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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 JUNE 30, 2006
 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. Financial Statements (Unaudited)
    
    
    1Balance Sheets
    
    
    1Statements of Operations
    
    
    2Statements of Cash Flows
    
    
    3Notes to Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Cautionary Statement Regarding Forward-Looking StatementsItem 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II  OTHER INFORMATION
    
    
    20Item 6. Exhibits
    
    
    20SIGNATURES
    
    
    21CERTIFICATIONSCertification by CEO Pursuant to Section 302Certification by CFO Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350Certification Pursuant to 18 U.S.C. Section 1350
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PART I  FINANCIAL INFORMATION
 
  RED TRAIL ENERGY, LLC
 
  June 30, 2006
    
    
    December 31, 2005(Unaudited)
    
    
    (Audited)ASSETSCURRENT ASSETSCash and equivalents
    
    $
    38,013
    
    
    $
    19,043,811Prepaid expenses
    
    
    8,378
    
    
    
    25,345Total current assets
    
    
    46,391
    
    
    
    19,069,156PROPERTY AND EQUIPMENTLand
    
    
    300,602
    
    
    
    300,602Construction in progress
    
    
    54,644,876
    
    
    
    16,647,583Total property and equipment
    
    
    54,945,478
    
    
    
    16,948,185OTHER ASSETSDebt issuance costs
    
    
    1,026,478
    
    
    
    955,238Market value  interest rate swap
    
    
    428,712
    
    
    
    Total other assets
    
    
    1,455,190
    
    
    
    955,238Total Assets
    
    $
    56,447,059
    
    
    $
    36,972,579LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    13,788,913
    
    
    $
    7,971,436Accrued expenses
    
    
    53,237
    
    
    
    9,497Market value  interest rate swap
    
    
    
    
    
    
    277,952Total current liabilities
    
    
    13,842,150
    
    
    
    8,258,885Long-term debt
    
    
    6,689,040
    
    
    
    Members Equity
    
    
    35,915,869
    
    
    
    28,713,694Total Liabilities and Members Equity
    
    $
    56,447,059
    
    
    $
    36,972,579
  1




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RED TRAIL ENERGY, LLC
 
  FromSix Months
    
    
    Six Months
    
    
    InceptionQtr Ended
    
    
    Qtr Ended
    
    
    Ended
    
    
    Ended
    
    
    July 16, 2003June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    to2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    June 30, 2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating Expenses
    
    $
    246,523
    
    
    
    97,261
    
    
    
    402,755
    
    
    
    206,806
    
    
    
    3,344,044Operating Loss
    
    
    (246,523
    )
    
    
    (97,261
    )
    
    
    (402,755
    )
    
    
    (206,806
    )
    
    
    (3,344,044
    )Other Income (Expense)Grant income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    150,000Gain from
non-designated
hedging
derivatives
    
    
    302,951
    
    
    
    
    
    
    
    706,664
    
    
    
    
    
    
    
    428,712Interest income
    
    
    37,792
    
    
    
    94,094
    
    
    
    178,811
    
    
    
    157,657
    
    
    
    813,970Total other
income, net
    
    
    340,743
    
    
    
    94,094
    
    
    
    885,475
    
    
    
    207,657
    
    
    
    1,392,682Net Income (Loss)
    
    $
    94,220
    
    
    $
    (3,167
    )
    
    $
    482,720
    
    
    
    851
    
    
    $
    (1,951,362
    )Weighted Average
Units Outstanding
    
    
    40,375,973
    
    
    
    29,126,070
    
    
    
    38,866,794
    
    
    
    26,152,981
    
    
    
    14,052,940Net Income (Loss) Per
Unit
    
    $
    0.00
    
    
    $
    (0.00
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    (0.14
    )
  2




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RED TRAIL ENERGY, LLC
 
  Six Months
    
    
    Six Months
    
    
    From InceptionEnded
    
    
    Ended
    
    
    July 16, 2003 toJune 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    482,720
    
    
    $
    851
    
    
    $
    (1,951,362
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    56,825Gain from
non-designated hedging activities
    
    
    (706,664
    )
    
    
    
    
    
    
    (428,712
    )Changes in assets and liabilitiesPrepaid expenses
    
    
    16,967
    
    
    
    
    
    
    
    (8,378
    )Accounts payable
    
    
    (1,485,260
    )
    
    
    998
    
    
    
    76,992Accrued expenses
    
    
    43,740
    
    
    
    (1,548
    )
    
    
    53,237Net cash provided by (used in)
operation
activities
    
    
    (1,648,497
    )
    
    
    301
    
    
    
    (2,201,398
    )Cash Flows from Investing ActivitiesCapital expenditures
    
    
    (30,235,896
    )
    
    
    (272,427
    )
    
    
    (41,259,635
    )Net cash used in investing activities
    
    
    (30,235,896
    )
    
    
    (272,427
    )
    
    
    (41,259,635
    )Cash Flows from Financing ActivitiesPayments for deferred offering costs
    
    
    
    
    
    
    (3,353
    )
    
    
    (107,315
    )Payments for debt issuance costs
    
    
    (529,900
    )
    
    
    (65,000
    )
    
    
    (1,000,400
    )Proceeds from long-term debt
    
    
    6,689,040
    
    
    
    
    
    
    
    6,689,040Proceeds from stock subscriptions held in
escrow
    
    
    
    
    
    
    
    
    
    
    25,983,452Member contributions
    
    
    6,719,455
    
    
    
    27,402,754
    
    
    
    11,934,269Net cash provided by financing
activities
    
    
    12,878,595
    
    
    
    27,334,401
    
    
    
    43,499,046Net Increase (Decrease) in Cash and Equivalents
    
    
    (19,005,798
    )
    
    
    27,062,275
    
    
    
    38,013Cash and Equivalents  Beginning of Period
    
    
    19,043,811
    
    
    
    136,347
    
    
    
    Cash and Equivalents  End of Period
    
    $
    38,013
    
    
    $
    27,198,622
    
    
    $
    38,013SUPPLEMENTAL DISCLOSURES OF NON- CASH
INVESTING AND FINANCING ACTIVITIESDebt issuance costs included in accounts payable
    
    $
    26,078
    
    
    $
    
    
    
    $
    26,078Capital expenditures included in accounts payable
    
    $
    7,761,397
    
    
    $
    133,459
    
    
    $
    13,685,843Stock subscriptions held in escrow converted to
member contributions
    
    $
    
    
    
    $
    27,402,754
    
    
    $
    25,983,452Member unit subscriptions
    
    $
    
    
    
    $
    
    
    
    $
    33,550Issuance of restricted shares
    
    $
    
    
    
    $
    
    
    
    $
    56,825
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Red Trail Energy, LLC
 
 
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Nature of Business
  Fiscal Reporting Period
  Accounting Estimates
  Cash
   Property and Equipment
   4




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Debt Issuance Costs
  Deferred Offering Costs
  Grants
   Income Taxes
  Organizational and Start Up Costs
  Derivative Instruments
  Stock-Based Compensation
    5




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Recently Issued Accounting Pronouncements
  2. DEVELOPMENT STAGE ENTERPRISE
   3. CONSTRUCTION IN PROGRESS
  June 30,
    
    
    December 31,2006
    
    
    2005Construction
costs
    
    $
    50,141,791
    
    
    $
    15,516,973Rail infrastructure and development
    
    
    2,609,619
    
    
    
    1,026,124Water wells
    
    
    527,513
    
    
    
    4,678Other costs
    
    
    1,365,953
    
    
    
    99,808$
    54,644,876
    
    
    $
    16,647,583
 4. BANK FINANCING
  Construction Loan
    6




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Revolving Line of Credit
  Interest Rate Swap Agreement
   Letters of Credit
  Subordinated Debt
  5. MEMBERS EQUITY
   7




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




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Utility Agreements
    Marketing Agreements
   Coal Purchase Contract
  Grain Origination Contract
  9




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Rail Track Design
  10




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
    
    The availability and adequacy of our cash flow to meet its requirements, including
payment of loans;
    
    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; and
    
    Changes in our business strategy, capital to support capital improvements and
development.
 Application of Critical Accounting Policies
  Accounting Estimates
  Cash and Equivalents
   Property and Equipment
  11




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Debt Issuance Costs
  Deferred Offering Costs
  Income Taxes
  Organization and Start Up Costs
  Derivative Instruments
  Summary
  12




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Results of Operations for the Three Months Ended June 30, 2006 and June 30, 2005 and the Six
Months Ended June 30, 2006 and June 30, 2005
  Three Months Ended
    
    
    Three Months Ended
    
    
    Six Months Ended
    
    
    Six Months EndedMarch 31, 2006
    
    
    March 31, 2005
    
    
    June 30, 2006
    
    
    June 30, 2005Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenues
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Costs of Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross Margin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expenses
    
    
    246,523
    
    
    
    
    
    
    
    97,261
    
    
    
    
    
    
    
    402,755
    
    
    
    
    
    
    
    206,806Operating income
(loss)
    
    
    (246,523
    )
    
    
    
    
    
    
    (97,261
    )
    
    
    
    
    
    
    (402,755
    )
    
    
    
    
    
    
    (206,806
    )Grant Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Gain from
non-designated
hedging derivatives
    
    
    302,951
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    706,664
    
    
    
    
    
    
    
    Interest income
    
    
    37,792
    
    
    
    
    
    
    
    94,094
    
    
    
    
    
    
    
    178,811
    
    
    
    
    
    
    
    157,657Net Income
    
    $
    94,220
    
    
    
    
    
    
    $
    (3,167
    )
    
    
    
    
    
    $
    482,720
    
    
    
    
    
    
    $
    851
 Results of Operations
  Revenues
  Cost of Sales
  Operating Expenses
  13




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Other Income, Net
     Plan of Operations Until Start-Up of Ethanol Plant
   Plant Construction and Start-Up of Plant Operations
  Liquidity and Capital Resources
 Overview
  14




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Construction Loan Agreements
  Construction Loan
        
    
    Providing the bank with current and accurate financial statements;
    
    Maintaining certain financial ratios, minimum net worth, and working capital;
    
    Maintaining adequate insurance;
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
    
    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.
  Revolving Line of Credit
  Interest Rate Swap Agreement
  Letters of Credit
  Subordinated Debt
   Grants
  16




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Fuel Tax Incentive Program
  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 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.
 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
  17




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Contractual Obligations
  Payments Due by PeriodLess than 1
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    Year
    
    
    1-3 Years
    
    
    5 YearsPurchase Option(1)
    
    $
    76,000,000
    
    
    $
    51,276,000
    
    
    
    0
    
    
    
    0Total Contractual obligations
    
    $
    76,000,000
    
    
    $
    51,276,000
    
    
    
    0
    
    
    
    0
 
 (1)
    
    Relates to our contract with Fagen. As of June 30, 2006, we have already paid
approximately $26,724,000. 
 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
   Commodity Price Risk
     18




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ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  19




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PART II  OTHER INFORMATION
 
 Item 6. Exhibits
  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.
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SIGNATURES
  RED TRAIL ENERGY, LLCDate: September 15, 2006
    By:
    /s/ Mick J. MillerMick J. MillerPresident and Chief Executive Officer 21