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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 September 30, 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: 000-52033
 RED TRAIL ENERGY, LLC
  NORTH DAKOTA
(State or other jurisdiction 
of incorporation or organization)
    
    76-0742311
(IRS Employer
Identification No.)
 
 þ o
  o o 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
    
    
    12Disclosure Regarding Forward-Looking Statements
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II  OTHER INFORMATION
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22SIGNATURES
    
    
    23Exhibit Index
    
    
    24Revolving Promissory NoteConstruction Loan Agreement AmendmentRPMG Assignment AgreementCSC Assignment Agreement302 Certification of Chief Executive Officer302 Certification of Chief Financial OfficerSection 906 CertificationSection 906 Certification$3,500,000 Revolving Promissory NoteSecond Amendment to Construction Loan AgreementAssignment and Assumption AgreementConsent to Assignment and Assumption of Marketing Agreement302 Certification of Chief Executive Officer302 Certification of Chief Financial OfficerSection 906 CertificationSection 906 Certification




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
  RED TRAIL ENERGY, LLC
 September 30, 2007
    
    
    December 31, 2006(Unaudited)ASSETSCURRENT ASSETSCash and equivalents
    
    $
    14,792,743
    
    
    $
    421,722Accounts receivable
    
    
    3,463,464
    
    
    
    Derivative instrument at fair value
    
    
    7,642
    
    
    
    320,341Prepaid expenses
    
    
    93,037
    
    
    
    63,782Inventory
    
    
    2,976,582
    
    
    
    3,956,129Total current assets
    
    
    21,333,468
    
    
    
    4,761,974PROPERTY, PLANT AND EQUIPMENTLand
    
    
    300,602
    
    
    
    300,602Equipment
    
    
    78,135,931
    
    
    
    151,851Land improvements
    
    
    3,918,766
    
    
    
    Buildings
    
    
    5,312,995
    
    
    
    313,295Construction in progress
    
    
    
    
    
    
    83,290,00887,668,294
    
    
    
    84,055,756Less accumulated depreciation
    
    
    4,295,354
    
    
    
    16,016Total property, plant and equipment, net
    
    
    83,372,940
    
    
    
    84,039,740OTHER ASSETSDebt issuance costs, net of amortization
    
    
    823,785
    
    
    
    982,574Deposits
    
    
    80,000
    
    
    
    80,000Total other assets
    
    
    903,785
    
    
    
    1,062,574Total Assets
    
    $
    105,610,193
    
    
    $
    89,864,288LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIESCurrent maturities of long-term debt
    
    $
    3,733,239
    
    
    $
    2,909,228Accounts payable
    
    
    5,211,908
    
    
    
    4,437,601Accrued expenses
    
    
    2,285,228
    
    
    
    2,323,476Interest rate swap at fair value
    
    
    303,259
    
    
    
    110,935Total current liabilities
    
    
    11,533,634
    
    
    
    9,781,240OTHER LIABILTIIESContracts payable
    
    
    275,000
    
    
    
    275,000Long-term debt, net of current maturities
    
    
    56,263,604
    
    
    
    46,878,960MEMBERS EQUITY
    
    
    37,537,955
    
    
    
    32,929,088Total Liabilities and Members Equity
    
    $
    105,610,193
    
    
    $
    89,864,288
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RED TRAIL ENERGY, LLC
 Quarter Ended
    
    
    Quarter Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    27,329,379
    
    
    $
    
    
    
    $
    76,512,183
    
    
    $
    Cost of goods sold
    
    
    24,703,796
    
    
    
    
    
    
    
    65,684,560
    
    
    
    Gross Profit
    
    
    2,625,583
    
    
    
    
    
    
    
    10,827,623General and administrative expenses
    
    
    568,223
    
    
    
    406,079
    
    
    
    2,297,129
    
    
    
    808,837Operating income (loss)
    
    
    2,057,360
    
    
    
    (406,079
    )
    
    
    8,530,494
    
    
    
    (808,837
    )Other Income (Expense)Grant income
    
    
    
    
    
    
    
    
    
    
    27,750
    
    
    
    Interest expense
    
    
    (2,087,460
    )
    
    
    
    
    
    
    (4,220,487
    )
    
    
    Interest income
    
    
    151,079
    
    
    
    735
    
    
    
    241,764
    
    
    
    179,546Other
    
    
    111,900
    
    
    
    (623,306
    )
    
    
    29,346
    
    
    
    83,358Total other income (expense)
    
    
    (1,824,481
    )
    
    
    (622,571
    )
    
    
    (3,921,627
    )
    
    
    262,904Net Income
    
    $
    232,879
    
    
    $
    (1,028,650
    )
    
    $
    4,608,867
    
    
    $
    (545,933
    )Weighted Average Units Outstanding
    
    
    40,373,970
    
    
    
    40,373,970
    
    
    
    40,373,970
    
    
    
    39,375,382Net Income Per Unit  basic and diluted
    
    $
    0.00
    
    
    $
    (0.03
    )
    
    $
    0.11
    
    
    $
    (0.01
    )
  2




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RED TRAIL ENERGY, LLC
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2006(Unaudited)
    
    
    (Unaudited)Cash Flows from Operating ActivitiesNet income
    
    $
    4,608,867
    
    
    $
    (545,933
    )Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation
    
    
    4,279,338
    
    
    
    4,251Change in derivative instrument fair value
    
    
    312,699
    
    
    
    (353,321
    )Amortization
    
    
    158,660
    
    
    
    Non-cash compensation
    
    
    15,000
    
    
    
    (Gain) loss from non-designated hedging activities
    
    
    
    
    
    
    Change in fair value of interest rate swap
    
    
    192,454
    
    
    
    (130,078
    )Changes in assets and liabilities:(Increase) in accounts receivable
    
    
    (3,463,464
    )
    
    
    (Increase) in inventory
    
    
    979,547
    
    
    
    Decrease in prepaid expenses
    
    
    (29,255
    )
    
    
    11,646Increase (decrease) in accounts payable
    
    
    1,133,302
    
    
    
    (1,367,062
    )(Decrease) increase in accrued expenses
    
    
    (53,248
    )
    
    
    116,826Net cash provided by (used in) operating activities
    
    
    8,133,900
    
    
    
    (2,263,671
    )Cash Flows from Investing ActivitiesCapital expenditures
    
    
    (3,971,532
    )
    
    
    (52,745,500
    )Net cash used in investing activities
    
    
    (3,971,532
    )
    
    
    (52,745,500
    )Cash Flows from Financing ActivitiesPayments for debt issuance costs
    
    
    
    
    
    
    (545,865
    )Payments of debt
    
    
    (945,396
    )Proceeds from long-term debt
    
    
    11,154,049
    
    
    
    29,833,527Member contributions
    
    
    
    
    
    
    6,719,457Net cash provided by financing activities
    
    
    10,208,653
    
    
    
    36,007,119Net Increase (Decrease) in Cash and Equivalents
    
    
    14,371,021
    
    
    
    (19,002,052
    )Cash and Equivalents  Beginning of Period
    
    
    421,722
    
    
    
    19,043,811Cash and Equivalents  End of Period
    
    $
    14,792,743
    
    
    $
    41,759SUPPLEMENTAL CASH FLOW INFORMATIONCash paid during the period for interest
    
    $
    2,779,961
    
    
    $
    SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIESDebt issuance costs included in accounts payable
    
    $
    
    
    
    $
    6,000Capital expenditures included in accounts payable
    
    $
    3,938,670
    
    
    $
    6,662,492
  3




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Red Trail Energy, LLC
 Form 10-K.
  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
  Fiscal Reporting Period
  Accounting Estimates
  Reclassifications
  Cash and equivalents
   Derivative Instruments
   4




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Inventory
  September 30, 2007
    
    
    December 31, 2006Raw
Materials, including corn, coal, chemicals and supplies
    
    $
    1,626,559
    
    
    $
    3,635,675Work in process
    
    
    581,585
    
    
    
    320,454Ethanol and distillers grain
    
    
    831,438
    
    
    
    Total
    
    $
    2,976,582
    
    
    $
    3,956,129
 Property and Equipment
    Category
    
    Average LifeLand improvements
    
    20 yearsBuildings
    
    40 yearsPlant equipment
    
    7 to 15 yearsRailroad and rail equipment
    
    20 yearsOffice equipment
    
    5 to 7 years
 Debt Issuance Costs
  Fair Value of Financial Instruments
  5




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Grants
   Income Taxes
  Organizational and Start Up Costs
  Equity-Based Compensation
   Earnings Per Unit
  Environmental Liabilities
  Revenue Recognition
   6




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Recently Issued Accounting Pronouncements
   2. CONCENTRATIONS
  3. DERIVATIVE INSTRUMENTS
   4. LONG TERM DEBT
  September 30, 2007
    
    
    December 31, 2006Construction loan agreement payable to bank, see below
    
    $
    54,305,348
    
    
    $
    44,060,352Subordinated notes payable, see below
    
    
    5,525,000
    
    
    
    5,525,000Capital lease obligation, see below
    
    
    166,495
    
    
    
    202,836Totals
    
    $
    59,996,843
    
    
    $
    49,788,188Less amounts due within one year
    
    
    3,733,239
    
    
    
    2,909,228Totals
    
    $
    56,263,604
    
    
    $
    46,878,960
 7




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2008
    
    $
    3,733,2392009
    
    
    4,054,2252010
    
    
    4,387,9082011
    
    
    10,217,6812012
    
    
    37,603,790Thereafter
    
    
    Total long-term liabilities
    
    $
    59,996,843
  Construction Loan
      Revolving Line of Credit
  Interest Rate Swap Agreement
  8




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Letters of Credit
  Subordinated Debt
  5. LEASES
   September 30, 2007
    
    
    December 31, 2006Equipment
    
    $
    216,745
    
    
    $
    216,745Accumulated amortization
    
    
    23,296
    
    
    
    598Totals
    
    $
    193,449
    
    
    $
    216,147
  Operating Leases
    
    
    Capital Leases2008
    
    $
    27,000
    
    
    $
    61,7012009
    
    
    27,000
    
    
    
    61,7012010
    
    
    27,000
    
    
    
    61,7012011
    
    
    6,750
    
    
    
    5732012Total minimum lease commitments
    
    $
    87,750
    
    
    $
    185,676Less amount representing interest
    
    
    
    
    
    
    19,181Present
value of minimum lease commitments included in the preceding
long-term liabilities
    
    
    
    
    
    $
    166,495
 6. MEMBERS EQUITY
  9




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7. GRANTS
   8. COMMITMENTS AND CONTINGENCIES
 Design Build Contract
  Consulting Contracts
   10




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Utility Agreements
    Natural Gasoline Contract
  Marketing Agreements
   11




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Coal Purchase Contract
  Chemical Consignment Purchase Contracts
  9. RELATED-PARTY TRANSACTIONS
  September 30, 2007
    
    December 31, 2006Balance SheetAccounts receivable
    
    $
    88,779
    
    
    $
    Accounts payable
    
    
    1,034,422
    
    
    
    1,021,281Notes Payable
    
    
    1,525,000
    
    
    
    1,525,000
 Quarter
    
    Quarter
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Statement of OperationsRevenues
    
    $
    283,045
    
    
    $
    
    
    
    $
    1,560,074
    
    
    $
    Cost of Sales
    
    
    518,890
    
    
    
    
    
    
    
    2,150,169
    
    
    
    Operating Expenses
    
    
    204,662
    
    
    
    
    
    
    
    632,040
    
    
    
    
    
    
    
    
    
    
    
    Inventory Purchases
    
    $
    2,595,401
    
    
    $
    172,176
    
    
    $
    5,778,889
    
    
    $
    172,176
 10. SUBSEQUENT EVENTS
  12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  
 Disclosure Regarding Forward-Looking Statements
 
    
    Economic, competitive, demographic, business and other conditions in our local, regional and national
markets;
    
    Changes or developments in laws, regulations or taxes in the ethanol, agricultural or energy industries;
    
    Actions taken or not taken by third parties, including our suppliers and competitors, as well as
legislative, regulatory, judicial and other governmental authorities;
    
    Competition in the ethanol industry;
    
    The loss of any license or permit;
    
    The loss of our plant due to casualty, weather, mechanical failure or any extended or extraordinary
maintenance or inspection that may be required;
    
    Changes in our business strategy;
    
    Adequate capital to support capital improvements and development;
    
    Our ability to maintain a favorable relationship with our lender and comply with the covenants in our
loan agreements;
    
    Commodity market movements (including the price of ethanol relative to gasoline), crop prospects and
weather;
    
    Changes in the price of corn or to our estimated corn usage; and
    
    The price of coal and our ability to use lignite in our coal combustor.
 13




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Summary
  Liquidity and Capital Resources
 Overview
      Construction loan agreements
  Construction Loan
  14




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
    
    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 or tax structure; and
    
    Limiting our 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.
  Revolving Line of Credit
  Interest Rate Swap Agreement
  15




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Letters of Credit
  Subordinated Debt
  Cash Flows
  Nine Months Ended
    
    Three Month Ended
    
    Nine Months Ended
    
    Three Month EndedSeptember 30, 2007
    
    September 30, 2007
    
    September 30, 2006
    
    September 30, 2006(Unaudited)
    
    (Unaudited)
    
    (Unaudited)
    
    (Unaudited)Cash Flows from
Operating
Activities
    
    
    8,133,900
    
    
    
    4,251,662
    
    
    
    (2,263,671
    )
    
    
    (615,174
    )Cash Flows used in
Investing
Activities
    
    
    (3,971,532
    )
    
    
    (81,018
    )
    
    
    (52,745,500
    )
    
    
    (22,509,604
    )Cash Flows from
Financing
Activities
    
    
    10,208,653
    
    
    
    (918,723
    )
    
    
    36,007,119
    
    
    
    23,128,524
 Cash Flow From Operations
  Cash Flow From Investing Activities
  Cash Flow From Financing Activities
  16




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Results of Operations
  Three Months Ended
    
    
    Three Months Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2006
    
    
    September 30, 2007
    
    
    September 30, 2006Amount
    
    
    Amount
    
    
    Amount
    
    
    AmountRevenues
    
    $
    27,329,379
    
    
    $
    
    
    
    $
    76,512,183
    
    
    $
    Costs of Sales
    
    
    24,703,796
    
    
    
    
    
    
    
    65,684,560
    
    
    
    Gross Margin
    
    
    2,625,583
    
    
    
    
    
    
    
    10,827,623
    
    
    
    Operating expenses
    
    
    568,223
    
    
    
    406,079
    
    
    
    2,297,129
    
    
    
    808,837Operating income
(loss)
    
    
    2,057,360
    
    
    
    (406,079
    )
    
    
    8,530,494
    
    
    
    (808,837
    )Other Income
(Expense)
    
    
    (1,824,481
    )
    
    
    (622,571
    )
    
    
    (3,921,627
    )
    
    
    262,904Net Income
    
    $
    232,879
    
    
    $
    (1,028,650
    )
    
    $
    4,608,867
    
    
    $
    (545,933
    )
 Results of Operations for the Quarter and Nine Months Ended September 30, 2007 as Compared to the
Quarter and Nine Months Ended September 30, 2006
 Revenues
  Cost of Sales
   Operating Expenses
  Other Expense, Net
  17




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Critical Accounting Estimates
  Off-Balance Sheet Arrangements
  Contractual Obligations
  18




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
  Commodity Price Risk
        19




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ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  20




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  Risks related to termination of lignite coal contract with General Industries.
  Risks related to potential ongoing use of Powder River Basin coal.
  The Company has experience problems using lignite coal in the coal combustor and has incurred
increased operating costs as a result.
  The Company has withheld $3.9 million from its design-builder, Fagen, Inc., related to the coal
combustor.
   21




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The Company is withholding a $975,000 payment from its management consultant, Greenway Consulting,
LLC.
  Environmental risks related to the use of coal as a fuel source.
 2 2 2
 
 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
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  22




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SIGNATURES
  RED TRAIL ENERGY, LLCDate: November 19, 2007
    By:
    /s/ Mick J. MillerMick J. MillerPresident and Chief Executive Officer 23




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EXHIBIT INDEX
 RED TRAIL ENERGY, LLC
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2007
 10.1*
    
    $3,500,000 Revolving Promissory Note given by the Company to First
National Bank of Omaha dated July 18, 200710.2*
    
    Second Amendment to Construction Loan Agreement by and between the
Company and First National Bank of Omaha date July 18, 200710.3*
    
    Assignment and Assumption Agreement between Renewable Products
Marketing Group, LLC and the Company dated August 31, 200710.4*
    
    Consent to Assignment and Assumption of Marketing Agreement between
the Company and Commodity Specialists Company dated August 31, 200731.1
    
    *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. 24