Company Quick10K Filing
Cardinal Ethanol
Price-0.00 EPS-452
Shares0 P/E0
MCap-0 P/FCF-0
Net Debt-15 EBIT-6
TEV-15 TEV/EBIT2
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-12-31 Filed 2021-02-02
10-K 2020-09-30 Filed 2020-11-18
10-Q 2020-06-30 Filed 2020-08-10
10-Q 2020-03-31 Filed 2020-05-05
10-Q 2019-12-31 Filed 2020-02-05
10-K 2019-09-30 Filed 2019-11-22
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-03
10-Q 2018-12-31 Filed 2019-02-07
10-K 2018-09-30 Filed 2018-11-21
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-08
10-Q 2017-12-31 Filed 2018-02-06
10-K 2017-09-30 Filed 2017-11-22
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-08
10-Q 2016-12-31 Filed 2017-02-06
10-K 2016-09-30 Filed 2016-11-22
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-09
10-Q 2015-12-31 Filed 2016-02-04
10-K 2015-09-30 Filed 2015-11-20
10-Q 2015-06-30 Filed 2015-08-04
10-Q 2015-03-31 Filed 2015-05-05
10-Q 2014-12-31 Filed 2015-02-05
10-K 2014-09-30 Filed 2014-11-25
10-Q 2014-06-30 Filed 2014-08-07
10-Q 2014-03-31 Filed 2014-05-06
10-Q 2013-12-31 Filed 2014-02-05
10-K 2013-09-30 Filed 2013-11-27
10-Q 2013-06-30 Filed 2013-08-07
10-Q 2013-03-31 Filed 2013-05-15
10-Q 2012-12-31 Filed 2013-02-11
10-K 2012-09-30 Filed 2012-12-11
10-Q 2012-06-30 Filed 2012-08-07
10-Q 2012-03-31 Filed 2012-05-04
10-Q 2011-12-31 Filed 2012-02-09
10-K 2011-09-30 Filed 2011-12-13
10-Q 2011-06-30 Filed 2011-08-10
10-Q 2011-03-31 Filed 2011-05-10
10-Q 2010-12-31 Filed 2011-02-09
10-K 2010-09-30 Filed 2010-12-23
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-03-31 Filed 2010-05-14
10-Q 2009-12-31 Filed 2010-02-11
8-K 2020-11-20
8-K 2020-11-19
8-K 2020-08-11
8-K 2020-05-07
8-K 2020-03-30
8-K 2020-03-18
8-K 2020-02-25
8-K 2020-02-18
8-K 2020-02-18
8-K 2020-01-23
8-K 2019-12-02
8-K 2019-12-01
8-K 2019-11-26
8-K 2019-11-04
8-K 2019-10-01
8-K 2019-09-19
8-K 2019-06-21
8-K 2019-05-21
8-K 2019-03-08
8-K 2019-03-04
8-K 2019-03-01
8-K 2019-02-21
8-K 2019-02-19
8-K 2019-01-11
8-K 2018-12-06
8-K 2018-11-06
8-K 2018-08-22
8-K 2018-07-27
8-K 2018-06-12
8-K 2018-05-15
8-K 2018-03-21
8-K 2018-02-28
8-K 2018-02-20
8-K 2018-02-20
8-K 2018-01-29

CARD 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits.
EX-31.1 a311certification12-31x2020.htm
EX-31.2 a312certification12-31x2020.htm
EX-32.1 a321certification12-31x2020.htm
EX-32.2 a322certification12-31x2020.htm

Cardinal Ethanol Earnings 2020-12-31

Balance SheetIncome StatementCash Flow
175140105703502012201420172020
Assets, Equity
11087644118-32012201420172020
Rev, G Profit, Net Income
402510-5-20-352012201420172020
Ops, Inv, Fin

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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
For the quarterly period ended December 31, 2020.
 
OR
 
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 000-53036
 
CARDINAL ETHANOL, LLC
(Exact name of registrant as specified in its charter)
 
Indiana 20-2327916
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer Identification No.)
 
1554 N. County Road 600 E., Union City, IN 47390
(Address of principal executive offices)

(765) 964-3137
(Registrant's telephone number, including area code)

Securities registered pursuant to 12(b) of the Act: None.

Title of each classTrading Symbol(s)Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act: Membership Units.

Indicate by check mark 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.

x Yes     o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x Yes     o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer Accelerated Filer  
Non-Accelerated Filer xSmaller Reporting Company
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of February 2, 2021, there were 14,606 membership units outstanding.
1

Table of Contents


INDEX
Page Number

2

Table of Contents


PART I.        FINANCIAL INFORMATION

Item 1. Financial Statements
CARDINAL ETHANOL, LLC
Condensed Balance Sheets
 ASSETSDecember 31, 2020September 30, 2020
 (Unaudited)
Current Assets
Cash$23,125,424 $12,950,558 
Restricted cash8,497,823 3,963,424 
Trade accounts receivable14,291,876 9,174,937 
Miscellaneous receivables1,074,240 813,060 
Inventories30,540,964 17,318,700 
Prepaid and other current assets984,658 186,761 
Futures & options derivatives296,058  
Forward purchase/sales derivatives3,019,349 1,115,299 
Total current assets81,830,392 45,522,739 
Property, Plant, and Equipment, Net76,458,285 78,003,177 
Other Assets
Operating lease right of use asset, net4,864,952 4,951,592 
Investment1,259,770 1,259,770 
Total other assets6,124,722 6,211,362 
Total Assets$164,413,399 $129,737,278 
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Contract liability$1,600,000 $15,000 
Accounts payable2,718,569 4,154,598 
Accounts payable - grain35,282,840 5,673,785 
Accrued expenses1,566,479 1,407,746 
Futures & options derivatives 7,248,084 2,051,928 
Forward purchase/sales derivatives2,317,511 225,909 
Operating lease liability current2,881,458 2,638,003 
Current maturities of long-term debt275,840 275,840 
Total current liabilities53,890,781 16,442,809 
Long-Term Liabilities
Long-term debt, net of current maturities580,825 580,825 
Operating lease long-term liabilities1,983,777 2,313,694 
Liability for railcar rehabilitation costs1,527,120 1,452,600 
Total long-term liabilities4,091,722 4,347,119 
Commitments and Contingencies  
Members’ Equity
Members' contributions, net of cost of raising capital, 14,606 units authorized, issued and outstanding
70,912,213 70,912,213 
Retained earnings35,518,683 38,035,137 
Total members' equity106,430,896 108,947,350 
Total Liabilities and Members’ Equity$164,413,399 $129,737,278 
Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.
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CARDINAL ETHANOL, LLC
Condensed Statements of Operations (Unaudited)
Three Months Ended
December 31, 2020December 31, 2019
Revenues$93,239,981 $63,736,852 
Cost of Goods Sold92,710,626 60,748,808 
Gross Profit529,355 2,988,044 
Operating Expenses1,812,657 1,694,742 
Operating Income (Loss)(1,283,302)1,293,302 
Other Income (Expense)
Interest expense (72,719)
Miscellaneous income227,448 418,177 
Total227,448 345,458 
Net Income (Loss)$(1,055,854)$1,638,760 
Weight Average Units Outstanding - basic and diluted14,606 14,606 
Net Income (Loss) Per Unit - basic and diluted$(72)$112 
Distributions Per Unit$100 $ 

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




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CARDINAL ETHANOL, LLC
Condensed Statements of Cash Flows (Unaudited)
Three Months EndedThree Months Ended
December 31, 2020December 31, 2019
Cash Flows from Operating Activities
Net income (loss)$(1,055,854)$1,638,760 
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization2,824,223 2,804,737 
Change in fair value of commodity derivative instruments5,087,650 2,289,701 
Change in operating assets and liabilities:
Trade accounts receivable(5,116,939)3,434,977 
Miscellaneous receivables(261,180)(279,849)
Inventories(13,222,264)(14,386,313)
Prepaid and other current assets(797,897)66,883 
Contract liability1,585,000 608,970 
Accounts payable(1,280,864)351,875 
Accounts payable - grain29,609,055 7,076,949 
Accrued expenses158,733 (298,246)
Liability for railcar rehabilitation costs74,520 74,520 
Due to broker (1,589,324)
Net cash provided by operating activities17,604,183 1,793,640 
Cash Flows from Investing Activities
Capital expenditures (14,372)
Payments for construction in progress(1,434,318)(882,203)
   Net cash used for investing activities(1,434,318)(896,575)
Cash Flows from Financing Activities
Distributions paid(1,460,600) 
Payments on long-term debt (504,429)
Net cash used for financing activities(1,460,600)(504,429)
Net Increase in Cash and Restricted Cash14,709,265 392,636 
Cash and Restricted Cash – Beginning of Period16,913,982 22,034,120 
Cash and Restricted Cash – End of Period$31,623,247 $22,426,756 
Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.

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CARDINAL ETHANOL, LLC
Condensed Statements of Cash Flows (Unaudited)
Three Months EndedThree Months Ended
December 31, 2020December 31, 2019
Reconciliation of Cash and Restricted Cash
Cash - Balance Sheet$23,125,424 $15,213,157 
Restricted Cash - Balance Sheet8,497,823 7,213,599 
Cash and Restricted Cash $31,623,247 $22,426,756 
Supplemental Cash Flow Information
Interest paid$ $81,107 
Supplemental Disclosure of Non-cash Investing and Financing Activities
     Construction in process included in accrued expenses and accounts payable$146,559 $1,988 

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


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CARDINAL ETHANOL, LLC
Condensed Statements of Changes in Members' Equity (Unaudited)
Member
Contributions
Retained
Earnings
Balance September 30, 2019$70,912,213 $41,366,470 
Net Income 1,638,760 
Balance December 31, 2019$70,912,213 $43,005,230 
Member
Contributions
Retained
Earnings
Balance September 30, 2020$70,912,213 $38,035,137 
Net Loss (1,055,854)
Member Distributions (1,460,600)
Balance December 31, 2020$70,912,213 $35,518,683 

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

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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the year ended September 30, 2020, contained in the Company's annual report on Form 10-K.

In the opinion of management, the interim condensed financial statements reflect all adjustments considered necessary for fair presentation.

Nature of Business

Cardinal Ethanol, LLC, (the “Company”) is an Indiana limited liability company currently producing fuel-grade ethanol, distillers grains, corn oil and carbon dioxide near Union City, Indiana and sells these products throughout the continental United States. During the three months ended December 31, 2020 and 2019, the Company produced approximately 35,122,000 and 33,687,000 gallons of ethanol, respectively.

In addition, the Company procures, transports, and sells grain commodities through grain operations (the "Trading Division").

Reportable Segments

Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.   Based on the related business nature and expected financial results criteria set forth in ASC 280, the Company has two reportable operating segments for financial reporting purposes.

Ethanol Division. Based on the nature of the products and production process and the expected financial results, the Company’s operations at its ethanol plant, including the production and sale of ethanol and its co-products, are aggregated into one financial reporting segment.

Trading Division. The Company has a grain loading facility within the Company's single site to buy, hold and sell inventories of agricultural grains, primarily soybeans. The Company performs no additional processing of these grains, unlike the corn inventory the Company holds and uses in ethanol production. The activities of buying, selling and holding of grains other than for ethanol and co-product production comprise this financial reporting segment.

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. The Ethanol Division uses estimates and assumptions in accounting for the following significant matters, among others; the useful lives of fixed assets, inventory, patronage dividends, the assumptions used in the analysis of the impairment of long lived assets, railcar rehabilitation costs, and inventory purchase commitments. The Trading Division uses estimates and assumptions in accounting for the following significant matters, among others; the useful lives of fixed assets, the valuation of inventory purchase and sale commitments derivatives and inventory at market. Actual results may differ from previously estimated amounts, and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made. Actual results could differ materially from those estimates.
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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
Cash

The Company maintains its accounts primarily at two financial institutions. At times throughout the year the Company's cash balances may exceed amounts insured by the Federal Deposit Insurance Corporation.

Restricted Cash

As a part of its commodities hedging activities, the Company is required to maintain cash balances with our commodities trading companies for initial and maintenance margins on a per futures contract basis. Changes in the market value of contracts may increase these requirements. As the futures contracts expire, the margin requirements also expire. Accordingly, the Company records the cash maintained with the traders in the margin accounts as restricted cash. Since this cash is immediately available to us upon request when there is a margin excess, the Company considers this restricted cash to be a current asset.

Trade Accounts Receivable

Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral. Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company's credit terms. Amounts considered uncollectible are written off. The Company's estimate of the allowance for doubtful accounts is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any. At December 31, 2020 and September 30, 2020, the Company determined that an allowance for doubtful accounts was not necessary.

Inventories

Ethanol Division (see Reportable Segments) inventories consist of raw materials, work in process, finished goods and spare parts. Corn is the primary raw material. Finished goods consist of ethanol, dried distiller grains and corn oil. Inventories are stated at the lower of weighted average cost or net realizable value. Net realizable value is the estimated selling prices in the normal course of business, less reasonably predictable selling costs.

Trading Division (see Reportable Segments) inventories consist of grain. Soybeans were the only grains held and traded at December 31, 2020 and September 30, 2020. These inventories are stated at market value less estimated selling costs, which may include reductions for quality.

Property, Plant and Equipment

Property, plant, and equipment are stated at cost. Depreciation is provided over estimated useful lives by use of the straight line depreciation method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service.

The Company has various capital projects scheduled for the 2021 fiscal year in order to make certain improvements to the ethanol plant and maintain the facility. These improvements include updates to the heat exchangers, boilers, grain probe, and other small miscellaneous projects as well as the purchase of a new payloader for the dried distillers grains loadout system. The Company also invested in an ethanol recovery system which is expected to cost approximately $2,400,000 and be funded with funds from operations and existing debt facilities. The Company anticipates completion of this project in the first half of fiscal 2021.

Long-Lived Assets

The Company reviews its long-lived assets, such as property, plant and equipment and financing costs, subject to depreciation and amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Management evaluated and determined no impairment write-downs were considered necessary for the three months ended December 31, 2020 and the year ended September 30, 2020.

Investment

Investments consist of the capital stock and patron equities of the Company's distillers grains marketer. The investments are stated at the lower of cost or fair value and adjusted for non cash patronage equities and cash equity redemptions received. Non cash patronage dividends are recognized when received and included within revenue in the condensed statements of operations.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The Company's contracts primarily consist of agreements with marketing companies and other customers as described below. The Company's performance obligations consist of the delivery of ethanol, distillers' grains, corn oil, soybeans and carbon dioxide to our customers. The consideration the Company receives for these products is fixed based on current observable market prices at the Chicago Mercantile Exchange, generally, and adjusted for local market differentials. The Company's contracts have specific delivery modes, rail or truck, and dates. Revenue is recognized when the Company delivers the products to the mode of transportation specified in the contract, at the transaction price established in the contract, net of commissions, fees, and freight. The Company sells each of the products via different marketing channels as described below.

Ethanol. The Company sells its ethanol via a marketing agreement with Murex, LLC. Murex sells one hundred percent of the Company's ethanol production based on agreements with end users at prices agreed upon mutually among the end user, Murex and the Company. Murex then provides a schedule of deliveries required and an order for each rail car or tankers needed to fulfill their commitment with the end user. These are individual performance obligations of the Company. The marketing agreement calls for control and title to pass when the delivery vehicle is filled. Revenue is recognized then at the price in the agreement with the end user, net of commissions, rail car lease, freight, and insurance.

Distillers grains. The Company engages another third-party marketing company, CHS, Inc, to sell one hundred percent of the distillers grains it produces at the plant. The process for selling the distillers grains is like that of ethanol, except that CHS takes title and control once a rail car is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon among the three parties and CHS provides schedules and orders representing performance obligations. Revenue is recognized net of commissions, freight and fees.

Distillers corn oil (corn oil). The Company sells its production of corn oil directly to commercial customers. The customer is provided with a delivery schedule and pick up orders representing performance obligations are fulfilled when the customer’s driver picks up the scheduled load. The price is agreed upon at the time each contract is made, and the Company recognizes revenue at the time of delivery at that price.

Carbon dioxide. The Company sells a portion of the carbon dioxide it produces to a customer that maintains a plant on-site for a set price per ton. Delivery is defined as transference of the gas from the Company's stream to their plant.

Soybeans and other grains. The Company sells soybeans exclusively to commercial mills, processors or grain traders. Contracts are negotiated directly with the parties at prices based on negotiated prices.


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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
Cost of Goods Sold

Cost of goods sold include corn, trading division grains, natural gas and other components which includes processing ingredients, electricity, railcar maintenance, depreciation of ethanol production fixed assets and wages, salaries of benefits of production personnel.

Operating Expense

Operating expenses include wages, salaries and benefits of administrative employees at the plant, insurance, professional fees, depreciation of trading division fixed assets, property taxes and similar costs.

Derivative Instruments

From time to time the Company enters into derivative transactions to hedge its exposures to commodity price fluctuations. The Company is required to record these derivatives in the balance sheet 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 the statement of operations, depending on the item being hedged.

Additionally, the Company is required 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. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our financial statements.

The Company has elected for its Ethanol Division to apply the normal purchase normal sale exemption to all forward commodity contracts. For the Trading Division, the Company has elected not to apply the normal purchase normal sale exemption to its forward purchase and sales contracts and therefore, marks these derivative instruments to market.

Net Income (Loss) per Unit

Basic net income (loss) per unit is computed by dividing net income (loss) by the weighted average number of members' units outstanding during the period. Diluted net income (loss) per unit is computed by dividing net income (loss) by the weighted average number of members' units and members' unit equivalents outstanding during the period. There were no member unit equivalents outstanding during the periods presented; accordingly, the Company's basic and diluted net income (loss) per unit are the same.
2.  REVENUE

Revenue by Source

All revenues from contracts with customers under ASC Topic 606 are recognized at a point in time. The following tables disaggregate revenue by major source for the three months ended December 31, 2020 and 2019:




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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
Three Months Ended December 31, 2020 (Unaudited)
Ethanol DivisionTrading DivisionTotal
Revenues from contracts with customers under ASC Topic 606
Ethanol$49,371,575 $ $49,371,575 
Distillers' grains12,958,367  12,958,367 
Corn Oil3,437,541  3,437,541 
Carbon Dioxide123,375  123,375 
Other Revenue10,000 49,475 59,475 
Total revenues from contracts with customers65,900,858 49,475 65,950,333 
Revenues from contracts accounted for as derivatives under ASC Topic 815 (1)
Soybeans and other grains 27,289,648 27,289,648 
Total revenues from contracts accounted for as derivatives 27,289,648 27,289,648 
Total Revenues$65,900,858 $27,339,123 $93,239,981 



Three Months Ended December 31, 2019 (Unaudited)
Ethanol DivisionTrading DivisionTotal
Revenues from contracts with customers under ASC Topic 606
Ethanol$45,580,223 $ $45,580,223 
Distillers' grains10,828,351  10,828,351 
Corn Oil2,340,354  2,340,354 
Carbon Dioxide123,375  123,375 
Other Revenue9,800 29,450 39,250 
Total revenues from contracts with customers58,882,103 29,450 58,911,553 
Revenues from contracts accounted for as derivatives under ASC Topic 815 (1)
Soybeans and other grains 4,825,299 4,825,299 
Total revenues from contracts accounted for as derivatives 4,825,299 4,825,299 
Total Revenues$58,882,103 $4,854,749 $63,736,852 

(1) Revenues from contracts accounted for as derivatives represent physically settled derivative sales that are outside the scope of ASC Topic 606, Revenue from Contracts with Customers (ASC Topic 606), where the company recognizes revenue when control of the inventory is transferred within the meaning of ASC Topic 606 as required by ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets.

Payment Terms

The Company has contractual payment terms with each respective marketer that sells ethanol and distillers grains. These terms are generally 10 - 20 days after the week of the transfer of control.

The Company has standard payment terms of net 10 days for its sale for corn oil.
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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
The Company has standard payments terms due upon delivery for its sale of soybeans.

The contractual terms with the carbon dioxide customer calls for an annual settlement.

Shipping and Handling Costs

Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment activity and are included in cost of goods sold. Accordingly, amounts billed to customers for such costs are included as a component of revenue.

Contract Liabilities

The Company records unearned revenue when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of its contracts with customers.

3. CONCENTRATIONS

Two major customers accounted for approximately 72% and 91% of the outstanding accounts receivable balance at December 31, 2020 and September 30, 2020, respectively. These same two customers accounted for approximately 67% of revenue for the three month period ended December 31, 2020 and 89% of revenue for the three months ended December 31, 2019.

4.  INVENTORIES

Inventories consist of the following as of:
December 31, 2020 (Unaudited)September 30, 2020
Ethanol Division:
 Raw materials$11,192,107 $2,465,782 
 Work in progress1,637,292 1,508,084 
 Finished goods2,163,983 3,833,939 
 Spare parts3,629,277 3,523,781 
Ethanol Division Subtotal$18,622,659 $11,331,586 
Trading Division:
Grain inventory$11,918,305 $5,987,114 
Trading Division Subtotal11,918,305 5,987,114 
Total Inventories$30,540,964 $17,318,700 

The Company had a net realizable value write-down of ethanol inventory of approximately $724,000 and $408,000 for the three months ended December 31, 2020, and 2019, respectively.

In the ordinary course of business, the Company enters into forward purchase contracts for its commodity purchases and sales. Certain contracts for the ethanol division that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. At December 31, 2020, the Company had forward corn purchase contracts at various fixed prices for various delivery periods through July 2023 for approximately 6.6% of expected production needs for the next 31 months. Approximately 10.2% of the forward corn purchases were with related parties. Given the uncertainty of future commodity prices, the Company could incur a loss on the outstanding purchase contracts in future periods. Management has evaluated these forward contracts using the lower of cost or net realizable value evaluation, and has determined that no impairment loss existed at December 31, 2020 and September 30, 2020. The Company has elected not to apply the normal
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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
purchase and sale exemption to its forward soybean contracts of the trading division and therefore, treats them as derivative instruments.

At December 31, 2020, the Ethanol Division had forward dried distiller grains sales contracts for approximately 64.2% of expected production for the next month at various fixed prices for delivery periods through January 2021. At December 31, 2020, the Company had forward corn oil contracts for approximately 57.7% of expected production for the next 12 months at various fixed prices for delivery through December 2021. Additionally, at December 31, 2020, the Trading Division had forward soybean purchase contracts for approximately 23.1% of expected origination for various delivery periods through March 2022. Approximately 13.7% of the forward soybean purchases were with related parties. At December 31, 2020, the Trading Division has forward soybean sales contracts for approximately 134.2% of expected obligations for various delivery periods through April 2021.

5. DERIVATIVE INSTRUMENTS

The Company enters into corn, ethanol, natural gas and soybean derivative instruments, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge, a cash flow hedge or a hedge against foreign currency exposure.

Commodity Contracts

The Company enters into commodity-based derivatives, for corn, ethanol, natural gas and soybeans in order to protect cash flows from fluctuations caused by volatility in commodity prices and to protect gross profit margins from potentially adverse effects of market and price volatility on commodity based purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. The changes in the fair market value of ethanol derivative instruments are included as a component of revenue.  The changes in the fair market value of corn, natural gas, and soybean derivative instruments are included as a component of cost of goods sold.

At December 31, 2020, the Ethanol Division had a net short (selling) position of 12,215,000 bushels of corn under derivative contracts used to hedge its forward corn purchase contracts, corn inventory and ethanol sales. These corn derivatives are traded on the Chicago Board of Trade as of December 31, 2020 and are forecasted to settle for various delivery periods through July 2023. The Ethanol Division had a net short (selling) position of 4,200,000 gallons of ethanol under derivative contracts used to hedge its future ethanol sales. These ethanol derivatives are traded on the New York Mercantile Exchange and are forecasted to settle for various delivery periods through June 2021. At December 31, 2020, the Trading Division also had a net short (selling) position of 1,335,000 bushels of soybeans under derivative contracts used to hedge its forward soybean contract purchases. These soybean derivatives are traded on the Chicago Board of Trade and are, as of December 31, 2020, forecasted to settle for various delivery periods through January 2022. At December 31, 2020, the Trading Division also had a net long (buying) position of 9,660,000 pounds of soybean oil under derivative contracts used to hedge its forward corn oil contract purchases. These soybean oil derivatives are traded on the Chicago Board of Trade and are, as of December 31, 2020, forecasted to settle for various delivery periods through August 2021. These derivatives have not been designated as effective hedges for accounting purposes.


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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
The following table provides balance sheet details regarding the Company's derivative financial instruments at December 31, 2020:
InstrumentBalance Sheet LocationAssetsLiabilities
Ethanol Futures and Options ContractsFutures & Options Derivatives$ $107,247 
Corn Futures and Options ContractsFutures & Options Derivatives$ $5,594,650 
Soybean Oil Derivative ContractsFutures & Options Derivatives$296,058 $ 
Soybean Futures and Options ContractsFutures & Options Derivatives$ $1,546,186 
Soybean Forward Purchase and Sales ContractsForward Purchase/Sales Derivatives$3,019,349 $2,317,511 

As of December 31, 2020, the Company had approximately $8,498,000 cash collateral (restricted cash) related to ethanol, corn, and soybean derivatives held by four brokers.

The following table provides balance sheet details regarding the Company's derivative financial instruments at September 30, 2020:
InstrumentBalance Sheet LocationAssetsLiabilities
Ethanol Futures and Options ContractsFutures & Options Derivatives$ $666,571 
Corn Futures and Options ContractsFutures & Options Derivatives$ $740,993 
Soybean Futures and Options ContractsFutures & Options Derivatives$ $644,364 
Soybean Forward Purchase and Sales ContractsForward Purchase/Sales Derivatives$1,115,299 $225,909 

As of September 30, 2020, the Company had approximately $4,000,000 of cash collateral (restricted cash) related to ethanol, corn and soybean derivatives held by two brokers.

The following table provides details regarding the gains and (losses) from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments:
InstrumentStatement of Operations Location Three Months Ended December 31, 2019 Three Months Ended December 31, 2020
Corn Futures and Options ContractsCost of Goods Sold$(137,894)$(6,166,556)
Ethanol Futures and Options ContractsRevenues(681,556)(424,328)
Natural Gas Futures and Options ContractsCost of Goods Sold (836)
Soybean Futures and Options ContractsCost of Goods Sold(72,840)(3,802,612)
Soybean Forward Purchase and Sales ContractsCost of Goods Sold667,875 1,922,290 
Totals$(224,415)$(8,472,042)


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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
6. FAIR VALUE MEASUREMENTS
 
The following table provides information on those assets and liabilities measured at fair value on a recurring basis as of December 31, 2020:
InstrumentsCarrying AmountFair ValueLevel 1Level 2Level 3
Corn Futures and Options Contracts$(5,594,650)$(5,594,650)$(5,468,088)$(126,562)$ 
Ethanol Futures and Options Contracts$(107,247)$(107,247)$(107,247)$ $ 
Soybean Oil Futures and Options Contracts$296,058 $296,058 $296,058 $ $ 
Soybean Futures and Options Contracts$(1,546,186)$(1,546,186)$(1,407,475)$(138,711)$ 
Soybean Forward Purchase Contracts$701,838 $701,838 $ $701,838 $ 
Soybean Inventory$11,918,305 $11,918,305 $ $11,918,305 $ 

The following table provides information on those assets and liabilities measured at fair value on a recurring basis as of September 30, 2020:
Instruments
Carrying AmountFair ValueLevel 1Level 2Level 3
Corn Futures and Options Contracts$(740,993)$(740,993)$(718,333)$(22,660)$ 
Ethanol Futures and Options Contracts$(666,571)$(666,571)$(666,571)$ $ 
Soybean Futures and Options Contracts$(644,364)$(644,364)$(525,753)$(118,611)$ 
Soybean Forward Purchase Contracts$889,390 $889,390 $ $889,390 $ 
Soybean Inventory$5,987,114 $5,987,114 $ $5,987,114 $ 
We determine the fair value of commodity futures derivative instruments utilizing Level 1 inputs by obtaining fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade market and New York Mercantile Exchange. Corn and soybean futures and options and soybean forward purchase contracts are reported at fair value utilizing Level 2 inputs from current contract prices that are being issued by the Company. Estimated fair values for inventories carried at market are based on exchange-quoted prices, adjusted for differences in local markets and quality.

7.  BANK FINANCING

The Company has a loan agreement consisting of two loans, the Declining Revolving Loan (Declining Loan) and the Revolving Credit Loan in exchange for liens on all property (real and personal, tangible and intangible) which include, among other things, a mortgage on the property, a security interest on commodity trading accounts and assignment of material contracts. The loan agreement assigns an interest rate of LIBOR plus 290 basis points (2.9%) to each of the individual loans. The Revolving Credit Loan is assigned the one month LIBOR rate which changes on the first day of every month. The Declining Loan has interest charged based on the ninety day (three month) LIBOR rate. The interest rate is assigned at the beginning of the ninety day period and not all of the loans have the same interest rate beginning and ending dates. The termination date of the Revolving Credit Loan is April 30, 2021. We are negotiating with our lender to renew the Revolving Credit Loan. The loan agreement provides for a minimum fixed charge coverage ratio of no less than 1.15:1.0 measured quarterly on a rolling four quarter average basis if our working capital is less than $23,000,000 for any reporting period and a debt service charge coverage ratio
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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
of no less than 1.25:1.0 measured quarterly on a rolling four quarter average basis, in lieu of the fixed charge coverage ratio, if working capital is equal to or more than $23,000,000.
Declining Loan

The maximum availability of the Declining Loan is $5,000,000 and such amount is to be available for working capital purposes. The interest rate on the Declining Loan was 3.13% at December 31, 2020 and September 30, 2020. There were no borrowings outstanding on the Declining Loan at December 31, 2020 or at September 30, 2020.

Revolving Credit Loan

The Revolving Credit Loan has a limit of $15,000,000 supported by a borrowing base made up of the Company's corn, ethanol, dried distillers grain, corn oil and soybean inventories reduced by accounts payable associated with those inventories having a priority. It is also supported by the eligible accounts receivable and commodity trading account excess margin funds. The interest rate was 3.06% at December 31, 2020 and September 30, 2020. There were no borrowings outstanding at December 31, 2020 or at September 30, 2020. The Revolving Credit Loan is due to mature on February 28, 2021. The Company is working with the lender to renew the loan for another twelve month term. The Company expects the renewal to be completed before the current loan matures.

These loans are subject to protective covenants, which require the Company to maintain various financial ratios. The covenants include a working capital requirement of $15,000,000, and a capital expenditures covenant that allows the Company $5,000,000 of expenditures per year without prior approval. There is also a requirement to maintain a minimum fixed charge coverage ratio of no less than 1.15:1.0 measured quarterly on a rolling four quarter basis.

Paycheck Protection Program Loan

On April 20, 2020, the Company received a loan in the approximate amount of $856,000 through the Paycheck Protection Program. The entire loan was used for payroll, utilities and interest on our loans; therefore, management anticipates that the loan will be substantially forgiven and is expected to record as a component of miscellaneous income once forgiveness has been granted. To the extent it is not forgiven, the Company would be required to repay that portion at an interest rate of 1% over eighteen months beginning six months after the loan is executed. The Company intends to use the entire loan amount for qualifying expenses and to apply for forgiveness of the loan. However, no assurance is provided that the Company will obtain forgiveness in whole or in part. To obtain full or partial forgiveness of the Paycheck Protection Program Loan, the Company must request such forgiveness and provide sufficient documentation. As of December 31, 2020, the Company had not recognized any forgiveness of the Paycheck Protection Program Loan.

Long-term debt, as discussed above, consists of the following at December 31, 2020:
Paycheck Protection Program loan$856,665 
Less amounts due within one year275,840 
       Net long-term debt$580,825 

The estimated maturities of long-term debt at December 31, 2020 are as follows:
January 1, 2021 to December 31, 2021$275,840 
January 1, 2022 to December 31, 2022572,409 
January 1, 2023 to December 31, 20238,416 
Total long-term debt$856,665 


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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
8. LEASES
 
The Company leases rail cars for its facility to transport ethanol and dried distillers grains to its end customers. Operating lease right of use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate, unless an implicit rate is readily determinable, as the discount rate for each lease in determining the present value of lease payments. For the three months ended December 31, 2020, the Company’s weighted average discount rate was 5.05%. Operating lease expense is recognized on a straight-line basis over the lease term.
 
The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining lease terms of approximately 1 year to 2.5 years, which may include options to extend the lease when it is reasonably certain the Company will exercise those options. For the three months ended December 31, 2020, the weighted average remaining lease term was 2.2 years. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants. The Company does not have any material finance lease obligations nor sublease agreements.

The following table summarizes the remaining maturities of the Company’s operating lease liabilities as of December 31, 2020:
For the Fiscal Year Ending September 30,
2021$2,339,460 
2022$2,361,822 
2023$372,501 
Totals5,073,783 
Amount representing interest208,548 
Lease liabilities$4,865,235 

For the three months ended December 31, 2020, the Company recorded operating lease costs of approximately $500,000 against ethanol revenue and $230,000 in cost of goods sold in the Company’s statement of operations.

9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

In February 2010, a lawsuit against the Company was filed by an unrelated party claiming the Company's operation of the oil separation system in a patent infringement. In connection with the lawsuit, in February 2010, the agreement for the construction and installation of the tricanter oil separation system was amended. In this amendment the manufacturer and installer of the tricanter oil separation system indemnifies the Company against all claims of infringement of patents, copyrights or other intellectual property rights from the Company's purchase and use of the tricanter oil system and agrees to defend the Company in the lawsuit filed at no expense to the Company. On October 23, 2014, the court granted summary judgment finding that all of the patents claimed were invalid and that the Company had not infringed. In addition, on September 15, 2016, the United States District Court granted summary judgment finding that the patents were invalid due to inequitable conduct before the US Patent and Trademark Office by the inventors and their attorneys. The Company has since settled with the attorneys for the inventors. On March 2, 2020, the rulings were affirmed on appeal. GS CleanTech's petition for a rehearing of the appeal has been denied. On December 7, 2020, GS CleanTech petitioned the U.S. Supreme Court for a writ of certiorari to review the decision. The U.S. Supreme Court can either deny or grant review of the lower court decision. The manufacturer has, and the Company expects it will continue, to vigorously defend itself and the Company.

If the ruling was to be successfully appealed, the Company estimates that damages sought in this litigation if awarded would be
based on a reasonable royalty to, or lost profits of, the plaintiff. If the court deems the case exceptional, attorney's fees may be awarded and are likely to be $1,000,000 or more. The manufacturer has also agreed to indemnify the Company for these fees. However, in the event that damages are awarded and if the manufacturer is unable to fully indemnify the Company for any
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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
reason, the Company could be liable. In addition, the Company may need to cease use of its current oil separation process and seek out a replacement or cease oil production altogether.

Rail Car Rehabilitation Costs

The Company leases 180 hopper rail cars under a multi-year agreement which ends in November 2021. Under the agreement, the Company is required to pay to rehabilitate each car for "damage" that is considered to be other than normal wear and tear upon turn in of the car(s).

Company management has estimated total costs to rehabilitate the cars at December 31, 2020, to be approximately $1,527,120. During the three months ended December 31, 2020, the Company has recorded a corresponding expense in cost of goods sold of approximately $75,000.

Boiler Replacement

The Company entered into a fixed commitment to replace one of its boilers. The boiler is expected to be installed during the third fiscal quarter and the estimated cost of the replacement is $800,000.

10. UNCERTAINTIES IMPACTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS

The Company has certain risks and uncertainties that it experiences during volatile market conditions, which can have a severe impact on operations. The Company's revenues are primarily derived from the sale and distribution of ethanol, distillers grains and corn oil to customers primarily located in the U.S. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. During the three months ended December 31, 2020 ethanol sales average approximately 53% of total revenues and corn costs average 60% of total cost of goods sold.

The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol, distillers grains and corn oil, and the related cost of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and the unleaded gasoline and petroleum markets, although, since 2005, the prices of ethanol and gasoline began a divergence with ethanol selling for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.

The Company, and the ethanol industry as a whole, experienced adverse conditions throughout 2019 and 2020, as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels. These factors, which are compounded by the recent impact of COVID-19, resulted and continue to result in negative operating margins, lower cash flow from operations and net operating losses. In response to the low margin environment, the Company reduced its ethanol production rate by approximately 20% in March 2020. As margins improved in May of 2020, the Company began increasing its ethanol production rate to approximately 135 million gallons annually. The Company continues to monitor COVID-19 developments in order to determine whether future adjustments to production are warranted. During the three months ended December 31, 2020 and thereafter, the market price of corn and soybeans increased significantly. As a result the Company has engaged its senior lender in discussions in order to increase its limit on its Revolving Credit Loan by $5,000,000 in order to provide additional working capital. The Company believes that with this anticipated increase, its cash on hand and available debt from its lender will provide sufficient liquidity to meets its anticipated working capital, debt service and other liquidity needs through the next twelve months. If market conditions worsen affecting our ability to profitably operate the plant or if we are unable to transport ethanol, we may be forced to further reduce our ethanol production rate or even temporarily shut down ethanol production altogether.


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CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
December 31, 2020
11. BUSINESS SEGMENTS

The Company has two reportable operating segments. Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses. The accounting policies for each segment are the same as those described in the summary of significant accounting policies. Segment income or loss does not include any allocation of shared-service costs.  Segment assets are those that are directly used in or identified with segment operations. Inter-segment balances and transactions have been eliminated.
 
The following tables summarize financial information by segment and provide a reconciliation of segment revenue, gross profit, grain inventories, operating income, and total assets:
Three Months Ended
December 31, 2020December 31, 2019
Revenue:(unaudited)(unaudited)
Ethanol division$65,900,858 $58,882,103 
Trading division27,339,123 4,854,749 
Total Revenue$93,239,981 $63,736,852 
Three Months Ended
December 31, 2020December 31, 2019
Gross Profit (Loss):(unaudited)(unaudited)
Ethanol division$(283,672)$2,069,239 
Trading division813,027 918,805 
Total Gross Profit$529,355 $2,988,044 
Three Months Ended
December 31, 2020December 31, 2019
Operating Income (Loss):(unaudited)(unaudited)
Ethanol division$(1,779,086)$691,741 
Trading division495,784 601,561 
Total Operating Income (Loss)$(1,283,302)$1,293,302 

December 31, 2020September 30, 2020
Grain Inventories:(unaudited)
Ethanol division$11,192,107 $2,465,782 
Trading division11,918,305 5,987,114 
Total Grain Inventories$23,110,412 $8,452,896 
December 31, 2020September 30, 2020
Total Assets:(unaudited)
Ethanol division$138,640,628 $111,774,989 
Trading division25,772,771 17,962,289 
Total Assets$164,413,399 $129,737,278 

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

    We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three month period ended December 31, 2020, compared to the same period of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

Forward Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions.  In some cases you can identify forward-looking statements by the use of words such as "may," "will," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions.  These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to those listed below and those business risks and factors described elsewhere in this report and our other Securities and Exchange Commission filings. 

Reduction, delay, or elimination of the Renewable Fuel Standard;
Changes in the availability and price of corn, natural gas and other grains;
Our inability to secure credit or obtain additional equity financing we may require in the future to continue our operations;
Decreases in the price we receive for our ethanol, distiller grains, corn oil and other grains;
Our ability to satisfy the financial covenants contained in our credit agreements with our senior lender;
Our ability to profitably operate the ethanol plant and maintain a positive spread between the selling price of our products and our raw material costs;
Negative impacts that our hedging activities may have on our operations;
Ethanol and distiller grains supply exceeding demand and corresponding price reductions;
Our ability to generate free cash flow to invest in our business and service our debt;
Changes in the environmental regulations that apply to our plant operations;
Changes in our business strategy, capital improvements or development plans;
Changes in plant production capacity or technical difficulties in operating the plant;
Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;
Lack of transport, storage and blending infrastructure preventing our products from reaching high demand markets;
Changes in federal and/or state laws;
Changes and advances in ethanol production technology;
Competition from alternative fuel additives;
Changes in interest rates or the lack of credit availability;
Changes in legislation benefiting renewable fuels;
Competition from the increased use of electric vehicles;
Our ability to retain key employees and maintain labor relations;
Volatile commodity and financial markets;
Limitations and restrictions contained in the instruments and agreements governing our indebtedness;
Decreases in export demand due to the imposition of tariffs by foreign governments on ethanol, distillers grains and soybeans produced in the United States;
Use by the EPA of small refinery exemptions; and
A slowdown in global and regional economic activity, demand for our products and the potential for labor shortages and shipping disruptions resulting from COVID-19.

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 undertake no duty to update these forward-looking statements even though our situation may change in the future.  We cannot guarantee future results, levels of activity, performance or achievements.  We caution you not to put undue reliance on any forward-looking
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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 with these cautionary statements.

Overview

Cardinal Ethanol, LLC is an Indiana limited liability company operating an ethanol plant in east central Indiana near Union City, Indiana. We began producing ethanol, distillers grains and corn oil at the plant in November 2008. In addition, we procure, transport and sell grain commodities through our grain trading business which began operations at the end of our fourth fiscal quarter of 2017.

    The ethanol industry experienced industry-wide record low ethanol prices throughout most of 2018 and 2019 due to reduced demand and high industry inventory levels. This has continued into 2020 and the situation has been compounded by the recent impact of the COVID-19 pandemic. In response to these unfavorable operating conditions and a slowdown in global and regional economic activity resulting from COVID-19, we reduced our ethanol production rate by approximately 20% in March of 2020. However, beginning in May of 2020, we returned to full production and have since been operating at an ethanol production rate of approximately 135 million gallons annually which is approximately 35% above the nameplate capacity for the plant. 

    On November 17, 2020, the board of directors declared a cash distribution of $100 per membership unit to the holders of units of record at the close of business on November 17, 2020, for a total distribution of $1,460,600. The distribution was paid in November 2020.

We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our current credit facilities as amended. If market conditions worsen affecting our ability to profitably operate the plant or if we are unable to transport ethanol, we may be forced to further reduce our ethanol production rate or even temporarily shut down ethanol production altogether.

Results of Operations for the Three Months Ended December 31, 2020 and 2019

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the three months ended December 31, 2020 and 2019:
 20202019
Statement of Operations DataAmount%Amount%
Revenue$93,239,981 100.0 $63,736,852 100.0 
Cost of Goods Sold92,710,626 99.4 60,748,808 95.3 
Gross Profit529,355 0.6 2,988,044 4.7 
Operating Expenses1,812,657 1.9 1,694,742 2.7 
Operating Income (Loss)(1,283,302)(1.3)1,293,302 2.0 
Other Income, Net227,448 0.2 345,458 0.5 
Net Income (Loss)$(1,055,854)(1.1)$1,638,760 2.5 

Revenue

Operating Segments

    Operating segments are defined as components of an enterprise for which separate financial information is available that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing
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performance. Based on the nature of the products, services and operations and the expected financial results, we review our operations within the two operating segments-the Ethanol Division and the Trading Division. Our revenues from operations from our Ethanol Division come from three primary sources: sales of fuel ethanol, distillers grains and corn oil. Revenues from operations of our Trading Division are derived from procuring, transporting and selling grain commodities.

    We currently do not have or anticipate we will have any other lines of business or other significant sources of revenue other than the sale of ethanol, distillers grains, corn oil and and the trading of agricultural grains.  Refer to Note 11, “Business Segments”, of the notes to the unaudited condensed financial statements for financial information about our financial reporting segments. Revenues in each division also include net gains or losses from derivatives related to products sold.

    The following table shows the sources of our total revenue from the two segments and the approximate percentage of revenues to total revenues in our unaudited condensed statements of operations for the three months ended December 31, 2020 and 2019:
20202019
Revenue:Amount% of Total RevenuesAmount% of Total Revenues
Ethanol division$65,900,858 70.7 %$58,882,103 92.4 %
Trading division27,339,123 29.3 %4,854,749 7.6 %
Total Revenue$93,239,981 100.0 %$63,736,852 100.0 %

Ethanol Division

    The following table shows the sources of our revenues from our Ethanol Division for the three months ended December 31, 2020 and 2019:
20202019
Revenue SourceAmount% of RevenuesAmount% of Revenues
Ethanol$49,371,575 74.9 %$45,580,223 77.4 %
Distillers Grains12,958,367 19.7 10,828,351 18.4 
Corn Oil3,437,541 5.2 2,340,354 4.0 
Carbon Dioxide123,375 0.2 123,375 0.2 
Other Revenue10,000 — 9,800 — 
Total Revenues$65,900,858 100.0 %$58,882,103 100.0 %

    Ethanol
    
    Our revenues from ethanol increased in the three months ended December 31, 2020 as compared the to the same period in 2019. This increase in revenues is primarily the result an increase in gallons of ethanol sold and the timing of those shipments for the three months ended December 31, 2020 as compared to the same period in 2019.

    The average price per gallon of ethanol sold for the three months ended December 31, 2020 was approximately 6.02% lower than the average price per gallon of ethanol sold for the same period in 2019. Ethanol market prices have been lower as a result of an extended period of industry-wide production in excess of demand due to a variety of factors including the granting by the EPA of small refinery waivers, trade barriers resulting from disputes with foreign governments and a collapse in both domestic and foreign demand as a result of restrictions put in place in response to the COVID-19 pandemic which caused ethanol stocks in the United States to become significantly high and prices to decrease dramatically. As a result of poor economic conditions, many ethanol plants curtailed or stopped ethanol production. The decrease in industry-wide production coupled with a gradual increase in domestic demand due to the lifting of COVID-19 restrictions in some areas had a positive effect on ethanol prices. However, as ethanol plants return to higher production levels, concern regarding industry over-production had a negative effect on prices towards the end of the period.
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Management anticipates that ethanol prices will be negatively affected by industry-wide production in excess of domestic demand which will be exacerbated if restrictions continue in the United States due to the COVID-19 pandemic. Declines in ethanol exports due to decreased global fuel consumption in response to the COVID-19 pandemic or trade disputes with foreign governments would also likely contribute to lower ethanol prices and potentially negative operating margins. Lower prices are likely to continue until either fuel demand returns due to the vaccine and lifting of COVID-19 restrictions or industry-wide production slows in reaction to poor operating conditions. However, ethanol market prices are also typically directionally consistent with corn prices. Higher corn prices would likely lead to higher ethanol prices.

    We experienced an increase in ethanol gallons sold of approximately 15.21% for the three months ended December 31, 2020 as compared to the same period in 2019 resulting primarily from increased ethanol production rates for the period. In March of 2020, we reduced our ethanol production rate by approximately 20% due to unfavorable operating conditions in the ethanol industry and the COVID-19 pandemic.  However, beginning in May of 2020, we began operating at an ethanol production rate of approximately 135 million gallons annually which is approximately 35% above the nameplate capacity for the plant.  In addition, we are installing an ethanol recovery system which we expect will be operational during the first half of fiscal 2021 and which we anticipate will result in an increase in efficiencies allowing us to achieve higher ethanol production rates. However, management continues to monitor economic conditions carefully. If market conditions worsen affecting our ability to profitably operate the plant, we may be forced to reduce our ethanol production rate or even temporarily shut down ethanol production altogether.
        
    Distillers Grains

    Our revenues from distillers grains increased in the three months ended December 31, 2020 as compared to the same period in 2019. This increase in revenues is primarily the result of an increase in the average price per ton of distillers grains sold for the period ended December 31, 2020 as compared to the same period in 2019.

    The average price per ton of distillers grains sold for the three months ended December 31, 2020 was approximately 17.60% higher than the average price per ton of distillers grains sold for the same period in 2019. This increase in the market price of distillers grains is primarily due to a decrease in distillers grains supply due to some ethanol plants reducing or shutting down ethanol production in response to poor economic conditions and end-users switching to distillers grains as a lower priced alternative to corn and soybean meal.

    Management anticipates that distillers grains prices will be continue to be affected by the price of corn and soybean meal. A decrease in industry-wide ethanol production levels in reaction to poor operating conditions could also have a positive effect on distillers grains prices. However, trade barriers with foreign countries have had a negative effect on export demand in the past. If trade disputes with foreign countries such as China are not favorably resolved, this could have a negative effect on distillers grains prices unless additional demand can be sustained from domestic or other foreign markets.

    We sold approximately 1.65% more tons of distillers grains in the three months ended December 31, 2020 as compared to the same period in 2019 resulting primarily from higher ethanol production levels for the period which resulted in increased distillers grains production. We are currently operating at an ethanol production rate of approximately 135 million gallons annually which is approximately 35% above the nameplate capacity for the plant.  However, if we are forced to again reduce ethanol production that would result in a corresponding decrease in distillers grains production.

    Corn Oil

    Our revenues from corn oil sales increased in the three months ended December 31, 2020 as compared to the same period in 2019 which was mainly the result of increased volume of sales and an increase in the average price per pound for corn oil. We sold approximately 21.46% more tons of corn oil in the three months ended December 31, 2020 as compared to the same period in 2019 due to higher corn oil yield on average resulting in higher corn oil production.

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The average price per pound of corn oil was approximately 20.00% higher for the three months ended December 31, 2020 as compared to the same period in 2019. Higher soybean oil prices along with increased biodiesel production had a positive effect on corn oil prices for the period. Soybean oil is the primary competitor with corn oil.
    
    Management anticipates that corn oil prices will continue to follow soybean oil prices. Corn oil prices are also likely to be negatively affected by an increase in corn oil supply as operating conditions improve and ethanol plants increase production levels. However, the extension of the biodiesel tax credit by Congress could continue to have a positive impact on demand from biodiesel producers and corn oil prices.

    We are currently operating at an ethanol production rate of approximately 135 million gallons annually which is approximately 35% above the nameplate capacity for the plant.  However, if we are forced to again reduce ethanol production that would result in a corresponding decrease in corn oil production.

Trading Division

    The following table shows the sources of our revenues from our Trading Division for the three months ended December 31, 2020 and 2019:
20202019
Revenue SourceAmount% of RevenuesAmount% of Revenues
Soybean Sales$27,289,648 99.8 %$4,825,299 99.4 %
Other Revenue49,475 0.2 29,450 0.6 
Total Revenues$27,339,123 100.0 %$4,854,749 100.0 %

Soybeans

    During the three months ended December 31, 2020 revenues from our Trading Division w