##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 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 30, 2008
 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: 000-52033
 RED TRAIL ENERGY, LLC
  NORTH DAKOTA
    
    76-0742311(State or other jurisdiction
    
    (IRS Employerof incorporation or organization)
    
    Identification No.)
 
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
  o þ




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##### 



PagePART I  FINANCIAL INFORMATION
    
    
    1Item 1. Condensed Financial Statements (Unaudited)
    
    
    1Condensed Balance Sheets
    
    
    1Condensed Statements of Operations
    
    
    2Condensed Statements of Cash Flows
    
    
    3Notes to Unaudited Condensed Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Disclosure Regarding Forward-Looking Statements
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    28PART II  OTHER INFORMATION
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30SIGNATURES
    
    
    31Exhibit Index
    
    
    32Certification by CEOCertification by CFOSection 1350 CertificationSection 1350 Certification




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
  RED TRAIL ENERGY, LLC
 
  June 30, 2008
    
    
    December 31, 2007(Unaudited)ASSETSCurrent AssetsCash and equivalents
    
    $
    6,779,729
    
    
    $
    8,231,709Accounts receivable
    
    
    7,367,635
    
    
    
    5,960,041Corn and ethanol derivative instruments, at fair value
    
    
    66,327
    
    
    
    3,190,790Inventory
    
    
    8,916,935
    
    
    
    8,297,356Prepaid expenses
    
    
    108,268
    
    
    
    53,411Total current assets
    
    
    23,238,894
    
    
    
    25,733,307Property, Plant and EquipmentLand
    
    
    300,602
    
    
    
    300,602Plant and equipment
    
    
    78,203,632
    
    
    
    78,139,237Land Improvements
    
    
    3,918,766
    
    
    
    3,918,766Buildings
    
    
    5,312,995
    
    
    
    5,312,995Construction in progress
    
    
    1,139,400
    
    
    
    88,875,395
    
    
    
    87,671,600Less accumulated depreciation
    
    
    8,588,817
    
    
    
    5,729,058Net property and equipment
    
    
    80,286,578
    
    
    
    81,942,542Other AssetsDebt issuance costs, net of amortization
    
    
    667,893
    
    
    
    768,405Investment in RPMG
    
    
    605,000
    
    
    
    Deposits
    
    
    80,000
    
    
    
    80,000Total other Assets
    
    
    1,352,893
    
    
    
    848,405Total Assets
    
    $
    104,878,365
    
    
    $
    108,524,254LIABILITIES AND MEMBERS EQUITYCurrent LiabilitiesCurrent maturities of long-term debt
    
    $
    5,199,117
    
    
    $
    6,578,004Accounts payable
    
    
    6,357,758
    
    
    
    6,682,330Accrued expenses
    
    
    4,435,538
    
    
    
    2,502,936Interest rate swap, at fair value
    
    
    1,151,103
    
    
    
    1,044,191Total current liabilities
    
    
    17,143,516
    
    
    
    16,807,461Other LiabilitiesContracts payable
    
    
    275,000
    
    
    
    275,000Long-Term Debt
    
    
    40,746,123
    
    
    
    52,538,310Commitments and ContingenciesMembers Equity
    
    
    46,713,726
    
    
    
    38,903,483Total Liabilities and Members Equity
    
    $
    104,878,365
    
    
    $
    108,524,254
  1




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RED TRAIL ENERGY, LLC
 
  Quarter Ended
    
    
    Quarter Ended
    
    
    Six Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)RevenuesEthanol, net of loss on derivative
instruments
    
    $
    30,671,979
    
    
    $
    27,310,571
    
    
    $
    59,168,966
    
    
    $
    44,345,208Distillers grains
    
    
    5,020,336
    
    
    
    2,937,258
    
    
    
    9,943,354
    
    
    
    4,837,596Total Revenue
    
    
    35,692,315
    
    
    
    30,247,829
    
    
    
    69,112,320
    
    
    
    49,182,804Cost of Goods SoldCost of goods sold, net of
derivative fair value changes
    
    
    29,043,731
    
    
    
    24,455,360
    
    
    
    55,295,207
    
    
    
    38,168,616Depreciation
    
    
    1,416,794
    
    
    
    1,421,651
    
    
    
    2,832,540
    
    
    
    2,826,561Total Cost of Goods Sold
    
    
    30,460,525
    
    
    
    25,877,011
    
    
    
    58,127,747
    
    
    
    40,995,177Gross Margin
    
    
    5,231,790
    
    
    
    4,370,818
    
    
    
    10,984,573
    
    
    
    8,187,627General and Administrative
    
    
    919,333
    
    
    
    829,284
    
    
    
    1,665,929
    
    
    
    1,622,870Operating Income
    
    
    4,312,457
    
    
    
    3,541,534
    
    
    
    9,318,644
    
    
    
    6,564,757Interest Expense
    
    
    (62,661
    )
    
    
    1,035,325
    
    
    
    2,377,144
    
    
    
    2,326,151Other income (expense), net
    
    
    688,926
    
    
    
    96,471
    
    
    
    858,743
    
    
    
    137,382Net Income
    
    $
    5,064,044
    
    
    $
    2,602,680
    
    
    $
    7,800,243
    
    
    $
    4,375,988Wtd Avg Units Outstanding  Basic
    
    
    40,173,973
    
    
    
    40,373,973
    
    
    
    40,173,973
    
    
    
    39,873,872Net Income Per Unit  Basic
    
    $
    0.13
    
    
    $
    0.06
    
    
    $
    0.19
    
    
    $
    0.11Wtd Avg Units Outstanding  Diluted
    
    
    40,228,973
    
    
    
    40,408,973
    
    
    
    40,228,973
    
    
    
    39,908,872Net Income Per Unit  Diluted
    
    $
    0.13
    
    
    $
    0.06
    
    
    $
    0.19
    
    
    $
    0.11
  2




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RED TRAIL ENERGY, LLC
 
  Six months ended
    
    
    Six months endedJune 30, 2008
    
    
    June 30, 2007(Unaudited)
    
    
    (Unaudited)Cash Flows from Operating ActivitiesNet income
    
    $
    7,800,243
    
    
    $
    4,375,988Adjustment to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    2,859,759
    
    
    
    2,827,491Amortization of debt financing costs
    
    
    100,512
    
    
    
    106,963Change in fair value of derivative instruments
    
    
    3,124,463
    
    
    
    309,515Change in fair value of interest rate swap
    
    
    33,197
    
    
    
    (384,995
    )Equity-based compensation
    
    
    10,000
    
    
    
    10,000Changes in assets and liabilitiesAccounts receivable
    
    
    (1,407,594
    )
    
    
    (4,300,430
    )Inventory
    
    
    (619,579
    )
    
    
    (3,861,481
    )Prepaid expenses
    
    
    (54,857
    )
    
    
    28,591Accounts payable
    
    
    (1,145,567
    )
    
    
    4,818,077Accrued expenses
    
    
    1,932,602
    
    
    
    (47,481
    )Cash settlements on interest rate swap
    
    
    73,715
    
    
    
    Net cash provided by operating activities
    
    
    12,706,894
    
    
    
    3,882,238Cash Flows from Investing ActivitiesInvestment in RPMG
    
    
    (273,734
    )
    
    
    Capital expenditures
    
    
    (714,066
    )
    
    
    (3,890,514
    )Net cash used in investing activities
    
    
    (987,800
    )
    
    
    (3,890,514
    )Cash Flows from Financing ActivitiesDebt repayments
    
    
    (13,171,074
    )
    
    
    (11,242
    )Proceeds from long-term debt
    
    
     ̄
    
    
    
    11,138,618Net cash provided by (used in) financing activities
    
    
    (13,171,074
    )
    
    
    11,127,376Net Increase in Cash and Equivalents
    
    
    (1,451,980
    )
    
    
    11,119,100Cash and Equivalents  Beginning of Period
    
    
    8,231,709
    
    
    
    421,722Cash and Eqivalents  End of Period
    
    $
    6,779,729
    
    
    $
    11,540,822Supplemental Disclosure of Cash Flow InformationInterest paid
    
    $
    2,477,864
    
    
    $
    1,525,901SUPPLEMENT DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIESCapital expenditures included in accounts payable
    
    $
    489,729
    
    
    $
    3,841,295Investment in RPMG expenditures included in accounts payable
    
    $
    331,266
    
    
    $
    
  3




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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
  Fiscal Reporting Period
  Accounting Estimates
  Reclassifications
  Cash and equivalents
   Accounts Receivable and Concentration of Credit Risk
   4




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Derivative Instruments
    Revenue Recognition
   5




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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
   Debt Issuance Costs
  Fair Value of Financial Instruments
  Grants
  6




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Shipping and Handling
  Income Taxes
     Organizational and Start Up Costs
  Advertising
  Equity-Based Compensation
   Earnings Per Unit
  7




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Environmental Liabilities
  Recently Issued Accounting Pronouncements
       8




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2. CONCENTRATIONS
  3. DERIVATIVE INSTRUMENTS
   4. INVENTORY
  9




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Inventory balances at:
    
    June 30, 2008
    
    
    December 31, 2007Raw materials, including corn, chemicals and supplies
    
    $
    7,107,652
    
    
    $
    5,576,077Work in process
    
    
    1,145,863
    
    
    
    902,560Finished goods, including ethanol and distillers grains
    
    
    663,420
    
    
    
    1,818,719Total Inventory
    
    $
    8,916,935
    
    
    $
    8,297,356
 5. BANK FINANCING
  As of
    
    June 30, 2008
    
    
    December 31, 2007Notes under loan agreement payable to bank, see details below
    
    $
    40,292,063
    
    
    $
    53,437,367Subordinated notes payable, see details below
    
    
    5,525,000
    
    
    
    5,525,000Capital lease obligations (Note 7)
    
    
    128,177
    
    
    
    153,947Total Long-Term Debt
    
    
    45,945,240
    
    
    
    59,116,314Less amounts due within one year
    
    
    5,199,117
    
    
    
    6,578,004Total Long-Term Debt Less Amounts Due Within One Year
    
    $
    40,746,123
    
    
    $
    52,538,310
  Estimated maturities for the twelve months ended June 30,2009
    
    $
    5,199,1172010
    
    
    5,913,6782011
    
    
    3,322,3442012
    
    
    31,510,1012013
    
    
    Thereafter
    
    
    Total
    
    $
    45,945,240
  Construction Loan
  Fixed Rate Note
  Variable Rate Note
  10




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Long-Term Revolving Note
  December 2007 Fixed Rate Note
   Revolving Line of Credit
  Interest Rate Swap Agreements
   Letters of Credit
  Subordinated Debt
  11




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6. FAIR VALUE MEASUREMENTS
     CarryingAmount as of
    
    Fair Value as ofJune 30, 2008
    
    June 30, 2008
    
    Level 1
    
    Level 2
    
    Level 3Money market funds
    
    $
    4,539,380
    
    
    $
    4,539,380
    
    
    $
    4,539,380
    
    
    $
    
    
    
    $
    Corn and ethanol related
    
    $
    66,327
    
    
    $
    66,327
    
    
    $
    66,327
    
    
    $
    
    
    
    $
    derivative instruments
Interest rate swap liability
    
    $
    1,151,103
    
    
    $
    1,151,103
    
    
    $
    
    
    
    $
    1,151,103
    
    
    $
    
  7. LEASES
  12




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June 30, 2008
    
    
    December 31, 2007Equipment
    
    $
    216,745
    
    
    $
    216,745Accumulated amortization
    
    
    34,646
    
    
    
    23,296Net equipment under capital lease
    
    $
    182,099
    
    
    $
    193,449
  Operating
    
    
    CapitalLeases
    
    
    Leases2009
    
    $
    489,660
    
    
    $
    61,7012010
    
    
    489,660
    
    
    
    61,7012011
    
    
    489,660
    
    
    
    15,1452012
    
    
    433,675
    
    
    
    6392013
    
    
    242,900
    
    
    
    Total minimum lease commitments
    
    $
    2,145,555
    
    
    
    139,186Less amount representing interest
    
    
    
    
    
    
    11,009Present value of minimum lease commitments included in the preceding long-term liabilities
    
    
    
    
    
    $
    128,177
 8. MEMBERS EQUITY
  9. EQUITY-BASED COMPENSATION
 2006 Equity-Based Incentive Plan
  10. COMMITMENTS AND CONTINGENCIES
 Design-Build Agreement
  13




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Marketing Agreements
   Leases
  Coal Transloading Facility
  11. RELATED-PARTY TRANSACTIONS
  14




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June 30, 2008
    
    
    December 31, 2007Balance SheetAccounts receivable
    
    $
    6,450,785
    
    
    $
    2,757,476Accounts payable
    
    
    1,439,522
    
    
    
    2,088,561Notes payable
    
    
    1,525,000
    
    
    
    1,525,000
 For the three
    
    
    For the three
    
    
    For the six
    
    
    For the sixmonths ended
    
    
    months ended
    
    
    months ended
    
    
    months endedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2007
    
    
    June 30, 2007Statement of OperationsRevenues
    
    $
    33,308,017
    
    
    $
    27,856,221
    
    
    $
    64,746,619
    
    
    $
    45,622,137Cost of goods sold
    
    
    656,828
    
    
    
    849,422
    
    
    
    1,348,967
    
    
    
    1,631,279General and administrative expenses
    
    
    389,732
    
    
    
    
    
    
    
    777,740
    
    
    
    427,378Inventory Purchases
    
    $
    1,215,628
    
    
    $
    1,039,632
    
    
    $
    2,694,462
    
    
    $
    3,183,489
 12. SUBSEQUENT EVENTS
 
    
    The Companys $3.5 million line of credit expired in July 2008 and is currently in the
process of being renewed.
    
    The Company has submitted a request to the state of North Dakota for a refund of North
Dakota sales and use tax paid on items purchased for the construction of the Plant. The
Company applied for and received notification that costs for equipment, materials and
supplies used in construction of the Plant were exempt from North Dakota sales and use tax.
Pursuant to the Design-Build Agreement, we owe 50% of the refund received to Fagen. The
amount of the requested refund is approximately $2.2 million (of which the Companys
portion is $1.1 million) and is currently under review by the North Dakota State Tax
Department. Since we are not certain as to the amount of the refund that will actually be
collected, we have not yet recorded any amounts related to this refund. Once the amount
has been determined we will account for it accordingly. The net refund amount will reduce
the capitalized cost of the plant.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
  15




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
    
    Projected growth, overcapacity or contraction in the ethanol market in which we operate;
    
    Fluctuations in the price and market for ethanol and DDGs;
    
    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;
 16




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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.
 Summary
  Results of Operations
  Three months ended
    
    Three months ended
    
    Six months ended
    
    Six months endedJune 30, 2008
    
    June 30, 2007
    
    June 30, 2008
    
    June30, 2007(Unaudited)
    
    (Unaudited)
    
    (Unaudited)
    
    (Unaudited)Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    PercentRevenuesEthanol, net of loss on derivative instruments
    
    $
    30,671,979
    
    
    
    85.93
    %
    
    $
    27,310,571
    
    
    
    90.29
    %
    
    $
    59,168,966
    
    
    
    85.61
    %
    
    $
    44,345,208
    
    
    
    90.16
    %Distillers grains
    
    
    5,020,336
    
    
    
    14.07
    %
    
    
    2,937,258
    
    
    
    9.71
    %
    
    
    9,943,354
    
    
    
    14.39
    %
    
    
    4,837,596
    
    
    
    9.84
    %Total Revenue
    
    
    35,692,315
    
    
    
    100.00
    %
    
    
    30,247,829
    
    
    
    100.00
    %
    
    
    69,112,320
    
    
    
    100.00
    %
    
    
    49,182,804
    
    
    
    100.00
    %Cost of Goods SoldCost of Goods Sold
    
    
    29,043,731
    
    
    
    81.37
    %
    
    
    24,455,361
    
    
    
    80.85
    %
    
    
    55,295,207
    
    
    
    80.01
    %
    
    
    38,168,616
    
    
    
    77.61
    %Depreciation
    
    
    1,416,794
    
    
    
    3.97
    %
    
    
    1,421,651
    
    
    
    4.70
    %
    
    
    2,832,539
    
    
    
    4.10
    %
    
    
    2,826,561
    
    
    
    5.75
    %Total Cost of Goods Sold
    
    
    30,460,525
    
    
    
    85.34
    %
    
    
    25,877,012
    
    
    
    85.55
    %
    
    
    58,127,746
    
    
    
    84.11
    %
    
    
    40,995,177
    
    
    
    83.35
    %Gross Margin
    
    
    5,231,790
    
    
    
    14.66
    %
    
    
    4,370,817
    
    
    
    14.45
    %
    
    
    10,984,574
    
    
    
    15.89
    %
    
    
    8,187,627
    
    
    
    16.65
    %General and Administrative
    
    
    919,333
    
    
    
    2.58
    %
    
    
    829,284
    
    
    
    2.74
    %
    
    
    1,665,929
    
    
    
    2.41
    %
    
    
    1,622,870
    
    
    
    3.30
    %Operating Income
    
    
    4,312,457
    
    
    
    12.08
    %
    
    
    3,541,533
    
    
    
    11.71
    %
    
    
    9,318,645
    
    
    
    13.48
    %
    
    
    6,564,757
    
    
    
    13.35
    %Interest Expense
    
    
    (62,661
    )
    
    
    -0.18
    %
    
    
    1,035,325
    
    
    
    3.42
    %
    
    
    2,377,144
    
    
    
    3.44
    %
    
    
    2,239,063
    
    
    
    4.55
    %Other Income (Expense), net
    
    
    688,926
    
    
    
    1.93
    %
    
    
    96,472
    
    
    
    0.32
    %
    
    
    858,742
    
    
    
    1.24
    %
    
    
    50,294
    
    
    
    0.10
    %Net Income
    
    $
    5,064,044
    
    
    
    14.19
    %
    
    $
    2,602,680
    
    
    
    8.60
    %
    
    $
    7,800,243
    
    
    
    11.29
    %
    
    $
    4,375,988
    
    
    
    8.90
    %
 17




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##### Table of Contents



Three Months
    
    Three Months
    
    Six Months
    
    Six Monthsended
    
    ended
    
    ended
    
    endedAdditional Data
    
    June 30 , 2008
    
    June 30 , 2007
    
    June 30, 2008
    
    June 30 , 2007Ethanol sold (thousands of gallons)
    
    
    13,588
    
    
    
    13,859
    
    
    
    28,122
    
    
    
    22,612Dried distillers grains sold (tons)
    
    
    23,592
    
    
    
    22,417
    
    
    
    48,228
    
    
    
    27,512Modified distillers grains sold
(tons)
    
    
    29,739
    
    
    
    26,408
    
    
    
    64,263
    
    
    
    57,030Ethanol average price per gallon (a)
    
    $
    2.26
    
    
    $
    1.97
    
    
    $
    2.10
    
    
    $
    1.96Dried distillers grains average
price per ton
    
    $
    143.13
    
    
    $
    87.04
    
    
    $
    135.05
    
    
    $
    94.68Modified distillers grains average
price per ton
    
    $
    55.03
    
    
    $
    37.25
    
    
    $
    53.12
    
    
    $
    36.49Corn costs per bushel (a)
    
    $
    4.96
    
    
    $
    4.19
    
    
    $
    4.47
    
    
    $
    3.96
 
 (a)
    
    - shown net of hedging activity Results of Operations for the Three and Six Months Ended June 30, 2008 as Compared to the Three and
Six Months Ended June 30, 2007
 Revenues
 Three Months Ended June 30, 2008 and 2007
  Ethanol revenue
  Distillers grains revenue
  Six Months Ended June 30, 2008 and 2007:
  18




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##### Table of Contents



Ethanol revenue
  Distillers grains revenue
  Revenues  Prospective Information
   Cost of Sales
  Three Months Ended June 30, 2008 and 2007
 
    
    Corn costs  our corn costs per gallon, excluding hedging activities, were approximately
$0.58 per gallon higher during the three months ended June 30, 2008 as compared to the same
period for 2007 ($2.00 per gallon vs. $1.42 per gallon). This increase in corn cost more
than offset the increase in revenue that occurred during the three months ended June 30,
2008. This is a direct reflection of the rise in corn costs during the past year.
Including our corn hedging gains, our corn costs per gallon were $0.36 higher when compared
to the same period as the previous year, as we recognized gains from hedging activities
during the three months ended June 30, 2008 and 2007 of approximately $3 million and $0,
respectively. Our risk management strategy was successful in lowering our corn costs
during the three months ended June 30, 2008.
 19




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##### Table of Contents




    
    Other cost of goods sold, excluding depreciation  our other cost of goods sold, the
main components of which are energy and utilities, chemicals, and labor, for the three
months ended June 30, 2008 and 2007 were $0.47 per gallon and $0.45 per gallon,
respectively. The increase is primarily related to price increases for some of our major
chemicals, increased coal transportation costs and other small increases offset in part by
lower denaturant usage.
 Six Months Ended June 30, 2008 and 2007
 
    
    Corn costs  our corn costs per gallon, excluding hedging activities, were approximately
$0.32 per gallon higher during the six months ended June 30, 2008 as compared to the same
period for 2007 ($1.76 per gallon vs. $1.44 per gallon). This increase offset a large
portion of the increase in revenue during this time period. This is a direct reflection of
how corn costs have risen during the past year. Including our corn hedging gains, our corn
costs per gallon were $0.14 higher when compared to the same period as the previous year,
as we recognized gains from hedging activities during the six months ended June 30, 2008
and 2007 of approximately $5.1 million and $650,000, respectively. Our risk management
strategy was successful in lowering our corn costs during the six months ended June 30,
2008.
    
    Other cost of goods sold, excluding depreciation  our other cost of goods sold, the
main components of which are energy and utilities, chemicals, and labor, for the six months
ended June 30, 2008 and 2007 were $0.49 per gallon and $0.40 per gallon, respectively. The
increase is primarily related to the price increases for some of our major chemicals and
increased coal transportation costs.
 Cost of Sales and Gross Margin  Prospective Information
  Corn cost
  Energy and chemical needs
  Coal cost
  Chemical and Denaturant costs
  General and Administrative
 Three Months Ended June 30, 2008 and 2007
  20




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##### Table of Contents



Six Months Ended June 30, 2008 and 2007
  General and Administrative  Prospective
  Interest Expense
 Three Months Ended June 30, 2008 and 2007
  Six Months Ended June 30, 2008 and 2007
   Other Income (Expense), Net
  21




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##### Table of Contents



Liquidity and Capital Resources
 For the three
    
    For the three
    
    For the six
    
    For the sixmonths ended
    
    months ended
    
    months ended
    
    months endedStatement of Cash Flows
    
    June 30, 2008
    
    June 30, 2007
    
    June 30, 2008
    
    June 30, 2007Cash flows provided by
operating activities
    
    $
    7,288,756
    
    
    $
    3,895,749
    
    
    $
    12,706,894
    
    
    $
    3,882,238Cash flows used in
investing activities
    
    
    (780,337
    )
    
    
    (2,896,786
    )
    
    
    (987,800
    )
    
    
    (3,890,514
    )Cash flows provided by
(used in) financing
activities
    
    
    (12,290,135
    )
    
    
    7,989,269
    
    
    
    (13,171,074
    )
    
    
    11,127,376
 Cash Flows
  Three Months Ended June 30, 2008 and 2007
 Operating activities
  
    
    An increase in net income of approximately $2.4 million. See above discussion related
to the results of operations for an explanation.
    
    A net increase in cash flow of approximately $1 million from normal changes in working
capital items, the value of our interest rate swaps and the value of our corn and ethanol
hedge instruments.
 Investing activities
  Financing activities
  Six Months Ended June 30, 2008 and 2007
 Operating activities
  22




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##### Table of Contents




    
    An increase in net income of approximately $3.4 million. See above discussion related
to the results of operations for an explanation.
    
    A net increase in cash flow of approximately $5.4 million from normal changes in working
capital items, the value of our interest rate swaps and the value of our corn and ethanol
hedge instruments. When compared to 2007 a portion of the working capital change was also
due to the Plant becoming operational during January of 2007 when there was significant
cash outflows to build inventories and receivables. The working capital changes occurring
during the six months ended June 30, 2008 were the result of normal Plant operations.
 Investing activities
  Financing activities
  Capital Expenditures
  Capital Resources
 Short-term Debt Sources
  Long-Term Debt Sources
  23




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##### Table of Contents



Fixed Rate Note
  Variable Rate Note
  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;
    
    Not making, or allowing to be made, any significant change in our business tax
structure; and
    
    Limiting our ability to make distributions to members.
   24




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##### Table of Contents



Interest Rate Swap Agreements
    Letters of Credit
  Subordinated Debt
  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
    
    $
    56,865,275
    
    
    $
    8,402,745
    
    
    $
    14,636,572
    
    
    $
    33,825,958
    
    
    $
    Capital leases
    
    
    139,186
    
    
    
    61,701
    
    
    
    76,846
    
    
    
    639
    
    
    
    Coal transloading
facility
    
    
    1,226,000
    
    
    
    1,226,000Operating lease
obligations
    
    
    2,145,555
    
    
    
    489,660
    
    
    
    979,320
    
    
    
    676,575
    
    
    
    Coal purchases
    
    
    1,952,550
    
    
    
    1,288,800
    
    
    
    663,750
    
    
    
    
    
    
    
    Water purchases
    
    
    3,386,400
    
    
    
    398,400
    
    
    
    796,800
    
    
    
    796,800
    
    
    
    1,394,400
 Grants
  North Dakota Ethanol Incentive Program
  25




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##### Table of Contents



Corn Price
 
    
    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 program $.001 multiplied by the number of
gallons of ethanol produced by the facility during the quarter.
    
    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
    
    For every cent that the average 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 produced by the facility during the quarter.
 Ethanol Price
 
    
    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.
    
    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.
    
    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.
  Critical Accounting Estimates
  Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  26




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##### Table of Contents



Interest Rate Risk
  Commodity Price Risk
      27




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  The Company has withheld $3.9 million from its Plant design-builder, Fagen, Inc., related to the
coal combustor.
  28




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##### Table of Contents



We have received Notice of Violation Letters from the North Dakota Department of Health (NDDH).
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     Number of Votes ForRonald Aberle
    
    
    21,148,000Jody Hoff
    
    
    13,951,731
   29




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##### Table of Contents



ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  30




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##### Table of Contents



SIGNATURES
  RED TRAIL ENERGY, LLCDate: August 14, 2008
    By:
    /s/ Mick J. MillerMick J. MillerPresident and Chief Executive Officer 31




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##### Table of Contents



EXHIBIT INDEX
 RED TRAIL ENERGY, LLC
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 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.
 
 *
    
    Filed herewith. 32