement.

 

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Statementsof Operations
| ** **                                               | ** ** | **Years Ended  December 31,** | ** **  |
|----------------------------------------------------------|------------|-----------------------------------------|-------------|
| ** **                                               | ** ** | **2006**                                | ** **  | **2005** | ** ** |
|                                                     |       |                                    |        |   |   |
|                                                     |       |                                    |        |   |   |
| **Revenues**                                             |       | $                                       | 111,771,603 |   | $ | 54,477,045 |   |
|                                                     |       |                                    |        |   |   |
| **Cost of Goods Sold**                                   |       | 67,482,429                              |        | 43,643,191 |   |
|                                                     |       |                                    |        |   |   |
| **Gross Profit**                                         |       | 44,289,174                              |        | 10,833,854 |   |
|                                                     |       |                                    |        |   |   |
| **Operating Expenses**                                   |       | 3,383,385                               |        | 2,286,229 |   |
|                                                     |       |                                    |        |   |   |
| **Operating Income**                                     |       | 40,905,789                              |        | 8,547,625 |   |
|                                                     |       |                                    |        |   |   |
| **Other Income (Expense)**                               |       |                                    |        |   |   |
| Grant income                                             |       | —                                  |        | 187,852 |   |
| Interest income                                          |       | 554,263                                 |        | 64,283 |   |
| CCC Bio-Energy  income                                   |       | 393,336                                 |        | 2,722,912 |   |
| State of Wisconsin  incentive program income             |       | —                                  |        | 475,000 |   |
| Interest expense                                         |       | (1,338,803                              | )           | (1,320,055 | ) |
| Miscellaneous  income (expense), net                     |       | (496,736                                | )           | 57,778 |   |
| Total other  income (expense), net                       |       | (887,940                                | )           | 2,187,770 |   |
|                                                     |       |                                    |        |   |   |
| **Net Income**                                           |       | $                                       | 40,017,849  |   | $ | 10,735,395 |   |
|                                                     |       |                                    |        |   |   |
| **Net  Income Per Unit****(28,780 units  outstanding)**  |       | $                                       | 1,390.47    |   | $ | 373.02 |   |
|                                                     |       |                                    |        |   |   |
| **Distributions Per Unit****(28,780 units outstanding)** |       | $                                       | 400.00      |   | $ | — |   |

 

Notesto Financial Statements are an integral part of this Statement.

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Statementof Changes in Members’ Equity
| **Balance  — January 1, 2005**                        |   | $           | 26,172,268 |   |
|------------------------------------------------------------|--------|-------------|------------|--------|
|                                                       |   |        |       |
| Net Income for the year ended December 31, 2005            |   | 10,735,395  |       |
|                                                       |   |        |       |
| **Balance  — December 31, 2005**                      |   | 36,907,663  |       |
|                                                       |   |        |       |
| Net Income for the year ended December 31, 2006            |   | 40,017,849  |       |
|                                                       |   |        |       |
| Member Distributions for the year ended December 31,  2006 |   | (11,512,000 | )          |
|                                                       |   |        |       |
| **Balance — December 31, 2006**                       |   | $           | 65,413,512 |   |

 

Notesto Financial Statements are an integral part of this Statement.

 

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Statementsof Cash Flows
| ** **                                                               | ** ** | **Years Ended  December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                | ** ** | **2005** | ** ** |
|                                                                     |       |                                    |       |   |   |
| **Cash Flows from Operating  Activities**                                | ** ** | ** **                              | ** ** | ** ** | ** ** |
| Net income                                                               |       | $                                       | 40,017,849 |   | $ | 10,735,395 |   |
| Adjustments to  reconcile net income to net cash provided by operations: |       |                                    |       |   |   |
| Depreciation and  amortization                                           |       | 4,857,026                               |       | 3,006,850 |   |
| Write-off of  debt issuance costs                                        |       | 519,406                                 |       | — |   |
| Loss (gain) on  derivative instruments                                   |       | (3,183,371                              | )          | 259,196 |   |
| Grant income                                                             |       | —                                  |       | (187,852 | ) |
| Changes in  assets and liabilities:                                      |       |                                    |       |   |   |
| Restricted cash                                                          |       | (331,307                                | )          | (80,280 | ) |
| Derivative  instruments                                                  |       | 2,944,102                               |       | (5,614 | ) |
| Trade accounts  receivable                                               |       | (721,138                                | )          | (3,694,136 | ) |
| Inventory                                                                |       | (292,108                                | )          | (1,410,747 | ) |
| Prepaid expenses  and other current assets                               |       | (316,081                                | )          | (485,096 | ) |
| Accounts payable                                                         |       | (565,609                                | )          | 2,960,511 |   |
| Accrued  liabilities                                                     |       | 985,891                                 |       | 343,503 |   |
| Net cash  provided by operating activities                               |       | 43,914,660                              |       | 11,441,730 |   |
|                                                                     |       |                                    |       |   |   |
| **Cash Flows from Investing  Activities**                                | ** ** | ** **                              | ** ** | ** ** | ** ** |
| Capital  expenditures                                                    |       | (974,473                                | )          | (1,175,915 | ) |
| Payments for  construction in process                                    |       | (1,168,306                              | )          | — |   |
| Other  investments                                                       |       | (100,000                                | )          | (1,000 | ) |
| Net cash used in  investing activities                                   |       | (2,242,779                              | )          | (1,176,915 | ) |
|                                                                     |       |                                    |       |   |   |
| **Cash Flows from Financing  Activities**                                | ** ** | ** **                              | ** ** | ** ** | ** ** |
| Proceeds from  grants for operating expenses                             |       | —                                  |       | 218,637 |   |
| Proceeds from  grants for capital expenditures                           |       | —                                  |       | 443,905 |   |
| Proceeds from  long term debt                                            |       | —                                  |       | 2,453,714 |   |
| Payments for  long term debt                                             |       | (8,965,027                              | )          | (4,544,543 | ) |
| Payments for  debt issuance costs                                        |       | —                                  |       | (59,119 | ) |
| Payment of  member distributions                                         |       | (11,512,000                             | )          | — |   |
| Net cash used in  financing activities                                   |       | (20,477,027                             | )          | (1,487,406 | ) |
|                                                                          |            |                                         |            |  |  |  |  |

 

Notesto Financial Statements are an integral part of this Statement.

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| ** **                                                                 | ** ** | **Years Ended  December 31,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                 | ** ** | **2006**                                | ** ** | **2005** | ** ** |
|                                                                       |       |                                    |       |   |   |
| **Net  Increase in Cash and Cash Equivalents**                             |       | $                                       | 21,194,854 |   | $ | 8,777,409 |   |
| **Cash  and Cash Equivalents —**Beginning of Year                     |       | 8,786,477                               |       | 9,068 |   |
|                                                                       |       |                                    |       |   |   |
| **Cash  and Cash Equivalents —**End of Year                           |       | $                                       | 29,981,331 |   | $ | 8,786,477 |   |
|                                                                       |       |                                    |       |   |   |
| **Supplemental  Disclosure of Cash Flow Information**                      | ** ** | ** **                              | ** ** | ** ** | ** ** |
|                                                                       |       |                                    |       |   |   |
| Cash paid during the year for:                                             |       |                                    |       |   |   |
| Interest                                                                   |       | $                                       | 1,505,913  |   | $ | 1,315,024 |   |
|                                                                       |       |                                    |       |   |   |
| **Supplemental  Disclosure of Noncash Investing and Financing Activities** | ** ** | ** **                              | ** ** | ** ** | ** ** |
|                                                                       |       |                                    |       |   |   |
| Refinancing of long term debt                                              |       | $                                       | 16,040,376 |   | $ | — |   |
|                                                                       |       |                                    |       |   |   |
| Capital expenditures and construction in process  funded by long-term debt |       | $                                       | —     |   | $ | 8,368,571 |   |
|                                                                       |       |                                    |       |   |   |
| Operating  expenses funded by construction loan                            |       | $                                       | —     |   | $ | 3,000 |   |

 

Notesto Financial Statements are an integral part of this Statement.

 

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**UNITED WISCONSIN GRAIN PRODUCERS, LLC**

Notes to FinancialStatements

December 31, 2006 and 2005

**1.  SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

*Nature of Business *

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

The Company wasorganized in November of 2001 and commenced operations on May 5, 2005.

*Accounting Estimates *

Management usesestimates and assumptions in preparing these financial statements in accordancewith generally accepted accounting principles.  Those estimates and assumptionsaffect the reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities, and the reported revenues and expenses.Actual results could differ from those estimates.

*Revenue Recognition*

The Company generally sells ethanol and relatedproducts pursuant to marketing agreements. Revenues are recognized, generally, when the customer has taken title,which occurs when the product is shipped, and has assumed the risks and rewardsof ownership, prices are fixed or determinable.

In accordance with the Company’s agreements for themarketing and sale of ethanol and related products, marketing fees andcommissions due to the marketers are deducted from the gross sales price at thetime payment is remitted to the Company. Because the Company is the primary obligor in the sales arrangement withthe customer, these marketing fees and commissions are recorded gross inOperating Expenses in the accompanying statements of operations.

The Companyrecords incentives received from federal and state programs related to theproduction of ethanol, as other income, when the Company has sold the ethanoland completed all the requirements of the applicable incentive program.  Interest income is recognized as earned.

*Environmental liabilities*

The Company’soperations are subject to environmental laws and regulations adopted by variousgovernmental authorities in the jurisdiction in which it operates.  Theselaws require the Company to investigate and remediate the effects of therelease or disposal of materials at its locations.  Accordingly, theCompany has adopted policies, practices and procedures in the areas ofpollution control, occupational health and the production, handling, storageand use of hazardous materials to prevent material environmental or otherdamage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the Company’s liability is probableand the costs can be reasonably estimated.  No expense has been recordedfor the years ending December 31, 2006 and 2005.

*Cash and Cash Equivalents*

The Company considers all highly liquid debtinstruments purchased with a maturity of three months or less to be cashequivalents.  The Company maintains its accounts primarily at onefinancial institution.  At times throughout the year, the Company’s cashand cash equivalents balances may exceed amounts insured by the Federal DepositInsurance Corporation.

*RestrictedCash*

TheCompany is required to deposit cash into a restricted cash account by theCompany’s broker as discussed below.

35

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*Trade Accounts Receivable*

Tradeaccounts receivable are recorded at their estimated net realizable value, netof an allowance for doubtful accounts. The Company extends credit to customers for sales of ethanol anddistillers grain in the normal course of business.  Credit is extended based on an on-goingevaluation of a customer’s financial conditions and generally no collateral isrequired.  If payment is not received ona timely basis in accordance with the Company’s credit terms it is consideredpast due.  Management performs on-goingcredit evaluations of customers and maintains allowances for potential creditlosses when required.  At December 31,2006 and 2005, the Company believes all receivables are fully collectible andno allowance for doubtful accounts is deemed necessary.

*Inventory*

Inventory consistsof raw materials, work in process, and finished goods.  Corn is theprimary raw material and, along with other raw materials, is stated at thelower of average cost or market.  Finished goods consist of ethanolproduced and distillers grains, and are stated at the lower of average cost ormarket.

*Property,Plant  and Equipment*

Property and equipment are stated at the lower of costor estimated value.  Depreciation is computed over estimated useful livesby use of the straight-line method.  Maintenance and repairs are expensedas incurred; major improvements and betterments are capitalized.

The Company reviews its property, plant and equipmentfor impairment whenever events indicate that the carrying amount of the assetmay not be recoverable.  An impairment loss is recorded when the sum ofthe future cash flows is less than the carrying amount of the asset.  Animpairment loss is measured as the amount by which the carrying amount of theasset exceeds its fair value.

*Derivative Instruments *

The Companyaccounts for derivatives in accordance with Statement of Financial AccountingStandards (SFAS) No. 133, “Accounting for Derivative Instruments and HedgingActivities”. SFAS No. 133 requires the recognition of derivatives in thebalance sheet and the measurement of these instruments at fair value.

In order for aderivative to qualify as a hedge, specific criteria must be met and appropriatedocumentation maintained. Gains and losses from derivatives that do not qualifyas hedges, or are undesignated, must be recognized immediately in earnings. Ifthe derivative does qualify as a hedge, depending on the nature of the hedge,changes in the fair value of the derivative will be either offset against thechange in fair value of the hedged assets, liabilities, or firm commitmentsthrough earnings or recognized in other comprehensive income until the hedgeditem is recognized in earnings.  Changesin the fair value of undesignated derivatives are recorded in cost of goodssold.

Additionally, SFASNo. 133 requires a company to evaluate its contracts to determine whetherthe 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 are contracts that provide for the purchaseor sale of something other than a financial instrument or derivative instrumentthat will be delivered in quantities expected to be used or sold over areasonable period in the normal course of business. Contracts that meet therequirements of normal purchases or sales are documented as normal and exemptedfrom the accounting and reporting requirements of SFAS No. 133, andtherefore, are not marked to market in our financial statements.

Cash flowsassociated with derivative instruments are presented in the same category onthe Statements of Cash Flow as the item being hedged

*GovernmentIncentive Payments*

For the years ended December 31, 2006 and 2005, theCompany recorded $393,336 and $2,722,912, respectively as other income from theCommodity Credit Corporation Bioenergy Program, a department of the UnitedStates Department of Agriculture.  This program enabled the Company toreceive payments based on increases in production of ethanol over the previousyear of up to $7,500,000 per year.  Newproduction was eligible and was considered increased production.  Payments under the program were subject topro rata reduction if aggregate 

36

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payments to all producers in any USDA fiscal yearexceeded the annual funding of the program. As of December 31, 2006, the Company had no receivable recorded from theCCC Bioenergy Program. The program was terminated as of June 30, 2006 thereforethe Company does not anticipate recording any more revenue from this program.

The Company recorded other income of $475,000 for theyear ended December 31, 2005, related to the State of Wisconsin ProducerSubsidy Payment program.  Due to adesignated sunset date of June 30, 2006, the Company does not anticipaterecording any more revenue from this program.

*FairValue of Financial Instruments*

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

The Company believes the carrying amount of derivativeinstruments approximates fair value based on current market prices.

It is not currently practicable to estimate fair valueof the notes payable to the lending institution.  Because these agreementscontain certain unique terms, covenants, and restrictions, as discussed in Note3, there are no readily determinable similar instruments on which to base anestimate of fair value.

*IncomeTaxes*

The Company is treated as a partnership for federaland state income tax purposes, and generally does not incur income taxes. Instead its earnings and losses are included in the income tax returns of itsmembers.  Therefore, no provision or liability for Federal or state incometaxes has been included in these financial statements.

*Reclassifications*

The presentation of revenues, cost of goods sold, andoperating expenses in the statements of operations for 2005 have been changedto conform to the classification used in 2006. These reclassifications had no effect on net income as previouslyreported.

**2.  INVENTORY**

Inventory consists of thefollowing at December 31, 2006:

| Raw materials   |   | $       | 697,081   |   |
|-----------------|--------|---------|-----------|--------|
| Work in process |   | 126,868 |      |
| Finished goods  |   | 878,906 |      |
| Total           |   | $       | 1,702,855 |   |

 

**3.  DERIVATIVE INSTRUMENTS**

In order to reducethe risk caused by market fluctuations, the Company hedges its anticipated cornpurchases by entering into options, futures contracts, and swap agreements.These contracts are used with the intention to fix the purchase price of theCompany’s anticipated requirements of corn used in production activities. Thefair value of these contracts is based on quoted prices in activeexchange-traded or over-the-counter markets. The fair value of the derivativesis continually subject to change due to changing market conditions. The Companydoes not formally designate these instruments as hedges and, therefore, recordsin earnings adjustments caused from marking these instruments to market on amonthly basis.

At December 31,2006, the Company had recorded an asset for derivative instruments related tocorn option and futures positions of approximately $150,463.  None of theopen positions, at December 31, 2006 were designated as hedges.  Realizedand unrealized gains and losses related to these derivative contracts relatedto corn purchases are included as a component of cost of goods sold.  The Company has recorded a combine realizedand unrealized gain 

37

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of approximately$3,183,371 and a combine realized and unrealized loss of $259,196 for the yearsended December 31, 2006 and 2005, respectively.

The Company isrequired to maintain cash balances at its broker related to derivativeinstrument positions.  At December 31,2006, restricted cash totaled $411,587 and is not included in cash and cashequivalents on the balance sheet or the statements of cash flows.

**4.  BANK FINANCING**

On May 25, 2006the Company closed on a mortgage in the amount of $21,040,376, which included arevolving credit agreement in the amount of $5,000,000, and a term creditagreement in the amount of $16,040,376 with Farmers & Merchants Union Bankto refinance the existing debt with AgStar Financial Services, PCA.  The term debt consists of a five-yearbusiness note in the amount of $16,040,376 at a fixed interest rate of 7.4% andrequires monthly payments based on a ten-year amortization beginning July 1,2006.  As of December 31, 2006, the Companyhad outstanding debt of $15,514,630 on the term debt and did not have anyborrowings on the revolving credit commitment.

There is an annualservice fee of $10,000 for the revolving credit agreement and an annualfacility fee of $20,000 beginning on the closing date, May 25, 2006, and uponeach anniversary until its maturity.  Ifthe revolving line of credit is terminated prior to its maturity, the $10,000annual service fee will no longer be incurred. No prepayment fees exist on either loan.

These loans aresubject to protective covenants requiring the Company to maintain variousfinancial ratios.  The Company has notviolated any financial debt covenants during the year ending December 31, 2006or 2005 and the Company believes the likelihood of default of the financialdebt covenants in the next quarter to be remote.  The loan is secured by substantially all theCompany’s assets.

**5.  LONG TERM DEBT**

Long term debt consistsof the following:

|                                    | ** ** | **December 31, 2006** | ** ** |
|------------------------------------|------------|---------------------------------|------------|
| Bank Financing  (Note 4)           |       | $                               | 15,514,630 |   |
| Less: amounts  due within one year |       | 1,164,740                       |       |
| Totals                             |       | $                               | 14,349,890 |   |

 

The estimated maturitiesof long term debt at December 31, 2006 are as follows:

| 2007  |   | $          | 1,164,740  |   |
|-------|--------|------------|------------|--------|
| 2008  |   | 1,252,002  |       |
| 2009  |   | 1,352,313  |       |
| 2010  |   | 1,457,336  |       |
| 2011  |   | 10,288,239 |       |
| Total |   | $          | 15,514,630 |   |

 

**6.  LEASE OBLIGATIONS**

The Company signeda ten-year lease agreement in August 2004 with a leasing company foreighty-five covered hopper rail cars at $460 per month per rail car.

38

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The Companyentered into two, five-year rental agreements in April and May of 2005 for twowheel loaders at approximately $1600 per month per wheel loader.

The Companyentered into a five-year lease agreement in April 2005 with a bank to lease arail shuttle wagon at $3,300 per month.

Lease expense foroperating leases for the years ending December 31, 2006 and December 31, 2005was $511,409 and $335,180, respectively.

At December 31,2006 the Company had the following minimum commitments for payment of leases:

| 2007       |   | $         | 545,805   |   |
|------------|--------|-----------|-----------|--------|
| 2008       |   | 545,805   |      |
| 2009       |   | 545,804   |      |
| 2010       |   | 491,478   |      |
| 2011       |   | 469,200   |      |
| Thereafter |   | 1,837,700 |      |
| Total      |   | $         | 4,435,792 |   |

** **

**7.  MEMBERS’ EQUITY**

As specified inthe Company’s operating agreement, the Company has one class of membershipunits.  The Company is authorized toissue up to 28,000 membership units in addition to the seed capital unitsissued prior to the Company’s initial registered offering.

As of December 31,2006 and December 31, 2005 the Company had 28,780 units outstanding.

**8. RELATED PARTY TRANSACTIONS**

In the year ending December 31, 2006, the Company hadincurred $90,843 in director fees and related expense of which all had beenpaid as of December 31, 2006.  In theyear ending December 31, 2005, the Company had incurred $71,557 in directorfees and related expense, of which $797 to one member is included in accountspayable at December 31, 2005.  In 2006,the Company purchased approximately $11,900,000 of corn from members whichrepresented 31.4% of corn purchased in 2006. In 2005, the Company purchasedapproximately $11,300,000 of corn from members which represented 43.0% of cornpurchased in 2005.

**9.  EMPLOYEE BENEFIT PLANS**

The Company hasadopted a 401(k) plan effective January 1, 2006 which provides retirement savingsoptions for all eligible employees. Employees meeting certain eligibility requirements can participate inthe plan.  The Company makes a matchingcontribution based on the participants’ eligible wages.  The Company made matching contributions ofapproximately $36,500 during the year ended December 31, 2006 and made nocontributions in the year ending December 31, 2005 since the plan had not yetbeen adopted.  The employer matchingportion has a vesting schedule provision attached.

The Companyimplemented a profit sharing employee benefit plan on July 10, 2006 for alleligible employees.  The plan allows fora percentage of the Company’s earnings in excess of a pre-determined amount tobe divided between eligible employees and payment to be made six months afterit is earned to eligible employees still employed with the Company at the timeof payment.  The Company recorded anexpense related to this plan of $1,272,978 in the year ended December 31, 2006of which $721,165 is included in accrued liabilities as of December 31,2006.  There were no expenses incurred inthe year ended December 31, 2005 since the plan had not yet been implemented.

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**10.  INCOME TAXES**

Thedifferences between financial statement basis and tax basis of assets are asfollows at December 31:

|                                                    | ** ** | **2006**    | ** ** |
|----------------------------------------------------|------------|-------------|------------|
| Financial statement  basis of total assets         |       | $           | 84,946,319 |   |
|                                               |       |        |       |
| Organizational  and start-up costs capitalized     |       | 1,769,494   |       |
| Syndication  costs not deductible for tax purposes |       | 506,501     |       |
| Accumulated  Depreciation and amortization         |       | (16,191,579 | )          |
| Unrealized  derivative gains                       |       | (205,655    | )          |
| Prepaid expenses  deductible for tax purposes      |       | (334,427    | )          |
|                                               |       |        |       |
| Income tax basis of  total assets                  |       | $           | 70,490,653 |   |
|                                               |       |        |       |
| Financial statement  basis of total liabilities    |       | $           | 19,532,807 |   |
|                                               |       |        |       |
| Accrued expenses  not deductible for tax purposes  |       | (1,024,992  | )          |
|                                               |       |        |       |
| Income tax basis of total liabilities              |       | $           | 18,507,815 |   |

 

 **11.  COMMITMENTS AND CONTINGENCIES**

*Utility Agreements*

The Company hasentered into an agreement with an electric cooperative to provide electricalservice.  The agreement is in effect fora term of three years after electric service was first provided in January of2004.  At the anniversary of thecommencement of services the agreement automatically extends so that the termagain covers a period of three years, unless either party gives written noticeof intent not to extend.  Since neitherparty to the agreement has given such notice, the agreement has extended for anadditional three years, though January 2010.

In April 2004, theCompany entered into a natural gas transportation service agreement, whichprovides for the transportation of natural gas from the utility city gate tothe plant at specific transportation rates for a period of ten years. Uponconclusion of the ten-year term, the agreement shall continue from year to yearthereafter.

In December 2004,the Company entered into a natural gas transportation service agreement, whichprovides for interstate pipeline transportation of natural gas to the utilitycity gate at specific transportation rates for a period of ten years from theeffective date, November 1, 2006.  Uponconclusion of the ten-year term, the Company has the right to renew theagreement at specified tariff rates or can enter into contract negotiations toattempt to obtain a negotiated rate.

In August 2006,the Company entered into a natural gas purchase agreement to purchasesspecified quantities of natural gas at a then prevailing market price for aperiod of one year from the effective date, November 1, 2006.  The Company also provided the required 60 daynotice to terminate the previous natural gas purchase agreement that had beenin effect since April 2004. 

*Ethanol marketing agreement and major customer*

In August 2004,the Company entered into a marketing agreement with an unrelated company forthe exclusive rights to market, sell and distribute the entire ethanolinventory produced by the Company.  Theagreement commenced in May 2005 and was effective for an initial term of 12months.  The Company paid approximately$383,258 and $240,620 in marketing fees for the years ended December 31, 2006and 2005, respectively, which is 

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included inoperating expenses.  The Company sells100% of its ethanol product under this marketing agreement.  During the years ended December 31, 2006 and2005, sales to that customer were approximately $100,985,710 and $48,453,502,respectively.  At December 31, 2006amounts due from that customer included in receivables were $3,546,964.

*Distillers grain marketing agreement*

In August 2004,the Company entered into a marketing agreement with an unrelated company forthe purpose of marketing and selling all the distillers grains the Companyelects to ship by rail out of state.  Theinitial term of the agreement was one year, but the agreement is to remain ineffect until terminated by either party at its unqualified option, by providingwritten notice of not less than 90 days to the other party.  Neither party to the agreement has providedsuch notice.

In April 2005, theCompany entered into a marketing agreement with an unrelated company for thepurpose of developing and marketing our modified wet distillers grainproduct.  The initial term of thisagreement was one year, but automatically renews for an additional one yearunless either party gives the other party not less than 120 days notice priorto the annual renewal date.  Neitherparty to the agreement has provided such notice.

*Corn and Natural Gas Contracts*

At December 31,2006, the Company had forward corn purchase contracts totaling 10.1 millionbushels for various delivery periods from January 2007 to December 2008.  The prices on these contracts range from$2.18 to $3.88 per bushel or have a basis level established by the CBOT futuresbetween $-0.10 and $-0.42.

At December 31,2006, the Company had forward contracts to purchase approximately 284,000million British thermal units (MMBTU) of natural gas during the months ofJanuary through March 2007 at an average price of approximately $7.37 perMMBTU.

*Plant Expansion*

The Company enteredinto contracts and started construction on Phase I of a plant expansion inDecember 2006.  Project costs for Phase Iof the plant expansion through December 31, 2006 were approximately $1,326,435and are expected to total $6.7 million. Phase I will increase the expected plant capacity to 60 million gallonsper year.  In addition, the Company’sBoard of Directors also approved construction of a new maintenance building andthe expansion of the grains area which is expected to cost $1,535,000.

**12. SUBSEQUENT EVENTS**

On January 9,2007, the Company’s Board of Directors voted to make a cash distribution ofapproximately $14,390,000 to its unit holders of record as of January 9,2007.  The distribution was made inFebruary 2007.

On February 12,2007, the Company’s Board of Directors approved a $10,000,000 equity investmentin another ethanol production facility. However, the Company has not deposited this money into an escrow accountand do not plan to do so until the project obtains a debt financing commitment.

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**ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURES.**

Boulay,Heutmaker, Zibell & Co., P.L.L.P. has been our independent registeredpublic accounting firm since the Company’s inception and is the Company’sindependent registered public accounting firm at the present time.  The Company has had no disagreements with itsauditors.

**ITEM 8A. CONTROLS AND PROCEDURES.**

Ourmanagement, including our Chief Executive Officer (the principal executiveofficer), Jeff Robertson, along with our Chief Financial Officer (the principalfinancial officer), Barb Bontrager, have reviewed and evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rule13a-15(e) under the Securities Exchange Act of 1934, as amended) as of  December 31, 2006.  Based upon thisreview and evaluation, these officers have concluded that our disclosurecontrols and procedures are effective to ensure that information required to bedisclosed in the reports that we file or submit under the Exchange Act  is recorded, processed, summarized andreported within the time periods required by the forms and rules of the Securitiesand Exchange Commission; and to ensure that the information required to bedisclosed by an issuer in the reports that it files or submits under theExchange Act is accumulated and communicated to our management including ourprincipal executive and principal financial officers, or persons performingsimilar functions, as appropriate to allow timely decisions regarding requireddisclosure.

Ourmanagement, including our principal executive officer and principal financialofficer, have reviewed and evaluated any changes in our internal control overfinancial reporting that occurred as of December 31, 2006 and there has been nochange that has materially affected or is reasonably likely to materiallyaffect our internal control over financial reporting.

**ITEM8B.  OTHER INFORMATION.**

None.

**PART III**

**ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATEGOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.**

The information required by this Item is incorporatedby reference to the definitive proxy statement from our 2007 Annual Meeting ofMembers to be filed with the Securities and Exchange Commission on the same dayas this 10-KSB.  This proxy statement isreferred to in this report as the 2007 Proxy Statement.

**ITEM 10. EXECUTIVE COMPENSATION.**

The Information requiredby this Item is incorporated by reference to the 2007 Proxy Statement.

**ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED MEMBER MATTERS.**

The Information requiredby this Item is incorporated by reference to the 2007 Proxy Statement.

**ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE.**

The Information requiredby this Item is incorporated by reference to the 2007 Proxy Statement.

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**ITEM 13.  EXHIBITS.**

**Exhibits Filed as Part of thisReport and Exhibits Incorporated by Reference.**

The following exhibitsare filed as part of this report. Exhibits previously filed are incorporated by reference, as noted.
| Exhibit No. | ** ** | **Exhibit**                                                                                                                                                                                                                                                                                                                       |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  3.1   |       | Articles of Organization of registrant.  Filed  as Exhibit 3.1 to the registrant’s registration statement on Form SB-2  (Commission File 333-92188) and incorporated by reference herein.                                                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                                                              |
|  3.2   |       | Amended and Restated Operating Agreement of the  registrant.  Filed as Exhibit 3.2 to the registrant’s periodic report on  Form 10-QSB filed August 15, 2005 (Commission File 000-50733) and  incorporated by reference herein.                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                              |
|  4.1   |       | Form of Subscription Agreement of registrant.   File as Exhibit 4.1 to the Registrant’s registration statement on Form SB-2  (Commission File 333-92188) and incorporated by reference herein.                                                                                                                          |
|        |       |                                                                                                                                                                                                                                                                                                                              |
|  4.2   |       | Form of Membership Unit Certificate.  Filed as  Exhibit 4.2 to the registrant’s registration statement on Form SB-2  (Commission File 333-92188) and incorporated by reference herein.                                                                                                                                  |
|        |       |                                                                                                                                                                                                                                                                                                                              |
|  4.3   |       | Escrow Agreement dated June 18, 2002.  Filed as  Exhibit 4.3 to the registrant’s registration statement on Form SB-2  (Commission File 333-92188) and incorporated by reference herein.                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                                                              |
| 10.1        |       | Agreement by and between Key Railroad Development,  LLC and United Wisconsin Grain Producers, LLC dated January 30, 2003. Filed  as Exhibit 10.10 to the registrant’s registration statement on Form SB-2/A  (Commission File 333-92188) filed May 8, 2003 and incorporated by reference  herein.                            |
|        |       |                                                                                                                                                                                                                                                                                                                              |
| 10.2        |       | Accepted Proposal for Provision of Services by Key  Engineering Group, Inc. dated June 10, 2003. Filed as Exhibit 10.14 to  registrant’s periodic report on Form 10-QSB (Commission File 333-92188) filed  November 11, 2003 and incorporated by reference herein.                                                           |
|        |       |                                                                                                                                                                                                                                                                                                                              |
| 10.3        |       | Change Order Request No. 1 by Key Railroad  Development, LLC dated July 21, 2003. Filed as Exhibit 10.15 to registrant’s  periodic report on Form 10-QSB (Commission File 333-92188) filed November 11,  2003 and incorporated by reference herein.                                                                          |
|        |       |                                                                                                                                                                                                                                                                                                                              |
| 10.4        |       | Electric Service Agreement dated October 3, 2003 by  and between Adams-Columbia Electric Cooperative of Friendship and United  Wisconsin Grain Producers, LLC. Filed as Exhibit 10.6 to registrant’s  periodic report on Form 10-KSB (Commission File 333-92188) filed March 30,  2004 and incorporated by reference herein. |
|        |       |                                                                                                                                                                                                                                                                                                                              |
| 10.5        |       | Contract for Construction Services between Iverson  and Son’s LLC and United Wisconsin Grain Producers, LLC. Filed as Exhibit  10.7 to registrant’s periodic report on Form 10-KSB (Commission File  333-92188) filed March 30, 2004 and incorporated by reference herein.                                              |
|        |       |                                                                                                                                                                                                                                                                                                                              |
| 10.6        |       | Design-Build Contract dated October 8, 2003 between  Fagen, Inc. and United Wisconsin Grain Producers, LLC.* Filed as Exhibit 10.8  to registrant’s periodic report on Form 10-KSB (Commission File 333-92188)  filed March 30, 2004 and incorporated by reference herein.                                                   |
|        |       |                                                                                                                                                                                                                                                                                                                              |

 

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| 10.7   |   | Contract Change Order dated December 30, 2003  between Fagen, Inc. and United Wisconsin Grain Producers, LLC.* Filed as  Exhibit 10.9 to registrant’s periodic report on Form 10-KSB (Commission File  333-92188) filed March 30, 2004 and incorporated by reference herein.                                        |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.8   |   | Natural Gas Sales & Service agreement dated  April 1, 2004 between WPS Energy Services, Inc. and United Wisconsin Grain  Producers LLC. Filed as Exhibit 10.2 to registrant’s period report on Form  10-QSB (Commission File 000-50733) filed August 16, 2004 and incorporated by  reference herein.            |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.9   |   | Natural Gas Transportation Service agreement dated  April 8, 2004 between Wisconsin Power and Light Company and United Wisconsin  Grain Producers LLC. Filed as Exhibit 10.1 to registrant’s period report on  Form 10-QSB (Commission File 000-50733) filed August 16, 2004 and incorporated  by reference herein. |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.10  |   | Ethanol Fuel Marketing Agreement dated August 25,  2004 between Renewable Products Marketing Group LLC and United Wisconsin  Grain Producers LLC. Filed as Exhibit 10.1 to registrant’s periodic report on  Form 10-QSB (Commission File 333-92188) filed November 15, 2004 and  incorporated by reference herein.  |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.11  |   | Distiller’s Grain Marketing Agreement dated August  31, 2004 between Commodity Specialist Company and United Wisconsin Grain  Producers LLC. Filed as Exhibit 10.2 to registrant’s periodic report on Form  10-QSB (Commission File 333-92188) filed November 15, 2004 and incorporated  by reference herein.  |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.12  |   | Facility Use Agreement dated October 4, 2004 between  Town of Randolph and United Wisconsin Grain Producers LLC. Filed as Exhibit  10.3 to registrant’s periodic report on Form 10-QSB (Commission File  333-92188) filed November 15, 2004 and incorporated by reference herein.                                   |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 10.13  |   | Railroad Spur Construction Agreement dated October  15, 2004 between the Town of Randolph and Volkmann Railroad Builders, Inc.  filed as Exhibit 10.13 to registrant’s periodic report on Form 10-KSB  (Commission File 333-92188) filed March 21, 2005 and incorporated by  reference herein.                      |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 14.1   |   | Code of Ethics of United Wisconsin Grain Producers,  LLC adopted March 18, 2004.Filed as Exhibit 14.1 to registrant’s periodic  report on Form 10-KSB (Commission File 333-92188) filed March 30, 2004 and  incorporated by reference herein.                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 31.1   |   | Certificate pursuant to 17 CFR 240.15d-14(a).                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                     |
| 31.2   |   | Certificate pursuant to 17 CFR 240.15d-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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*                    Materialhas been omitted pursuant to a request for confidential treatment and suchmaterials have been filed separately with the Securities and ExchangeCommission.

**ITEM 14. PRINCIPAL INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES ANDSERVICES.**

The Information required by this Item is incorporatedby reference to the 2007 Proxy Statement.

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**SIGNATURES**

In accordance withSection 13 or 15(d) of the Exchange Act, the registrant caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|        | UNITED WISCONSIN GRAIN PRODUCERS, LLC                                  |
|--------|------------------------------------------------------------------------|
|   |                                                                   |
|   |                                                                   |
| Date:  | March 15, 2007                                                         |   | /s/ J.F. Robertson |
|   | J.F. Robertson                                                         |
|   | Chief Executive Officer   (Principal Executive Officer)                |
|   |                                                                   |
|   |                                                                   |
| Date:  | March 15, 2007                                                         |   | /s/ Barb Bontrager |
|   | Barb Bontrager                                                         |
|   | Chief Financial Officer   (Principal Financial and Accounting Officer) |
|        |                                                                        |  |  |  |

 

In accordance with theExchange Act, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.
| Date:     March 15,  2007 |   | /s/ Robert J. Miller                          |
|----------------------------------------------------|--------|-----------------------------------------------|
|                                               |   | Robert J. Miller, Vice President and Director |
|                                               |   |                                          |
|                                               |   |                                          |
| Date:     March 15, 2007  |   | /s/ Robert Lange                              |
|                                               |   | Robert Lange, Secretary and Director          |
|                                               |   |                                          |
|                                               |   |                                          |
| Date:     March 15, 2007  |   | /s/ Carl Benck                                |
|                                               |   | Carl Benck, Director                          |
|                                               |   |                                          |
|                                               |   |                                          |
| Date:     March 15, 2007  |   | /s/ Jerry H. Franz                            |
|                                               |   | Jerry H. Franz, Director                      |
|                                               |   |                                          |
|                                               |   |                                          |
| Date:     March 15, 2007  |   | /s/ Lawrence Lagowski                         |
|                                               |   | Lawrence Lagowski, Director                   |
|                                               |   |                                          |
|                                               |   |                                          |
| Date:     March 15, 2007  |   | /s/ Kevin M. Roche                            |
|                                               |   | Kevin M. Roche, Director                      |
|                                               |   |                                          |
|                                               |   |                                          |
| Date:     March 15, 2007  |   | /s/ Berwyn G. Westra                          |
|                                               |   | Berwyn G. Westra, Director                    |

 

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