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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
 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: 000-1359687
 RED TRAIL ENERGY, LLC
  NORTH DAKOTA
    
    76-0742311(State or other jurisdiction
    
    (IRS Employerof incorporation or organization)
    
    Identification No.)
 
 (701) 974-3308
 None
 None
 o þ
 o þ
 þ o
 o
  o o o þ
  o þ




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##### 



PagePART I
    
    
    2ITEM 1. BUSINESS
    
    
    2ITEM 1A. RISK FACTORS
    
    
    10ITEM 2. PROPERTIES
    
    
    16ITEM 3. LEGAL PROCEEDINGS
    
    
    16ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    17PART II
    
    
    17ITEM 5. MARKET FOR REGISTRANTS MEMBER UNITS, RELATED MEMBER
MATTERS AND ISSUER PURCHASED OF EQUITY SECURITIES
    
    
    17ITEM 6. SELECTED FINANCIAL DATA
    
    
    18ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
    
    
    18ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    26ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    27ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    27ITEM 9A. CONTROLS AND PROCEDURES.
    
    
    27ITEMS 9B. OTHER INFORMATION
    
    
    28PART III
    
    
    28PART IV
    
    
    28ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    28Third Amendment to Construction Loan AgreementFourth Amendment to Construction Loan AgreementInterest Rate Swap AgreementMember Ethanol Fuel Marketing AgreementContribution AgreementCoal Sales OrderDistillers Grain Marketing Agreement302 Certification of Chief Executive Officer302 Certification of Chief Financial OfficerSection 906 CertificationSection 906 Certification




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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
    
    
    Projected growth, overcapacity or contraction in the ethanol market in which we operate;
    
    Fluctuations in the price and market for ethanol and distillers grains;
    
    Changes in plant production capacity, variations in actual ethanol and
distillers grains production from expectations or technical
difficulties in operating the plant;
    
    Availability and costs of products and raw materials, particularly corn and coal;
    
    Changes in our business strategy, capital improvements or development
plans for expanding, maintaining or contracting our presence in the
market in which we operate;
    
    Costs of equipment;
    
    Changes in interest rates and the availability of credit to support capital improvements, development, expansion and operations;
    
    Our ability to market and our reliance on third parties to market our products;
    
    Our ability to distinguish ourselves from our current and future competition;
    
    Changes to infrastructure, including
 
    
    expansion of rail capacity,
    
    possible future use of ethanol dedicated pipelines for transportation
    
    increases in truck fleets capable of transporting ethanol within localized markets,
    
    additional storage facilities for ethanol, expansion of refining and blending facilities to handle ethanol,
    
    growth in service stations equipped to handle ethanol fuels, and
    
    growth in the fleet of flexible fuel vehicles capable of using E85 fuel;
 
    
    Changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices such as:
 
    
    national, state or local energy policy;
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
    
    federal ethanol tax incentives;
    
    legislation mandating the use of ethanol or other oxygenate additives;
    
    state and federal regulation restricting or banning the use of MTBE;
    
    environmental laws and regulations that apply to our plant operations and their enforcement; or
    
    reduction or elimination of tariffs on foreign ethanol.
 
    
    Increased competition in the ethanol and oil industries;
    
    Fluctuations in U.S. oil consumption and petroleum prices;
    
    Changes in general economic conditions or the occurrence of certain
events causing an economic impact in the agriculture, oil or
automobile industries;
    
    Anticipated trends in our financial condition and results of operations;
    
    The availability and adequacy of our cash flow to meet our requirements, including the repayment of debt;
    
    Our liability resulting from litigation;
    
    Our ability to retain key employees and maintain labor relations;
    
    Changes and advances in ethanol production technology; and
    
    Competition from alternative fuels and alternative fuel additives.
  
 PART I
 
 ITEM 1. BUSINESS.
 Overview
   General Development of Business since January 1, 2007
   2




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Available Information
 www.sec.gov
 www.redtrailenergyllc.com.
 Financial Information
 Item 7  Managements Discussion and Analysis of Financial Condition and Results
of Operations
 Principal Products and Their Markets
  Ethanol
   3




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Distillers Grains
   Marketing and Distribution of Principal Products
   Ethanol
  Distillers Grains
   Dependence on One or a Few Major Customers
   4




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Seasonal Factors in Business
  Financial Information about Geographic Areas
  Sources and Availability of Raw Materials
 Corn Feedstock Supply
   Coal
    State
    
    Estimated Reserves
    
    12 month ProductionWyoming
    
    
    78,900
    
    
    
    449.20Montana
    
    
    12,110
    
    
    
    42.30North Dakota
    
    
    11,450
    
    
    
    30.20
 5




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Electricity
  Water
  Federal Ethanol Supports
        6




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Other Factors Affecting Demand and Supply
   Our Competition
  7




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Competition from Alternative Ethanol Production Methods
   Competition with Ethanol Imported from Other Countries
   Competition from Alternative Fuels
    Distillers Grains Competition
  8




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Research and Development
  Costs and Effects of Compliance with Environmental Laws
        Employees
    9




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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.
 Risks Relating to Our Business
 We have a limited operating history and our business may not be as successful as we anticipate.
 
    
    effectively manage our business and operations;
    
    recruit and retain key personnel;
    
    successfully maintain our low-cost structure as we expand the scale of our business;
    
    manage rapid growth in personnel and operations;
    
    develop new products that complement our existing business; and
    
    successfully address the other risks described throughout this Annual Report.
  Our business is not diversified.
 Our financial performance is significantly dependent on corn prices and generally we cannot pass on
increases in corn prices to our customers. We engage in hedging transactions which involve risks that can
harm our business
 Our financial performance is significantly dependent on coal prices and generally we cannot pass on
increases in coal prices to our customers.
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The spread between ethanol and corn prices can vary significantly and has started to decrease.
 Our revenues will be greatly affected by the price at which we can sell our ethanol and distillers
grains.
  We sell all of the ethanol we produce to RPMG in accordance with an ethanol marketing agreement.
 We have withheld $3.9 million from our design-builder, Fagen, Inc. , (Fagen) related to the coal
combustor.
 Risks related to potential ongoing use of PRB coal, and discontinuing the use of lignite coal.
 We currently buy all of our coal from Westmoreland.
 We engage in hedging transactions, which involve risks that can harm our business.
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Operational difficulties at our Plant could negatively impact our sales volumes and could cause us
to incur substantial losses.
  Disruptions to infrastructure, or in the supply of fuel, coal or water, could materially and
adversely affect our business.
   Competition for qualified personnel in the ethanol industry is intense and we may not be able to
hire and retain qualified personnel to operate our Plant.
 Technological advances could significantly decrease the cost of producing ethanol or result in the
production of higher-quality ethanol, and if we are unable to adopt or incorporate technological
advances into our operations, our Plant could become uncompetitive or obsolete.
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Our process may not contain adequate corn oil to meet our anticipated yield or annual volume of
extracted oil.
 Demand for the corn oil produced at our Plant may decrease due to competition from other extraction
technologies or commodities.
 Risks Related to Conflicts of Interest
 Our governors have other business and management responsibilities, which may cause conflicts of
interest, including working with other ethanol plants and in the allocation of their time and
services to our project.
  We may have conflicting interests with Greenway that could cause Greenway to put its interests
ahead of ours.
 Our President and CEO may have a conflict of interest in his capacity as a board member of RPMG.
 We cannot guarantee that our coal unloading facility capital project will move forward as
anticipated.
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Risks Related to Taxes
 We are taxed as a partnership and must comply with certain provisions of the tax code to avoid
being taxed as a corporation .
  Risks Related to the Units
 No public trading market exists for our units and we do not anticipate the creation of such a
market, which means that it will be difficult for unit holders to liquidate their investment . .
 We have placed significant restrictions on transferability of the units, limiting a unit holders
ability to withdraw from Red Trail.
 
    
    Transfers by gift to the members descendants;
    
    Transfers upon the death of a member;
    
    Certain other transfers provided that for the applicable tax year, the
transfers in the aggregate do not exceed 2% of the total outstanding
units; and
    
    Transfers that comply with the Qualified Matching Service requirements.
 There is no assurance that a unit holder will receive cash distributions, which could result in a
unit holder receiving little or no return on his or her investment .
 Our units were not valued based on any independent objective criteria, but rather by the amount of
funding required to build our Plant.
 Our governors and managers will not be liable for any breach of their fiduciary duty, except as
provided under North Dakota law.
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Risks Related to Ethanol Industry
 Overcapacity within the ethanol industry could cause an oversupply of ethanol and a decline in
ethanol prices.
 We expect to operate in a competitive industry and compete with larger, better-financed entities,
which could impact our ability to operate profitably.
 Competition from the advancement of alternative fuels may lessen the demand for ethanol.
 Certain countries can export ethanol to the United States duty-free, which may undermine the
ethanol production industry in the United States .
  Consumer resistance to the use of ethanol based on the belief that ethanol is expensive, adds to
air pollution, harms engines and takes more energy to produce that it contributes may affect the
demand for ethanol.
 The expansion of domestic ethanol production in combination with state bans on MTBE and/or state
renewable fuels standards may place strains on related infrastructure such that our ethanol cannot
be marketed and shipped to blending terminals that would otherwise provide us the best cost
advantages.
 
    
    additional rail capacity to meet the expanding volume of ethanol shipments;
    
    additional storage facilities for ethanol;
    
    increases in truck fleets capable of transporting ethanol within localized markets;
    
    expansion of and/or improvements to refining and blending facilities to handle ethanol instead of MTBE; and
    
    growth in the fleet of flexible fuel vehicles capable of using E85 fuel.
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Risks Related to Regulation and Governmental Action
 A change in government policies favorable to ethanol may cause demand for ethanol to decline.
 Loss of or ineligibility for favorable tax benefits for ethanol production could hinder our ability
to operate at a profit and reduce the value of your investment in us.
  Changes in environmental regulations or violations of the regulations could be expensive and reduce
our profitability.
 The use of coal as a fuel source could subject us to additional environmental compliance costs.
 
 ITEM 2. PROPERTIES.
  
 ITEM 3. LEGAL PROCEEDINGS.
  16




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED UNIT HOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.
 Market Information
  Unit Holders
  Distributions
 Item 7  Managements Discussion and Analysis of Financial
Condition and Results of Operations  Capital Resources.
 Purchases of Equity Securities
 Total Shares Purchased
    
    Maximum Number ofTotal Units
    
    Average
    
    as Part of Publicly
    
    Shares that May Yet bePeriod
    
    Purchased
    
    Price/Unit
    
    Announced Programs
    
    PurchasedDecember 2007
    
    
    200,000
    
    
    $
    1.13
    
    
    
    0
    
    
    
    0
  17




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ITEM 6. SELECTED FINANCIAL DATA.
  Statement of Operations
 July 16, 2003 -Dec 31, 2007For the year Ended December 31,
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    UnauditedRevenues, net of derivative loss
    
    $
    101,885,969
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    101,885,969Cost of goods sold
    
    
    87,013,208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,013,208Gross profit
    
    
    14,872,761
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,872,761General and administrative expenses
    
    
    3,214,002
    
    
    
    3,747,730
    
    
    
    2,087,808
    
    
    
    433,345
    
    
    
    9,482,885Operting income (loss)
    
    
    11,658,759
    
    
    
    (3,747,730
    )
    
    
    (2,087,808
    )
    
    
    (433,345
    )
    
    
    5,389,876Interest expense
    
    
    6,268,707
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,268,707Other income (expense)
    
    
    767,276
    
    
    
    1,243,667
    
    
    
    360,204
    
    
    
    147,004
    
    
    
    2,518,151Net income (loss)
    
    $
    6,157,328
    
    
    $
    (2,504,063
    )
    
    $
    (1,727,604
    )
    
    $
    (286,341
    )
    
    $
    1,639,320Weighted average units*
    
    
    40,371,238
    
    
    
    39,625,843
    
    
    
    24,393,980
    
    
    
    3,591,180
    
    
    
    26,247,042Net income (loss) per unit*
    
    $
    0.15
    
    
    $
    (0.06
    )
    
    $
    (0.07
    )
    
    $
    (0.08
    )
    
    $
    0.06
 
 *
    
    Basic and fully diluted Balance Sheet Data
    
    2007
    
    2006
    
    2005Cash and equivalents
    
    $
    8,231,709
    
    
    $
    421,722
    
    
    $
    19,043,811Total current assets
    
    
    25,733,307
    
    
    
    4,761,974
    
    
    
    19,069,156Net property, plant and equipment
    
    
    81,942,542
    
    
    
    84,039,740
    
    
    
    16,948,185Total assets
    
    
    108,524,254
    
    
    
    89,864,228
    
    
    
    36,972,579Total current liabilities
    
    
    16,807,461
    
    
    
    9,781,240
    
    
    
    8,258,885Other noncurrent liabilities
    
    
    275,000
    
    
    
    275,000
    
    
    
    Long-term debt
    
    
    52,538,310
    
    
    
    46,878,960
    
    
    
    Members equity
    
    
    38,903,483
    
    
    
    32,929,088
    
    
    
    28,713,694Book value per weighted share
    
    $
    0.96
    
    
    $
    0.83
    
    
    $
    1.18
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
 Item 1A  Risk Factors
 Overview
    18




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Results of Operations
  Comparison of Fiscal Years Ended December 31, 2007, 2006 and 2005
  For the years ended December 31,
    
    2007
    
    2006
    
    2005Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    PercentRevenues, net of derivative loss
    
    $
    101,885,969
    
    
    
    100.00
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    Cost of goods sold
    
    
    87,013,208
    
    
    
    85.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross margin
    
    $
    14,872,761
    
    
    
    14.50
    %
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    General and administrative expenses
    
    
    3,214,002
    
    
    
    3.20
    %
    
    
    3,747,730
    
    
    
    
    
    
    
    2,087,808
    
    
    
    Operating income (loss)
    
    $
    11,658,759
    
    
    
    11.40
    %
    
    $
    (3,747,730
    )
    
    
    
    
    
    $
    (2,087,808
    )
    
    
    Interst expense
    
    $
    (6,268,707
    )
    
    
    -6.20
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    Other income (expense)Grant income
    
    
    27,750
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    Interest income
    
    
    432,265
    
    
    
    0.40
    %
    
    
    182,277
    
    
    
    
    
    
    
    588,156
    
    
    
    Other income
    
    
    307,261
    
    
    
    0.30
    %
    
    
    1,061,390
    
    
    
    
    
    
    
    (277,952
    )
    
    
    Net income (loss)
    
    $
    6,157,328
    
    
    
    5.90
    %
    
    $
    (2,504,063
    )
    
    
    
    
    
    $
    (1,727,604
    )
    
    
    
 Additional Data for the year ended December 31,
    
    2007Ethanol sold (thousands of gallons)
    
    
    50,184Ethanol average price per gallon (net of hedging activity)
    
    $
    1.82Distillers grains average sales price per gallon of ethanol sold
    
    $
    0.24Corn costs per gallon of ethanol sold (net of hedging activity)
    
    $
    1.37Corn costs per bushel (net of hedging activity)
    
    $
    3.78
 Revenues
  2007 Revenue:
 
    
    Total revenue for 2007 was approximately $101.9 million. Ethanol and distillers grains
represented 88% and 12% of revenue, respectively.
    
    Ethanol  Prices received by us for ethanol during 2007 ranged from $1.57 to $2.04 per
gallon. Prices peaked in March at $2.04 per gallon and then slowly declined until October
2007 when prices dipped to $1.57 per gallon. Prices improved in November and December to
$1.76 per gallon and $2.01 per gallon, respectively.
    
    Distillers grains  Our 2007 distillers grain sales volumes were roughly split 50-50
between DDGS and DMWG. Prices received by us for DDGS ranged from $80 to $100 per ton
during 2007 with our average selling price for the year being approximately $87 per ton.
The price steadily increased during the last half of 2007 as corn prices started to
increase. Prices received by us for DMWG ranged from $35 to $53 per ton with our average
selling price for the year being approximately $40 per ton.
    
    During the fourth quarter of 2007, we started to use ethanol derivative instruments in
an effort to lock in a margin on a portion of our production relative to corn that we have
purchased under contract. We recognize any gains or losses that result from the change in
value of our ethanol derivative instruments in revenue as the changes occur. During 2007,
we recognized a loss of approximately $2 million in revenue related to the change in value
of our ethanol derivative instruments as ethanol prices rose above the prices we had locked
in with our ethanol swaps.
 Prospective Information:
 
    
    Ethanol  we believe that ethanol prices may decrease later in 2008 as projected
additional ethanol production capacity becomes available but we cannot be certain of how
the price of ethanol will change, as it is a market driven commodity.
    
    Distillers Grains  Distillers grains prices normally follow the price of corn. As corn
prices have risen during the last half of 2007 and the first quarter of 2008 our distillers
grains prices have also increased. We believe distillers grains prices will remain
consistent with corn price fluctuations but we cannot be certain of how the price of
distillers grains will change, as it is a market driven commodity.
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
    
    Corn Oil Extraction  we have entered into an agreement to add corn oil extraction
equipment to our facility. We do not believe the equipment will be operational during 2008
but project that it will be operational during the first quarter of 2009. At current
prices and anticipated volumes, we expect that corn oil sales will add approximately
$1,000,000 to our revenues on an annual basis.
 Cost of Goods Sold and Gross Margin
   2007 Cost of Goods Sold:
 
    
    Total cost of goods sold for 2007 was approximately $87 million or 85.5% as a percentage
of sales. Our gross margin for 2007 was approximately $14.9 million. Purchases of corn
represented 78% of the total cost of goods sold.
    
    We use corn derivative instruments in an effort to lock in a margin on a portion of our
production relative to ethanol prices. We recognize any gains or losses that result from
the change in value of our corn derivative instruments in cost of goods sold as the changes
occur. During 2007, we recognized a gain of approximately $3 million that offset our cost
of corn in cost of goods sold. As the price of corn fluctuates, the value of our corn
derivative instruments are impacted, which affects our financial performance.
 Prospective Information:
 
    
    Corn  we anticipate that the price of corn will continue to rise during 2008. If this
trend were to continue, it will have a negative impact on our gross margin. We cannot be
certain how the price of corn will change as it is a market driven commodity. We will
continue to contract with local farmers to buy corn as well use corn derivative instruments
to hedge a portion of our corn needs.
    
    Energy needs  we have contracts in place, for our main energy inputs in an effort to
mitigate future price increases. This includes contracts for our coal, water, electricity
and natural gas requirements.
    
    Other costs of goods sold  one of our other main production inputs is chemicals.
Chemical prices started to rise at the end of 2007 and have continued to rise during 2008.
We do not anticipate the price increases to have a material impact on our financial
performance but cannot be certain how the price of chemicals will fluctuate in the future.
    
    Corn Oil Extraction  we have entered into an agreement to add corn oil extraction
equipment to our facility. We do not believe the equipment will be operational during 2008
but project that it will be operational during the first quarter of 2009. At current
prices and anticipated volumes, we expect that corn oil sales will add approximately
$1,000,000 to our gross margin and net income on an annual basis.
 General and Administrative Expenses
  
    
    $1.1 million of start up costs in 2006. These costs were related to the purchase of
plant supplies and other start up costs that were allocated to general and administrative
expense during 2006 because our Plant was not yet operational. Similar expenses may have
been incurred during 2007 but would have been included in cost of goods sold.
    
    $550,000 of pre-production payroll expenses that were charged to general and
administrative expense in 2006 because the Plant was not yet operational. Similar expenses
incurred during 2007 are shown in cost of goods sold.
  
    
    Approximately $1.1 million of increased general and administrative expenses related to
the administration and management of the Plant during its first full year of operation.
  
    
    Costs associated with management and administrative expenses during the construction of
our Plant, professional and consulting fees and commencement of Plant operations. The main
expenses incurred during 2006 include: $1.5 million related to professional services,
$1.1 million in start up expenses and supplies, $649,000 in payroll related expenses, and
$249,000 in legal fees.
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Prospective Information:
 
    
    We anticipate our general and administrative expenses for 2008 to be approximately
$200,000 lower than 2007 as we work to decrease our legal, professional and consulting fees
but cannot be certain that these goals will be met due to our changing business climate.
We anticipate lower costs in certain areas as our employees take more responsibility for
duties previously performed by our legal counsel and/or outside consultants and we also
anticipate that certain permitting and legal costs that were incurred during 2007 will not
recur in 2008.
 Operating Income
  Interest Expense and Other Income and Expense
      Plant Operations
 Operations of Ethanol Plant
   Critical Accounting Estimates
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Derivative Instruments
 Accounting for Derivative Instruments and Hedging
Activities
  Inventory
  Commitments and Contingencies
  Long-Lived Assets
   Liquidity and Capital Commitments
 Statement of Cash Flows for the years ended December 31,
    
    2007
    
    2006
    
    2005Cash flows from (used in) operating activities
    
    $
    2,684,633
    
    
    $
    (7,662,308
    )
    
    $
    (57,980
    )Cash flows used in investing activities
    
    
    (3,974,839
    )
    
    
    (66,903,860
    )
    
    
    (10,558,969
    )Cash flows from financing activities
    
    
    9,100,193
    
    
    
    55,944,079
    
    
    
    13,811,977
 Cash flows
 Operating activities.
  
    
    Increased net income of $8.7 million, due to the Plant becoming operational in 2007;
    
    Increased depreciation expense of $5.7 million, due to the Plant becoming operational in
2007; and
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
    
    Increased amortization expense and changes in the market value of our interest rate swap
that added $1.4 million.
  
    
    A net increase in cash flow use of $5.5 million from changes in working capital items
related to the Plant becoming operational in 2007. Current assets such as inventory,
accounts receivable and the change in market value of our corn and ethanol derivative
instruments increased more than our current liabilities during 2007.
  Investing activities.
  Financing activities.
 
    
    A decrease in the issuance of long-term debt of $38.6 million;
    
    A decrease in member contributions of $6.7 million due to the closing of the equity
drive during 2006; and
    
    Higher debt repayments of $1.8 million as we commenced debt service in 2007.
   Capital Expenditures
  Capital Resources
 Short-Term Debt Sources
  Long-Term Debt Sources
  Fixed Rate Note
 Variable Rate Note th
 23




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##### Table of Contents



Long-Term Revolving Note
 December 2007 Fixed Rate Note
  
    
    Providing the Bank with current and accurate financial statements;
    
    Maintaining certain financial ratios, minimum net worth, and working capital;
    
    Maintaining adequate insurance;
    
    Make, or allow to be made, any significant change in our business or tax structure; and
    
    Limiting our ability to make distributions to members.
  
    
    declaring all the debt owed to the Bank immediately due and payable; and
    
    taking possession of all of our assets, including any contract rights.
  Interest Rate Swap Agreements
    Letters of Credit
  Subordinated Debt
  24




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Contractual Obligations
    
    Total
    
    Less than 1 Yr
    
    1-3 Years
    
    3-5 Years
    
    More than 5 YrsLong-term debt obligations
    
    $
    75,290,933
    
    
    $
    10,736,543
    
    
    $
    16,961,857
    
    
    $
    47,592,533
    
    
    $
    Capital leases
    
    
    170,037
    
    
    
    61,701
    
    
    
    106,420
    
    
    
    1,916
    
    
    
    Operating lease obligations
    
    
    111,300
    
    
    
    31,800
    
    
    
    63,600
    
    
    
    15,900
    
    
    
    Coal purchases
    
    
    2,616,300
    
    
    
    1,288,800
    
    
    
    1,327,500
    
    
    
    
    
    
    
    Water purchases
    
    
    3,558,600
    
    
    
    398,400
    
    
    
    796,800
    
    
    
    769,800
    
    
    
    1,593,600
  Grants
     North Dakota Ethanol Incentive Program
  1.
    
    Corn Price:a.
    
    For every cent that the average quarterly price per bushel of corn
exceeds $1.80, the state shall add to the amounts payable under the
 25




---



##### Table of Contents



program $.001 multiplied by the number of gallons of ethanol produced
by the facility during the quarter.b.
    
    If the average quarterly price per bushel of corn is exactly $1.80,
the state shall not add anything to the amount payable under the
program.c.
    
    For every cent that the average quarterly price per bushel of corn is
below $1.80, the state shall subtract from the amounts payable under
the program $.001 multiplied by the number of gallons of ethanol
produced by the facility during the quarter.2.
    
    Ethanol Price:a.
    
    For every cent that the average quarterly rack price per gallon of
ethanol is above $1.30, the state shall subtract from the amounts
payable under the program $.002 multiplied by the number of gallons of
ethanol produced by the facility during the quarter.b.
    
    If the average quarterly price per gallon of ethanol is exactly $1.30,
the state shall not add anything to the amount payable under the
program.c.
    
    For every cent that the average quarterly rack price per gallon of
ethanol is below $1.30, the state shall add to the amounts payable
under the program $.002 multiplied by the number of gallons of ethanol
produced by the facility during the quarter.
  Tax Credit for Investors
   Off-Balance Sheet Arrangements
  
 ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 Accounting for Derivative Instruments and Hedging Activities
 Interest Rate Risk
  26




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##### Table of Contents



Commodity Price Risk
        
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
  
 ITEM 9A. CONTROLS AND PROCEDURES.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
   27




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##### Table of Contents



Internal
ControlIntegrated Framework
 Internal ControlIntegrated Framework
 /s/ Mick J. Miller

Mick J. Miller
    
    /s/ Mark E. Klimpel

Mark E. KlimpelPresident and Chief Executive Officer
    
    Chief Financial Officer
 
 ITEM 9B. OTHER INFORMATION
  
 PART III
  
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
  1) Financial Statements
  2) Financial Statement Schedules
  (3) Exhibits3.1
    
    Articles of Organization, as filed with the North Dakota Secretary of
State on July 16, 2003. Filed as Exhibit 3.1 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated by
reference herein.3.2
    
    Operating Agreement of Red Trail Energy, LLC. Filed as exhibit 3.2 to
our Annual Report on Form 10-K for the year ended December 31, 2006.
(000-52033) and incorporated by reference herein.4.1
    
    Membership Unit Certificate Specimen. Filed as Exhibit 4.1 to the
registrants registration statement on Form 10-12G (000-52033) and
incorporated by reference herein.4.2
    
    Member Control Agreement of Red Trail Energy, LLC. Filed as exhibit
4.2 to our Annual Report on Form 10-K for the year ended December 31,
2006. (000-52033) and incorporated by reference herein.10.1
    
    The Burlington Northern and Santa Fe Railway Company Lease of Land
for Construction/ Rehabilitation of Track made as of May 12, 2003 by
and between The Burlington Northern and Santa Fe Railway Company and
Red Trail Energy, LLC. Filed as Exhibit 10.1 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated by
reference herein.
 28




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##### Table of Contents



(3) Exhibits10.2
    
    Management Agreement made and entered into as of December 17, 2003 by
and between Red Trail Energy, LLC, and Greenway Consulting, LLC.
Filed as Exhibit 10.2 to the registrants registration statement on
Form 10-12G (000-52033) and incorporated by reference herein.10.3
    
    Development Services Agreement entered into as of December 17, 2003
by and between Red Trail Energy, LLC, and Greenway Consulting, LLC.
Filed as Exhibit 10.3 to the registrants registration statement on
Form 10-12G (000-52033) and incorporated by reference herein.10.4
    
    The Burlington Northern and Santa Fe Railway Company Real Estate
Purchase and Sale Agreement with Red Trail Energy, LLC, dated January
14, 2004. Filed as Exhibit 10.4 to the registrants registration
statement on Form 10-12G (000-52033) and incorporated by reference
herein.10.5
    
    Grain Origination Contract effective April 1, 2004 between Red Trail
Energy, LLC, and New Vision Coop. Filed as Exhibit 10.7 to the
registrants registration statement on Form 10-12G (000-52033) and
incorporated by reference herein.10.6
    
    Warranty Deed made as of January 13, 2005 between Victor Tormaschy
and Lucille Tormaschy, Husband and Wife, as Grantors, and Red Trail
Energy, LLC, as Grantee. Filed as Exhibit 10.8 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated by
reference herein.10.7
    
    Warranty Deed made as of July 11, 2005 between Neal C. Messer and
Bonnie M. Messer, Husband and Wife, as Grantors, and Red Trail
Energy, LLC, as Grantee. Filed as Exhibit 10.9 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated
by reference herein.10.8
    
    Agreement for Electric Service made the 18th day of August, 2005,
by and between West Plains Electric Cooperative, Inc. and Red Trail
Energy, LLC. Filed as Exhibit 10.10 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated
by reference herein.10.9+
    
    Lump Sum Design-Build Agreement between Red Trail Energy, LLC, and
Fagen, Inc. dated August 29, 2005. Filed as Exhibit 10.12 to the
registrants registration statement on Form 10-12G/A-3 (000-52033)
and incorporated by reference herein.10.10
    
    Railroad Construction, Design and Repair Contract made as of
November 7, 2005, by and between R & R Contracting, Inc. and Red
Trail Energy, LLC. Filed as Exhibit 10.13 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated
by reference herein.10.11
    
    Construction Loan Agreement dated as of the 16th day of December by
and between Red Trail Energy, LLC, and First National Bank of
Omaha. Filed as Exhibit 10.14 to the registrants registration
statement on Form 10-12G (000-52033) and incorporated by reference
herein.10.12
    
    Construction Note for $55,211,740.00 dated December 16, 2005,
between Red Trail Energy, LLC, as Borrower, and First National Bank
of Omaha, as Bank. Filed as Exhibit 10.15 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated
by reference herein.10.13
    
    International Swap Dealers Association, Inc. Master Agreement dated
as of December 16, 2005, signed by First National Bank of Omaha and
Red Trial Energy, LLC. Filed as Exhibit 10.18 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated
by reference herein.10.14
    
    Security Agreement and Deposit Account Control Agreement made
December 16, 2005, by and among First National Bank of Omaha, Red
Trail Energy, LLC, and Bank of North Dakota. Filed as Exhibit 10.19
to the registrants registration statement on Form 10-12G
(000-52033) and incorporated by reference herein.10.15
    
    Security Agreement given as of December 16, 2005, by Red Trail
Energy, LLC, to First National Bank of Omaha. Filed as Exhibit
10.20 to the registrants registration statement on Form 10-12G
(000-52033) and incorporated by reference herein.10.16
    
    Control Agreement Regarding Security Interest in Investment
Property, made as of December 16, 2005, by and between First
National Bank of Omaha, Red Trail Energy, LLC, and First National
Capital Markets, Inc. Filed as Exhibit 10.21 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated
by reference herein.
 29




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##### Table of Contents



(3) Exhibits10.17
    
    Loan Agreement between Greenway Consulting, LLC, and Red Trail
Energy, LLC, dated February 26, 2006. Filed as Exhibit 10.22 to the
registrants registration statement on Form 10-12G (000-52033) and
incorporated by reference herein.10.18
    
    Promissory Note for $1,525,000.00, dated February 28, 2006, given
by Red Trail Energy, LLC, to Greenway Consulting, LLC. Filed as
Exhibit 10.23 to the registrants registration statement on Form
10-12G (000-52033) and incorporated by reference herein.10.19
    
    Loan Agreement between ICM Inc. and Red Trail Energy, LLC, dated
February 28, 2006. Filed as Exhibit 10.24 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated
by reference herein.10.20
    
    Promissory Note for $3,000,000.00, dated February 28, 2006, given
by Red Trail Energy, LLC, to ICM Inc. Filed as Exhibit 10.25 to the
registrants registration statement on Form 10-12G (000-52033) and
incorporated by reference herein.10.21
    
    Loan Agreement between Fagen, Inc. and Red Trail Energy, LLC, dated
February 28, 2006. Filed as Exhibit 10.26 to the registrants
registration statement on Form 10-12G (000-52033) and incorporated
by reference herein.10.22
    
    Promissory Note for $1,000,000.00, dated February 28, 2006, given
by Red Trail Energy, LLC, to Fagen, Inc. Filed as Exhibit 10.27 to
the registrants registration statement on Form 10-12G (000-52033)
and incorporated by reference herein.10.23
    
    Southwest Pipeline Project Raw Water Service Contract, executed by
Red Trail Energy, LLC, on March 8, 2006, by the Secretary of the
North Dakota State Water Commission on March 31, 2006, and by the
Chairman of the Southwest Water Authority on April 2, 2006. Filed
as Exhibit 10.28 to the registrants registration statement on Form
10-12G (000-52033) and incorporated by reference herein.10.24
    
    Contract dated April 26, 2006, by and between the North Dakota
Industrial Commission and Red Trail Energy, LLC. Filed as Exhibit
10.29 to the registrants registration statement on Form 10-12G/A-2
(000-52033) and incorporated by reference herein.10.25
    
    Subordination Agreement, dated May 16, 2006, among the State of
North Dakota, by and through its Industrial Commission, First
National Bank and Red Trail Energy, LLC. Filed as Exhibit 10.30 to
the registrants registration statement on Form 10-12G/A-2
(000-52033) and incorporated by reference herein.10.26
    
    Firm Gas Service Extension Agreement, dated June 7, 2006, by and
between Montana-Dakota Utilities Co. and Red Trail Energy, LLC.
Filed as Exhibit 10.31 to the registrants registration statement
on Form 10-12G/A-2 (000-52033) and incorporated by reference
herein.10.27
    
    First Amendment to Construction Loan Agreement dated August 16,
2006 by and between Red Trail Energy, LLC and First National Bank
of Omaha. Filed as Exhibit 10.32 to the registrants Annual
Report on Form 10-K for the year ended December 31, 2006
(000-52033) and incorporated by reference herein.10.28
    
    Security Agreement and Deposit Account Control Agreement effective
August 16, 2006 by and among First National Bank of Omaha and Red
Trail Energy, LLC. Filed as Exhibit 10.34 to our Annual Report on
Form 10-K for the year ended December 31, 2006. (000-52033) and
incorporated by reference herein.10.29
    
    Equity Grant Agreement dated September 8, 2006 by and between Red
Trail Energy, LLC and Mickey Miller. Filed as Exhibit 10.35 to our
Annual Report on Form 10-K for the year ended December 31, 2006.
(000-52033) and incorporated by reference herein.10.30
    
    Option to Purchase 200,000 Class A Membership Units of Red Trail
Energy, LLC by Red Trail Energy, LLC from North Dakota Development
Fund and Stark County dated December 11, 2006. Filed as Exhibit
10.36 to our Annual Report on Form 10-K for the year ended December
31, 2006. (000-52033) and incorporated by reference herein.10.31
    
    Audit Committee Charter adopted April 9, 2007. Filed as Exhibit
10.37 to our Annual Report on Form 10-K for the year ended December
31, 2006. (000-52033) and incorporated by reference herein.10.32
    
    Senior Financial Officer Code of Conduct adopted March 28, 2007.
Filed as Exhibit 10.38 to our Annual Report on Form 10-K for the
year ended December 31, 2006. (000-52033) and incorporated by
reference herein.
 30




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##### Table of Contents



(3) Exhibits10.33
    
    Long Term Revolving Note for $10,000,000, dated April 16, 2007
between Red Trail Energy, LLC, as Borrower, and First National Bank
of Omaha, as Bank. Filed as Exhibit 10.1 to our Quarterly Report
on Form 10-Q for the quarter ended March 31, 2007 (000-52033) and
incorporated by reference herein.10.34
    
    Variable Rate Note for $17,065,870, dated April 16, 2007 between
Red Trail Energy, LLC, as Borrower, and First National Bank of
Omaha, as Bank. Filed as Exhibit 10.2 to our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007 (000-52033).10.35
    
    Fixed Rate Note for $27,605,870, dated April 16, 2007 between Red
Trail Energy, LLC, as Borrower, and First National Bank of Omaha,
as Bank. Filed as Exhibit 10.3 to our Quarterly Report on Form
10-Q for the quarter ended March 31, 2007 (000-52033) and
incorporated by reference herein.10.36
    
    $3,500,000 Revolving Promissory Note given by the Company to First
National Bank of Omaha dated July 18, 2007. Filed as Exhibit 10.1
to our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007 (000-52033) and incorporated by reference
herein.10.37
    
    Second Amendment to Construction Loan Agreement by and between the
Company and First National Bank of Omaha dated July 18, 2007.
Filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2007 (000-52033) and incorporated by
reference herein.10.38*
    
    Third Amendment to Construction Loan Agreement by and between the
Company and First National Bank of Omaha dated November 15, 2007.10.39*
    
    Fourth Amendment to Construction Loan Agreement by and between the
Company and First National Bank of Omaha dated December 11, 2007.10.40*
    
    Interest Rate Swap Agreement by and between the Company and First
National Bank of Omaha dated December 11, 2007.10.41*
    
    Member Ethanol Fuel Marketing agreement by and between Red Trail
Energy, LLC and RPMG, Inc dated January 1, 2008.10.42*
    
    Contribution Agreement by and between Red Trail Energy, LLC and
Renewable Products Marketing Group, LLC dated January 1, 2008.10.43*
    
    Coal Sales Order by and between Red Trail Energy, LLC and
Westmoreland Coal Sales Company dated December 5, 2007.10.44*
    
    Distillers Grain Marketing Agreement by and between Red Trail
Energy, LLC and CHS, Inc dated March 10, 2008.31.1
    
    Certification by Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934).31.2
    
    Certification by Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934).32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 +
    
    Confidential treatment has been requested with respect to certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and Exchange Commission.*
    
    Filed herewith. 31




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##### Table of Contents



SIGNATURES
  Date: April 11, 2008
    /s/ Mick J. MillerMick J. MillerPresident and Chief Financial Officer
(Principal Executive Officer)Date: April 11, 2008
    /s/ Mark E. KlimpelMark E. KlimpelChief Financial Officer
(Principal Financial and Accounting

Officer)Date: April 11, 2008
    /s/ Mike AppertMike Appert, Chairman of the BoardDate: April 11, 2008
    /s/ William A. PriceWilliam A. Price, GovernorDate: April 11, 2008
    /s/ Ron AberleRon Aberle, GovernorDate: April 11, 2008
    /s/ Jody HoffJody Hoff, Vice President and GovernorDate: April 11, 2008
    /s/ Roger BerglundRoger Berglund, Treasurer and GovernorDate: April 11, 2008
    /s/ Frank KirschenheiterFrank Kirschenheiter, Secretary and GovernorDate: April 11, 2008
    /s/ Tim MeuchelTim Meuchel, Governor 32




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##### Table of Contents



Red Trail Energy, LLC
   PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Financial StatementsBalance Sheet
    
    
    F-3Statement of Operations
    
    
    F-4Statement of Changes in Members Equity
    
    
    F-5Statement in Cash Flows
    
    
    F-6Notes to Financial Statements
    
    
    F-7 -19
 F-1




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##### Table of Contents



/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.Certified Public Accountants 
 F-2




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##### Table of Contents



Red Trail Energy, LLC
Balance Sheet
 December 31,
    
    2007
    
    
    2006ASSETSCurrent AssetsCash and equivalents
    
    $
    8,231,709
    
    
    $
    421,722Accounts receivable
    
    
    5,960,041
    
    
    
    Corn and ethanol derivative instruments, at market
    
    
    3,190,790
    
    
    
    320,341Inventory
    
    
    8,297,356
    
    
    
    3,956,129Prepaid expenses
    
    
    53,411
    
    
    
    63,782Total current assets
    
    
    25,733,307
    
    
    
    4,761,974Property, Plant and EquipmentLand
    
    
    300,602
    
    
    
    300,602Plant and equipment
    
    
    78,139,237
    
    
    
    151,851Land improvements
    
    
    3,918,766
    
    
    
    Buildings
    
    
    5,312,995
    
    
    
    313,295Construction in progress
    
    
    
    
    
    
    83,290,00887,671,600
    
    
    
    84,055,756Less accumulated depreciation
    
    
    5,729,058
    
    
    
    16,016Net property and equipment
    
    
    81,942,542
    
    
    
    84,039,740Other AssetsDebt issuance costs, net of amortization
    
    
    768,405
    
    
    
    982,574Deposits
    
    
    80,000
    
    
    
    80,000Total other assets
    
    
    848,405
    
    
    
    1,062,574Total Assets
    
    $
    108,524,254
    
    
    $
    89,864,288LIABILITIES AND MEMBERS EQUITYCurrent LiabilitiesCurrent maturities of long-term debt
    
    $
    6,578,004
    
    
    $
    2,909,228Accounts payable
    
    
    6,682,330
    
    
    
    4,437,601Accrued expenses
    
    
    2,502,936
    
    
    
    2,323,476Interest rate swap, at market
    
    
    1,044,191
    
    
    
    110,935Total current liabilities
    
    
    16,807,461
    
    
    
    9,781,240Other LiabilitiesContracts payable
    
    
    275,000
    
    
    
    275,000Long-Term Debt
    
    
    52,538,310
    
    
    
    46,878,960Commitments and ContingenciesMembers Equity
    
    
    38,903,483
    
    
    
    32,929,088Total Liabilities and Members Equity
    
    $
    108,524,254
    
    
    $
    89,864,288
  F-3




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Red Trail Energy, LLC
Statement of Operations
 Years ended December 31,
    
    2007
    
    
    2006
    
    
    2005RevenuesEthanol, net of loss on derivative instruments
    
    $
    90,100,581
    
    
    $
    
    
    
    $
    Distillers grains
    
    
    11,785,388
    
    
    
    
    
    
    
    Total Revenue
    
    
    101,885,969
    
    
    
    
    
    
    
    Cost of Goods SoldCorn costs, net of gain on derivative instruments
    
    
    67,778,832
    
    
    
    
    
    
    
    Production costs
    
    
    13,579,178
    
    
    
    
    
    
    
    Depreciation
    
    
    5,655,198
    
    
    
    
    
    
    
    Total Cost of Goods Sold
    
    
    87,013,208
    
    
    
    
    
    
    
    Gross Margin
    
    
    14,872,761
    
    
    
    
    
    
    
    General and Administrative
    
    
    3,214,002
    
    
    
    3,747,730
    
    
    
    2,087,808Operating Income (Loss)
    
    
    11,658,759
    
    
    
    (3,747,730
    )
    
    
    (2,087,808
    )Interest Expense
    
    
    6,268,707
    
    
    
    
    
    
    
    Other Income, net
    
    
    767,276
    
    
    
    1,243,667
    
    
    
    360,204Net Income (Loss)
    
    $
    6,157,328
    
    
    $
    (2,504,063
    )
    
    $
    (1,727,604
    )Weighted Average Units Outstanding
    
    
    40,371,238
    
    
    
    39,625,843
    
    
    
    24,393,980Net Income (Loss) Per Unit, basic and fully diluted
    
    $
    0.15
    
    
    $
    (0.06
    )
    
    $
    (0.07
    )
  F-4




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##### Table of Contents



Red Trail Energy, LLC
Statement of Changes in Members Equity
 Class A Member Units
    
    
    Additional Paid
    
    
    Retained
    
    
    Treasury Units
    
    
    Total Members'Units (a)
    
    
    Amount
    
    
    in Capital
    
    
    Earnings
    
    
    Units
    
    
    Amount
    
    
    EquityBalance  December 31, 2004
    
    
    3,600,000
    
    
    $
    1,200,000
    
    
    $
    56,825
    
    
    $
    (706,478
    )
    
    
    
    
    
    $
    
    
    
    $
    550,347Capital contributions  $1 per unit,
April 6
    
    
    25,983,452
    
    
    
    25,983,452
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,983,452Capital contributions  $1 per unit,
April 6 - June 30
    
    
    1,389,303
    
    
    
    1,389,303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,389,303Capital contributions  $1 per unit,
July 1 - September 30
    
    
    2,080,555
    
    
    
    2,080,555
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,080,555Capital contributions  $  per unit,
October 1 - December 31
    
    
    544,956
    
    
    
    544,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    544,956Cost related to capital contributions
    
    
    
    
    
    
    (107,315
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107,315
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,727,604
    )
    
    
    
    
    
    
    
    
    
    
    (1,727,604
    )Balance  December 31, 2005
    
    
    33,598,266
    
    
    
    31,090,951
    
    
    
    56,825
    
    
    
    (2,434,082
    )
    
    
    
    
    
    
    
    
    
    
    28,713,694Capital contributions  $1 per unit,
January 1 - March 31
    
    
    6,713,207
    
    
    
    6,713,207
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,713,207Units issued under option exercised -
62,500 units, $0.10 per unit
    
    
    62,500
    
    
    
    6,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,250Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,504,063
    )
    
    
    
    
    
    
    
    
    
    
    (2,504,063
    )Balance  December 31, 2006
    
    
    40,373,973
    
    
    
    37,810,408
    
    
    
    56,825
    
    
    
    (4,938,145
    )
    
    
    
    
    
    
    
    
    
    
    32,929,088Unit-based compensation
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000Treasury units repurchased -
$1.13 per unit, December
    
    
    (200,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    (227,933
    )
    
    
    (227,933
    )2007Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,157,328
    
    
    
    
    
    
    
    
    
    
    
    6,157,328Balance  December 31, 2007
    
    
    40,173,973
    
    
    $
    37,810,408
    
    
    $
    101,825
    
    
    $
    1,219,183
    
    
    
    200,000
    
    
    $
    (227,933
    )
    
    $
    38,903,483
 
 (a)
    
    -Amounts shown represent member units outstanding. Authorized and issued units were 3,600,000, 33,598,266, 40,373,973 and
40,373,973 as of December 31, 2004, December 31, 2005, December 31, 2006 and December 31,
2007, respectively.  F-5




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##### Table of Contents



RED TRAIL ENERGY, LLC
Statements of Cash Flows
 Years ended December 31,
    
    2007
    
    
    2006
    
    
    2005Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    6,157,328
    
    
    $
    (2,504,063
    )
    
    $
    (1,727,604
    )Adjustment to reconcile net income (loss) to net cash provided by
(used in) operating activities:Depreciation
    
    
    5,713,042
    
    
    
    16,016
    
    
    
    Amortization of debt financing costs
    
    
    214,169
    
    
    
    
    
    
    
    Change in market value of derivative instruments
    
    
    (2,870,449
    )
    
    
    (320,341
    )Change in market value of interest rate swap
    
    
    894,256
    
    
    
    (167,017
    )
    
    
    277,952Changes in assets and liabilities
Equity-based compensation
    
    
    20,000
    
    
    
    25,000
    
    
    
    Accounts receivable
    
    
    (5,960,041
    )
    
    
    
    
    
    
    Inventory
    
    
    (4,341,227
    )
    
    
    (3,956,129
    )
    
    
    Prepaid expenses
    
    
    10,371
    
    
    
    (38,437
    )
    
    
    (25,345
    )Other assets
    
    
    
    
    
    
    (80,000
    )
    
    
    Accounts payable
    
    
    2,603,723
    
    
    
    (1,423,115
    )
    
    
    1,409,068Accrued expenses
    
    
    204,461
    
    
    
    510,778
    
    
    
    7,949Other liabilities
    
    
    
    
    
    
    275,000
    
    
    
    Net settlements on derivative instruments
    
    
    39,000
    
    
    
    
    
    
    
    Net cash provided by (used in) operating activities
    
    
    2,684,633
    
    
    
    (7,662,308
    )
    
    
    (57,980
    )Cash Flows from Investing ActivitiesCapital expenditures
    
    
    (3,974,839
    )
    
    
    (66,903,860
    )
    
    
    (10,558,969
    )Net cash used in investing activities
    
    
    (3,974,839
    )
    
    
    (66,903,860
    )
    
    
    (10,558,969
    )Cash Flows from Financing ActivitiesPayments for deferred financing costs
    
    
    
    
    
    
    
    
    
    
    (3,353
    )Payments for debt issuance costs
    
    
    
    
    
    
    (563,566
    )
    
    
    (470,500
    )Debt repayments
    
    
    (1,813,376
    )
    
    
    
    
    
    
    Proceeds from long-term debt
    
    
    11,141,502
    
    
    
    49,788,188
    
    
    
    Proceeds from stock subscriptions held in escrow
    
    
    
    
    
    
    
    
    
    
    10,271,016Member contributions
    
    
    
    
    
    
    6,719,457
    
    
    
    4,014,814Treasury units repurchased
    
    
    (227,933
    )
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    9,100,193
    
    
    
    55,944,079
    
    
    
    13,811,977Net Increase (Decrease) in Cash and Equivalents
    
    
    7,809,987
    
    
    
    (18,622,089
    )
    
    
    3,195,028Cash and Equivalents  Beginning of Period
    
    
    421,722
    
    
    
    19,043,811
    
    
    
    15,848,783Cash and Eqivalents  End of Period
    
    $
    8,231,709
    
    
    $
    421,722
    
    
    $
    19,043,811Supplemental Disclosure of Cash Flow InformationInterest paid
    
    $
    4,119,744
    
    
    $
    
    
    
    $
    Interest paid and capitalized in construction in process
    
    $
    
    
    
    $
    1,474,638
    
    
    $
    SUPPLEMENT DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIESDebt issuance costs included in accounts payable
    
    $
    
    
    
    $
    799
    
    
    $
    484,738Capital expenditures included in accounts payable
    
    $
    
    
    
    $
    4,297,665
    
    
    $
    5,924,446Capital expenditures included in accrued liabilities
    
    $
    
    
    
    $
    1,778,201
    
    
    $
    Amortization of deferred financing costs capitalized in
construction in process
    
    $
    
    
    
    $
    52,291
    
    
    $
    
  F-6




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##### Table of Contents



Red Trail Energy, LLC
   1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
  Fiscal Reporting Period
  Accounting Estimates
  Cash and Equivalents
   Accounts Receivable and Concentration of Credit Risk
      F-7




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##### Table of Contents



Red Trail Energy, LLC
   Derivative Instruments
    Revenue Recognition
   Inventory
  Property and Equipment
  Category
    
    Average LifeLand improvements
    
    20 yearsBuildings
    
    40 yearsPlant equipment
    
    7 to 15 yearsRailroad and rail equipment
    
    20 yearsOffice equipment
    
    3 to 7 years
  Long-lived Assets
  F-8




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##### Table of Contents



Red Trail Energy, LLC
    Debt Issuance Costs
  Fair Value of Financial Instruments
  Grants
   Shipping and Handling
  Income Taxes
     Organizational and Start Up Costs
  Advertising
  Equity-Based Compensation
  F-9




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##### Table of Contents



Red Trail Energy, LLC
     Earnings Per Unit
  Environmental Liabilities
  Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB
Statement No. 115
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51
 F-10




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##### Table of Contents



Red Trail Energy, LLC
   Disclosures about Derivative Instruments and Hedging Activities
 2. DERIVATIVE INSTRUMENTS
  3. INVENTORY
  Inventory balances at December 31,
    
    2007
    
    
    2006Raw materials, including corn, chemicals and supplies
    
    $
    5,576,077
    
    
    $
    3,635,675Work in process
    
    
    902,560
    
    
    
    320,454Finished goods, including ethanol and distillers grains
    
    
    1,818,719
    
    
    
    Total Inventory
    
    $
    8,297,356
    
    
    $
    3,956,129
 4. BANK FINANCING
  As of December 31,
    
    2007
    
    
    2006Notes under loan agreement payable to bank, see details below
    
    $
    53,437,367
    
    
    $
    44,060,352Subordinated notes payable, see details below
    
    
    5,525,000
    
    
    
    5,525,000Capital lease obligations (Note 5)
    
    
    153,947
    
    
    
    202,836Total Long-Term Debt
    
    
    59,116,314
    
    
    
    49,788,188Less amounts due within one year
    
    
    6,578,004
    
    
    
    2,909,228Total Long-Term Debt Less Amounts Due Within One Year
    
    $
    52,538,310
    
    
    $
    46,878,960
 F-11




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##### Table of Contents



Red Trail Energy, LLC
    As of December 31,
    
    20072008
    
    $
    6,578,0042009
    
    
    4,618,0102010
    
    
    4,957,6182011
    
    
    10,821,0202012
    
    
    32,141,662Thereafter
    
    
    Total
    
    $
    59,116,314
  Construction Loan
  Fixed Rate Note
  Variable Rate Note
 th
 Long-Term Revolving Note
  December 2007 Fixed Rate Note
  F-12




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##### Table of Contents



Red
Trail Energy, LLC
   Revolving Line of Credit
  Interest Rate Swap Agreements
    Letters of Credit
  Subordinated Debt
  5. LEASES
   As of December 31,
    
    2007
    
    
    2006Equipment
    
    $
    216,745
    
    
    $
    216,745Accumulated amortization
    
    
    23,296
    
    
    
    598Net equipment under capital lease
    
    $
    193,449
    
    
    $
    216,147
  OperatingAs of December 31, 2007
    
    Leases
    
    
    Capital Leases2008
    
    $
    31,800
    
    
    $
    61,7012009
    
    
    31,800
    
    
    
    61,7012010
    
    
    31,800
    
    
    
    44,7192011
    
    
    18,550
    
    
    
    1,916Total minimum lease commitments
    
    $
    113,950
    
    
    
    170,037Less amount representing interest
    
    
    
    
    
    
    16,090Present value of minimum lease commitmenets
included in the preceding long-term
liabilities
    
    
    
    
    
    $
    153,947
 F-13




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##### Table of Contents



Red
Trail Energy, LLC
   6. MEMBERS EQUITY
  7. EQUITY-BASED COMPENSATION
 2006 Equity-Based Incentive Plan
  8. GRANTS
     F-14




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##### Table of Contents



Red
Trail Energy, LLC
   9. COMMITMENTS AND CONTINGENCIES
 Design Build Contract
  Consulting Contracts
     Employee Simple IRA Plan
  Utility Agreements
  F-15




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##### Table of Contents



Red Trail Energy, LLC
     Marketing Agreements
   Coal Purchase Contract
  Chemical Consignment Purchase Contracts
  Natural Gasoline Contract
  F-16




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##### Table of Contents



Red
Trail Energy, LLC
    Grain Origination Contract
  Leases
     10. RELATED PARTY TRANSACTIONS
  As of December 31
    
    2007
    
    
    2006Balance SheetAccounts receivable
    
    $
    293,468
    
    
    $
    Accounts payable
    
    
    1,471,479
    
    
    
    46,281Notes payable
    
    
    1,525,000
    
    
    
    1,525,000Statement of OperationsRevenues
    
    $
    2,323,263
    
    
    $
    Cost of goods sold
    
    
    2,673,605
    
    
    
    General and administrative
expenses
    
    
    878,021
    
    
    
    Inventory Purchases
    
    $
    6,476,508
    
    
    $
    172,176
 F-17




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##### Table of Contents



Red
Trail Energy, LLC
   11. INCOME TAXES
  As of December 31
    
    2007
    
    
    2006Financial Statement Basis of Assets
    
    $
    108,524,254
    
    
    $
    89,864,288Organization and start-up costs
    
    
    5,668,245
    
    
    
    6,195,047Inventory and compensation
    
    
    195,235
    
    
    
    Book to tax depreciation
    
    
    (5,543,566
    )
    
    
    1,191Book to tax derivative difference
    
    
    (262,715
    )
    
    
    Income Tax Basis of Assets
    
    $
    108,581,453
    
    
    $
    96,060,526Financial Statement Basis of Liabilities
    
    $
    69,620,771
    
    
    $
    47,153,960Interest rate swap
    
    
    (933,256
    )
    
    
    (110,935
    )Income Tax Basis of Liabilities
    
    $
    68,687,515
    
    
    $
    47,043,025
 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
  Statement of OperationsFor the Quarters ended,
    
    March 2007
    
    
    June 2007
    
    
    September 2007
    
    
    December 2007Revenues
    
    $
    18,934,975
    
    
    $
    30,247,829
    
    
    $
    27,329,379
    
    
    $
    25,373,786Cost of goods sold
    
    
    15,118,165
    
    
    
    25,877,011
    
    
    
    24,703,796
    
    
    
    21,314,236Gross profit
    
    
    3,816,810
    
    
    
    4,370,818
    
    
    
    2,625,583
    
    
    
    4,059,550General and
administrative expenses
    
    
    847,796
    
    
    
    881,109
    
    
    
    568,223
    
    
    
    916,874Operting income (loss)
    
    
    2,969,014
    
    
    
    3,489,709
    
    
    
    2,057,360
    
    
    
    3,142,676Interest Expense
    
    
    1,149,528
    
    
    
    969,088
    
    
    
    2,087,460
    
    
    
    2,062,632Other income (expense)
    
    
    (46,178
    )
    
    
    82,059
    
    
    
    262,979
    
    
    
    468,417Net income (loss)
    
    $
    1,773,308
    
    
    $
    2,602,680
    
    
    $
    232,879
    
    
    $
    1,548,461Weighted average units
    
    
    40,373,973
    
    
    
    40,373,973
    
    
    
    40,373,973
    
    
    
    40,373,973Net income (loss) per unit
    
    $
    0.04
    
    
    $
    0.06
    
    
    $
    0.00
    
    
    $
    0.04
 For the Quarters ended,
    
    March 2006
    
    
    June 2006
    
    
    September 2006
    
    
    December 2006Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cost of goods sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General and
administrative expenses
    
    
    156,235
    
    
    
    246,524
    
    
    
    406,079
    
    
    
    2,938,892Operting income (loss)
    
    
    (156,235
    )
    
    
    (246,524
    )
    
    
    (406,079
    )
    
    
    (2,938,892
    )Interest Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income (expense)
    
    
    544,731
    
    
    
    340,744
    
    
    
    (622,571
    )
    
    
    980,763Net income (loss)
    
    $
    388,496
    
    
    $
    94,220
    
    
    $
    (1,028,650
    )
    
    $
    (1,958,129
    )Weighted average units
    
    
    37,340,846
    
    
    
    40,373,973
    
    
    
    40,373,973
    
    
    
    40,373,973Net income (loss) per unit
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    (0.03
    )
    
    $
    (0.05
    )
  13. SUBSEQUENT EVENTS
 
    
    In an effort to diversify its revenue stream, the Company entered into an agreement in
March 2008 to operate third party corn oil extraction equipment that will be added to its
facility. The agreement has a term of 10 years commencing from the date when the equipment
installation is complete. The Company expects the equipment to be operating in 2009. In
return for operating the equipment, the Company will receive a negotiated price per pound
for the oil. The agreement contains guaranteed minimum pricing and yield provisions. If
at any time the production or yield falls below these levels, the Company can terminate the
agreement with no cost to the Plant. Corn oil can be extracted from the Plants process
and marketed as a separate commodity. This process may have the effect of lowering the fat
content of the Companys distillers grains. The Company believes its distillers grains
will still be within
 F-18




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##### Table of Contents



Red
Trail Energy, LLC
   acceptable feed value and fat content limits as set forth in its
distillers grains marketing agreement and that the Company will not lose revenue as a
result. The Companys distillers grains are sampled and tested for quality control
purposes on a regular basis.
 
    
    During March, 2008, the Company terminated its existing agreement with CSC and CHS for
distillers grains marketing and entered into a new agreement with CHS. The terms of the
new agreement are not materially different than the previous agreement. The agreement has
an initial six month term which is automatically renewed for an additional six months at
the end of each successive six month term unless the agreement is terminated in writing, by
either party, at least thirty days prior to the end of the term.
    
    During January 2008, the Company became an 8.33% owner in RPMG. Ownership in RPMG gives
the Company a seat on RPMGs Board of Directors. At the same time, the Company entered
into a new marketing agreement with RPMG. The Company currently pays RPMG $.01 per gallon
for marketing fees. Once the ownership buy-in is complete, which is expected to happen
during 2009, the marketing fee will be reduced to $.005 per gallon.. Marketing fees paid
to RPMG during 2007 totaled approximately $493,000. The buy-in commitment is $605,000, of
which $105,000 was required as a down payment. The other terms of the agreement are not
materially different.
    
    During 2008, the Company entered in to a verbal agreement to purchase, at a cost of
approximately $50,000, 10 acres of land adjacent to its existing facility. This land will
be used for the planned construction of a coal unloading facility at the Plant site.
 F-19