UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~June~~December 3031, 2010


o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 000-53039

FIRST UNITED ETHANOL, LLC

(Name of registrant as specified in its charter)

Georgia		20-2497196
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
4433 Lewis B. Collins Road, Pelham, Georgia		31779
(Address of principal executive offices)		(Zip Code)

(229) 522-2822
(Registrant’s telephone number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

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


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of ~~August~~February 1314, ~~2010~~2011 there were 81,984 membership units outstanding.

INDEX

	Page
PART I — FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1518
Item 3. Quantitative and Qualitative Disclosures about Market Risks		2529
Item 4. Controls and Procedures		2529
PART II — OTHER INFORMATION		2529
Item 1. Legal Proceedings		2529
Item 1A. Risk Factors		2629
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2632
Item 3. Defaults Upon Senior Securities		2632
Item 4. (Removed and Reserved)		26
Item 4. Removed and Reserved		33
Item 5. Other Information		2633
Item 6. Exhibits		2733
SIGNATURES		2733
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION


Item 1.		Financial Statements.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY ~~CONSOLIDATED BALANCE SHEETS~~

	June 30, 2010			September 30, 2009
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,734,708		$	—
Trade and other accounts receivable, net of allowance for doubtful accounts of approximately $46,000 and $53,500, respectively		3,322,207			4,080,745
Due from broker		457			109,700
Inventory		7,500,716			7,619,273
Other assets		1,078,582			75,714
Total current assets		13,636,670			11,885,432
PROPERTY AND EQUIPMENT
Office building, furniture and equipment		1,091,395			1,080,985
Land and improvements		2,508,148			2,508,148
Plant buildings and equipment		161,421,785			161,289,145
		165,021,328			164,878,278
Less accumulated depreciation		(15,391,607	)		(8,840,707	)
		149,629,721			156,037,571
RESTRICTED CASH AND CERTIFICATES OF DEPOSIT		2,779,634			4,269,662
FINANCING COSTS, net of amortization of $2,727,379 and $1,876,558		3,890,756			4,483,577
TOTAL ASSETS	$	169,936,781		$	176,676,242
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Excess of outstanding checks over bank balance	$	—		$	81,555
Revolving line of credit		13,784,129			13,784,129
Current portion of long-term debt		6,469,366			9,204,578
Current portion of capital lease obligations		1,038,445			1,019,029
Current portion of interest rate swap liability		572,016			817,718
Accounts payable and accrued expenses		6,544,103			9,243,647
Accrued interest		547,000			615,625
Deferred revenue		1,400,000			—
Derivative financial instruments		—			61,325
Total current liabilities		30,355,059			34,827,606
INTEREST RATE SWAP LIABILITY		286,008			954,004
CAPITAL LEASE OBLIGATIONS		2,772,663			3,073,996
LONG-TERM DEBT		100,711,201			103,325,017
TOTAL LIABILITIES		134,124,931			142,180,623
COMMITMENTS AND CONTINGENCIES
MEMBERS’ EQUITY
Membership contributions, 81,984 units issued and outstanding		77,373,609			77,226,361
Accumulated deficit		(41,561,759	)		(42,730,742	)
Total members’ equity		35,811,850			34,495,619
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	169,936,781		$	176,676,242

CONSOLIDATED BALANCE SHEETS


	December 31, 2010			September 30, 2010
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	214,407		$	586,466
Trade receivables, net of allowance for doubtful accounts of approximately $88,000_and $30,000, respectively		6,511,300			5,088,073
Due from broker		457			457
Inventory		8,652,987			9,859,841
Other assets		1,361,299			1,100,281


Total current assets		16,740,450			16,635,118


PROPERTY AND EQUIPMENT
Office building, furniture and equipment		1,103,781			1,103,781
Land and improvements		2,508,148			2,508,148
Plant buildings and equipment		161,540,082			161,476,853

		165,152,011			165,088,782
Less accumulated depreciation		(19,731,570	)		(17,528,484	)

		145,420,441			147,560,298

RESTRICTED CASH AND CERTIFICATES OF DEPOSIT		149,149			2,779,643

FINANCING COSTS, net of amortization of $— and $2,894,432		—			3,723,703


TOTAL ASSETS	$	162,310,040		$	170,698,762


LIABILITIES AND MEMBERS’ EQUITY

CURRENT LIABILITIES
Excess of outstanding checks over bank balance	$	335,109		$	—
Revolving line of credit		14,699,991			13,634,129
Current portion of long-term debt		104,382,072			11,081,911
Current portion of capital lease obligations		1,241,343			1,706,620
Current portion of interest rate swap liability		420,967			525,658
Accounts payable and accrued expenses		8,642,910			11,979,176
Accrued interest		3,181,806			847,363
Deferred revenue		—			411,423


Total current liabilities		132,904,198			40,186,280


INTEREST RATE SWAP LIABILITY		—			131,414

CAPITAL LEASE OBLIGATIONS		1,916,680			2,007,748

ACCRUED INTEREST		—			1,374,686

LONG-TERM DEBT		—			94,481,878


TOTAL LIABILITIES		134,820,878			138,182,006

COMMITMENTS AND CONTINGENCIES

MEMBERS’ EQUITY
Membership contributions, 81,984 units issued and outstanding		77,471,773			77,422,691
Accumulated deficit		(49,982,611	)		(44,905,935	)

Total members’ equity		27,489,162			32,516,756


TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	162,310,040		$	170,698,762

See Notes to Consolidated Financial Statements.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY ~~CONSOLIDATED STATEMENTS OF OPERATIONS~~

	Three months			Three months			Nine months			Nine months
	ending June 30,			ending June 30,			ended June 30,			ended June 30,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	43,553,273		$	44,061,519		$	152,005,191		$	120,224,231
Cost of goods sold		44,968,975			46,262,851			142,269,909			131,037,251
Gross profit (loss)		(1,415,702	)		(2,201,332	)		9,735,282			(10,813,020	)
General and administrative expenses		908,950			1,192,571			3,161,325			3,853,031
Operating income (loss)		(2,324,652	)		(3,393,903	)		6,573,957			(14,666,051	)
Other income (expense)
Unrealized gain (loss) on interest rate swap		321,643			356,194			913,698			(1,304,647	)
Gain (loss) on the sale of equipment		(5,815	)		—			(5,815	)		—
Interest expense		(2,118,860	)		(2,954,655	)		(6,320,426	)		(7,986,018	)
Interest income		3,141			4,197			7,569			7,982
		(1,799,891	)		(2,594,264	)		(5,404,974	)		(9,282,683	)
Net income (loss)	$	(4,124,543	)	$	(5,988,167	)	$	1,168,983		$	(23,948,734	)
Net income (loss) per unit (Basic and Diluted)	$	(50.31	)	$	(75.38	)	$	14.26		$	(308.80	)
Weighted average units outstanding		81,984			79,445			81,984			77,555

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three months ending			Three months ending
	December 31, 2010			December 31, 2009
	(Unaudited)			(Unaudited)

Revenues	$	71,872,501		$	57,434,517
Cost of goods sold		69,249,844			47,490,413

Gross profit		2,622,657			9,944,104

General and administrative expenses		1,023,759			1,190,165


Operating income		1,598,898			8,753,939

Other income (expense)
Unrealized gain (loss) on interest rate swap		236,105			341,402
Interest expense		(6,912,019	)		(2,133,776	)
Interest income		340			234

		(6,675,574	)		(1,792,140	)

Net income (loss)	$	(5,076,676	)	$	6,961,799


Net income (loss) per unit (Basic and Diluted)	$	(61.92	)	$	84.92


Weighted average units outstanding		81,984			81,984

See Notes to Consolidated Financial Statements.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY ~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

	Nine months ended			Nine months ended
	June 30, 2010			June 30, 2009
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	1,168,983		$	(23,948,734	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		6,550,900			6,050,252
Amortization		850,821			749,607
Non-cash compensation expense		147,248			82,758
Loss on sale of equipment		5,815			—
Unrealized (gains) losses on interest rate swap		(913,698	)		1,304,647
Recovery of doubtful receivables		(7,500	)		—
Changes in assets and liabilities:
Trade and other accounts receivable		766,038			(4,044,881	)
Due from broker		109,243			(10,105	)
Inventory		118,557			(754,716	)
Other assets		(1,002,868	)		1,083,221
Accounts payable and accrued expenses		(2,699,544	)		(387,401	)
Accrued interest payable		670,125			(342,818	)
Deferred revenue		1,400,000			—
Derivative financial instruments		(61,325	)		—
Net cash provided by (used in) operating activities		7,102,795			(20,218,170	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificates of deposit		(50,000	)		—
Proceeds received from sale of equipment		755			—
Purchase of property and equipment, net of returns		(149,620	)		(3,469,014	)
Net cash (used in) investing activities		(198,865	)		(3,469,014	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable		—			18,988,632
Payment of financing costs		(258,000	)		—
Repayment of long-term debt and capital lease obligations		(5,030,945	)		(66,885	)
Proceeds from revolving line of credit		—			2,384,129
Proceeds from sale of units		—			2,037,550
Release (funding) of restricted cash balance		201,278			(352,969	)
Excess of outstanding checks over bank balance		(81,555	)		—
Net cash provided by (used in) financing activities		(5,169,222	)		22,990,457
Increase (decrease) in cash and cash equivalents		1,734,708			(696,727	)
Cash and cash equivalents, beginning of period		—			7,685,978
Cash and cash equivalents, end of period	$	1,734,708		$	6,989,251
Supplemental disclosure of cash flow information
Cash paid for interest	$	5,538,230		$	8,329,229
Supplemental disclosure of non-cash investing and financing activities
Repayment of notes and interest payable paid by Bond Trustee	$	1,338,750		$	900,000
Assets acquired under capital lease or financing arrangement		—			4,612,472
Accrued expenses reclassed to subordinated debt		—			3,977,544
Deferred revenue applied to property & equipment		—			50,000

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three months ending			Three months ending
	December 31, 2010			December 31, 2009
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(5,076,676	)	$	6,961,799
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		2,197,772			2,184,488
Amortization of deferred financing costs		3,723,702			252,554
Non-cash compensation expense		49,082			49,082
Unrealized (gain) on interest rate swap		(236,105	)		(341,402	)
Provision (recovery) of doubtful receivables		58,000			4,500
Changes in assets and liabilities:
Increase in trade receivables		(1,481,227	)		(511,922	)
Increase in due from broker		—			(94,833	)
Decrease in inventory		1,206,854			912,917
Increase in other assets		(261,018	)		(83,302	)
Decrease in accounts payable and accrued expenses		(3,336,266	)		(2,335,020	)
Increase in accrued interest payable		1,653,591			216,891
Decrease in deferred revenue		(411,423	)		—
Decrease in derivative financial instruments		—			(61,325	)


Net cash provided by (used in) operating activities		(1,913,714	)		7,154,427


CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of certificates of deposit		—			(50,000	)
Purchase of property and equipment, net of returns		(57,914	)		(1,893	)


Net cash (used in) investing activities		(57,914	)		(51,893	)


CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt and capital lease obligations		(2,173,347	)		(1,608,529	)
Proceeds from revolving line of credit		1,065,862			—
Release (funding) of restricted cash balance		2,371,945			(84	)
Excess of outstanding checks over bank balance		335,109			(81,555	)


Net cash provided by (used in) financing activities		1,599,569			(1,690,168	)


Increase (decrease) in cash and cash equivalents		(372,059	)		5,412,366

Cash and cash equivalents, beginning of period		586,466			—


Cash and cash equivalents, end of period	$	214,407		$	5,412,366


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	2,228,560		$	2,403,081

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Repayment of notes and interest payable paid by Bond Trustee	$	1,070,285		$	1,338,750

See Notes to Consolidated Financial Statements.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY ~~Notes~~NOTES toTO ~~Consolidated~~CONSOLIDATED ~~Financial~~FINANCIAL ~~Statements~~STATEMENTS (~~Unaudited~~UNAUDITED)

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

First United Ethanol, LLC and subsidiary (the “Company”) is located near Camilla, Georgia. The Company operates a 100 million gallon name plate capacity ethanol plant with distribution within the United States. The Company formally began ethanol operations in October 2008.

The Company was formally organized as a limited liability company on March 9, 2005 under the name Mitchell County Research Group, LLC. In September 2005, the Company formally changed its name to First United Ethanol, LLC. In November 2007, the Company’s wholly owned subsidiary, Southwest Georgia Ethanol, LLC (“SWGE”) was formed in conjunction with the debt financing agreement with West LB. First United Ethanol, LLC transferred the majority of its assets and liabilities to Southwest Georgia Ethanol, LLC.

During the first quarter of the fiscal year ending September 30, 2011, the Company continued to suffer losses from operations thus continuing liquidity restraints due to limits on its working capital line which was up for renewal in February 2011. Faced with these constraints, on February 1, 2011, Southwest Georgia Ethanol, LLC, the wholly owned subsidiary, filed voluntary petitions for relief (collectively, the “Bankruptcy Filing”) under Chapter 11 (“Chapter 11”) of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Middle District of Georgia Albany Division (the “Bankruptcy Court”). SWGE intends to continue to operate its business as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. See Note 9 “Subsequent Events.”

The accompanying unaudited condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business. Our ability to continue as a going concern is dependent upon, among other things, (i) our ability to secure the remainder debtor-in-possession financing; (ii) our ability to comply with the terms and conditions of any debtor-in-possession financing entered by the Bankruptcy Court in connection with the Chapter 11 cases; (iii) our ability to maintain adequate cash on hand; (iv) our ability to generate cash from operations; (v) our ability to obtain confirmation of and to consummate a plan of reorganization under the Bankruptcy Code; (vi) the cost, duration and outcome of the reorganization process; and (vii) our ability to achieve profitability. Uncertainty as to the outcome of these factors raises substantial doubt about the Company’s ability to continue as a going concern. We are currently evaluating various courses of action to address the operational and liquidity issues the Company is facing and there can be no assurance that any of these efforts will be successful. The accompanying consolidated financial statements do not include any adjustments that might result should we be unable to continue as a going concern.

Basis of Presentation

The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America.

The accompanying financial information of the Company is unaudited; however, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations. The results of operations for the three ~~and nine~~ months ended ~~June~~December 3031, 2010 are not necessarily indicative of the results that may be expected for the full year. These statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2009~~2010.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 100% owned subsidiary. All material inter-company accounts and transactions are eliminated in consolidation.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Use of Estimates

The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities and other items, as well as the reported revenues and expenses. Actual results could differ from those estimates.

Cash and Cash Equivalents and Restricted Cash and Certificates of Deposit

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash balances are maintained in bank depositories and periodically exceed federally insured limits. The Company has not experienced losses in these accounts. The Company segregates cash held in escrow, cash restricted and certificates of deposit restricted for use by debt agreements as non-current.

Trade Accounts Receivable

Trade accounts receivable are recorded at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering customers financial condition, credit history and current economic conditions. Receivables are written off when deemed uncollectible. Recoveries of receivables written off are recorded when received.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited)

Inventories

Ethanol and related products, raw materials and work-in-process are valued using methods which approximate the lower of cost (first-in, first-out) or market. In the valuation of inventories and purchase and sale commitments, market is based on current replacement values except that it does not exceed net realizable values and is not less than net realizable values reduced by allowances for approximate normal profit margin.

Financing Costs

Financing costs associated with the ~~construction and revolving~~ loans discussed in Note 57 ~~and~~have ~~are~~ been recorded at cost and include expenditures directly related to securing debt financing. ~~The~~In February 2011, the Company isfiled ~~amortizing~~for ~~these~~Chapter 11 ~~costs~~Bankruptcy ~~using~~(see Note 1) relief from the ~~effective~~loans ~~interest~~which ~~method~~gave ~~over~~rise to the ~~term~~deferred financing ofcosts. In conjunction with this filing, the ~~agreement~~Company expensed the remaining net book value of its deferred financing costs as of December 31, 2010. The financing costs are included in interest expense in the statement of operations and total approximately $3,724,000 for the three months ended December 31, 2010.

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:


Buildings		20 Years
Plant and Process Equipment		5-20 Years
Office Furniture and Equipment		3-10 Years

Maintenance and repairs are charged to expense as incurred; major improvements and betterments are capitalized. The present value of capital lease obligations are classified as long-term debt and the related assets are included in property and equipment. Amortization of assets under capital lease is included in depreciation expense.

~~Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate~~7 that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. In accordance with Company policies, management has evaluated the plant for possible impairment based on projected future cash flows from operations. Management has determined that its projected future cash flows from operations exceed the carrying value of the plant and that no impairment exists at June 30, 2010.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. In accordance with Company policies, management has evaluated the plant for possible impairment based on projected undiscounted future cash flows from operations. Management has determined that its projected undiscounted future cash flows from operations exceed the carrying value of the plant and that no impairment exists at December 31, 2010. However, due to the Company’s recent filing for Bankruptcy protection, there can be no assurances that the value of the plant will be recovered through future cash flows.

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities

The Company is exposed to certain risks related to its ongoing business operations. The primary risks that the Company manages by using forward or derivative instruments are price risk on anticipated purchases of corn and natural gas.

The Company is subject to market risk with respect to the price and availability of corn, the principal raw material weused ~~use~~ to produce ethanol and ethanol by-products. In general, rising corn prices result in lower profit margins and, therefore, represent unfavorable market conditions. ~~This~~ This is especially true when market conditions do not allow the Company to pass along increased ~~corn~~ corn costs to our customers. The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental ~~policies~~ policies with respect to agriculture and international trade and global demand and supply.

Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as such and exempted from the accounting and reporting requirements of derivative accounting.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited)

The Company enters into firm-price purchase commitments every month with its natural gas suppliers under which they agree to buy natural gas at a price set in advance of the actual delivery of that natural gas to us. Under these arrangements, the Company assumes the risk of a price decrease in the market price of natural gas between the time this price is fixed and the time the natural gas is delivered. The Company accounts for these transactions as normal purchases, and accordingly, does not mark these transactions to market nor does the Company record the commitment on the balance sheet.

~~From~~The ~~time to time, the~~ Company enters into short-term cash, options and futures contracts as a means of securing corn pricing for the ethanol plant and managing exposure to changes in commodity prices. The Company maintains a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market fluctuations. The Company’s specific goal is to protect the Company from large moves in commodity costs. All derivatives will be designated as non-hedge derivatives for accounting purposes and the contracts will be accounted for at fair value. Although the contracts will be effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

As part of its trading activity, the Company uses futures and option contracts offered through regulated commodity exchanges to reduce risk and is exposed to risk of loss in the market value of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts and options.

To ensure an adequate supply of corn to operate the plant, the Company enters into contracts to purchase corn from local farmers and its major suppliers. At ~~June~~December 3031, 2010 ~~and September 30~~, ~~2009,~~ the Company had fixed ~~corn~~price contracts totaling approximately $49,~~838~~195,000 ~~and $300,000, respectively,~~ based upon the average per bushel price.

The Company has also managed a portion of its floating interest rate exposure through the use of interest rate derivative contracts. The Company’s forward LIBOR-based contract reduces risk from interest rate movements as gains and losses on the contract offset portions of the interest rate variability of our variable-rate debt. The notional amount of the swap at June 30, 2010 and September 30, 2009 was $30,847,228 and $47,508,877, respectively. The effect of the swap is to limit the interest rate exposure on the LIBOR component to a fixed rate of 4.04% compared to a variable interest rate. The swap’s notional amount will decrease quarterly to $0 by the termination date of December 31, 2011. The counterparty to the contracts is a large commercial bank, and the Company does not anticipate their nonperformance. The swap is designated as a non-hedge derivative and is marked to market. The estimated fair value of this agreement at June 30, 2010 and September 30, 2009, was a liability of approximately $858,000 and $1,772,000.

Derivatives not designated as hedging instruments at June 30, 2010 and September 30, 2009 were as follows:

	Balance Sheet Classification	June 30, 2010		September 30, 2009
Futures and options contracts	(Current Liabilities)	$	—	$	(61,325	)
Interest rate swap	(Current Liabilities)		572,016		817,718
Interest rate swap	(Non-Current Liabilities)		286,008		954,004

		Nine			Nine			Three		Three
	Statement of	months			months			months		months
	Operations	June 30,			June 30,			June 30,		June 30,
	Classification	2010			2009			2010		2009
Net realized and unrealized gains (losses) on future and option commodity contracts	Revenues	$	(13,780	)	$	—		$	38,492	$	—
Net realized and unrealized gains on futures and option commodity contracts	Cost of Goods Sold		51,203			1,329,000			12,507		49,000
Net realized and unrealized gains (losses) related to the interest rate swap	Other non-operating (expense)		913,698			(1,304,647	)		321,643		(356,194	)

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY ~~Notes~~NOTES toTO ~~Consolidated~~CONSOLIDATED ~~Financial~~FINANCIAL ~~Statements~~STATEMENTS (~~Unaudited~~UNAUDITED)

The Company has also managed a portion of its floating interest rate exposure through the use of interest rate derivative contracts. The Company’s forward LIBOR-based contract reduces risk from interest rate movements as gains and losses on the contract offset portions of the interest rate variability of our variable-rate debt. The notional amount of the swap at December 31, 2010 and September 30, 2010 was $19,788,837 and $25,182,610, respectively. The effect of the swap is to limit the interest rate exposure on the LIBOR component to a fixed rate of 4.04% compared to a variable interest rate. The swap’s notional amount will decrease quarterly to $0 by the termination date of December 31, 2011. The counterparty to the contracts is a large commercial bank, and the Company does not anticipate their nonperformance. The swap is designated as a non-hedge derivative and is accounted for as mark to market. The estimated fair value of this agreement at December 31, 2010 and September 30, 2010, was a liability of approximately $420,967 and $657,000, respectively.

Derivatives not designated as hedging instruments at December 31, 2010 and 2009 and September 30, 2010 were as follows:


	Balance Sheet	December 31,			September 30,
	Classification	2010			2010

Interest rate swap	(Current Liabilities)		(420,967	)		(525,658	)
Interest rate swap	(Non-Current Liabilities)					(131,414	)


	Statement of	Three months		Three months
	Operations	December 31,		December 31,
	Classification	2010		2009

Net realized and unrealized gains related to futures and options contracts — corn	Cost of goods sold		—		(112,450	)
Net realized and unrealized Gains (losses) related to the interest rate swap	Other non-operating (expense)		236,105		(114,802	)

Revenue Recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable, and collection is reasonably assured.

Revenue from the production of ethanol and related products is recorded at the time title and all risks of ownership transfer to customers, which is typically upon loading and shipping of the product ~~shipment~~ from the facility. Commissions are included in cost of goods sold. In addition, ~~shipping~~ shipping and handling costs incurred by the Company for the sale of ethanol and related products ~~are~~ are included in cost of goods sold.

~~Deferred~~Revenue ~~revenue~~by product is ~~recorded~~as ~~when~~follows ~~cash~~for ~~has been received, but~~ the ~~revenue~~three ~~recognition~~months ~~process~~ending ~~is not~~December 31, ~~complete.~~2010 ~~The~~and ~~revenue will be recorded when persuasive evidence exists.~~2009:


	2010		2009

Ethanol	$	57,469,774	$	48,564,366
Distillers’ grain		14,054,508		8,865,724
Other		348,219		4,427

Total	$	71,872,501	$	57,434,517

Interest income is recognized as earned.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Income (Loss) per Membership Unit

For purposes of calculating basic and diluted net income (loss) per member unit, units subscribed and issued by the Company are considered outstanding on the effective date of issue and are weighted by days outstanding.

Income ~~taxes~~Taxes

The Company is organized as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, the Company’s earnings and losses are included in the income tax returns of the members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. Management has evaluated their material tax positions and determined there is no income tax effect with respect to the financial statements at December 31, 2009. The Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before December 31, 2005. The Company has not been notified of any impending examinations by tax authorities, and no examinations are in process.

Management has evaluated the Company’s tax positions under the Financial Accounting Standards Board issued guidance on accounting for uncertainty in income taxes and concluded that the Company has taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. With few exceptions, the Company is no longer subject to income tax examinations by the U.S. Federal, state or local authorities for the years before 2007.

Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, derivative instruments, trade ~~and other~~ receivables, accounts payable, ~~accrued expenses, notes payable~~ and ~~long-term~~accrued ~~debt~~expenses. Management believes the fair value of each of these financial instruments approximates their carrying value on the balance sheet as of the balance sheet date. The fair value of current financial instruments is estimated to approximate carrying value due to the short-term nature of these instruments. The ~~fair value~~Company ofbelieves ~~derivative~~it ~~financial instruments~~ is ~~based~~not onpractical to ~~quoted~~estimate ~~market~~the ~~prices. The~~ fair value of the long-term debt is estimated based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and the other market factors.

~~Reclassification~~Risks and Uncertainties

~~Certain~~The ~~items~~Company inhas ~~the~~certain ~~consolidated~~risks ~~statements~~and ofuncertainties ~~operations~~that ~~and~~it ~~balance~~will ~~sheet~~experience during volatile market conditions, which can have ~~been~~a ~~changed~~severe toimpact on operations. The Company’s revenues are derived from ~~conform~~the sale and distribution of ethanol and distiller grains to ~~classification~~customers ~~adopted~~primarily located in the United States. Corn for the ~~nine~~production ~~months~~process ~~ended~~is ~~June 30,~~supplied ~~2010~~to ~~with~~the noplant ~~effect~~primarily onfrom ~~net~~local ~~income~~agricultural orproducers ~~members’~~and ~~equity~~from purchases on the open market.

9The Company’s operating and financial performance is largely driven by the prices at which we sell ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets, although since 2005 the prices of ethanol and gasoline began a divergence with ethanol selling for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. Our largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, government policies and programs, and our risk management program used to protect against the price volatility of these commodities.

~~Table~~The current U.S. economic condition has reduced the nation’s demand for energy. In addition, the VEETC credit of ~~Contents~~$0.45 is set to expire in December 2011, creating additional uncertainty to the future of ethanol production. The ethanol boom of recent years has spurred overcapacity in the industry and production capacity is currently exceeding the RFS mandates. As such, the Company may need to evaluate whether crush margins will be sufficient to operate the plant and generate enough debt service. In the event crush margins become negative for an extended period of time, the Company may be required to reduce capacity or shut down the plant. The Company will continue to evaluate crush margins on a regular basis.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited)

NOTE 2. INVENTORIES

A summary of inventories at June 30, 2010 and September 30, 2009 is as follows:

	June 30, 2010		September 30, 2009
Corn	$	3,614,844	$	3,958,543
Denaturant and chemical supplies		427,229		287,640
Work in process		1,269,000		1,095,000
Ethanol		1,298,704		1,649,895
Distiller grains		890,939		628,195
Total	$	7,500,716	$	7,619,273

NOTE 3. RELATED PARTIES AND SUBSEQUENT EVENTS

An entity which has common ownership with Fagen, Inc., the Company’s principal vendor in the construction of the ethanol facility, is also a Member of the Company and holds approximately 1.2% of the outstanding units. In addition, the Company has a subordinated promissory note due Fagen, Inc. in the amount of $3,977,545 as of June 30, 2010 and September 30, 2009.

The Company purchased corn at market prices in the amount of $282,957 and $0 for the three months and $1,786,351 and $946,007 for the nine months ending June 30, 2010 and 2009, respectively, from certain directors in the normal course of business.

During the 3rd quarter 2010, the Company entered into a contract with a director for delivery of approximately 12,000 tons of distiller grains for delivery throughout the remainder of 2010. As of June 30, 2010 the member had prepaid $1,400,000 for the related distiller grains which is being shown as deferred revenue. Subsequent to June 30, 2010, the Company and director both agreed to cancel the contract, as such, the prepayment will be remitted back to the director in the next quarter.

NOTE 4. LEASES

The Company leases operating machinery under a lease agreement with De Lage Landen which is accounted for as a capital lease. The lease will expire in 2013. The assets have a capitalized cost of $157,664 included in property and equipment as of June 30, 2010 and September 30, 2009. Accumulated depreciation totaled $27,589 and $15,766 as of June 30, 2010 and September 30, 2009, respectively.

The Company entered into an Excess Facilities Charge Agreement with Georgia Power Company in which Georgia Power installed a power substation to augment the Company’s power system. The cost of the substation is charged to the Company over a three year period requiring annual payments of principal and interest totaling $686,309 beginning June 30, 2009. The Company has accounted for this agreement as a capital lease. The present value of future payments due under the lease of $1,834,512 is included in property and equipment as of June 30, 2010 and September 30, 2009. Accumulated depreciation totaled $160,517 and $91,726 as of June 30, 2010 and September 30, 2009, respectively.

The Company also entered into a Natural Gas Facilities Agreement with the City of Camilla for a high pressure gas main to serve the plant and purchase natural gas from the City of Camilla. The City of Camilla owns and operates the gas main and leases its usage to the Company. The agreement calls for a monthly facilities charge, in addition to the normal consumption charges, equal to the cost of the installation of the gas main over an 80 month period beginning June 2009 and requiring principal and interest payments of approximately $43,000 each month. The Company has accounted for the facilities lease charges as a capital lease. The asset present value of future payments under the lease of $2,777,960 is included in property and equipment as of June 30, 2010 and September 30, 2009. Accumulated depreciation totaled $254,645 and $138,898 as of June 30, 2010 and September 30, 2009.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY ~~Notes~~NOTES toTO ~~Consolidated~~CONSOLIDATED ~~Financial~~FINANCIAL ~~Statements~~STATEMENTS (~~Unaudited~~UNAUDITED)

ANOTE ~~summary~~2. ~~of capital leases as of June 30, 2010 and September 30, 2009 is as follows:~~INVENTORIES

	June 30, 2010			September 30, 2009
De Lage Landen Financial Services, 60 months, interest rate of 7.5%	$	104,374		$	126,327
Georgia Power Substation lease, 36 months, interest rate of 5.85%		1,299,364			1,299,364
Natural Gas Facilities lease, 80 months, interest rate of 6.59%		2,407,370			2,667,334
		3,811,108			4,093,025
Less current portion		(1,038,445	)		(1,019,029	)
	$	2,772,663		$	3,073,996

A summary of inventories at December 31, 2010 and September 30, 2010 is as follows:

The Company also entered into operating leases with Trinity Industries Leasing Company for the use of tanker cars. The tanker car leases expire November 2017. During the year ended September 30, 2009, the Company determined that a portion of the tanker cars under the non-cancelable leases will not be utilized and have no future benefit. Accordingly, the Company recorded a liability and a charge to income in the amount $745,000 for the future lease payments associated with the unused tanker cars. The remaining accrual as of June 30, 2010 is approximately $260,750. In February and March of 2010, the Company signed sublease agreements for a portion of the cars through December 2010 and March 2012 and recorded sublease income for the three and nine months ended June 30, 2010 of approximately $151,000 and $294,000.


	December 31,		September 30,
	2010		2010

Corn	$	2,303,077	$	4,943,188
Denaturant and chemical supplies		430,051		432,434
Work in process		1,728,000		1,902,712
Ethanol		3,223,279		1,618,807
Distiller grains		968,580		962,700

Total	$	8,652,987	$	9,859,841

NOTE 53. ~~DEBT~~MEMBERS’ ~~FINANCING ARRANGEMENTS~~EQUITY

~~The~~In August 2010, the Board of Directors voted to begin the process of reclassification and reorganization of the Company’s ~~long-term~~membership ~~debt~~units. ~~outstanding~~The asCompany offiled ~~June~~a preliminary proxy statement with the SEC on October 3015, 2010 giving notice to the unit holders of a special meeting in which they will be asked to approve a proposed Third Amended and ~~September~~Restated Operating Agreement. The SEC is currently reviewing the proposed transaction. The result of such amendment and restatement will be the reclassification of the Company’s units into newly authorized Class 30A, ~~2009~~Class B and Class C Units. If the transaction is ~~summarized~~completed, the units of the Company’s unit holders of record who hold 100 or more of common equity units will be renamed as ~~follows:~~Class A Units. Unit holders of record who hold at least 99 units but no more than 21 units will receive one Class B Unit for each common equity unit held by such unit holders immediately prior to the effective time of the reclassification. Unit holders of record who hold 20 or fewer units will receive one Class C Unit for each common equity unit held by such unit holders immediately prior to the effective time of the reclassification. The effect of the reclassification will be to reduce the recorded number of unit holders of the Company’s common equity units to less than 300. This would enable the Company to voluntarily terminate the registration of its units under the Securities and Exchange Act of 1934 and remove its public reporting obligations.

	June 30, 2010			September 30, 2009
West LB Term Loan, variable interest rates from 4.00% to 7.81%, described below:	$	93,800,000		$	98,500,000
Subordinated Fagen note, 4% through June 30, 2010 and 8% thereafter		3,977,545			3,977,545
Subordinated debt facility, interest rate of 7.5%, described below		9,250,000			9,850,000
Notes payable John Deere Credit, interest rate of 5.3%, described below		153,022			202,050
		107,180,567			112,529,595
Less current portion		(6,469,366	)		(9,204,578	)
	$	100,711,201		$	103,325,017

NOTE 4. RELATED PARTIES

~~West~~An LBentity ~~Credit~~which ~~Arrangement~~has —common ~~Senior~~ownership ~~Debt~~with Fagen, Inc., the Company’s principal vendor in the construction of the ethanol facility, is also a Member of the Company and holds approximately 1.2% of the outstanding units. In addition, the Company has a subordinated promissory note due Fagen, Inc. in the amount of $3,977,545 as of December 31, 2010 and September 30, 2010.

~~SWGE~~The ~~entered~~Company ~~into~~purchased acorn ~~senior~~at ~~credit~~market ~~agreement~~prices ~~that provided for (1) a construction loan facility~~ in an ~~aggregate~~the amount of ~~up to~~ $~~100~~919,~~000,000,~~057 ~~which~~and ~~converted to a term loan on February 20~~$732,600 ~~2009 (“Conversion~~for ~~Date”),~~the ~~(2) a term loan facility in an aggregate amount of up to $100,000,000 which~~three ~~matures~~months onending ~~February~~December 2031, ~~2015~~2010 ~~(the “Final Maturity Date”);~~ and ~~(3) a working capital loan in an aggregate amount of up to $15~~2009,~~000,000~~ ~~which matures February 20~~respectively, ~~2011.~~from ~~The~~certain ~~primary~~Directors ~~purpose~~in of the ~~credit~~ ~~facility~~normal ~~was to finance the construction and operation~~ course of ~~the Company’s ethanol plant~~business.

NOTE 5. LEASES

The Company leases operating machinery under a lease agreement with De Lage Landen which is accounted for as a capital lease. The lease will expire in 2013. The assets have a capitalized cost of $157,664 included in property and equipment as of December 31, 2010 and September 30, 2010. Accumulated depreciation totaled $35,474 and $31,532 as of December 31, 2010 and September 30, 2010, respectively.

The Company entered into an Excess Facilities Charge Agreement with Georgia Power Company in which Georgia Power installed a power substation to augment the Company’s power system. The cost of the substation is charged to the Company over a three year period requiring annual payments of principal and interest totaling $686,309 beginning June 30, 2009. The Company has accounted for this agreement as a capital lease. The present value of future payments due under the lease of $1,834,512 is included in property and equipment as of December 31, 2010 and September 30, 2010. Accumulated depreciation totaled $206,382 and $183,451 as of December 31, 2010 and September 30, 2010, respectively.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY ~~Notes~~NOTES toTO ~~Consolidated~~CONSOLIDATED ~~Financial~~FINANCIAL ~~Statements~~STATEMENTS (~~Unaudited~~UNAUDITED)

AsThe Company also entered into a Natural Gas Facilities Agreement with the City of ~~June 30,~~Camilla ~~2010~~for a high pressure gas main to serve the plant and ~~September 30~~purchase natural gas from the City of Camilla. The City of Camilla owns and operates the gas main and leases its usage to the Company. The agreement calls for a monthly facilities charge, ~~2009~~in addition to the normal consumption charges, equal to the cost of the installation of the gas main over an 80 month period beginning June 2009 and requiring principal and interest payments of approximately $43,000 each month. The Company ~~had~~has ~~drawn~~accounted for the facilities lease charges as a capital lease. The present value of future payments under the lease of $132,~~784~~777,~~129~~960 onis ~~the~~included in as an asset in property and equipment as of December 31, 2010 and September 30, 2010. Accumulated depreciation totaled $15312,~~000~~520 and $277,~~000~~796 as of December 31, ~~working~~2010 ~~capital~~and ~~loan~~September 30, 2010, respectively.

OnA ~~June 7,~~summary ~~2010 the Company amended its Senior Credit Agreement and its Accounts Agreement with WestLB. Pursuant to the amended agreements, the Company is required to maintain a certain level~~ of ~~working~~ capital. ~~Pursuant~~leases ~~to the amended loan agreements the Company was required to have a working capital deficit of $12,000,000 or less~~ as of ~~June~~December 3031, 2010. ~~The~~and ~~Company met that requirement by having a working capital deficit of approximately $11,100,000 at June 30, 2010. The required working capital threshold tightens for the quarters ending~~ September 30, 2010 ~~and December 31, 2010. The Company~~ is ~~required to have a working capital deficit of $9,000,000 or less~~ as offollows: ~~September 30, 2010 and $7,000,000 or less as of December 31, 2010. Subsequent to December 31, 2010, the working capital deficit requirement will remain at $7,000,000 for the term of the loan.~~

In the event the Company is unable to meet the level of working capital required under the amended loan agreements the Company will be assessed a five percent (5%) fee on the outstanding loans for any quarter for which it is not in compliance. This fee payment is in addition to the interest the Company is required to pay on its outstanding debt pursuant to the original loan agreements. This additional interest fee will be accrued and due February 2015, the final maturity date for the Company’s outstanding loans with West LB. Furthermore, and regardless of whether the Company has maintained the required level or working capital, the Company will be required to make an additional quarterly principal payment of $150,000 toward its outstanding working capital loan balance. This arrangement is distinct from the borrowing base formula and borrowing base certificates previously utilized to monitor compliance with the Company’s working capital loans. This amendment also removes the borrowing base default triggers from the terms of the loan, thereby removing the requirement for waivers.


	December 31,			September 30,
	2010			2010

De Lage Landen Financial Services, 60 months, interest rate of 7.5%	$	89,040		$	96,778
Georgia Power Substation lease, 36 months, interest rate of 5.85%		841,825			1,299,364
Natural Gas Facilities lease, 80 months, interest rate of 6.59%		2,227,158			2,318,226

		3,158,023			3,714,368

Less current portion		(1,241,343	)		(1,706,620	)

	$	1,916,680		$	2,007,748

~~Prior~~The ~~to signing the amended loan agreements the~~ Company ~~was~~also ~~required~~entered tointo ~~repay~~operating ~~the~~leases ~~amount~~with ~~that~~Trinity ~~its working~~Industries ~~capital~~Leasing ~~loan outstanding exceeded its borrowing base. The~~ Company’s ~~borrowing~~for ~~base~~the ~~was 80%~~use of ~~the~~rail ~~value~~cars ~~of certain accounts receivable~~ and ~~certain~~tanker ~~inventory owned by FUEL and was calculated on a monthly basis~~cars. The ~~Company~~tanker ~~was~~car ~~required~~lease toexpires ~~deliver~~November 2017 toand ~~its~~the ~~lender~~rail acar ~~borrowing base certificate~~lease ~~setting~~expires ~~forth~~February 2012. ~~the~~During ~~data necessary to make~~ the ~~borrowing~~year ~~base~~ending ~~calculations. As of April~~September 1530, ~~2010~~2009, the Company’s ~~working~~determined ~~capital~~that ~~loans~~a portion ~~exceeded~~of ~~its~~the ~~borrowing~~tanker ~~base~~cars byunder ~~$5,280,368 and~~ the ~~Company~~non-cancelable ~~was~~lease will not ~~able~~ tobe ~~repay~~utilized ~~that~~and ~~amount~~have tono ~~WestLB~~future benefit. Accordingly, the Company ~~requested~~recorded ~~and obtained~~ a ~~waiver~~liability ~~of the~~and ~~loan~~a ~~agreement~~charge ~~covenants~~to ~~requiring~~income itin tothe ~~repay~~amount $745,000 for the ~~difference~~future ~~between~~lease ~~its~~payments ~~working~~associated ~~capital~~with ~~loan outstanding~~the ~~and~~unused ~~its~~tanker ~~borrowing base~~cars. ~~This~~The ~~waiver~~remaining accrual ~~was~~as ~~part~~ of ~~the~~December 31, ~~amended~~2010 ~~loan~~and ~~agreements dated June~~September 730, 2010 was $37,250 and $149,000, respectively.

~~Subordinated~~NOTE ~~Debt~~6. ~~Facility~~DEBT FINANCING ARRANGEMENTS

The Company has a subordinated debt financing arrangement pursuant to which the Mitchell County Development Authority issued $10,000,000 of revenue bonds that were placed with Wachovia Bank. The Company signed a promissory note, which is collateralized by the Company’s ~~assets~~long-term ~~and the proceeds were placed in a Bond Trustee account with Regions Bank. The interest rate for this note is 7.5%. The Company is required to maintain a~~ debt ~~service~~outstanding ~~reserve~~as ~~with the Bond Trustee~~ of at least $1,180,000. This note is subordinated to the West LB debt agreement, which currently prohibits the Company from making any debt service payments. As a result, the Bond Trustee made the annual interest and principal payment to the bond holders of approximately $1,339,000 in December ~~2009 from~~31, ~~the~~2010 ~~debt service reserve. The funds held in the Bond Trustee account are classified as non-current restricted cash~~ and ~~cash equivalents in the Company’s consolidated balance sheet. The subordinated debt is a 15~~September ~~year note (maturity in December 2011) with annual principal payments each December due to the bond holders in 2010 of $635~~30,~~000,~~ ~~in 2011 of $530,000, in 2012 of $570,000, in 2013 of $615,000, in 2014 of $660,000 and $6,240,000 thereafter. The $635,000 due in~~ 2010 ~~has been~~is ~~classified~~summarized as ~~long-term as any payment will come from the debt service fund due to the~~follows: ~~subordination.~~

Subordinated Fagen Note


	December 31,			September 30,
	2010			2010

West LB Term Loan, variable interest rates from 4.00% – 4.28%	$	90,600,000		$	92,200,000
Subordinated Fagen note, 4% through June 30, 2010 and 8% thereafter		3,977,545			3,977,545
Subordinated debt facility, interest rate of 7.5%, described below		8,615,000			9,250,000
Subordinated note payable to Mitchell County Development Authority, as described below		1,070,285			—
Notes payable John Deere Credit, interest rate of 5.3%, described below		119,242			136,244

		104,382,072			105,563,789
Less current portion		(104,382,072	)		(11,081,911	)

	$	—		$	94,481,878

On June 30, 2009, SWGE entered into a subordinated promissory note agreement in the amount of $3,977,545 due Fagen, Inc., a related party, for the remaining design-build contract balance. The note bears interest at 4% through June 30, 2010 and 8% thereafter through maturity on June 30, 2011. Interest is payable quarterly. The first principal payment of $500,000 was due as of September 30, 2009 and annual principal payments of $1,738,772 are due June 30, 2010 and June 30, 2011. However, this note is subordinated to the West LB debt agreement, which currently prohibits the Company from making these principal payments on the schedule described above, based on the amortization of the West LB debt, the earliest any payment can be made is in 2014, and as such the $3,977,545 is being classified as long-term.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY ~~Notes~~NOTES toTO ~~Consolidated~~CONSOLIDATED ~~Financial~~FINANCIAL ~~Statements~~STATEMENTS (~~Unaudited~~UNAUDITED)

~~Other~~West ~~Notes~~LB ~~Payable~~Credit Arrangement — Senior Debt

~~The~~SWGE ~~Company~~entered ~~financed~~into ~~the~~a ~~acquisition~~senior ofcredit ~~certain~~agreement ~~equipment~~that ~~through~~provided ~~two~~for ~~identical~~(1) a ~~notes~~construction ~~payable~~loan tofacility in ~~John~~an ~~Deere~~aggregate ~~Credit.~~amount ~~The~~of ~~notes~~up ~~amortize~~to ~~over~~$100,000,000, ~~four~~which ~~years~~converted ~~(maturity~~to ina ~~August 2012)~~term ~~with~~loan ~~monthly principal~~on ~~and~~February 20, ~~interest~~2009 (“Conversion ~~payments~~Date”) ~~and~~that ~~are~~matures ~~secured~~on byFebruary 20, 2015 (the ~~equipment.~~“Final ~~The~~Maturity ~~interest~~Date”); ~~rate~~and ~~is 5.3%. The~~(2) a ~~combined~~working ~~outstanding~~capital ~~balance~~loan onin ~~these~~an ~~two~~aggregate ~~notes~~amount ~~payable~~of isup ~~$153,022~~to ~~and~~ $~~202~~15,~~050~~000,000 aswhich ofmatures ~~June~~February 3020, 2011. ~~2010~~The primary purpose of the credit facility was to finance the construction and ~~September 30,~~operation ~~2009,~~of ~~respectively~~the Company’s ethanol plant.

~~NOTE~~The 6principal amount of the term loan facility is payable in quarterly payments of $1,600,000, which began September 30, 2009, and the remaining principal amounts are fully due and payable on February 20, 2015. ~~FAIR~~Interest ~~VALUE~~is ~~MEASUREMENTS~~payable quarterly. SWGE has the option to select between two floating interest rate loans under the terms of the senior credit agreement: Base Rate Loans bear interest at the Administrative Agent’s base rate (which is the higher of the federal funds effective rate plus 0.50% and the Administrative Agent’s prime rate) plus 2.75% per annum. Eurodollar Loans bear interest at LIBOR plus 3.75%. The Company has entered into an interest rate swap with WestLB to effectively convert a portion of the variable rate interest into a fixed rate, with the LIBOR component fixed at 4.04% (See Note 1).

~~The~~Under ~~Company’s~~the ~~balance~~terms ~~sheet~~of ~~contains~~the ~~derivative~~senior ~~financial~~credit ~~instruments~~agreement, ~~and~~SWGE ~~marketable~~has ~~securities that~~agreed ~~are~~to ~~recorded~~pay ata ~~fair~~quarterly ~~value~~commitment onfee equal ato ~~recurring basis~~.20% ~~The~~per ~~Company~~annum ~~adopted~~on the ~~fair~~unused ~~value measurements~~portion ~~and~~of ~~disclosures~~the ~~standard,~~working ~~which~~capital ~~defines~~loan. aSWGE’s ~~single~~obligations ~~definition~~under the ofsenior ~~fair~~credit ~~value,~~agreement ~~together with~~are asecured ~~framework~~by ~~for~~a ~~measuring~~first-priority ~~it,~~security ~~and~~interest ~~requires~~in ~~additional~~all ~~disclosure~~of ~~about~~ the Company’s ~~use~~assets, ofincluding ~~fair~~its ~~value to~~equity ~~measure~~interest ~~assets~~in ~~and liabilities~~SWGE.

The ~~fair~~senior ~~value~~credit ~~hierarchy~~agreement ~~prioritizes~~also required SWGE to enter into an accounts agreement among SWGE, Amarillo National Bank, as the ~~inputs~~Accounts ~~used~~Bank inand ~~valuation~~Securities ~~techniques~~Intermediary, and WestLB as the collateral agent and administrative agent. Among other things, the accounts agreement establishes certain special, segregated project accounts and establishes procedures for the deposits and withdrawals of funds into ~~three~~these ~~levels~~accounts. asSubstantially all cash of SWGE is required to be ~~follows:~~deposited into the project accounts subject to security interests to secure obligations in connection with the senior credit. Funds are released from the project accounts in accordance with the terms of the accounts agreement.

•As ~~Level~~of 1December 31, ~~Observable~~2010 ~~inputs — unadjusted quoted prices in active markets for identical assets~~ and ~~liabilities;~~September 30, •2010, ~~Level~~the 2Company ~~Observable~~had ~~inputs~~drawn ~~other~~$14,699,991 ~~than~~on ~~quoted prices included in Level 1 that are observable for~~ the $13,784,129 ~~asset~~working orcapital ~~liability through corroboration with market data; and • Level 3 Unobservable inputs — includes amounts derived from valuation models where one or more significant inputs are unobservable~~loan.

~~The~~On ~~Company~~June 7, ~~has~~2010, ~~classified~~the ~~its~~Company ~~investments~~executed ~~in marketable securities and derivative instruments into these levels depending on~~ the ~~inputs~~Sixth ~~used~~amendment to ~~determine~~its ~~their~~Senior ~~fair~~Credit ~~values.~~Agreement ~~The~~and ~~Company’s investments~~its inFourth ~~marketable~~amendment ~~securities~~to ~~consist~~its ofAccounts ~~money~~Agreement ~~market~~with ~~funds~~WestLB. ~~restricted~~Pursuant byto the ~~bond~~amended ~~holders~~agreements, ~~which are~~the ~~based~~Company onis ~~quoted~~required ~~prices~~to ~~and~~maintain ~~are~~a ~~designated~~certain aslevel ~~Level 1. The Company’s derivative instruments consist~~ of ~~commodity~~working ~~positions and an interest rate swap~~capital. ~~The~~Pursuant ~~fair~~to ~~value~~the ofamended loan agreements, the ~~commodity~~Company ~~positions~~is ~~are~~required ~~based~~to onhave ~~quoted~~a ~~prices~~working oncapital ~~the~~deficit ~~commodity exchanges~~of ~~and~~($9,000,000) ~~are~~or ~~designated~~less as ~~Level~~of September 30, 12010, and ~~the~~($7,000,000) ~~fair~~or ~~value~~less as of ~~the~~December 31, ~~interest~~2010. ~~rate~~Subsequent ~~swap~~to ~~is based on~~December 31, ~~quoted~~2010, ~~prices~~the onworking ~~similar~~capital ~~assets~~deficit orrequirement ~~liabilities~~will inremain ~~active~~at ~~markets~~($7,000,000) ~~and~~for ~~discounts~~the toterm ~~reflect~~of ~~potential credit~~the ~~risk to lenders and are designated as Level 2~~loan.

~~The~~In ~~following~~the ~~table~~event ~~summarizes~~the ~~fair~~Company ~~value~~is ~~measurements~~unable byto meet the level atof ~~June~~working capital required under the amended loan agreements the Company will be assessed a five percent (5%) interest fee on the outstanding loans for any quarter for which it is not in compliance. This fee payment is in addition to the interest the Company is required to pay on its outstanding debt pursuant to the original loan agreements. This additional interest fee will be accrued and due February 2015, the final maturity date for the Company’s outstanding term loan with West LB. Furthermore, and regardless of whether the Company has maintained the required level of working capital, the Company will be required to make an additional quarterly principal payment of $150,000 toward its outstanding working capital loan balance for each quarter beginning September 30, 2010. ~~(in~~This ~~thousands):~~arrangement is distinct from the borrowing base formula and borrowing base certificates previously utilized to monitor compliance with the Company’s working capital loan. This amendment also removes the borrowing base financial covenant from the terms of the loan, thereby removing the requirement for waivers.

	Level 1		Level 2		Level 3		Total
Liabilities:
Derivative instruments:
Interest rate swap	$	—	$	858	$	—	$	858
Total liabilities	$	—	$	858	$	—	$	858

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY ~~Notes~~NOTES toTO ~~Consolidated~~CONSOLIDATED ~~Financial~~FINANCIAL ~~Statements~~STATEMENTS (~~Unaudited~~UNAUDITED)

The ~~following~~Company ~~table~~did ~~summarizes~~not ~~fair~~meet ~~value~~the ~~measurements~~working bycapital ~~level~~deficits atof ($7,000,000) and ($9,000,000) required as of December 31, 2010 and September 30, ~~2009~~2010, ~~(in~~respectively. The resulting penalty fees of ~~thousands):~~approximately $1,375,000 per quarter were charged to interest expense as of December 31, 2010 and as of September 30, 2010 and are included as a current liabilities.

	Level 1		Level 2		Level 3		Total
Assets:
Investments in marketable securities, included in restricted cash	$	1,597	$	—	$	—	$	1,597
Total assets	$	1,597	$	—	$	—	$	1,597
Liabilities:
Derivative instruments:
Commodity positions	$	61	$	—	$	—	$	61
Interest rate swap		—		1,772		—		1,772
Total liabilities	$	61	$	1,772	$	—	$	1,833

On February 1, 2011, SWGE filed a voluntary petition for relief (“Bankruptcy Filing”) under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Georgia. The Bankruptcy Filing is a result of the Company’s ongoing liquidity constraints and the willingness of the Company’s lending group to work with SWGE to restructure its financing facility. SWGE’s Bankruptcy Filing constituted an event of default under the Company’s loan agreement and related documents. Under the terms of the loan agreement, the Bankruptcy Filing caused the Lenders’ term loan commitments and working capital loan commitments to be terminated automatically, and the principal amount of the loans and all other obligations then outstanding together with accrued interest thereon and any unpaid accrued fees owed to Lenders automatically became immediately due and payable. However, pursuant to the Bankruptcy Code, this default provision and the acceleration provisions applicable to the debt obligations described above are generally unenforceable, and any remedies that may exist related to such default are stayed under section 362 of the Bankruptcy Code. Furthermore, WestLB has not accelerated payment of SWGE’s loans pursuant to the Bankruptcy Filing. For financial reporting purposes, the full amount of the term loan and working capital loan are presented as current liabilities.

~~Certain~~Subordinated ~~financial~~Debt ~~assets and financial liabilities are measured at fair value on a nonrecurring~~Facility basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a nonrecurring basis were not significant at June 30, 2010.

~~NOTE~~The Company has a subordinated debt financing arrangement pursuant to which the Mitchell County Development Authority issued $10,000,000 of revenue bonds that were placed with Wachovia Bank. The Company signed a promissory note, which is collateralized by the Company’s assets and the proceeds were placed in a Bond Trustee account with Regions Bank. The interest rate for this note is 7.5%. The ~~COMMITMENTS~~Company ~~AND~~is ~~CONTINGENCIES~~required to maintain a debt service reserve with the Bond Trustee of at least $1,180,000. This note is subordinated to the West LB debt agreement, which currently prohibits the Company from making any debt service payments. As a result, the Bond Trustee made the annual interest and principal payment to the bond holders of approximately $1,339,000 in December 2009 from the debt service reserve. The annual principal and interest payment due to the bond holders for December 2010 was funded by the Mitchell County Development Authority to the extent funds were not available in the debt service reserve account. The Company signed a subordinated promissory note to Mitchell County in the amount of $1,070,285 in exchange for this funding. The note is due December 1, 2021 and bears interest at 7.5%. Any remaining funds held in the Bond Trustee account are classified as non-current restricted cash and cash equivalents in the Company’s consolidated balance sheet. The subordinated debt is a 15 year note with annual principal payments each December due to the bond holders in 2011 of $530,000, in 2012 of $570,000, in 2013 of $615,000, in 2013 of $660,000, in 2015 of $710,000 and $6,240,000 thereafter. Due to the current financial situation and bankruptcy proceeding, this debt has been classified as current.

~~Liquidity~~Subordinated Fagen Note

~~Our~~On ~~liquidity~~June 30, ~~results~~2009, ofSWGE ~~operations~~entered ~~and~~into ~~financial~~a ~~performance~~subordinated ~~will~~promissory benote ~~impacted~~agreement byin ~~many~~the ~~variables,~~amount of ~~including~~$3,977,545 ~~the~~due ~~market~~Fagen, ~~price~~Inc., ~~for~~a ~~commodities~~related ~~such as~~party, ~~but~~for ~~not~~the ~~limited~~remaining ~~to,~~design-build ~~corn,~~contract ~~ethanol~~balance. ~~and other~~The ~~energy~~note ~~commodities,~~bears asinterest ~~well~~at as4% ~~the~~through ~~market~~June 30, ~~price~~2010 ~~for~~and ~~any~~8% ~~co-products~~thereafter ~~generated~~through bymaturity ~~the~~on ~~facility and~~June 30, ~~the~~2011. ~~cost~~Interest ofis ~~labor~~payable ~~and~~quarterly. ~~other~~The ~~operating~~first ~~costs.~~principal ~~Assuming~~payment ~~future~~of ~~relative~~$500,000 ~~price~~was ~~levels~~due ~~for~~as ~~corn,~~of ~~ethanol~~September 30, ~~and~~2009 ~~distillers~~along ~~grains~~with ~~remain~~an ~~consistent~~annual ~~with~~principal ~~the~~payment ~~relative~~of ~~price~~$1,738,772 ~~levels~~that aswas ofdue June 30, 2010,. ~~the~~The ~~Company~~final ~~expects~~payment ~~operations~~of to$1,738,772 ~~generate~~is ~~adequate~~due ~~cash~~June 30, ~~flows to maintain operations~~2011. This ~~assumption~~ ~~requires~~note ~~the~~is ~~Company~~subordinated to bethe ~~able~~West toLB debt ~~sell~~agreement, ~~all~~which ~~the~~currently ~~ethanol~~prohibits ~~that~~the isCompany ~~produced~~from atmaking the ~~plant. The~~principal ~~Company~~and ~~expects~~interest payments toon bethe ~~able~~schedule todescribed ~~satisfy~~above. ~~our~~The ~~cash~~note ~~requirements~~of ~~for~~$3,977,545 ~~the~~is ~~next~~included ~~12 months~~in ~~using~~current ~~only~~maturities ~~the~~of ~~revolving~~long-term ~~line~~debt ofper ~~credit~~the agreement. However, ~~senior~~the ~~credit~~earliest ~~facility,~~any ~~and~~payment ~~earnings~~will ~~from~~likely ~~operations~~be made is in 2014.

Other Notes Payable

The Company financed the acquisition of certain equipment through two identical notes payable to John Deere Credit. The notes amortize over four years (maturity in August 2012) with monthly principal and interest payments and are secured by the equipment. The interest rate is 5.3%. The combined outstanding balance on these two notes payable is $119,242 and $136,244 as of December 31, 2010 and September 30, 2010, respectively. Due to the current financial situation and bankruptcy proceeding, this debt has been classified as current.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilized certain assumptions that participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observable inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:


		• Level 1 Observable inputs —		unadjusted quoted prices in active markets for identical assets and liabilities;

		• Level 2 Observable inputs —		other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data; and

		• Level 3 Unobservable inputs —		includes amounts derived from valuation models where one or more significant inputs are unobservable.

The Company has classified its investments in marketable securities and derivative instruments into these levels depending on the inputs used to determine their fair values. The Company’s investments in marketable securities consist of money market funds restricted by the bond holders which are based on quoted prices and are designated as Level 1. The Company’s derivative instruments consist of commodity positions. The fair value of the commodity positions are based on quoted prices on the commodity exchanges and are designated as Level 1 and the fair value of the interest rate swap is based on quoted prices on similar assets or liabilities in active markets and discounts to reflect potential credit risk to lenders and are designated as Level 2.

The following table summarizes fair value measurements by level at December 31, 2010:


	Level 1	Level 2		Level 3	Total

Liabilities:
Derivative instruments:
Interest rate swap	$	$	420,967	$	$	420,967


Total liabilities	$	$	420,967	$	$	420,967

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes fair value measurements by level at September 30, 2010:


	Level 1		Level 2		Level 3		Total
Assets:
Investments in marketable securities, included in restricted cash	$	258,476	$	—	$	—	$	258,476


Total assets	$	258,476	$	—	$	—	$	258,476


Liabilities:
Derivative instruments:
Interest rate swap	$	—	$	657,072	$	—	$	657,072


Total liabilities	$	—	$	657,072	$	—	$	657,072

Certain financial assets and liabilities are measured at fair value on a non-recurring basis; that is the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment.

NOTE 8. SUBSEQUENT EVENTS

On February 1, 2011, SWGE, the Company’s wholly owned subsidiary, filed a voluntary petition for relief (collectively, the “Bankruptcy Filing”) under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Middle District of Georgia (the “Bankruptcy Court”). SWGE’s Chapter 11 case (the “Case”) is being administered by the Bankruptcy Court as Case No. 11-10145. SWGE is continuing to operate its business and manage its assets as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. A group of SWGE’s secured bank lenders have agreed to support the Company’s on-going restructuring efforts with a $10 million debtor-in-possession financing facility.

The Bankruptcy Filing is a result of SWGE’s ongoing liquidity constraints and the willingness of SWGE’s lending group to work with SWGE to restructure its financing facility. SWGE’s Bankruptcy Filing constituted an event of default under SWGE’s loan agreement and related documents with WestLB AG, New York Branch, AgCountry Farm Credit Services, FCLA, AgFirst Farm Credit Bank, Bank of Camilla, CoBank, ACB, Farm Credit Bank of Texas, Northwest Farm Credit Services, PCA, and Planters and Citizens Bank (collectively referred to herein as “Lenders”). WestLB AG, New York Branch (“WestLB”) is the servicing agent for the loans evidenced by SWGE’s loan agreement and related documents with its Lenders. The primary loan agreement is the Senior Credit Agreement (the “Loan Agreement”) dated November 20, 2007. The Loan Agreement initially provided SWGE with a construction loan of approximately $100 million, which was subsequently converted to a term loan, and a $15 million working capital loan (the “Loans”). The Loan Agreement and its amendments contain various covenants and restrictions with which SWGE is obligated to comply. The Loans are secured by a mortgage and security interest granted by SWGE in favor of the Lenders in all of SWGE’s real property and personal property. Pursuant to a Pledge and Security Agreement also dated November 20, 2007, the Company pledged its equity interest in SWGE to the Lenders as additional collateral for the Loans to SWGE. As of February 1, 2011 SWGE’s outstanding obligations to the Lenders were approximately $107 million. The parent company has net assets of approximately $340,000 as of December 31, 2010, excluding its investment in SWGE. The remaining net assets of the Company on a consolidated basis are within the subsidiary SWGE, whose stock has been pledged as collateral to the Lenders.

FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Under the terms of the Loan Agreement, the Bankruptcy Filing caused the Lenders’ term loan commitments and working capital loan commitments to be terminated automatically, and the principal amount of the loans and all other obligations then outstanding together with accrued interest thereon and any unpaid accrued fees owed to Lenders automatically became immediately due and payable. However, pursuant to the Bankruptcy Code, this default provision and the acceleration provisions applicable to the debt obligations described above are generally unenforceable, and any remedies that may exist related to such default are stayed under section 362 of the Bankruptcy Code. Furthermore, WestLB has not accelerated payment of SWGE’s loans pursuant to the Bankruptcy Filing. The Company and SWGE have been in communication with WestLB, which has indicated that it will defer further action regarding SWGE’s Loan Agreement compliance, and has agreed to work with SWGE in support of SWGE’s on-going reorganization efforts in the Chapter 11 proceeding.

American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (“SOP 90-7”), which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, SOP 90-7 does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the consolidated statements of operations beginning in the quarter ending March 31, 2011. The consolidated balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by the plan must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by reorganization items must be disclosed


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

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three ~~and nine~~ month ~~periods~~ period ended ~~June~~December 3031, 2010, compared to the same period of the prior fiscal year. This ~~discussion~~ discussion should be read in conjunction with the consolidated financial statements and the Management’s Discussion and Analysis section for the fiscal year ended September 30, ~~2009~~2010, included in the Company’s Annual Report on Form 10-K.

Cautionary Statements Regarding Forward-Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our future operations and actions. In some cases you can identify forward-looking statements by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the following factors:

•

Our ability to continue as a going concern;

•

Our ability to operate pursuant to the terms and conditions of any debtor-in-possession (DIP) financing order entered by the Bankruptcy Court in connection with the Bankruptcy Cases;

•

Our ability to obtain Court approval with respect to motions in the Chapter 11 proceedings prosecuted by us from time to time, including approval of motions relating to the priority of the lender’s security interest under any DIP financing;

•

Our ability to obtain and maintain normal terms with vendors and service providers;

•

Our ability to maintain contracts that are critical to our operations;

•

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

•

Volatility of corn, natural gas, ethanol, unleaded gasoline, distillers grains and other commodities prices;

•

Limitations and restrictions contained in the instruments and agreements governing our indebtedness;

•

Our ability to generate sufficient liquidity to fund our debt service requirements and capital expenditures;

•

Our ability to comply with our loan covenants and to obtain waivers from our lender for any non-compliance with those covenants;

• Our ability to ~~secure the financing we require to~~ maintain liquidity and operate our business;

•

The results of our hedging transactions and other risk management strategies;

•

Our inelastic demand for corn, as it is the only available feedstock for our plant;

•

Changes in the environmental regulations or in our ability to comply with the environmental regulations that apply to our plant site and our operations;

•

The effects of mergers or consolidations in the ethanol industry;

•

Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;

•

Changes in the availability of credit to support the level of liquidity necessary to implement our risk management activities;

•

Changes in or elimination of federal and/or state laws (including the elimination of any federal and/or state ethanol tax incentives);

•

Overcapacity within the ethanol industry;

•

Changes and advances in ethanol production technology that may make it more difficult for us to compete with other ethanol plants utilizing such technology;

•

Our reliance on key management personnel;

•

The development of infrastructure related to the sale and distribution of ethanol; and

•

Competition in the ethanol industry and from other alternative fuel additives.

~~Our actual results or actions could and likely will differ materially from those anticipated~~18 in the forward-looking statements for many reasons, including the reasons described in this report. We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in this report. We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Available Information

Information about us is also available at our website at ~~http://~~www.firstunitedethanol.com, ~~under~~ under “~~SEC~~Investor ~~Compliance~~Relations,” which includes links to reports we have filed with the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this Quarterly Report on Form 10-Q.

Business Overview

First United Ethanol, LLC (“we,” “us,” “FUEL,” “First United,” or the “Company”) was formed as a Georgia limited liability company on March 9, 2005, for the purpose of raising capital to develop, construct, own and operate a 100 million gallon per year ethanol plant near Camilla, Georgia. WeIn ~~completed~~November 2007, ~~construction~~the ofCompany’s ~~our~~wholly ~~ethanol~~owned ~~plant~~subsidiary, inSouthwest ~~October 2008~~Georgia ~~and~~Ethanol, ~~plant operations~~LLC ~~commenced~~(“SWGE”) onwas ~~October 10,~~formed ~~2008.~~in Weconjunction ~~are~~with ~~currently~~the indebt ~~our~~financing ~~second~~agreement ~~year~~with ofWest ~~plant operations~~LB. InFirst ~~our~~United ~~first~~Ethanol, ~~year~~LLC oftransferred ~~plant~~the ~~operations~~majority weof ~~processed~~its ~~approximately~~assets ~~29 million~~and ~~bushels~~liabilities ofto ~~corn~~Southwest ~~producing~~Georgia 81Ethanol, ~~million~~LLC. ~~gallons~~We ofcompleted ~~denatured~~construction ~~fuel~~of ~~grade~~our ethanol, ~~214,000~~plant ~~tons~~in ofOctober 2008 ~~dried~~and ~~distillers~~plant ~~grains~~operations ~~and~~commenced on 7October 10,~~000 tons~~ ~~of wet distillers grains~~2008.

Our revenues are derived from the sale and distribution of our ethanol and distillers grains primarily in the southeastern United States. Our ethanol plant currently operates at or near its nameplate capacity. A significant percentage of our corn is supplied to us by train and is originated primarily from the eastern Corn Belt; however, we are able to originate an increasing percentage of our corn from local producers. Currently, approximately 9398% of our ethanol is being shipped out of our facility by truck to local and regional blending terminals. Additionally, as of the date of this report, approximately ~~98.5~~100% of our dried distillers grains are being shipped out of our facility by truck to local livestock and poultry operations.

~~There~~Recent ~~have been a number of recent developments in legislation that impacts the ethanol~~Events industry. One such development concerns the federal Renewable Fuels Standard (RFS). The ethanol industry is benefited by the RFS which requires that a certain amount of renewable fuels must be used in the United States each year. In February 2010, the EPA issued new regulations governing the RFS. These new regulations have been called RFS2. RFS2 as adopted by the EPA provides that corn-based ethanol from modern ethanol production processes does meet the definition of a renewable fuel under the RFS program.

InChapter 11 ~~addition to RFS2 which included greenhouse gas reduction requirements, in 2009, California~~Bankruptcy passed a Low Carbon Fuels Standard (LCFS). The California LCFS requires that renewable fuels used in California must accomplish certain reductions in greenhouse gases which is measured using a lifecycle analysis, similar to RFS2. Management believes that this lifecycle analysis is based on unsound scientific principles that unfairly disadvantages corn based ethanol. If our industry is unable to supply ethanol to California, it could significantly reduce demand for the ethanol we produce. Several lawsuits have been filed by industry groups challenging the California LCFS.

~~Ethanol~~On ~~production~~February 1, in2011, ~~the~~SWGE, ~~United~~a ~~States~~wholly isowned ~~benefited~~subsidiary byof ~~various~~the ~~tax~~Company, ~~incentives.~~filed ~~The~~a ~~most~~voluntary ~~significant~~petition offor ~~these~~relief ~~tax~~(collectively, ~~incentives is~~ the ~~federal~~“Bankruptcy ~~Volumetric Ethanol Excise Tax Credit (VEETC~~Filing”)~~. VEETC~~ ~~provides~~under achapter ~~volumetric~~11 ~~ethanol excise tax credit~~ of 45the ~~cents~~United ~~per gallon of ethanol blended~~States ~~with~~Bankruptcy ~~gasoline.~~Code ~~VEETC~~(the is“Bankruptcy ~~scheduled~~Code”) toin ~~expire~~the onUnited ~~December 31,~~States ~~2010.~~Bankruptcy IfCourt ~~this~~for ~~tax~~the ~~credit is not~~Middle ~~renewed,~~District itof ~~likely~~Georgia ~~would~~(the ~~have~~“Bankruptcy aCourt”). ~~negative~~SWGE’s ~~impact~~chapter on11 case (the ~~price~~“Case”) ofis ~~ethanol~~being administered ~~and~~by ~~demand for ethanol in~~ the ~~marketplace.~~Bankruptcy ~~The~~Court ~~current~~as ~~debate~~Case ~~in the U~~No.S 11-10145. ~~Congress,~~SWGE ~~about~~is ~~deficit~~continuing ~~spending~~to ~~and~~operate ~~energy policy~~its ~~indicates~~business ~~that~~and itmanage isits ~~possible~~assets ~~that~~as ~~VEETC~~a ~~may~~debtor-in-possession ~~not~~under ~~be renewed. If~~ the ~~VEETC~~jurisdiction ~~that~~of ~~benefits~~ the Bankruptcy ~~ethanol~~Court ~~industry~~and isin ~~allowed~~accordance towith ~~expire,~~the itapplicable ~~could~~provisions ~~negatively~~of ~~impact~~the ~~demand~~Bankruptcy ~~for~~Code ~~ethanol~~ and ~~may~~orders ~~harm~~of the ~~our~~Bankruptcy ~~financial condition~~Court.

16The Bankruptcy Filing is a result of SWGE’s ongoing liquidity constraints and the willingness of SWGE’s lending group to work with SWGE to restructure its financing facility. SWGE’s Bankruptcy Filing constituted an event of default under SWGE’s loan agreement and related documents with WestLB AG, New York Branch, AgCountry Farm Credit Services, FCLA, AgFirst Farm Credit Bank, Bank of Camilla, CoBank, ACB, Farm Credit Bank of Texas, Northwest Farm Credit Services, PCA, and Planters and Citizens Bank (collectively referred to herein as “Lenders”). WestLB AG, New York Branch (“WestLB”) is the servicing agent for the loans evidenced by SWGE’s loan agreement and related documents with its Lenders. The primary loan agreement is the Senior Credit Agreement (the “Loan Agreement”) dated November 20, 2007. The Loan Agreement initially provided SWGE with a construction loan of approximately $100 million, which was subsequently converted to a term loan, and a $15 million working capital loan (the “Loans”). The Loan Agreement and its amendments contain various covenants and restrictions with which SWGE is obligated to comply. The Loans are secured by a mortgage and security interest granted by SWGE in favor of the Lenders in all of SWGE’s real property and personal property. Pursuant to a Pledge and Security Agreement also dated November 20, 2007, the Company pledged its equity interest in SWGE to the Lenders as additional collateral for the Loans to SWGE. As of February 1, 2011 SWGE’s outstanding obligations to the Lenders were approximately $107 million.

~~Results~~Under the terms of ~~Operations~~the ~~for~~Loan Agreement, the ~~Three~~Bankruptcy ~~Months~~Filing ~~Ended~~caused ~~June 30~~the Lenders’ term loan commitments and working capital loan commitments to be terminated automatically, ~~2010~~and the principal amount of the loans and ~~2009~~all other obligations then outstanding together with accrued interest thereon and any unpaid accrued fees owed to Lenders automatically became immediately due and payable. However, pursuant to the Bankruptcy Code, this default provision and the acceleration provisions applicable to the debt obligations described above are generally unenforceable, and any remedies that may exist related to such default are stayed under section 362 of the Bankruptcy Code. Furthermore, WestLB has not accelerated payment of SWGE’s loans pursuant to the Bankruptcy Filing. The Company and SWGE have been in communication with WestLB, which has indicated that it will defer further action regarding SWGE’s Loan Agreement compliance, and has agreed to work with SWGE in support of SWGE’s on-going reorganization efforts in the chapter 11 proceeding.

~~The following table shows the result of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues~~ Debtor-in-Possession ~~our statement of operations for~~Financing ~~the three months ended June 30, 2010 and 2009:~~

	Three Months Ended						Three Months Ended
	June 30, 2010						June 30, 2009
	(Unaudited)						(Unaudited)
Statement of Operations Data	Amount			Percent			Amount			Percent
Revenues	$	43,553,273			100.0	%	$	44,061,519			100.0	%
Cost of Goods Sold		44,968,975			103.3	%		46,262,851			105.0	%
Gross (Loss)		(1,415,702	)		(3.3	)%		(2,201,332	)		(5.0	)%
General and Administrative Expenses		908,950			2.1	%		1,192,571			2.7	%
Operating (Loss)		(2,324,652	)		(5.3	)%		(3,393,903	)		(7.7	)%
Other Expense		(1,799,891	)		(4.1	)%		(2,594,264	)		(5.9	)%
Net (Loss)	$	(4,124,543	)		(9.5	)%	$	(5,988,167	)		(13.6	)%

On February 4, 2011, SWGE entered into a Debtor-In-Possession Credit Agreement (the “DIP Credit Agreement”) with WestLB, AgFirst Farm Credit Bank and Farm Credit Bank of Texas (collectively the “DIP Lenders”) for a debtor-in-possession revolving credit facility. WestLB is also serving as the administrative agent and collateral agent under the DIP Credit Agreement. On February 23, 2011 the Bankruptcy Court entered a final order approving the DIP Credit Agreement.

The DIP Credit Agreement provides for commitments to provide debtor-in-possession financing to SWGE in the maximum amount of $10,000,000 (the “DIP Loan”), subject to the terms and conditions set forth in the DIP Credit Agreement and related documents. The DIP Loan may be used to fund, subject to limitations set forth in the DIP Credit Agreement, the financing of SWGE’s post-petition working capital, general corporate purposes, the administration of the Case and such pre-petition expenses as are approved by the Bankruptcy Court and paid in accordance with the applicable budget. The obligations under the terms of the DIP Credit Agreement and related documents constitute “superpriority” claims under the Bankruptcy Code and are secured by a lien in favor of the DIP Lenders on collateral constituting substantially all of SWGE’s assets.

The DIP Loan matures six months from the date the DIP Credit Agreement was executed unless it becomes due earlier by reason of acceleration or pursuant to certain procedural triggers connected to the Case. SWGE’s debt obligations outstanding under the DIP Credit Agreement shall generally accrue interest at a rate equal to the LIBOR rate plus 9.0 percent per annum. As of the date the DIP Credit Agreement was executed by the parties, the calculated annualized interest rate was approximately 12%. SWGE will pay to WestLB, as the administrative agent, and to the DIP Lenders, for their own account, certain fees, including a facility fee, a structuring fee as well as a monthly commitment fee.

Under the DIP Credit Agreement, SWGE is subject to certain affirmative and negative covenants, an obligation to deliver financial statements and operating budgets at specified intervals, and other terms and conditions. The failure to meet certain covenants or the occurrence of other specified events could constitute an event of default and may result in the DIP Loan becoming immediately due and payable.

The foregoing description of the DIP Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the DIP Credit Agreement and related documents, which have been filed as exhibits to this report.

Deregistration

We are currently in the process of requesting approval from the Securities and Exchange Commission to engage in a reclassification and reorganization of the Company’s membership units. The proposed transaction will provide for the reclassification of the Company’s membership units into three separate and distinct classes.

If the proposed reclassification is approved by the Securities and Exchange Commission as well as the Company’s members, we expect that each member of record holding 100 or more units will receive one Class A unit for each common equity unit held by such unit holder prior to the reclassification; each member of record holding 21 to 99 units will receive one Class B unit for each common equity unit held by such unit holder immediately prior to the reclassification; and each member of record holding 20 or fewer units will receive one Class C unit for each common equity unit held by such unit holder immediately prior to the reclassification.

If the Company’s members approve the requisite amendment to the Company’s operating agreement and the reclassification is implemented, the Company anticipates having fewer than 300 unit holders of record of its common equity units and fewer than 500 unit holders of record of each of the additional classes, which would enable the Company to voluntarily terminate the registration of its units under the Securities and Exchange Act of 1934.

We expect that the classes of units will be distinguished from one another based on voting rights. If the Company’s members approve the proposed amendment to the Company’s operating agreement and the reclassification is implemented, we expect that Class A unit holders would be entitled to vote on all matters for which unit holder approval is required under the Company’s operating agreement or state law; Class B unit holders would be entitled to vote on the election of the Company’s governors and the voluntary dissolution of the Company; and Class C unit holders would be entitled to vote only on the voluntary dissolution of the Company. With respect to potential future dividends, each membership unit will receive its equal portion of a declared dividend, regardless of its class.

Results of Operations for the Three Months Ended December 31, 2010 and 2009

The following table shows the result of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the three months ended December 31, 2010 and 2009:


	Three Months Ended						Three Months Ended
	December 31, 2010						December 31, 2009
	(Unaudited)						(Unaudited)
Statement of Operations Data	Amount			Percent			Amount			Percent
Revenues	$	71,872,501			100.00	%	$	57,434,517			100.00	%
Cost of Goods Sold	$	69,249,844			96.35	%	$	47,490,413			82.69	%
Gross Profit (Loss)	$	2,622,657			3.65	%	$	9,944,104			17.31	%
General and Administrative Expenses	$	1,023,759			1.43	%	$	1,190,165			2.07	%
Operating Income (Loss)	$	1,589,898			2.22	%	$	8,753,939			15.24	%
Other (Expense)	$	(6,675,574	)		(9.29	)%	$	(1,792,140	)		(3.12	)%
Net Income(Loss)	$	(5,076,676	)		(7.06	)%	$	6,961,799			12.12	%

The following table shows the sources of our revenue for the three months ended December 31, 2010 and 2009:


	Three Months Ended					Three Months Ended
	December 31, 2010					December 31, 2009
	(2011 Fiscal Year)					(2010 Fiscal Year)
Revenue Source	Amount		% of Revenues			Amount		% of Revenues
Ethanol Sales	$	57,469,774		79.96	%	$	48,564,366		84.56	%
Dried Distillers Grains Sales	$	12,668,017		17.63	%	$	8,438,770		14.69	%
Wet Distillers Grains Sales	$	1,386,491		1.93	%	$	426,954		0.74	%
Other Revenue	$	348,219		0.48	%	$	4,427		0.01	%
Total Revenues	$	71,872,501		100.00	%	$	57,434,517		100.00	%

Revenues

Our revenues from operations come from two primary sources: sales of fuel ethanol and sales of distillers grains.

~~The~~During ~~following~~our ~~table~~first ~~shows~~fiscal quarter of our 2011 fiscal year, our total revenue increased significantly compared to the ~~sources~~first fiscal quarter of our 2010 fiscal year. Management attributes this increase in total revenue primarily with a significant increase in the average price we received per gallon of ethanol sold during our fiscal quarter ending December 31, 2010. Our total revenue was approximately $71,872,501 for the ~~three~~fiscal ~~months~~quarter ended ~~June~~December 3031, 2010 and $57,434,517 for the fiscal quarter ended December 31, 2009, an increase of approximately 25%.

	Three Months Ended					Three Months Ended
	June 30, 2010					June 30, 2009
Revenue Source	Amount		% of Revenues			Amount		% of Revenues
Ethanol Sales	$	36,244,939		83.22	%	$	35,890,603		81.50	%
Dried Distillers Grains Sales		7,029,032		16.14	%		8,058,250		18.30	%
Wet Distillers Grains Sales		279,302		0.64	%		112,666		0.20	%
Total Revenues	$	43,553,273		100.0	%	$	44,061,519		100.0	%

Ethanol

~~Our~~The total gallons of ethanol ~~revenue~~that ~~increased~~we sold during ~~the~~our ~~three~~fiscal ~~month~~quarter ~~period~~ ended ~~June~~December 3031, 2010 was ~~compared~~approximately ~~to the~~7.6% ~~three~~more ~~month~~than ~~period~~during our fiscal quarter ended ~~June~~December 3031, 2009. asManagement attributes athis ~~result~~increase ofin ~~increased~~ ethanol sales with the fact that we are now able to operate the plant at a higher run-rate. ~~However,~~This disparity in our ~~increased~~ ~~ethanol~~quarter ~~sales~~over ~~were~~quarter ~~mitigated~~production byis aprimarily ~~lower~~due ~~per~~to mechanical ~~gallon~~issues ~~sales~~that ~~price.~~curtailed ~~Our~~our ethanol ~~sales prices~~production ~~for~~during the first quarter ~~ended~~of ~~June 30,~~our 2010 ~~decreased approximately 5~~fiscal year.5% ~~compared~~In addition to the ~~three~~increase ~~month period~~in ~~ended~~the ~~June 30,~~number ~~2009.~~of Wegallons of ethanol we sold ~~approximately~~was ~~21,750,000~~a ~~gallons~~10% increase in the average price we received per gallon of ethanol sold during ~~the~~our ~~three month~~fiscal ~~period~~quarter ended ~~June 30~~December 31, 2010 compared to ~~approximately~~our 20fiscal quarter ended December 31,~~300,000~~ ~~gallons~~2009. Management attributes this increase in the average price we received per gallon of ethanol ~~sold~~with higher gasoline prices and ~~during~~increased ~~the~~ethanol ~~three~~exports ~~month~~experienced ~~period~~in ~~ended~~recent ~~June 30,~~months. ~~2009~~These increases in ethanol exports and prices mostly occurred during our fourth quarter of 2010.

~~Our~~The ~~distillers~~ethanol ~~grain~~industry ~~revenue~~relies ~~decreased~~on ~~during~~the Federal Volumetric Ethanol Excise Tax Credit (“VEETC”) to reduce the ~~three~~cost ~~month~~of ~~period~~ethanol ~~ended~~to ~~June 30~~fuel blenders. Accordingly, ~~2010~~VEETC causes increased demand for ethanol ~~compared~~related to ~~the~~what ~~same~~is ~~period~~called indiscretionary ~~2009~~blending. WeDiscretionary ~~sold~~blending ~~approximately~~is ~~54,000~~where ~~tons~~fuel ofblenders ~~dried~~use ethanol ~~distillers~~to ~~grains and~~increase ~~approximately~~octane ~~8,000~~in ~~tons~~the offuels ~~wet~~that ~~distillers~~are ~~grains~~produced ~~during~~as ~~the~~well ~~three~~as ~~month~~reduce ~~period~~the ~~ended~~price ~~June 30,~~of gasoline ~~2010~~at levels beyond what is mandated by the renewable fuels standard. ~~During~~However, when the ~~comparable~~price ~~period~~of ethanol inincreases ~~2009~~relative wethe ~~sold~~price ~~approximately~~of 2gasoline,~~000~~ ~~fewer~~after ~~tons~~taking into account the VEETC, the amount of ~~dried~~discretionary blending by fuel blenders decreases thereby decreasing ethanol demand. As a ~~distillers~~result, ~~grains~~if ~~and~~the ~~approximately~~VEETC 6is not renewed past December 31,~~000~~ ~~more~~2011, ~~tons~~management anticipates that the price of ~~wet~~ethanol ~~distillers~~will ~~grains~~decrease. ~~Despite~~Management ~~the~~anticipates ~~overall~~ethanol production will be steady during our 2011 ~~increase~~fiscal inyear ~~distillers~~provided ~~grains~~the ~~production~~ethanol ~~and~~industry ~~sales~~can wemaintain ~~experienced~~current ~~decrease~~ethanol prices. However, in the event ~~sales~~ethanol ~~price~~prices ~~of both~~decrease ~~our~~significantly, ~~dried~~we ~~distillers~~may ~~grains~~be ~~and~~forced to reduce ethanol production during times when our ~~wet~~operating ~~distillers~~margins ~~grains~~are unfavorable. ~~For example~~Further, ~~during~~our ~~the~~operating ~~quarter~~margins also depend on ~~ended~~corn ~~June 30,~~prices ~~2010,~~which can affect the ~~market~~spread between the price ofwe ~~dried~~receive ~~distillers~~for ~~grains~~our ~~decreased~~ethanol ~~approximately~~and ~~18.3%~~our raw ~~compared~~material tocosts. ~~the~~In ~~three~~times ~~month~~when ~~period~~this ~~ended~~spread ~~June 30~~decreases or becomes negative, ~~2009~~we may reduce or terminate ethanol production until these spreads become more favorable.

WeDistillers ~~anticipate receiving higher ethanol prices during the remaining summer months due to a~~Grains recent increase in the demand for gasoline and ethanol. However, if the price of ethanol were to decrease and remain low for an extended period of time it would have significant negative impact on our liquidity, even if our raw material costs remain steady. We anticipate that the price of distillers grains will continue to fluctuate in reaction to changes in the price of corn. The ethanol industry needs to continue to expand the market for distillers grains in order to maintain current price levels.

~~Cost~~We produce distillers grains for sale primarily in two forms, distillers dried grains with solubles (DDGS) and wet distillers grains (WDG). During our fiscal quarter ended December 31, 2010, we experienced a shift in the mix of ~~Goods~~distillers ~~Sold~~grains we sold in the form of DDGS versus WDG compared to our fiscal quarter ended December 31, 2009. During our fiscal quarter ended December 31, 2010, we sold less of our total distillers grains in the form of DDGS that we did for the same period in 2009. Conversely, during our fiscal quarter ended December 31, 2010 we sold more of our total distillers grains in the form of WDG that we did for the same period in 2009. Management attributes this shift in the mix of our distillers grains sales with an increase in local demand for WDG during our 2010 fiscal year compared to our 2009 fiscal year. As more of our distillers grains are shipped inside of our local market, we sell more of our distillers grains in the wet form since it is less expensive to produce the WDG. Market factors dictate whether we sell more DDGS versus WDG.

~~Our~~Management ~~cost~~anticipates ofdemand ~~goods~~for ~~sold~~distillers ~~was~~grains ~~approximately~~will ~~$44,969,000~~remain steady or ~~103%~~increase, ~~of our revenues for the three~~especially ~~month~~if ~~period~~corn ~~ended~~prices ~~June 30,~~trend ~~2010,~~higher ~~compared~~during ~~to approximately $46,263,000 or 105% of~~ our ~~revenues~~2011 ~~for the~~fiscal ~~three month period ended June 30, 2009~~year. ~~Our~~Management ~~two~~believes ~~primary~~that ~~costs~~increased ~~of producing ethanol and~~revenue from distillers grains ~~are~~sales ~~the~~during ~~cost~~times ofwhen corn ~~and natural~~prices ~~gas.~~are ~~Approximately~~high ~~78%~~helps ofus to somewhat offset our increased cost of goods sold isfrom ~~attributable~~the tohigher corn ~~costs and approximately 9% is attributable to natural gas costs~~prices.

1722

~~While~~Cost ~~we believe there is corn available nationally from a supply and demand standpoint, there is uncertainty over the quantity and quality~~ of ~~local~~Goods ~~corn for the plant. The cost of corn is the~~Sold largest input cost to the plant and these uncertainties could dramatically affect our expected input costs. During the three month period ended June 30, 2010, corn prices were relatively steady but increased after the end of the quarter. We expect that corn prices will continue to be volatile for the rest of our fiscal year, depending on weather conditions and other demand factors.

Our ~~other~~cost ~~costs~~ of goods sold ~~include~~was ~~denaturant~~approximately $69,300,000 ~~process~~or ~~chemicals,~~96% ~~electricity,~~of our revenues for the three ~~transportation,~~month ~~and~~period ~~direct~~ended ~~labor~~December 31, 2010. ~~Together~~Our ~~these~~two primary costs ~~represent~~of ~~approximately~~producing 13ethanol and distillers grains are the cost of corn and natural gas. Approximately 84.8% of our cost of goods sold is attributable to corn costs and approximately 5.8% Weis doattributable ~~not~~to ~~anticipate~~natural ~~these~~gas costs. toOur beper gallon ascost ~~volatile~~of asfor corn during our 2010 fiscal year was approximately 5% lower than the amount we paid during our 2009 fiscal year. Our lower per gallon cost of corn ~~and~~is ~~natural~~primarily ~~gas~~due to increased ~~expenses~~production levels which led to a 6% increase in ethanol yield at our facility. ~~However~~For the quarter ended December 31, 2010 our ~~transportation,~~per ~~electrical~~gallon ~~and~~cost ~~denaturant~~of ~~costs~~corn ~~are~~was ~~directly~~47% ~~tied~~higher tothan ~~the~~our ~~price~~per gallon cost of ~~energy~~corn ~~generally~~for ~~and,~~the ~~therefore,~~same ~~may~~period ~~fluctuate~~in ~~along~~2009. ~~with~~This dramatic increase in the price of ~~petroleum~~corn ~~based energy~~has ~~products~~caused tight operating margins for our Company.

AtThese ~~June 30,~~efficiencies have been somewhat mitigated by market corn prices which started to increase during our 2010 fiscal year starting in July and ~~September 30,~~continuing ~~2009,~~into the ~~Company~~middle of December 2010. Management attributes this increase in corn prices with uncertainty regarding weather factors that resulted in decreased yields in some parts of the United States. This led to fears regarding an imbalance between corn supply and demand which had ~~forward~~a negative impact on corn ~~contracts~~prices. ~~totaling~~Management ~~approximately~~anticipates ~~$4,838,000~~that corn prices will continue to be volatile until corn planting and ~~$300,000,~~thereafter ~~respectively,~~will be ~~based~~subject ~~upon~~to ~~the~~weather ~~average~~factors ~~per~~that ~~bushel~~may ~~price~~influence corn prices during the 2011 growing season.

Management anticipates that natural gas prices will remain steady during our 2011 fiscal year unless demand significantly increases due to improved global economic conditions. Management anticipates that our natural gas consumption may increase during our 2011 fiscal year due to increased ethanol and distillers grains production compared to our 2010 fiscal year.

Our other costs of goods sold include denaturant, process chemicals, electricity, transportation, and direct labor. Together these costs represent approximately 0.094% of our cost of goods sold. We do not anticipate these costs to be as volatile as our corn and natural gas expenses. However, our transportation, electrical and denaturant costs are directly tied to the price of energy generally and, therefore, may fluctuate along with the price of petroleum based energy products.

General and Administrative Expenses

Our general and administrative expenses as a percentage of revenues were 2.1.4% for the three month period ended ~~June~~December 3031, 2010, and our general and administrative expenses as a percentage of of revenues were 2.707% for the three month period ended ~~June~~December 3031, 2009. ~~General~~Operating ~~and administrative~~ expenses consist primarily of payroll, employee benefits, and professional fees. ~~Our general~~ and ~~administrative~~ ~~expenses~~ have been decreasing since beginning operations due to our ability to make our internal operations more efficient.

Operating Income ~~(Loss)~~

Our ~~loss~~operating ~~from~~income ~~operations~~ for the three months ended ~~June~~December 3031, 2010 was 3approximately 2.32% of our revenues, ~~our~~ ~~loss~~compared ~~for~~to ~~the~~an ~~three~~operating ~~months~~income ~~ended~~of ~~June 30, 2009 was 7~~15.72% of our revenues. ~~We had an operating loss~~ for ~~these~~the ~~periods~~three ~~because~~months ~~we had high input prices relative to our ethanol and distillers~~ended ~~grains~~December 31, ~~revenues~~2009. ~~This~~Our ~~coincided~~operating ~~with~~income ais ~~soft~~the ~~demand~~result ~~cycle~~of inpositive ~~the~~operating ~~ethanol~~margins; ~~market thereby limiting~~however, ~~the~~operating ~~volume~~margins ofdeteriorated ~~ethanol~~from ~~that~~our ~~could~~three bemonths ~~sold~~ended atDecember 31, ~~favorable~~2009 ~~price levels. Subsequent~~ to our ~~quarter~~three months ended ~~June~~December 3031, 2010, ~~ethanol~~as ~~demand~~corn ~~has~~prices increased ~~with~~more ~~the~~rapidly ~~summer~~that ~~driving~~ethanol ~~season which has given us the opportunity to sell available production at favorable price levels~~prices.

Other (Expense)

We had total other expense for the fiscal quarter ended ~~June~~December 3031, 2010 of approximately $16,~~800~~675,000 resulting primarily from our interest expense for the period. Interest expense for the period was approximately $26,~~119~~910,000 which was offset by an unrealized gain of approximately $~~322~~240,000 for the change in fair value of our interest rate swap agreement.

18Net Income (Loss)

Our net loss for the three months ended December 31, 2010 was approximately 7.1% of our revenues, compared to our net income for the three months ended December 31, 2009 which was approximately 12.1% of our revenues. Our net income (loss) is primarily the result of our interest expense and financing costs relative to our revenues during our three months ended December 31, 2010.

Additional Information

The following table shows additional ~~information~~data regarding production and price levels for our primary inputs and products for the three months ended ~~June~~December 3031, 2010 and 2009.

	Percentage of Increase (Decrease) for
	comparison of Three Months Ended
	June 30, 2010 to June 30, 2009
	December 31, 2010 to December 31, 2009
Production:
Ethanol sold (gallons)		67.946	%
Dried distillers grains sold (tons)		(420.283	)%
Wet distillers grains sold (tons)		~~278~~(12.192	%)
Revenues:
Ethanol average price per gallon		(510.550	)%
Dried distillers grains revenue per gallon of ethanol sold		~~(18.~~39.5	)%
Wet distillers grains revenue per gallon of ethanol sold		83201.338	%
Total revenue per gallon of ethanol sold		(716.293	)%
Costs:
Corn cost per gallon of ethanol sold (including freight)		~~(13~~47.713	)%
Overhead and other direct costs per gallon of ethanol sold		(82.107	)%
Total cost per gallon of ethanol sold		~~(12~~36.525	)%

During the quarter ended ~~June~~December 3031, 2010, our market price of ethanol ~~decreased approximately~~increased ~~5.5~~approximately 10% compared to the three month period ended ~~June~~December 3031, 2009. If our average price received per gallon of ethanol had been $0.10 lower, our gross margin for the quarter would have decreased by approximately $2,~~178~~411,~~650~~606, assuming our other revenues and costs remained unchanged.

During the quarter ended ~~June~~December 3031, 2010, the market price of dried distillers grains ~~decreased~~ increased approximately ~~18.3~~40% compared to the three month period ended ~~June~~December 3031, 2009. If our average price received per ton of dried distillers grains had been $1.00 lower, our gross margin for the quarter would have decreased by approximately $5375,~~752~~000, assuming our other revenues and costs remained unchanged.

During the quarter ended ~~June~~December 3031, 2010, the market price of corn on a per gallon basis ~~decreased~~increased by approximately ~~13.7~~47% compared to the three month period ended ~~June~~December 3031, 2009. If our average price paid per bushel of corn had been $0.25 higher, our gross margin for the quarter would have decreased by approximately $12,~~847~~248,~~455~~000, assuming our other revenues and costs remained unchanged.

~~Results~~Changes ofin ~~Operations~~Financial Condition for the ~~Nine~~Three Months Ended ~~June~~December 3031, 2010 ~~and 2009~~

~~The~~Our ~~following~~current ~~table~~assets ~~shows~~at ~~the~~December 31, ~~results~~2010 ofwere ~~our~~fairly ~~operations~~steady ~~and~~compared ~~the~~to ~~approximate~~our ~~percentage~~fiscal ofyear ended ~~revenues~~September 30, ~~costs~~2010. As of ~~sales~~December 31, ~~operating~~2010, ~~expenses~~we ~~and~~had ~~other~~an ~~items~~increase toin ~~total~~trade ~~revenues~~receivables, inwhich ~~our unaudited~~was ~~statements~~largely ofoffset ~~operations~~by ~~for~~a ~~the~~decrease ~~nine~~in ~~months~~inventory ~~ended~~on ~~June 30, 2010 and 2009:~~hand.

	Nine Months Ended						Nine Months Ended
	June 30, 2010						June 30, 2009
	(Unaudited)						(Unaudited)
Statement of Operations Data	Amount			Percent			Amount			Percent
Revenues	$	152,005,191			100.0	%	$	120,224,231			100.0	%
Cost of Goods Sold		142,269,909			93.6	%		131,037,251			109.0	%
Gross Profit (Loss)		9,735,282			6.4	%		(10,813,020	)		(9.0	)%
General and Administrative
Expenses		3,161,325			2.1	%		3,853,031			3.2	%
Operating Income (Loss)		6,573,957			4.3	%		(14,666,051	)		(12.2	)%
Other (Expense)		(5,404,974	)		(3.6	)%		(9,282,683	)		(7.7	)%
Net Income (Loss)	$	1,168,983			0.8	%		(23,948,734	)		(19.9	)%

Our net property and equipment was approximately $2,000,000 lower at December 31, 2010 compared to September 30, 2010 as a result of depreciation expense taken for the quarter. We do not expect any significant additional capital expenditures as our plant is now complete.

19The financing costs associated with the loans discussed in Note 6 to our financial statements have been recorded at cost and include expenditures directly related to securing debt financing. In February 2011, SWGE filed for Chapter 11 Bankruptcy relief from the loans which gave rise to the deferred financing costs. In conjunction with this filing, the Company expensed the remaining net book value of its deferred financing costs as of December 31, 2010. The financing costs are included in interest expense in the statement of operations and total approximately $3,724,000 for the three months ended December 31, 2010.

~~Revenues~~We experienced a significant increase in our total current liabilities on December 31, 2010 compared to September 30, 2010 and a corresponding decrease in our long-term liabilities as of December 31, 2010 compared to September 30, 2010, primarily as a result of bringing our long-term debt current in accordance with the certain accounting standards. At December 31, 2010, we had approximately $132,900,000 outstanding in the form of current liabilities, compared to approximately $40,000,000 at September 30, 2010.

Our revenues from operations come from two primary sources: sales of fuel ethanol and sales of distillers grains.

The following table shows additional data regarding production and price levels for our primary inputs and products for the nine months ended June 30, 2010 and 2009:

	Percentage of Increase (Decrease)
	For comparison of Nine Months
	Ended June 30, 2010 to June, 2009
Production:
Ethanol sold (gallons)		13.16	%
Dried distillers grains sold (tons)		17.26	%
Wet distillers grains sold (tons)		1307.11	%
Revenues:
Ethanol average price per gallon		7.24	%
Dried distillers grains revenue per gallon of ethanol sold		(11.94	)%
Wet distillers grains revenue per gallon of ethanol sold		300.0	%
Total revenue per gallon of ethanol sold		4.39	%
Costs:
Corn cost per gallon of ethanol sold (including freight)		(10.62	)%
Overhead and other direct costs per gallon of ethanol sold		(27.84	)%
Total cost per gallon of ethanol sold		(14.92	)%

In the nine month period ended June 30, 2010, ethanol sales comprised approximately 83% of our revenues and distillers grains sales comprised approximately 17% of our revenues. For the nine month period ended June 30, 2009, ethanol sales comprised approximately 81% of our revenue, without accounting for ethanol hedging, and distillers grains sales comprised approximately 19% of our revenue. Our revenues were higher for our first three quarters of fiscal year 2010 compared to the same period of 2009 primarily as a result of our increase in ethanol production and an increase in the sales price of our ethanol.

The average ethanol sales price we received for the nine month period ended June 30, 2010 was approximately 7% higher than our average ethanol sales price for the comparable 2009 period. Management attributes this increase in ethanol prices with the increase in commodity prices generally as a result of the gradually improving economic situation in the United States. Management anticipates the price of ethanol may increase during the last quarter of our 2010 fiscal year as a result of an increase in fuel demand as we complete the summer driving season which, historically, has positively affected the market prices of crude oil and gasoline.

The price we received for our dried distillers grains decreased by approximately 11% during the nine month period ended June 30, 2010 compared to the same period of 2009. Management attributes this decrease in the price of our dried distillers grains to an decrease in the demand for our distillers grains outside of our local market area. Our local market has also experienced an increase in the supply of dried distillers grains from other sources which has placed downward pressure on the price we receive for our distillers grains. Finally, the price of dried distillers grains changes in proportion to the price of corn, which has decreased in the nine month period ended June 30, 2010. Accordingly, we anticipate that the market price of distillers grains will continue to be volatile as a result of changes in the price of corn and competing animal feed substitutes such as soybean meal.

Cost of Sales

Our costs of goods sold as a percentage of revenues were approximately 94% for the nine month period ended June 30, 2010 compared to approximately 109% for the same period of 2009. Our two largest costs of production are corn (78% of cost of goods sold for our nine months ended June 30, 2010) and natural gas (9% of cost of goods sold for our nine months ended June 30, 2010). Our cost of goods sold decreased by approximately 15% in the nine months ended June 30, 2010, compared to the nine months ended June 30, 2009, and our revenue for the same period increased by approximately 4.5%. This decrease in the cost of goods sold is primarily a result of weaker corn prices combined with an increase in the volume of corn processed at our facility.

General and Administrative Expenses

Our general and administrative expenses as a percentage of revenues were lower for the nine month period ended June 30, 2010 than they were for the same period ended June 30, 2009. These percentages were approximately 2.1% and approximately 3.2% for the nine months ended June 30, 2010 and 2009, respectively. This decrease in general and administrative expenses is primarily due to a decrease in legal fees and the costs associated with the initial training of our personnel during the first few months of plant operations. Our management and staff has also increased operating efficiencies and made a concerted effort to lower our general and administrative expenses. We expect that going forward our general and administrative expenses will remain relatively steady.

Operating Income (Loss)

Our income from operations for the nine months ended June 30, 2010 was approximately 4.3% of our revenues compared to loss of approximately 12.2% of our revenues for the nine months ended June 30, 2009. This increase in our profitability is primarily due to the increase in the price we received for our ethanol for the nine months ended June 30, 2010 compared to the nine months ended June 30, 2009 combined with a decrease in our costs of goods sold during the same timeframe.

Other (Expense)

Other expense for the nine months ended June 30, 2010, was approximately 3.6% of our revenue and totaled approximately $5,405,000. Other expense for the nine months ended June 30, 2009 totaled approximately $9,280,000 and was approximately 7.7% of our revenues. The decrease is attributable to less interest expense and favorable unrealized gains on our interest rate swap. Interest expense for the nine months ended June 30, 2010, was approximately $6,320,000. Interest expense for the nine months ended June 30, 2009 was approximately $7,990,000. This reduction in interest expense is due primarily to a reduction in our outstanding debt and fluctuations in interest rates.

Changes in Financial Condition for the Nine Months Ended June 30, 2010 and 2009

We experienced an increase in our current assets at June 30, 2010 compared to our fiscal year ended September 30, 2009. As of June 30, 2010, we had been experiencing positive margins which enabled us to hold additional cash. We had approximately $1,735,000 more cash on hand at June 30, 2010 compared to September 30, 2009. However, at June 30, 2010 we had accounts receivable of approximately $3,222,000 compared to approximately $4,081,000 of accounts receivable at September 30, 2009.

Our net property and equipment was slightly lower at June 30, 2010 compared to September 30, 2009 as a result of depreciation expense taken for the nine months ended June 30, 2010. We do not expect any significant additional capital expenditures as our plant is now complete.

We experienced a decrease in our total current liabilities on June 30, 2010 compared to September 30, 2009 and also a decrease in our long-term liabilities as of June 30, 2010 compared to September 30, 2009, primarily as a result of principal payments made on our long-term debt. At June 30, 2010, we had approximately $100,711,000 outstanding in the form of long-term loans less current maturities, compared to approximately $103,325,000 at September 30, 2009.

Liquidity and Capital Resources

~~We have completed approximately twenty-one months of operations as of the filing of this report.~~ The ~~relative~~accompanying ~~price~~unaudited ~~levels~~condensed ofconsolidated ~~corn,~~financial ~~ethanol~~statements ~~and distillers grains~~ have ~~resulted~~been ~~in tight,~~prepared ~~and~~assuming ~~sometimes~~we ~~negative,~~will ~~operating~~continue ~~margins.~~as Wea ~~had~~going ~~positive earnings for the nine month period ended June 30~~concern, ~~2010.~~which ~~However,~~assumes ifcontinuity ~~substantial~~of ~~losses~~operations ~~return, or if we are unable to obtain~~and ~~additional~~realization ~~working~~of ~~capital,~~assets ~~liquidity~~and ~~concerns~~satisfaction ~~may~~of ~~require~~liabilities usin tothe ~~curtail operations~~ordinary orcourse ~~pursue~~of ~~other actions that could adversely affect future operations~~business.

21During the first quarter of the fiscal year ending September 30, 2011, the Company continued to suffer losses from operations thus continuing liquidity restraints due to limits on its working capital line which was up for renewal in February 2011. Faced with these constraints, on February 1, 2011, SWGE, the Company’s wholly owned subsidiary, filed voluntary petitions for relief (collectively, the “Bankruptcy Filing”) under Chapter 11 (“Chapter 11”) of the United States Bankruptcy Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Middle District of Georgia Albany Division (the “Bankruptcy Court”). SWGE intends to continue to operate its business as debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. See Note 8 “Subsequent Events.”

To improve plant operations and profitability, the Company hired an outside third party to look at the efficiency of the plant and provide suggestions and solutions to increase the operational effectiveness. These studies have been completed and outlined several areas where the Company could make improvements. Some of the improvements were immediately implemented with positive results already being shown. The Company believes that with improvements already implemented and the additional improvement being made, that the operational efficiency of the plant will increase significantly, allowing the plant to run profitably. Additionally, the Company’s profitability is also dependent upon a number of other factors noted elsewhere in these financial statements, including stable and positive crush margins. Management believes that once they solve their working capital needs, they will be able to better manage the commodity risk by being able to utilize futures and options more frequently and to lock in positive crush margin.

The following table shows cash flows for the three months ended December, 2010 and 2009:


	Three Months Ended
	December 31
	2010			2009
Net cash provided by (used in ) operating activities	$	(1,913,714	)	$	7,154,427
Net cash (used in) investing activities	$	(57,914	)	$	(51,893	)
Net cash provided by (used in) financing activities	$	1,599,569		$	(1,690,168	)
Net increase (decrease) in cash and cash equivalents	$	(372,059	)	$	5,412,366
Cash and cash equivalents, end of period	$	214,407		$	5,412,366

Operating Cash Flows. We experienced a significant decrease in net cash provided by operating activities and an increase in cash used in operating activities during the three months ended December 31, 2010 compared to the same period of 2009. This decrease in net cash provided by operating activities was primarily a result of the $1,635,000 net loss we experienced during the three months ended December 31, 2010. Cash used in operating activities was approximately $1,900,000 for the three months ended December 31, 2010 compared to cash provided by operating activities of approximately $7,150,000 for the same period in 2009.

InInvesting ~~June 2010~~Cash ~~we amended our Senior Credit Agreement and our Accounts Agreement with WestLB~~Flows. ~~Pursuant~~ toCash ~~the~~used ~~amended~~in ~~loan~~investing ~~agreements~~activities wewas ~~were required to have a working capital deficit of $12,000,000 or less as of June 30, 2010. We met that requirement by having a working capital deficit at June 30, 2010 of~~ approximately $1158,~~100,~~000. ~~The required working capital threshold tightens~~ for the three ~~quarters~~months ~~ending~~ended ~~September 30, 2010 and~~ December 31, 2010. WeThis ~~are~~amount ~~required~~is similar to ~~have a~~the ~~working~~amount ~~capital deficit~~ of ~~$9,000,000~~cash orused ~~less~~in investing asactivities offor ~~September 30,~~three ~~2010~~months ~~and~~ended ~~$7,000,000 or less as of~~ December 31, ~~2010~~2009. ~~Subsequent to December 31, 2010 the working capital deficit requirement will~~ ~~remain at $7,000,000 for the term of the loan.~~

InFinancing ~~the~~Cash ~~event~~Flows. weCash ~~are~~provided ~~unable~~by tofinancing ~~meet~~activities ~~the~~was ~~level~~approximately of$1,600,000 ~~working capital required under~~ for the ~~amended loan~~three ~~agreements~~months weended ~~will~~December 31, be2010. ~~assessed~~This acash ~~five~~was ~~percent~~primarily ~~(5%)~~provided ~~fee~~by drawing on ~~the outstanding loans for any~~our ~~quarter~~revolving weline ~~are~~of ~~not~~credit inand ~~compliance.~~the ~~This~~release ~~fee~~of ~~payment~~restricted iscash, inboth ~~addition~~of towhich ~~the~~were ~~interest~~partially weoffset ~~are required~~by tothe ~~pay~~repayment onof ~~our~~long ~~outstanding~~term debt ~~pursuant~~and tocapital ~~our~~lease ~~original loan agreements~~obligations. ~~This~~During ~~additional~~our ~~interest fee~~three ~~will~~months ~~be accrued and due February~~ended December ~~2015~~31, ~~the~~2009 ~~final~~we ~~maturity~~were ~~date~~able ~~our~~to ~~outstanding~~repay ~~loans~~approximately ~~with West LB. Furthermore~~$1,600,000 ~~and regardless~~ of ~~whether~~our welong ~~have~~terms ~~maintained~~debt ~~the~~and ~~required level or working~~ capital, lease weobligations ~~will~~without behaving ~~required~~ to ~~make~~draw anon ~~additional quarterly principal payment of $150,000 toward~~ our ~~outstanding~~other ~~working~~debt ~~capital loan balance~~facilities.

~~The~~Our ~~following~~liquidity, ~~table~~results ~~shows~~of ~~cash~~operations ~~flows~~and ~~for~~financial performance will be impacted by many variables, including the ~~nine~~market ~~months~~price ~~ended~~for ~~June 30~~commodities such as, ~~2010~~but not limited to, corn, ethanol and ~~2009:~~other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs.

	Nine Months Ended June 30
	2010			2009
Net cash provided by (used in ) operating activities	$	7,102,795		$	(20,218,170	)
Net cash (used in) investing activities		(198,865	)		(3,469,014	)
Net cash provided by (used in) financing activities		(5,169,222	)		22,990,457
Net increase (decrease) in cash and cash equivalents		1,734,708			(696,727	)
Cash and cash equivalents, end of period	$	1,734,708		$	6,989,251

Operating Cash Flows: We experienced a significant increase in net cash provided by operating activities during the nine months ended June 30, 2010 compared to the same period of 2009. This increase in net cash provided by operating activities was primarily a result of the significant increase in net income we experienced during the nine months ended June 30, 2010. Cash provided by operating activities was $7,102,795 for the nine months ended June 30, 2010 compared to $20,218,170 of cash used in operations for the same period in 2009. Our net income from operations for the nine months ended June 30, 2010 was $1,168,983 due to slightly favorable market conditions.

Investing Cash Flows: Cash used in investing activities was $198,865 for the nine months ended June 30, 2010. This amount is small when compared to the $3,469,014 used in investing activities for nine months ended June 30, 2009, when we finished investing in our property and equipment to complete the plant.

Financing Cash Flows: Cash used in financing activities was $5,169,222 for the nine months ended June 30, 2010 and was primarily for the repayment of long-term debt and capital lease obligations. During our nine months ended June 30, 2009 we received notes and line of credit proceeds of approximately $22,990,000 to fund our property and equipment as well as our working capital.

Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains remain consistent with the relative price levels as of June 30, 2010 and assuming we have the liquidity necessary to operate the plant at nameplate capacity, we expect operations to generate adequate cash flows to maintain operations. This expectation assumes that we will be able to sell all the ethanol that is produced at the plant. We expect to be able to satisfy our cash requirements for the next 12 months using only our revolving line of credit, senior credit facility, and earnings from operations.

Senior Credit Facility

On November 20, 2007, First United and Southwest Georgia Ethanol, LLC (“SWGE”), our wholly owned subsidiary, entered into a senior credit agreement with WestLB that provides for (1) a construction loan facility in an aggregate amount of up to $100,000,000, which converted to a term loan on February 20, 2009 (~~the~~ “Conversion Date”) ~~which~~that matures on February 20, 2015 (the “Final Maturity Date”); and (2) a working capital loan in an aggregate amount of up to $15,000,000 which matures on February 20, 2011. The primary purpose of the ~~senior~~ credit facility was to finance the construction and operation of ~~our~~the Company’s ethanol plant.

The principal amount of the term loan facility is payable in quarterly payments ranging from $1,500,000 to $1,600,000 beginning September 30, 2009, and the remaining principal amounts are fully due and payable on February 20, 2015. Interest is payable quarterly. SWGE has the option to ~~Final~~select ~~Maturity~~between ~~Date.~~two Wefloating ~~made~~interest rate loans under the ~~first~~terms ~~three~~of ~~quarterly~~the ~~term~~senior ~~loan~~credit ~~payments~~agreement: Base ~~due~~Rate ~~through~~Loans ~~June 30,~~bear interest at the Administrative Agent’s base rate (which is the higher of the ~~2010~~federal funds effective rate plus 0.50% and the Administrative Agent’s prime rate) plus 2.75% per annum. Eurodollar Loans bear interest at LIBOR plus 3.75%. The Company has entered into an interest rate swap with WestLB to effectively convert a portion of the variable rate interest into a fixed rate, with the LIBOR component fixed at 4.04%.

Under the terms of the senior credit agreement, SWGE has agreed to pay a quarterly commitment fee equal to 0.50% per annum on the unused portion of the construction loan/term loan and .20% per annum on the unused portion of the working capital loan. SWGE’s obligations under the senior credit agreement are secured by a first-priority security interest in all of the Company’s assets, including its equity interest in SWGE.

The senior credit agreement also required SWGE to enter into an accounts agreement among SWGE, Amarillo National Bank, as the Accounts Bank and Securities Intermediary, and WestLB as the collateral agent and administrative agent. Among other things, the accounts agreement establishes certain special, segregated project accounts and establishes procedures for the deposits and withdrawals of funds into these accounts. Substantially all cash of SWGE is required to be deposited into the project accounts subject to security interests to secure obligations in connection with the senior credit. Funds are released from the project accounts in accordance with the terms of the accounts agreement.

As of December 31, 2010 and September 30, 2009, the Company had drawn $14,699,991 and $11,081,911 on the working capital loan, respectively.

Subordinated Debt

OnThe ~~November 30,~~Company ~~2006,~~has ~~we closed~~ a subordinated debt financing arrangement pursuant to which the Mitchell County Development Authority issued $10,000,000 of revenue bonds that were placed with ~~Wachovia~~ Wachovia Bank. WeThe Company signed a promissory note, which is collateralized by ~~our~~the Company’s assets and the ~~proceeds~~ proceeds were placed in a Bond Trustee account with Regions Bank. The interest rate for this note is 7.5%. We ~~are~~The Company is required to maintain a debt service reserve with the Bond Trustee ~~in the amount~~ of at least $1,180,000. ~~The~~This note is subordinated to the West LB debt agreement, which currently prohibits the Company from making any debt service payments. As a result, the Bond Trustee made the annual interest and principal payment to the bond holders of approximately $1,339,000 in December 2009 from the debt service reserve. The funds held in the Bond Trustee account are classified as non-current restricted cash and cash equivalents onin ~~our~~the Company’s consolidated balance sheet. The subordinated debt is a 15 year note with annual principal payments each toDecember bedue ~~made~~ to the bond holders ~~each~~in 2010 of $635,000, in 2011 of $530,000, in 2012 of ~~December.~~$570,000, ~~The~~in ~~principal~~2013 ~~payment~~of ~~due~~$615,000, in ~~December 2010~~2014 isof $660,000 and $6,240,000 thereafter. The $635,000 due in 2010 has been classified as a current maturity of long-term debt per the agreement. However any payment will come from the debt service fund due to the subordination.

On June 30, 2009, weSWGE ~~agreed~~entered oninto a subordinated promissory note agreement in the amount of $3,977,545 due to Fagen, Inc., ~~for~~a ~~retainage~~related ~~withheld~~party, ~~under~~for ~~our~~ the remaining design-build contract balance. AsThe note ~~consideration~~bears ~~for~~interest ~~Fagen,~~at ~~Inc.’s~~4% ~~completion~~through ~~of our facility~~June 30, we2010 ~~executed a~~and ~~subordinated~~8% ~~promissory~~thereafter ~~note~~through ~~dated~~maturity on June 30, ~~2009 in favor of Fagen, Inc~~ 2011. inInterest ~~the~~is ~~amount~~payable ~~of approximately $4,000,000~~quarterly. The first principal payment of $500,000 was due as of September 30, 2009 ~~and~~ along with an annual principal ~~payments~~payment of $1,738,772 ~~are~~that was due June 30, 2010. The ~~and~~final payment of $1,738,772 is due June 30, 2011. ~~The~~This note is subordinated to the ~~WestLB~~West LB debt agreement, which currently prohibits the Company from making ~~any~~ the principal payments on the schedule described above. The note of $3,977,545 is included in current maturities of long-term debt per the agreement. However, the earliest any payment will likely be made is in 2014.

Other Notes Payable

WeThe ~~have~~Company financed the acquisition of certain equipment through two identical notes payable to John Deere Credit. The notes amortize over four years (maturity in August 2012) with monthly principal and interest payments and are secured by the equipment. The interest rate is 5.3%. The combined outstanding balance on these two notes payable is $~~153~~136,~~022~~244 and $202,050 as of ~~June~~ September 30, 2010 and ~~September 30,~~ 2009, respectively.

~~Our~~The Company’s long-term debt outstanding as of ~~June~~December 31, 2010 and September 30, 2010 is summarized as follows:

West LB Term Loan, variable interest rates from 4.00% to 7.81%	$	93,800,000
	December 31,			September 30,
Subordinated Fagen Note, interest rate of 4.0% through June 20, 2010 and 8% thereafter		3,977,545
	2010			2010
Subordinated debt facility, interest rate of 7.5%		9,250,000
West LB Term Loan, variable interest rates from 4.00% – 4.28%	$	90,600,000		$	92,200,000
Notes payable John Deere Credit, interest rate of 5.3%		153,022
Subordinated Fagen note, 4% through June 30, 2010 and 8% thereafter		3,977,545			3,977,545
		107,180,567
Subordinated debt facility, interest rate of 7.5%, described below		8,615,000			9,250,000
Less current portion		(6,469,366	)
Subordinated note payable to Mitchell County Development Authority		1,070,285			—
Long-term debt outstanding as of June 30, 2010	$	100,711,201
Notes payable John Deere Credit, interest rate of 5.3%, described below		119,242			136,244
		104,382,072			105,563,789
Less current portion		(104,382,072	)		(11,081,911	)
	$	—		$	94,481,878

Debt Covenants

Pursuant to the amended loan agreements we were required to have a working capital deficit of $12,000,000 or less as of June 30, 2010. We met that requirement by having a working capital deficit at June 30, 2010 of approximately $11,100,000. The required working capital threshold tightens for the quarters ending September 30, 2010 and December 31, 2010. We are required to have a working capital deficit of $9,000,000 or less as of September 30, 2010 and $7,000,000 or less as of December 31, 2010. Subsequent to December 31, 2010 the working capital deficit requirement will remain at $7,000,000 for the term of the loan.

In the event we are unable to meet the level of working capital required under the amended loan agreements we will be assessed a five percent (5%) fee on the outstanding loans for any quarter we are not in compliance. This fee payment is in addition to the interest we are required to pay on our outstanding debt pursuant to our original loan agreements. This additional interest fee will be accrued and due February 2015, the final maturity date our outstanding loans with West LB. Furthermore, and regardless of whether we have maintained the required level or working capital, we will be required to make an additional quarterly principal payment of $150,000 toward our outstanding working capital loan balance.

Summary of Critical Accounting Policies and Estimates

Management uses estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The fair value of our cash and equivalents approximates their carrying value.

Derivative Instruments

We occasionally enter into short-term cash grain, option and futures contracts as a means of securing corn for the ethanol plant and managing exposure to changes in commodity. We may also enter into short-term forward, option and futures contracts for sales of ethanol to manage exposure to changes in energy prices. All of our derivatives are designated as non-hedge derivatives, and accordingly are recorded at fair value with changes in fair value recognized in net income. Although the contracts are considered economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

As part of our trading activity, we use futures and option contracts offered through regulated commodity exchanges to reduce our risk and we are exposed to risk of loss in the market value of inventories. To reduce that risk, we generally take positions using cash and futures contracts and options.

Unrealized gains and losses related to derivative contracts for corn purchases are included as a component of cost of goods sold and derivative contracts related to ethanol sales are included as a component of revenues in the accompanying financial statements. The fair values of derivative contracts are presented on the accompanying balance sheet as derivative financial instruments.

Lower of cost or market accounting for inventory and forward purchase contracts

With the significant change in the prices of our main inputs and outputs, the lower of cost or market analysis of inventories and purchase commitments can have a significant impact on our financial performance. The impact of market activity related to pricing of corn and ethanol will require us to continuously evaluate the pricing of our inventory and purchase commitments under a lower of cost or market analysis.

Impairment Analysis

Maintenance and repairs are charged to expense as incurred; major improvements and betterments are capitalized. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. In accordance with our policies, management has evaluated the plant for possible impairment based on projected future cash flows from operations. Management has determined that its projected future cash flows from operations exceed the carrying value of the plant and that no impairment exists at ~~June~~December 3031, 2010.

24Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. In accordance with Company policies, management has evaluated the plant for possible impairment based on projected undiscounted future cash flows from operations. Management has determined that its projected undiscounted future cash flows from operations exceed the carrying value of the plant and that no impairment exists at December 31, 2010. However, due to the Company’s recent filing for Bankruptcy protection, there can be no assurances that the value of the plant will be recovered through future cash flows.

Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, derivative instruments, other receivables, accounts payable, accrued expenses and long-term debt. Management believes the fair value of each of these financial instruments approximates their carrying value in the balance sheet as of the balance sheet date. The fair value of current financial instruments is estimated to approximate carrying value due to the short-term nature of these instruments. The fair value of derivative financial instruments is based on quoted market prices. The fair value of the long-term debt is estimated based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and the other market factors.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.


Item 3.		Quantitative and Qualitative Disclosures about Market Risks

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

Item 4. Controls and Procedures .

Management of FUEL is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

Our management, including our Chief Executive Officer, Murray Campbell, along with our Chief Financial Officer, Larry Kamp, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a — 15(e) under the Exchange Act of 1934, as amended) as of ~~June~~December 3031, ~~2010~~2009. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the ~~Securities~~ Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


Item 1.		Legal Proceedings.

AsOn February 1, 2011, SWGE, a wholly owned subsidiary of the ~~date~~Company, filed a voluntary petition for relief under chapter 11 of ~~this~~the ~~quarterly~~United ~~report,~~States weBankruptcy ~~are~~Code ~~not~~in ~~aware~~the United States Bankruptcy Court for the Middle District of ~~any~~Georgia. ~~material~~The ~~pending~~chapter ~~legal~~11 case is being administered by ~~proceeding~~the Bankruptcy Court as Case No. 11-10145. SWGE intends to ~~which~~continue weto ~~are~~operate aits ~~party~~business oras debtor-in-possession ofunder ~~which~~the ~~any~~jurisdiction of ~~our~~the ~~property~~Bankruptcy isCourt ~~subject,~~and ~~other~~in ~~than~~accordance ~~ordinary~~with the ~~routine~~applicable ~~litigation~~provisions of the Bankruptcy Code and orders of the Bankruptcy Court. As a result of the filing, ifattempts ~~any~~to collect, ~~that~~secure, isor ~~incidental~~enforce remedies with respect to ~~our~~pre-petition ~~business~~claims against SWGE are subject to the automatic stay provisions of section 362 of the Bankruptcy Code.


Item 1A.		Risk Factors.

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

SWGE filed for reorganization under Chapter 11 on February 1, 2011 and is subject to the risks and uncertainties associated with the Bankruptcy Case. For the duration of the Bankruptcy Case, our operations and our ability to execute our business strategy will be subject to the risks and uncertainties associated with bankruptcy. These risks include:

•

our ability to continue as a going concern;

•

our ability to operate within the restrictions and the liquidity limitations of any DIP financing arrangement in connection with the Bankruptcy Case;

•

our ability to obtain Bankruptcy Court approval with respect to motions filed in the Bankruptcy Case from time to time;

•

our ability to develop, prosecute, confirm and consummate a plan of reorganization with respect to the Chapter 11 proceedings;

•

our ability to obtain and maintain normal payment and other terms with customers, vendors and service providers;

•

our ability to maintain contracts that are critical to our operations;

•

our ability to attract, motivate and retain key employees;

•

our ability to attract and retain customers; and

•

our ability to fund and execute our business plan.

We will also be subject to risks and uncertainties with respect to the actions and decisions of our creditors and other third parties who have interests in the Bankruptcy Case that may be inconsistent with our plans.

These risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with the Bankruptcy Case could adversely affect our relationships with our vendors and employees, as well as with customers, which in turn could adversely affect our operations and financial condition. Also, pursuant to the Bankruptcy Code, we need Bankruptcy Court approval for transactions outside the ordinary course of business, which may limit our ability to respond timely to events or take advantage of opportunities. Because of the risks and uncertainties associated with the Bankruptcy Case, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 reorganization process will have on our business, financial condition and results of operations, and there is no certainty as to our ability to continue as a going concern.

A long period of operating under Chapter 11 could harm our business. A long period of operating under Chapter 11 could adversely affect our business and operations. So long as the Bankruptcy Case continues, our senior management will be required to spend a significant amount of time and effort dealing with the Bankruptcy Case instead of focusing exclusively on business operations. A prolonged period of operating under Chapter 11 will also make it more difficult to attract and retain management and other key personnel necessary to the success of our business. In addition, the longer the Bankruptcy Cases continue, the more likely it is that our vendors will lose confidence in our ability to successfully reorganize our business, and they may seek to establish alternative arrangements for providing us with goods and services, including alternative payment arrangements, which in turn could have an adverse effect on our liquidity and/or results of operations. Our having sought bankruptcy protection may also adversely affect our ability to negotiate favorable terms from suppliers, contract or trading counterparties and others and to attract and retain customers and counterparties. The failure to obtain such favorable terms and to attract and retain customers and other contract or trading counterparties could adversely affect our financial performance.

We have substantial liquidity needs and may be required to seek additional financing. Our principal sources of liquidity have historically consisted of cash provided by operations, cash and cash equivalents on hand and available borrowings under our credit agreements. Our liquidity position is significantly influenced by our operating results, which in turn are substantially dependent on commodity prices, especially prices for corn, ethanol, natural gas and unleaded gasoline. As a result, adverse commodity price movements adversely impact our liquidity. We face uncertainty regarding the adequacy of our liquidity and capital resources and have limited access to additional financing. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with the Bankruptcy Case and expect that we will continue to incur significant professional fees and costs. We cannot assure you that the amounts of cash available from operations, together with any DIP financing, will be sufficient to fund our operations, including operations during the period until such time as we are able to propose a plan of reorganization that will receive the requisite acceptance by creditors and be confirmed by the Bankruptcy Court.

We may not have sufficient cash to service our indebtedness and other liquidity requirements. Our ability to service any DIP financing indebtedness and successfully consummate a plan of reorganization will depend, in part, on our ability to generate cash. We cannot be certain that cash on hand together with cash from operations will by itself be sufficient to meet our cash and liquidity needs. If we are unable to generate enough cash to meet our liquidity needs, we could be forced to discontinue some or all of our operations.

Our DIP financing imposes significant operating and financial restrictions on us, compliance or non-compliance with which could have a material adverse effect on our liquidity and operations. Restrictions imposed by the terms of our DIP financing could adversely affect us by limiting our ability to plan for or react to market conditions or to meet our capital needs and could result in an event of default under the DIP financing. These restrictions will limit our ability, subject to certain exceptions, to, among other things:

•

incur additional indebtedness;

•

make prepayments on or purchase indebtedness in whole or in part;

•

make investments;

•

enter into transactions with affiliates on other than arm’s-length terms;

•

create or incur liens to secure debt;

•

consolidate or merge with another entity;

•

lease, transfer or sell assets and use proceeds of permitted asset leases, transfers or sales;

•

incur dividend or other payment restrictions;

•

make capital expenditures beyond specified limits; and

•

engage in specified business activities.

These limitations could have a material adverse effect on our liquidity and operations. If we fail to comply with the restrictions under any DIP financing and are unable to obtain a waiver or amendment or a default exists and is continuing under the DIP financing, the lenders could declare outstanding borrowings and other obligations under the DIP financing immediately due and payable. Our ability to comply with these restrictions may be affected by events beyond our control, and any material deviations from our forecasts could require us to seek waivers or amendments of covenants or alternative sources of financing or to reduce expenditures. We cannot assure you that such waivers, amendments or alternative financing could be obtained, or if obtained, would be on terms acceptable to us. If we are unable to comply with the terms of the DIP financing, or if we fail to generate sufficient cash flow from operations, or, if it became necessary, to obtain such waivers, amendments or alternative financing, it could adversely impact the timing of, and our ultimate ability to successfully implement, a plan of reorganization.

Risks Relating to Our Business

~~The~~If ~~California~~the ~~Low~~Federal ~~Carbon~~Volumetric ~~Fuel~~Ethanol ~~Standard~~Excise ~~may~~Tax ~~decrease~~Credit ~~demand~~(“VEETC”) ~~for~~expires ~~corn~~on ~~based~~December 31, ~~ethanol~~2011, ~~which could~~it could negatively impact our profitability. ~~Recently, California passed a Low Carbon Fuels Standard (LCFS).~~ The ~~California~~ethanol ~~LCFS~~industry ~~requires~~is ~~that~~benefited ~~renewable~~by ~~fuels~~VEETC ~~used~~which inis ~~California~~a federal ~~must~~excise ~~accomplish certain~~tax ~~reductions~~credit inof ~~greenhouse~~45 ~~gases~~cents ~~which~~per ~~are~~gallon ~~measured~~of ~~using~~ethanol ablended ~~lifecycle~~with ~~analysis~~gasoline. ~~Management believes~~This ~~that~~excise ~~these~~tax credit ~~new~~is ~~regulations~~set ~~could~~to ~~preclude~~expire ~~corn~~on ~~based~~December 31, ~~ethanol~~2011. ~~produced~~We inbelieve ~~the~~that ~~Midwest~~VEETC ~~from being~~positively ~~used~~impacts inthe ~~California.~~price ~~California represents a significant~~ of ethanol ~~demand market~~. If weVEETC ~~are unable~~is toallowed ~~supply ethanol~~ to ~~California~~expire, it could ~~significantly~~negatively ~~reduce~~impact ~~demand for~~ the ~~ethanol~~price we ~~produce.~~ ~~Any~~receive ~~decrease~~for in our ethanol ~~demand~~and could negatively impact ~~ethanol prices which could reduce~~ our ~~revenues and negatively impact our ability to profitably operate the ethanol plant~~profitability.

IfWe ~~the~~have ~~Federal~~a ~~Volumetric~~significant ~~Ethanol~~amount ~~Excise~~of ~~Tax~~debt, ~~Credit~~and ~~(“VEETC”)~~our ~~expires~~existing ondebt ~~December 31~~financing agreements contain, ~~2010~~and our future debt financing agreements may contain, itrestrictive covenants that limit distributions ~~could~~and ~~negatively~~impose ~~impact~~restrictions on the operation of our ~~profitability~~business. The ~~ethanol~~use ~~industry~~of isdebt ~~benefited~~financing bymakes ~~VEETC~~it ~~which~~more difficult isfor ~~a federal~~us ~~excise~~to ~~tax~~operate ~~credit~~because ofwe 45must ~~cents~~make ~~per~~principal ~~gallon~~and ofinterest ~~ethanol~~payments ~~blended~~on ~~with~~the indebtedness ~~gasoline~~and abide by covenants contained in our debt financing agreements. ~~This~~The ~~excise~~level ~~tax~~of our ~~credit~~debt ismay ~~referred~~have toimportant asimplications ~~the~~on ~~blenders~~our ~~credit~~operations, ~~and~~including, isamong ~~set~~other things: (a) limiting our ability to ~~expire~~obtain onadditional ~~December~~debt or equity financing; (b) ~~31,~~placing ~~2010.~~us ~~Although~~at a competitive ~~the~~disadvantage ~~blenders’~~because ~~credit~~we ismay ~~not~~be ~~paid~~more toleveraged ~~the~~than ~~ethanol~~some ~~producer~~of our competitors; (c) subjecting all or substantially all of our assets to liens, wewhich ~~believe~~means that ~~VEETC~~there ~~positively~~may ~~impacts the~~be ~~price~~no ofassets ~~ethanol.~~left Iffor unit holders in the ~~portion~~event of ~~VEETC~~a ~~that~~liquidation; ~~benefits~~and ~~ethanol~~(d) limiting isour ~~allowed~~ability to ~~expire,~~make itbusiness ~~could~~and ~~negatively~~operational ~~impact~~decisions ~~the~~regarding ~~price~~our webusiness, including, ~~receive~~among ~~for~~other things, limiting our ~~ethanol~~ability ~~and~~to ~~could~~pay ~~negatively~~dividends ~~impact~~to our unit holders, make ~~profitability~~capital improvements, sell or purchase assets or engage in transactions we deem to be appropriate and in our best interest.

~~If the secondary tariff on imported ethanol is allowed to expire in January 2011, we could see~~31 an increase in ethanol produced in foreign countries being marked in the Untied States which could negatively impact our profitability. The secondary tariff on imported ethanol is a 54 cent per gallon tariff on ethanol imports from certain foreign countries. The secondary tariff on imported ethanol is scheduled to expire in January 2011. If this tariff is allowed to expire, an influx of imported ethanol on the domestic ethanol market could have a significant negative impact on ethanol prices and our profitability.

Our financial performance is significantly dependent on corn and ethanol prices and generally we will not be able to pass on increases in input prices to our customers. Our results of operations and financial condition are significantly affected by the cost and supply of corn and the market price of ethanol. Changes in the relative prices of corn and ethanol are subject to and determined by market forces over which we have no control.

The spread between ethanol and corn prices can vary significantly. Our gross margins depend principally on the spread between ethanol prices and corn prices. The spread between the price of a gallon of ethanol and the cost of corn required to produce a gallon of ethanol will likely continue to fluctuate. A protracted reduction in the spread between ethanol and corn prices, whether a result of an increase in corn prices or a reduction in ethanol prices, would adversely affect our results of operations and financial condition.

Risks Related to Ethanol Industry

The California Low Carbon Fuel Standard may decrease demand for corn based ethanol which could negatively impact our profitability. Recently, California passed a Low Carbon Fuels Standard (LCFS). The California LCFS requires that renewable fuels used in California must accomplish certain reductions in greenhouse gases which are measured using a lifecycle analysis. Management believes that these new regulations could preclude corn based ethanol produced in the Midwest from being used in California. California represents a significant ethanol demand market. If the ethanol industry is unable to supply ethanol to California, it could significantly reduce demand for the ethanol we produce. Any decrease in ethanol demand could negatively impact ethanol prices which could reduce our revenues and negatively impact our ability to profitably operate the ethanol plant.

Overcapacity within the ethanol industry could cause an oversupply of ethanol and a decline in ethanol prices. Excess capacity in the ethanol industry would have an adverse impact on our results of operations, cash flows and general financial condition. Excess capacity may also result or intensify from increases in production capacity coupled with insufficient demand. If the demand for ethanol does not grow at the same pace as increases in supply, we would expect the price for ethanol to decline.

Risks Related to Regulation and Governmental Action

Changes in environmental regulations or violations of the regulations could be expensive and reduce our profitability. We are subject to extensive air, water and other environmental laws and regulations. In addition, some of these laws require our plant to operate under a number of environmental permits. These laws, regulations and permits can often require expensive pollution control equipment or operation changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, damages, criminal sanctions, permit revocations and/or plant shutdowns. In the future, we may be subject to legal actions brought by environmental advocacy groups and other parties for actual or alleged violations of environmental laws or our permits. Additionally, any changes in environmental laws and regulations, both at the federal and state level, could require us to spend considerable resources in order to comply with future environmental regulations. The expense of compliance could be significant enough to reduce our profitability and negatively affect our financial condition.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.

None.


Item 3.		Defaults Upon Senior Securities.

None.

~~Item 4. (Removed and Reserved)~~32


Item 4.		Removed and Reserved


Item 5.		Other Information.

None.


Item 6.		Exhibits. The following exhibits are included herein:

Exhibit No.		Description
	10.1	~~Fourth~~Debtor-in-Possession ~~Amendment~~Credit ~~to Accounts~~ Agreement between Southwest Georgia Ethanol, LLC and WestLB AgAG dated ~~June~~February 74, ~~2010~~2011.
	10.2	~~Sixth~~Pledge ~~Amendment~~and toSecurity ~~Senior Credit~~ Agreement between First United Ethanol, LLC, Southwest Georgia Ethanol, LLC and WestLB AgAG dated ~~June~~February 74, ~~2010~~2011.
	10.3	Debtor-in-Possession Accounts Agreement between Southwest Georgia Ethanol, LLC, Amarilla National Bank and WestLB Ag dated February 4, 2011.
	10.4	Deed to Secure Debt, Security Agreement and Assignment of Leases, Rents and Security Deposits between Southwest Georgia Ethanol, LLC and WestLB Ag dated February 4, 2011.
	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. § 1350.
	32.2	Certificate Pursuant to 18 U.S.C. § 1350.

SIGNATURES

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

	FIRST UNITED ETHANOL, LLC
Date: August 16, 2010	/s/ Murray Campbell
Date: February 18, 2011	/s/ Murray Campbell
	Murray Campbell
	Chief Executive Officer
Date: August 16, 2010	/s/ Lawrence Kamp
Date: February 18, 2011	/s/ Lawrence Kamp
	Lawrence Kamp
	Chief Financial Officer

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Filing Compare · FIRST UNITED ETHANOL LLC