UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

	For the quarterly period ended ~~June 30,~~December 31, 2019

	OR

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

	For the transition period from to .

	COMMISSION FILE NUMBER 000-52033

RED TRAIL ENERGY, LLC

(Exact name of registrant as specified in its charter)



North Dakota				76-0742311
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

3682 Highway 8 South, P.O. Box 11, Richardton, ND 58652
(Address of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Act:



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

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 o	Accelerated Filer o
Non-Accelerated Filer x	Smaller Reporting Company o
	Emerging Growth Company o
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).

o Yes x No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of ~~August 12, 2019~~February 14, 2020, there were 40,148,160 Class A Membership Units outstanding.

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INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RED TRAIL ENERGY, LLC

Condensed Balance Sheets


ASSETS	June 30, 2019		September 30, 2018		December 31, 2019		September 30, 2019
	(Unaudited)				(Unaudited)
Current Assets
Cash and equivalents	$	9,367,657	$	4,573,858	$	6,999,650	$	8,565,038
Restricted cash - margin account	843,714		6,299,481		2,121,853		1,957,031
Accounts receivable, primarily related party	3,738,824		3,029,314
Commodities derivative instruments, at fair value (see note 3)	797,138		—
Accounts receivable,net, primarily related party					4,157,139		3,910,384
Inventory	8,659,293		10,971,056		8,220,612		6,962,825
Prepaid expenses	203,925		110,974		593,814		109,500
Total current assets	23,610,551		24,984,683		22,093,068		21,504,778

Property, Plant and Equipment
Land	1,333,681		1,342,381		1,333,681		1,333,681
Land improvements	4,465,311		4,465,311		4,465,311		4,465,311
Buildings	8,111,074		8,091,522		8,111,074		8,111,074
Plant and equipment	87,940,601		87,740,511		88,061,649		88,038,476
Construction in progress	396,997		42,742		1,163,627		455,825
	102,247,664		101,682,467		103,135,342		102,404,367
Less accumulated depreciation	61,897,947		58,325,210		64,290,297		63,092,175
Net property, plant and equipment	40,349,717		43,357,257		38,845,045		39,312,192

Other Assets
Right of use operating lease assets, net					1,304,657		—
Investment in RPMG	605,000		605,000		605,000		605,000
Patronage equity	3,478,552		3,478,552		4,119,151		4,119,151
Deposits	40,000		40,000		40,000		40,000
Total other assets	4,123,552		4,123,552		6,068,808		4,764,151

Total Assets	$	68,083,820	$	72,465,492	$	67,006,921	$	65,581,121

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

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RED TRAIL ENERGY, LLC

Condensed Balance Sheets


LIABILITIES AND MEMBERS' EQUITY	June 30, 2019		September 30, 2018		December 31, 2019		September 30, 2019
	(Unaudited)				(Unaudited)
Current Liabilities
Accounts payable	$	3,099,252	$	4,689,119	$	3,674,470	$	4,331,521
Accrued expenses	771,148		1,005,067		2,498,302		598,209
Commodities derivative instruments, at fair value (see note 3)	—		2,245,650		40,865		8,875
Accrued loss on firm purchase commitments (see notes 4 and 8)	98,000		204,000		144,000		68,000
Current maturities of notes payable	945		2,921		4,483		252
Current portion of operating leases					390,454		—
Total current liabilities	3,969,345		8,146,757		6,752,574		5,006,857

Commitments and Contingencies (Notes 4, 5, 7 and 8)
Long-Term Liabilities
Notes payable					17,793		—
Long-term operating lease liabilities					914,203		—
Total long-term liabilities					931,996		—

Members’ Equity 40,148,160 Class A Membership Units issued and outstanding	64,114,475		64,318,735		59,322,351		60,574,264

Total Liabilities and Members’ Equity	$	68,083,820	$	72,465,492	$	67,006,921	$	65,581,121

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

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RED TRAIL ENERGY, LLC

Condensed Statements of Operations (Unaudited)


	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended			Three Months Ended			Three Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			December 31, 2019			December 31, 2018
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues, primarily related party	$	26,302,894		$	28,726,715		$	78,443,830		$	81,216,304		$	26,340,913		$	25,909,136

Cost of Goods Sold
Cost of goods sold	24,475,143			28,155,815			76,585,250			80,087,408			26,740,778			24,856,341
Lower of cost or net realizable value adjustment	74,170			—			74,170			82,082			22,705			—
Loss on firm purchase commitments	87,000			—			92,000			8,000			76,000			5,000
Total Cost of Goods Sold	24,636,313			28,155,815			76,751,420			80,177,490			26,839,483			24,861,341

Gross Profit	1,666,581			570,900			1,692,410			1,038,814
Gross Profit (Loss)													(498,570		)	1,047,795

General and Administrative Expenses	891,302			611,006			2,222,067			2,111,926			799,505			674,885

Operating Income (Loss)	775,279			(40,106		)	(529,657		)	(1,073,112		)	(1,298,075		)	372,910

Other Income (Expense)
Interest income	31,785			54,605			66,547			101,872			39,277			27,443
Other income, net	10,924			47,768			260,643			471,049			6,976			2,496
Interest expense	(2		)	(8		)	(11		)	(42		)	(91		)	(5		)
Total other income, net	42,707			102,365			327,179			572,879			46,162			29,934

Net Income (Loss)	$	817,986		$	62,259		$	(202,478	)	$	(500,233	)	$	(1,251,913	)	$	402,844

Weighted Average Units Outstanding
Basic	40,148,160			41,031,775			40,148,160			41,321,485			40,148,160			40,148,160

Diluted	40,148,160			41,031,775			40,148,160			41,321,485			40,148,160			40,148,160

Net Income (Loss) Per Unit
Basic	$	0.02		$	—		$	(0.01	)	$	(0.01	)	$	(0.03	)	$	0.01

Diluted	$	0.02		$	—		$	(0.01	)	$	(0.01	)	$	(0.03	)	$	0.01

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

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RED TRAIL ENERGY, LLC

Condensed Statements of Cash Flows (Unaudited)


	Nine Months Ended			Nine Months Ended			Three Months Ended			Three Months Ended
	June 30, 2019			June 30, 2018			December 31, 2019			December 31, 2018
Cash Flows from Operating Activities
Net loss	$	(202,478	)	$	(500,233	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income (loss)							$	(1,251,913	)	$	402,844
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	3,572,737			3,545,435			1,198,122			1,189,514
Loss on disposal of fixed assets	3,659			—						13,254
Change in fair value of derivative instruments	(3,042,788		)	1,003,438			31,990			(2,123,150		)
Lower of cost of net realizable value adjustment	74,170			82,082			22,705			—
Loss on firm purchase commitments	92,000			8,000			76,000			5,000
Changes in operating assets and liabilities:
Accounts receivable	(709,509		)	730,950
Other receivables	—			8,764
Accounts receivable, net, primarily related party							(246,755		)	(231,671		)
Inventory	2,145,592			4,021,626			(1,356,492		)	141,450
Prepaid expenses	(92,951		)	(94,822		)	(484,314		)	(228,582		)
Accounts payable	(1,589,867		)	7,495,539			(657,051		)	20,831
Accrued expenses	(233,919		)	(1,952,583		)	1,900,093			(371,472		)
Accrued loss on firm purchase commitments	(106,000		)	(5,000		)	76,000			5,000
Net cash (used in) provided by operating activities	(89,354		)	14,343,196
Net cash used in operating activities							(691,615		)	(1,176,982		)

Cash Flows from Investing Activities
Proceeds from disposal of fixed assets	18,295			—
Capital expenditures	(587,151		)	(797,128		)	(707,802		)	(80,306		)
Net cash (used in) investing activities	(568,856		)	(797,128		)
Net cash used in investing activities							(707,802		)	(80,306		)

Cash Flows from Financing Activities
Dividends paid	(1,782		)	(2,901,975		)
Unit repurchase	—			(1,318,180		)
Debt repayments	(1,976		)	(1,961		)
Net cash (used in) financing activities	(3,758		)	(4,222,116		)
Payments on notes payable							(1,149		)	(657		)
Net cash used in financing activities							(1,149		)	(657		)

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash	(661,968		)	9,323,952
Net Decrease in Cash, Cash Equivalents and Restricted Cash							(1,400,566		)	(1,257,945		)
Cash, Cash Equivalents and Restricted Cash - Beginning of Period	10,873,339			9,130,008			10,522,069			10,873,339
Cash, Cash Equivalents and Restricted Cash - End of Period	$	10,211,371		$	18,453,960		$	9,121,503		$	9,615,394

Reconciliation of Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents	$	9,367,657		$	14,428,327		$	6,999,650		$	3,370,561
Restricted cash	843,714			4,025,633			2,121,853			6,244,833
Total Cash, Cash Equivalents and Restricted Cash	$	10,211,371		$	18,453,960		$	9,121,503		$	9,615,394

Supplemental Disclosure of Cash Flow Information
Interest paid	$	11		$	42		$	91		$	5
Noncash Investing and Financing Activities
Finance lease asset acquired							23,173			—
Capital expenditures in accounts payable							$	—		$	10,176

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

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED ~~JUNE 30,~~DECEMBER 31, 2019

The accompanying condensed unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 fiscal year ended September 30, ~~2018,~~2019, contained in the Company's Annual Report on Form 10-K.

In the opinion of management, the interim condensed unaudited financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, ~~2019.~~2020.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Red Trail Energy, LLC, a North Dakota limited liability company (the “Company”), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota (the “Plant”).

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. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, inventory and allowance for doubtful accounts. Actual results could differ from those estimates.

Net Income Per Unit

Net income per unit is calculated on a basic and fully diluted basis using the weighted average units outstanding during the period.

Recently Issued Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the FASB issued ASC 606, “Revenue from Contracts with Customers” which supersedes the guidance in “Revenue Recognition (Topic 605)” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASC 606 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. Effective October 1, 2018, the Company adopted ASC 606 for all of its contracts using the modified retrospective approach. See note 2.

Statement of Cash Flows; Restricted Cash

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU No. 2016-18 is effective for annal periods beginning after December 15, 2017, and interim periods within those annual periods.

Effective October 1, 2018 the Company retrospectively adopted ASU No. 2016-18. As a result, net cash used in operating activities for the nine months ended June 30, 2019 was adjusted to exclude the change in restricted cash and decreased the previously reported balance by approximately $1,881,000. Also the previously reported cash and cash equivalent balance was adjusted to include restricted cash and has increased by approximately $4,026,000.

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~~RED TRAIL ENERGY, LLC~~

~~NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS~~

~~FOR THE PERIOD ENDED JUNE 30, 2019~~

Lease Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, "Leases (topic 842)" which requires a lessee to recognize a right to use asset and a lease liability on its balance sheet for all leases with terms of twelve months or greater. This guidance is effective for

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED DECEMBER 31, 2019

fiscal years beginning after December 15, 2018, included interim periods within those years with early adoption permitted. ~~The~~Effective October 1, 2019 the Company ~~has evaluated~~adopted ASU No. 2016-02 using the ~~new standard and expects it will have a material impact on the financial statements as we will have to begin capitalizing leases on the balance sheet when the new standard is implemented.~~modified retrospective approach. See note 7 for current operating and financing lease commitments.

2. REVENUE

Adoption of ASC 606

Effective October 1, 2018, the Company adopted ASC 606 using the modified retrospective approach for all of its contracts. Following the adoption of ASC 606, the Company continues to recognize revenue at a point-in-time when control of goods transfers to the customer. This is consistent with the Company's previous revenue recognition accounting policy under which the Company recognized revenue when title and risk of loss pass to the customer and collectability was reasonably assured. ASC 606 did not impact the Company's presentation of revenue on a gross or net basis. The Company recognizes revenue primarily from sales of ethanol and its related co-products. In addition, there was no impact of adoption on the statement of operations or balance sheet for the nine months ended June 30, 2019. The Company expects the impact of adopting the new revenue standard to be immaterial to net income on an ongoing basis.

Revenue Recognition

The Company recognizes revenue from sales of ethanol and co-products at the point in time when the performance obligations in the contract are met, which is when the customer obtains control of such products and typically occurs upon shipment depending on the terms of the underlying contracts. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. In some instances, the Company enters into contracts with customers that contain multiple performance obligations to deliver volumes of co-products over a contractual period of less than 12 months. The Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices and recognizes the related revenue as control of each individual product is transferred to the customer in satisfaction of the corresponding performance obligation.

Revenue by Source

The following table disaggregates revenue by major source for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 and 2018.


Revenues	For the three months ended June 30, 2019 (unaudited)		For the three months ended June 30, 2018 (unaudited)		For the nine months ended June 30, 2019 (unaudited)		For the nine months ended June 30, 2018 (unaudited)		For the three months ended December 31, 2019 (unaudited)		For the three months ended December 31, 2018 (unaudited)
Ethanol and E85	$	20,862,325	$	21,892,641	$	60,517,057	$	61,456,649	$	20,420,028	$	19,539,168
Distillers Grains	4,797,738		5,889,714		15,706,453		16,906,013		4,814,637		5,616,777
Syrup	73,563		67,886		267,573		227,366		92,359		92,009
Corn Oil	505,587		806,768		1,798,732		2,475,487		965,372		605,140
Other	63,681		69,706		154,015		150,789		48,517		56,042
Total revenue from contracts with customers	$	26,302,894	$	28,726,715	$	78,443,830	$	81,216,304	$	26,340,913	$	25,909,136

Shipping and Handling Costs

We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products. Accordingly, we record customer payments associated with shipping and handling costs as a component of revenue, and classify such costs as a component of cost of goods sold.

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~~RED TRAIL ENERGY, LLC~~

~~NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS~~

~~FOR THE PERIOD ENDED JUNE 30, 2019~~

3. DERIVATIVE INSTRUMENTS

Commodity Contracts

As part of its hedging strategy, the Company may enter into ethanol, soybean, soybean oil, natural gas and corn commodity-based derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices in order to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales, corn oil sales, and corn purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED DECEMBER 31, 2019

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. Ethanol derivative fair market value gains or losses are included in the results of operations and are classified as revenue and corn derivative changes in fair market value are included in cost of goods sold.


As of:	June 30, 2019 (unaudited)						September 30, 2018						December 31, 2019 (unaudited)						September 30, 2019
Contract Type	# of Contracts	Notional Amount (Qty)		Fair Value			# of Contracts	Notional Amount (Qty)		Fair Value			# of Contracts	Notional Amount (Qty)		Fair Value			# of Contracts	Notional Amount (Qty)		Fair Value
Corn futures	—	—	bushels	$	—		800	4,000,000	bushels	$	(319,400	)	10	50,000	bushels	$	4,625		—	—	bushels	$	—
Corn options	1,530	7,650,000	bushels	$	797,688		2,800	14,000,000	bushels	$	(1,926,250	)	270	1,350,000	bushels	$	(30,750	)	30	150,000	bushels	$	(8,875	)
Natural gas futures													35	350,000	dk	$	(6,900	)	—	—	dk	$	—
Natural gas options	3	30,000	dk	$	(550	)	—	—	dk	$	—		7	70,000	dk	$	(7,840	)	—	—	dk	$	—
Total fair value				$	797,138					$	(2,245,650	)				$	(40,865	)				$	(8,875	)
Amounts are combined on the balance sheet - negative numbers represent liabilities

The following tables provide details regarding the Company's derivative financial instruments at ~~June 30,~~December 31, 2019 and September 30, ~~2018:~~2019:


Derivatives not designated as hedging instruments:

Balance Sheet - as of June 30, 2019 (unaudited)	Asset		Liability
Balance Sheet - as of December 31, 2019 (unaudited)					Asset		Liability
Commodity derivative instruments, at fair value	$	797,138	$	—	$	—	$	40,865
Total derivatives not designated as hedging instruments for accounting purposes	$	797,138	$	—	$	—	$	40,865

Balance Sheet - as of September 30, 2018	Asset		Liability
Balance Sheet - as of September 30, 2019					Asset		Liability
Commodity derivative instruments, at fair value	$	—	$	2,245,650	$	—	$	8,875
Total derivatives not designated as hedging instruments for accounting purposes	$	—	$	2,245,650	$	—	$	8,875


Statement of Operations Income/(Expense)	Location of gain (loss) in fair value recognized in income	Amount of gain (loss) recognized in income during the three months ended June 30, 2019 (unaudited)			Amount of gain (loss) recognized in income during the three months ended June 30, 2018 (unaudited)			Amount of gain (loss) recognized in income during the nine months ended June 30, 2019 (unaudited)			Amount of gain (loss) recognized in income during the nine months ended June 30, 2018 (unaudited)			Location of gain (loss) in fair value recognized in income	Amount of gain (loss) recognized in income during the three months ended December 31, 2019 (unaudited)			Amount of gain (loss) recognized in income during the three months ended December 31, 2018 (unaudited)
Corn derivative instruments	Cost of Goods Sold	$	3,225,402		$	(1,901,509	)	$	4,107,834		$	(767,270	)	Cost of Goods Sold	$	104,683		$	2,068,502
Ethanol derivative instruments	Revenue	—			—			—			1,800
Natural gas derivative instruments	Cost of Goods Sold	(550		)	—			(550		)	—			Cost of Goods Sold	(27,850		)	—
Total		$	3,224,852		$	(1,901,509	)	$	4,107,284		$	(765,470	)		$	76,833		$	2,068,502

4. INVENTORY

Inventory is valued at the lower of cost or net realizable value. Inventory values as of December 31, 2019 and September 30, 2019 were as follows:



As of	December 31, 2019 (unaudited)		September 30, 2019
Raw materials, including corn, chemicals and supplies	$	4,249,606	$	2,679,126
Work in process	877,881		956,509
Finished goods, including ethanol and distillers grains	1,150,551		1,459,561
Spare parts	1,942,574		1,867,629
Total inventory	$	8,220,612	$	6,962,825

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED ~~JUNE 30,~~DECEMBER 31, 2019

~~4. INVENTORY~~

~~Inventory is valued at the lower of cost or net realizable value. Inventory values as of June 30, 2019 and September 30, 2018 were as follows:~~

As of
June 30, 2019
(unaudited)
September 30, 2018
Raw materials, including corn, chemicals and supplies $ 4,051,477
$ 6,684,322
Work in process 935,838
738,991
Finished goods, including ethanol and distillers grains 1,430,557
1,405,806
Spare parts 2,241,421
2,141,937
Total inventory $ 8,659,293
$ 10,971,056

Lower of cost or net realizable value adjustments for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 and 2018 were as follows:


	For the three months ended June 30, 2019 (unaudited)		For the three months ended June 30, 2018 (unaudited)		For the nine months ended June 30, 2019 (unaudited)		For the nine months ended June, 2018 (unaudited)		For the three months ended December 31, 2019 (unaudited)		For the three months ended December 31, 2018 (unaudited)
Loss on firm purchase commitments	$	87,000	$	—	$	92,000	$	8,000	$	76,000	$	5,000
Loss on lower of cost or net realizable value adjustment for inventory on hand	$	74,170	$	—	$	74,170	$	82,082	$	22,705	$	—
Total loss on lower of cost or net realizable value adjustments	$	161,170	$	—	$	166,170	$	90,082	$	98,705	$	5,000

The Company has entered into forward corn purchase contracts under which it is required to take delivery at the contract price. At the time the contracts were created, the price of the contract approximated market price. Subsequent changes in market conditions could cause the contract prices to become higher or lower than market prices. As of ~~June 30,~~December 31, 2019, the average price of corn purchased under certain fixed price contracts, that had not yet been delivered, was greater than approximated market price. Based on this information, the Company has ~~an $87,000 and $92,000~~a $76,000 estimated loss on firm purchase commitments for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019. The loss is recorded in “Loss on firm purchase commitments” on the statement of operations. The amount of the potential loss was determined by applying a methodology similar to that used in the impairment valuation with respect to inventory. Given the uncertainty of future ethanol prices, further losses on the outstanding purchase commitments could be recorded in future periods.

5. BANK FINANCING

As of June 30, 2019 (unaudited) September 30, 2018
Capital lease obligations (Note 7) $ 945
$ 2,921
Total Long-Term Debt 945
2,921
Less amounts due within one year 945
2,921
Total Long-Term Debt Less Amounts Due Within One Year $ —
$ —

On ~~June 30,~~October 1, 2019, we ~~renewed~~terminated our ~~$10~~$7 million ~~revolving loan (the "Revolving Loan")~~Revolving Loan with U.S. Bank National Association ("U.S. Bank"). The ~~principle was lowered to $7 million. The~~ maturity date of the Revolving Loan ~~is June 30,~~was May 31, 2020. Our ability to draw funds on the Revolving Loan iswas subject to a borrowing base calculation as set forth in the Credit Agreement. ~~At June 30, 2019~~

On January 22, 2020 we entered into a new $10 million revolving loan (the "Revolving Loan") with Cornerstone Bank ("Cornerstone"). The Revolving Loan replaced a similar revolving loan we had ~~$6,300,000 available on~~with U.S. Bank National Association. The maturity date of the Revolving Loan taking into account the borrowing base calculation. At September 30, 2018 we had $8,800,000 available on the Revolving Loan. We had $0 drawn on the Revolving Loan as of June 30, 2019 and September 30, 2018.is January 21, 2021. The variable interest rate on December 31, 2019 will be 3.55%.

On January 22, 2020, we entered into a new $7 million construction loan (the "Construction Loan") with Cornerstone. The maturity date of the Construction Loan is June ~~30,~~1, 2021. The variable interest rate on December 31, 2019 ~~was 4.21%~~will be 3.55%. ~~See note 7 for the Company's additional future minimum lease commitments.~~

The Company's loans are secured by a lien on substantially all of the assets of the Company. ~~As of June 30, 2019, the Company was in compliance with its quarterly debt covenant.~~

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~~RED TRAIL ENERGY, LLC~~

~~NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS~~

~~FOR THE PERIOD ENDED JUNE 30, 2019~~

6. FAIR VALUE MEASUREMENTS

The following table provides information on those liabilities that are measured at fair value on a recurring basis as of ~~June 30,~~December 31, 2019 and September 30, ~~2018,~~2019, respectively.

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED DECEMBER 31, 2019


					Fair Value Measurement Using										Fair Value Measurement Using
	Carrying Amount as of June 30, 2019 (unaudited)		Fair Value as of June 30, 2019 (unaudited)		Level 1		Level 2		Level 3		Carrying Amount as of December 31, 2019 (unaudited)		Fair Value as of December 31, 2019 (unaudited)		Level 1		Level 2		Level 3
Assets
Liabilities
Commodities derivative instruments	$	797,138	$	797,138	$	797,138	$	—	$	—	$	40,865	$	40,865	$	40,865	$	—	$	—
Total	$	797,138	$	797,138	$	797,138	$	—	$	—	$	40,865	$	40,865	$	40,865	$	—	$	—

					Fair Value Measurement Using										Fair Value Measurement Using
	Carrying Amount as of September 30, 2018		Fair Value as of September 30, 2018		Level 1		Level 2		Level 3		Carrying Amount as of September 30, 2019		Fair Value as of September 30, 2019		Level 1		Level 2		Level 3
Liabilities
Commodities derivative instruments	$	2,245,650	$	2,245,650	$	2,245,650	$	—	$	—	$	8,875	$	8,875	$	8,875	$	—	$	—
Total	$	2,245,650	$	2,245,650	$	2,245,650	$	—	$	—	$	8,875	$	8,875	$	8,875	$	—	$	—

The fair value of the corn, ethanol, soybean oil and natural gas derivative instruments is based on quoted market prices in an active market.

7. LEASES

Effective October 1, 2019, the Company adopted the provisions of ASU No. 2016-02, "Leases (topic 842)" using the modified retrospective approach which applies the provisions of ASU No. 2016-02 upon adoption, with no change to prior periods. This adoption resulted in the Company recognizing initial right of use assets and lease liabilities of $1,418,000. The adoption did not have a significant impact on the Company's statement of operations.

Upon the initial adoption of ASU No. 2016-02, the Company elected the following practical expedients allowable under the guidance: not to reassess whether any expired or existing contracts are or contain leases; not to reassess the lease classification for any expired or existing leases; not to reassess initial direct costs for any existing leases; not to separately identify lease and nonlease components; and not to evaluate historical land easements. Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASU No. 2016-02 to only long-term (greater than 1 year) leases.

The Company leases ~~equipment under operating~~railcar and ~~capital~~plant equipment. 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, 2019, the Company's estimated discount rate was 3.55%. 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 ~~through July 2023.~~ have remaining lease terms of approximately 1 year to 4 years, which may include options to extend the lease when it is reasonably certain the Company will exercise those options. At December 31, 2019 the weighted average remaining lease term is 3.5 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 sublease agreements.

The Company is generally responsible for maintenance, taxes, and utilities for leased equipment. ~~Equipment under operating leases includes a locomotive and rail cars.~~ Rent expense for operating leases was approximately ~~$138,000~~$205,000 and ~~$153,000~~$161,000 for the three months ended ~~June 30,~~December 31, 2019 and 2018, ~~respectively, and $455,000 and $465,000 for the nine months ended June 30, 2019 and 2018,~~ respectively.

Equipment under ~~capital~~financing leases consists of office equipment and plant equipment.

Equipment under ~~capital~~financing leases is as follows at:

As of June 30, 2019 September 30, 2018
Equipment $ 483,488
$ 483,488
Less accumulated amortization (157,583 ) (141,488 )
Net equipment under capital lease $ 325,905
$ 342,000

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED ~~JUNE 30,~~DECEMBER 31, 2019



As of	December 31, 2019			September 30, 2019
Equipment	$	506,661		$	483,488
Less accumulated amortization	(168,613		)	(162,940		)
Net equipment under financing lease	$	338,048		$	320,548

At ~~June 30,~~December 31, 2019, the Company had the following minimum commitments, which at inception had non-cancelable terms of more than one year. Amounts shown below are for the 12 ~~months period~~month periods ending ~~June 30:~~December 31:


	Operating Leases		Capital Leases		Operating Leases		Financing Leases
2019	$	444,505	$	945
2020	365,663		—		$	390,454	$	4,483
2021	296,640		—		350,349		4,517
2022	202,290		—		326,349		4,551
2023	—		—		215,493		4,585
2024					22,012		4,140
Thereafter	—		—		—		—
Total minimum lease commitments	$	1,309,098	945		$	1,304,657	22,276
Less amount representing interest			—				—
Present value of minimum lease commitments included in current maturities of long-term debt on the balance sheet			$	945
Present value of minimum lease commitments included in notes payable on the balance sheet							$	22,276

8. COMMITMENTS AND CONTINGENCIES

Firm Purchase Commitments for Corn

To ensure an adequate supply of corn to operate the Plant, the Company enters into contracts to purchase corn from local farmers and elevators. At ~~June 30,~~December 31, 2019, the Company had various fixed price contracts for the purchase of approximately ~~2.3~~1.3 million bushels of corn. Using the stated contract price for the fixed price contracts, the Company had commitments of approximately ~~$8.9~~$4.7 million related to the ~~2.3~~1.3 million bushels under contract.

Water

To meet the plant's water requirements, we entered into a ten-year contract with Southwest Water Authority to purchase raw water. Our contract requires us to purchase a minimum of 160 million gallons of water per year. The minimum estimated liability for this contract is $424,000 per year.

Profit and Cost Sharing Agreement

The Company has entered into a Profit and Cost Sharing Agreement with Bismarck Land Company, LLC which became effective on November 1, 2016. The Profit and Cost Sharing Agreement provides that the Company will share 70% of the net revenue generated by the Company from business activities which are brought to the Company by Bismarck Land Company, LLC and conducted on the real estate purchased from the Bismarck Land Company, LLC. The real estate was initially purchased in exchange for 2 million membership units at $1.66 per unit. This obligation will terminate ten years after the real estate closing date of October 11, 2016 or after Bismarck Land Company, LLC receives $10 million in proceeds from the agreement. In addition, the Company will pay Bismarck Land Company, LLC 70% of any net proceeds received by the Company from the sale of the subject real estate if a sale were to occur in the future, subject to the $10 million cap and the 10 year termination of this obligation. The Company has ~~accrued payments of $28,315 to the~~paid Bismarck Land Company, LLC $28,315 as of ~~June 30,~~December 31, 2019.

Carbon Capture and Storage Project

The Company has entered into a research agreement with the University of North Dakota Energy and Environmental Research Center to explore the feasibility of injecting CO2 from the fermentation process into a saline formation to lower the carbon intensity

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value of our ethanol. The Company has committed to fund up to $950,000 for this research. The Company has paid ~~$255,728~~$612,140 as of ~~June 30,~~December 31, 2019.

9. RELATED PARTY TRANSACTIONS

The Company has balances and transactions in the normal course of business with various related parties for the purchase of corn, sale of distillers grains and sale of ethanol. The related parties include unit holders, members of the board of governors of the Company, and RPMG, Inc. (“RPMG”). ~~The Company received a capital account refund from RPMG of $267,111 during the~~

~~Table of Contents~~

~~RED TRAIL ENERGY, LLC~~

~~NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS~~

~~FOR THE PERIOD ENDED JUNE 30, 2019~~

~~second quarter of 2019 which is included in other income (expense) in the Company's Statement of Operations. A refund of $140,539 was received during the Company's first quarter of 2018.~~ Significant related party activity affecting the financial statements is as follows:


	June 30, 2019 (unaudited)		September 30, 2018		December 31, 2019 (unaudited)		September 30, 2019
Balance Sheet
Accounts receivable	$	3,485,391	$	2,680,445	$	3,757,314	$	3,695,462
Accounts Payable	143,147		312,701		6,825		298,638
Accrued Expenses	494		95,704		580,975		41,643


	For the three months ended June 30, 2019 (unaudited)		For the three months ended June 30, 2018 (unaudited)		For the nine months ended June 30, 2019 (unaudited)		For the nine months ended June 30, 2018 (unaudited)		For the three months ended December 31, 2019 (unaudited)		For the three months ended December 31, 2018 (unaudited)
Statement of Operations
Revenues	$	24,642,959	$	27,381,514	$	72,619,534	$	76,354,225	$	24,561,170	$	24,188,143
Cost of goods sold	—		9,012		537,987		21,936		602,869		14,104
General and administrative	523,883		62,019		159,691		100,330		41,304		30,910
Other income	73,097		—		267,111		140,538
Inventory Purchases	$	4,176,641	$	7,710,883	$	11,125,096	$	18,036,469	$	2,671,939	$	3,703,065

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 derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the United States. Corn for the production process is supplied to the Plant primarily from local agricultural producers and from purchases on the open market. The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol and distillers grains and by the cost at which it is able to purchase corn for operations. The price of ethanol is influenced by factors such as prices, supply and demand, weather, government policies and programs, and unleaded gasoline and the 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's financial performance is highly dependent on the Federal Renewable Fuels Standard ("RFS") which requires that a certain amount of renewable fuels must be used each year in the United States. Corn based ethanol, such as the ethanol the Company produces, can be used to meet a portion of the RFS requirement. In November 2013, the EPA issued a proposed rule which would reduce the RFS for 2014, including the RFS requirement related to corn based ethanol. The EPA proposed rule was subject to a comment period which expired in January 2014. On November 30, 2015, the EPA released its final ethanol use requirements for 2014, 2015 and 2016 which were lower than the statutory requirements in the RFS. However, the final RFS for 2017 equaled the statutory requirement which was also the case for the 2018, 2019 and ~~2019~~2020 RFS final rules.

The Company anticipates that the results of operations during the remainder of fiscal year ~~2019~~2020 will continue to be affected by volatility in the commodity markets. The volatility is due to various factors, including uncertainty with respect to the availability and supply of corn, increased demand for grain from global and national markets, speculation in the commodity markets and demand for corn from the ethanol industry.

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RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED ~~JUNE 30,~~DECEMBER 31, 2019

11. MEMBER'S EQUITY

~~Unregistered Units Sales by the Company~~.

On October 10, 2016, the Company issued two million of the Company's membership units to Bismarck Land Company, LLC as part of the consideration for the acquisition of 338 acres of land adjacent to the ethanol plant that the Company will use to expand its rail yard. The membership units were issued pursuant to the exemption from registration set forth in Regulation D, Rule 506(b), as Bismarck Land Company, LLC is an accredited investor.

~~Unit Purchases By the Company~~.

(a) (b) (c) (d)
Period Total Number of Units Purchased Average Price Paid per Unit Total Number of Units Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of the Units that May Yet Be Purchased Under the Plans or Programs
April 2018 None None None None
May 2018 1,318,180 $1.00 None None
June 2018 None None None None
Total 1,318,180 $1.00 None None

*1,318,180 Units were purchased other than through a publicly announced plan or program, pursuant to a Membership Unit Repurchase Agreement, a private transaction between the Company and a Member. No other activity has occurred since the third quarter of our 2018 fiscal year.

Changes in member's equity for the ~~nine months~~fiscal year ended ~~June~~September 30, 2019 and ~~2018.~~the three months ended December 31, 2019.

Class A Member Units Additional Paid in Capital Accumulated Deficit/Retained Earnings Treasury Units Total Member Equity
Balances - September 30, 2017 $ 40,362,775
$ 75,541
$ 33,399,985
$ (159,540 ) $ 73,678,761
Net income (loss) —
—
(1,984,666 ) —
(1,984,666 )
Balances - December 31, 2017 40,362,775
75,541
31,415,319
(159,540 ) 71,694,095
Distribution, $0.05 per unit —
—
(2,901,975 ) —
(2,901,975 )
Net income —
—
1,422,174
—
1,422,174
Balances - March 31, 2018 $ 40,362,775
$ 75,541
$ 29,935,518
$ (159,540 ) $ 70,214,294
Membership unit repurchase (1,318,180 ) —
—
—
(1,318,180 )
Net income —
—
62,259
—
62,259
Balances - June 30, 2018 $ 39,044,595
$ 75,541
$ 29,997,777
$ (159,540 ) $ 68,958,373

~~Table of Contents~~

~~RED TRAIL ENERGY, LLC~~

~~NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS~~

~~FOR THE PERIOD ENDED JUNE 30, 2019~~



	Class A Member Units		Additional Paid in Capital		Accumulated Deficit/Retained Earnings			Treasury Units			Total Member Equity
Balances - September 30, 2018	$	39,044,595	$	75,541	$	25,358,139		$	(159,540	)	$	64,318,735
Net income (loss)	—		—		402,844			—			402,844
Balances - December 31, 2018	39,044,595		75,541		25,760,983			(159,540		)	64,721,579
Distribution	—		—		(1,782		)	—			(1,782		)
Net income	—		—		(1,423,308		)	—			(1,423,308		)
Balances - March 31, 2019	$	39,044,595	$	75,541	$	24,335,893		$	(159,540	)	$	63,296,489
Net income	—		—		817,986			—			817,986
Balances - June 30, 2019	$	39,044,595	$	75,541	$	25,153,879		$	(159,540	)	$	64,114,475
Net income					$	(3,540,211	)				$	(3,540,211	)
Balances - September 30, 2019	$	39,044,595	$	75,541	$	21,613,668		$	(159,540	)	$	60,574,264

Class A Member Units Additional Paid in Capital Accumulated Deficit/Retained Earnings Treasury Units Total Member Equity
Balances - September 30, 2018 $ 39,044,595
$ 75,541
$ 25,358,139
$ (159,540 ) $ 64,318,735
Net income —
—
402,844
—
402,844
Balances December 31, 2018 39,044,595
75,541
25,760,983
(159,540 ) 64,721,579
Distribution —
—
(1,782 ) —
(1,782 )
Net income (loss) —
—
(1,423,308 ) —
(1,423,308 )
Balances - March 31, 2019 $ 39,044,595
$ 75,541
$ 24,335,893
$ (159,540 ) $ 63,296,489
Net income —
—
817,986
—
817,986
Balances - June 30, 2019 $ 39,044,595
$ 75,541
$ 25,153,879
$ (159,540 ) $ 64,114,475



	Class A Member Units		Additional Paid in Capital		Accumulated Deficit/Retained Earnings			Treasury Units			Total Member Equity
Balances - September 30, 2019	$	39,044,595	$	75,541	$	21,613,668		$	(159,540	)	$	60,574,264
Net income (loss)	—		—		(1,251,913		)	—			(1,251,913		)
Balances December 31, 2019	39,044,595		75,541		20,361,755			(159,540		)	59,322,351

12. SUBSEQUENT EVENTS

~~Management evaluated all other activity of~~On January 22, 2020 the Company entered into a new revolving loan and ~~concluded that no subsequent events have occurred that would require recognition in the condensed financial statements or disclosure in the notes to the condensed financial statements.~~new construction loan with Cornerstone Bank. See Note 5.

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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 ~~and nine~~ month ~~periods~~period ended ~~June 30,~~December 31, 2019, compared to the same ~~periods~~period of the prior fiscal year. This discussion should be read in conjunction with the financial statements, notes and information contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018~~2019. Unless otherwise stated, references in this report to particular years, quarters, months, or periods refer to our fiscal years ended in September and the associated quarters, months, or periods of those fiscal years.

Forward Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "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. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the following factors:

Reductions in the corn-based ethanol use requirement in the Federal Renewable Fuels Standard;

Small refinery exemptions from the RFS granted by the EPA;

Lower oil prices which result in lower ethanol prices;

Negative operating margins which result from lower ethanol prices;

Lower distillers grains prices which result from the Chinese anti-dumping and countervailing duty tariffs;

Lower ethanol prices due to the Chinese ethanol tariff and the Brazilian ethanol tariff;

Logistics difficulties preventing us from delivering our products to our customers;

Fluctuations in the price and market for ethanol, distillers grains and corn oil;

Availability and costs of products and raw materials, particularly corn and natural gas;

Changes in the environmental regulations that apply to our plant operations and our ability to comply with such regulations;

Ethanol supply exceeding demand and corresponding ethanol price reductions impacting our ability to operate profitably and maintain a positive spread between the selling price of our products and our raw material costs;

Our ability to generate and maintain sufficient liquidity to fund our operations and meet our necessary capital expenditures;

Our ability to continue to meet our loan covenants;

Limitations and restrictions contained in the instruments and agreements governing our indebtedness;

Results of our hedging transactions and other risk management strategies;

Changes and advances in ethanol production technology; and

Competition from alternative fuels and alternative fuel additives.

Overview

Red Trail Energy, LLC, a North Dakota limited liability company (the "Company," "Red Trail," or "we," "our," or "us"), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota. Our revenues are derived from the sale and distribution of our ethanol, distillers grains and corn oil primarily in the continental United States. Corn is our largest cost component and our profitability is highly dependent on the spread between the price of corn and the price of ethanol.

~~The ethanol industry is dependent on several economic incentives to produce ethanol,~~On January 22, 2020, following the ~~most significant~~end of ~~which is the Federal Renewable Fuels Standard (the "RFS"~~our quarter ended December 31, 2019, we entered into two loans with Cornerstone Bank ("Cornerstone"). We entered into a $10,000,000 revolving line of credit (the "Revolving Loan") and a $7,000,000 construction line of credit (the "Construction Loan") for our carbon dioxide capture and storage project. The ~~RFS requires that~~details of these loans are described in ~~each year, a certain amount of renewable fuels must be used~~more detail below in the United States. The RFS statutory volume requirement increases incrementally each year until the United States is required to use 36 billion gallons of renewable fuels by 2022. The United States Environmental Protection Agency (the "EPA") has the authority to waive the RFS statutory volume requirement, in whole or in part, provided one of the following two conditions have been met: (1) there is inadequate domestic renewable fuel supply; or (2) implementation of the requirement would severely harm the economy or environment of a state, region or the United States.

Annually, the EPA is supposed to pass a rule that establishes the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligations. The RFS statutory Renewable Volume Obligation ("RVO") for corn-based ethanol was 15 billion gallons for 2018 and 2019. However, during our 2018 fiscal year we learned that the EPA issued exemptions to the RFS use requirements for certain small refineries. Management believes that these small refinery exemptions reduced ethanol demand by more than 2 billion gallons during 2018 which severely impacted ethanol demand during our 2018 fiscal year. This practice of granting RFS waivers has continued into our 2019 fiscal year which has

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~~continued to negatively impact ethanol demand. Management expects this negative impact to continue so long as the EPA issues these small refinery exemptions from the RFS.~~

In recent years, the ethanol industry in the United States has increased exports of ethanol and distillers grains. However, in 2017 China instituted tariffs on ethanol and distillers grains produced in the United States and Brazil instituted a tariff on ethanol produced in the United States, and now more recently, in April 2018, the Chinese government increased the tariff on United States ethanol imports into China from 30% to 45%section entitled "Capital Resources. Further, the Chinese again increased the ethanol tariff to 65% on an un-denatured basis. Due to other recent tariff activity between the United States and China, management does not expect these Chinese tariffs to be removed in the near term but trade talks are continuing regarding this tariff and others. Both China and Brazil have been major sources of import demand for United States ethanol and distillers grains. These trade actions may result in negative operating margins for United States ethanol producers."

Results of Operations for the Three Months Ended ~~June 30,~~December 31, 2019 and 2018

The following table shows the results of our operations and the percentages of revenues, cost of goods sold, general and administrative expenses and other items to total revenues in our unaudited statements of operations for the three months ended ~~June 30,~~December 31, 2019 and 2018:

Three Months Ended
June 30, 2019 (Unaudited) Three Months Ended
June 30, 2018 (Unaudited)
Statement of Operations Data Amount % Amount %
Revenues $ 26,302,894
100.00 $ 28,726,715
100.00
Cost of Goods Sold 24,636,313
93.66 28,155,815
98.01
Gross Profit 1,666,581
6.34 570,900
1.99
General and Administrative Expenses 891,302
3.39 611,006
2.13
Operating Income (Loss) 775,279
2.95 (40,106 ) (0.14 )
Other Income, net 42,707
0.16 102,365
0.36
Net Income $ 817,986
3.11 $ 62,259
0.22

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	Three Months Ended December 31, 2019 (Unaudited)					Three Months Ended December 31, 2018 (Unaudited)
Statement of Operations Data	Amount			%		Amount		%
Revenues	$	26,340,913		100.00		$	25,909,136	100.00
Cost of Goods Sold	26,839,483			101.89		24,861,341		95.96
Gross Profit (Loss)	(498,570		)	(1.89	)	1,047,795		4.04
General and Administrative Expenses	799,505			3.04		674,885		2.60
Operating Income (Loss)	(1,298,075		)	(4.93	)	372,910		1.44
Other Income, net	46,162			0.18		29,934		0.12
Net Income (Loss)	$	(1,251,913	)	(4.75	)	$	402,844	1.55

The following table shows additional data regarding production and price levels for our primary inputs and products for the three months ended ~~June 30,~~December 31, 2019 and ~~2019~~2018.


	Three Months Ended June 30, 2019 (unaudited)		Three Months Ended June 30, 2018 (unaudited)		Three Months Ended December 31, 2019 (unaudited)		Three Months Ended December 31, 2018 (unaudited)
Production:
Ethanol sold (gallons)	15,761,481		16,030,562		15,014,837		16,629,602
Dried distillers grains sold (tons)	23,797		28,905		22,889		28,115
Modified distillers grains sold (tons)	27,730		25,386		30,293		34,024
Corn oil sold (pounds)	2,153,040		3,287,520		3,834,090		2,700,300
Revenues:
Ethanol average price per gallon (net of hedging)	$	1.32	$	1.37	$	1.36	$	1.18
Dried distillers grains average price per ton	135.97		149.95		129.90		136.95
Modified distillers grains average price per ton	56.33		61.27		60.79		51.92
Corn oil average price per pound	0.23		0.25		0.25		0.22
Primary Inputs:
Corn ground (bushels)	5,361,333		5,605,055		5,330,858		6,040,959
Natural gas (MMBtu)	390,031		410,950		357,329		432,265
Costs of Primary Inputs:
Corn average price per bushel (net of hedging)	$	3.79	$	3.40	$	3.53	$	3.20
Natural gas average price per MMBtu (net of hedging)	2.01		1.97		2.30		2.84
Other Costs (per gallon of ethanol sold):
Chemical and additive costs	$	0.065	$	0.120	$	0.091	$	0.108
Denaturant cost	0.035		0.040		0.036		0.037
Electricity cost	0.048		0.049		0.050		0.046
Direct labor cost	0.065		0.061		0.072		0.061

Revenue

Our revenue was ~~less~~greater in the ~~third~~first quarter of our ~~2019~~2020 fiscal year compared to the same period of our ~~2018~~2019 fiscal year due to ~~decreased production and lower market~~increased prices for our ~~products.~~products, partially offset by decreased sales of our products during the 2020 period. During the ~~third~~first quarter of our ~~2019~~2020 fiscal year, approximately 79.3% of our total revenue was derived from ethanol sales, approximately 18.2% was from distillers grains sales and approximately 1.9% was from corn oil sales. During the ~~third~~first quarter of our ~~2018~~2019 fiscal year, approximately 76.2% of our total revenue was derived from ethanol sales, approximately 20.5% was from distillers grains sales and approximately 2.8% was from corn oil sales.

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Ethanol

The average price we received for our ethanol was ~~lower~~higher during the ~~third~~first quarter of our 2020 fiscal year compared to the first quarter of our 2019 fiscal ~~year compared to the third quarter of our 2018 fiscal~~ year. Management attributes the ~~decrease~~increase in the price we received for our ethanol during the ~~third~~first quarter of our ~~2019~~2020 fiscal year to decreased demand ~~destruction related to the EPA's~~reductions from small refinery exemptions from the RFS ~~partially offset by stronger~~along with higher corn prices which typically results in higher ethanol ~~exports. Ethanol~~prices. In addition, ethanol exports have supported domestic ethanol prices, however, export ~~markets are not as reliable as the~~demand is more volatile than domestic ~~ethanol market~~demand which can ~~lead to ethanol price~~result in additional volatility. If ethanol export demand slows in the future, it could negatively impact ethanol demand, especially due to increased production capacity in the United States. Management anticipates that ethanol prices will remain ~~lower~~at current levels unless domestic ethanol demand increases. Management believes that domestic ethanol demand will only increase through increased usage of higher level blends of ethanol, such as E15, used in the United States. ~~Recently,~~During 2019, the Trump administration passed rules which allow the year-round use of E15. Management believes that this may lead the way for increased domestic availability of E15 which could lead to increased domestic demand, especially if ethanol prices are lower compared to the price of gasoline.

We sold fewer gallons of ethanol during the ~~third~~first quarter of our 2020 fiscal year compared to the first quarter of our 2019 fiscal ~~year compared~~year. Management attributes this decreased production to slower production rates during the ~~third~~beginning of the quarter ofdue to lower new crop corn availability from our ~~2018 fiscal year.~~producers. Management anticipates that our ethanol production and sales will be comparable during the rest of our ~~2019~~2020 fiscal year compared to our ~~2018~~2019 fiscal year provided we do not encounter any plant production issues which prevent us from operating at capacity during our ~~2019~~2020 fiscal year.

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From time to time we enter into forward sales contracts for our products. At ~~June 30,~~December 31, 2019, we had no open ethanol futures contracts. We also had no ethanol futures contracts for the ~~third~~first quarter of our ~~2019~~2020 fiscal year.

Distillers Grains

Previously, we sold a majority of our distillers grains in the dried form due to market conditions which favored that product. However, due to the Chinese anti-dumping and countervailing duty tariffs which have decreased export demand for distillers grains, we increased the amount of modified distillers grains we produced and sold. Modified distillers grains are used in our local market and are less impacted by world distillers grains markets. The average price we received for our modified distillers grains were higher during the first quarter of our 2020 fiscal year compared to the first quarter of our 2019 fiscal year due to higher corn prices which impacted local demand for modified distillers grains. The average price we received for our dried distillers grains were lower during the ~~third~~first quarter of our 2020 fiscal year compared to the first quarter of our 2019 fiscal year ~~compared to the third quarter of our 2018 fiscal year. Management attributes these price decreases~~due to lower export ~~demand and lower domestic demand during the summer months when herds are out to pasture.~~demand. Management anticipates distillers grains prices will be higher for the rest of our ~~2019~~2020 fiscal year due to ~~higher market corn prices.~~anticipated increases in export demand from China provided recent tariff negotiations between the United States and China continue.

We produced and sold fewer total tons of distillers grains during the ~~third~~first quarter of our ~~2019~~2020 fiscal year compared to the ~~third~~first quarter of our ~~2018~~2019 fiscal year due to decreased overall production during the ~~third~~first quarter of our ~~2019~~2020 fiscal year from improved efficiency at the plant converting corn to ethanol. When our corn conversion efficiency improves, we produce fewer tons of distiller grains as the co-product of our ethanol production process.year. Management anticipates relatively consistent distillers grains production going ~~forward.~~forward provided we can maintain favorable operating margins.

Corn Oil

The total pounds of corn oil we sold was ~~less~~significantly greater during the ~~third~~first quarter of our 2020 fiscal year compared to the first quarter of our 2019 fiscal year ~~compared to the third quarter of our 2018 fiscal year~~ due to ~~a change in chemicals used during the production process which resulted in less~~improved corn oil ~~being extracted.~~yields which increased the amount of corn oil we have available to sell. Management anticipates that our corn oil production will remain ~~lower~~at current levels for the remaining ~~quarter~~quarters of our ~~2019~~2020 fiscal year. The average price we received for our corn oil during the ~~third~~first quarter of our 2020 fiscal year was approximately 13.6% greater compared to the first quarter of our 2019 fiscal year ~~was approximately 8% less compared to the third quarter of our 2018 fiscal year~~ due to ~~decreased~~increased biodiesel demand. Recently, the biodiesel blenders' tax credit was renewed retroactively from January 1, 2018 through December 31, 2022. This extension of the tax credit has created greater certainty in the biodiesel industry which has resulted in increased demand for corn oil which is frequently used as a feedstock to produce biodiesel.

Cost of Goods Sold

Our cost of goods sold is primarily made up of corn and natural gas expenses. Our cost of goods sold was ~~lower~~greater for the ~~third~~first quarter of our 2020 fiscal year as compared to the first quarter of our 2019 fiscal year ~~as compared~~due primarily to ~~the third quarter of our 2018 fiscal year due to decreased production which decreased~~increased corn ~~and natural gas consumption along with lower chemical~~ costs per ~~gallon~~bushel during the ~~2019~~2020 period.

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Corn Costs

Our cost of goods sold related to corn was greater for the ~~third~~first quarter of our ~~2019~~2020 fiscal year compared to the ~~third~~first quarter of our ~~2018~~2019 fiscal year due to higher corn costs per bushel, without taking derivative instrument positions into account, partially offset by decreased corn consumption. We also had an adjustment to our cost of goods sold based on forward purchase contracts we had in place during the 2020 period. For the ~~third~~first quarter of our ~~2019~~2020 fiscal year, we used approximately ~~4.3%~~11.8% fewer bushels of corn compared to the ~~third~~first quarter of our ~~2018~~2019 fiscal year due to decreased production at the ~~plant along with greater corn to ethanol conversion efficiency.~~plant. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately ~~11.5%~~10.3% greater for the ~~third~~first quarter of our ~~2019~~2020 fiscal year compared to the ~~third~~first quarter of our ~~2018~~2019 fiscal year due to higher market corn prices and less favorable basis during the ~~2019~~2020 period. In addition, during the ~~third~~first quarter of our 2020 fiscal year, we had a realized gain of approximately $105,000 for our corn derivative instruments which decreased our cost of goods sold related to corn. For the first quarter of our 2019 fiscal year, we had a realized gain of approximately ~~$3.2~~$2.1 million for our corn derivative instruments which increased our cost of goods sold related to corn. For the third quarter of our 2018 fiscal year, we had a realized loss of approximately $1.9 million for our corn derivative instruments which increaseddecreased our cost of goods sold related to corn. Management anticipates comparable corn prices during the rest of our ~~2019~~2020 fiscal year unless unfavorable weather conditions and late planting negatively impact the ~~2019~~2020 growing season which could result in higher corn prices. In addition, if China reenters the market if trade disputes between China and the United States are resolved, this may lead to additional demand for corn which may increase local prices.

Natural Gas Costs

We consumed approximately ~~5.1%~~17.3% less MMBtu of natural gas during the ~~third~~first quarter of our ~~2019~~2020 fiscal year compared to the ~~third~~first quarter of our ~~2018~~2019 fiscal year, due to decreased production during the ~~2019~~2020 period. Our average cost per MMBtu of natural gas was approximately ~~2.0% greater~~19.0% less during the ~~third~~first quarter of our 2020 fiscal year compared to the first quarter of our 2019 fiscal year ~~compared to the third quarter of our 2018 fiscal year~~ due to ~~increased market demand.~~

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plentiful natural gas supply.

General and Administrative Expenses

Our general and administrative expenses were greater for the ~~third~~first quarter of our 2020 fiscal year compared to the first quarter of our 2019 fiscal year ~~compared to the third quarter of our 2018 fiscal year~~primarily due to increased labor and consulting ~~fees and meeting expense for~~costs during the ~~carbon capture and storage project.~~2020 period.

Other Income/Expense

We had ~~less~~more interest income during the ~~third~~first quarter of our 2020 fiscal year compared to the first quarter of our 2019 fiscal year ~~compared to the third quarter of our 2018 fiscal year~~ due to having ~~less~~more cash on hand during our ~~2019~~2020 fiscal year. ~~We had less other income during the third quarter of our 2019 fiscal year compared to the third quarter of our 2018 fiscal year due to a sale of top soil in our 2018 fiscal year.~~

~~Results of Operations for the Nine Months Ended June 30, 2019 and 2018~~

Nine Months Ended
June 30, 2019 (Unaudited) Nine Months Ended
June 30, 2018 (Unaudited)
Statement of Operations Data Amount % Amount %
Revenues $ 78,443,830
100.00
$ 81,216,304
100.00
Cost of Goods Sold 76,751,420
97.84
80,177,490
98.72
Gross Profit 1,692,410
2.16
1,038,814
1.28
General and Administrative Expenses 2,222,067
2.83
2,111,926
2.60
Operating Income (Loss) (529,657 ) (0.68 ) (1,073,112 ) (1.32 )
Other Income, net 327,179
0.42
572,879
0.71
Net Income (Loss) $ (202,478 ) (0.26 ) $ (500,233 ) (0.62 )

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~~The following table shows additional data regarding production and price levels for our primary inputs and products for the nine months ended June 30, 2019 and~~ ~~2019~~.

Nine Months Ended June 30, 2019 (unaudited) Nine Months Ended
June 30, 2018
(unaudited)
Production:
  Ethanol sold (gallons) 48,225,293
48,009,628
  Dried distillers grains sold (tons) 71,219
81,073
  Modified distillers grains sold (tons) 108,414
92,976
Corn oil sold (pounds) 7,707,320
9,492,100
Revenues:
  Ethanol average price per gallon (net of hedging) $ 1.25
$ 1.28
  Dried distillers grains average price per ton 139.85
136.09
  Modified distillers grains average price per ton 53.01
63.17
Corn oil average price per pound 0.23
0.26
Primary Inputs:
  Corn ground (bushels) 17,312,371
16,998,419
Natural gas (MMBtu) 1,243,916
1,258,627
Costs of Primary Inputs:
  Corn average price per bushel (net of hedging) $ 3.42
$ 3.35
Natural gas average price per MMBtu (net of hedging) 2.58
2.38
Other Costs (per gallon of ethanol sold):
  Chemical and additive costs $ 0.083
$ 0.108
  Denaturant cost 0.034
0.038
  Electricity cost 0.047
0.045
  Direct labor cost 0.062
0.064

~~Revenue~~

Our revenue was lower for the nine months ended June 30, 2019 compared to the same period of our 2018 fiscal year due to decreased revenue from our products during the 2019 period. During the nine months ended June 30, 2019, approximately 79.3% of our total revenue was derived from ethanol sales, approximately 18.2% was from distillers grains sales and approximately 1.9% was from corn oil sales. During the nine months ended June 30, 2018, approximately 75.4% of our total revenue was derived from ethanol sales, approximately 21.0% was from distillers grains sales and approximately 3.2% was from corn oil sales.

~~Ethanol~~

The average price we received for our ethanol was approximately 2.34% less during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due to demand decreases which resulted from the small refinery waivers issued by the EPA.

~~We sold slightly more gallons of ethanol during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due to increased plant production.~~

From time to time we enter into forward sales contracts for our products. At June 30, 2019, we had no open ethanol futures contracts. We also had no ethanol futures contracts for the nine months ended June 30, 2019. Ethanol futures contracts resulted in a gain of approximately $1,800 during the nine months ended June 30, 2018.

~~Distillers Grains~~

The average prices we received for our dried distillers grains was approximately 2.76% greater during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due to increased export demand for distillers

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grains. The average prices we received for our modified distillers grains was approximately 16.08% lower during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due to weaker local demand for distillers grains.

We sold approximately 12.15% fewer tons of dried distillers grains during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018. We sold approximately 16.60% more total tons of modified distillers grains during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due to production decisions we make based on local market demand and the relative costs of producing dried distillers grains versus modified distillers grains.

~~Corn Oil~~

The total pounds of corn oil we sold was approximately 18.80% less during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due to a change in chemicals used during the production process which resulted in lower corn oil production. The average price we received for our corn oil was approximately 11.54% lower during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due primarily to decreased corn oil demand from the biodiesel industry.

~~Cost of Goods Sold~~

Our cost of goods sold is primarily made up of corn and natural gas expenses. Our cost of goods sold was lower for the nine months ended June 30, 2019 as compared to the nine months ended June 30, 2018 due primarily to lower chemical and ingredient costs, partially offset by higher corn and natural gas costs during the 2019 period.

~~Corn Costs~~

Our cost of goods sold related to corn was approximately 3.87% greater for the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due to increased corn consumption and higher corn costs per bushel. During the nine months ended June 30, 2019, we used approximately 1.85% more bushels of corn compared to the nine months ended June 30, 2018. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately 2.09% greater for the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018. In addition, during the nine months ended June 30, 2019, we had a realized gain of approximately $4.1 million for our corn derivative instruments which decreased our cost of goods sold. For the nine months ended June 30, 2018, we had a realized loss of approximately $767,200 for our corn derivative instruments which increased our cost of goods sold.

~~Natural Gas Costs~~

We consumed approximately 1.17% fewer MMBtu of natural gas during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018, due to improved operating efficiency at the plant. Our average cost per MMBtu of natural gas was approximately 8.40% greater during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018.

~~General and Administrative Expenses~~

Our general and administrative expenses were greater for the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due to increased consulting fees and meeting expenses for the carbon capture and storage project.

~~Other Income/Expense~~

We had less other income during the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018 due to having less interest income due to having less cash on hand during the 2019 period along with having a loss on sale of corn that could not be used in the production process.

Changes in Financial Condition for the ~~Nine~~Three Months Ended ~~June 30,~~December 31, 2019

Current Assets. We had ~~more~~less cash and equivalents at ~~June 30,~~December 31, 2019 compared to September 30, ~~2018~~2019 primarily due to the ~~transfer~~timing of ~~funds~~our quarter end compared to when we received payments from ~~out restricted margin account.~~our marketer. We had ~~less~~more restricted cash at ~~June 30,~~December 31, 2019 compared to September 30, ~~2018~~2019 because we had ~~less~~more cash in our margin account associated with our hedging transactions. Due to the timing of payments from our marketers, we had more accounts receivable at ~~June 30,~~December 31, 2019 compared to September 30, ~~2018.~~2019. We had ~~less~~more inventory on hand at ~~June 30,~~December 31, 2019 compared to September 30, ~~2018~~2019 due primarily to having ~~less~~more corn and ethanol inventory at ~~June 30,~~December 31, 2019.

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Property, Plant and Equipment. The value of our property, plant and equipment was lower at ~~June 30,~~December 31, 2019 compared to September 30, ~~2018 primarily~~2019 due to the regular depreciation of our ~~assets.~~assets partially offset by capital projects which were underway during our first quarter of 2020.

Current Liabilities. Our accounts payable were lower at ~~June 30,~~December 31, 2019 compared to September 30, ~~2018~~2019 due to having ~~fewer~~more deferred corn payments at ~~June 30,~~December 31, 2019. Our accrued expenses were ~~lower~~higher at ~~June 30,~~December 31, 2019 compared to September 30, ~~2018~~2019 because we had ~~less unpriced~~more deferred payments for corn deliveries at ~~June 30,~~December 31, 2019 compared to September 30, ~~2018.~~2019. We also had a ~~smaller~~larger accrued loss on our deferred corn purchase ~~commitments.~~commitments at December 31, 2019 compared to September 30, 2019.

Liquidity and Capital Resources

Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months. Should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity sources for working capital or other purposes.

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The following table shows cash flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2019 and ~~2019~~2018:


	June 30, 2019 (unaudited)			June, 2018 (unaudited)			December 31, 2019 (unaudited)			December 31, 2018 (unaudited)
Net cash (used in) provided by operating activities	$	(89,354	)	$	14,343,196
Net cash (used in) operating activities							$	(691,615	)	$	(1,176,982	)
Net cash (used in) investing activities	(568,856		)	(797,128		)	(707,802		)	(80,306		)
Net cash (used in) financing activities	(3,758		)	(4,222,116		)	(1,149		)	(657		)
Net (decrease) increase in cash	$	(661,968	)	$	9,323,952
Net decrease in cash							$	(1,400,566	)	$	(1,257,945	)
Cash, cash equivalents and restricted cash, end of period	$	10,211,371		$	18,453,960		$	9,121,503		$	9,615,394

Cash Flow from Operations

Our operations provided less cash during the ~~nine~~three months ended ~~June 30,~~December 31, 2019 compared to the same period of our ~~2018~~2019 fiscal year due to decreased net income along with changes in our derivative instrument positions ~~inventory~~ and ~~accounts payable~~inventory which resulted in less cash being generated by our operations.

Cash Flow From Investing Activities

We used ~~less~~more cash for capital expenditures during the ~~nine~~three months ended ~~June 30,~~December 31, 2019 compared to the same period of our ~~2018~~2019 fiscal year. During the 2019 period, our primary capital expenditures were for ~~improvements to the centrifuges~~our Carbon Capture and ~~heat exchangers.~~Storage Project research.

Cash Flow from Financing Activities

We used ~~less~~more cash for financing activities during the ~~nine~~three months ended ~~June 30,~~December 31, 2019 compared to the ~~nine~~three months ended ~~June 30, 2018 because we did not make~~December 31, 2019 due to a ~~distribution to our members during the 2019 period and we did not have any unit repurchases during the 2019 period.~~new copier financing lease.

Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains remain consistent, we expect operations to generate adequate cash flows to maintain operations.

Capital Expenditures

The Company had approximately ~~$397,000~~$1.2 million in construction in progress as of ~~June 30,~~December 31, 2019 primarily relating to the carbon capture and storage project research.

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Capital Resources

Revolving Loan

On ~~March 20, 2017,~~January 22, 2020, we entered into a new $10 million revolving loan (the "Revolving Loan") with ~~U.S.~~Cornerstone Bank ~~National Association~~ ("~~U.S. Bank"~~Cornerstone"). Interest accrues on any outstanding balance on the Revolving Loan at a rate of ~~1.77% in excess of~~1.2% less than the ~~one-month London Interbank Offered Rate ("LIBOR"). On May 31, 2019 we renewed~~prime rate as published by the Wall Street Journal, adjusted monthly. The Revolving Loan ~~and extended the~~has a minimum interest rate of 3.0%. The maturity date ~~to May 31, 2020 and decreasing the principle to $7 million. Our ability to draw funds on~~of the Revolving Loan is ~~subject~~January 21, 2021. The Revolving Loan is secured by a lien on all of our assets.

Construction Loan

On January 22, 2020, we entered into a new $7 million construction loan (the "Construction Loan") with Cornerstone to ~~a borrowing base calculation as set forth in the Credit Agreement. At June 30, 2019, we had approximately $6,300,000 available~~finance our carbon capture and storage project. Interest accrues on any outstanding balance on the ~~Revolving Loan. We had $0 drawn on the Revolving~~Construction Loan ~~as of June 30, 2019. Interest accrued on the Revolving Loan as of June 30, 2019~~ at a rate of ~~4.21%.~~

~~Restrictive Covenants~~

1.2% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The ~~Revolving~~maturity date of the Construction Loan is ~~subject to certain financial covenants as set forth in the Credit Agreement.~~June 1, 2021. The ~~most significant financial covenants require us to maintain~~Construction Loan is secured by a ~~fixed charge coverage ratio~~lien on all of ~~no less than 1.10:1.00 and a current ratio of no less than 1.50:1.00. Our fixed charge coverage ratio is calculated annually and measures~~ our ~~ability to pay our fixed expenses. Our current ratio is calculated quarterly and measures our liquidity and ability to pay short-term and long-term obligations.~~

~~As of June 30, 2019, we were in compliance with our loan covenants.~~assets.

Significant Accounting Policies and Estimates

We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. We discuss our

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critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019. There has been no significant change in our critical accounting estimates since the end of our ~~2018~~2019 fiscal year. Effective October 1, 2019 the Company adopted ASU No. 2016-02 using the modified retrospective approach. Effective October 1, 2018, the Company has adopted ASC 606 using the modified retrospective approach for all of its contracts. The Company also retrospectively adopted ASU No. 2016-18 on October 1, 2018.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to the impact of market fluctuations associated with commodity prices as discussed below. 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 and ethanol. 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 Generally Accepted Accounting Principles ("GAAP").

Commodity Price Risk

We expect to be exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process and the sale of ethanol.

We enter into fixed price contracts for corn purchases on a regular basis. It is our intent that, as we enter into these contracts, we will use various hedging instruments (puts, calls and futures) to maintain a near even market position. For example, if we have 1 million bushels of corn under fixed price contracts we would generally expect to enter into a short hedge position to offset our price risk relative to those bushels we have under fixed price contracts. Because our ethanol marketing company (RPMG) is selling substantially all of the gallons it markets on a spot basis we also include the corn bushel equivalent of the ethanol we have produced that is inventory but not yet priced as bushels that need to be hedged.

Although we believe our hedge positions will accomplish an economic hedge against our future purchases, they are not designated as hedges for accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We 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. The immediate recognition of

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hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter and year to year due to the timing of the change in value of derivative instruments relative to the cost of the commodity being hedged. 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.

As of ~~June 30,~~December 31, 2019, we had fixed corn purchase contracts for approximately ~~2.30~~1.30 million bushels of corn and we had corn futures and option contracts for approximately ~~7.65~~1.40 million bushels of corn. As of ~~June 30,~~December 31, 2019 we had an unrealized gain of approximately ~~$797,000~~$26,000 related to our corn futures and option contracts.

It is the current position of our ethanol marketing company, RPMG, that under current market conditions, selling ethanol in the spot market will yield the best price for our ethanol. RPMG will, from time to time, contract a portion of the gallons they market with fixed price contracts.

We estimate that our corn usage will be between 21 million and 23 million bushels per calendar year for the production of approximately 59 million to 64 million gallons of ethanol. As corn 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.

A sensitivity analysis has been prepared to estimate our exposure to corn, natural gas and ethanol price risk. Market risk related to our corn, natural gas and ethanol prices is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas, and our average ethanol sales price as of ~~June 30,~~December 31, 2019, net of the forward and future contracts used to hedge our market risk for corn, natural gas and ethanol. The volumes are based on our expected use and sale of these commodities for a one year period from ~~June 30,~~December 31, 2019. The results of this analysis, which may differ from actual results, are as follows:

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	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price		Approximate Adverse Change to Income			Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price		Approximate Adverse Change to Income
Ethanol	63,900,000	Gallons	10	%	$	(8,946,000	)	63,900,000	Gallons	10	%	$	(7,668,000	)
Corn	22,821,000	Bushels	10	%	$	(4,375,000	)	22,821,000	Bushels	10	%	$	(7,069,000	)
Natural gas	1,664,000	MMBtu	10	%	$	(327,000	)	1,664,000	MMBtu	10	%	$	(96,000	)

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.

Our management, including our President and Chief Executive Officer (the principal executive officer), Gerald Bachmeier, along with our Chief Financial Officer, (the principal financial officer), Jodi Johnson, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of ~~June 30,~~December 31, 2019. Based on this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

For the fiscal quarter ended ~~June 30,~~December 31, 2019, ~~there has been no change in our internal control over~~the Company worked to remediate a material weakness identified at the end of the Company's 2019 fiscal year by: (a) performing a review and updating month-end standard operating procedures; (b) assuring operating procedures will include specific instructions for the payment of invoices that crossover into the following month; and (c) providing an additional step for the CFO to review the posting date of all checks issued the first week after month-end prior to financial ~~reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.~~statement preparation.

PART II. OTHER INFORMATION

Item 1. 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.

~~Table of Contents~~

Item 1A. Risk Factors

There have been no material changes to the risk factors previously discussed in our annual report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits.


(a)	The following exhibits are filed as part of this report.



Exhibit No.			Exhibits
10.1			Cornerstone $10,000,000 Promissory Note between Cornerstone Bank and Red Trail Energy, LLC dated January 22, 2020.*
10.2			Cornerstone $7,000,000 Promissory Note between Cornerstone Bank and Red Trail Energy, LLC dated January 22, 2020.*
10.3			Commercial Security Agreement between Cornerstone Bank and Red Trail Energy, LLC dated January 22, 2020.*
10.4			Business Loan Agreement between Cornerstone Bank and Red Trail Energy, LLC dated January 22, 2020.*
31.1			Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2			Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1			Certificate Pursuant to 18 U.S.C. Section 1350*
32.2			Certificate Pursuant to 18 U.S.C. Section 1350*
101			The following financial information from Red Trail Energy, LLC's Quarterly Report on Form 10-Q for the quarter ended ~~June 30,~~December 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of ~~June 30,~~December 31, 2019 and September 30, ~~2018,~~2019, (ii) Statements of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 and 2018, (iii) Statements of Cash Flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2019 and 2018, and (iv) the Notes to Unaudited Condensed Financial Statements.**

(*) Filed herewith.

(**) Furnished herewith.

SIGNATURES

Pursuant to the requirements 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.



		RED TRAIL ENERGY, LLC

Date:	~~August 12, 2019~~February 14, 2020	/s/ Gerald Bachmeier
		Gerald Bachmeier
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	~~August 12, 2019~~February 14, 2020	/s/ Jodi Johnson
		Jodi Johnson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

2622



	Page Number
PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	1615
Item 3. Quantitative and Qualitative Disclosures about Market Risk	2420
Item 4. Controls and Procedures	2521
PART II. OTHER INFORMATION	2521
Item 1. Legal Proceedings	2521
Item 1A. Risk Factors	2521
Item 2. Unregistered Sales of Equity Securities	2621
Item 3. Defaults Upon Senior Securities	2621
Item 4. Mine Safety Disclosures	2621
Item 5. Other Information	2621
Item 6. Exhibits	2622
SIGNATURES	2622



	(a)	(b)	(c)	(d)
Period	Total Number of Units Purchased	Average Price Paid per Unit	Total Number of Units Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of the Units that May Yet Be Purchased Under the Plans or Programs
April 2018	None	None	None	None
May 2018	1,318,180	$1.00	None	None
June 2018	None	None	None	None
Total	1,318,180	$1.00	None	None



	Three Months Ended June 30, 2019 (Unaudited)			Three Months Ended June 30, 2018 (Unaudited)
Statement of Operations Data	Amount		%	Amount			%
Revenues	$	26,302,894	100.00	$	28,726,715		100.00
Cost of Goods Sold	24,636,313		93.66	28,155,815			98.01
Gross Profit	1,666,581		6.34	570,900			1.99
General and Administrative Expenses	891,302		3.39	611,006			2.13
Operating Income (Loss)	775,279		2.95	(40,106		)	(0.14	)
Other Income, net	42,707		0.16	102,365			0.36
Net Income	$	817,986	3.11	$	62,259		0.22



	Nine Months Ended June 30, 2019 (Unaudited)					Nine Months Ended June 30, 2018 (Unaudited)
Statement of Operations Data	Amount			%		Amount			%
Revenues	$	78,443,830		100.00		$	81,216,304		100.00
Cost of Goods Sold	76,751,420			97.84		80,177,490			98.72
Gross Profit	1,692,410			2.16		1,038,814			1.28
General and Administrative Expenses	2,222,067			2.83		2,111,926			2.60
Operating Income (Loss)	(529,657		)	(0.68	)	(1,073,112		)	(1.32	)
Other Income, net	327,179			0.42		572,879			0.71
Net Income (Loss)	$	(202,478	)	(0.26	)	$	(500,233	)	(0.62	)



	Nine Months Ended June 30, 2019 (unaudited)		Nine Months Ended June 30, 2018 (unaudited)
Production:
Ethanol sold (gallons)	48,225,293		48,009,628
Dried distillers grains sold (tons)	71,219		81,073
Modified distillers grains sold (tons)	108,414		92,976
Corn oil sold (pounds)	7,707,320		9,492,100
Revenues:
Ethanol average price per gallon (net of hedging)	$	1.25	$	1.28
Dried distillers grains average price per ton	139.85		136.09
Modified distillers grains average price per ton	53.01		63.17
Corn oil average price per pound	0.23		0.26
Primary Inputs:
Corn ground (bushels)	17,312,371		16,998,419
Natural gas (MMBtu)	1,243,916		1,258,627
Costs of Primary Inputs:
Corn average price per bushel (net of hedging)	$	3.42	$	3.35
Natural gas average price per MMBtu (net of hedging)	2.58		2.38
Other Costs (per gallon of ethanol sold):
Chemical and additive costs	$	0.083	$	0.108
Denaturant cost	0.034		0.038
Electricity cost	0.047		0.045
Direct labor cost	0.062		0.064