RED TRAIL ENERGY, LLC (Form: 10-K, Received: 04/17/2007 17:27:34)

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, 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: 000-1359687

RED TRAIL ENERGY, LLC

(Exact name of registrant as specified in its charter)


NORTH DAKOTA		76-0742311
(State or other jurisdiction		(IRS Employer
of incorporation or organization)		Identification No.)

P.O. Box 11
3682 Highway 8 South
Richardton, ND 58652
(Address and Zip Code of Principal Executive Offices)

(Registrant’s telephone number, including area code): (701) 974-3308

Securities register pursuant to Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated Filer o Non-accelerated filer þ

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

The aggregate market value of the member unit held by non-affiliates of the registrant was $29,678,494 as of December 31, 2006.

As of April 17, 2007, the Company has issued 40,373,973 Class A Membership Units.

DOCUMENTS INCORPORATED BY REFERENCE:

Pursuant to General Instruction G (3), we omit Part III, Items 10, 11, 12, 13, and 14 and incorporate such items by reference to an amendment to this Annual Report on Form 10-K or to a definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Annual Report (December 31, 2006).

TABLE OF CONTENTS


	Page

PART I		1

ITEM 1. BUSINESS		1

ITEM 1A. RISK FACTORS		16

ITEM 2. PROPERTIES		24

ITEM 3. LEGAL PROCEEDINGS		24

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		25

PART II		25

ITEM 5. MARKET FOR REGISTRANT’S MEMBER UNITS, RELATED MEMBER MATTERS AND ISSUER PURCHASED OF EQUITY SECURITIES		25

ITEM 6. SELECTED FINANCIAL DATA		26

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION		26

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		36

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		38

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		38

ITEM 9A. CONTROLS AND PROCEDURES.		38

ITEMS 9B. OTHER INFORMATION		38

PART III		39

PART IV		40

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES		40
Operating Agreement
Membership Control Agreement
First Amendment to Construction Loan Agreement
Revolving Promissory Note
Security Agreement and Deposit Account Control Agreement
Equity Grant Agreement
Option to Purchase
Audit Committee Charter
Senior Financial Officer Code of Conduct
Certification
Certification
Certification
Certification

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains historical information, as well as forward-looking statements. These forward-looking statements include any statements that involve known and unknown risks and relate to future events and our expectations regarding future performance or conditions. Words such as “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements, and others we make from time to time, are subject to a number of risks and uncertainties. Many factors could cause actual results to differ materially from those projected in forward-looking statements, including the risks described in Part I of this Annual Report. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to:

•

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;

	-		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 US 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.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

PART I

ITEM 1. BUSINESS.

Overview

Red Trail Energy, LLC (“Red Trail” or “Company”) owns and operates a 50 million gallon per year (“MMGY”) corn-based ethanol manufacturing plant located near Richardton, North Dakota in Stark County in western North Dakota (the “Plant”). (Red Trail is referred to in this report as “we,” “our,” or “us.”)

Fuel grade ethanol is our primary product, accounting for the majority of our revenue. In late December 2006, the Plant processed approximately 97,490 bushels of corn, though we had not produced any ethanol by December 31, 2006. In fiscal year 2007, we anticipate that the Plant will produce approximately 50 million gallons of ethanol from approximately 18 million bushels of corn. However, there is no guarantee that we will be able to operate at these levels.

General Development of Business since January 1, 2006

Red Trail was formed as a North Dakota limited liability company on July 16, 2003 and through December 2006 had spent substantially all of its efforts towards raising capital and debt financing and constructing its manufacturing Plant. On December 26 2006, we ground our first corn to start ethanol production. On January 1, 2007, we produced our first gallon of ethanol, and produced approximately 2.6 million gallons of ethanol during January 2007.

Available Information

The public may read and copy materials we file with the Securities and Exchange Commission at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C., 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Reports we file electronically with the SEC may be obtained at www.sec.gov .

In addition, information about us is also available at our website at www.redtrailenergyllc.com. The contents of our website are not incorporated by reference in this Annual Report on Form 10-K.

Financial Information

Please refer to “ Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information about our revenues, profit and loss measurements and total assets. Our consolidated financial statements and supplementary data are included beginning at page F-1 of this Annual Report.

Principal Products and Their Markets

The principal products we produce at our Plant are fuel grade ethanol and distillers grains.

Ethanol

Ethanol is ethyl alcohol, a fuel component made primarily from corn and various other grains. However, according to the Renewable Fuels Association, approximately 85 percent of ethanol in the United States today is produced from corn, and approximately 90 percent of ethanol is produced from corn and other input mix. Corn produces large quantities of carbohydrates, which convert into glucose more easily than most other kinds of

biomass. The Renewable Fuels Association estimates current domestic ethanol production at approximately 5.28 billion gallons as of December 2006.

An ethanol plant is essentially a fermentation plant. Ground corn and water are mixed with enzymes and yeast to produce a substance called “beer,” which contains about 10% alcohol and 90% water. The “beer” is boiled to separate the water, resulting in ethyl alcohol, which is then dehydrated to increase the alcohol content. This product is then mixed with a certified denaturant to make the product unfit for human consumption and commercially saleable.

Ethanol can be used as: (i) an octane enhancer in fuels; (ii) an oxygenated fuel additive for the purpose of reducing ozone and carbon monoxide vehicle emissions; and (iii) a non-petroleum-based gasoline substitute. Approximately 95% of all ethanol is used in its primary form for blending with unleaded gasoline and other fuel products. Used as a fuel oxygenate, ethanol provides a means to control carbon monoxide emissions in large metropolitan areas. The principal purchasers of ethanol are petroleum terminals in the continental United States.

For our fiscal year ended December 31, 2006, revenue from the sale of ethanol was approximately 0% of total revenues. We began generating revenues when ethanol shipments began in January 2007.

Distillers Grains

A principal co-product of the ethanol production process is distillers grains, a high protein, high-energy animal feed supplement primarily marketed to the dairy and beef industry. Distillers grains contain by-pass protein that is superior to other protein supplements such as cottonseed meal and soybean meal. By-pass proteins are more digestible to the animal, thus generating greater lactation in milk cows and greater weight gain in beef cattle. The dry mill ethanol processing used by the Plant results in two forms of distiller grains: Distillers Modified Wet Grains (“DMWG”) and Distillers Dried Grains with Solubles (“DDGS”). DMWG is processed corn mash that has been dried to approximately 50% moisture. DMWG have a shelf life of approximately ten days and are often sold to nearby markets. DDGS is processed corn mash that has been dried to 10% to 12% moisture. DDGS has an almost indefinite shelf life and may be sold and shipped to any market regardless of its vicinity to an ethanol plant. At our Plant, the composition of the distillers grains we produce is approximately 40% DMWG and 60% DDGS.

For our fiscal year ended December 31, 2006, revenues from sale of distillers grains was approximately 0% of total revenues. We began generating revenues when distillers grains shipments began in January 2007.

Marketing and Distribution of Principal Products

Our ethanol Plant is located near Richardton, North Dakota in Stark County, in the western section of North Dakota. We selected the Richardton site because of its location to existing coal supplies and accessibility to road and rail transportation. Our Plant is served by the Burlington Northern and Santa Fe Railway Company.

We sell and market the ethanol and distillers grains produced at the Plant through normal and established markets, including local, regional and national markets. We have entered into a marketing agreement with Renewable Products Marketing Group (“RPMG”) to sell our ethanol. Whether or not ethanol produced by our Plant is sold in local markets will depend on decisions made by our marketer. Local ethanol markets may be limited and must be evaluated on a case-by-case basis. We have also entered into a marketing agreement with Commodity Specialist Company (“CSC”) for our dried distillers grains. We market and sell our wet distillers grains. Although local ethanol and distillers grains markets will be the easiest to service, they may be oversold, particularly in North Dakota. Oversold markets depress ethanol and distillers grains prices.

Ethanol

We have a marketing agreement with RPMG for the purposes of marketing and distributing all of the ethanol we produce at the Plant.

Distillers Grains

We have a marketing agreement with CSC for the purpose of marketing and selling our dried distillers grains. For our dried distillers grains marketed and sold by CSC, we receive a percentage of the selling price actually received by CSC from its customers. We market and sell our wet distillers grains. Through the marketing of CSC and our relationships with local farmers, we are not dependent upon one or a limited number of customers for our distillers grains sales.

Dependence on One or a Few Major Customers

We are substantially dependent upon RPMG for the purchase, marketing and distribution of our ethanol. RPMG purchases 100% of the ethanol produced at the Plant, all of which is marketed and distributed to its customers. Therefore, we are highly dependent on RPMG for the successful marketing of our ethanol. In the event that our relationship with RPMG is interrupted or terminated for any reason, we believe that another entity to market the ethanol could be located. However, any interruption or termination of this relationship could temporarily disrupt the sale of ethanol and adversely affect our business and operations.

We are substantially dependent on CSC for the purchase, marketing and distribution of our dried distillers grains. CSC purchases 100% of the dried distillers grains produced at the Plant, all of which are marketed and distributed to its customers. Therefore, we are highly dependent on CSC for the successful marketing of our dried distillers grains. In the event that our relationship with CSC is interrupted or terminated for any reason, we believe that another entity to market the dried distillers grains could be located. However, any interruption or termination of this relationship could temporarily disrupt the sale of dried distillers grains and adversely affect our business and operations.

Seasonal Factors in Business

In an effort to improve air quality in regions where carbon monoxide and ozone are a problem, the Federal Oxygen Program of the Federal Clean Air Act requires the sale of oxygenated motor fuels during the winter months in certain major metropolitan areas to reduce carbon monoxide pollution. Gasoline that is blended with ethanol has a higher oxygen content than gasoline that does not contain ethanol. As a result, we expect fairly light seasonality with respect to our gross profit margins on our ethanol, allowing us to, potentially, be able to sell our ethanol at a slight premium during the mandated oxygenate period. Conversely, we expect our average sales price for fuel grade ethanol during the summer, when fuel grade ethanol is primarily used as an octane enhancer or a fuel supply extender, to be a little lower.

Financial Information about Geographic Areas

All of our operations and all of our long-lived assets are domiciled in the United States. We believe that all of the products we will sell to our customers in the future will be produced in the United States.

Sources and Availability of Raw Materials

Corn Feedstock Supply

The major raw material required for our ethanol plant to produce ethanol and distillers grain is corn. To operate at a name-plate capacity of 50 million gallons, the Plant requires a supply of approximately 18 million bushels of corn annually. We have entered into a Grain Origination Agreement with New Vision Coop to supply corn. To date, however, our Commodities Manager is buying our corn directly from other shuttle loaders, elevators and farmers. The New Vision Coop contract is in place in case we need someone to originate corn for us.

Currently, we do not anticipate difficulty securing sufficient grain to operate the Plant. In January 2007, the United States Department of Agriculture’s 2006 Crop Production Summary listed national corn production at approximately 10.5 billion bushels, which would be the third largest corn crop on record, and North Dakota production at 15.54 million bushels. However, we expect that the increased demand of corn resulting from

additional ethanol plants will lead to greater competition for corn in our geographic area, which we expect will lead to higher corn prices. A recent USDA report entitled “World Agricultural Supply and Demand Estimates” (February 9, 2007) states that U.S. corn prices could increase in year 2007 to as much as $3.40 per bushel or more. As of December 31, 2006, our average price per bushel was $3.23. While our surrounding area produces a significant amount of corn, our profitability may be negatively impacted if long-term corn prices remain high.

In order to reduce the risk caused by marked fluctuations of corn prices, we enter into option and futures contracts. These contracts are used to fix the purchase price of our anticipated requirements of corn in production activities.

Coal

Coal is also an important input to our manufacturing process. During the year ended December 31, 2006, we used 650 tons of coal. We estimate that our current coal usage will be approximately 133,000 tons per year (375 tons of coal per operating day). We have a ten-year contract with General Industries, Inc., d/b/a Center Coal Company to deliver this coal. We use coal for all our energy needs which produces steam for distillation and all other corn processing, including drying our distillers grains products to moisture contents at which they can be stored for long periods and transported greater distances, so that we can market them to broader livestock markets, including poultry and swine markets in the continental United States.

Since we started operations in January 2007, the Plant has experienced a number of shut-downs as a result of issues related to lignite quality and our coal combustor. We continue to discuss quality, delivery and other issues with Center Coal Company. We are working with our contractors on both short and long-term solutions. As a short-term solution, we are considering using powder river basin (“PRB”) coal as an alternative to lignite. We believe PRB coal may work better with the current coal combustor design. As a long-term solution, we are working with our contractors to find ways to modify the coal combustor so that we can continue using lignite. If we cannot modify the coal combustor to use lignite, we may have to use PRB coal instead of lignite as a long-term solution. Regardless of the resolution, we expect higher coal costs, either due to using the PRB coal, which costs more than lignite, or due to the possible increases in the cost to obtain lignite.

Assuming we can utilize lignite, and despite the Center Coal Company contract, there can be no assurance that the coal we need will always be delivered as we need it, that we will receive the proper size or quality of coal or that our coal combustor will always work properly with lignite coal. Any disruption could either force us to reduce our operations or shut down the Plant, both of which would reduce our revenues.

At least four other sources of lignite coal exist in the western portion of North Dakota and the total lignite coal production within North Dakota in 2003 was 30,750,000 tons, 29,943,000 tons in 2004 and 29,956,000 tons in 2005, according to the U.S. Energy Information Administration. Our needs constitute less than half of one percent of the total state production.

We believe we could obtain alternative sources of coal if necessary, though we could suffer delays in delivery and higher prices that could hurt our business and reduce our revenues and profits. We believe there is sufficient supply of coal from the Powder River Basin coal regions in Wyoming and Montana to meet our demands. According to the U.S. Energy Information Administration in April 2006, Wyoming has estimated total coal reserves of 7,053 million tons and Montana has estimated total coal reserves of 1,140 millions tons. According to the U.S. Energy Information Administration, in 2004 Wyoming produced 396,493 thousand tons of coal and Montana produced 39,989 thousand tons of coal. If there is an interruption in the supply or quality of coal for any reason, we may be required to halt production. If production is halted for an extended period of time, it may have a material adverse affect on our operations, cash flows and financial performance.

In addition to coal, we could use natural gas as a fuel source if our coal supply is significantly interrupted. There is a natural gas line within three miles of our Plant and we believe we could contract for the delivery of enough natural gas to operate our Plant. Natural gas tends to be significantly more expensive than coal and we would also incur significant costs to adapt our power systems to natural gas. Because we are already operating on coal, we do not expect to need natural gas.

Recently, the price of coal has risen along with other energy sources. Coal prices are considerably higher than the ten-year average, due to increased economic and industrial activity in the United States and internationally, most notably China. We assume that there will be continued volatility in the coal markets. If we are unable to obtain coal through our contract with Center Coal Company, any ongoing increases in the price of coal will increase our cost of production and may negatively impact our future profit margins.

Electricity

The production of ethanol is a very energy intensive process that uses significant amounts of electricity. We have entered into a contract with West Plains Electric Cooperative, Inc. to provide our needed electrical energy. Despite this contract, there can be no assurance that they will be able to reliably supply the electricity that we need. If there is an interruption in the supply of energy for any reason, such as supply, delivery or mechanical problems, we may be required to halt production. If production is halted for an extended period of time, it may have a material adverse affect on our operations, cash flows and financial performance.

Water

Water supply is also an important consideration. To meet the Plant’s full operating requirements for water, we have entered into a ten-year contract with Southwest Water Authority (the “Authority”) to purchase raw water. Under the contract, we are required to purchase a minimum of 200 million gallons per year. Prior to connection, we were required to deposit with the Authority a prepayment of $80,000. After three years, if we have a consistent payment record, we may be allowed to apply $40,000 of the $80,000 to our water bill. The other $40,000 must remain in escrow until the end of the contract. Our cost for water under the contract is based on our proportionate share of the Authority’s operation, maintenance and replacement costs, excluding the cost of treatment, plus capital costs. The base rate for capital costs is $.72 per each 1,000 gallons of water. This base rate is subject to increase or decrease based on consumer price index changes. If there is an interruption in the supply of water for any reason, such as supply, delivery or mechanical problems, we may be required to halt production. If production is halted for an extended period of time, our revenues and profits will be reduced and it may have a material adverse affect on our operations, cash flows and financial performance.

Much of the water used in an ethanol plant is recycled back into the process. There are, however, certain areas of production where fresh water is needed. Those areas include boiler makeup water and cooling tower makeup water. Boiler makeup water is treated on-site to minimize all elements that will harm the boiler and recycled water cannot be used for this process. Cooling tower water is deemed non-contact water because it does not come in contact with the mash and, therefore, can be regenerated back into the cooling tower process. The makeup water requirements for the cooling tower are primarily a result of evaporation. We expect that much of the water can be recycled back into the process, which will minimize the discharge water. This will have the long-term effect of lowering wastewater treatment costs.

Federal Ethanol Supports

Various federal and state laws, regulations, and programs have led to an increasing use of ethanol in fuel, including subsidies, tax credits, policies and other forms of financial incentives. Some of these laws provide economic incentives to produce and blend ethanol, and others mandate the use of ethanol.

The most recent ethanol supports are contained in the Energy Policy Act of 2005 (the “Act”). Most notably, the Act creates a 7.5 billion gallon renewable fuels standard (“RFS”). The RFS requires refiners, importers and blenders (“obligated parties”) to show that a required volume of renewable fuel is used in the nation’s fuel supply. The RFS began at 4 billion gallons in 2006 and will increase to 7.5 billion gallons by 2012. The RFS for 2007 is 4.7 billion gallons. The RFS is a national flexible program that does not require that any renewable fuels be used in any particular area or state, allowing refiners to use renewable fuel blends in those areas where it is most cost-effective. According to the Renewable Fuel Association, the RFS program is expected to lead to about $6 billion in new investment in ethanol plants across the country. An increase in the number of new plants will bring an increase in the supply of ethanol. Thus, while the Act may cause ethanol prices to increase in the short term due to additional demand, future supply could outweigh the demand for ethanol in the future. This would have a negative impact on our earnings.

On December 30, 2005, the Environmental Protection Agency (“EPA”) published an interim Direct Final Rule in the Federal Register imposing a 2.78% default provision (equating to 4 billion gallons of renewable fuel) of the RFS. The Direct Final Rule applies a collective compliance approach, meaning no refiner individually has to meet the standard, but that the industry as a whole will have to blend at least 2.78% renewable fuels into gasoline during 2006. Any shortfall in meeting this requirement would be added to the 4.7 billion gallon RFS requirement for 2007. There are no other consequences for failure to collectively meet the 2006 standard. Although there is not a requirement for individual parties to demonstrate compliance in 2006, the EPA found that increases in ethanol production and projections for future demand indicate that the 2006 volume is likely to be met and that more than 4 billion gallons of ethanol and biodiesel will be blended in 2006. An EPA brief explaining this action can be viewed on the EPA website located in the renewable fuels section.

On September 7, 2006, the EPA published proposed final rules implementing the RFS program. The RFS program will apply in 2007 prospectively from the effective date of the final rule. The RFS for 2007 is 3.71% or 4.7 billion gallons of renewable fuel. The RFS must be met by obligated parties. Compliance with the RFS program will be shown through the acquisition of unique Renewable Identification Numbers (“RINs”) assigned by the producer to every batch of renewable fuel produced. The RIN shows that a certain volume of renewable fuel was produced. Obligated parties must acquire sufficient RINs to demonstrate compliance with their performance obligation. In addition, RINs can be traded and a recordkeeping and electronic reporting system for all parties that have RINs ensures the integrity of the RIN pool.

RINs are valid for compliance purposes for the calendar year in which they were generated, or the following calendar year. No more than 20% of the current year obligation could be satisfied using RINs from the previous year. An obligated party may carry a deficit over from one year into the next if it cannot generate or purchase sufficient RINs to meet its renewable volume obligation. However, deficits cannot be carried over from one year into the next.

The RFS system will be enforced through a system of registration, record keeping and reporting requirements for obligated parties and renewable fuels producers (“RIN generators”), as well as any party that procures or trades RINs either as part of their renewable fuels purchases or separately. Any person who violates any prohibition or requirement of the RFS program may be subject to civil penalties for each day of each violation. For example, under the proposed rule, a failure to acquire sufficient RINs to meet a party’s renewable fuels obligation would constitute a separate day of violation for each day the violation occurred during the annual averaging period. The enforcement provisions are necessary to ensure the RFS program goals are not compromised by illegal conduct in the creation and transfer of RINs.

Historically, ethanol sales have also been favorably affected by the Federal Clean Air Act amendments of 1990, particularly the Federal Oxygen Program which became effective November 1, 1992. The Federal Oxygen Program requires the sale of oxygenated motor fuels during the winter months in certain major metropolitan areas to reduce carbon monoxide pollution. Ethanol use has increased due to a second Federal Clean Air Act program, the Reformulated Gasoline Program. This program became effective January 1, 1995, and requires the sale of reformulated gasoline in nine major urban areas to reduce pollutants, including those that contribute to ground level ozone, better known as smog.

The two major oxygenates added to reformulated gasoline pursuant to these programs are Methyl Tertiary Butyl Ether (“MTBE”) and ethanol; however, MTBE has caused groundwater contamination and has been banned from use by many states. The Energy Policy Act of 2005 (the “Act”) did not impose a national ban of MTBE but it also did not include liability protection for manufacturers of MTBE. The failure to include liability protection for manufacturers of MTBE has resulted in refiners and blenders using ethanol as an oxygenate rather than MTBE to satisfy the reformulated gasoline oxygenate requirement. While this may create increased demand in the short-term, we do not expect this to have a long term impact on the demand for ethanol as the Act repeals the Federal Clean Air Act’s 2% oxygenate requirement for reformulated gasoline immediately in California and 270 days after enactment elsewhere. However, the Act did not repeal the 2.7% oxygenate requirement for carbon monoxide nonattainment areas which are required to use oxygenated fuels in the winter months. While we expect ethanol to be the oxygenate of choice in these areas, there is no assurance that ethanol will, in fact, be used.

The use of ethanol as an alternative fuel source has been aided by federal tax policy, which directly benefits gasoline refiners and blenders, and increases demand for ethanol. On October 22, 2004, President Bush signed H.R. 4520, which contained the Volumetric Ethanol Excise Tax Credit (“VEETC”) and amended the federal excise tax structure effective as of January 1, 2005. Prior to VEETC, ethanol-blended fuel was taxed at a lower rate than regular gasoline (13.2 cents on a 10% blend). Under VEETC, the ethanol excise tax exemption has been eliminated, thereby allowing the full federal excise tax of 18.4 cents per gallon of gasoline to be collected on all gasoline and allocated to the highway trust fund. We expect the highway trust fund to add approximately $1.4 billion to the highway trust fund revenue annually. In place of the exemption, the bill creates a new volumetric ethanol excise tax credit of 5.1 cents per gallon of ethanol blended at 10%. Refiners and gasoline blenders apply for this credit on the same tax form as before, only it is a credit from general revenue, not the highway trust fund. Based on volume, the VEETC is expected to allow much greater refinery flexibility in blending ethanol since it makes the tax credit available on all ethanol blended with all gasoline, diesel and ethyl tertiary butyl ether (“ETBE”), including ethanol in E85 and the E20 in Minnesota. The VEETC is scheduled to expire on December 31, 2010.

The Energy Policy Act of 2005 expands who qualifies for the small ethanol producer tax credit. Historically, small ethanol producers were allowed a 10-cents-per-gallon production income tax credit on up to 15 million gallons of production annually. The size of the plant eligible for the tax credit was limited to 30 million gallons. Under the Energy Policy Act of 2005, the size limitation on the production capacity for small ethanol producers increases from 30 million to 60 million gallons. The credit can be taken on the first 15 million gallons of production. The tax credit is capped at $1.5 million per year per producer. The small ethanol producer tax credit is set to expire December 31, 2010.

In addition, the Energy Policy Act of 2005 creates a new tax credit that permits taxpayers to claim a 30% credit (up to $30,000) for the cost of installing clean-fuel vehicle refueling equipment, such as an E85 fuel pump, to be used in a trade or business of the taxpayer or installed at the principal residence of the taxpayer. Under the provision, clean fuels are any fuel of at least 85% of the volume of which consists of ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, and hydrogen and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel. The provision is effective for equipment placed in service after December 31, 2005 and before December 31, 2010. While it is unclear how this credit will affect the demand for ethanol in the short term, we expect it will help raise consumer awareness of alternative sources of fuel and could positively impact future demand for ethanol.

Other Factors Affecting Demand and Supply

In addition to government supports that encourage production and the use of ethanol, demand for ethanol may increase as a result of increased consumption of E85 fuel. E85 fuel is a blend of 70% to 85% ethanol and gasoline. According to the Energy Information Administration, E85 consumption is projected to increase from a national total of 11 million gallons in 2003 to 47 million gallons in 2025. The demand for E85 is largely driven by flexible fuel vehicle penetration of the US vehicle fleet, the retail price of E85 compared to regular gasoline and the availability of E85 at retail stations. In the U.S., there are currently about 6 million flexible fuel vehicles capable of operating on E85 and automakers have indicated plans to produce an estimated 2 million more flexible fuel vehicles per year. In addition, Ford and General Motors have national campaigns to promote ethanol and flexible fuel vehicles. Because flexible fuel vehicles can operate on both ethanol and gasoline, if the price of regular gasoline falls below E85, demand for E85 will decrease as well. In addition, gasoline stations offering E85 are relatively scarce. As of October 2006, just over 940 of the country’s 170,000 gas stations offered E85 as an alternative to ordinary gasoline (National Ethanol Vehicle Coalition, October 6, 2006). The Energy Policy Act of 2005 established a tax credit of 30% for infrastructure and equipment to dispense E85. This tax credit became effective in 2006 and is expected to encourage more retailers to offer E85 as an alternative to regular gasoline. The tax credit, unless renewed, will expire December 31, 2010.

On October 5, 2006, Underwriters Laboratories (“UL”) suspended authorization for manufacturers to use UL Markings on components for fuel-dispensing devices that specifically reference compatibility with alcohol-blended fuels that contain greater than 15% ethanol. Published studies on ethanol indicate that, in higher concentrations, it may have significantly-enhanced corrosive effects versus traditional gasoline. While there have been no documented reports of corrosion for UL listed or recognized components used with E85, Underwriters Laboratories has suspended authorization to use the UL Mark on components used in dispensing devices that will

dispense any alcohol-blended fuels containing over 15% alcohol until updated certification requirements are established and the effected components have been found to comply with them. The lack of a UL seal for filling station pumps carrying E85 means that some of these stations may be violating fire codes, and that new stations intending to install E85 systems may need waivers from local or state fire marshals. It is the decision of each authority having jurisdiction as to whether existing E85 dispensing equipment is allowed to remain in service or is taken out of service until additional supporting information is received. UL has not set a deadline for creating standards that could lead to certification, which could result in the closure of some existing E85 fueling stations and delay in opening others.

Our Competition

We will be in direct competition with numerous other ethanol producers, many of whom have greater resources than we do. We also expect that additional ethanol producers will continue to enter the market if the demand for ethanol continues to increase. Ethanol is a commodity product, like corn, which means our ethanol Plant competes with other ethanol producers on the basis of price and, to a lesser extent, delivery service. We believe we compete favorably with other ethanol producers due to our proximity to coal supplies and multiple modes of transportation. In addition, we believe our Plant’s location offers an advantage over other ethanol producers in that it has ready access by rail to growing ethanol markets, which reduces our cost of sales.

According to the RFA, the ethanol industry has grown to approximately 110 production facilities in the United States with current estimates of current domestic ethanol production at approximately 5.28 billion gallons as of December 2006. As reported by the RFA, excluding our Plant, North Dakota currently has four ethanol plants with the capacity to produce approximately 133.5 gallons annually. In addition, there are at least two ethanol plants under construction, expansion, or nearing construction within three (3) months in North Dakota, which will add over 200 million gallons of annual capacity. There are also numerous other producer and privately owned ethanol plants planned and operating throughout the Midwest and elsewhere in the United States. The largest ethanol producers include Abengoa Bioenergy Corp., ADM, ASAlliances Biofuels, LLC, Aventine Renewable Energy, Inc., Cargill, Inc., The Andersons, US Bio Energy and VeraSun Energy Corporation, all of which are each capable of producing more ethanol than we expect to produce.

The following table identifies most of the ethanol producers in the United States along with their production capacities.

Current

Under Construction/

Capacity

Expansions

Company

Location

Feedstock

(mgy)

Abengoa Bioenergy Corp.

York, NE

Corn/milo

Colwich, KS

Portales, NM

Ravenna, NE

Aberdeen Energy*

Mina, SD

Corn

100

Absolute Energy, LLC*

St. Ansgar, IA

Corn

100

ACE Ethanol, LLC

Stanley, WI

Corn

Adkins Energy, LLC*

Lena, IL

Corn

Advanced Bioenergy

Fairmont, NE

Corn

100

AGP*

Hastings, NE

Corn

Agra Resources Coop. d.b.a. EXOL*

Albert Lea, MN

Corn

Agri-Energy, LLC*

Luverne, MN

Corn

Alchem Ltd. LLLP

Grafton, ND

Corn

10.5

Al-Corn Clean Fuel*

Claremont, MN

Corn

Current

Under Construction/

Capacity

Expansions

Company

Location

Feedstock

(mgy)

Amaizing Energy, LLC*

Denison, IA

Corn

Archer Daniels Midland

Decatur, IL

Corn

1,070

275

Cedar Rapids, IA

Corn

Clinton, IA

Corn

Columbus, NE

Corn

Marshall, MN

Corn

Peoria, IL

Corn

Wallhalla, ND

Corn/barley

Arkalon Energy, LLC

Liberal, KS

Corn

110

ASAlliances Biofuels, LLC

Albion, NE

Corn

100

Linden, IN

Corn

100

Bloomingburg, OH

Corn

100

Aventine Renewable Energy, LLC

Pekin, IL

Corn

207

Aurora, NE

Corn

Badger State Ethanol, LLC*

Monroe, WI

Corn

Big River Resources, LLC*

West Burlington, IA

Corn

Big River Resources Grinnell, LLC (joint venture with US Bio)

Grinnell, IA

Corn

Blue Flint Ethanol

Underwood, ND

Corn

Bonanza Energy, LLC

Garden City, KS

Corn/milo

Bushmills Ethanol, Inc.*

Atwater, MN

Corn

Cardinal Ethanol

Harrisville, IN

Corn

100

Cargill, Inc.

Blair, NE

Corn

Eddyville, IA

Corn

Cascade Grain

Clatskanie, OR

Corn

108

CassCo Amaizing Energy, LLC

Atlantic, IA

Corn

110

Castle Rock Renewable Fuels, LLC

Necedah, WI

Corn

Center Ethanol Company

Sauget, IL

Corn

Central Indiana Ethanol, LLC

Marion, IN

Corn

Central Illinois Energy, LLC

Canton, IL

Corn

Central MN Ethanol Coop*

Little Falls, MN

Corn

21.5

Central Wisconsin Alcohol

Plover, WI

Seed corn

Chief Ethanol

Hastings, NE

Corn

Chippewa Valley Ethanol Co.*

Benson, MN

Corn

Commonwealth Agri-Energy, LLC*

Hopkinsville, KY

Corn

Corn, LP*

Goldfield, IA

Corn

Cornhusker Energy Lexington, LLC

Lexington, NE

Corn

Corn Plus, LLP*

Winnebago, MN

Corn

Coshoctan Ethanol, OH

Coshoctan, OH

Corn

Dakota Ethanol, LLC*

Wentworth, SD

Corn

DENCO, LLC

Morris, MN

Corn

21.5

Dexter Ethanol, LLC

Dexter, IA

Corn

100

E Energy Adams, LLC

Adams, NE

Corn

E3 Biofuels

Mead, NE

Corn

E Caruso (Goodland Energy Center)

Goodland, KS

Corn

Current

Under Construction/

Capacity

Expansions

Company

Location

Feedstock

(mgy)

East Kansas Agri-Energy, LLC*

Garnett, KS

Corn

Elkhorn Valley Ethanol, LLC

Norfolk, NE

Corn

ESE Alcohol Inc.

Leoti, KS

Seed corn

1.5

Ethanol2000, LLP*

Bingham Lake, MN

Corn

Ethanol Grain Processors, LLC

Obion, TN

Corn

100

First United Ethanol, LLC (FUEL)

Mitchell Co., GA

Corn

100

Frontier Ethanol, LLC

Gowrie, IA

Corn

Front Range Energy, LLC

Windsor, CO

Corn

Gateway Ethanol

Pratt, KS

Corn

Glacial Lakes Energy, LLC*

Watertown, SD

Corn

Global Ethanol/Midwest Grain Processors

Lakota, IA

Corn

Riga, MI

Corn

Golden Cheese Company of California*

Corona, CA

Cheese whey

Golden Grain Energy, LLC*

Mason City, IA

Corn

Golden Triangle Energy, LLC*

Craig, MO

Corn

Grand River Distribution

Cambria, WI

Corn

Grain Processing Corp.

Muscatine, IA

Corn

Granite Falls Energy, LLC*

Granite Falls, MN

Corn

Great Plains Ethanol, LLC*

Chancellor, SD

Corn

Greater Ohio Ethanol, LLC

Lima, OH

Corn

Green Plains Renewable Energy

Shenandoah, IA

Corn

Superior, IA

Corn

Hawkeye Renewables, LLC

Iowa Falls, IA

Corn

105

Fairbank, IA

Corn

115

Menlo, IA

Corn

100

Heartland Corn Products*

Winthrop, MN

Corn

Heartland Grain Fuels, LP*

Aberdeen, SD

Corn

Huron, SD

Corn

Heron Lake BioEnergy, LLC

Heron Lake, MN

Corn

Holt County Ethanol

O'Neill, NE

Corn

100

Horizon Ethanol, LLC

Jewell, IA

Corn

Husker Ag, LLC*

Plainview, NE

Corn

26.5

Illinois River Energy, LLC

Rochelle, IL

Corn

Indiana Bio-Energy

Bluffton, IN

Corn

101

Iowa Ethanol, LLC*

Hanlontown, IA

Corn

Iroquois Bio-Energy Company, LLC

Rensselaer, IN

Corn

James Valley Ethanol, LLC

Groton, SD

Corn

KAAPA Ethanol, LLC*

Minden, NE

Corn

Kansas Ethanol, LLC

Lyons, KS

Corn

Land O’ Lakes*

Melrose, MN

Cheese whey

2.6

Levelland/Hockley County Ethanol, LLC

Levelland, TX

Corn

Lincolnland Agri-Energy, LLC*

Palestine, IL

Corn

Lincolnway Energy, LLC*

Nevada, IA

Corn

Liquid Resources of Ohio

Medina, OH

Waste Beverage

Little Sioux Corn Processors, LP*

Marcus, IA

Corn

Current

Under Construction/

Capacity

Expansions

Company

Location

Feedstock

(mgy)

Marquis Energy, LLC

Hennepin, IL

Corn

100

Marysville Ethanol, LLC

Marysville, MI

Corn

Merrick & Company

Golden, CO

Waste beer

MGP Ingredients, Inc.

Pekin, IL

Corn/wheat starch

Atchison, KS

Michigan Ethanol, LLC

Caro, MI

Corn

Mid America Agri Products/Wheatland

Madrid, NE

Corn

Mid-Missouri Energy, Inc.*

Malta Bend, MO

Corn

Midwest Renewable Energy, LLC

Sutherland, NE

Corn

Millennium Ethanol

Marion, SD

Corn

100

Minnesota Energy*

Buffalo Lake, MN

Corn

Missouri Ethanol

Laddonia, MO

Corn

Missouri Valley Renewable Energy, LLC*

Meckling, SD

Corn

NEDAK Ethanol

Atkinson, NE

Corn

New Energy Corp.

South Bend, IN

Corn

102

North Country Ethanol, LLC*

Rosholt, SD

Corn

Northeast Biofuels

Volney, NY

Corn

114

Northeast Missouri Grain, LLC*

Macon, MO

Corn

Northern Lights Ethanol, LLC*

Big Stone City, SD

Corn

Northstar Ethanol, LLC

Lake Crystal, MN

Corn

Northwest Renewable, LLC

Longview, WA

Corn

Otter Creek Ethanol, LLC*

Ashton, IA

Corn

Otter Tail Ag Enterprises

Fergus Falls, MN

Corn

57.5

Pacific Ethanol

Madera, CA

Corn

Boardman, OR

Corn

Burley, ID

Corn

Panda Energy

Hereford, TX

Corn/milo

100

Panhandle Energies of Dumas, LP

Dumas, TX

Corn/Grain Sorghum

Parallel Products

Louisville, KY

Beverage waste

5.4

R. Cucamonga, CA

Patriot Renewable Fuels, LLC

Annawan, IL

Corn

100

Penford Products

Ceder Rapids, IA

Corn

Permeate Refining

Hopkinton, IA

Sugars & starches

1.5

Phoenix Biofuels

Goshen, CA

Corn

Pinal Energy, LLC

Maricopa, AZ

Corn

Pine Lake Corn Processors, LLC*

Steamboat Rock, IA

Corn

Pinnacle Ethanol, LLC

Corning, IA

Corn

Plainview BioEnergy, LLC

Plainview, TX

Corn

100

Platinum Ethanol, LLC*

Arthur, IA

Corn

110

Plymouth Ethanol, LLC*

Merrill, IA

Corn

Poet*

Scotland, SD

Corn

Prairie Ethanol, LLC

Loomis, SD

Corn

Prairie Horizon Agri-Energy, LLC

Phillipsburg, KS

Corn

Current

Under Construction/

Capacity

Expansions

Company

Location

Feedstock

(mgy)

Premier Ethanol

Portland, IN

Corn

Pro-Corn, LLC*

Preston, MN

Corn

Quad-County Corn Processors*

Galva, IA

Corn

Red Trail Energy, LLC

Richardton, ND

Corn

Redfield Energy, LLC *

Redfield, SD

Corn

Reeve Agri-Energy

Garden City, KS

Corn/milo

Renew Energy

Jefferson Junction, WI

Corn

130

Siouxland Energy & Livestock Coop*

Sioux Center, IA

Corn

Siouxland Ethanol, LLC

Jackson, NE

Corn

Sioux River Ethanol, LLC*

Hudson, SD

Corn

Southwest Iowa Renewable Energy, LLC *

Council Bluffs, IA

Corn

110

Sterling Ethanol, LLC

Sterling, CO

Corn

Summit Ethanol

Leipsic, OH

Corn

Tall Corn Ethanol, LLC*

Coon Rapids, IA

Corn

Tama Ethanol, LLC

Tama, IA

Corn

100

Tate & Lyle

Loudon, TN

Corn

Ft. Dodge, IA

Corn

105

The Andersons Albion Ethanol LLC

Albion, MI

Corn

The Andersons Clymers Ethanol, LLC

Clymers, IN

Corn

110

The Andersons Marathon Ethanol, LLC

Greenville, OH

Corn

110

Trenton Agri Products, LLC

Trenton, NE

Corn

United Ethanol

Milton, WI

Corn

United WI Grain Producers, LLC*

Friesland, WI

Corn

US BioEnergy Corp.

Albert City, IA

Corn

250

400

Woodbury, MI

Corn

Hankinson, ND

Corn

Central City, NE

Corn

Ord, NE

Corn

Dyersville, IA

Corn

Janesville, MN

Corn

U.S. Energy Partners, LLC (White Energy)

Russell, KS

Milo/wheat starch

Utica Energy, LLC

Oshkosh, WI

Corn

VeraSun Energy Corporation

Aurora, SD

Corn

230

330

Ft. Dodge, IA

Corn

Charles City, IA

Corn

Welcome, MN

Corn

Hartely, IA

Corn

Voyager Ethanol, LLC*

Emmetsburg, IA

Corn

Western New York Energy, LLC

Shelby, NY

Corn

Western Plains Energy, LLC*

Campus, KS

Corn

Western Wisconsin Renewable Energy, LLC*

Boyceville, WI

Corn

White Energy

Hereford, TX

Corn/Milo

100

Current

Under Construction/

Capacity

Expansions

Company

Location

Feedstock

(mgy)

Wind Gap Farms

Baconton, GA

Brewery waste

0.4

Renova Energy

Torrington, WY

Corn

Xethanol BioFuels, LLC

Blairstown, IA

Corn

Yuma Ethanol

Yuma, CO

Corn

Total Current Capacity at 114 ethanol biorefineries

5,633.4

Total Under Construction (80)/Expansions (7)

6,394.9

Total Capacity

12,028.3


*		locally-owned

Updated: March 13, 2007

Competition from Alternative Ethanol Production Methods

Alternative ethanol production methods are continually under development. New ethanol products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages and harm our business.

Most ethanol is currently produced from corn and other raw grains, such as milo or sorghum - especially in the Midwest. The current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue, municipal solid waste, and energy crops. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas which are unable to grow corn. Additionally, the enzymes used to produce cellulose-based ethanol have recently become less expensive. Furthermore, the Department of Energy and the President of the United States have announced support for the development of cellulose-based ethanol, including a $160 million Department of Energy program for pilot plants producing cellulose-based ethanol. Several large companies, including Iogen Corporation, Abengoa, Royal Dutch Shell Group, Goldman Sachs Group, Dupont and Archer Daniels Midland, have all indicated that they are interested in research and development in this area. In addition, Xethanol Corporation has stated plans to convert a six million gallon per year plant in Blairstown, Iowa to implement cellulose-based ethanol technologies after 2007. Poet Companies has also announced plans to expand Voyager Ethanol in Emmetsburg, Iowa to include cellulose to ethanol commercial production.

Although current technology is not sufficiently efficient to be competitive on a large-scale, a 2005 report by the U.S. Department of Energy entitled “Outlook for Biomass Ethanol Production and Demand” indicates that new conversion technologies may be developed in the future. If an efficient method of collecting biomass for ethanol production and producing ethanol from cellulose-based biomass is developed, we may not be able to compete effectively. We may not be able to cost-effectively convert the Plant into a plant that will use cellulose-based biomass to produce ethanol. As a result, it is possible we could be unable to produce ethanol as cost-effectively as cellulose-based producers.

Competition with Ethanol Imported from Other Countries

Ethanol production is also expanding internationally. Brazil has long been the world’s largest producer and exporter of ethanol; however, since 2005, U.S. ethanol production slightly exceeded Brazilian production. Ethanol is produced more cheaply in Brazil than in the United States because of the use of sugarcane, a less expensive raw material alternative to corn. However, in 1980, Congress imposed a tariff on foreign produced ethanol to make it more expensive than domestic supplies derived from corn. This tariff was designed to protect the benefits of the federal tax subsidies for United States farmers. In December 2006, legislation was passed in both the U.S. House of Representatives and U.S. Senate to extend the $0.54 per gallon tariff beyond its current expiration in December 2007 through 2008. We do not know the extent to which the volume of imports would increase or the effect on U.S. prices for ethanol if the tariff is not renewed.

Ethanol imports from 24 countries in Central America and the Caribbean Islands are exempted from this tariff under the Caribbean Basin Initiative. Under the terms of the Caribbean Basin Initiative, exports from member

nations are capped at 7.0% of the total United States production from the previous year (with additional exemptions from ethanol produced from feedstock in the Caribbean region over the 7.0% limit). However, as total production in the United States grows, the amount of ethanol produced from the Caribbean region and sold in the United States will also grow, which could impact our ability to sell ethanol.

Competition from Alternative Fuels

Our Plant also competes with producers of other gasoline additives having similar octane and oxygenate values as ethanol, such as producers of MTBE, a petrochemical derived from methanol that costs less to produce than ethanol. Although currently the subject of several state bans, many major oil companies can produce MTBE and because it is petroleum-based, its use is strongly supported by major oil companies.

Alternative fuels, gasoline oxygenates and alternative ethanol production methods are also continually under development by ethanol and oil companies with far greater resources. The major oil companies have significantly greater resources than we have to develop alternative products and to influence legislation and public perception of MTBE and ethanol. New ethanol products or methods of ethanol production developed by larger and better-financed competitors could provide them competitive advantages and harm our business.

A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions. If the fuel cell and hydrogen industries continue to expand and gain broad acceptance and hydrogen becomes readily available to consumers for motor vehicle use, we may not be able to compete effectively. This additional competition could reduce the demand for ethanol, which would negatively impact our profitability.

Distillers Grains Competition

Ethanol plants in the Midwest produce the majority of distillers grains and primarily compete with other ethanol producers in the production and sales of distillers grains. According to the Renewable Fuels Association, approximately 12 million metric tons of distillers grains were produced by ethanol plants in 2006. The amount of distillers grains produced is expected to increase significantly as the number of ethanol plants increase which will increase competition in the distillers grains market in our area. In addition, our distillers grains compete with other livestock feed products such as soybean meal, corn gluten feed, dry brewers grain and mill feeds.

Research and Development

We do not conduct any research and development activities associated with the development of new technologies for use in producing ethanol or distillers grains.

Costs and Effects of Compliance with Environmental Laws

We are subject to extensive air, water and other environmental regulations and we have been required to obtain a number of environmental permits to construct and operate the Plant. We have obtained all of the necessary permits to operate the Plant including air pollution permits, construction permits, a pollutant discharge elimination system general permit, storm water discharge permits, a water withdrawal permit and an alcohol fuel producer’s permit. In addition, we have completed a spill prevention control and countermeasures plan. As of December 31, 2006, we did not have our Title V permit, but expect to be applying for our Title V permit within the next twelve (12) months. On August 4, 2004, we received our Air Permit to construct and we commenced construction of the Plant on July 7, 2005. Although we have been successful in obtaining all of the permits currently required, any retroactive change in environmental regulations, either at the federal or state level, could require us to obtain additional or new permits or spend considerable resources on complying with such regulations.

We expect to be subject to ongoing environmental regulations and testing. As of December 31, 2006, the Plant had not undergone emissions testing. We expect emissions compliance testing to take place within the next six (6) months.

We are subject to oversight activities by the EPA. There is always a risk that the EPA may enforce certain rules and regulations differently than North Dakota’s environmental administrators. North Dakota or EPA rules are subject to change, and any such changes could result in greater regulatory burdens on our Plant operations. We could also be subject to environmental or nuisance claims from adjacent property owners or residents in the area arising from possible foul smells or other air or water discharges from the Plant. Such claims may result in an adverse result in court if we are deemed to engage in a nuisance that substantially impairs the fair use and enjoyment of real estate.

The government’s regulation of the environment changes constantly. It is possible that more stringent federal or state environmental rules or regulations could be adopted, which could increase our operating costs and expenses. It also is possible that federal or state environmental rules or regulations could be adopted that could have an adverse effect on the use of ethanol. For example, changes in the environmental regulations regarding the required oxygen content of automobile emissions could have an adverse effect on the ethanol industry. Furthermore, Plant operations likely will be governed by the Occupational Safety and Health Administration (“OSHA”). OSHA regulations may change such that the costs of the operation of the Plant may increase. Any of these regulatory factors may result in higher costs or other materially adverse conditions affecting our operations, cash flows and financial performance.

Employees

We presently have 38 full-time employees and two contract employees. The two contract employees are for the positions of President and General Manager, Mick Miller, and Plant Manager, Edward Thomas, who are contracted to work with us by GreenWay Consulting, LLC, a Minnesota limited liability company (“GreenWay”), our management consultants. Currently, eight of our employees are primarily involved in management and administration and the remainder are primarily involved in Plant operations. We expect that our costs for the first year of operations for employees will be approximately $1,800,000 plus $85,000 for a Plant Manager and $130,000 for a General Manager. Employee costs for the fiscal year ended December 31, 2006, for salaries and benefits, were approximately $650,000 plus an additional approximate $165,000 for contract employees.

The following table represents the our current positions.


	# Full-Time
Position	Personnel
General Manager (Contract Personnel)		1
Plant Manager (Contract Personnel)		1
Chief Financial Officer		1
Commodities Manager		1
Accounting/Marketing		1
Lab Manager		1
Lab Technician		1
Administrative Assistant		1
Shift Supervisors		4
Material Handlers		3
Maintenance Manager		1
Maintenance Supervisor		1
Maintenance Craftsmen		5
Plant Operators		16
Operations Supervisor		1
Scale Operator		1
TOTAL		40

We enter into written confidentiality and assignment agreements with our executive officers and employees. Among other things, these agreements require such executive officers and employees to keep all proprietary information developed or used by us in the course of our business strictly confidential.

Our success depends in part on our ability to attract and retain qualified personnel at a competitive wage and benefit level. We must hire qualified managers, accounting and other personnel. We operate in a rural area with low unemployment. There is no assurance that we will be successful in attracting and retaining qualified personnel at a wage and benefit structure at or below those we have assumed in our project. If we are unsuccessful in this regard, we may not be competitive with other ethanol plants, which could increase our operating costs and decrease our revenues and profits.

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. We began our business in 2003 and commenced full production of ethanol at our Plant in January 2007. Accordingly, we have a limited operating history from which you can evaluate our business and prospects. Our operating results could fluctuate significantly in the future as a result of a variety of factors, including those discussed throughout these risk factors. Many of these factors are outside our control. As a result of these factors, our operating results may not be indicative of future operating results and you should not rely on them as indications of our future performance. In addition, our prospects must be considered in light of the risks and uncertainties encountered by an early-stage company and in rapidly evolving markets, such as the ethanol market, where supply and demand may change significantly in a short amount of time. Some of these risks relate to our potential inability to:

	•		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 Report.

If we cannot successfully address these risks, our business, future results of operations and financial condition may be materially adversely affected, and we may continue to incur operating losses in the future.

Our business is not diversified. Our success depends largely upon our ability to profitably operate our ethanol Plant. We do not have any other lines of business or other sources of revenue if we are unable to operate our ethanol Plant and manufacture ethanol and distillers grains. If economic or political factors adversely affect the market for ethanol, we have no other line of business to fall back on if the ethanol business declines. Our business would also be significantly harmed if the Plant could not operate at full capacity for any extended period of time.

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

Ethanol production requires substantial amounts of corn. Corn, as with most other crops, is affected by weather, disease and other environmental conditions. The price of corn is also influenced by general economic, market and government factors. These factors include weather conditions, farmer planting decisions, domestic and foreign government farm programs and policies, global demand and supply and quality. Changes in the price of

corn can significantly affect our business. Generally, higher corn prices will produce lower profit margins and, therefore, represent unfavorable market conditions. This is especially true if market conditions do not allow us to pass along increased corn costs to our customers. The price of corn has fluctuated significantly in the past and may fluctuate significantly in the future. Corn prices recently have been significantly higher than the 10-year average. If a period of high corn prices were to be sustained for some time, such pricing may reduce our ability to generate revenues because of the higher cost of operating and may make ethanol uneconomical to use in fuel markets. We cannot offer any assurance that we will be able to offset any increase in the price of corn by increasing the price of our products. If we cannot offset increases in the price of corn, our financial performance may be materially and adversely affected.

We seek to minimize the risks from fluctuations in the prices of corn through the use of hedging instruments. However, these hedging transactions also involve risks to our business. See “ Item 1A. Risks Relating to Our Business — We engage in hedging transaction which involve risks that can harm our business .”

The prices for and availability of coal may be subject to volatile market conditions. These market conditions often are affected by factors beyond our control such as higher prices as a result of colder than average weather conditions, overall economic conditions and foreign and domestic governmental regulations and relations. Significant disruptions in the supply of coal could impair our ability to manufacture ethanol for our customers. Furthermore, long-term increases in coal prices or changes in our costs relative to energy costs paid by competitors may adversely affect our results of operations and financial condition.

The spread between ethanol and corn prices can vary significantly and we do not expect the spread to remain at recent high levels. Corn costs significantly impact our cost of goods sold. Our gross margins are principally dependent upon the spread between ethanol and corn prices. Recently, the spread between ethanol and corn prices has been at historically high level, due in large part to high oil prices. However, this spread has reduced as corn prices have increased dramatically since August 2006. Any further reduction in the spread between ethanol and corn prices, whether as a result of higher corn prices or lower ethanol prices, would adversely affect our results of operations and financial condition.

Our revenues will be greatly affected by the price at which we can sell our ethanol and distillers grains. These prices can be volatile as a result of a number of factors. These factors include the overall supply and demand, the price of gasoline, level of government support, and the availability and price of competing products. For instance, the price of ethanol tends to increase as the price of gasoline increases, and the price of ethanol tends to decrease as the price of gasoline decreases. Any lowering of gasoline prices will likely also lead to lower prices for ethanol, which may decrease our ethanol sales and reduce revenues.

The price of ethanol has recently been much higher than its 10-year average. We do not expect these prices to be sustainable as supply from new and existing ethanol plants increases to meet increased demand. Increased production of ethanol may lead to lower prices. The increased production of ethanol could have other adverse effects. For example, the increased production could lead to increased supplies of co-products from the production of ethanol, such as distillers grains. Those increased supplies could outpace demand, which would lead to lower prices for those co-products. Also, the increased production of ethanol could result in increased demand for corn. This could result in higher prices for corn and corn production creating lower profits. There can be no assurance as to the price of ethanol or distillers grains in the future. Any downward changes in the price of ethanol and/or distillers grains may result in less income, which would decrease our revenues and profitability.

We sell all of the ethanol we produce to Renewable Products Marketing Group (“RPMG”) in accordance with an ethanol marketing agreement. RPMG is the sole buyer of all of our ethanol and we rely heavily on its marketing efforts to successfully sell our product. Because RPMG sells ethanol for a number of other producers, we have limited control over its sales efforts. Our financial performance is dependent upon the financial health of RPMG, as a significant portion of our accounts receivable are attributable to RPMG. If RPMG breaches

the ethanol marketing agreement or is not in the financial position to purchase all of the ethanol we produce, we could experience a material loss and we may not have any readily available means to sell our ethanol and our financial performance will be adversely and materially affected. If our agreement with RPMG terminates, we may seek other arrangements to sell our ethanol, including selling our own product, but we give no assurance that our sales efforts would achieve results comparable to those achieved by RPMG.

We currently buy all of our coal from General Industries, Inc., d/b/a Center Coal Company (“Center Coal”). Center Coal is currently the sole provider of all of our lignite coal and we rely on them for the lignite to run our Plant. If Center Coal cannot or will not deliver the lignite coal pursuant to the contract terms, our business will be materially and adversely affected. If our contract with Center Coal terminates, we would seek alternative supplies of coal, either lignite or other coal types, but we may not be able to obtain the coal we need on favorable terms, if at all. If we cannot obtain an adequate supply of coal at reasonable prices, or enough coal at all, our financial condition would suffer and we could be forced to reduce or shut down operations.

We engage in hedging transactions, which involve risks that can harm our business. We are exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn and coal in the ethanol production process. We may seek to minimize the risks from fluctuations in the prices of corn through the use of hedging instruments. The effectiveness of any future hedging strategies is dependent upon the cost of corn our ability to sell sufficient products to use all of the corn for which we have futures contracts. There is no assurance that our hedging activities will successfully reduce the risk caused by price fluctuation, which may leave us vulnerable to high corn prices. Alternatively, we may choose not to engage in corn hedging transactions in the future. As a result, our results of operations and financial conditions may also be adversely affected during periods in which corn prices increase.

We are also exposed to market risk from changes in the price of ethanol. To manage our ethanol price risk, RPMG will have a percentage of our future production gallons contracted through fixed price contracts, ethanol rack hedges and gas plus hedges. There is no assurance that our hedging activities will successfully reduce the risk caused by price fluctuation, which may leave us vulnerable to fixed contracts below the current market value for ethanol. Alternatively, we may choose not to engage in ethanol hedging transactions in the future. As a result, our results of operations and financial conditions may also be adversely affected during periods in which ethanol prices decrease.

Hedging activities themselves can result in costs because price movements in corn and ethanol contracts are highly volatile and are influenced by many factors that are beyond our control. There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of corn and ethanol. However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price. We may incur such costs and they may be significant.

We have derivative instruments in the form of interest rate swaps in an agreement with bank financing. Market value adjustments and net settlements related to these agreements are recorded as a gain or loss from non-designated hedging activities. Significant increases in the variable rate could greatly affect the operations of the Company.

Operational difficulties at our Plant could negatively impact our sales volumes and could cause us to incur substantial losses. Our operations are subject to labor disruptions, unscheduled downtime and other operational hazards inherent in our industry, such as equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not be adequate to fully cover the potential operational hazards described above or we may not be able to renew this insurance on commercially reasonable terms or at all.

Moreover, our Plant may not operate as planned or expected. Our Plant has a specified nameplate capacity, which represents the production capacity specified in the applicable design-build agreement. In the event our Plant does not run at its name-plate levels, our business, results of operations and financial condition may be materially adversely affected.

Disruptions to infrastructure, or in the supply of fuel, coal or water, could materially and adversely affect our business. Our business depends on the continuing availability of rail, road, storage and distribution infrastructure. Any disruptions in this infrastructure network, whether caused by labor difficulties, earthquakes, storms, other natural disasters or human error or malfeasance or other reasons, could have a material adverse effect on our business. We rely upon third-parties to maintain the rail lines from our Plant to the national rail network, and any failure on their part to maintain the lines could impede our delivery of products, impose additional costs on us and could have a material adverse effect on our business, results of operations and financial condition.

Our business also depends on the continuing availability of raw materials, including corn and coal. The production of ethanol, from the planting of corn to the distribution of ethanol to refiners, is highly energy-intensive. Significant amounts of fuel are required for the growing, fertilizing and harvesting of corn, as well as for the fermentation, distillation and transportation of ethanol and coal for the drying of distillers grains. A serious disruption in supplies of fuel or coal, or significant increases in the prices of fuel or coal, could significantly reduce the availability of raw materials at our Plant, increase our production costs and could have a material adverse effect on our business, results of operations and financial condition.

Our Plant also requires a significant and uninterrupted supply of water of suitable quality to operate. If there is an interruption in the supply of water for any reason, we may be required to halt production at our Plant. If production is halted at our Plant for an extended period of time, it could have a material adverse effect on our business, results of operations and financial condition.

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. Our success depends in part on our ability to attract and retain competent personnel, which can be challenging in a rural community. For the operation of our Plant, we have hired qualified managers, engineers, operations and other personnel. Competition for both managers and Plant employees in the ethanol industry is intense, and we may not be able to maintain qualified personnel. If we are unable to maintain productive and competent personnel or hire qualified replacement personnel, our operations may be adversely affected, the amount of ethanol we produce may decrease and we may not be able to efficiently operate our Plant and execute our business strategy.

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. We expect that technological advances in the processes and procedures for processing ethanol will continue to occur. It is possible that those advances could make the processes and procedures that we utilize at our Plant less efficient or obsolete, or cause the ethanol we produce to be of a lesser quality. Advances and changes in the technology of ethanol production are expected to occur. Such advances and changes may make the ethanol production technology installed in our Plant less desirable or obsolete. These advances could also allow our competitors to produce ethanol at a lower cost than us. If we are unable to adopt or incorporate technological advances, our ethanol production methods and processes could be less efficient than our competitors, which could cause our Plant to become uncompetitive or completely obsolete. If our competitors develop, obtain or license technology that is superior to ours or that makes our technology obsolete, we may be required to incur significant costs to enhance or acquire new technology so that our ethanol production remains competitive. Alternatively, we may be required to seek third-party licenses, which could also result in significant expenditures. We cannot guarantee or assure you that third-party licenses will be available or, once obtained, will continue to be available on commercially reasonable terms, if at all. These costs could negatively impact our financial performance by increasing our operating costs and reducing our net income.

Ethanol production methods are also constantly advancing. Most ethanol is currently produced from corn and other raw grains, such as milo or sorghum — especially in the Midwest. However, the current trend in ethanol production research is to develop an efficient method of producing ethanol from cellulose-based biomass such as agricultural waste, forest residue and municipal solid waste. This trend is driven by the fact that cellulose-based biomass is generally cheaper than corn and producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in areas that are unable to grow corn. Another trend in ethanol production research is to produce ethanol through a chemical process rather than a fermentation process, thereby significantly increasing the ethanol yield per pound of feedstock. Although current technology does not allow these production methods to be competitive, new technologies may develop that would allow these methods to become viable means of ethanol

production in the future. If we are unable to adopt or incorporate these advances into our operations, our cost of producing ethanol could be significantly higher than those of our competitors, which could make our Plant obsolete.

In addition, alternative fuels, additives and oxygenates are continually under development. Alternative fuel additives that can replace ethanol may be developed, which may decrease the demand for ethanol. It is also possible that technological advances in engine and exhaust system design and performance could reduce the use of oxygenates, which would lower the demand for ethanol, and our business, results of operations and financial condition may be materially adversely affected.

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. Some of our governors are involved in third party ethanol-related projects that might compete against the ethanol and co-products produced by our Plant. Our governors may also provide goods or services to us or our contractors or buy our ethanol co-products. We have not adopted a board policy restricting such potential conflicts of interests at this time. Our governors have adopted procedures for reviewing potential conflicts of interests; however, we cannot be assured that these procedures will ensure that conflicts of interest are avoided.

In addition, our governors have other management responsibilities and business interests apart from us. These responsibilities include, but may not be limited to, being the owner and operator of non-affiliated business that our governors and executive officers derive the majority of their income from and to which they devote most of their time. We generally expect that each governor attend our monthly board meetings, either in person or by telephone, and attend any special board meetings in the same manner. Historically, our board meetings have lasted between three and six hours each, not including any preparation time before the meeting. Therefore, our governors may experience conflicts of interest in allocating their time and services between us and their other business responsibilities. In addition, conflicts of interest may arise because of their position to substantially influence our business and management because the governors, either individually or collectively, hold a substantial percentage of the units of our company.

We may have conflicting interests with GreenWay Consulting, LLC (“GreenWay”) that could cause GreenWay to put its interests ahead of ours. GreenWay has and continues to advise our governors and has been, and is expected to be, involved in substantially all material aspects of operations. In addition, Mick Miller, our President and General Manager and Edward Thomas, our Plant Manager, are employees of GreenWay. Consequently, the terms and conditions of any future agreements and understandings with GreenWay may not be as favorable to us as they could be if they were to be obtained from other third parties. In addition, because of the extensive role that GreenWay had in the construction of the Plant and has in its operations, it may be difficult or impossible for us to enforce claims that we may have against GreenWay. Such conflicts of interest may reduce our profitability.

Risks Related to Taxes

Income Taxes . We are a limited liability company and, subject to complying with certain safe harbor provisions to avoid being classified as a publicly traded partnership, we expect to be taxed as a partnership for federal income tax purposes. Our Member Control Agreement provides that no member shall transfer any unit if, in the determination of the board, such transfer would cause us to be treated as a publicly traded partnership, and any transfer of unit(s) not approved by the Board of Governors or that would result in a violation of the restrictions in the agreement would be null and void. In addition, as a condition precedent to any transfer of units, we have the right under the Member Control Agreement to seek an opinion of counsel that such transfer will not cause us to be treated as a publicly traded partnership. As a non-publicly traded partnership we are a pass-through entity and not subject to income tax at the company level. Our income is passed through to our members. If we become a publicly traded partnership we will be taxed as a C Corporation. We believe this would be harmful to us and to our members because we would cease to be a pass-through entity. We would be subject to income tax at the company level and members would also be subject to income tax on distributions they receive from us. This would have the affect of lowering our after-tax income and amount available for distributions to members and cash available to pay debt obligations and for operations.

We expect to be treated as a partnership for income tax purposes. As such, we will pay no tax at the company level and members will pay tax on their proportionate share of our net income. The income tax liability associated with a member’s share of net income could exceed any cash distribution the member receives from us. If a member does not receive cash distributions sufficient to pay his or her tax liability associated with his or her respective share of our income, he or she will be forced to pay his or her income tax liability associated with his or her respective units out of other personal funds.

North Dakota Fuel Tax Incentive Program . We have received written assurance from the North Dakota Department of Commerce that our Plant will qualify for North Dakota’s fuel tax fund incentive program once ethanol production begins. Ethanol plants constructed after July 31, 2003 are eligible for incentives. Under the program, each fiscal quarter eligible ethanol plants may receive a production incentive based on the average North Dakota price per bushel of corn received by farmers during the quarter, as established by the North Dakota agricultural statistics service, and the average North Dakota rack price per gallon of ethanol during the quarter, as compiled by AXXIS Petroleum. Because we cannot predict the future prices of corn and ethanol, we cannot predict whether we will receive any funds in the future.

Under the program, no facility may receive payments in excess of $10 million. If corn prices are low compared to historical averages and ethanol prices are high compared to historical averages, we will receive little or no funds from this program.

The maximum annual credit a taxpayer may receive is $50,000 and no taxpayer may obtain more than $250,000 in credits over any combination of taxable years. In addition, a taxpayer may claim no more than 50% of the credit in a single year and the amount of the credit allowed for any taxable year may not exceed 50% of the tax liability, as otherwise determined. Credits may carry forward for up to five years after the taxable year in which the investment was made. If we don’t meet the requirements of a “qualified business,” unit holders will not be eligible for a tax credit.

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 . There is currently no established public trading market for our units and an active trading market will not develop. To maintain partnership tax status, unit holders may not trade the units on an established securities market or readily trade the units on a secondary market (or the substantial equivalent thereof). We, therefore, will not apply for listing on any securities exchange or on the NASDAQ Stock Market. As a result, unit holders will not be able to readily sell their units .

We have placed significant restrictions on transferability of the units, limiting a unit holder’s ability to withdraw from Red Trail. The units are subject to substantial transfer restrictions pursuant to our Member Control Agreement and tax and securities laws. This means that unit holders will not be able to easily liquidate their units and may have to assume the risks of investments in us for an indefinite period of time. Transfers will only be permitted in the following circumstances:

•		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, if any is established.

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 . Distributions are payable at the sole discretion of our Board of Governors, subject to the provisions of the North Dakota Limited Liability Company Act, our Member Control Agreement and the requirements of our creditors. We do not know the amount of cash that we will generate

in any given year. Cash distributions are not assured, and we may never be in a position to make distributions. Our Board may elect to retain future profits to provide operational financing for the Plant, debt retirement and possible Plant expansion or the construction of additional plants. This means that unit holders may receive little or no return on their investment and be unable to liquidate their investment due to transfer restrictions and lack of a public trading market.

Our units were not valued based on any independent objective criteria, but rather by the amount of funding required to build our Plant. For our North Dakota intrastate offering and our initial seed capital round, we determined the offering price per unit to be $1.00. This determination was based solely on the capitalization requirements necessary to fund our construction and start-up activities. We did not rely upon any independent valuation, book value or other valuation criteria. Therefore, our outstanding units may be worth less than what they were sold for.

Our governors and managers will not be liable for any breach of their fiduciary duty, except as provided under North Dakota law. Under North Dakota law, no governor or manager will be liable for any of Red Trail’s debts, obligations or liabilities merely because he or she is a governor or manager. In addition, our Operating Agreement contains an indemnification provision which requires us to indemnify any governor or manager to the extent required or permitted by North Dakota Century Code, Section 10-32-99, as amended from time to time, or as required or permitted by other provisions of law.

Risks Related to Ethanol Industry

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

We expect to operate in a competitive industry and compete with larger, better-financed entities, which could impact our ability to operate profitably. There is significant competition among ethanol producers with numerous producer and privately owned ethanol plants planned and operating throughout the United States. The number of ethanol plants being developed and constructed in the United States continues to increase at a rapid pace. The passage of the Energy Policy Act of 2005 included a renewable fuels mandate that we expect will further increase the number of domestic ethanol production facilities. The largest ethanol producers include Abengoa Bioenergy Corp., Archer Daniels Midland, Aventine Renewable Energy, Inc., Cargill, Inc., The Andersons, US Bio Energy and VeraSun Energy Corporation, all of which are each capable of producing more ethanol than we expect to produce. In 2005, Archer Daniels Midland announced its plan to add approximately 500 million gallons per year of additional ethanol production capacity in the United States. Archer Daniels Midland is currently the largest ethanol producer in the U.S. and controls a significant portion of the ethanol market. Archer Daniels Midland’s plan to produce an additional 500 million gallons of ethanol per year will strengthen its position in the ethanol industry and cause a significant increase in domestic ethanol supply. If the demand for ethanol does not grow at the same pace as increases in supply, we expect that lower prices for ethanol will result which may adversely affect our ability to generate profits and our financial condition.

Competition from the advancement of alternative fuels may lessen the demand for ethanol. Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean burning gaseous fuels. Like ethanol, the emerging fuel cell industry offers a technological option to address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions. If the fuel cell and hydrogen industries continue to expand and gain broad acceptance, and hydrogen becomes readily available to consumers for motor vehicle use, we may not be able to

compete effectively. This additional competition could reduce the demand for ethanol, resulting in lower ethanol prices that might adversely affect our results of operations and financial condition.

Certain countries can export ethanol to the United States duty-free, which may undermine the ethanol production industry in the United States . Imported ethanol is generally subject to a $0.54 per gallon tariff and a 2.5% ad valorem tax that was designed to offset the $0.51 per gallon ethanol subsidy available under the federal excise tax incentive program for refineries that blend ethanol in their fuel. There is a special exemption from the tariff for ethanol imported from 24 countries in Central America and the Caribbean islands, which is limited to a total of 7.0% of United States production per year. In December 2006, legislation was passed by the U.S. House of Representatives and U.S. Senate to extend the $0.54 per gallon tariff beyond its current expiration in December 2007 through 2008. We do not know the extent to which the volume of imports would increase if the tariff is not renewed.

In addition, the North America Free Trade Agreement countries, Canada and Mexico, are exempt from duty. Imports from the exempted countries have increased in recent years and are expected to increase further as a result of new plants under development. In particular, the ethanol industry has expressed concern with respect to a new plant under development by Cargill, Inc., the fifth largest ethanol producer in the United States, in El Salvador, that would take the water out of Brazilian ethanol and then ship the dehydrated ethanol from El Salvador to the United States duty-free. Brazil is currently the world’s second largest producer and largest exporter of ethanol. In Brazil, ethanol is produced primarily from sugarcane, which is also used to produce food-grade sugar. Since production costs for ethanol in Brazil are estimated to be significantly less than what they are in the United States, the import of the Brazilian ethanol duty-free through El Salvador or another country exempted from the tariff may negatively impact the demand for domestic ethanol and the price at which we sell our ethanol.

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. Certain individuals believe that use of ethanol will have a negative impact on gasoline prices at the pump. Many also believe that ethanol adds to air pollution and harms car and truck engines. Still other consumers believe that the process of producing ethanol actually uses more fossil energy, such as oil and coal, than the amount of ethanol that is produced. These consumer beliefs could potentially be wide-spread. If consumers choose not to buy ethanol, it would affect the demand for the ethanol we produce which could lower demand for our product and negatively affect our profitability and financial condition.

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. If the volume of ethanol shipments continues to increase and blenders switch from MTBE to ethanol, there may be weaknesses in infrastructure such that our ethanol cannot reach its target markets. Substantial development of infrastructure by persons and entities outside our control will be required for our operations, and the ethanol industry generally, to grow. Areas requiring expansion include, but are not limited to:

	•		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.

The expansion of the above infrastructure may not occur on a timely basis, if at all. Our operations could be adversely affected by infrastructure disruptions. In addition, lack of or delay in infrastructure expansion may result in an oversupply of ethanol on the market, which could depress ethanol prices and negatively impact our financial performance.

Risks Related to Regulation and Governmental Action

A change in government policies favorable to ethanol may cause demand for ethanol to decline. Growth and demand for ethanol may be driven primarily by federal and state government policies, such as state laws banning MTBE and the national renewable fuels standard. The continuation of these policies is uncertain, which means that demand for ethanol may decline if these policies change or are discontinued. A decline in the demand for ethanol is likely to cause lower ethanol prices, which in turn will negatively affect our results of operations, financial condition and cash flows.

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. The ethanol industry and our business are assisted by various federal ethanol tax incentives, including those included in the Energy Policy Act of 2005. The provision of the Energy Policy Act of 2005 most likely to have the greatest impact on the ethanol industry is the creation of a 7.5 billion gallon Renewable Fuels Standard (“RFS”). The RFS began at 4 billion gallons in 2006, goes to 4.7 billion gallons in 2007 and increases to 7.5 billion gallons by 2012. The RFS helps support a market for ethanol that might disappear without this incentive. The elimination or reduction of tax incentives to the ethanol industry could reduce the market for ethanol, which could reduce prices and our revenues by making it more costly or difficult for us to produce and sell ethanol. If the federal tax incentives are eliminated or sharply curtailed, we believe that a decreased demand for ethanol will result, which could depress ethanol prices and negatively impact our financial performance.

Another important provision involves an expansion in the definition of who qualifies as a small ethanol producer. Historically, small ethanol producers were allowed a 10-cents per gallon production income tax credit on up to 15 million gallons of production annually. The size of the plant eligible for the tax credit was limited to 30 million gallons. Under the Energy Policy Act of 2005 the size limitation on the production capacity for small ethanol producers increased from 30 million to 60 million gallons.

Changes in environmental regulations or violations of the regulations could be expensive and reduce our profitability. We are subject to extensive air, water and other environmental laws and regulations. In addition some of these laws require our Plant to operate under a number of environmental permits. These laws, regulations and permits can often require expensive pollution control equipment or operation changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, damages, criminal sanctions, permit revocations and/or plant shutdowns. We do not assure you that we have been, are or will be at all times, in complete compliance with these laws, regulations or permits or that we have had or have all permits required to operate our business. We do not assure you that we will not be subject to legal actions brought by environmental advocacy groups and other parties for actual or alleged violations of environmental laws or our permits. Additionally, any changes in environmental laws and regulations, both at the federal and state level, could require us to invest or spend considerable resources in order to comply with future environmental regulations. The expense of compliance could be significant enough to reduce our profitability and negatively affect our financial condition.

ITEM 2. PROPERTIES.

The Plant is located just east of the city limits of Richardton, North Dakota, and just north and east of the entrance/exit ramps to Highway I-94. The Plant complex is situated inside a footprint of approximately 25 acres of land which is part of an approximately 135 acre parcel which we acquired ownership of in 2004 and 2005. Included in the immediate campus area of the Plant are perimeter roads, buildings, tanks and equipment. An administrative building and parking area are located approximately 400 feet from the Plant complex and we utilize an additional acre of land within the approximately 135 acre parcel. We believe that our Plant complex and property will be sufficient for our operations in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings, directly or indirectly, and we are not

aware of any claims pending or threatened against us or any of our governors that could result in the commencement of legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

We did not submit any matter to a vote of our unit holders through the solicitation of proxies or otherwise during the fourth quarter of 2006.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED UNIT HOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.

Market Information

There is no established trading market for our membership units.

We may establish a Unit Trading Bulletin Board, a private online matching service, in order to facilitate trading among our members. The Unit Trading Bulletin Board would be designed to comply with federal tax laws and IRS regulations establishing a “qualified matching service,” as well as state and federal securities laws. Typically, a Unit Trading Bulletin Board consists of an electronic bulletin board that provides a list of interested buyers with a list of interested sellers, along with their non-firm price quotes. The Unit Trading Bulletin Board would not automatically affect matches between potential sellers and buyers and it would be the sole responsibility of sellers and buyers to contact each other to make a determination as to whether an agreement to transfer units may be reached. If we establish a Unit Trading Bulletin Board, we do not expect to become involved in any purchase or sale negotiations arising from our Unit Trading Bulletin Board or have any role in effecting the transactions beyond approval, as required under our Member Control Agreement, and the issuance of new certificates. We also do not expect to give advice regarding the merits or shortcomings of any particular transaction. We do not expect to receive, transfer or hold funds or securities as an incident of operating the Unit Trading Bulletin Board. We would not receive any compensation for creating or maintaining the Unit Trading Bulletin Board. If a qualified matching service were established, we would not characterize Red Trail as being a broker or dealer or an exchange. We would not use the Unit Trading Bulletin Board to offer to buy or sell securities other than in compliance with the securities laws, including any applicable registration requirements.

In the event a Unit Trading Bulletin Board were established, significant rules and procedures may apply with respect to offers and sales of membership units. All transactions would be required to comply with any Unit Trading Bulletin Board Rules that may or may not be established and our Member Control Agreement, and would be subject to approval by our Board of Governors.

Unit Holders

As of year ended December 31, 2006, Red Trail had 40,373,973 Class A Membership Units issued and outstanding and a total of 800 membership unit holders. There is no other class of membership unit issued or outstanding.

Distributions

Red Trail did not make any distributions to its members for fiscal years ended December 31, 2006, 2005 or 2004. Distributions are payable at the discretion of our Board of Governors, subject to the provisions of the North Dakota Limited Liability Company Act and our Member Control Agreement. Distributions to our unit holders are also subject to certain loan covenants and restrictions that require us to make additional loan payments based on excess cash flow. These loan covenants and restrictions are described in greater detail under “ Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness. ” Red Trail may distribute a portion of the net profits generated from Plant operations to it owners. A unit holder’s distribution is determined by dividing the number of units owned by such unit holder by the total number of units outstanding. Our

unit holders are entitled to receive distributions of cash or property if and when a distribution is declared by our Board of Governors. Subject to the North Dakota Limited Liability Company Act, our Member Control Agreement and the requirements of our creditors, our Board of Governors has complete discretion over the timing and amount of distributions, if any, to our unit holders. There can be no assurance as to the ability of Red Trail to declare or pay distributions in the future.

ITEM 6. SELECTED FINANCIAL DATA.

The following tables set forth selected consolidated financial data of Red Trail Energy, LLC for the periods indicated. The audited financial statements included in Item 8 of this Annual Report have been audited by our independent auditors, Boulay, Heutmaker, Zibel & Co., P.L.L.P.


										From Inception
										July 16, 2003 to
Statement of										December 31,
Operations Data	2006			2005			2004			2006 (Unaudited)
Revenues	$	—		$	—		$	—		$	—
Operating Expenses		3,747,730			2,087,808			433,345			6,689,020
Operating Loss		(3,747,730	)		(2,087,808	)		(433,345	)		(6,689,020	)
Operating Income		1,243,667			360,204			147,004			1,750,875
Net Income (Loss )	$	(2,504,063	)	$	(1,727,604	)	$	(286,341	)	$	(4,938,145	)
Weighted Average Units Outstanding		39,625,843			24,393,980			3,591,180			13,920,740
Net Income (Loss) Per Unit	$	(0.06	)	$	(0.07	)	$	(0.08	)	$	(0.35	)


Balance Sheet Data	2006		2005
Cash & Equivalents	$	421,722	$	19,043,811
Total Current Assets		4,761,974		19,069,156
Total Property & Equipment		84,039,740		16,948,185
Total Assets	$	89,864,288	$	36,972,579
Total Current Liabilities		9,781,240		8,258,885
Other Liabilities		275,000		—
Long Term Debt		46,878,960		—
Members’ Equity		32,929,088		28,713,694
Book Value Per Weighted Average Unit	$	.83	$	1.18

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the risks described in “ Item 1A — Risk Factors ” and elsewhere in this Annual Report. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect.

Overview

We were organized to build a 50 million gallon annual production ethanol plant near Richardton, North Dakota. Construction began in 2005 and was completed in December 2006.

Since January 2007, our revenues have been derived from the sale and distribution of our ethanol and distillers grains throughout the continental United States. Corn is supplied to us from shuttle loaders, elevators and farmers, as negotiated by our Commodities Manager, although we have a contract with New Vision Coop in case we need them to provide corn if we cannot obtain it ourselves. After processing the corn, our ethanol is sold through RPMG, which subsequently markets and sells the ethanol to gasoline blenders and refiners located throughout the continental United States. The price that we receive from the sale of ethanol to RPMG is based upon the price that RPMG receives from the sale to its customers, minus a marketing fee. Except for Distillers Modified Wet Grains that we sell ourselves, our Distillers Dried Grains with Solubles (“DDGS”) that we produce are sold through Commodity Specialist Company (“CSC”), which markets and sells the product to livestock feeders. For our DDGS, we receive a percentage of the selling price actually received by CSC in marketing the DDGS to its customers.

We are subject to industry-wide factors that affect our operating income and cost of production. Our operating results are largely driven by the prices at which we sell ethanol and distillers grains and the costs related to their production. Historically, the price of ethanol tends to fluctuate in the same direction as the price of unleaded gasoline and other petroleum products. Surplus ethanol supplies also tend to put downward price pressure on ethanol. In addition, factors such as general economic conditions, the weather, and government policies and programs generally influence the price of ethanol. The price of distillers grains is generally influenced by supply and demand, the price of substitute livestock feed, such as corn and soybean meal, and other animal feed proteins. Surplus grains also tend to put downward price pressure on distillers grains. In addition, our revenues are also impacted by such factors as our dependence on one or a few major customers who market and distribute our products, the intensely competitive nature of our industry, possible legislation at the federal, state, and/or local level, and changes in federal ethanol tax incentives.

Our two largest costs of production are corn and coal. The cost of corn is primarily by supply and demand factors such as crop production, carryout, exports, government policies and programs, risk management and weather, much of which we have no control over. Coal prices fluctuate with the energy complex in general. Recently, the price of coal has risen along with other energy sources. Coal prices are considerably higher than the 10-year average, due to increased economic and industrial activity in the United States and internationally, most notably China. We assume that there will be continued volatility in the coal markets. We have a ten (10) year contract with General Industries, Inc., d/b/a Center Coal Company to circumvent this volatility. Any ongoing increases in the price of coal will increase our cost of production and may negatively impact our future profit margins. Our costs of production are affected by the cost of complying with the extensive environmental laws that regulate our industry.

Results of Operations

From January 1, 2006 to December 31, 2006, we were a development stage company with no revenues or costs of sales. We commenced operations in January 2007 and are engaged in the production and sale of fuel grade ethanol. We expect to be able to process approximately eighteen million bushels of corn into approximately fifty million gallons of ethanol. In addition, we intend to sell distillers grains, a principal co-product of the ethanol production process, which we will sell as distillers modified wet grains and distillers dried grains with solubles.

Comparison of Fiscal Years Ended December 31, 2006, 2005 and 2004

The following table shows the results of our operations and the percentages of sales and revenues, cost of sales, operating expenses and other items to total sales and revenues in our statements of operations for the years ended December 31, 2006, 2005 and 2004:


	Fiscal Year Ended				Fiscal Year Ended				Fiscal Year Ended
	December 31, 2006				December 31, 2005				December 31, 2004
	Amount			%	Amount			%	Amount			%
Revenues	$	—			$	—			$	—
Costs of Sales		—				—				—
Gross Margin		—				—				—

Operating Expenses		3,747,730				2,087,808				433,345
Operating Loss		(3,747,730	)			(2,087,808	)			(433,345	)
Grant Income		—				50,000				100,000
Unrealized loss on corn derivatives		851,290				(277,592	)			—
Gain from non-designated hedging derivatives		210,100				—				—
Interest Income		182,277				588,156				47,004

Net Loss	$	(2,504,063	)		$	(1,727,604	)		$	(286,341	)

Revenues

We had no sales or revenues for the fiscal years ended December 31, 2006, 2005 or 2004.

Due to a number of factors, including the higher price of petroleum gasoline and seasonal demand, ethanol prices remained high during fiscal year 2006. We believe the favorable prices are primarily due to high demand for ethanol, created by a number of factors, including the declining use of MTBE as an oxygenate, the high price of gasoline, which encourages voluntary blending, and the growing recognition of ethanol as an alternative energy source. However, ethanol prices began to trend lower during September 2006 and the fourth calendar quarter of 2006 due to a number of factors, including the lower price of petroleum gasoline and a drop in seasonal demand. We believe this trend will continue into 2007 until peak driving season begins in the summer. While ethanol prices were lower late in the fourth quarter of 2006, they are still higher than the historical average. However, we cannot guarantee that the price of ethanol will not significantly decrease due to factors beyond our control.

With respect to distillers grains, we believe that prices will remain at or near their currently low and stable levels due to the increasing number of ethanol production facilities commencing operations. In 2007, we expect revenues from the sale of distiller grains should increase relative to 2006 due to our commencing operations.

Cost of Goods Sold

We had no costs of sales for the fiscal years ending December 31, 2006, 2005 and 2004.

Corn costs will significantly impact our cost of goods sold. As of March 31, 2007, Untied States Department of Agriculture’s National Agricultural Statistics Service projected the 2007 national corn acreage at approximately 90.5 million acres, which would be the second largest corn acreage on record. North Dakota 2006 production was 155,400,000 bushels. However, despite the projected 2007 corn crop, corn prices have increased sharply since August 2006. Additionally, due to increased exposure of ethanol, corn is now viewed as an “energy commodity” as opposed to strictly a “grain commodity,” contributing to the upward pressure on corn prices. A recent USDA report entitled “World Agricultural Supply and Demand Estimates” (February 9, 2007) states that U.S. corn prices could increase in year 2007 to as much as $3.40 per bushel or more. Our average cost per bushel of corn

for the year ended December 31, 2006 was $3.23. We expect corn prices to remain at historically high price levels well into 2007, which could significantly impact our cost of goods sold.

Recently, the price of coal has risen along with other energy sources. Coal prices are considerably higher than the 10-year average, due to increased economic and industrial activity in the United States and internationally, most notably China. We assume that there will be continued volatility in the coal markets. We have a ten (10) year contract with General Industries, Inc., d/b/a Center Coal Company to deliver lignite coal designed to circumvent this large volatility. However, since operations began on January 1, 2007, we have had issues with the use of lignite in our coal combustor. We are exploring other options, including using powder river basin (“PRB”) coal as an alternative. If we are unable to continue using lignite and have to use PRB coal instead, we would expect our coal cost to increase significantly and we may be subject to market volatility if we cannot obtain a long-term coal contract, if needed. Any ongoing increases in the price of coal will increase our cost of goods sold and may cause our net income to decrease.

We recognize that any gains or losses that result from the changes in value of our derivative instruments in cost of goods sold as the changes occur. As corn fluctuates, the value of our derivative instruments are impacted, which affects our financial performance. We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Operating Expenses

Our operating expenses were approximately $3,748,000, $2,088,000 and $433,000 for the fiscal years ended December 31, 2006, 2005 and 2004, respectively. For the year ending 2006, our operating expenses increased by approximately $1,660,000 or 79.51%. These increases are primarily due to costs associated with management and administrative expenses during the construction of our Plant, professional and consulting fees and commencement of Plant Operations. For the year ended 2006, our material operating expenses were: 1) approximately $249,000 related to legal fees; 2) approximately $165,000 related to management fees; 3) approximately $649,000 related to salaries and payroll expenses; 4) approximately $1,555,000 related to professional services; 5) approximately $239,000 for start up Plant supplies; and 6) approximately $891,000 related to other start up costs.

Our operating expenses increased by approximately $1,655,000 or 382% for 2005 over 2004 and increased by approximately $13,000 or 3% for 2004 over 2003. These increases for both 2005 versus 2004 and 2004 versus 2003 were due primarily to costs associated with starting construction on our Plant, professional and consulting fees, including the 2005 payment due to GreenWay in excess of $1,500,000 under our consulting agreement related to their work through Phase I, and other general operating expenses. In 2005, our material operating expenses were: 1) approximately $1,500,000 related to consulting fees paid to GreenWay; 2) approximately $177,000 related to salaries; 3) approximately $84,000 related to marketing expenses; and 4) approximately $77,000 related to office and insurance expenses. In 2004, our material operating expenses were: 1) approximately $105,000 in payments to our coordinator; 2) approximately $90,000 related to accounting expenses; 3) approximately $182,000 related to professional services; 4) approximately $46,000 related to marketing expenses; and 5) approximately $33,000 in consulting fees.

We believe that our operating expenses will increase significantly in 2007 as a result of the commencement of operation in January 2007, resulting primarily in higher salaries and payroll expenses.

Operating Income

Because we had no revenues prior to 2007, our operating loss in fiscal years 2006, 2005 and 2004 is the same as our operating expenses..

Other Income and Expense

Our interest costs for the fiscal years ended December 31, 2006, 2005 and 2004 were approximately $1,527,000, $0 and $0, respectively. However, the interest cost in fiscal year 2006 was capitalized and included in construction in progress. There were no interest expenses for fiscal years ending December 31, 2005 and 2004.

Interest income, resulting primarily from the investment of cash received from our member unit sales since inception prior to its use in the construction of our Plant was approximately $182,000, $588,000 and $47,000 for the fiscal years ended December 31, 2006, 2005 and 2004, respectively. Interest income increased in 2005 due to interest earned on the equity raised from member investments and then decreased in 2006 as those funds were disbursed for Plant construction and pre-production operating costs. We do not expect to receive any significant interest income in 2007.

Gains (losses) from non-designated hedging derivatives are derived from investments in corn call options and an interest rate swap contract in an agreement associated with bank financing to effectively fix the interest rate on approximately $27,600,000 of our future debt at an interest rate of 8.08%. For the fiscal years ending December 31, 2006, 2005 and 2004, there were no settlements, and market value adjustments resulted in gains (losses) from non-designated hedging derivatives on the interest rate swap contract of approximately $167,000, $(278,000) and $0, respectively. For the fiscal years ending December 31, 2006, 2005 and 2004, there were no net settlements, and market value adjustments resulted in a gain from non-designated hedging derivatives of corn call options of approximately $894,000, $0 and $0. We may recognize significant gains or losses in the near future in connection with our interest rate swap contract and corn call options, as well as with any ethanol contracts into which we may enter.

Grant income was approximately $0, $50,000 and $100,000 for the fiscal years ended December 31, 2006, 2005 and 2004, respectively. Grant income relates to the grant we were awarded from Ag Products Utilization Council in the amount of $150,000.

Plant Operations

Operations of Ethanol Plant

Construction of the Plant was substantially completed and preliminary production operations commenced in December 2006. Production activities were minimal during 2006, and the Company exited its development stage in January 2007 when it began generating substantial revenues from ethanol production. While early production in 2007 has been at less than capacity levels as we work out early production difficulties, management anticipates that the Plant will be operating at or above name-plate capacity of 50 MMGY for the majority of the next twelve (12) months.

We expect to have sufficient cash from cash flow generated by continuing operations, current lines of credit through our revolving promissory note, and cash reserves to cover our usual operating costs over the next twelve (12) months, which consist primarily of corn supply, coal supply, water supply, staffing, office, audit, legal, compliance, working capital costs and debt service obligations.

Critical Accounting Estimates

Management uses estimates and assumptions in preparing our consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Of the significant accounting policies described in the notes to our consolidated financial statements, we believe that the following are the most critical:

Derivative Instruments

We account for derivative instruments and hedging activities in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities , as amended. SFAS No. 133 requires a company to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted from SFAS No. 133 as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal are documented as normal and exempted from accounting and reporting requirements of SFAS No. 133.

In order to reduce the risk caused by market fluctuations of corn, ethanol and interest rates, we enter into option, futures and swap contracts. These contracts are used to fix the purchase price of our anticipated requirements of corn in production activities and the selling price of our ethanol product and limit the effect of increases in interest rates. The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter markets. The fair value of the derivatives is continually subject to change due to the changing market conditions. We do not typically enter into derivative instruments other than for hedging purposes. On the date the derivative instrument is entered into, we will designate the derivative as a hedge. Changes in the fair value of a derivative instrument that is designated and meets all of the required criteria for, a cash flow or fair value hedge, is recorded in accumulated other comprehensive income and reclassified into earnings as the hedged items affect earnings. Changes in fair value of a derivative instrument that is not designated and accounted for, as a cash flow or fair value hedge, is recorded in current period earnings. Although certain derivative instruments may not be designated and accounted for, as a cash flow or fair value hedge, they are effective economic hedges of specific risks.

Inventory

Inventory consists of raw materials, work in process, and finished goods. The work in process inventory is based on certain assumptions. The assumptions used in calculating work in process are the quantities in the fermenter and beer well tanks, the spot price of corn at the end of the month, the effective yield, and the amount of dried distillers grains assumed to be in the tanks. These assumptions could change in the near term.

Liquidity and Capital Resources

Comparison of Fiscal Years ended December 31, 2006 and 2005

As of December 31, 2006, we had total assets of approximately $89,864,000 consisting primarily of derivative instruments, financing costs and construction in progress. As of December 31, 2006, we had current liabilities of approximately $9,781,000 consisting primarily of accounts payable related to the construction of the Plant. For the fiscal year ended December 31, 2006, cash used in operating activities was approximately $7,662,300, cash used in investing activities, primarily for Plant construction, was approximately $66,904,000 and cash provided by financing activities, primarily bank debt, was approximately $55,945,000. Likewise for 2005 and 2004, our cash outflows for operating purposes, $58,000 and $289,000, respectively, were to fund our preproduction operating costs, our outflows for investing purposes, $10,599,000 and $314,000, respectively, were primarily to construct our Plant and administrative office facilities, and our cash in(out)flows from financing activities, $13,812,000 and $15,642,000, respectively, were primarily the result of member equity contribution and bank financing activities. Since our inception, we have generated no revenue from operations. From our inception to December 31, 2006, we have accumulated a net loss of approximately $4,938,000 consisting primarily of start-up business costs.

As of December 31, 2006, we had material commitments related to our construction agreement with Fagen, Inc. (“Fagen”), the designer and builder of our Plant, in the amount of approximately $77,000,000 and remaining material commitments related to our consulting agreement with GreenWay in the amount of approximately $1,525,000, which is included in our accrued liabilities at the end of 2006. As of December 31, 2006, we paid approximately $70,030,000 to Fagen from the proceeds from our equity financings and have remaining commitments to Fagen of approximately $6,970,000. Based on the revenues we are currently receiving from sales of our ethanol and co-products, as well as our cash on hand as of the date hereof, including the loan proceeds available to us as described above, we believe that we will have adequate cash reserves and available lines of credit after payment of the remaining amounts to GreenWay and Fagen so that we can fund our operations and service our debt obligations and operating costs.

As of December 31, 2006, we have used all funds remaining from our equity financings. Current and remaining operating expenses, including all remaining construction costs will be paid for with the proceeds from our loan agreements. We anticipate that we have sufficient funds available, at December 31, 2006, from our loan agreements to meet our working capital requirements for the next twelve (12) months.


										From
										Inception July
	Year Ended			Year Ended			Year Ended			16, 2003 to
	December 31,			December 31,			December 31,			December 31,
	2006			2005			2004			2006
Statement of Cash Flow	(Audited)			(Audited)			(Audited)			(Audited)
Cash Flows from Operating Activities		(7,662,308	)		(57,980	)		(288,913	)		(8,215,209	)
Cash Flows from Investing Activities		(66,903,860	)		(10,558,969	)		(313,821	)		(77,979,890	)
Cash Flows from Financing Activities		55,944,079			13,811,977			15,642,024			86,616,821

Cash Flow From Operations

The net cash flow expended for operating activities in 2006 increased $7,604,000 over that for 2005,and in 2005 decreased $231,000 from that in 2004. The increased expenditures during 2006 were primarily due to the start up expenses in 2006. The decrease of cash expenditures during 2005 from those in 2004 was due to the timing of payments related to preproduction expenditures during both years. While our 2005 net loss of $1,728,000 was significantly higher than the $286,000 loss in 2004, a significant amount of the 2005 operating expenses were paid in 2006.

Cash Flow From Investing Activities

We used cash provided by the debt financing and member contribution activities for capital expenditures, primarily Plant and administrative facilities and equipment, which totaled $66,904,000 for fiscal year 2006 compared to $10,559,000 for fiscal year 2005 and $313,000 for fiscal year 2004.

Management estimates that approximately $3,600,000 in capital expenditures will be made in the next twelve (12) months for general improvements to the Plant, all of which are expected to be financed from a portion of cash flows from operations and additional debt financing.

Cash Flow From Financing Activities

Since our inception, we have generated significant cash inflows from bank financing arrangements and member equity contributions. Proceeds from our bank financing arrangements totaling $49,800,000 substantially all of which was generated in 2006, were received once the cash from our member equity contributions was completely expended. Cash in(out)flows from our member equity contribution activities were approximately $6,719,000, $14,285,830, and $15,745,986 during 2006, 2005 and 2004, respectively. The 2004 outflows were costs paid in advance of receiving the contribution proceeds.

Indebtedness

Short-Term Debt Sources

We have a revolving promissory note of up to $3,500,000 with First National Bank of Omaha, subject to certain borrowing base limitations, through July 2007. Interest is payable quarterly and charged on all borrowings at a rate of 3.4% over LIBOR, which totaled 8.71% at December 31, 2006. We have no outstanding borrowings on the revolving promissory note as of December 31, 2006 and 2005.

Long-Term Debt Sources

In December 2005, we entered into a construction loan agreement with our bank providing for a total credit facility of approximately $59,712,000 for the purpose of funding the construction of the Plant. The construction loan agreement requires us to maintain certain financial ratios and meet certain non-financial covenants. The loan agreement is secured by substantially all of our assets and includes the terms as described below.

The construction loan agreement provides for a construction loan for up to an amount of approximately $55,212,000 with a loan termination date of April 16, 2007. Interest is to be charged at a rate of 3.4% over LIBOR, which totaled 8.71% at December 31, 2006. The agreement calls for interest only payments to be made every three (3) months beginning March 2006 through the loan termination date.

At the loan termination date, all principal and unpaid interest will be paid out through three term notes, each with specific interest rates and payments terms as described in the construction loan agreement.

The first of the three notes is a Fixed Rate Note in the amount of approximately $27,606,000 with interest payments made on a quarterly basis and charged at fixed rate of 3.0% over LIBOR on the date of the construction loan termination date. Principal payments are to be made quarterly according to repayment terms of the construction loan agreement, generally beginning at approximately $470,000 and increasing to $653,000 per quarter, from April 2007 to October 2011, with a final principal payment of approximately $17,000,000 at January 2012.

The second term note is referred to as the Variable Rate Note and is in the amount of approximately $17,606,000. Interest will be charged at a variable rate of 3.4% over the three-month LIBOR rate.

The third term note, the Long-Term Revolving Note, in the amount of approximately $10,000,000, will be charged interest at a variable rate of 3.4% over the one-month LIBOR rate. The agreement calls for payments of approximately $1,005,000 to be made each quarter with amounts allocated to the term notes in the following

manner: 1) to accrued interest on the Long-Term Revolving Note, 2) to accrued interest on the Variable Rate Note, and 3) to the principal balance on the Variable Rate Note.

All unpaid amounts on the three term notes are due and payable in April 2012. The outstanding borrowings on the construction loan at December 31, 2006 is $44,060,352.

We are subject to a number of covenants and restrictions in connection with this loan, including:

	•		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.

The construction loan agreement also contains a number of events of default which, if any of them were to occur, would give the bank certain rights, including but not limited to:

	•		declaring all the debt owed to the bank immediately due and payable; and

	•		taking possession of all of our assets, including any contract rights.

The bank could then sell all of our assets or business and apply any proceeds to repay their loans. We would continue to be liable to repay any loan amounts still outstanding.

Interest Rate Swap Agreement

The construction loan agreement provides for us to enter into interest rate swap contracts for up to approximately $2,800,000. In December 2005, we entered into an interest rate swap transaction that effectively fixes the interest rate at 8.08% on approximately $27.6 million of the outstanding principal of the construction loan. The interest rate swap was not designated as either a cash flow or fair value hedge. Market value adjustments and net settlements are recorded as a gain or loss from non-designated hedging activities. For the fiscal years ending December 31, 2006, 2005, and 2004, there were no net settlements, and market value adjustments resulting in a gain of approximately of $851,300 in 2006, a loss of approximately $278,000 in 2005 and no gain or loss in 2004.

Letters of Credit

The construction loan agreement provides for up to $1,000,000 in letters of credit with the bank to be used for any future line of credit requested by a supplier to the Plant. All letters of credit are due and payable at the loan termination date in April 2007. The construction loan agreement provides for us to pay a quarterly commitment fee of 2.25% of all outstanding letters of credit. In addition, as of December 31, 2006, we have one outstanding letter of credit for $137,000 for capital expenditures for gas services with Montana-Dakota Utilities Co.

Subordinated Debt

As part of the construction loan agreement, we entered into three separate subordinated debt agreements totaling approximately $5,525,000 and received funds from these debt agreements during 2006. Interest is charged at a rate of 2.0% over the Variable Rate Note interest rate (a total of 10.75% at December 31, 2006) and is due and payable subject to approval by the Senior Lender, the bank. Interest is compounding with any unpaid interest converted to principal. Amounts will be due and payable in full in April 2012. As of December 31, 2006, the outstanding amounts on these loans was $5,525,000.

Contractual Obligations and Commercial Commitments

We have the following contractual obligations as of December 31, 2006:


Contractual			Less than						More than
Obligations	Total		1 Year		1-3 Years		3-5 Years		5 Years
Long Term Debt Obligations	$	89,980,759	$	6,360,699	$	23,858,980	$	59,761,080		—
Capital Leases	$	236,667	$	61,701	$	173,050	$	1,916		—
Operating Lease Obligations	$	148,500	$	27,000	$	81,000	$	40,500		—
Purchase Obligations – Fagen ⁽¹⁾	$	77,000,000	$	70,029,516		—		—		—
Coal	$	28,728,000	$	2,394,000	$	7,182,000	$	7,182,000	$	11,970,000
Water	$	6,625,100	$	662,600	$	1,987,500	$	1,987,500	$	1,987,500


(1)		Related to our contracts with Fagen, capital leases, operating leases, purchase commitments for coal and water and our debt obligations. As of December 31, 2006, we have already paid approximately $70,029,516 to Fagen.

Grants

We have been awarded a grant from Ag Products Utilization Council in the amount of $150,000, which was used in 2005 and 2004 for general business expenses, including legal and accounting. We also received a grant from the North Dakota Lignite Council in the amount of $350,000. This grant requires a portion of the proceeds to be repaid over a period of 10 years at $22,000 per year and the remainder to be forgiven upon the fulfillment of certain conditions.

We have entered into an agreement with Job Service North Dakota for a new jobs training program. This program provides incentives to businesses that are creating new employment opportunities through business expansion and relocation to the state. The program provides no-cost funding to help offset the cost of training. Red Trail will receive up to approximately $170,000 over ten years. We did not receive any funds in the fiscal year ended December 31, 2006.

In additional to the Job Services North Dakota training program, the Company entered into a contract on October 2, 2006 with Job Service North Dakota for the Workforce 20/20 program. The program assists North Dakota employers in training and upgrading workers’ skills. Under this program, the Company could be eligible to receive up to approximately $28,000 in the fiscal year 2007.

Fuel Tax Incentive Program

We have received written assurance from the North Dakota Department of Commerce that our Plant will qualify for North Dakota’s fuel tax fund incentive program. Ethanol plants constructed after July 31, 2003 are eligible for incentives. Under the program, each fiscal quarter eligible ethanol plants may receive a production incentive based on the average North Dakota price per bushel of corn received by farmers during the quarter, as established by the North Dakota agricultural statistics service, and the average North Dakota rack price per gallon of ethanol during the quarter, as compiled by AXXIS Petroleum. Because we cannot predict the future prices of corn and ethanol, we cannot predict whether we will receive any funds in the future. The incentive received is calculated by using the sum arrived at for the corn price average and for the ethanol price average as calculated in number 1 and number 2 below:

	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 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

In addition, we believe our investors are eligible for a tax credit against North Dakota state income tax liability. On May 3, 2004, we were approved for the North Dakota Seed Capital Investment Tax Credit. In 2005, North Dakota revised its tax incentive programs and adopted the Agricultural Commodity Processing Facility Investment Tax Credit. We were grandfathered into the new program and do not need to meet the new conditions to qualify for the tax credit. The amount of credit for which a taxpayer may be eligible is 30% of the amount invested by the taxpayer in a qualified business during the taxable year.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn We do not enter into these derivative

financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes pursuant to the requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities .

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding a revolving promissory note and construction term notes which bear variable interest rates. Specifically, all outstanding long-term debt is at a variable rate as of December 31, 2006

In order to achieve a fixed interest rate on the construction loan and reduce our risk to fluctuating interest rates, we entered into an interest rate swap contracts that effectively fix the interest rate at 8.08% on approximately $27.6 million of the outstanding principal of the construction loan. The interest rate swap was not designated as either a cash flow or fair value hedge. Market value adjustments and net settlements are recorded as a gain or loss from non-designated hedging activities. For the fiscal years ending December 31, 2006 and 2005, there were no net settlements, and market value adjustments resulting in a loss of approximately of $167,000 and a loss of approximately $278,000, respectively.

Commodity Price Risk

We also expect to be exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn in the ethanol production process and the sale of ethanol. We will seek to minimize the risks from fluctuations in the prices of corn through the use of hedging instruments. In practice, as markets move, we will actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions will accomplish an economic hedge against our future purchases, they likely will not qualify for hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We intend to use fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of sales. For example, we would generally expect that a 10% increase in the cash price of corn would produce a $100,000 increase in the fair value of our derivative instruments. Whereas a 10% decrease in the cash price of corn would likely produce a $100,000 decrease in the fair value of our derivatives.

The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged. As of December 31, 2006, we had a $320,341 investment in derivative instruments for corn and no derivative instruments for ethanol. There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of corn or ethanol. However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.

To manage our corn price risk, our hedging strategy will be designed to establish a price ceiling for our corn purchases. We intend to take a net long position on our exchange traded futures and options contracts, which should allow us to offset increases or decreases in the market price of corn. The upper limit of loss on our futures contracts will be the difference between the futures price and the cash market price of corn at the time of the execution of the contract. The upper limit of loss on our exchange traded and over-the-counter option contracts will be limited to the amount of the premium we paid for the option.

We estimate that our expected corn usage will be approximately 18 million bushels per year for the production of 50 million gallons of ethanol. As of December 31, 2006, we have option contract price protection for our expected corn usage through the first forty days of operation. We intend to continue to contract for price protection for our corn usage. As corn prices move in reaction to market trends and information, our income statements will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects but are expected to produce long-term positive growth.

We intend to manage our ethanol price risk by setting a hedging strategy designed to establish a price floor for our ethanol sales. At present, the price of ethanol has increased. In the future, we may not be able to sell ethanol at a favorable price relative to gasoline prices, we also may not be able to sell ethanol at prices equal to or more than our current price. This would limit our ability to offset our costs of production.

To manage our ethanol price risk, RPMG will have a percentage of our future production gallons contracted through fixed price contracts, ethanol rack hedges and gas plus hedges. We communicate closely with RPMG to ensure that they are not over marketing our ethanol volume. As ethanol prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on energy market movements, crop prospects and weather, any price protection positions may cause short-term adverse effects but are expected to produce long-term positive growth.

To manage our coal price risk, we entered into a coal purchase agreement with our supplier to supply us with coal, fixing the price at which we purchase coal. If we are unable to continue buying coal under this agreement, we may have to buy coal in the market. The price of coal has risen substantially over the last several months and our strategy is to purchase coal based on our operating assumptions of the Plant.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our financial statements and supplementary data are included on pages F-1 to F-16 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.

Boulay, Heutmaker, Zibel & Co., P.L.L.P. has been our independent auditor since 2005 and is the Company’s independent auditor at the present time. The Company has had no disagreements with its auditors.

ITEM 9A. CONTROLS AND PROCEDURES.

Our management, including our President and General Manager (the principal executive officer), Mick J. Miller, along with our Chief Financial Officer (the principal financial officer), Bonnie G. Eckelberg, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchanges Act of 1934, as amended) as of December 31, 2006. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchanges Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchanges Commission, and are also effective to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated any changes in our internal control over financial reporting that occurred as of December 31, 2006 and there has been no change that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

We recently became aware that the forms of Operating Agreement and Member Control Agreement filed with our Form 10-12G (000-52033) were not the most current versions in effect. We are filing the current version with this Report as Exhibits 3.2 (Operating Agreement) and 4.2 (Member Control Agreement).

PART III

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following exhibits and financial statements are file as part of, or are incorporated by reference into, this report:

(1) Financial Statements

An index to the financial statements included in this Report appears at page F-1. The financial statements appear beginning at page F-3 of this Report.

(2) Financial Statement Schedules

All supplemental schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

(3) Exhibits


3.1		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 herewith.

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 herewith.

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.

10.2		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		Distiller’s Grain Marketing Agreement entered into effective as of March 1, 2004 by Red Trail Energy, LLC, and Commodity Specialist Company. Filed as Exhibit 10.5 to the registrant’s registration statement on Form 10-12G (000-52033) and incorporated by reference herein.

10.6		Contract for Purchase of Coal made and entered into the 9 ^th day of March, 2004 by and between Red Trail Energy, LLC, and General Industries, Inc., d/b/a Center Coal Company. Filed as Exhibit 10.6 to the registrant’s registration statement on Form 10-12G (000-52033) and incorporated by reference herein.

10.7		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.

10.8		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.


10.9		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.

10.10		Agreement for Electric Service made the 18 ^th 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.

10.11		Ethanol Fuel Marketing agreement entered into the 18 ^th day of August, 2005, by and between Renewable Products Marketing Group, L.L.C. and Red Trail Energy, LLC. Filed as Exhibit 10.11 to the registrant’s registration statement on Form 10-12G (000-52033) and incorporated by reference herein.

10.12+		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.

10.13		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.

10.14		Construction Loan Agreement dated as of the 16 ^th 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.

10.15		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.

10.16		Revolving Promissory Note for $3,500,000.00, dated December 16, 2005, between Red Trail Energy, LLC, as Borrower, and First National Bank of Omaha as Bank. Filed as Exhibit 10.16 to the registrant’s registration statement on Form 10-12G (000-52033) and incorporated by reference herein.

10.17		Promissory Note and Continuing Letter of Credit Agreement to First National Bank from Red Trail Energy, LLC, signed December 16, 2005. Filed as Exhibit 10.17 to the registrant’s registration statement on Form 10-12G (000-52033) and incorporated by reference herein.

10.18		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.

10.19		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.

10.20		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.

10.21		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.

10.22		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.

10.23		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.

10.24		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.


10.25		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.

10.26		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.

10.27		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.

10.28		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.

10.29		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.

10.30		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.

10.31		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.

10.32		First Amendment to Construction Loan Agreement dated August 16, 2006 by and between Red Trail Energy, LLC and First National Bank of Omaha. Filed herewith.

10.33		Revolving Promissory Note for $3,500,000, dated August 16, 2006 given by First National Bank of Omaha to Red Trail Energy, LLC. Filed herewith.

10.34		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 herewith.

10.35		Equity Grant Agreement dated September 8, 2006 by and between Red Trail Energy, LLC and Mickey Miller. Filed herewith.

10.36		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 herewith.

10.37		Audit Committee Charter adopted April 9, 2007. Filed herewith.

10.38		Senior Financial Officer Code of Conduct adopted March 28, 2007. Filed herewith.

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.

b. Reports in Form 8-K.

June 14, 2006 regarding the Company’s receipt of a $350,000 grant agreement with the State of North Dakota and the entering into a Gas Service Agreement with Montana-Dakota Utilities Company. July 21, 2006 regarding the appointment of Ronald D. Aberle as Interim Chief Financial Officer August 29, 2006 regarding the resignation of Ronald D. Aberle as Interim Chief Financial Officer, the appointment of Bonnie G. Eckelberg as Chief Financial Officer and the appointment of Mick J. Miller as the Company’s President.

October 19, 2006 regarding amendment to Construction Loan Agreement with First National Bank of Omaha and entry into Security Agreement and Deposit Account Control Agreement with Bremer Bank December 19, 2006 regarding the entering into of an Option to Purchase up to 200,000 Membership Units of its Class A Membership Units currently owned by the North Dakota Development Funds for the purpose of establishing an employee bonus plan.

+ 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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: April 17, 2007		/s/ Mick J. Miller Mick J. Miller
		President and Chief Financial Officer
		(Principal Executive Officer)


Date: April 17, 2007		/s/ Bonnie Eckelberg Bonnie G. Eckelberg
		Chief Financial Officer
		(Principal Financial and Accounting Officer)


Date: April 17, 2007
		Ambrose R. Hoff, Chairman of the Board


Date: April 17, 2007		/s/ William A. Price
		William A. Price, Vice President and Governor


Date: April 17, 2007		/s/ William N. DuToit William N. DuToit, Treasurer and Governor


Date: April 17, 2007		/s/ Ron Aberle Ron Aberle, Secretary and Governor


Date: April 17, 2007		/s/ Mike Appert
		Mike Appert, Governor


Date: April 17, 2007		/s/ Jody Hoff Jody Hoff, Governor


Date: April 17, 2007		/s/ Grant Hoovestol Grant Hoovestol, Governor


Date: April 17, 2007
		Troy Jangula, Governor

Date: April 17, 2007
		Tim Gross, Governor


Date: April 17, 2007		/s/ William Cornatzer, MD William Cornatzer, Governor

Date: April 17, 2007		Kenny Meier, Governor

Date: April 17, 2007		/s/ Marlyn Richter
		Marlyn Richter, Governor

Date: April 17, 2007		/s/ Fred Braun Fred Braun, Governor

Date: April 17, 2007		/s/ Don Streifel Don Streifel, Governor

Date: April 17, 2007		/s/ Duane Zent Duane Zent, Governor

Red Trail Energy, LLC
(A Development Stage Company)

Financial Statements

December 31, 2006 and 2005

Red Trail Energy, LLC
(A Development Stage Company)

C O N T E N T S


	*Page*
Report of Independent Registered Public Accounting Firm		F-2

Financial Statements

Balance Sheet		F-3

Statement of Operations		F-4

Statement of Changes in Members’ Equity		F-5

Statement in Cash Flows		F-6

Notes to Financial Statements		F-8 - 17

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Governors
Red Trail Energy, LLC
Richardton, North Dakota

We have audited the accompanying balance sheet of Red Trail Energy, LLC (a development stage company), as of December 31, 2006 and 2005, and the related statements of operations, changes in members’ equity, and cash flows for the years ended December 31, 2006, 2005 and 2004 and for the period from inception (July 16, 2003) to December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Red Trail Energy, LLC, (a development stage company) as of December 31, 2006 and 2005, and the results of its operations, changes in members’ equity and its cash flows for the years ended December 31, 2006, 2005 and 2004 and for the period from inception (July 16, 2003) to December 31, 2006, in conformity with U.S. generally accepted accounting principles.



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

Minneapolis, Minnesota
April 17, 2007

F-2

Red Trail Energy, LLC
(A Development Stage Company)

Balance Sheet


	December 31, 2006		December 31, 2005
ASSETS

Current Assets
Cash and equivalents	$	421,722	$	19,043,811
Derivative instruments		320,341		—
Prepaid expenses		63,782		25,345
Inventory		3,956,129		—

Total current assets		4,761,974		19,069,156

Property and Equipment
Land		300,602		300,602
Office equipment		151,851		—
Building		313,295		—
Construction in progress		83,290,008		16,647,583

		84,055,756		16,948,185
Less accumulated depreciation		16,016		—

Total property and equipment		84,039,740		16,948,185

Other Assets
Debt issuance costs, net of amortization		982,574		955,238
Deposits		80,000		—

Total other assets		1,062,574		955,238


Total Assets	$	89,864,288	$	36,972,579


LIABILITIES AND MEMBERS’ EQUITY

Current Liabilities
Current maturities of long term debt	$	2,909,228	$	—
Accounts payable		4,437,601		7,971,436
Accrued expenses		2,323,476		9,497
Market value – interest rate swap		110,935		277,952

Total current liabilities		9,781,240		8,258,885

Other Liabilities
Contracts payable		275,000		—

Long-term Debt		46,878,960		—

Members’ Equity		32,929,088		28,713,694


Total Liabilities and Members’ Equity	$	89,864,288	$	36,972,579

Notes to Financial Statements are an integral part of this Statement.

F-3

Red Trail Energy, LLC
(A Development Stage Company)

Statement of Operations


										From Inception
	Year ended			Year ended			Year ended			July 16, 2003 to
	December 31,			December 31,			December 31,			December 31,
	2006			2005			2004			2006
Revenues	$	—		$	—		$	—		$	—

Operating Expenses		3,747,730			2,087,808			433,345			6,689,020


Operating Loss		(3,747,730	)		(2,087,808	)		(433,345	)		(6,689,020	)

Other Income (Expense)
Grant income		—			50,000			100,000			150,000
Gain/(loss) from non-designated hedging		851,290			(277,952	)		—			573,338
Unrealized gain on hedging		210,100			—			—			210,100
Interest income		182,277			588,156			47,004			817,437

Total other income, net		1,243,667			360,204			147,004			1,750,875


Net Loss	$	(2,504,063	)	$	(1,727,604	)	$	(286,341	)	$	(4,938,145	)


Weighted Average Units Outstanding		39,625,843			24,393,980			3,591,180			13,920,740


Net Loss Per Unit, basic and fully diluted	$	(0.06	)	$	(0.07	)	$	(0.08	)		(0.35	)

Notes to Financial Statements are an integral part of this Statement.

F-4

Red Trail Energy, LLC
(A Development Stage Company)

Statement of Changes in Members’ Equity


						Additional											Total
	Member		Member			Paid in		Units			Unearned			Accumulated			Members’
	Units		Contributions			Capital		Subscribed			Compensation			Deficit			Equity
Balance — Inception, July 16, 2003			$	—		$	—	$	—		$	—		$	—		$	—

Capital contributions - 3,600,000 units, $0.33 per unit September 2003 - December 2003, adjusted for 3 for 1 split in January 2004		3,600,000		1,200,000					(33,550	)								1,166,450

Unit options issued - 62,500 units, $0.10 per unit, September 2003							56,825					(56,825	)

Amortization of unearned compensation												20,313						20,313

Net Loss															(420,137	)		(420,137	)


Balance — December 31, 2003		3,600,000		1,200,000			56,825		(33,550	)		(36,512	)		(420,137	)		766,626

Collection of subscribed units									33,550									33,550

Amortization of unearned compensation												36,512						36,512

Net Loss															(286,341	)		(286,341	)


Balance — December 31, 2004		3,600,000		1,200,000			56,825		—						(706,478	)		550,347

Capital contributions - 25,983,452 units, $1.00 per unit, April 6		25,983,452		25,983,452														25,983,452

Capital contributions - 1,389,303 units, $1.00 per unit, April 6 - June 30		1,389,303		1,389,303														1,389,303

Capital contributions 2,080,555 units, $1.00 per unit, July 1 - Sept 30		2,080,555		2,080,555														2,080,555

Capital contributions - 544,956 units, $1.00 per unit, Oct 1 - Dec 31		544,956		544,956														544,956

Costs 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	)		28,713,694

Capital contributions - 6,713,207 units, $1.00 per unit, Jan 1 - Mar 31		6,713,207		6,713,207														6,713,207

Units issued under option exercised - 62,500 units, $0.10 per unit		62,500		6,250														6,250

Net Loss															(2,504,063	)		(2,054,063	)


Balance — December 31, 2006		40,373,973		37,810,408		$	56,825	$	—		$	—		$	(4,938,145	)	$	32,929,088

Notes to Financial Statements are an integral part of this Statement.

F-5

RED TRAIL ENERGY, LLC
(A Development Stage Company)

Statements of Cash Flows


										From Inception
	Year Ended			Year Ended			Year Ended			July 16, 2003
	December 31,			December 31,			December 31,			to December 31
	2006			2005			2004			2006
Cash Flows from Operating Activities
Net income (loss)	$	(2,504,063	)	$	(1,727,604	)		(286,341	)	$	(4,938,145	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		16,016			—						16,016
Amortization of unearned compensation		—			—			36,512			56,825
Unrealized gain/loss on derivative instrument		(210,100	)		—						(210,100	)
Gain from non-designated hedging derivatives		(167,017	)		277,952			—			110,935
Changes in assets and liabilities
Inventory		(3,956,129	)								(3,956,129	)
Derivative instrument		(110,241	)		—						(110,241	)
Prepaid expenses		(38,437	)		(25,345	)		—			(63,782	)
Other assets — deposits		(80,000	)								(80,000	)
Accounts payable		(1,423,115	)		1,409,068			(37,715	)		139,137
Other liabilities		275,000									275,000
Accrued expenses		535,778			7,949			(1,369	)		545,275

Net cash used in operating activities		(7,662,308	)		(57,980	)		(288,913	)		(8,215,209	)

Cash Flows from Investing Activities
Capital expenditures		(66,903,860	)		(10,558,969	)		(313,821	)		(77,979,890	)

Net cash used in investing activities		(66,903,860	)		(10,558,969	)		(313,821	)		(77,979,890	)

Cash Flows from Financing Activities
Payments for deferred offering costs		—			(3,353	)		(103,962	)		(107,315	)
Payments for debt issuance costs		(563,566	)		(470,500	)					(981,775	)
Proceeds from long-term debt		49,788,188			—						49,788,188
Proceeds for stock subscriptions held in escrow		—			10,271,016			15,712,436			25,983,452
Member contributions		6,719,457			4,014,814			33,550			11,934,271
Net cash provided by financing activities		55,944,079			13,811,977			15,642,024			86,616,821

Net Increase (Decrease) in Cash and Equivalents		(18,622,089	)		3,195,028			15,039,290			421,722

Cash and Equivalents — Beginning of Period		19,043,811			15,848,783			809,493			—


Cash and Equivalents — End of Period	$	421,722		$	19,043,811		$	15,848,783		$	421,722

Supplemental Disclosure of Cash Flow Information
Interest paid and capitalized in construction in process	$	1,474,638		$	—		$	—		$	1,474,638


SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Debt issuance costs included in accounts payable	$	799		$	484,738		$	—		$	799


Capital expenditures included in accounts payable	$	4,297,665		$	5,924,446		$	133,670		$	4,297,665


Capital expenditures included in accrued liabilities	$	1,778,201		$	—		$	—		$	1,778,201


Amortization of deferred offering costs capitalized in construction in process	$	52,291		$	—		$	—		$	52,291


Stock subscriptions held in escrow converted to member contributions	$	—		$	25,983,452		$	—		$	25,983,452


Member unit subscriptions	$	—		$	—		$	—		$	33,550


Issuance of restricted shares	$	—		$	—		$	—		$	56,825

Notes to Financial Statements are an integral part of this Statement.

F-6

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Red Trail Energy, LLC (a North Dakota Limited Liability Company), was organized to pool investors to build a 50 million gallon annual production ethanol plant near Richardton, North Dakota. Construction began in 2005 with an anticipated completion date of November 2006. Construction of the Plant was substantially completed as of December 31, 2006. As of December 31, 2006, the Company is in the development stage with its efforts being principally devoted to preliminary production. The Company exited its development stage in January 2007 when it began generating substantial revenues from ethanol production.

Fiscal Reporting Period

The Company adopted a fiscal year ending December 31 for reporting financial operations.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results could differ from those estimates.

Cash

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The carrying value of cash and equivalents approximates the fair value.

The Company maintains its accounts at various financial institutions. At times throughout the year, the Company’s cash and equivalents balances may exceed amounts insured by the Federal Deposit Insurance Corporation. At December 31, 2006 and December 31, 2005, the Company’s deposits exceeded insurance coverage by approximately $322,000 and $18.9 million, respectively.

Derivative Instruments

The Company accounts for derivative instruments in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133 requires the recognition of derivatives in the balance sheet and the measurement of these instruments at fair value.

In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded in costs of goods sold.

Additionally, SFAS No. 133 requires a company to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted as “normal purchases or normal sales.” Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. As of December 31, 2006 and 2005 the Company has no derivatives instruments that meet this criterion.

Inventory

Inventory consists of raw materials and work in process. Corn, the primary raw material, along with other chemicals and ingredients, is stated at the lower of average cost or market. Finished goods, when produced, will consist of ethanol and distillers grains produced, and will be stated at the lower of average cost or market.

Property and Equipment

Property and equipment is stated at the lower of cost or estimated fair value. Once assets are placed in service, which is expected to be in January 2007, depreciation will be provided over their estimated useful lives by use of the straight-line method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.

The Company reviews its property and equipment impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the future cash flows is less than

F-7

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005

the carrying amount of the asset. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value.

The Company had incurred substantial consulting, permitting and other pre-construction services related to building its Plant facilities. Prior to 2005, due to the substantial uncertainties regarding the Company’s ability to proceed with the ultimate facility construction until the Company had raised debt and equity financing, the Company expensed these pre-construction costs as incurred.

Debt Issuance Costs

Debt issuance costs will be amortized over the term of the related debt by use of the effective interest method. Amortization commenced June 2006 when the Company began drawing on the related bank loan. Amortization expense for December 31, 2006 was $52,291 which is included in construction in progress. There was no amortization expense for the years ended December 31, 2005 or 2004.

Deferred Offering Costs

The Company deferred the costs incurred to raise equity financing until that financing occurred. At such time that the issuance of new equity occurred, these costs were netted against the proceeds. As of April 6, 2005, the minimum equity had been raised and these costs were netted against the proceeds received.

Fair Value of Financial Instruments

The fair value of the Company’s cash and cash equivalents, accounts payable, and derivative instruments approximates their carrying value. It is not currently practicable to estimate the fair value of our long-term debt and contracts payable since these agreements contain unique terms, conditions, and restrictions, which were negotiated at arm’s length. As such, there are no readily determinable similar instruments on which to base an estimate of fair value of each item.

Grants

The Company recognizes grant proceeds as other income for reimbursement of expenses incurred upon complying with the conditions of the grant. For reimbursements of capital expenditures, the grants are recognized as a reduction of the basis of the asset upon complying with the conditions of the grant.

Grant income received for incremental expenses that otherwise would not have been incurred is netted against the related expenses.

Income Taxes

The Company is treated as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, its earnings and losses are included in the income tax returns of the members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements.

Differences between financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes.

Organizational and Start Up Costs

The Company expenses all organizational and start up costs as incurred.

Advertising

The Company expenses advertising costs as they are incurred. Advertising costs totaled approximately $18,900 as of December 31, 2006. There was no advertising expense for the years ended December 31, 2005 or 2004.

Equity-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (“SFAS No. 123R”), Share-Based Payment, which addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. In January 2005, the SEC issued SAB No. 107, which provides supplement implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates the ability to account for stock-based compensation transaction using the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and instead generally requires that such transaction be accounted for using a fair-value-based method. The Company adopted the provisions of SFAS No. 123R using the straight-line attribution method. Under this

F-8

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005

method, the Company recognizes compensation cost related to service-based awards ratably over a single requisite service period.

The Company recognizes the related costs under these agreements using the straight-line attribution method over the grant period and the current fair value unit price. Compensation expense for the year ended December 31, 2006 is approximately $25,000 and is included in operating expenses and accrued expenses as of December 31, 2006. There was no compensation expense for the years ended December 31, 2005 or 2004.

Prior to 2006, the Company utilized a standard option pricing model, such as Black-Scholes, to measure the fair value of stock options granted to an independent contractor. The following assumptions were used to estimate the fair value of the options outstanding: dividend yield and expected volatility of 0%, risk free rate of 2%, and expected lives of 3 years.

Earnings Per Share

Earnings per share are calculated on a basic and fully diluted basis using the weighted average units outstanding during the period. Equity-based compensation, representing 200,000 units, is not considered in the fully diluted calculation since they are anti-dilutive and contingent on future events.

Environmental Liabilities

The Company’s operations are subject to environmental laws and regulations adopted by various governmental entities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its location. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health and the production, handling, storage and use of hazardous materials to prevent material, environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities, if any, are recorded when the liability is probable and the costs can reasonably be estimated. No such liabilities have been identified as of December 31, 2006 and 2005.

Recently Issued Accounting Pronouncements

Management has reviewed recently issued, but not yet effective, accounting pronouncements and does not expect the implementation of these pronouncements to have a significant effect on the Company’s financial statements.

2. DERIVATIVE INSTRUMENTS

At December 31, 2006, the Company has recorded an asset for derivative instruments related to a corn put options with a market value of approximately $320,341. The open position at December 31, 2006 is not designated as a cash flow or fair value hedge. The Company had no recorded derivative instruments related to corn for the year ended December 31, 2005.

The Company has derivative instruments in the form of interest rate swaps in an agreement associated with bank financing. Fair market value related to the interest rate swap liabilities totaled approximately $111,000 and $278,000 as of December 31, 2006 and 2005. Market value adjustments and net settlements related to these agreements are recorded as a gain or loss from non-designated hedging derivatives. See Note 5 for a description of these agreements.

3. PROPERTY, PLANT AND EQUIPMENT

Amounts included in construction in progress are as follows:


	December 31, 2006		December 31, 2005
Construction costs	$	73,715,280	$	15,516,973
Rain infrastructure and development		3,391,214		1,026,124
Water wells		558,327		4,678
Other costs		5,625,187		99,808

	$	83,290,008	$	16,647,583

Construction of the Plant was substantially completed and preliminary production operations commenced in December 2006. During fiscal 2006, the Company capitalized interest related to the expansion to a 50 million gallon plant of approximately $1,475,000. There was no interest capitalized during fiscal year 2005. The Company expects to begin depreciating the construction in process once the Plant commences operations in January 2007. After reclassification construction in progress to its permanent classification upon the completion of a definitive cost segregation study, property, plant and equipment are expected to be approximately as follows:

F-9

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005


Category	Cost		Average Life
Land improvements	$	7,748,577	20 years
Buildings		4,846,085	40 years
Plant equipment		67,882,287	7 to 15 years
Railroad and rail equipment		3,391,214	20 years
Office equipment		187,293	5 to 7 years

	$	84,055,456

4. BANK FINANCING

Long-term debt consists of the following:


	December 31, 2006
Construction loan agreement payable to bank, see below	$	44,060,352
Subordinated notes payable, see below		5,525,000
Capital lease obligations (Note 6)		202,836

Total	$	49,788,188
Less amounts due within one year		2,909,228

Total	$	46,878,960

The estimated maturities of long-term liabilities at December 31, 2006 are as follows:


2007	$	2,909,228
2008		4,130,850
2009		4,460,213
2010		4,787,398
2011		5,134,932
Thereafter		28,365,567

Total Long-Term Liabilities	$	49,788,188

In December 2005, the Company entered into a Credit Agreement with a bank providing for a total credit facility of approximately $59,712,000 for the purpose of funding the construction of the Plant. The construction loan agreement provides for the Company to maintain certain financial ratios and meet certain non-financial covenants. The loan agreement is secured by substantially all of the assets of the Company and includes the terms as described below.

Construction Loan

The Credit Agreement provides for a construction loan for up to an amount of approximately $55,212,000 with a loan termination date of April 16, 2012. Interest is to be charged at a rate of 3.4% over LIBOR, which totaled 8.71% and 7.77% at December 31, 2006 and 2005, respectively. The agreement calls for interest only payments to be made every three (3) months beginning March 2006 through the loan termination date. As of December 31, 2006, the Company has advanced $44,060,352 on this loan. There were no amounts outstanding as of December 31, 2005.

At the loan termination date, all principal and unpaid interest will be converted to three term notes each with specific interest rates and payment terms as described in the construction loan agreement.

The first of the three notes is a Fixed Rate Note in the amount of approximately $27,606,000 with interest payments made on a quarterly basis and charged at fixed rate of 3.0% over LIBOR (8.31% as of December 31, 2006) on the date of the construction loan termination date. Principal payments are to be made quarterly according to repayment terms of the construction loan agreement, generally beginning at approximately $470,000 and increasing to $653,000 per quarter, from April 2007 to October 2011, with a final principal payment of approximately $17,000,000 at January 2012. The note is secured by substantially all assets of the Company.

The second term note is referred to as the Variable Rate Note and is in the amount of approximately $17,606,000. Interest will be charged at a variable rate of 3.4% over the three-month LIBOR rate (8.71% as of December 31, 2006).

The third term note, the Long-Term Revolving Note, in the amount of approximately $10,000,000, will be charged interest at a variable rate of 3.4% over the one-month LIBOR rate (8.81% as of December 31, 2006.). The agreement calls for payments of approximately $1,005,000 to be made each quarter with amounts allocated to the

F-10

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005

term notes in the following manner: 1) to accrued interest on the Long-Term Revolving Note, 2) to accrued interest on the Variable Rate Note, and 3) to the principal balance on the Variable Rate Note.

All unpaid amounts on the three term notes are due and payable in April 2012. The Company has outstanding borrowings on the construction loan of approximately $44,060,352 as of December 31, 2006. The Company has incurred interest expense on this loan of approximately $1,475,000 in 2006 which is included in construction in progress. There were no amounts outstanding nor any interest incurred as of December 31, 2005 or 2004.

Revolving Line of Credit

The Company entered into a $3,500,000 line of credit agreement with its bank, subject to certain borrowing base limitations, through July 5, 2007. Interest is payable quarterly and charged on all borrowings at a rate of 3.4% over LIBOR, which totaled 8.75% at July 5, 2007. The Company has no outstanding borrowings at December 31, 2006 and 2005. The Company has incurred interest expense in fiscal year 2006 of approximately $5,000 which is included in construction in progress.

Interest Rate Swap Agreement

The Credit Agreement provides for the Company to enter into interest rate swap contracts for up to approximately $2.8 million. In December 2005, the Company entered into an interest rate swap transaction that effectively fixes the interest rate at 8.08% on approximately $27.6 million of any outstanding principal of the Fixed Rate Note.

The interest rate swap was not designated as either a cash flow or fair value hedge. Market value adjustments and net settlements are charged to gain from non-designated hedging derivatives. For the years ended December 31, 2006 and 2005, there were no net settlements, and market value adjustments resulted in a gain of approximately $167,000 in 2006 and a loss of approximately $278,000 in 2005, from non-designated hedging derivative letters of credit.

Letters of Credit

The Credit Agreement provides for up to $1,000,000 in letters of credit with the bank. All letters of credit are due and payable at the loan termination date in April 2007. The agreement provides for the Company to pay a quarterly commitment fee of 2.25% of all outstanding letters of credit. As of December 31, 2006, the Company had one outstanding letter of credit of approximately $137,000 for capital expenditures for gas services with Montana-Dakota Utilities Co. There were no amounts outstanding as of December 31, 2005.

Subordinated Debt

As part of the Credit Agreement, the Company entered into three separate subordinated debt agreements totaling approximately $5,525,000. Interest is charged at a rate of 2.0% over the Variable Rate Note interest rate (a total of 10.75% at December 31, 2006) and is due and payable subject to approval by the Senior Lender, the bank. Interest is compounding quarterly with any unpaid interest converted to principal. Amounts will be due and payable in full in April 2012. The outstanding balance on these loans is $5,525,000 as of December 31, 2006. The Company has incurred interest expense of approximately $337,000 in 2006 which is included in construction in progress. There were no amounts outstanding as of December 31, 2005.

5. LEASES

The Company leases equipment under operating and capital leases through 2011. The Company is generally responsible for maintenance, taxes, and utilities for leased equipment. Equipment under an operating lease includes rail cars. Rent expense for operating leases was approximately $11,250 for the year ending December 31, 2006. Equipment under capital leases consists of office equipment and equipment used for the construction of the Plant is included in construction in progress as December 31, 2006.

Equipment under capital leases is as follows at:


	December 31, 2006		December 31, 2005
Equipment	$	216,745	$	—
Accumulated amortization		598		—


Totals	$	216,147	$	—

F-11

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005

At December 31, 2006, the Company had the following minimum commitments, which at inception had non-cancelable terms of more than one year:


	Operating Leases		Capital Leases
2007	$	27,000	$	61,701
2008		27,000		61,701
2009		27,000		61,701
2010		27,000		49,648
2011		13,500		1,916

Total minimum lease commitments	$	121,500	$	236,667
Less amount representing interest				33,831


Present value of minimum lease commitments included in the preceding long-term liabilities			$	202,836

6. MEMBERS’ EQUITY

The Company was formed on July 16, 2003 to have an indefinite life. The Company was initially capitalized by conducting a private placement with its founding members who were also its first governors. The founding members contributed $1,200,000 ($1.00 per unit) of seed capital in exchange for 1,200,000 Class A Membership Units. During January 2004, the Company approved a 3 for 1 split on these founding Membership Units, effectively issuing 3,600,000 Class A Membership Units for approximately $0.33 per unit. All references in the financial statements and notes to the number of units outstanding and per unit amounts of the Company’s Class A Membership Units reflect the effect of the unit split for all periods presented. The proceeds from this offering were used to pay for organizational, permitting and other development costs.

Income and losses are allocated to all members based upon their respective percentage units held. Only one class of membership units is outstanding or authorized.

The Company prepared and filed a Registration Statement with the State of North Dakota during fiscal 2004. The Offering was for up to 40,000,000 Class A Membership Units available for sale at $1.00 per unit. The minimum purchase requirement was 10,000 units for a minimum investment of $10,000. Thereafter, additional units were available for purchase in 1 unit increments for sale at $1.00 per unit. The Company has one class of membership units with each unit representing a pro rata ownership interest in the Company’s capital, profits, losses and distributions.

Under the terms of its North Dakota Registration Statement, the Company had until May 30, 2005 to both a) sell at least the minimum number of units required to close the private offering of Class A Membership Units and b) enter into an executed debt financing commitment letter from a bank. Investments received were held in escrow through April 6, 2005, at which point the Company had raised the minimum required $25,000,000 in cash proceeds and obtained the required executed debt financing commitment letter from a bank. If the minimum offering and the debt financing commitment had not been obtained, the amount held in escrow would have been refunded to each subscriber with no interest earned.

The escrowed funds received by the Company were held in a segregated bank account, in the Company’s name, until the initial offering was closed on April 6, 2005. The Company reported the amounts in their financial statements as “restricted cash” until April 6, 2005, when the funds became available for general use. Because no membership units were issued or issuable until such a time as the Company met the minimum unit sales and bank financing commitment requirements, the Company recorded a corresponding liability for “unit subscriptions held in escrow.” This liability represented amounts that would have been returned to unit subscribers had the minimum offering and bank commitment requirements not been met. Cash received subsequent to the initial close on the minimum required unit sales was available for use as received and as the respective membership units were issued.

On March 1, 2006, the Company closed its offering with a total of 36,711,473 Class A Membership Units sold, and aggregate offering proceeds of $36,711,473. The Company paid approximately $107,000 in costs of offering its membership units, which was offset against the equity raised once the minimum required cash proceeds were received during 2005.

In August 2003, the Company granted an independent contractor an option to purchase up to 62,500 Class A Membership Units at $0.10 per unit. The options vested at the completion of the duties as specified by the project coordinator agreement. At September 30, 2006, these options have been exercised for a purchase of the full 62,500

F-12

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005

units for aggregate proceeds of $6,250. Compensation related to those options was approximately $36,500 in 2004. No related expense was recorded in 2006 or 2005.

7. EQUITY-BASED COMPENSATION

2006 Equity-Based Incentive Plan

During 2006, the Company has an equity-based incentive plan (the “Plan”) which provides for the issuance of restricted Class A Membership Units to the Company’s key management personnel, for the purpose of compensating services rendered. These units have vesting terms established by the Company at the time of each grant. Vesting terms of outstanding awards begin after one to three years of service and are fully vested after ten years of service. A total of 200,000 units of the Company’s equity have been reserved for issuance under the Plan.

8. GRANTS

The Company has been awarded four grants. It has been awarded an Ag Products Utilization Council grant in the amount of $150,000 to be used for general business expenses, including legal and accounting. All proceeds from this grant were received in 2005 and 2004.

In 2006 the Company was entered into a contract with the State of North Dakota through its Industrial Commission for a Lignite Grant not to exceed $350,000. In order to receive the proceeds, the Company must construct a 50 million-gallon-per-year ethanol plant located in North Dakota that utilizes clean lignite technologies in the production of ethanol. The Company must also provide the Industrial Commission with specific reports in order to receive the funds. After the first year of operation, the Company will be required to repay a portion of the proceeds in annual payments of $22,000 over ten years. These payments could increase based on the amount of lignite the Company is using as a percentage of primary fuel. The Company has received $275,000 from this grant in 2006.

In September 2006, the Company finalized a training program agreement with Job Service North Dakota. This program provides an incentive to businesses that are creating new employment opportunities through business expansion and relocation to the state. The program provides no-cost funding to help offset the cost of training new employees. The Company may receive up to $169,813 over ten years

The Company entered into a Workforce 20/20 contract with the state in October 2006. This program is designed to assist North Dakota business and industry in retraining and upgrading the skills of current employee brought about through the introduction of new technologies or work methods to the workplace. The purpose is to foster the growth and competition of North Dakota’s work force and industry by ensuring that the current work force has the skills and expertise to compete in a global economy. The Company has received the approximately $27,550 from this grant during 2006.

9. COMMITMENTS AND CONTINGENCIES

Design Build Contract

The total cost of the project, including the construction of the ethanol plant and start-up expenses, is expected to approximate $99,000,000. The Company signed a Design-Build Agreement with Fagen, Inc. (a related party) in September 2005 to design and build the ethanol plant at a total contract price of approximately $77,000,000.

Consulting Contracts

In August 2003, the Company entered into a contract with an individual to provide project coordination services for approximately $70,000 per year in connection with the construction of the Company’s plant. Either party could terminate this agreement upon default or thirty days written notice. In 2005, this individual became a member of the Company through the purchase of units and as a result of exercising options received under this consulting agreement in January 2006. Total costs paid to this member totaled $182,000 and $169,000 as of December 31, 2006 and 2005, respectively. This agreement was terminated in September 2006.

In December 2003, the Company entered into a contract with a consulting firm to provide project coordination and development services in connection with the design, construction and initial operation of the Company’s plant for $3,050,000. Either party upon a default of the other may terminate this agreement.

In December 2003, the Company entered into a contract with a consulting firm to provide management services related to the Company’s plant. For these services, the Company will pay the consultant $200,000 per year, reimburse the consultant for the salary and benefits of a General Manager and Plant Manager, as well as pay 4% of the Company’s pre-tax net income once the plant is in compliance with the engineer’s performance standard, except for the reimbursement of the salary and benefits of the General Manager and Plant Manager, which began in June 2006. Either party may terminate this agreement upon a default of the other after thirty days written notice.

F-13

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005

In February 2006, the Company entered into a Risk Management Agreement for Grain Procurement and Byproduct Marketing with John Stewart & Associates (JSA). JSA will provide services in connection with grain hedging, pricing and purchasing. The Company will pay $2,500 per month for these services beginning no sooner than ninety days preceding plant startup. In addition, JSA will serve as clearing broker for the Company and charge a fee of $15.00 per contract plus clearing and exchange fees.

Utility Agreements

The Company entered into a contract with West Plains Electric Cooperative, Inc. dated August 2005, for the provision of electric power and energy to the Company’s plant site. The agreement is effective for five years from August 2005, and thereafter for additional three year terms until terminated by either party giving to the other six months’ notice in writing. The agreement calls for a facility charge of $400 per month and an energy charge of $0.038 per kWh for the first 400,000 kWh and $0.028 per kWh thereafter. In addition, there is an $8.00 per kW monthly demand charge based on the highest recorded fifteen minute demand.

In March 2006, the Company entered into a ten year contract with Southwest Water Authority to purchase raw water. The contract includes a renewal option for successive periods not to exceed ten years. Additionally, the contract requires the Company to make an $80,000 prepayment to be held in escrow for a minimum of three years after which $40,000 may be applied toward its water bill. The base rate for raw water shall be $0.72 per each one thousand gallons of water. The base rate may be adjusted annually by the State Water Commission. Subsequent to quarter end, the Company made the $80,000 prepayment.

In June 2006, the Company entered into an agreement with Montana-Dakota Utilities Co. (MDU) for the construction and installation of a natural gas line. The agreement requires the Company to pay $3,500 prior to the commencement of the installation and to maintain an irrevocable letter of credit in the amount of $137,385 for a period of five years as a preliminary cost participation requirement. If the volume of natural gas used by the Company exceeds volume projections, the Company will earn a refund of the preliminary cost participation requirement and interest at 12% annually.

Marketing Agreements

The Company entered into a Distillers Grain Marketing Agreement with Commodity Specialist Company (CSC) in March 2004, for the sale and purchase of distillers grains. The contract is an all output contract with a term of one year from start-up of production of the Plant and continuing thereafter until terminated by either party after ninety days notice. CSC receives a 2% fee based on the sales price per ton sold with a minimum fee of $1.35 per ton and a maximum fee of $2.15 per ton. At December 31, 2006, the Company is in a start up stage and no payments have been paid as a result of this agreement.

The Company entered into an Ethanol Fuel Marketing Agreement in August 2005 with Renewable Products Marketing Group, LLC (RPMG), which makes RPMG the Company’s sole marketing representative for the Company’s entire ethanol product. The Agreement is a best good faith efforts agreement. The term of the Agreement is twelve months from the first day of the month that the Company initially ships ethanol to RPMG. At the termination of the initial twelve month term, the Agreement provides that the parties “shall be at liberty to negotiate an extension of the contract.” The Company will pay RPMG $0.01 per gallon for each gallon of ethanol sold by RPMG. At December 31, 2006, the Company is in a start up stage and no payments have been paid as a result of this agreement.

Coal Purchase Contract

The Company entered into a contract in March 2004 with General Industries, Inc. d/b/a Center Coal Company (CCC) for the purchase of lignite coal. The term of the contract is for ten years from the commencement date agreed upon by the parties. The Company will pay CCC $17.35 per ton of coal delivered beginning in 2005 plus/minus a fuel adjustment amount for delivery costs. The price per ton of coal delivered increases each year by approximately $0.05 per ton. The fuel adjustment is based on the market price of fuel.

Chemical Consignment Purchase Contracts

During November 2006, the Company entered into two consignment purchases for bulk chemicals purchased through Genecor International Inc. Genecor will provide the following enzymes: Alpha-Amylase at $3.42 per KG, Glucoamylease at $2.35 per KG and Protease at $9.95 per KG. The Univar agreement states that it will provide the following bulk chemicals: Caustic Soda, Sulfuric Acid, Anyhydous Ammonia and Sodium Bicarbonate. All Univar chemicals are purchased at market price.

Chemical Purchase Contract

The Company entered into a contract in October 2005 with Quadra Energy Trading Inc. for the purchase of Natural Gasoline. The term of the contract is November 2006 through April 2007. The price is the weekly average front month NYMEX Crude Oil plus $11.00 bbl.

F-14

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005

Grain Origination Contract

The Company entered into a grain origination contract with New Vision Coop (NVC) in April 2004 for grain origination and related services. The term of the contract is three years from its start date, unless extended through an amendment. However, either party may cancel the contract by providing sixty days’ written notice to the other party. The Company shall pay NVC a development fee of $25,000 upon completion of construction. Thereafter, the fee will be $0.005 per bushel for all grain delivered by rail, with no fee for grain transported by truck. The Company will also pay NVC an incentive fee of 10% for profits earned through the use of corn futures, call options and put options.

Rail Track Design

The Company entered into a railroad construction agreement with R & R Contracting, Inc. in November 2005. The agreement includes the engineering, site excavation, materials and track construction. The track was completed in the fourth quarter of 2006. The total costs of the rail track was approximately $3,400,000, which is included in property, plant and equipment at December 31, 2006.

Leases

The Company entered into an operating lease in July 2006 for the lease of a locomotive. The term of the contract is for a period of five years commencing upon delivery. The Company will pay $75 per day or $2,250 per month.

In September 2006, the Company entered into an agreement for office equipment under a long-term capital lease agreement valued at $10,245. The contract requires monthly payments of approximately $200 over a period of five years.

The Company entered into an agreement for a 2004 CAT Loader with Merchants Capital under a long-term capital lease agreement valued at $112,500. The contract requires monthly payments of approximately $2,730 over a period of four years.

The Company entered into an agreement for a telescopic handler with Butler Machinery under a long-term capital lease agreement valued at $94,000. The contract requires monthly payments of approximately $2,195 over a period of four years starting on October 15, 2006.

10. RELATED PARTY TRANSACTIONS

The Company has balances and transaction in the normal course of business with various related parties for the purchases of corn to begin the pre-production phase and costs associated with the construction of the Plant. Significant related party activity affecting consolidated financial statements are as follows:


	December 31, 2006		December 31, 2005
Accounts payable	$	46,281	$	—
Accrued liabilities		1,525,000		—
Corn Purchases during 2006		172,176		—

11. INCOME TAXES

The difference between financial statement basis and tax basis of assets are as follows:


	2006		2005
Financial statement basis of assets	$	89,864,288	$	36,972,579
Plus: organization and start-up costs		6,195,047		2,941,290
Plus: book to tax depreciation		1,191		—

Income tax basis of assets	$	96,060,526	$	39,913,869

Financial statement basis of liabilities		47,153,960		8,258,952
Less: interest rate swap		110,935		277,952

Income tax basis of liabilities	$	47,043,025	$	7,980,933

F-15

Red Trail Energy, LLC
(A Development Stage Company)

Notes to Financial Statements

December 31, 2006 and 2005

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary quarter results are as follows

Statement of Operations


	March 2006			June 2006			September 2006			December 2006
Revenues	$	0		$	0		$	—		$	—
Operating expenses		156,235			246,524			406,079			2,938,892
Operating loss		(156,235	)		(246,524	)		(406,079	)		(2,938,892	)
Other income, net		544,731			340,744			(622,571	)		980,763
Net income (loss)		388,496			94,220			(1,028,650	)		(1,958,129	)
Weighted average units		37,340,846			40,375,973			40,375,973			40,375,973
Net income (loss) per unit		0.01			0.00			(0.03	)		(0.05	)


	March 2005			June 2005			September 2005			December 2005
Revenues	$	—		$	—		$	—		$	—
Operating expenses		109,545			97,260			115,016			1,765,987
Operating loss		(109,545	)		(97,260	)		(115,016	)		(1,765,987	)
Other income, net		113,563			94,094			181,921			(29,374	)
Net income (loss)		4,018			(3,166	)		66,905			(1,795,361	)
Weighted average units outstanding		3,600,000			290,126,070			31,497,630			33,246,647
Net income (loss) per unit		0.00			0.00			0.00			(0.05	)

The above quarterly financial data is Unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these periods presented .have been included.

13. SUBSEQUENT EVENTS

Since the start up of operations in January 2007, the Plant has experienced a number of shut-downs as a result of issues related to the use of lignite coal in operations. During March 2004, the Company entered into a contractual agreement with General Industries, Inc. d/b/a Center Coal Company (CCC) for the purchase and use of lignite coal for a term of ten years from the commencement date agreed upon by the parties. Due to the issues related to the use of lignite coal, the Compnay is considering using Powder River Basin (PRB) coal as an alternative to lignite. The Company is working with the parties involved on both short-term and long-term solutions. the Plant contractor and designer has approved the use of PRB coal in the Plant and Plant facilities. While the Company does expect the costs of PRB to exceed that of lignite, the Company does not expect a significant impact on income from operations

F-16

Exhibit 3.2

OPERATING AGREEMENT

RED TRAIL ENERGY, LLC

MEMBERS

1.1 Place of Meetings . Each meeting of the members shall be held at the principal executive office of the Company or at such other place as may be designated by the Board of Governors or the President; provided, however, that any meeting called by or at the demand of a member or members shall be held in the county where the principal executive office of the company is located.

1.2 Regular Meetings . Regular meetings of the members may be held on an annual or other more frequent basis as determined by the Board of Governors; provided, however, that if a regular meeting has not been held during the immediately preceding fifteen (15) months, a member or members owning five percent (5%) or more of the voting power of all membership interests entitled to vote, may demand a regular meeting of members by written demand given to the President or Treasurer of the Company. At each regular meeting the members entitled to vote shall elect qualified successors for governors who serve for an indefinite term or whose terms have expired or are due to expire within six months after the date of the meeting and may transact any other business, provided, however, that no business with respect to which special notice is required by law shall be transacted unless such notice shall have been given.

1.3 Special Meetings . A special meeting of the members may be called for any purpose or purposes at any time by the President, by the Board of Governors or any two or more governors, or by one or more members owning not less than ten percent (10%) of the voting power of all membership interests of the Company entitled to vote, who shall demand such special meeting by written notice given to the President of the Company specifying the purposes of such meeting.

1.4 Meeting Held Upon Member Demand . Within thirty (30) days after receipt of a demand by the President from any member or members entitled to call a meeting of the members, it shall be the duty of the Board of Governors of the Company to cause a special or regular meeting of members, as the case may be, to be duly called and held on notice no later than ninety (90) days after receipt of such demand. If the Board fails to cause such a meeting to be called and held as required by the Section, the member or members making the demand may call the meeting by giving notice as provided in Section 1.6 hereof at the expense of the Company.

1.5 Adjournments . Any meeting of the members may be adjourned from time to time to another date, time and place. If any meeting of the members is so adjourned, no notice as to such adjourned meeting need be given if the date, time and place at which the meeting will be reconvened are announced at the time of adjournment.

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1.6 Notice of Meetings . Unless otherwise required by law, written notice of each meeting of the members, stating the date, time and place and, in the case of a special meeting, the purpose or purposes, shall be given at least ten (10) days and not more than fifty (50) days prior to the meeting to every owner of membership interests entitled to vote at such meeting except as specified in Section 1.5 or as otherwise permitted by law. The business transacted at a special meeting of members is limited to the purposes stated in the notice of the meeting.

1.7 Waiver of Notice . A member may waive notice of the date, time, place and purpose or purposes of a meeting of members. A waiver of notice by a member entitled to notice is effective whether given before, or after the meeting, and whether given in writing, orally, or by attendance. Attendance by a member at a meeting is a waiver of notice of that meeting, unless the member objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting.

1.8 Voting Rights . A member shall have voting power in proportion to the membership units owned, as provided in a member control agreement. Except as otherwise required by law, an owner entitled to vote may vote any portion of the membership units owned in any way the member chooses. If a member votes without designating the proportion of the membership units voted in a particular way, the member is deemed to have voted all of the membership units in that way.

1.9 Each member that is not a natural person shall designate in writing an authorized voting representative to cast such Member’s vote. A Member may change the voting representative at any time by written notice to the Company. Whenever this agreement allows for or requires Members consent to an action, the authorized voting representative of each member shall grant or withhold such consent on behalf of such Member. The voting representative shall represent the Member in all Company business and shall be eligible to serve as a governor.

1.10 Proxies . A member may cast or authorize the casting of a vote by filing a written appointment of a proxy with a manager of the Company at or before the meeting at which the appointment is to be effective. The member may sign or authorize the written appointment by telegram, cablegram or other means of electronic transmission setting forth or submitted with information sufficient to determine that the member authorized such transmission. Any copy, facsimile, telecommunication or other reproduction of the original of either the writing or transmission may be used in lieu of the original provided that it is a complete and legible reproduction of the entire original.

1.11 Quorum . The owners of a majority of the voting power of the membership interests entitled to vote at a meeting of the members are a quorum for the transaction of business, unless a larger or smaller proportion is provided in the Articles of Organization of the Company or a member control agreement. If a quorum is present when a duly called or held meeting is convened, the members present may continue to transact business until adjournment, even though the withdrawal of

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members originally present leaves less than the proportion otherwise required for a quorum.

1.12 Acts of Members . Except as otherwise required by law or specified in the Articles of Organization of the Company or a member control agreement, the members shall take action by the affirmative vote of the owners of the greater of (a) a majority of the voting power of the membership interests present and entitled to vote on that item of business or (b) a majority of the voting power that would constitute a quorum for the transaction of business at a duly held meeting of members.

1.13 Action Without a Meeting . Any action required or permitted to be taken at a meeting of the members of the Company may be taken without a meeting by written action signed by all of the members entitled to vote on that action. Any action, if the Articles of Organization or a member control agreement so provide, may be taken by written action signed by the members who own voting power equal to the voting power that would be required to take the same action at a meeting of the members at which all members were required members, unless a different effective time is provided in the written action. When written action is permitted to be taken by less than all members, all members shall be notified immediately of its text and effective date.

GOVERNORS

2.1 Number; Qualifications . The permanent Board elected by the members at the first annual meeting shall be comprised of seven (7) individuals. Governors shall be natural persons, and must be Members (or Voting Representatives of entity members) of the Company. Prior to the first annual meeting of members, the interim Board of Governors shall manage the Company.

2.2 Election; Term . The Members shall elect the governors at a regular meeting of Members. The procedural process for nominating and electing governors shall be determined in advance of the meeting by the Board of Governors and shall be communicated to all Members in a timely manner. Each governor, other than the interim initial Board, shall hold office for a term of three (3) years; except that at the first annual meeting the governors shall be elected to staggered one, two, and three year terms. Two of the Governors elected at the first meeting of Members shall be elected to a one year term, two for a two year term, and three for a three year term.

2.3 Vacancies . Vacancies on the Board of Governors resulting from the death, resignation, removal or disqualification of a governor may be filled by the affirmative vote of a majority of the remaining governors, even though less than a quorum. Vacancies on the Board resulting from newly-created governorships may be filled by the affirmative vote of a majority of the governors serving at the time such governorships are created. Each person elected to fill a vacancy shall hold office until a qualified successor is elected by the members at the next regular meeting or at any special meeting duly called for that purpose.

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2.4 Place of Meetings . Each meeting of the Board of Governors shall be held at the principal executive office of the Company or at such other place as may be designated from time to time by a majority of the governors or by the President. A meeting may be held by conference among the governors using any means of communication through which the governors may simultaneously hear each other during the conference.

2.5 Regular Meetings . Regular meetings of the Board of Governors shall be held periodically, as established by the Board, but not less than one per month.

2.6 Special Meetings . A special meeting of the Board of Governors may be called for any purpose or purposes at any time by the President or at least two (2) Governors by fixing the Date, time, and place of the meeting and causing notice of the meeting to be given. The notice must state the purpose of the meeting.

2.7 Waiver of Notice; Previously Scheduled Meetings .

Subdivision 1. A governor of the Company may waive notice of the date, time, and place of a meeting of the Board. A waiver of notice by a governor entitled to notice is effective whether given before, at, or after the meeting, and whether given in writing, orally or by attendance. Attendance by a governor at a meeting is a waiver of notice of that meeting, unless the governor objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and thereafter does not participate in the meeting.

Subdivision 2. If the day or date, time, and place of a Board meeting have been provided herein or announced at a previous meeting of the Board, no notice is required. Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken of the date, time and place at which the meeting will be reconvened.

2.8 Quorum . A majority of the governors currently holding office shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the governors present may adjourn a meeting from time to time without further notice until a quorum is present. If a quorum is present when a duly called or held meeting is convened, the governors present may continue to transact business until adjournment, even though the withdrawal of a number of the governors originally present leaves less than the proportion or number otherwise required for a quorum.

2.9 Acts of Board . Except as otherwise required by law or specified in the Articles of Organization of the Company or a member control agreement, the Board shall take action by the affirmative vote of a majority of the governors present at a duly held meeting.

2.10 Participation by Electronic Communications . A governor may participate in a Board meeting by any means of communication through which the governor, other governors so participating and all governors physically present at the meeting may simultaneously hear each other

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during the meeting. A governor so participating shall be deemed present in person at the meeting.

2.11 Absent Governors . A governor of the Company may give advance written consent or opposition to a proposal to be acted on at a Board meeting. If the governor is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as a vote in favor of or against the proposal and shall be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the governor has consented or objected.

2.12 Action Without a Meeting . Any action required or permitted to be taken at a meeting of the Members of the Company may be taken without a meeting by written action signed by the number of Members who would be required to take the same action at a meeting of the Member at which all members were present. The written action is effective when signed by the required Members unless a different effective time is provided in the written action. Notice of the text of such written action must be given in advance to all Members.

2.13 Compensation . The Board of governors shall establish reasonable compensation of all governors for services to the Company as governors, managers, or otherwise. By resolution by the Board of Governors, the governors may be paid their expenses, if any, of attendance at each meeting of the Board of Governors and incurred in action on behalf of the Company.

MANAGERS

3.1 Number and Designation . The Company shall have one or more natural persons exercising the functions of the position of President and Secretary/Treasurer. The Board of Governors may elect or appoint such other managers or agents as it deems necessary for the operation and management of the Company, with such powers, rights, duties and responsibilities as may be determined by the Board, each of whom shall have the powers, rights, duties and responsibilities set forth in this Operating Agreement unless otherwise determined by the Board. Any of the positions or functions of those positions may be held by the same person.

3.2 President . Unless provided otherwise by a resolution adopted by the Board of Governors or in a member control agreement, the President (a) shall have general active management of the business of the Company; (b) shall, when present, preside at all meetings of the members of the Board; (c) shall see that all orders and resolutions of the Board are carried into effect; (d) may maintain records of and certify proceedings of the Board and members; and (e) shall perform such other duties as may from time to time be prescribed by the Board.

3.3 Treasurer . Unless provided otherwise by a resolution adopted by the Board of Governors or in a member control agreement, the Treasurer (a) shall keep accurate financial records for the Company; (b) shall deposit all monies, drafts and checks in the name of and to the credit of the Company in such banks and depositories as the Board

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shall designate from time to time; (c) shall endorse for deposit all notes, checks and drafts received by the Company as ordered by the Board, making proper vouchers therefor (d) shall disburse Company funds and issue checks and drafts in the name of the Company, as ordered by the Board; (e) shall render to the President and the Board, whenever requested, an account of all of such manager’s transactions as Treasurer and of the financial condition of the Company; and (f) shall perform such other duties as may be prescribed by the Board or the President from time to time.

3.4 Vice Presidents . The Board of Governors may establish the position of Vice-President. During the absence of disability of the President, it shall be the duty of the Vice-President to perform the duties of the President. The Vice-President shall have such other duties and authority as established by the Board.

3.5 Secretary . The Secretary shall attend all meetings of the Board of Governors and of the Members and shall maintain records of, and whenever necessary, certify all proceedings of the Board of Governors and of the Members. The Secretary shall keep the Require Records of th Company, when so directed by the Board of Governors or other person or persons authorized to call such meetings, shall give or cause to be given notice of meetings of the Members and of meetings of the Board of Governors, and shall also perform such other duties and have such other powers as the President or the Board of Governors may prescribe from time to time.

3.6 Authority and Duties . In addition to the foregoing authority and duties, all managers of the Company shall respectively have such authority and perform such duties in the management of the business of the Company as may be designated from time to time by the Board of Governors or in this Agreement. Unless prohibited by a resolution approved by the affirmative vote of a majority of the governors present, a manager elected or appointed by the Board may, without the approval of the board, delegate some or all of the duties and powers of a position to the Company’s employees, accountants, and legal counsel.

3.7 Term .

Subdivision 1. All managers of the Company shall hold office until their respective successors are chosen and have qualified or until their earlier death, resignation or removal.

Subdivision 2. A manager may resign at any time by giving written notice to the Company. The resignation is effective without acceptance when the notice is given to the Company, unless a later effective date is specified in the notice.

Subdivision 3. A manager may be removed at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the governors present at a duly held Board meeting, subject to the provisions of any member control agreement.

Subdivision 4. A vacancy in a position because of death, resignation, removal, disqualification or other cause may, or in the case of a vacancy in the position of President or Treasurer shall be billed for the unexpired portion of the term by the Board.

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3.8 Salaries . The salaries of all managers of the Company shall be fixed by the Board of Governors or by the President if authorized by the Board.

INDEMNIFICATION

4.1 Indemnification . The Company shall indemnify its managers and governors for such expenses and liabilities, in such manner, unless such circumstances, and to such extent, as require or permitted by North Dakota Statute, Section 10-32-99, as amended from time to time, or as required or permitted by other provisions of law.

4.2 Insurance . The Company may purchase and maintain insurance on behalf of any person in such person’s official capacity against any liability asserted against and incurred by such person in or arising from that capacity, whether or not the Company would otherwise be required to indemnify the person against the liability.

MEMBERSHIP INTERESTS

5.1 Statement of Membership Interest . At the request of any member, the Company shall state in writing, the particular membership interest owned by that member as of the moment the Company makes the statement. The statement must describe the member’s rights to vote, to share in profits and losses, and to share in distributions, as well as any assignment or the member’s rights then in effect.

5.2 Declaration of Distributions . The Board of Governors shall have the authority to declare distributions upon the membership interests of the Company to the extent permitted by law.

5.3 Transfer of Membership Interests . Membership interests in the Company may be transferred only to the extent permitted by law and subject to any member control agreement.

MISCELLANEOUS

6.1 Execution of Instruments .

Subdivision 1. All deeds, mortgages, bonds, checks, contracts and other instruments pertaining to the business and affairs of the Company shall be signed on behalf of the Company by the President or the Secretary/Treasurer as may be designated from time to time by the Board of Governors.

Subdivision 2. If a document must be executed by persons holding different positions or functions and one person holds such positions or exercises such functions, that person may execute the document in more than one capacity if the document indicates each such capacity.

6.2 Advances . The Company may, without a vote of the governors, advance money to its governors, managers or employees to cover expenses that can reasonably be anticipated to be incurred by them in the performance of their duties and for which they would be entitled to reimbursement in the absence of an advance.

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6.3 Company Seal . The Company will be a no seal company.

6.4 Fiscal Year . The fiscal year of the Company shall be determined by the Board of Governors.

6.5 Construction . This Operating Agreement is subject to the terms of any member control agreement from time to time in effect and to the extent inconsistent, the member control agreement shall be controlling.

6.6 Amendments . The Board of Governors shall have the power to adopt, amend or repeal the Operating Agreement of the Company, subject to the power of the members to change or repeal the same, provided, however, that the Board shall not adopt, amend or repeal any Section fixing a quorum for meetings of members, prescribing procedures for removing governors or filling vacancies in the Board, or fixing the number of governors or their classifications, qualifications, or terms of office, but may adopt or amend a Section that increases the number of governors.

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the 24 ^th day of September, 2003.

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GOVERNORS:
RED TRAIL ENERGY LLC


/s/ Ambrose R. Hoff Ambrose Hoff		/s/ Jody Hoff Jody Hoff
/s/ Duane Zent Duane Zent		/s/ William Price William Price
/s/ Wm N DuToit William DuToit		/s/ Fred Braun Fred Braun
/s/ Mark Erickson Mark Erickson		/s/ Troy Jangula Troy Jangula
/s/ Mike Appert Mike Appert		/s/ Jeff Herr Jeff Herr
/s/ William Cornatzer William Cornatzer		/s/ Leo Bachmeier Leo Bachmeier
/s/ Tim Gross Tim Gross		/s/ Gene F Rudolf Gene Rudolf
/s/ Ron Aberle Ron Aberle		/s/ Donald Streifel Donald Streifel
Ronald Knudson		/s/ C. W. Kramer Charles Kraemer
/s/ Kenny Meier Kenny Meier		/s/ Marlyn Richter Marlin Richter
/s/ Grant Hoovestol March Madness

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Exhibit 4.2

MEMBER CONTROL AGREEMENT
RED TRAIL ENERGY, LLC

THIS MEMBER CONTROL AGREEMENT is made as of the 24th day of September, 2003, by and among each of the undersigned:

RECITALS:

WHEREAS, the undersigned constitute all of the current members of Red Trail Energy, LLC, a North Dakota limited liability company; and

WHEREAS, Section 10-32-50 of the North Dakota limited liability company act authorizes a “member control agreement” as defined therein; and

WHEREAS, each of the undersigned wishes to enter into such an agreement; and

NOW, THEREFORE, each of the undersigned agrees as follows:

ARTICLE I.
DEFINITIONS

1.1 Definitions . The terms defined in this Article I (except as may be otherwise expressly provided in this Agreement or unless the context otherwise requires) shall, for all purposes of this Agreement, have the following respective meanings:

“Act” means the North Dakota limited liability company act contained in North Dakota Statutes, Chapter 10-32.

“Agreement” means this Member Control Agreement as hereafter amended from time to time, including any schedules to the Agreement.

“Board” or “Board of Governors” means the board of governors of the Company.

“Capital Account” means the account of a Member which is maintained in accordance with the provisions of Section 3.11 hereof.

“Code” means the Internal Revenue Code of 1986, as amended and any successor thereto. Any reference herein to specific sections of the Code shall be deemed to include a reference to any corresponding provisions of future law.

“Company” means Red Trail Energy, LLC, a North Dakota limited liability company.

“Distribution” means a distribution to the Members of cash or other assets of the Company, made from time to time pursuant to the provisions of this Agreement.

“Financial Rights” means a Member’s rights to share in net income and net losses and distributions with respect to a membership interest in accordance with the terms of this Agreement, and the power to assign financial rights.

“Governance Rights” means all of a Member’s rights as a Member in the Company other than such Member’s financial rights.

“Governor” means a natural person serving on the Board of Governors.

“Manager” means a person elected, appointed, or otherwise

designated as a manager by the Board of Governors, and any other person considered elected as a manager pursuant to the Act.

“Member” means a person reflected in the required records of the Company as the owner of governance rights of a membership interest of the Company.

“Membership Interest” means a Member’s interest in the Company consisting of the number of units each member has divided by the total units held by all members.

“Net Income” and “Net Loss” mean the profits and losses of the Company, as the case may be, as determined for federal income tax purposes as of the close of each of the fiscal years of the Company.

ARTICLE II.
FIRST GOVERNORS

2.1 First Governors . The first Governors of the Company shall be the following, who are hereby elected to hold office until their successors are elected and qualified pursuant to the Operating Agreement of the Company:


		William DuToit		Fred Braun
		Duane Zent		William Price
		Ambrose Hoff		Jody Hoff
		Mark Erickson		Troy Jangula
		Mike Appert		Jeff Herr
		William Cornatzer		Leo Bachmeier
		Tim Gross		Gene Rudolf
		Ron Aberle		Donald Streifel
		Ronald Knutson		Charles Kraemer
		Kenny Meier		Marlyn Richter
		Grant Hoovestol

ARTICLE III.
FOUNDERS’ CONTRIBUTIONS AND
PURCHASE OF MEMBERSHIP INTERESTS BY INVESTORS

3.1 Contribution of Founders . The “Founders” contemporaneously herewith have each purchased membership units or made initial contributions as set forth in Schedule A hereto.

3.2 Purchase of Membership Interests by Intrastate Investors . The parties acknowledge that the Company plans to sell Membership Interests to interested North Dakota investors who enter into a Subscription Agreement with such rights, obligations, and preferences as the Board of Governors shall establish for such Membership Interests. The parties understand that upon the sale of Membership Interests to investors, their respective Membership Interests shall be diluted.

The names of the Members and their respective percentage contributions and the agreed value thereof are as follows:

SEE ATTACHMENT “A”

Other than as set forth in this Section, no additional contributions shall be accepted or membership interests granted by the Board without the consent of 100% of the outstanding voting interests. Upon such consent and the issuance of additional membership interests, Section

3.1 shall be appropriately amended.

3.3 Terms of Membership Interests . The Company will have one class of Membership Interests as set forth below:

Class A member — Class to be owned by the Founders of the Company and outside investors in the Company with such rights with respect to voting and sharing in profits of the Company as determined by the Board of Governors from time to time. All Membership Interests of the Company shall have the rights provided by law, subject to any statement in this Agreement of the specific rights or terms of such Membership Interests.

3.4 Democracy Rights .

A. Meetings. Meetings of the Company may be called by the Governors and request, either in person or by certified mail, stating the purpose(s) of the meeting, the Governors and Managers shall provide all Members within ten days after receipt of said request, written notice, either in person or by mail, of a meeting and the purpose of such meeting to be ‘held on a date not less than fifteen nor more than sixty days after distribution of such notice, at a time and place specified in the request, or if none is specified, at a time and place convenient to Members.

B. Voting Rights of Members.

l. The Company agreement must provide that a majority of the then outstanding Company Interests may, without the necessity for concurrence by the Governors and Managers, vote to:

(a) amend the Company agreement;

(b) dissolve the Company;

(d) Approve or disapprove the sale of all or substantially all of the assets of the Company, when such sale is to be made other than in the ordinary course of the Company’s business;

2. Without concurrence of a majority of the outstanding Company Interests, the Governors and Managers may not:

(a) amend the Company agreement except for amendments which do not adversely affect the rights of Members;

(b) voluntarily withdraw as Governors and Managers unless such withdrawal would not affect the tax status of the Company and would not materially adversely affect the Members;

(c) sell all or substantially all of the Company’s assets other than in the ordinary course of the Company’s business, or

(d) cause the merger or other reorganization of the Company.

3. With respect to any Company interests owned by the Governors and Managers, the Governors and Managers may not vote or consent on matters submitted to the Members regarding the removal of the Governors and Managers or regarding any transaction between the Company and the Governors and Managers or in determining the existence of the requisite membership interest of Company interests necessary to approve a matter on which the Governors or Managers may not vote or consent, any Company interest owned by the Governors or

Managers shall not be included.

3.5 Allocation of Net Income and Net Losses . Net income and net losses shall be allocated annually among the Members in proportion to their units of membership.

3.6 Operating Distributions . Any distributions authorized by the Board other than liquidating distributions pursuant to Section 3.5 shall be distributed among the Members based on their units of membership, provided, however, that the Board shall annually distribute cash to the members based on their units of membership in an amount equal to the estimated member tax liability, to the extent such a distribution is legally permitted.

3.7 Liquidating Distributions . If the Company is dissolved and (i) dissolution is not avoided under Section 5.1 and (ii) its business is being liquidated in accordance with statutes, the Company shall cease to carry on its business, except to the extent necessary for the winding up of the business of the Company. The Company shall thereafter be wound up and terminated as provided by the Act. All tangible or intangible property of the Company, including money remaining after the discharge of the debts, obligations, and liabilities of the Company shall be distributed to the Members as follows:

(a) To the Members in proportion to, and to the extent of, the positive balances in their capital accounts; and thereafter,

(b) To the Members in accordance with their units of membership.

3.8 Voting . Members shall be entitled to one vote per Class A Membership Unit owned in all matters coming to a vote of the members. Holders of Member Units have no preemptive rights to subscribe for or to purchase any additional Membership Units. Membership Units owned by managers or governors may not be voted on where a conflict arises between such managers and governors and the Company.

3.9 Capital Accounts . A capital account shall be established for each Member and shall be maintained in accordance with Treasury regulation § 1.704-1(b)(2)(iv). Any Member who shall receive any membership interest in the Company or whose membership interest shall be increased by means of the transfer to such member of any financial interest in the Company from another Member shall have a capital account that has been appropriately adjusted to reflect such transfer. No interest shall be paid by the Company on capital contributions or on balances in Members’ capital accounts.

3.10 Additional Capital Contributions . No Member shall have any obligation to make additional capital contributions to the Company or to fund, advance, or lend monies which may be necessary to pay deficits, if any, incurred by the Company during the term hereof.

ARTICLE IV.
TAX MATTERS

4.1 Tax Characterization and Returns . The Members acknowledge that the Company will be treated as a “partnership” for federal and North Dakota state income tax purposes. Within ninety (90) days after the end of each fiscal year, the Company will deliver to each person who was a Member at any time during such fiscal year, a Form K-1 and such other information, if any, with respect to the Company as may be necessary for the preparation of such Member’s federal or

state income tax (or information) returns, including a statement showing each Member’s share of income, gain or loss and credits for such fiscal year for federal or state income tax purposes.

4.2 Accounting Decisions . All decisions as to accounting matters shall be made by the Board or the Members pursuant to the Act. The Company may make or revoke such elections as may be allowed pursuant to the Code, including the election referred to in the Code to adjust the basis of Company property.

4.3 Tax Matters Partner . The Board shall designate a Member to act on behalf of the Company as the “tax matters partner” within the meaning of the Code.

4.4 Special Allocations . Anything elsewhere contained in this Article IV to the contrary notwithstanding:

(a) Minimum Gain Chargeback. If for any Company fiscal year, there is a net decrease in partnership minimum gain as determined in accordance with Treasury Regulations § 1.704-2(i)(5), each Member shall be allocated items of Company income and gain in accordance with Treasury Regulation § 1.704-2(f)(1) (a “minimum gain chargeback”) for such year (and, if necessary, for subsequent years) in an amount equal to such member’s share of such net decrease of partnership minimum gain. For this purpose, a Member’s share of the net decrease in partnership minimum gain shall be determined under Treasury Regulations § 1.704-2(g)(2). This Section 4.4(a) is intended to comply with Treasury Regulation § 1.704-(f)(1) and shall be interpreted consistently therewith.

(b) Qualified Income Offset. If any Member at any time unexpectedly receives any adjustment, allocation or distribution described in Treasury Regulation § 1.704-1(b)(2)(ii)(d)(4), § 1.704-1(b)(2) (ii)(d)(5), or § 1.704-1(b)(2)(ii)(d)(6), and if such adjustment, allocation or distribution results in a negative balance in such Member’s capital account in excess of the sum of (i) the amount such Member is obligated to restore to the Company under this Agreement and (ii) the amount such Member is deemed to be obligated to restore to the Company pursuant to the penultimate sentences of Treasury Regulations § 1.704-2(g)(1)(ii) and § 1.704-2(i)(5), then items of Company income and gain shall be specially allocated to such member so as to eliminate, to the extent required by Treasury Regulation § 1. 704-1(b)(2)(ii)(d), such negative balance in his or her capital account as quickly as possible.

(c) Gross Income Allocation. If any Member would have a negative balance in his or her capital account at the end of any Company taxable year in excess of the sum of (i) the amount such Member is obligated to restore to the Company under this Agreement and (ii) the amount such Member is deemed to be obligated to restore to the Company pursuant to the penultimate sentences of Treasury Regulations § 1.704-2(g)(1)(ii) and § 1.704-2(i)(5), then such Member shall be specifically allocated items of Company income (including gross income) in the amount of such excess as quickly as possible.

(d) Curative Allocations. Any allocation to a Member under subparagraphs (a) through (c) of this Section 4.4 (a “regulatory allocation”) shall be taken into account in determining subsequent allocations, so that the net amount of regulatory allocations and all other items allocated under the provisions of this Article IX shall, to the extent possible, be equal to the net amount that would have been allocated to such Member under the provisions of

this Article IV if no regulatory allocation had been made.

4.5 Tax Allocations . In accordance with the Code and the Treasury Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its fair market value as of the date of contribution.

In the event any Company asset is adjusted as a result of a revaluation pursuant to Treasury Regulation § 1.704-1(b)(2)(f), subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its fair market value as of the date of such revaluation in the same manner as under the Code and the Treasury regulations thereunder. Any election or other decision relating to such allocations shall be made by the Board in any manner that reasonably reflects the purpose and intention of this Agreement.

Allocations pursuant to this Section 4.5 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing any Member’s capital account or share of income, profits, gains, losses, expenses, deductions, credits or other items or distributions pursuant to any provision of this Agreement.

ARTICLE V.
AGREEMENT TO AVOID DISSOLUTION

5.1 Dissolution Avoidance Consent . An event that terminates the continued membership of a member shall not cause the company to be dissolved unless it is the last or sole member of the company. After the occurrence of an event that terminates the continued membership of another Member in the Company (including the events enumerated in Section 10-32-109 of the Act), each remaining Member may be asked to consent to the continuation of the Company as a legal entity without dissolution and to the continuation of its business, pursuant to the power set forth in Article V of the Articles of Organization of the Company.

5.2 Status of Terminated Member if Dissolution is Avoided . If dissolution is avoided under Section 5.1, then the Member whose interest has terminated shall lose all governance rights and will be considered merely an assignee of the financial rights owned before the termination of membership.

5.3 Status of Terminated Member if Dissolution is Not Avoided . If dissolution is not avoided under Section 5.1, then the Member whose interest has terminated shall retain all governance rights and financial rights owned before the termination of the membership and may exercise those rights through the winding up and termination of the Company.

5.4 Restoration of Governance Rights in Certain Cases . If dissolution is avoided under Section 5.1, but the event that terminated the continued membership of a Member in the Company was the death of such Member or a transfer of such decedent Member’s interest to or from his estate or to or from a trust that has received such interest by reason of such death, then the governance rights associated with such interest shall be restored to such estate, trust or transferee thereof for all purposes under this Agreement.

ARTICLE VI.
BUSINESS CONTINUATION AGREEMENT

6.1 Agreement to Continue Business . If an event of dissolution occurs and dissolution is not avoided, the remaining Members shall have the right to transfer the Company’s assets and business to a successor limited liability company and to continue its business in such successor as provided in North Dakota Statutes, Section 10-32-108.

6.2 Procedures to Transfer and Continue Business . If the remaining Members agree to continue the business of the Company, the Board shall organize a new limited liability company (the “successor”) under the Act and shall prepare a plan of merger pursuant to which the Company shall be merged into the successor, which shall be the surviving Company, and the membership interests of the Members in the Company who do not dissent from the plan of merger shall be converted on a pro rata basis into membership interests in the successor, having substantially identical terms. If the plan of merger is approved, each Member who does not dissent from the plan of merger agrees to execute any documents required to effect the merger and create the membership interests in the successor including, without limitation, a member control agreement among the Members of the successor having terms substantially identical to the terms of this Agreement. When approved by the members of the Company (including Members voting pursuant to Section 10-32-102 of the Act), such merger shall be promptly effected in accordance with law.

ARTICLE VII.
TRANSFERS OF INTERESTS

7.1 Restrictions on Transfers . No Member shall transfer all or any portion of an interest without the prior written consent of the Board of Directors which consent may be withheld in the sole discretion of the Board. Notwithstanding anything contained herein to the contrary, no Member shall transfer any unit if, in the determination of the Board, such transfer would cause the Company to be treated as a publicly traded partnership, and any transfer of unit(s) not approved by the Board of Directors or that would result in a violation of the restrictions in this Agreement or applicable law shall be null and void with no force or effect whatsoever, and the intended transferee shall acquire no rights in such unit.

7.2 Permitted Transfers . Subject to Section 7.1 above, any transfer of units made in accordance with the following provisions will constitute a “Permitted Transfer” for purposes of this Agreement.

(a) A transfer by a member and any related persons (as defined in Section 267(b), or 707 (b) (1) of the Internal Revenue Code) in one or more transactions during any thirty (30) calendar day period of interests representing in the aggregate more than two percent (2%) of the total interests in company.

(b) A transfer or series of related transfers by one or more members (acting together) which involves the transfer of fifty percent (50%) or more of the outstanding units; or

(d) A transfer by gift or bequest only to a spouse or child

of such transferring member, or to a trust established for the benefit of such spouse or child, or to an existing member of the company upon ten (10) days’ prior written notice to the company of such gift or bequest.

7.3 Conditions Precedent to Transfers . The Board of Directors, in its sole discretion, may elect not to recognize any transfer of units unless and until the company has received:

(a) an opinion of counsel (whose fees and expenses shall be borne by the transferor) satisfactory in form and substance to the Board that such transfer may be lawfully made without registration or qualification under applicable state and federal securities laws, or such transfer is properly registered or qualified under applicable state and federal securities laws and if, requested by the company that such transfer will not cause the company to be treated as a publicly traded partnership;

(b) such documents and instruments of conveyance executed by the transferor and transferee as may be necessary or appropriate in the opinion of counsel to the company to effect such transfer, except that in the case of a transfer of units involuntarily by operation of law, the transfer shall be confirmed by presentation of legal evidence of such transfer, in form and substance satisfactory to the company;

(d) the transferee’s taxpayer identification number and sufficient information to determine the transferee’s initial tax basis in the interest transferred, and any other information reasonably necessary to permit the company to file all required federal and state tax returns and other legally required information statements or returns; and

(e) other conditions on the transfer of units adopted by the Board from time to time as it deems appropriate, in its sole discretion.

7.4 Redemption of Interests .

(a) A member (the “Requesting Member”) may request redemption of his or her interest upon not less than sixty (60) calendar days’ prior written notice to the Board of Directors. The Board, in its sole discretion, shall determine whether to redeem such interest and the Board is under no obligation to redeem any interest of any requesting member.

(b) Notwithstanding anything contained herein to the contrary, any redemption pursuant to this Section 7.4 shall be subject to a determination by the Board, in its sole discretion, that such redemption shall not cause the company to be deemed a publicly traded partnership, including but not limited to violation of the Regulation Section 1.7704-1 (f) (3) limitation on transfers other than certain private transfers described in Regulation Section 1.7704-1 (e), and such redemption shall be effected in accordance with this Agreement, the Code and applicable Treasury Regulations, and shall be further subject to the prior approval of the Board which may be withheld in its sole discretion.

7.5 Redemption Payment .

(a) Upon the redemption of a member under Section 7.4, the requesting member shall be entitled to a payment equal to the fair market value of such member’s interest in the company as of the

effective date of such payment; provided , however , if the remaining members of the company agree to dissolve the company, then in no event shall such member be entitled to a redemption payment, but such member will be entitled to such member’s share of the assets of the company.

(b) At least (60) sixty days after the company’s receipt of the notice from the requesting member required under Section 7.4 (a) above, the company shall establish a redemption or repurchase price, after which the redemption payment shall be paid in cash, or if the redemption payment exceeds five thousand dollars ($5,000), the company shall have the option to pay the redemption payment by paying five thousand dollars ($5,000) upon the effective date of the redemption and executing a promissory note for the balance of the redemption payment. Such note shall be dated and delivered on the effective date of the withdrawal and shall be paid in five (5) equal annual installments due on the anniversary date of the withdrawal and shall accrue interest per annum at a rate determined by the Board which shall not be less than the then current prime rate established by any major bank selected by the Board for loans to the bank’s most creditworthy commercial borrowers. The company may prepay the promissory note, in whole or in part, at any time without penalty or premium.

(c) The redemption payment shall be increased or decreased, as the case may be, by an amount equal to any indebtedness owed the requesting member by the company, or the deduction of any indebtedness owed the company by the requested member, or both. All rights of the member with respect to the interest, including the right to vote such interest and to receive distributions, shall terminate at closing, except for the member’s right to receive payment therefor upon the effective date of the redemption which shall be determined in accordance with Section 7.6 below.

7.6 Effective Date of Transfer .

(a) Any transfer of a unit shall be deemed effective as of the day of the month and year; (i) which the transfer occurs (as reflected by the form of assignment); and (ii) the transferee’s name and address and the nature and extent of the transfer are reflected in the records of the company; provided , however , the effective date of a transfer for purposes of allocation of profits and losses and for distributions shall be determined pursuant to Section 7.6(b) below. Any transferee of a unit shall take subject to the restrictions on transfer imposed by this Agreement.

(b) The Board, in its sole discretion, may establish interim periods in which transfers may occur (the “Interim Transfer Periods”); provided , however , the Board shall provide members reasonable notice of the interim transfer periods and advance notice of any change to the interim transfer periods. For purposes of making allocations of profits and losses, and distributions, the company will use the interim closing of the books method (rather than a daily proration of profit or loss for the entire period) and recognize the transfer as of the first day following the close of interim transfer period in which the member complied with the notice, documentation and information requirements of Article 7. All distributions on or before the end of the applicable interim transfer period in which such requirements have been substantially complied with shall be made to the transferor and all distributions thereafter shall be made to the transferee. The board has the authority to adopt other reasonable methods and/or conventions.

(c) The Board shall have the power and authority to adopt another reasonable method and/or convention with respect to such allocations and distributions; provided, neither the company, the Board, any director nor any member shall incur any liability for making allocations and distributions in accordance with the provisions of this Section 7.6 (other than tax liabilities which may be incurred by members), whether or not the Board or any director of the company or any member has knowledge of any transfer or ownership of any interest in the company.

7.7 Fair Market Value . Upon the redemption of an interest pursuant to Section 7.4, the purchase price or redemption payment shall be equal to the fair market value of the interest. “Fair market value” of an interest on any date shall, unless otherwise specifically provided in this Agreement, be equal to the most recent fair market valuation determination of the per unit value of the company by the Board in good faith; provided, that such valuation shall be calculated on a basis as consistent as practicable from period to period. The Board may, in its sole discretion, employ the advice of independent and qualified professionals in the determination of the fair market value, but is not under any obligation to do so. The fair market value of the company shall be determined at least annually. Valuations shall generally be performed, at the discretion of the Board, as of the end of each fiscal year of the company’s operations at the annual meeting of the Board; however, the Board, in its sole discretion, may have fair market valuations of the company performed at any time or from time to time during any year and, except as otherwise specifically provided in this Agreement, shall utilize the results of the most recent valuation in determining the fair market value of an interest for purposes of this agreement. No member or any party other than the Board shall have the right to require or request that a new or more recent valuation be performed for purposes of determining the fair market value of the company or an interest hereunder. The company shall not establish the fair market value more than four (4) times during the company’s taxable year.

7.8 Pledged Units . Subject to Section 7.1 above, in the event that any member pledges or otherwise encumbers any part of its units as security for the payment of a debt, any such pledge or hypothecation shall be made pursuant to a pledge or hypothecation agreement that requires the pledgee or secured party to be bound by all of the terms and conditions of this Article 7. In the event that such pledgee or secured party becomes a member hereunder pursuant to the exercise of such party’s right under such pledge or hypothecation agreement, such pledgee or secured party shall be bound by all of the terms and conditions of this Agreement. In such case, such pledgee or secured party, and any transferee or purchaser of the units held by such pledgee or secured party, shall not have any voting rights associated with such units unless and until the directors have approved in writing and admitted as a member hereunder, such pledgee, secured party, transferee or purchaser of such units.

7.9 Expenses . Except as otherwise expressly provided herein, all expenses of the company incident to the admission of the transferee to the company as a member shall be charged to and paid by the transferring member.

ARTICLE VIII.
AMENDMENTS

8.1 Amendment of Agreement . No change, modification or amendment of this Agreement shall be valid or binding unless such change, modification or amendment shall be in writing signed by 2/3rds of voting interests of the Members; provided, however, in no event may this Agreement be amended to provide for less than unanimous consent to avoid dissolution under Section 5.1

ARTICLE IX.
MISCELLANEOUS

9.1 Governing Law . This Agreement and the rights of the parties hereunder will be governed by, interpreted and enforced in accordance with the laws of the State of North Dakota.

9.2 Binding Effect . This Agreement will be binding upon and inure to the benefit of the Members and their respective distributees, successors, and assigns.

9.3 Severability . If any provision of this Agreement is held to be illegal, invalid, or unenforceable under the present or future laws effective during the term of this Agreement, such provision will be fully severable; this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there will be added automatically as part of this Agreement, a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable.

9.4 Making Counterparts . This Agreement may be executed in several counterparts, each of which will be deemed an original but all of which will constitute one and the same instrument. However, in making proof hereof, it will be necessary to produce only one copy hereof signed by the party to be charged.

9.5 Additional Documents and Acts . Each Member agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby.

9.6 No Third Party Beneficiary . This Agreement is made solely and specifically among and for the benefit of the parties hereto, and their respective successors and assigns, and no other person will have any rights, interest, or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise.

9.7 Notices . Any notice to be given or to be served upon the Company or any party hereto in connection with this Agreement must be in writing and will be deemed to have been given and received when delivered to the address specified by the Member at the address specified in the Company’s required records. Any Member or the Company may, at any time, by giving five (5) days prior written notice to the other Members and the Company, designate any other address in substitution of the forgoing address to which such notice will be given.

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the day and year first above written, and as amended.

GOVERNORS:
RED TRAIL ENERGY LLC


/s/ Ambrose R. Hoff Ambrose Hoff		/s/ Jody Hoff Jody Hoff
/s/ Duane Zent Duane Zent		/s/ William Price William Price
/s/ Wm N DuToit William DuToit		/s/ Fred Braun Fred Braun
/s/ Mark Erickson Mark Erickson		/s/ Troy Jangula Troy Jangula
/s/ Mike Appert Mike Appert		/s/ Jeff Herr Jeff Herr
/s/ William Cornatzer William Cornatzer		/s/ Leo Bachmeier Leo Bachmeier
/s/ Tim Gross Tim Gross		/s/ Gene F Rudolf Gene Rudolf
/s/ Ron Aberle Ron Aberle		/s/ Donald Streifel Donald Streifel
Ronald Knudson		/s/ C. W. Kramer Charles Kraemer
/s/ Kenny Meier Kenny Meier		/s/ Marlyn Richter Marlin Richter
/s/ Grant Hoovestol March Madness

Exhibit 10.32

FIRST AMENDMENT TO CONSTRUCTION LOAN AGREEMENT

This First Amendment to Construction Loan Agreement is dated as of the 16 ^th day of August, 2006, and is by and between RED TRAIL ENERGY, LLC , a North Dakota limited liability company (“BORROWER”), and FIRST NATIONAL BANK OF OMAHA (“BANK”), a national banking association established at Omaha, Nebraska.

WHEREAS, the BANK and BORROWER executed a written Construction Loan Agreement dated as of December 16,2005 (“AGREEMENT”).

Now, Therefore, in consideration of the AGREEMENT, and their mutual promises made herein, BANK and BORROWER agree as follows:

1. Terms which are typed herein as all capitalized words and are not defined herein shall have same meanings as when described in the AGREEMENT.

2. The parties desire that the INTEREST PERIOD for the REVOLVING NOTE, FIXED RATE NOTE, VARIABLE RATE NOTE, and LONG TERM REVOLVING NOTE described in paragraph 3, below, commence on the same date as the CONSTRUCTION NOTE, which is the 16 ^th day of the calendar month. Therefore, effective immediately, a new subparagraph 1.18.4 shall be added to Section 1.18 of the AGREEMENT, so that such Section 1.18 shall read:

1.18 “INTEREST PERIOD” means initially, the period commencing on the date of any loan made pursuant to this AGREEMENT and, for FIXED RATE NOTE and VARIABLE RATE NOTE ending three months later, and for the CONSTRUCTION NOTE, LONG TERM REVOLVING NOTE and REVOLVING NOTE ending one month later; and thereafter, each period commencing on the first day immediately following the last day of the immediately preceding INTEREST PERIOD and, for FIXED RATE NOTE and VARIABLE RATE NOTE ending three months thereafter, and for the CONSTRUCTION NOTE, LONG TERM REVOLVING NOTE and REVOLVING NOTE ending one month thereafter; provided that:

1.18.1 subject to clauses 1.18.2 and 1.18.3 below, any INTEREST PERIOD which would otherwise end on a day which is not a EURODOLLAR BUSINESS DAY shall be extended to the next succeeding EURODOLLAR BUSINESS DAY unless such EURODOLLAR BUSINESS DAY falls in another calendar month, in which case such INTEREST PERIOD shall end on the immediately preceding EURODOLLAR BUSINESS DAY;

1.18.2 subject to clause 1.18.3 below, any INTEREST PERIOD which begins on the last EURODOLLAR BUSINESS DAY of a calendar month (or a day for which there is no numerically corresponding day in the calendar month at the end of such INTEREST PERIOD) shall end on the last EURODOLLAR BUSINESS DAY of a calendar month;

1.18.3 no INTEREST PERIOD shall extend beyond the LOAN TERMINATION DATE; and

1.18.4 Notwithstanding anything hereinabove to the contrary, the INTEREST PERIOD for the REVOLVING NOTE, FIXED RATE NOTE, VARIABLE RATE NOTE, LONG TERM REVOLVING NOTE and the CONSTRUCTION NOTE shall commence on the 16 ^th day of the calendar month.

3. On execution hereof, BORROWER will execute and deliver to BANK a replacement note evidencing the REVOLVING NOTE, in order to change the maturity of such note. As the result, Section 1.24 of the AGREEMENT is hereby amended, effective immediately, to read:

1.24 “LOAN TERMINATION DATE” means the earliest to occur of the following: (i) as to the CONSTRUCTION NOTE, April 16, 2007, as to the REVOLVING NOTE, July 5, 2007, as to FIXED RATE NOTE, VARIABLE RATE NOTE and as to LONG TERM REVOLVING NOTE, a date which is five years subsequent to the COMPLETION DATE, (ii) the date the OBLIGATIONS are accelerated pursuant to this AGREEMENT, and (iii) the date BANK has received (a) notice in writing from BORROWER of BORROWER’S election to terminate this AGREEMENT and (b) indefeasible payment in full of the OBLIGATIONS.

4. Effective immediately, Section 1.26 of the AGREEMENT is amended to read:

1.26 “MARKETING AND RISK MANAGEMENT CONTRACTS” means the contracts between BORROWER and the entities named below (or any other entity contracting with BORROWER for similar purposes)


Contracting Entity		Regarding:
Commodity Specialists Company		distillers dried grains (“DDGS”)
Renewable Products Marketing Group, LLC		ethanol products
(to be determined)		wet distiller’s grains (“DWGS”)
New Vision Co-op		unit trains of corn
Iowa Grain Company		corn hedging
General Industries, Inc. d/b/a Center Coal Company		provision of coal

5. Effective immediately, Section 2.13 of the AGREEMENT is amended to read:

2.13 Fees. At CLOSING, the BORROWER shall pay to the BANK the $70,000.00 balance of the due diligence and negotiation fee, which fee BORROWER agrees and acknowledges has been earned by BANK as of the execution hereof as the result of BANK’s efforts to acquire participating lenders. At CLOSING, the BORROWER shall pay to the BANK a commitment fee of $414,088.05, which fee BORROWER agrees

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and acknowledges has been earned by BANK. On COMPLETION DATE, the first Annual Servicing Fee of $30,000 shall become due, in addition, on each annual anniversary of COMPLETION DATE an Annual Servicing Fee of $30,000.00 shall become due, which the BORROWER shall pay to the BANK in four equal quarterly installments, commencing three months after COMPLETION DATE, with the final installment due on the fifth anniversary of COMPLETION DATE. BORROWER agrees to pay BANK an unused commitment fee equal to 30 basis points of the average unused portion of the REVOLVING LOAN COMMITMENT and of LONG TERM REVOLVING NOTE, calculated and payable on a quarterly basis in arrears; provided, however, the unused commitment fees on same shall not apply and be payable by the BORROWER until the COMPLETION DATE. BORROWER shall pay BANK commitment fees equal to Two and one-quarter (2.25%) percent of outstanding Letters of Credit issued on BORROWER’s account, together with such other fees as are consistent with BANK’s then current International Trade Services Fee Schedule. The International Trade Services Fee Schedule effective at the execution of this AGREEMENT is attached hereto, marked Exhibit G, by this reference made a part hereof.

6. Effective immediately, Section 6.3.13 of the AGREEMENT is amended to read:

6.3.13 Maintain primary banking accounts (including those accounts containing BORROWER’s equity capital) at BANK, other than as otherwise agreed by BANK. BORROWER may maintain a depositary account at Bremer Bank, with collected balances of no more than $500,000.

7. Effective immediately, Section 6.4.17 of the AGREEMENT is amended to read:

Allow the balance of its depository account at Bremer Bank to have a collected funds balance of more than $500,000 at any time.

8. BORROWER certifies by its execution hereof that the representations and warranties set forth in Section 5 of the AGREEMENT are true as of this date, and that no EVENT OF DEFAULT under the AGREEMENT, and no event which, with the giving of notice or passage of time or both, would become such an EVENT OF DEFAULT, has occurred as of this date.

9. Except as amended hereby the parties ratify and confirm as binding upon them all of the terms of the AGREEMENT.

(remainder of page left intentionally blank)

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IN WITNESS whereof the parties set their hands as of the date first written above.


First National Bank of Omaha		Red Trail Energy, LLC

By:	/s/ Chris Reiner Chris Reiner	By:	/s/ Ambrose R. Hoff
	Commercial Loan Officer	Name:	Ambrose R. Hoff
		Its:	Chairman

		And

		BY:	/s/ William A. Price
		Name:	William A. Price
		Its:	Vice President

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Exhibit 10.33

REVOLVING PROMISSORY NOTE


Omaha, Nebraska Note Date: August 16, 2006		$3,500,000.00 Maturity Date: July 5, 2007

On or before July 5, 2007, Red Trail Energy, LLC (“BORROWER”), promises to pay to the order of First National Bank of Omaha (“BANK”) at any of its offices in Omaha, Nebraska the principal sum hereof, which shall be Three Million Five Hundred Thousand and no/100 ($3,500,000.00) Dollars or so much thereof as may have been advanced by BANK and shown on the records of the BANK to be outstanding, under this Note and the Construction Loan Agreement executed by the BANK and BORROWER dated as of December 16, 2005, as it may, from time to time, be amended (the “LOAN AGREEMENT”). Interest on the principal balance from time to time outstanding will be payable at a rate equal to the LIBOR RATE plus three hundred forty (340) basis points from time to time until maturity, and six hundred (600) basis points in excess of said aggregate interest rate from time to time after maturity, whether by acceleration or otherwise. Interest shall be calculated on the basis of a 360-day year, counting the actual number of days elapsed. Interest on this NOTE shall be payable quarterly, commencing November 16, 2006, and continuing on the same date of each third month thereafter. Provided, however, the LOAN AGREEMENT contains provisions for reduction of the interest rate under certain circumstances.

This note is executed pursuant to the LOAN AGREEMENT. The LOAN AGREEMENT contains additional terms of this Note, including, but not limited to enumerated events of default, and the granting of liens to secure BORROWER’s performance. All capitalized terms not otherwise defined herein shall have the same meanings as set forth in the LOAN AGREEMENT.

As provided in the LOAN AGREEMENT, upon any such enumerated default, BANK may accelerate the due date of this Note and declare all obligations set forth herein immediately due and payable, and BANK shall also have such other remedies as are described in the LOAN AGREEMENT and are provided by law. All makers and endorsers hereby waive presentment, demand, protest and notice of dishonor, consent to any number of extensions and renewals for any period without notice; and consent to any substitution, exchange or release of collateral, and to the addition or releases of any other party primarily or secondarily liable.

Executed as of the Note Date set forth above.


		Red Trail Energy, LLC , a North Dakota limited liability company

		By:		/s/ Ambrose R. Hoff
		Name: Ambrose R. Hoff
		Title: Chairman

		And

		By:		/s/ Mick J. Miller
		Name: Mick J. Miller
		Title: CEO

Exhibit 10.34

SECURITY AGREEMENT
& DEPOSIT ACCOUNT CONTROL AGREEMENT

THIS AGREEMENT, made effective this 16th day of August, 2006, by and among First National Bank of Omaha (hereinafter called “SECURED PARTY”), Red Trail Energy, LLC, a North Dakota limited liability company (hereinafter called “DEBTOR”), and Bremer Bank (“DEPOSITARY BANK”), a bank organized under the laws of North Dakota, whose mailing address is PO Box 352, Richardton, ND 58652.

WITNESSETH:

1. DEBTOR warrants that DEBTOR’s only place of business is the address appearing following DEBTOR’s signatures. DEBTOR will promptly notify SECURED PARTY, in writing, of any change in the location of any place of business,; or the establishment of any new place of business.

2. For valuable consideration, receipt of which is hereby acknowledged, DEBTOR hereby grants to the SECURED PARTY a security interest in the following property (hereinafter called the “COLLATERAL”).

A. A certain deposit account numbered 8620810 in the name of DEBTOR, established at DEPOSITARY BANK on behalf of DEBTOR. DEBTOR agrees to maintain a minimum amount in the account but said account balance shall not exceed Five Hundred Thousand Dollars ($500,000.00) at any time. If said account balance exceeds Five Hundred Thousand Dollars ($500,000.00), DEBTOR shall transfer the excess funds to an account established at the banking offices of SECURED PARTY.

B. Each and every deposit account now or hereinafter identified to or becoming a part of the account hereinabove set out, and all monies or funds now or hereinafter identified to or becoming a part of said account above set out.

3. The COLLATERAL secures several Promissory Notes dated December 16,2006, in the aggregate amount of Fifty Eight Million Seven Hundred Eleven Thousand Seven Hundred Forty Dollars ($59,711,740.00), plus interest accruing thereon; and all prior, contemporaneous and future debts owed to the SECURED PARTY by the DEBTOR, whether Originally owned of transferred to the SECURED PARTY.

4. DEBTOR does hereby grant to the SECURED PARTY such control of the above set out account and money which is a “deposit account” within the meaning of the Nebraska Uniform Commercial Code §9-l02(a)(29) and similar statutes which may govern any aspect of this transaction.

5. DEBTOR may acquire assets to be identified to or become a part of the above set out account. None of the COLLATERAL may be pledged or otherwise hypothecated without the prior written consent of SECURED PARTY.

6. The DEBTOR warrants that there are no adverse claims to the COLLATERAL.

7. Hereinafter, DEPOSITARY BANK shall hold the account and any monies on behalf of the SECURED PARTY, and such retention of possession thereof by DEPOSITARY BANK shall constitute possession of the account by the SECURED PARTY.

8. It is agreed and understood that DEPOSITARY BANK does not represent that any valid security interest exists in the account and the assets in the account and DEPOSITARY BANK shall have no ongoing responsibility for ensuring that a valid security interest exists in favor of the SECURED PARTY.

9. DEPOSITARY BANK shall send to SECURED PARTY at the following address monthly statements of the above account: First National Bank of Omaha, 1620 Dodge St. STOP 1050, Omaha, NE 68197-1050, Attention: Christopher Reiner.

10. REMEDIES. If total or partial default is made in the payment at maturity of any sum (principal or interest), at any time secured hereby, or if default is made in the performance of any obligation imposed upon the DEBTOR hereunder, or by any document, instrument or thing executed by the DEBTOR in connection with any debt or obligation secured hereby, or hereafter secured hereby; or if any of the representations or warranties of the DEBTOR made in connection with this transaction shall prove raise; or if any proceeding is instituted by or against the DEBTOR under provisions of the Bankruptcy Code, or any other insolvency law; or if the SECURED PARTY shall reasonably at any time deem its rights hereunder insecure, then, in any of such events, the holder Of this security interest may, at its option, declare the entire indebtedness secured hereby (with all interest secured hereunder) to be immediately due and payable. In such event, DEPOSITARY BANK, upon written notice from the SECURED PARTY of the default and of the amount of debt in default, shall immediately proceed to relinquish all monies in or identified to the account and pay the amount of the debt to the SECURED PARTY. In such an event, the SECURED PARTY may also enforce all remedies available to it afforded under the Uniform Commercial Code, or otherwise authorized by law, or at equity, or given in this instrument, or any other document, instrument or thing executed by the DEBTOR in connection with any debt or obligation secured, hereby or hereinafter secured hereby. Such remedies may be pursued contemporaneously, or otherwise.

11. All rights of the SECURED PARTY will inure to the benefit of its successors and assigns.

SIGNED IN TRIPLICATE and delivered on the date first above written, the DEBTOR hereby acknowledging receipt of a copy of this Agreement.

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SECURED PARTY: First National Bank of Omaha

By: Its		/s/ Chris Reiner Commercial Loan Officer

DEBTOR: Red Trail Energy, LLC

By: Its		/s/ Mick J. Miller CEO

And

By: Its		/s/ Bonnie Eckelberg CFO


DEBTOR’s Address:		Red Trail Energy, LLC
		P.O. Box 11
		Richardton, North Dakota 58652
		Attention: Ambrose Hoff


DEPOSITARY BANK: Bremer Bank

By:		/s/ Brian Hagen
Its		EVP

ACKNOWLEDGMENT AND AGREEMENT

THE UNDERSIGNED, Bremer Bank, does hereby acknowledge receipt of an executed copy of the above and foregoing Security Agreement, and does hereby agree to be bound by the agreement and does adopt and publish to the SECURED PARTY the warranties provided therein.

EXECUTED effective the 16th day of August, 2006.


	BREMER	BANK

	By: Its	/s/ Brian Hagen EVP

ATTEST:

By: /s/ Beth Odegaard Secretary

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Exhibit 10.35

Equity Grant Agreement

This Equity Grant Agreement (“Agreement”) is entered into this 8 ^th of September, 2006 by and between Red Trail Energy, LLC, a North Dakota limited liability company (the “Company”), and Mickey Miller (the “Grantee”).

WHEREAS Grantee is employed by Greenway Consulting LLC (“Greenway”) and is providing services to Red Trail pursuant to a Management Agreement between Red Trail and Greenway; and

WHEREAS, as part of its effort to benefit the Company and its members, the Company wishes to provide Grantee with long-term incentives in the form of a contingent grant of membership units of the Company (the “Units”) as of the date upon which Grantee formally began working in the role of General Manger for the Company (the “Effective Date”).

NOW, THEREFORE, in consideration of the mutual promises set forth herein, Company and Grantee agree as follows:

1. Greenway Consent . Because Grantee is employed by Greenway Consulting LLC (“Greenway”) and is providing services pursuant to a Management Agreement between Red Trail and Greenway, this Agreement is expressly conditioned upon Grantee providing Red Trail with written confirmation from an authorized Greenway representative other than himself that Greenway consents to this Agreement and acknowledges that the Agreement does not entitle Greenway to any compensation or other remuneration that is not set forth in its Management Agreement with Red Trail. A form of written consent for Greenway is attached hereto as Exhibit “A.”

2. Number of Units . Subject to the terms and conditions set forth herein, Grantee is eligible to receive an award of 150,000 Units.

3. Award Schedule . Provided Grantee continuously (i) remains in good standing with the Company and continues to provide management services to Company commensurate with the type of service provided by a General Manager or CEO of an ethanol plant, (ii) has met and continues to meet all of Grantee’s obligations with respect to the Company pursuant to any agreement under which Grantee provides management services to the Company, and (iii) is in full compliance with the terms and conditions of this Agreement and any other agreements between Grantee and the Company by which Grantee is bound, the Award shall be granted to Grantee in the installments set forth below. Grantee’s eligibility to receive each grant contemplated in this Section 3 is expressly conditioned upon receipt of any prior available grant hereunder. If for any reason Grantee does not qualify to receive a particular grant or grants as contemplated herein, the Company expressly reserves the right to change the installment allocations, decrease the aggregate amount of the Award and/or elect to not make the Award at all, in its sole discretion. All Units granted hereunder shall be fully vested as of the date of the award.

	(a)		Within a reasonable period of time following the third anniversary of the Effective Date, Grantee will receive an award of 15,000 Units.

	(b)		Within a reasonable period of time following the fourth anniversary of the Effective Date, Grantee will receive an award of 15,000 Units.

	(c)		Within a reasonable period of time following the fifth anniversary of the Effective Date, Grantee will receive an award of 15,000 Units.

	(d)		Within a reasonable period of time following the sixth anniversary of the Effective Date, Grantee will receive an award of 15,000 Units.

	(e)		Within a reasonable period of time following the seventh anniversary of the Effective Date, Grantee will receive an award of 15,000 Units.

	(f)		Within a reasonable period of time following the eighth anniversary of the Effective Date, Grantee will receive an award of 15,000 Units.

	(g)		Within a reasonable period of time following the ninth anniversary of the Effective Date, Grantee will receive an award of 15,000 Units.

	(h)		Within a reasonable period of time following the tenth anniversary of the Effective Date, Grantee will receive an award of 45,000 Units.

4. Change of Control . The Units referenced in paragraph 2 will vest immediately in the event of a Change of Control. For purposes of this paragraph 4, “Change of Control” shall mean a sale of all or substantially all of the assets of Red Trail; the event of a merger, exchange, reorganization of Red Trail with or into any other entity; or the occurrence of any transaction requiring member approval for a transaction involving Red Trail, such as a sale of all or substantially all of Red Trail’s assets

5. Grantee’s Representations and Warranties . This Agreement is made with Grantee in reliance upon his representations and warranties to the Company as set forth herein, which by his acceptance of this Agreement he confirms.

(a) The Units are or will be acquired for investment for an indefinite period for Grantee’s own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and Grantee has no present intention of selling, granting participation in, or otherwise distributing the same. By executing this Agreement, Grantee further represents that he does not have any contract, undertaking., agreement or arrangement with any person to sell, transfer, or grant participations, to such person or to any third person, with respect to any of the Units.

(b) Grantee understands that the Units have not been registered under the Securities Act of 1933, as amended (the “Act”), on the grounds that the transactions provided for in this Agreement are exempt from the registration requirements of the Act, and that the Company’s reliance on such exemption is predicated on Grantee’s representations set forth herein.

(c) Grantee acknowledges that he understands that any sale of the securities that might be made by Grantee in reliance upon Rule 144 under the Act may be made only in limited amounts in accordance with the terms and conditions of that rule and that Grantee may not be able to sell the Units at the time or in the amount Grantee so desires. Grantee is familiar with Rule 144 and understands that the Units constitute “restricted securities” within the meaning of that Rule.

(d) In connection with the investment representations made herein Grantee represents that he is able to fend for himself in the transactions contemplated by this Agreement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of his investment, has the ability to bear the economic risks of his investment and has been furnished with and has had access to such information as he has requested and deem appropriate to his investment decision.

(e) Grantee agrees that in no event will he make a disposition of any of the Units unless and until (a) he has notified the Company of the proposed disposition and has furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (b) he has furnished the Company with an opinion of counsel satisfactory to the Company to the effect that (i) such disposition will not require registration of such Units under the Act, or (ii) that appropriate action necessary for compliance with the Act has been taken, or (c) the Company shall have waived, expressly and in writing, its rights under clauses (a) and (b) of this subparagraph. In addition, prior to any disposition of any of the Units the Company may require the transferee or assignee to provide investment representations in writing and in a form acceptable to the Company.

(f) The Company shall not be required (i) to transfer on its books any Units of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement, or (ii) to treat as owner of such Units or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Units shall have been so transferred.

(g) All certificates, if any, representing any Units of the Company subject to the provisions of this Agreement shall have endorsed thereon the following legends:

(i) THE TRANSFERABILITY OF THE UNITS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED. SUCH UNITS MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE, TRANSFEREE, OR ENDORSEE THEREOF BE RECOGNIZED AS HAVING ACQUIRED ANY SUCH UNITS FOR ANY PURPOSES, UNLESS AND TO THE EXTENT SUCH SALE, TRANSFER, HYPOTHECATION OR ASSIGNMENT IS PERMITTED BY, AND IS COMPLETED IN STRICT ACCORDANCE WITH, THE APPLICABLE STATE AND FEDERAL LAW AND THE TERMS AND CONDITIONS SET FORTH IN THE MEMBER CONTROL AGREEMENT.

(ii) THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, OFFERRED FOR SALE, OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES LAWS, OR AN OPIIONN OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND UNDER APPLICABLE STATE SECURITIES LAWS.

(iii) Any legend required to be placed thereon by applicable state laws.

6. Working Relationship not Guaranteed . Grantee acknowledges that he does not have a written contract of employment with the Company and that he is employed by another entity that provides services to the Company pursuant to a Management Agreement. Neither this Agreement, nor any Award constitutes a representation or guarantee that Grantee will continue working in the role of General Manager or any other role that may be assigned to him under the Management Agreement between Greenway and Red Trail, or in any other capacity. Grantee agrees and acknowledges that neither this Agreement, nor any Award hereunder, are subject to any provision of such Management Agreement and, any provision of such Management Agreement notwithstanding, any rights under this Agreement or the Award do not survive termination or interruption of Grantee providing General Manager, or the equivalent, services to the Company except as otherwise contemplated herein.

7. Responsibility for Payment of Taxes . Grantee acknowledges that he is responsible for the payment of any tax liability that he may incur as a result of any Award.

8. Member Control Agreement . Concurrent with Grantee’s receipt of any Units hereunder, he shall be required to execute the Member Control Agreement in effect between the Members of Red Trail at the time Grantee receives any Units hereunder. unless he is currently a Member.

9. Confidentiality/Non-Disclosure . Grantee acknowledges that during the course of his working relationship with the Company, he may become aware of trade secrets, know-how and other confidential business and technical information that is not generally known to the public, including, but not limited to, information on the Company’s business plans, products, manufacturing methods and processes, and/or services, organization, finance, staffing, compensation, research and development, or marketing, as well as information the Company may receive from others under an obligation of confidentiality (the “Confidential Information”). Grantee agrees to (i) hold Confidential Information in confidence and trust, (ii) use Confidential Information only in the performance of his duties for the Company and for no other purpose at any other lime, and (iii) use all reasonable precautions to ensure that Confidential Information is not disclosed to any unauthorized persons or used in an unauthorized manner both during and after his work with the Company.

10. Non-solicitation of Red Trail Employees . During the term of this Agreement and until the date that is one (1) year after Grantee ceases providing management services to the Company for any reason, Grantee agrees and acknowledges that he shall not, whether voluntarily

or involuntarily, directly or indirectly, solicit, induce, attempt to solicit or induce, recruit, encourage, attempt to take away, or attempt to hire any employee of the Company or cause an employee to leave his or her employment with the Company, either for Grantee or for any other entity or person.

11. Modification of Agreement . No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Company and Grantee.

12. Governing Law . This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of North Dakota without giving effect to the conflict of law principles thereof.

13. Severability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

14. Entire Agreement . This Agreement represents the entire agreement between Grantee and the Company with respect to the subject matter hereof and supersedes any and all prior agreements and understandings with respect to such subject matter.


Grantee	Red Trail Energy, LLC

/s/ Mickey Miller Mickey Miller	By:	/s/ William Price William Price, Vice President

EXHIBIT A

GREENWAY CONSULTING LLC CONSENT TO EQUITY AGREEMENT

Greenway Consulting LLC (“Greenway”) has received a copy of the Equity Agreement between Mickey Miller and Red Trail Energy LLC (“Red Trail”) and hereby consents to said Agreement. Greenway further acknowledges that neither the Equity Agreement, nor any award of membership units thereunder, are subject to any provision of the Management Agreement between it and Red Trail dated December 17, 2003; and the Equity Agreement does not entitle Greenway to any compensation or other remuneration that is not set forth in its Management Agreement with Red Trail.


		Greenway Consulting, LLC

		By:		/s/ Gerald Bachmeier

		Name:		Gerald Bachmeier

		Its:		Chief Manager

Exhibit 10.36

OPTION TO PURCHASE

For and in consideration of the sum of Ten Dollars and other good and valuable consideration paid by Red Trail Energy, LLC, of 3754 Highway 8, Richardton, ND 58652, hereinafter referred to as “Optionee” (whether one or more), to the North Dakota Development Fund and Stark County, hereinafter referred to as “Owner” (whether one or more), and for and in consideration of the terms and conditions herein contained, Owner does hereby give, grant and convey unto the Optionee the option to purchase up to 200,000 units at any time within one year from date of this Option.

The terms and conditions of this Option to Purchase are as follows:

1. PURCHASE PRICE : The purchase price for the heretofore described property shall be the sum of One Dollar ($1.00) per unit plus a dividend equal to 8¼% interest from the date of the investment to date of closing on the transfer of the units to Red Trail Energy, LLC.

2. CONDITIONS OF OPTION : Optionee shall have the right to repurchase those units solely for the purpose of funding its bonus plan for management. This option can only be exercised for that purpose. If this option is exercised, Owner will sell units on a pro rata basis based upon their respective ownership interests. The Option can be exercised at any time during the next year and the total of shares available to Optionee shall not exceed 200,000 units.

3. UNITS : Upon payment of the purchase price, the Owner shall execute and deliver unto the Optionee a transfer document assigning the units to Optionee, free and clear of all liens and encumbrances, excepting such liens and encumbrances as created by Optionee.

4. EXERCISE OF OPTION : This Option may be exercised by the Optionee notifying Owner in writing of its intent to exercise the Option to Purchase, specifying the number of units it wishes to purchase and certifying to Owner that the units are being purchased to fund Optionee’s employee bonus plan.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands this 11 ^th day of December, 2006.


		OWNER:

		NORTH DAKOTA DEVELOPMENT FUND , an agency of the state of North Dakota

		BY:		/s/ Dean Reese Dean Reese
		Its:		CEO

		STARK COUNTY on behalf of the Community Development Block Grant Program

		BY:		/s/ George Nodland George Nodland
		Its:		Chairman

		OPTIONEE:

		RED TRAIL ENERGY, LLC

		BY: Its:		/s/ Ambrose R. Hoff Chairman


STATE OF NORTH DAKOTA		)
		ss.
COUNTY OF BURLEIGH		)

On this 12 ^th day of December, 2006, before me personally appeared Dean Reese, known to me to be the CEO of the North Dakota Development Fund, who acknowledged to me that he executed the foregoing instrument on behalf of said governmental entity.


(Seal)		/s/ SCOT G. LONG Notary Public
		State of North Dakota
		My commission expires: 12/7/07


STATE OF NORTH DAKOTA		)
		ss.
COUNTY OF Stark		)

On this 11 day of December, 2006, before me personally appeared George Nodland, known to me to be the Chairman of Stark County on behalf of the Community Development Block Grant Program, who acknowledged to me that he executed the foregoing instrument on behalf of said organization.


(Seal)		/s/ JULIE FRITZ Notary Public
		State of North Dakota
		My commission expires: 10-12-2012


STATE OF NORTH DAKOTA		)
		ss.
COUNTY OF Stark		)

On this 18 day of December, 2006, before me personally appeared Ambrose Hoff, known to me to be the Chairman of Red Trail Energy, LLC, who acknowledged to me that he executed the foregoing instrument on behalf of said company.


(Seal)		/s/ DEELL HOFF Notary Public
		State of North Dakota
		My commission expires: 10-21-2011

Exhibit 10.37

RED TRAIL ENERGY, LLC

AUDIT COMMITTEE CHARTER

ADOPTED ON April 9, 2007

I. PURPOSE

The primary functions of the Audit Committee (the “Committee”) are to assist the Board of Governors of Red Trail Energy, LLC (the “Company”) with the oversight of (i) the Company’s accounting and financial reporting processes and audits of the Company’s financial statements and (ii) the qualifications, independence, appointment, retention, compensation and performance of the Company’s registered public accounting firm. The term “registered public accounting firm” as used herein shall mean any public accounting firm registered with the Public Company Accounting Oversight Board (the “Accounting Board”) under Section 102 of the Sarbanes-Oxley Act of 2002 that performs the auditing function for the Company. Although the Committee has the powers and responsibilities set forth in this Charter, the role of the Committee is oversight. It is not the duty of the Committee to conduct audits, to establish and maintain disclosure controls and procedures and internal controls over financial reporting, or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of Company management, and subject to audit by the Company’s registered public accounting firm.

II. EFFECTIVE DATE, COMPOSITION AND INDEPENDENCE

This Charter shall become effective upon the effective date (the “Effective Date”) of the Company’s filing with the Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Subject to any permitted exceptions, exemptions and phase-in compliance periods of the Nasdaq Stock Market Listing Standards, the Committee shall consist of three or more governors of the Company, as the Board of Governors may determine, each of whom shall meet the independence and other qualification requirements of the Exchange Act, the rules and regulations thereunder and the applicable rules of the Nasdaq Stock Market Listing Standards. Consistent with the applicable exceptions, exemptions and phase-in periods, the Committee only shall be required to include: (i) one independent director during the 90 day period following the Effective Date; and (ii) a majority of independent directors thereafter until the first anniversary of the Effective Date. At least one of the Committee members must satisfy the financial sophistication requirements of the listing standards of the Nasdaq Stock Market, and the Committee shall use diligent efforts to assure that at least one member qualifies as an “audit committee financial expert,” as defined by rules of the SEC.

III. MEETINGS AND PROCEDURES

The Committee shall meet at least once every fiscal quarter. The Committee may request that members of management, representatives of the registered public accounting firm and others attend meetings and provide pertinent information, as necessary. In order to foster open communications, the Committee shall meet at such times as it deems appropriate or as otherwise required by applicable law, rules or regulations in separate executive sessions to discuss any matters that the Committee believes should be discussed privately. Committee meetings will be governed by the quorum and other procedures generally applicable to meetings of the Board of Governors under the Company’s Operating Agreement, unless otherwise stated by resolution of the Board of Governors.

IV. RESPONSIBILITIES AND DUTIES

A. General Matters

	1.		The Committee, in its capacity as a committee of the Board of Governors, shall be directly responsible for the appointment, compensation, retention (including termination) and oversight of the work of the registered public accounting firm (including resolution of disagreements between management and the registered public accounting firm regarding financial reporting) engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. The registered public accounting firm shall report directly to and be accountable to the Committee.

	2.		To the extent required by applicable law, rules and regulations, the Committee shall pre-approve all auditing services and non-audit services (including the fees and terms thereof) permitted to be provided by the Company’s registered public accounting firm contemporaneously with the audit, subject to certain de minimus exceptions for permitted non-audit services described in Section 10A(i)(1)(B) of the Exchange Act, which shall be approved by the Committee prior to the completion of the audit.

	3.		The Committee shall have the authority to engage independent counsel and other advisers, as it determines necessary to carry out its duties. The Committee shall determine the extent of funding to be provided by the Company for payment of (i) compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, (ii) compensation to any independent counsel and other advisers retained to advise the Committee, and (iii) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

	4.		The Committee may form subcommittees consisting of one or more members and delegate to such subcommittees authority to perform specific functions, including without limitation pre-approval of audit and

non-audit services, to the extent permitted by applicable law, rules and regulations.

B. Oversight of the Company’s Relationship with the Auditors

With respect to any registered public accounting firm that proposes to perform audit services for the Company, the Committee shall:

	1.		On an annual basis, review and discuss all relationships the registered public accounting firm has with the Company in order to consider and evaluate the registered public accounting firm’s continued independence. In connection with its review and discussions, the Committee shall: (i) ensure that the registered public accounting firm submits to the Committee a formal written statement (consistent with the Accounting Board independence standards as then in effect) delineating all relationships and services that may impact the objectivity and independence of the registered public accounting firm; (ii) discuss with the registered public accounting firm any disclosed relationship, services or fees (audit and non-audit related) that may impact the objectivity and independence of the registered public accounting firm; (iii) review the registered public accounting firm’s statement of the fees billed for audit and non-audit related services, which statement shall specifically identify those fees required to be disclosed in the Company’s annual proxy statement; (iv) satisfy itself as to the registered public accounting firm’s independence; and (v) obtain and review a report by the registered public accountants describing their internal quality control procedures and any material issues raised by the most recent internal quality review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years and any steps taken to deal with such issues.

	2.		Ensure the rotation of the lead (or coordinating) audit partner and other significant audit partners as required by applicable law, rules and regulations.

	3.		Establish clear hiring policies for employees or former employees of the registered public accounting firm proposed to be hired by the Company that meet applicable SEC regulations and Nasdaq Stock Market Listing Standards. In addition, on an annual basis, confirm that the registered public accounting firm is not disqualified from performing any audit service for the Company due to the fact that any of the Company’s chief executive officer, chief financial officer, controller, chief accounting officer (or a person serving in an equivalent position) was employed by that registered public accounting firm and participated in any capacity in the audit of the Company during the one-year period preceding the date of the initiation of the audit of the current year’s financial statements.

Establish with the registered public accounting firm the scope and plan of the work to be performed by the registered public accounting firm as part of the audit for the fiscal year.

C. Financial Statements and Disclosure Matters

With respect to the Company’s financial statements and other disclosure matters, the Committee shall:

	1.		Review and discuss with management and the registered public accounting firm the Company’s quarterly financial statements.

	2.		Review and discuss with management and the registered public accounting firm the Company’s annual audited financial statements and the report of the registered public accounting firm thereon.

	3.		Review and discuss all material correcting adjustments identified by the registered public accounting firm in accordance with generally accepted accounting principles and SEC rules and regulations that are reflected in each annual and quarterly report that contains financial statements, and that are required to be prepared in accordance with (or reconciled to) generally accepted accounting principles under Section 13(a) of the Exchange Act and filed with the SEC.

	4.		Review and discuss all material off-balance sheet transactions, arrangements, obligations (including contingent obligations) and other relationships of the Company with unconsolidated entities or other persons, that have or are reasonably likely to have a current or future effect on financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, which are required to be disclosed in response to Item 303, Management’s Discussion and Analysis of Financial Condition and Results of Operation, of Regulation S-K.

	5.		Discuss with management and the registered public accounting firm significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including any judgments about the quality, appropriateness and acceptability of the Company’s accounting principles, significant changes in the Company’s selection or application of accounting principles and any other significant changes to the Company’s accounting principles and financial disclosure practices that are suggested by the registered public accounting firm or management.

	6.		Review with management, the registered public accounting firm and the Company’s counsel, as appropriate, any legal, regulatory or compliance matters that could have a significant impact on the Company’s financial statements, including significant changes in accounting standards or rules

			as promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities with relevant jurisdiction.

	7.		The review and discussions hereunder with respect to audits performed by the registered public accounting firm shall include the matters required to be discussed by the Accounting Board auditing standards then in effect. These matters would include the auditor’s responsibility under generally accepted auditing standards, the Company’s significant accounting policies, management’s judgments and accounting estimates, significant audit adjustments, the auditor’s responsibility for information in documents containing audited financial statements (e.g., MD&A), disagreements with management, consultation by management with other accountants, major issues discussed with management prior to retention of the auditor and any difficulties encountered in the course of the audit work.

	8.		Receive and review all other reports required under the Exchange Act to be provided to the Committee by the registered public accounting firm including, without limitation, reports on (i) all critical accounting policies and practices used by the Company, (ii) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the registered public accounting firm, and (iii) all other material written communications between the registered public accounting firm and management, such as any management letter or schedule of unadjusted differences.

	9.		Following completion of its review of the annual audited financial statements, recommend to the Board of Governors, if appropriate, that the Company’s annual audited financial statements and the report of the registered public accounting firm thereon be included in the Company’s annual report on Form 10-K filed with the SEC.

	10.		Prepare the Audit Committee report required by the SEC to be included in the Company’s annual proxy statement and any other Committee reports required by applicable laws, rules and regulations.

D. Internal Controls and Compliance Matters

With respect to the Company’s internal controls over financial reporting and compliance matters:

When applicable, review and assess any disclosures made to the Committee by the Company’s Chief Executive Officer and Chief Financial Officer during their certification process for the Company’s Forms 10-K and Forms 10-Q about any significant deficiencies in the

			design or operation of internal controls over financial reporting or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls over financial reporting.

	2.		When applicable, review and discuss with management and the registered public accounting firm any major issues as to the adequacy of the design or operation of the Company’s internal controls over financial reporting, any special steps adopted in light of significant deficiencies or material weaknesses therein and the adequacy of disclosures about changes in internal controls over financial reporting.

	3.		When applicable, review and discuss with management and the registered public accounting firm management’s annual assessment of the Company’s internal controls over financial reporting and the registered public accounting firm’s attestation report thereon.

	4.		Establish and review procedures within the time period required by applicable law, rules and regulations for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

E. Other Miscellaneous Matters

The Committee shall also have the responsibility to:

	1.		Review and discuss the Company’s practices regarding earnings press releases, as well as financial information.

	2.		Review and discuss all corporate attorneys’ reports of evidence of a material violation of securities laws or breaches of fiduciary duty.

	3.		Review and approve all related-party transactions (i.e., those transactions required to be disclosed in response to Item 404, Certain Relationships and Related Transactions, of Regulation S-K) for potential conflict of interest situations on an ongoing basis, unless otherwise delegated to another committee of the Board of Governors consisting solely of independent governors.

	4.		If required by applicable law, rules or regulations, review and approve (i) the adoption of, and any change to or waiver of, the Company’s code(s) of business conduct and ethics applicable to governors, senior financial officers (including the chief executive officer, chief financial officer, controller, or persons performing similar functions) or employees, and (ii) any disclosure made in the manner permitted by SEC rules that is required to be made regarding such change or waiver, unless these duties are

			otherwise delegated to another committee of the Board of Governors consisting solely of independent governors.

	5.		Review and discuss with management and the registered public accounting firm the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures (including management’s risk assessment and risk management policies).

	6.		Review with management and the registered public accounting firm the sufficiency in number and the quality of financial and accounting personnel of the Company.

	7.		Review and reassess the adequacy of this Charter annually and recommend to the Board of Governors any changes or amendments the Committee deems appropriate.

	8.		Perform any other activities consistent with this Charter, the Company’s Operating Agreement and governing law as the Committee or the Board of Governors deems necessary or appropriate.

Exhibit 10.38

RED TRAIL ENERGY, LLC

CODE OF BUSINESS CONDUCT

ADOPTED ON MARCH 28, 2007

TABLE OF CONTENTS

I.		General Principles

II.		Compliance

III.		Business Conduct

	A.		Confidential Information

	B.		Conflicts of Interest

	C.		Corporate Opportunities

	D.		Gifts and Entertainment

	E.		Compliance with Laws Generally

	F.		Health and Safety

	G.		Information and Technology Management

	H.		Finance and Accounting

IV.		Securities Trading and Non-Public Information

V.		Where to Find More Information

VI.		How to Report Violations

VII.		Responding to Improper Conduct

VIII.		Condition of Employment or Service

IX.		Waivers of the Code of Business Conduct

X.		Compliance Procedures

General Principles

Red Trail Energy, LLC (“Red Trail” or the “Company”) is committed to conducting their business activities as good corporate citizens with honesty and integrity and in compliance with all laws, rules and regulations applicable to them. This commitment and standard of conduct governs our relationships with customers, suppliers, members, competitors and with each other at every organizational level.

This Code of Business Conduct (the “Code”) is an expression of our core values and represents a framework for decision-making. To this end, all of our employees, officers and governors are responsible for understanding the Code and acting in accordance with it. This Code of Business Conduct should be read in conjunction with the other policies and procedures that the Company has established from time to time, including but not limited to its Insider Trading Policies (discussed in more detail in Article IV of this Code), its Code of Ethics for Senior Financial Officers (attached hereto as Exhibit A) and its Complaint Procedures for Accounting and Auditing Matters (attached hereto as Exhibit B).

II. Compliance

Compliance with this Code of Business Conduct is required of everyone who acts on behalf of Red Trail, including our governors, officers, employees and agents. Anyone who violates our Code will be acting outside the scope of his or her employment (or agency) and will be subject to disciplinary action, up to and including termination of employment (or agency). The following person[s] have been designated by the Board of Governors to oversee compliance with our Code and its policies and procedures:

Ethics Compliance Officer: Mick J. Miller

Telephone Number: (701) 974-3308

E-mail address: mick@redtrailenergy.com

The Code of Business Conduct cannot and is not intended to cover every applicable law, rule or regulation, or provide answers to all questions that may arise; for that, we must ultimately rely on your good sense of what is right, including a sense of when it is proper to seek guidance from others with respect to the appropriate course of conduct. Questions regarding any law, rule, regulation, or principle discussed in this Code should be directed to your supervisor or to one of the above-mentioned people.

If at any time you have an ethical concern or become aware of any conduct on the part of any Company employee, officer or governor that violates – or may violate – this Code, you should report such concern or conduct to your supervisor or the Ethics Compliance Officer. You may also report your concerns, as well as submit questions of applicability or interpretation, on a confidential or anonymous basis by mailing The Audit Committee at Attn: Mike Appert, P.O. Box 11, 3682 Highway 8, Richardton, North Dakota, 58652. See the section entitled “How To Report Violations” in Article VI of this Code of Business Conduct for more details.

III. Business Conduct

A. Confidential Information

One of the Company’s most valuable assets is its information. You should maintain the confidentiality of information (whether or not it is considered proprietary) entrusted to you by the Company. Examples of confidential information include trade secrets, new product or marketing plans, customer lists, research and development ideas, manufacturing processes, or acquisition or divestiture prospects. It might also include information from our customers or others given to the Company pursuant to an agreement restricting its use or disclosure. You should take steps to safeguard confidential information by keeping such information secure, limiting access to such information to those employees who have a “need to know” in order to do their job, and avoiding discussion of confidential information in public areas, for example, in elevators, on planes and on mobile phones. You should not use confidential information for personal advantage. Confidential information may be disclosed to others only when disclosure is authorized by the Company or legally mandated. The obligation to preserve confidential information is ongoing, even after termination of employment.

B. Conflicts of Interest

A conflict of interest occurs when an individual’s personal interest interferes in any way - or even appears to interfere — with the interests of the Company as a whole. A conflict of interest may arise when you take action or have interests that may make it difficult to perform your Company work objectively and effectively. Conflicts of interest may also arise when an employee, officer or governor, or members of his or her family, receives improper personal benefits as a result of his or her position with the Company. Loans to, or guarantees of obligations of, employees and their family members may also create conflicts of interest. Such conflicts of interests can undermine our business judgment and our responsibility to the Company and threaten the Company’s business and reputation. Potential and actual conflicts of interests should be scrupulously avoided.

Conflicts of interests may also arise because our Articles of Organization, Operating Agreement and Member Control Agreement, as in effect from time to time (our “Charter Documents”), permit our employees, governors and officers, and their affiliates, to have other business interests or engage in other business ventures that compete with the business of the Company. Nothing in this Code of Business Conduct is intended to supersede the provisions of our Charter Documents relating to the management of the Company, including those provisions addressing corporate opportunities and conflicts of interests.

Conflicts of interest are prohibited as a matter of Company policy, except under guidelines approved by the Board of Governors, or as otherwise may be permitted under this Code of Business Conduct or our Charter Documents. Generally speaking, you should not provide service or assistance to a competitor, customer or supplier. The best policy is to avoid any direct or indirect business connection with our customers, suppliers or competitors, except on our behalf. You should be especially careful if your duties as a Red Trail employee, officer or governor bring you into contact with an entity that employs or is owned, in whole or in part, by a relative. Often, if a business opportunity should belong to the Company, taking it for your

personal gain is similar to misappropriating a corporate asset. If you have any questions, contact the Ethics Compliance Officer.

C. Corporate Opportunities

Subject to the provisions of our Charter Documents, to the extent contemplated by applicable law, (i) employees, officers and governors of Red Trail are restricted (without the consent of the Board of Governors or an appropriate committee thereof) from taking for themselves personally opportunities that are discovered through the use of Company property, information or their position, using Company property, information or their position for personal gain, or competing with the Company directly or indirectly and (ii) should advance the Company’s legitimate interests when the opportunity to do so arises.

D. Gifts and Entertainment

1. Non-Government Customers, Suppliers, etc.

Red Trail prohibits paying or giving any money or gifts, directly or indirectly, to any person or entity who has a business relationship with Red Trail other than normal and approved promotional items of nominal value. Receiving gifts can be construed as an attempt to improperly influence a relationship or allow a relationship to be improperly influenced. Your judgment should tell you when an offer of a gift is improper and should be refused in order to prevent embarrassment and perhaps an unintentional violation of the law. Business entertainment is an ambiguous area. Picking up the check (or letting someone else pay the tab) for a business lunch or dinner or a trip to a sporting event or the theater is usually permissible if not excessive, but a clear business purpose should be involved. If you have any questions and before taking any action that might violate this policy, you should discuss the proposed action with the Ethics Compliance Officer.

2. Government Customers, Suppliers, etc.

Gifts to government officials and employees are especially sensitive areas. To the extent that you have reason to deal with officials of or any employees of federal, state, municipal, or public authorities in connection with contracts, concessions, licenses or other arrangements, it is extremely important to avoid even the appearance of impropriety. Failure in this regard can result in the loss of business, as well as damaging publicity for Red Trail and our employees. U.S. federal regulations prohibit government employees from accepting gifts or entertainment in any form from any contractor or vendor doing (or seeking to do) business with the government. Federal law prohibits gifts to such persons given with intent to influence the individual in the performance of an official act. Many state and other governmental bodies have similar statutes. In acknowledgment of these regulations, it is the policy of Red Trail not to offer or give gifts, gratuities, favors, entertainment or anything of monetary value to any government employee or to his/her family members. Federal, state and local public agencies have developed detailed guidelines that provide rules for when an agency’s employee may be given gifts, refreshments, etc. If you deal with public officials on a regular basis, obtain a copy of their agency’s governing ethics, guide or rules, if any. In addition, you should be sensitive to requests or comments by government officials that may appear perfectly proper, but could be susceptible to a different

interpretation by other government officials or the media. If you deal directly with government officials you are responsible for being familiar and complying with the applicable regulations of the government agencies with which you do business. Before taking any action that might violate this policy, you should discuss the proposed action with the Ethics Compliance Officer.

E. Compliance with Laws Generally

Red Trail and its governors, officers, employees and agents will abide by the letter and the spirit of all applicable laws, rules and regulations, and will act in such a manner that the full disclosure of all facts related to any activity will always reflect favorably upon the Company.

1. Antitrust and Competition Laws

Antitrust laws in the United States are designed to preserve and foster fair and honest competition within the free enterprise system. To accomplish this goal, the language of these laws is deliberately broad, prohibiting such activities as “unfair methods of competition” and agreements “in restraint of trade.” Such language gives enforcement agencies the right to examine many different business activities to judge their effect on competition. Red Trail requires all employees to comply with the U.S. antitrust laws. The failure to do so can result in severe penalties for both the individuals involved and Red Trail.

There are two areas in which antitrust or competition violations most frequently occur – relations with competitors and relations with customers and suppliers.

a) Relations with Competitors

The greatest danger for violations of the antitrust/competition laws rests in contacts with competitors. It is illegal to have an understanding with a competitor, expressed or implied, written or oral, which improperly restricts competition or interferes with the ability of the free market system to function properly. A formal agreement with a competitor is not needed to prove a violation of the antitrust laws. A general discussion followed by common action often is enough to show that an agreement exists. In an investigation, every communication, written or oral, is subject to extreme scrutiny.

Communications with competitors should be avoided unless they concern a true customer-supplier relationship, other legitimate business ventures (such as mergers and acquisitions) or permitted trade association activities. You must not engage in any communications with competitors that could result, or even appear to result, in price-fixing, allocation of customers or markets, boycotts or production limits. Contact the Ethics Compliance Officer if you have questions. The antitrust laws do recognize, however, your need to be aware of market conditions, and you may discuss these with customers, suppliers, retailers, wholesalers and brokers, if they are not your competitors.

b) Relations with Customers and Suppliers

Generally speaking, a company has an unrestricted right to choose its customers and suppliers. However, a company may not improperly restrict a customer’s (including a distributor’s) freedom to establish its own prices or terms of resale. With respect to suppliers, we

must avoid any understanding that sets the minimum price of resale by Red Trail. You should also avoid discussions with customers regarding Red Trail’s supplying other customers or the prices charged to other customers.

F. Health and Safety

The Company strives to provide each employee with a safe and healthy work environment. Each employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions.

G. Information and Technology Management

1. Protection of Proprietary Information and Intellectual Property

In addition to protecting the confidential information of the Company (as discussed in Section (A) above), all Red Trail employees must respect the proprietary information and intellectual property of our customers, suppliers, partners and others. Employees are not to divulge the proprietary information of their former employers. Red Trail employees should not disclose any proprietary information of others unless the individual or firm owning the information properly authorizes the release or disclosure of such information. Employees should also be careful not to use published works of others, or patented processes or methods, or trademarks, without first obtaining a license or written permission to do so. Consult your supervisor and the Ethics Compliance Officer if you have any questions.

2. Electronic Communications Policy

All Company-provided equipment, software and communication systems, including without limitation voice mail, e-mail, Internet, file folders and personal computer systems, are the property of Red Trail and as such are provided to employees for business purposes only. The review, transmission, retrieval or storage of offensive, obscene or other inappropriate material via Red Trail computing and communications systems, including the Internet and electronic mail, is strictly prohibited. The use of Company e-mail system to send offensive or inappropriate statements, make solicitations or divulge confidential information is also prohibited. All communications made via Red Trail property are considered records and property of the Company. Red Trail reserves the right, in compliance with applicable laws, to monitor, access, copy, modify, disclose or delete the contents of messages sent or received over its systems, including Internet points of contact.

H. Finance and Accounting

Because we are a reporting company under the 1934 Securities and Exchange Act, as amended (the “Exchange Act”), it is imperative that our disclosures to the public provide full, fair, accurate, timely and understandable disclosure. To assist us in this endeavor, you must comply with the following:

1. Accuracy of Company Records

All Red Trail business transactions must be properly authorized and be completely and accurately recorded on the Company’s books and records in accordance with generally accepted accounting practice and established Red Trail financial policy. No false, artificial or misleading entries in the books and records of Red Trail shall be made for any reason, and no employee shall engage in any arrangement that results in such prohibited acts. The retention or proper disposal of Company records shall be in accordance with established Red Trail financial policies and applicable statutory and legal requirements.

2. Authorization Systems

Red Trail has established a financial approval system that defines and limits the authority of employees to commit or obligate the Company with respect to any agreement or transaction that has financial consequences. The Chief Financial Officer maintains and monitors compliance with the system. You are required to understand your financial approval authority and to ensure that you do not exceed your authority.

3. Document Retention

The Company seeks to comply fully with all laws and regulations relating to the retention and preservation of records. You must comply with the Company’s policies regarding the retention and preservation of records as set forth herein. Under no circumstances may Company records be destroyed selectively or maintained outside Company premises or designated storage facilities. If you know the existence of a subpoena or impending government investigation, you must immediately contact your supervisor and/or the Ethics Compliance Officer. You must retain all records and documents that may pertain to an investigation or may be responsive to a subpoena. Any questions concerning the destruction or disposition of records or documents should be directed to your supervisor and/or the Ethics Compliance Officer before the record or document is disposed of. You must strictly adhere to the directions of your supervisor and/or the Ethics Compliance Officer in handling such records or documents.

4. Code of Ethics Relating to Financial Matters

The honesty, integrity and sound judgment of the senior financial officers and the chief executive officer of Red Trail (the “Senior Financial Officers”) are fundamental to the reputation and success of the Company. Because the professional and ethical conduct of the Senior Financial Officers is essential to the proper functioning and success of the Company, our Senior Financial Officers, in addition to complying with all of the other provisions of this Code of Business Conduct, must also comply with the Company’s Code of Ethics for Senior Financial Officers, a copy of which is attached hereto as Exhibit A. While you may not be a Senior Financial Officer, we expect all of our employees, officers and governors to adhere to the principles identified in the Company’s Code of Ethics for Senior Financial Officers to the extent applicable to you.

IV. Securities Trading, Non-Public Information and Fair Dealing

Governors, officers and employees of the Company who have access to confidential material information are not permitted to use or share that information for membership unit trading purposes. All non-public information about the Company should be considered confidential information. To use material non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of this information is not only unethical but also illegal. In order to assist with compliance with laws against insider trading, the Company has adopted specific policies governing officers, governors and employees trading in securities of the Company – our “Insider Trading Policies.” Violations of, complaints or questions or concerns relating to our Insider Trading Policies should be reported to the Ethics Compliance Officer.

V. Where to Find More Information

The Red Trail Code of Business Conduct is a summarized version of many policies and laws and does not cover all situations. Any questions of applicability or interpretation should be addressed to your supervisor or the Ethics Compliance Officer. You should also refer to other policies of the Company in effect from time to time.

VI. How to Report Violations

It is each employee’s personal responsibility to bring violations or suspected violations of the Company’s Code of Business Conduct to the attention of their supervisor or the Ethics Compliance Officer. To report conduct you suspect to be unethical or in violation of any Red Trail Code of Business Conduct policy or the law, talk to your supervisor and/or the Ethics Compliance Officer. You may also report a suspected violation anonymously by delivering a sealed, confidential envelope containing a written or typed concern to the Ethics Compliance Officer. If appropriate, you should also feel free to make the report to your supervisor. The Company encourages you to report or question any conduct that may violate the Company’s ethical standards. Therefore, you will not suffer any retribution in connection with any good faith reporting.

However, if you are reporting a violation or suspected violation of an accounting matter, please report the complaint in accordance with the procedures identified in the Company’s Complaint Procedures for Accounting and Auditing Matters, a copy of which is attached hereto as Exhibit B.

VII. Responding to Improper Conduct

If an employee violates this Code, he or she will be subject to disciplinary action. Supervisors and managers of a disciplined employee may also be subject to disciplinary action for their failure to oversee properly an employee’s conduct, or for retaliation against an employee who reports a violation(s). The Company’s response to misconduct will depend upon a number of factors, including whether the improper behavior involved illegal conduct. Disciplinary action may include, but is not limited to, reprimands and warnings, probation, suspension, demotion, reassignment, reduction in salary or immediate termination. Employees

should be aware that certain actions and omissions prohibited by the Code might be crimes that could lead to individual criminal prosecution and, upon conviction, to fines and imprisonment.

VIII. Condition of Employment or Service

Compliance with this Code shall be a condition of employment and of continued employment with the Company, and conduct not in accordance with this Code shall constitute grounds for disciplinary action, up to and including termination of employment. This Code does not in any way constitute an employment contract or an assurance of continued employment. Employees are employees at will. This Code is for the sole and exclusive benefit of the Company and may not be used or relied upon by any other party. The Company may modify or repeal the provisions of this Code or adopt a new Code at any time it deems appropriate, with or without notice.

IX. Waivers of the Code of Business Conduct

Any waiver of this Code for executive officers or directors may be made only by the Board of Governors or, if permitted by applicable rules, a Board committee, and will be promptly disclosed as required by law or applicable Nasdaq Stock Market Listing Standards.

X. Compliance Procedures

We must all work to ensure prompt and consistent action against violations of this Code. However, in some situations it is difficult to know if a violation has occurred. Because we cannot anticipate every situation that will arise, it is important that we have a way to approach a new question or problem. These are the steps to keep in mind:

	1.		Make sure you have all of the facts. In order to reach the right solutions, we must be as fully informed as possible.

	2.		Ask yourself: What specifically am I being asked to do? Does it seem unethical or improper? This will enable you to focus on the specific question you are faced with, and the alternatives you have. Use your judgment and common sense; if something seems unethical or improper, it probably is.

	3.		Clarify your responsibility and role. In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem.

	4.		Discuss the problem with your supervisor. This is the basic guidance for all situations. In many cases, your supervisor will be more knowledgeable about the question, and will appreciate being brought into the decision-making process. Remember that it is your supervisor’s responsibility to help solve problems.

	5.		Seek help from Company resources. In the rare case where it may not be appropriate to discuss an issue with your supervisor, or if you do not feel

			comfortable approaching your supervisor with your question, discuss it with someone more senior in the Company, such as the Company’s Ethics Compliance Officer or the Chief Executive Officer.

	6.		You may report ethical violations in confidence and without fear of retaliation. If your situation requires that your identity be kept secret, your anonymity will be protected. The Company does not permit retaliation of any kind against employees for good faith reports of ethical violations.

	7.		Always ask first, act later. If you are unsure of what to do in any situation, seek guidance before you act.

This Code of Business Conduct has been adopted by the Board of Governors of Red Trail Energy, LLC, effective March 28, 2007.

EXHIBIT A

CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS

At Red Trail Energy, LLC (“Red Trail” or the “Company”) the honesty, integrity and sound judgment of Red Trail’s senior financial officers, which includes Red Trail’s chief executive officer, chief financial officer or controller and other persons performing similar functions (the “Senior Financial Officers”), is fundamental to the financial reporting process and the reputation and success of Red Trail. Red Trail’s Senior Financial Officers hold an important and elevated role in corporate governance in that they are uniquely capable and empowered to ensure that all stakeholders’ interests are appropriately balanced, protected and preserved. Because of this special role, each of the Senior Financial Officers agrees to be bound by this Code of Ethics for Senior Financial Officers and each agrees that he or she will:

	1.		Act with honesty and integrity and ethically handle actual or apparent conflicts of interest in personal and professional relationships involving Red Trail or its business.

	2.		Provide information that is accurate, complete, objective, relevant, timely and understandable to ensure full, fair, accurate, timely and understandable disclosure in reports and documents that Red Trail files with, or submits to, government agencies, including the Securities and Exchange Commission (the “SEC”) and in other public communications.

	3.		Comply with applicable laws, rules and regulations of federal, state, provincial and local governments, and other appropriate private and public regulatory agencies, affecting Red Trail’s business and its conduct in business matters.

	4.		In all matters affecting Red Trail’s business and its conduct in business matters, act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing his/her independent judgment to be subordinated.

	5.		Respect the confidentiality of information acquired in the course of his/her work for Red Trail except when authorized or otherwise legally obligated to disclose. Confidential information acquired in the course of his/her work for Red Trail shall not be used for personal advantage.

	6.		Proactively promote and be an example of ethical behavior as a responsible partner among peers in Red Trail’s working environment.

	7.		Achieve responsible use of and control over all Red Trail assets and resources employed or entrusted to him/her.

Each of the Senior Financial Officers are expected to adhere to this Code of Ethics for Senior Financial Officers and Red Trail’s Code of Business Conduct at all times. Any violations of either of these Codes shall be promptly reported in accordance with the procedures set forth in

Red Trail’s Complaint Procedures for Accounting and Auditing Matters. If any Senior Financial Officer is found to be in violation of this Code of Ethics for Senior Financial Officers, such person will be subject to disciplinary action, which may include termination of employment. It is against Red Trail policy to retaliate against any employee for good faith reporting of violations of this Code of Ethics for Senior Financial Officers or Red Trail’s Code of Business Conduct.

The Board of Governors (or, if permitted under applicable SEC and Nasdaq Stock Market Listing Standards), and so appointed by the Board of Governors, the Audit Committee of the Board of Governors) shall have the sole discretionary authority to approve any amendment to or waiver of this Code of Ethics for Senior Financial Officers. Any such amendment to or waiver of this Code of Ethics for Senior Financial Officers shall be publicly disclosed in the manner specified by SEC rules.

EXHIBIT B

COMPLAINT PROCEDURES FOR

ACCOUNTING AND AUDITING MATTERS

Red Trail Energy, LLC (“Red Trail” or the “Company”) is committed to continuing compliance with all applicable securities laws and regulations, accounting standards, accounting controls and audit practices. In furtherance of this commitment, Red Trail wishes to assure you that you may submit a good faith complaint regarding accounting or auditing matters to management without fear of harassment, discrimination, dismissal or retaliation of any kind.

To facilitate reporting of complaints, Red Trail’s Audit Committee has established these procedures for (1) the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, or auditing matters (referred to in this document as “Accounting Matters”) and (2) the confidential, anonymous submission by employees of concerns regarding questionable Accounting Matters.

I. Scope of Matters Covered by These Procedures

These procedures relate to complaints relating to any questionable Accounting Matters, including, without limitation, the following:

	1.		fraud or deliberate error in the preparation, evaluation, review or audit of any financial statement of Red Trail;

	2.		fraud or deliberate error in the recording and maintaining of financial records of Red Trail;

	3.		deficiencies in or noncompliance with Red Trail’s internal accounting controls;

	4.		misrepresentation or false statement to or by a senior officer or accountant regarding a matter contained in the financial records, financial reports or audit reports of Red Trail;

	5.		deviation from full and fair reporting of Red Trail’s financial condition; or

	6.		violations of Red Trail’s Code of Ethics for Senior Financial Officers.

II. Receipt of Complaints

Concerns regarding Accounting Matters may be reported as follows:

1. Regular mail to:

Audit Committee

Red Trail Energy, LLC

P.O. Box 11

Richardton, North Dakota, 58652

2. E-mail to:

auditcommitte@redtrailenergy.com

3. Telephone voicemail to:

1-701-974-3308, ext. 115

We want to assure that all employees have a way to address any actual or possible violations regarding Accounting Matters with the Audit Committee of our Board of Directors. That may be done via phone message or e-mail as follows:

1. E-mail to:

auditcommitte@redtrailenergy.com

2. Telephone voicemail to:

1-701-974-3308, ext. 115

All employee complaints may be made on a confidential or anonymous basis. If an employee provides a complaint on a confidential or anonymous basis, we encourage the submitter to provide enough specifics and facts to allow Red Trail to fully review the complaint and act appropriately. We also encourage the submitter to provide a way for us to follow up if more information is needed and to allow acknowledgment of the complaint. We emphasize, however, that this is not required to submit a complaint.

III. Treatment of Complaints

Upon receipt of a complaint, Mick Miller the Ethics Compliance Officer will (i) determine whether the complaint actually pertains to Accounting Matters and (ii) when possible, acknowledge receipt of the complaint to the sender. Complaints relating to Accounting Matters will be reviewed under Audit Committee direction and oversight by the Ethics Compliance Officer or such other persons as the Audit Committee determines to be appropriate. Prompt and appropriate corrective action will be taken when and as warranted in the judgment of the Audit Committee.

Red Trail will not discharge, demote, suspend, threaten, harass or in any manner discriminate against any employee in the terms and conditions of employment based upon any lawful actions of such employee with respect to good faith reporting of complaints regarding Accounting Matters or otherwise as specified in Section 806 of the Sarbanes-Oxley Act of 2002.

IV. Reporting and Retention of Complaints and Investigations

The Ethics Compliance Officer will maintain a log of all complaints, tracking their receipt, investigation and resolution and shall prepare a periodic summary report thereof for the Audit Committee. Copies of complaints and such log will be maintained in accordance with Red Trail’s then applicable document retention policy.

CERTIFICATION

I have read and understand the Company’s Code of Business Conduct (the “Code”). I understand that the Company’s Ethics Compliance Officer is available to answer any questions I have regarding the Code. I agree to comply with the Code in all respects during my employment or other relationship with the Company. I understand that my failure to comply in all respects with the Code is a basis for termination for cause of my employment or other relationship with the Company.


Date:	Signature:


	Name:
		(Please Print)

EXHIBIT 31.1

CERTIFICATION

I, Mick J. Miller, certify that:

1. I have reviewed this annual report on Form 10-K of Red Trail Energy, LLC;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 17, 2007



	/s/ Mick J. Miller
	Mick J. Miller
	Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Bonnie G. Eckelberg, certify that:

1. I have reviewed this annual report on Form 10-K of Red Trail Energy, LLC;

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 17, 2007



	/s/ Bonnie Eckelberg
	Bonnie Eckelberg
	Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Red Trail Energy, LLC (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof, (the “Report”), I, Mick J. Miller, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

	1.		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.		The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

April 17, 2007



	/s/ Mick J. Miller
	Mick J. Miller
	Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Badger State Ethanol, LLC (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof, (the “Report”), I, Bonnie G. Eckelberg, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

	1.		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.		The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

April 17, 2007



	/s/ Bonnie Eckelberg
	Bonnie Eckelberg
	Chief Financial Officer