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 ~~December~~March 31, ~~2019~~2020

	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 ~~February 14,~~May 15, 2020, there were 40,148,160 Class A Membership Units outstanding.

Table of Contents

INDEX

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RED TRAIL ENERGY, LLC

Condensed Balance Sheets


ASSETS	December 31, 2019		September 30, 2019		March 31, 2020		September 30, 2019
	(Unaudited)				(Unaudited)
Current Assets
Cash and equivalents	$	6,999,650	$	8,565,038	$	8,011,855	$	8,565,038
Restricted cash - margin account	2,121,853		1,957,031		2,172,675		1,957,031
Accounts receivable,net, primarily related party	4,157,139		3,910,384
Accounts receivable, net, primarily related party					2,021,967		3,910,384
Inventory	8,220,612		6,962,825		7,819,719		6,962,825
Prepaid expenses	593,814		109,500		551,807		109,500
Total current assets	22,093,068		21,504,778		20,578,023		21,504,778

Property, Plant and Equipment
Land	1,333,681		1,333,681		1,333,681		1,333,681
Land improvements	4,465,311		4,465,311		4,465,311		4,465,311
Buildings	8,111,074		8,111,074		8,111,074		8,111,074
Plant and equipment	88,061,649		88,038,476		88,116,764		88,038,476
Construction in progress	1,163,627		455,825		1,559,340		455,825
	103,135,342		102,404,367		103,586,170		102,404,367
Less accumulated depreciation	64,290,297		63,092,175		65,490,742		63,092,175
Net property, plant and equipment	38,845,045		39,312,192		38,095,428		39,312,192

Other Assets
Right of use operating lease assets, net	1,304,657		—		1,195,535		—
Investment in RPMG	605,000		605,000		605,000		605,000
Patronage equity	4,119,151		4,119,151		4,119,151		4,119,151
Deposits	40,000		40,000		40,000		40,000
Total other assets	6,068,808		4,764,151		5,959,686		4,764,151

Total Assets	$	67,006,921	$	65,581,121	$	64,633,137	$	65,581,121

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

Table of Contents

RED TRAIL ENERGY, LLC

Condensed Balance Sheets


LIABILITIES AND MEMBERS' EQUITY	December 31, 2019		September 30, 2019		March 31, 2020		September 30, 2019
	(Unaudited)				(Unaudited)
Current Liabilities
Accounts payable	$	3,674,470	$	4,331,521	$	1,584,975	$	4,331,521
Accrued expenses	2,498,302		598,209		5,084,023		598,209
Commodities derivative instruments, at fair value (see note 3)	40,865		8,875		493,088		8,875
Accrued loss on firm purchase commitments (see notes 4 and 8)	144,000		68,000		168,000		68,000
Current maturities of notes payable	4,483		252		4,491		252
Current portion of operating leases	390,454		—		376,511		—
Total current liabilities	6,752,574		5,006,857		7,711,088		5,006,857

Commitments and Contingencies (Notes 4, 5, 7 and 8)
Long-Term Liabilities
Notes payable	17,793		—		16,668		—
Long-term operating lease liabilities	914,203		—		819,024		—
Total long-term liabilities	931,996		—		835,692		—
Commitments and Contingencies (Notes 4, 5, 7 and 8)

Members’ Equity 40,148,160 Class A Membership Units issued and outstanding	59,322,351		60,574,264		56,086,357		60,574,264

Total Liabilities and Members’ Equity	$	67,006,921	$	65,581,121	$	64,633,137	$	65,581,121

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

Table of Contents

RED TRAIL ENERGY, LLC

Condensed Statements of Operations (Unaudited)


	Three Months Ended			Three Months Ended			Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	December 31, 2019			December 31, 2018			March 31, 2020			March 31, 2019			March 31, 2020			March 31, 2019
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues, primarily related party	$	26,340,913		$	25,909,136		$	23,638,144		$	26,231,799		$	49,979,057		$	52,140,936

Cost of Goods Sold
Cost of goods sold	26,740,778			24,856,341			25,765,259			27,253,765			52,506,038			52,110,107
Lower of cost or net realizable value adjustment	22,705			—			218,589			—			241,294			—
Loss on firm purchase commitments	76,000			5,000			24,000			—			100,000			5,000
Total Cost of Goods Sold	26,839,483			24,861,341			26,007,848			27,253,765			52,847,332			52,115,107

Gross Profit (Loss)	(498,570		)	1,047,795			(2,369,704		)	(1,021,966		)	(2,868,275		)	25,829

General and Administrative Expenses	799,505			674,885			1,024,464			655,880			1,823,968			1,330,765

Operating Income (Loss)	(1,298,075		)	372,910			(3,394,168		)	(1,677,846		)	(4,692,243		)	(1,304,936		)

Other Income (Expense)
Interest income	39,277			27,443			29,112			7,318			68,389			34,761
Other income, net	6,976			2,496			129,103			247,224			136,079			249,720
Interest expense	(91		)	(5		)	(41		)	(4		)	(132		)	(9		)
Total other income, net	46,162			29,934			158,174			254,538			204,336			284,472

Net Income (Loss)	$	(1,251,913	)	$	402,844		$	(3,235,994	)	$	(1,423,308	)	$	(4,487,907	)	$	(1,020,464	)

Weighted Average Units Outstanding
Basic	40,148,160			40,148,160			40,148,160			40,148,160			40,148,160			40,148,160

Diluted	40,148,160			40,148,160			40,148,160			40,148,160			40,148,160			40,148,160

Net Income (Loss) Per Unit
Basic	$	(0.03	)	$	0.01		$	(0.08	)	$	(0.04	)	$	(0.11	)	$	(0.03	)

Diluted	$	(0.03	)	$	0.01		$	(0.08	)	$	(0.04	)	$	(0.11	)	$	(0.03	)

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

Table of Contents

RED TRAIL ENERGY, LLC

Condensed Statements of Cash Flows (Unaudited)


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	December 31, 2019			December 31, 2018			March 31, 2020			March 31, 2019
Cash Flows from Operating Activities
Net income (loss)	$	(1,251,913	)	$	402,844		$	(4,487,907	)	$	(1,020,464	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,198,122			1,189,514			2,398,567			2,381,386
Loss on disposal of fixed assets				13,254			—			7,094
Change in fair value of derivative instruments	31,990			(2,123,150		)	484,213			37,550
Lower of cost of net realizable value adjustment	22,705			—			241,294			—
Loss on firm purchase commitments	76,000			5,000			100,000			5,000
Changes in operating assets and liabilities:
Accounts receivable, net, primarily related party	(246,755		)	(231,671		)	1,888,417			(627,932		)
Inventory	(1,356,492		)	141,450			(1,198,188		)	3,692,011
Prepaid expenses	(484,314		)	(228,582		)	(442,306		)	(172,860		)
Accounts payable	(657,051		)	20,831			(2,768,920		)	(2,449,478		)
Accrued expenses	1,900,093			(371,472		)	4,485,814			2,649,394
Accrued loss on firm purchase commitments	76,000			5,000			100,000			(193,000		)
Net cash used in operating activities	(691,615		)	(1,176,982		)
Net cash provided by operating activities							800,984			4,308,701

Cash Flows from Investing Activities
Proceeds from disposal of fixed assets							—			6,160
Capital expenditures	(707,802		)	(80,306		)	(1,136,257		)	(352,482		)
Net cash used in investing activities	(707,802		)	(80,306		)	(1,136,257		)	(346,322		)

Cash Flows from Financing Activities
Payments on notes payable	(1,149		)	(657		)
Dividends paid							—			(1,782		)
Debt repayments							(2,266		)	(1,316		)
Net cash used in financing activities	(1,149		)	(657		)	(2,266		)	(3,098		)

Net Decrease in Cash, Cash Equivalents and Restricted Cash	(1,400,566		)	(1,257,945		)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash							(337,539		)	3,959,281
Cash, Cash Equivalents and Restricted Cash - Beginning of Period	10,522,069			10,873,339			10,522,069			10,873,339
Cash, Cash Equivalents and Restricted Cash - End of Period	$	9,121,503		$	9,615,394		$	10,184,530		$	14,832,620

Reconciliation of Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents	$	6,999,650		$	3,370,561		$	8,011,855		$	3,959,281
Restricted cash	2,121,853			6,244,833			2,172,675			10,873,339
Total Cash, Cash Equivalents and Restricted Cash	$	9,121,503		$	9,615,394		$	10,184,530		$	14,832,620

Supplemental Disclosure of Cash Flow Information
Interest paid	$	91		$	5		$	132		$	9
Noncash Investing and Financing Activities
Finance lease asset acquired	23,173			—			23,173			—
Capital expenditures in accounts payable	$	—		$	10,176		$	22,373		$	—

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

Table of Contents

RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED ~~DECEMBER~~MARCH 31, ~~2019~~2020

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, 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, 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.

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

Table of Contents

RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED ~~DECEMBER~~MARCH 31, ~~2019~~2020

fiscal years beginning after December 15, 2018, included interim periods within those years with early adoption permitted. Effective October 1, 2019 the Company adopted ASU No. 2016-02 using the 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.

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 six months ended ~~December~~March 31, ~~2019~~2020 and ~~2018.~~2019.


Revenues	For the three months ended December 31, 2019 (unaudited)		For the three months ended December 31, 2018 (unaudited)		For the three months ended March 31, 2020 (unaudited)		For the three months ended March 31, 2019 (unaudited)		For the six months ended March 31, 2020 (unaudited)		For the six months ended March 31, 2019 (unaudited)
Ethanol and E85	$	20,420,028	$	19,539,168	$	17,681,007	$	20,115,563	$	38,101,035	$	39,654,732
Distillers Grains	4,814,637		5,616,777		4,915,655		5,291,939		9,730,292		10,908,715
Syrup	92,359		92,009		101,711		102,001		194,070		194,010
Corn Oil	965,372		605,140		892,664		688,004		1,858,036		1,293,145
Other	48,517		56,042		47,107		34,292		95,624		90,334
Total revenue from contracts with customers	$	26,340,913	$	25,909,136	$	23,638,144	$	26,231,799	$	49,979,057	$	52,140,936

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.

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

Table of Contents

RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED ~~DECEMBER~~MARCH 31, ~~2019~~2020

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:	December 31, 2019 (unaudited)						September 30, 2019						March 31, 2020 (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	10	50,000	bushels	$	4,625		—	—	bushels	$	—		70	350,000	bushels	$	(45,875	)	—	—	bushels	$	—
Corn options	270	1,350,000	bushels	$	(30,750	)	30	150,000	bushels	$	(8,875	)	360	1,800,000	bushels	$	(456,937	)	30	150,000	bushels	$	(8,875	)
Natural gas futures	35	350,000	dk	$	(6,900	)	—	—	dk	$	—
Natural gas options	7	70,000	dk	$	(7,840	)	—	—	dk	$	—
Soybean oil options													8	4,800	gal	$	(24	)	—	—	gal	$	—
Ethanol futures													29	1,218,000	gal	$	9,748		—	—	gal	$	—
Total fair value				$	(40,865	)				$	(8,875	)				$	(493,088	)				$	(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 ~~December~~March 31, ~~2019~~2020 and September 30, 2019:


Derivatives not designated as hedging instruments:

Balance Sheet - as of December 31, 2019 (unaudited)	Asset		Liability
Balance Sheet - as of March 31, 2020 (unaudited)					Asset		Liability
Commodity derivative instruments, at fair value	$	—	$	40,865			$	493,088
Total derivatives not designated as hedging instruments for accounting purposes	$	—	$	40,865	$	—	$	493,088

Balance Sheet - as of September 30, 2019	Asset		Liability		Asset		Liability
Commodity derivative instruments, at fair value	$	—	$	8,875	$	—	$	8,875
Total derivatives not designated as hedging instruments for accounting purposes	$	—	$	8,875	$	—	$	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 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 $ 104,683
$ 2,068,502
Natural gas derivative instruments Cost of Goods Sold (27,850 ) —
Total $ 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



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 March 31, 2020 (unaudited)			Amount of gain (loss) recognized in income during the three months ended March 31, 2019 (unaudited)			Amount of gain (loss) recognized in income during the six months ended March 31, 2020 (unaudited)			Amount of gain (loss) recognized in income during the six months ended March 31, 2019 (unaudited)
Corn derivative instruments	Cost of Goods Sold	$	(372,856	)	$	(1,186,069	)	$	(268,174	)	$	(882,433	)
Ethanol derivative instruments	Revenue	25,464			—			25,464			—
Natural gas derivative instruments	Cost of Goods Sold	(4,010		)	—			(31,860		)	—
Total		$	(351,402	)	$	(1,186,069	)	$	(274,570	)	$	(882,433	)

Table of Contents

RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED ~~DECEMBER~~MARCH 31, ~~2019~~2020

4. INVENTORY

Inventory is valued at the lower of cost or net realizable value. Inventory values as of March 31, 2020 and September 30, 2019 were as follows:



As of	March 31, 2020 (unaudited)		September 30, 2019
Raw materials, including corn, chemicals and supplies	$	4,620,285	$	2,679,126
Work in process	756,567		956,509
Finished goods, including ethanol and distillers grains	473,740		1,459,561
Spare parts	1,969,127		1,867,629
Total inventory	$	7,819,719	$	6,962,825

Lower of cost or net realizable value adjustments for the three and six months ended ~~December~~March 31, ~~2019~~2020 and ~~2018~~2019 were as follows:


	For the three months ended December 31, 2019 (unaudited)		For the three months ended December 31, 2018 (unaudited)		For the three months ended March 31, 2020 (unaudited)		For the three months ended March 31, 2019 (unaudited)		For the six months ended March 31, 2020 (unaudited)		For the six months ended March 31, 2019 (unaudited)
Loss on firm purchase commitments	$	76,000	$	5,000	$	24,000	$	—	$	100,000	$	5,000
Loss on lower of cost or net realizable value adjustment for inventory on hand	$	22,705	$	—	$	218,589	$	—	$	241,294	$	—
Total loss on lower of cost or net realizable value adjustments	$	98,705	$	5,000	$	242,589	$	—	$	341,294	$	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 ~~December~~March 31, ~~2019,~~2020, 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 a ~~$76,000~~$100,000 estimated loss on firm purchase commitments for the ~~three~~six months ended ~~December~~March 31, ~~2019.~~2020. 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

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

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 with U.S. Bank National Association. The maturity date of the Revolving Loan is January 21, 2021. At March 31, 2020, we had $10 million available on the Revolving Loan. The variable interest rate on ~~December~~March 31, ~~2019 will be~~2020 was 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 1, 2021. At March 31, 2020, we had $7 million available on the Construction Loan. The variable interest rate on ~~December~~March 31, ~~2019 will be~~2020 was 3.55%.

The Company's loans are secured by a lien on substantially all of the assets of the Company.

Table of Contents

RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2020

6. FAIR VALUE MEASUREMENTS

The following table provides information on those liabilities that are measured at fair value on a recurring basis as of ~~December~~March 31, ~~2019~~2020 and September 30, 2019, respectively.

~~Table of Contents~~

~~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 December 31, 2019 (unaudited)		Fair Value as of December 31, 2019 (unaudited)		Level 1		Level 2		Level 3		Carrying Amount as of March 31, 2020 (unaudited)		Fair Value as of March 31, 2020 (unaudited)		Level 1		Level 2		Level 3
Liabilities
Commodities derivative instruments	$	40,865	$	40,865	$	40,865	$	—	$	—	$	493,088	$	493,088	$	493,088	$	—	$	—
Total	$	40,865	$	40,865	$	40,865	$	—	$	—	$	493,088	$	493,088	$	493,088	$	—	$	—

					Fair Value Measurement Using										Fair Value Measurement Using
	Carrying Amount as of September 30, 2019		Fair Value as of September 30, 2019		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	$	8,875	$	8,875	$	8,875	$	—	$	—	$	8,875	$	8,875	$	8,875	$	—	$	—
Total	$	8,875	$	8,875	$	8,875	$	—	$	—	$	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 railcar and 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~~six months ended ~~December~~March 31, ~~2019,~~2020, 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 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~~March 31, ~~2019~~2020 the weighted average remaining lease term is ~~3.5~~3 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. Rent expense for operating leases was approximately ~~$205,000~~$175,000 and ~~$161,000~~$156,000 for the three months ended ~~December~~March 31, 2020 and 2019, respectively, and ~~2018,~~$380,500 and $317,000 for the six months ended March 31, 2020 and 2019, respectively.

~~Equipment under financing leases consists of office equipment and plant equipment. Equipment under financing leases is as follows at:~~

Table of Contents

RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED ~~DECEMBER~~MARCH 31, ~~2019~~2020

Equipment under financing leases consists of office equipment and plant equipment. Equipment under financing leases is as follows at:


As of	December 31, 2019			September 30, 2019			March 31, 2020			September 30, 2019
Equipment	$	506,661		$	483,488		$	506,661		$	483,488
Less accumulated amortization	(168,613		)	(162,940		)	(174,472		)	(162,940		)
Net equipment under financing lease	$	338,048		$	320,548		$	332,189		$	320,548

At ~~December~~March 31, ~~2019,~~2020, 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 month periods ending ~~December~~March 31:


	Operating Leases		Financing Leases		Operating Leases		Financing Leases
2020	$	390,454	$	4,483	$	376,511	$	4,491
2021	350,349		4,517		335,776		4,525
2022	326,349		4,551		321,165		4,559
2023	215,493		4,585		162,083		4,594
2024	22,012		4,140		—		2,990
Thereafter	—		—		—		—
Total minimum lease commitments	$	1,304,657	22,276		$	1,195,535	21,159
Less amount representing interest			—				—
Present value of minimum lease commitments included in notes payable on the balance sheet			$	22,276			$	21,159

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 ~~December~~March 31, ~~2019,~~2020, the Company had various fixed price contracts for the purchase of approximately ~~1.3~~0.5 million bushels of corn. Using the stated contract price for the fixed price contracts, the Company had commitments of approximately ~~$4.7~~$1.7 million related to the ~~1.3~~0.5 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 paid Bismarck Land Company, LLC $28,315 as of ~~December~~March 31, ~~2019.~~2020.

Table of Contents

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

~~Table of Contents~~

value of our ethanol. The Company has committed to fund up to $950,000 for this research. The Company has paid ~~$612,140~~$780,522 as of ~~December~~March 31, ~~2019.~~2020.

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”). Significant related party activity affecting the financial statements is as follows:


	December 31, 2019 (unaudited)		September 30, 2019		March 31, 2020 (unaudited)		September 30, 2019
Balance Sheet
Accounts receivable	$	3,757,314	$	3,695,462	$	1,403,149	$	3,695,462
Accounts Payable	6,825		298,638
Accrued Expenses	580,975		41,643
Accounts payable					185,542		298,638
Accrued expenses					3,585,053		41,643


	For the three months ended December 31, 2019 (unaudited)		For the three months ended December 31, 2018 (unaudited)		For the three months ended March 31, 2020 (unaudited)		For the three months ended March 31, 2019 (unaudited)		For the six months ended March 31, 2020 (unaudited)		For the six months ended March 31, 2019 (unaudited)
Statement of Operations
Revenues	$	24,561,170	$	24,188,143	$	21,133,682	$	23,788,432	$	45,694,852	$	47,976,575
Cost of goods sold	602,869		14,104		688,838		—		1,291,707		14,104
General and administrative	41,304		30,910		33,854		55,684		75,158		86,594
Other income					119,825		267,111		119,825		267,111

Inventory Purchases	$	2,671,939	$	3,703,065	$	5,730,635	$	3,245,390	$	8,402,574	$	6,948,455

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 2020 RFS final rules.

Table of Contents

RED TRAIL ENERGY, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2020

The Company anticipates that the results of operations during the remainder of fiscal year 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.~~industry and decreased ethanol demand due to travel restrictions during the COVID-19 pandemic.

~~Table of Contents~~

~~RED TRAIL ENERGY, LLC~~

~~NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS~~

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

11. MEMBER'S EQUITY

Changes in member's equity for the ~~fiscal year ended September 30, 2019 and the three~~six months ended ~~December~~March 31, 2020 and 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			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		$	39,044,595	$	75,541	$	21,613,668		$	(159,540	)	$	60,574,264
Net income (loss)	—		—		(1,251,913		)	—			(1,251,913		)	—		—		(1,251,913		)	—			(1,251,913		)
Balances December 31, 2019	39,044,595		75,541		20,361,755			(159,540		)	59,322,351			39,044,595		75,541		20,361,755			(159,540		)	59,322,351
Distribution														—		—		—			—			—
Net income (loss)														—		—		(3,235,994		)	—			(3,235,994		)
Balances - March 31, 2020														$	39,044,595	$	75,541	$	17,125,761		$	(159,540	)	$	56,086,357



	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

12. SUBSEQUENT EVENTS

The COVID-19 outbreak in the United States has resulted in decreased fuel grade ethanol demand and prices due to travel restrictions which resulted in significantly lower fuel demand. While the disruption is currently expected to be temporary, Management anticipates that fuel grade ethanol demand and prices will remain low for the foreseeable future as we continue to face market disruptions. The Company expects this matter to negatively impact its operating results however, the related financial impact and duration cannot be reasonably estimated at this time. The Company has taken steps to mitigate the negative impact of lower fuel grade ethanol demand and price by selling industrial grade ethanol. The Company began selling industrial grade ethanol in April 2020.

On ~~January 22,~~April 6, 2020 the Company ~~entered into a new revolving loan and new construction loan with~~applied for the Paycheck Protection Program through Cornerstone Bank. ~~See Note 5.~~On April 16, 2020, the Company received a PPP loan for $873,400.

Table of Contents

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 six month ~~period~~periods ended ~~December~~March 31, ~~2019~~2020, compared to the same ~~period~~periods 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, 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;

Reduced gasoline demand due to the COVID-19 pandemic;

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.

On January 22, 2020 ~~following the end of 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 details of these loans are described in more detail below in the section entitled "Capital Resources."

Table of Contents

Results of Operations for the Three Months Ended ~~December~~March 31, ~~2019~~2020 and ~~2018~~2019

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 ~~December~~March 31, ~~2019~~2020 and ~~2018:~~2019:

~~Table of Contents~~


	Three Months Ended December 31, 2019 (Unaudited)					Three Months Ended December 31, 2018 (Unaudited)			Three Months Ended March 31, 2020 (Unaudited)					Three Months Ended March 31, 2019 (Unaudited)
Statement of Operations Data	Amount			%		Amount		%	Amount			%		Amount			%
Revenues	$	26,340,913		100.00		$	25,909,136	100.00	$	23,638,144		100.00		$	26,231,799		100.00
Cost of Goods Sold	26,839,483			101.89		24,861,341		95.96	26,007,848			110.02		27,253,765			103.90
Gross Profit (Loss)	(498,570		)	(1.89	)	1,047,795		4.04	(2,369,704		)	(10.02	)	(1,021,966		)	(3.90	)
General and Administrative Expenses	799,505			3.04		674,885		2.60	1,024,464			4.33		655,880			2.50
Operating Income (Loss)	(1,298,075		)	(4.93	)	372,910		1.44	(3,394,168		)	(14.36	)	(1,677,846		)	(6.40	)
Other Income, net	46,162			0.18		29,934		0.12	158,174			0.67		254,538			0.97
Net Income (Loss)	$	(1,251,913	)	(4.75	)	$	402,844	1.55	$	(3,235,994	)	(13.69	)	$	(1,423,308	)	(5.43	)

The following table shows additional data regarding production and price levels for our primary inputs and products for the three months ended ~~December~~March 31, ~~2019~~2020 and ~~2018~~2019.


	Three Months Ended December 31, 2019 (unaudited)		Three Months Ended December 31, 2018 (unaudited)		Three Months Ended March 31, 2020 (unaudited)		Three Months Ended March 31, 2019 (unaudited)
Production:
Ethanol sold (gallons)	15,014,837		16,629,602		17,025,053		15,834,210
Dried distillers grains sold (tons)	22,889		28,115		17,211		19,307
Modified distillers grains sold (tons)	30,293		34,024		40,270		46,660
Corn oil sold (pounds)	3,834,090		2,700,300		3,955,060		2,853,980
Revenues:
Ethanol average price per gallon (net of hedging)	$	1.36	$	1.18	$	1.04	$	1.27
Dried distillers grains average price per ton	129.90		136.95		137.59		148.84
Modified distillers grains average price per ton	60.79		51.92		63.26		51.83
Corn oil average price per pound	0.25		0.22		0.23		0.24
Primary Inputs:
Corn ground (bushels)	5,330,858		6,040,959		5,962,768		5,910,079
Natural gas (MMBtu)	357,329		432,265		368,997		421,620
Costs of Primary Inputs:
Corn average price per bushel (net of hedging)	$	3.53	$	3.20	$	3.06	$	3.30
Natural gas average price per MMBtu (net of hedging)	2.30		2.84		2.20		2.84
Other Costs (per gallon of ethanol sold):
Chemical and additive costs	$	0.091	$	0.108	$	0.063	$	0.076
Denaturant cost	0.036		0.037		0.033		0.031
Electricity cost	0.050		0.046		0.045		0.048
Direct labor cost	0.072		0.061		0.056		0.060

Revenue

Our revenue was ~~greater~~less in the ~~first~~second quarter of our 2020 fiscal year compared to the same period of our 2019 fiscal year primarily due to ~~increased~~significantly lower ethanol prices, ~~for our products,~~ partially offset by ~~decreased~~increased sales of our products during the 2020 period. During the ~~first~~second quarter of our 2020 fiscal year, approximately ~~79.3%~~74.8% of our total revenue was derived from ethanol sales, approximately ~~18.2%~~20.8% was from distillers grains sales and approximately ~~1.9%~~3.8% was from corn oil sales. During the ~~first~~second quarter ~~of our 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.~~

Table of Contents

of our 2019 fiscal year, approximately 76.7% of our total revenue was derived from ethanol sales, approximately 20.2% was from distillers grains sales and approximately 2.6% was from corn oil sales.

Ethanol

The average price we received for our ethanol was ~~higher~~significantly lower during the ~~first~~second quarter of our 2020 fiscal year compared to the ~~first~~second quarter of our 2019 fiscal year. Management attributes the ~~increase~~decrease in the price we received for our ethanol during the ~~first~~second quarter of our 2020 fiscal year to decreased gasoline prices which impacted ethanol prices, along with decreased ethanol demand ~~reductions from small refinery exemptions~~due to travel restrictions from the ~~RFS along with higher corn~~COVID-19 pandemic which resulted in significantly lower fuel demand. Many ethanol producers have reduced production or are shutting down production entirely due to the lack of gasoline demand which directly impacts ethanol demand. Estimates indicate that the COVID-19 pandemic has decreased gasoline demand by more than 50%. Before ethanol production facilities started shutting down, ethanol stocks in the market were increasing which further impacted market prices. Despite low prices, ~~which typically results in higher ethanol prices. In addition, ethanol exports have supported domestic ethanol prices, however,~~ export demand ~~is more volatile than domestic demand which can result in additional volatility. If ethanol export demand slows in the future, it could negatively impact~~has not bolstered ethanol demand ~~especially due to increased production capacity~~ in part because many of our trading partners are facing COVID-19 slow downs like the United States.

Management anticipates that ethanol prices will remain low for the foreseeable future as we continue to face market disruptions due to the COVID-19 pandemic. It is difficult to know when demand might return to prior levels, if 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, usedall, and whether we may see further travel restrictions in the United States. 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, especiallyfuture if ~~ethanol prices are lower compared to the price of gasoline.~~COVID-19 returns.

We sold ~~fewer~~more gallons of ethanol during the ~~first~~second quarter of our 2020 fiscal year compared to the ~~first~~second quarter of our 2019 fiscal ~~year.~~year due to increased production at the ethanol plant and sales of ethanol inventory during the 2020 period. Management attributes this ~~decreased~~increased production to ~~slower production rates~~process changes and efficiencies we implemented in the plant in 2020 along with a slow down in the plant during the ~~beginning~~second quarter of ~~the quarter~~2019 due to ~~lower new crop corn availability from our producers.~~extreme weather conditions. Management anticipates that our ethanol production and sales will be ~~comparable~~lower during the rest of our 2020 fiscal year compared to our 2019 fiscal year ~~provided we do not encounter any~~due to market uncertainty. We anticipate focusing on operating the ethanol plant as efficiently as possible to maximize our ethanol production ~~issues which prevent us from operating at capacity~~per bushel of corn used during our 2020 fiscal year.

From time to time we enter into forward sales contracts for our products. At ~~December~~March 31, ~~2019,~~2020, we had no open ethanol futures ~~contracts.~~contracts for approximately 1.2 million gallons of ethanol with a fair value of less than $10,000. We ~~also~~ had no ethanol futures contracts ~~for the first quarter~~as of ~~our 2020 fiscal year.~~March 31, 2019.

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~~second quarter of our 2020 fiscal year compared to the ~~first~~second 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 ~~first~~second quarter of our 2020 fiscal year compared to the ~~first~~second quarter of our 2019 fiscal year due to lower corn prices and export demand. Management anticipates distillers grains prices will be ~~higher~~lower for the rest of our 2020 fiscal year due to ~~anticipated increases in export demand from China provided recent tariff negotiations between the United States~~decreased corn prices and ~~China continue.~~general economic downturn.

We produced and sold fewer total tons of distillers grains during the ~~first~~second quarter of our 2020 fiscal year compared to the ~~first~~second quarter of our 2019 fiscal year due to ~~decreased overall~~increased corn oil production during the ~~first~~second quarter of our 2020 fiscal year. When we extract more corn oil from our distillers grains, it decreases the volume of distillers grains we have available to sell. Management anticipates relatively consistent distillers grains production going forward provided we can maintain favorable operating margins.

Corn Oil

The total pounds of corn oil we sold was significantly greater during the ~~first~~second quarter of our 2020 fiscal year compared to the ~~first~~second quarter of our 2019 fiscal year due to improved corn oil yields which increased the amount of corn oil we have available to sell. Management anticipates that our corn oil production will remain at current levels for the remaining quarters of our 2020 fiscal ~~year.~~year provided market conditions allow us to continue to operate the ethanol plant. The average price we received for our corn oil during the ~~first~~second quarter of our 2020 fiscal year was approximately ~~13.6% greater~~4.2% less compared to the ~~first~~second quarter of our 2019 fiscal year due to ~~increased biodiesel demand.~~decreased energy prices generally, including diesel which impacts the price of biodiesel. Recently, the biodiesel blenders' tax credit was renewed retroactively from January 1, 2018 through December 31, 2022. This extension of the

Table of Contents

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 ~~greater~~less for the ~~first~~second quarter of our 2020 fiscal year as compared to the ~~first~~second quarter of our 2019 fiscal year due primarily to ~~increased~~lower corn and natural gas costs ~~per bushel~~ during the 2020 period.

~~Table of Contents~~

Corn Costs

Our cost of goods sold related to corn was ~~greater~~less for the ~~first~~second quarter of our 2020 fiscal year compared to the ~~first~~second quarter of our 2019 fiscal year due to ~~higher~~lower corn costs per bushel, without taking derivative instrument positions into ~~account, partially offset by decreased corn consumption.~~account. We also had an adjustment to our cost of goods sold based on forward purchase contracts we had in place during the 2020 period and the value of our corn inventory relative to its value during the 2020 period. For the ~~first~~second quarter of our 2020 fiscal year, we used approximately ~~11.8%~~0.9% fewer bushels of corn compared to the ~~first~~second quarter of our 2019 fiscal year due to improved operating efficiency during the 2020 period. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately 7.3% less for the second quarter of our 2020 fiscal year compared to the second quarter of our 2019 fiscal year due to lower market corn prices during the 2020 period. In addition, during the second quarter of our 2020 fiscal year, we had a realized loss of approximately $373,000 for our corn derivative instruments which increased our cost of goods sold related to corn. For the second quarter of our 2019 fiscal year, we had a realized loss of approximately $1.2 million for our corn derivative instruments which also increased our cost of goods sold related to corn. Management anticipates lower corn prices during the rest of our 2020 fiscal year due to reduced ethanol and feed demand due to the COVID-19 pandemic.

Natural Gas Costs

We consumed approximately 12.5% less MMBtu of natural gas during the second quarter of our 2020 fiscal year compared to the second quarter of our 2019 fiscal year, due to decreased production of dried distillers grains during the 2020 period along with improved efficiency operating the ethanol plant. Our average cost per MMBtu of natural gas was approximately 22.5% less during the second quarter of our 2020 fiscal year compared to the second quarter of our 2019 fiscal year due to plentiful natural gas supply and reduced energy demand at the end of the 2020 period.

General and Administrative Expenses

Our general and administrative expenses were greater for the second quarter of our 2020 fiscal year compared to the second quarter of our 2019 fiscal year primarily due to increased labor and consulting costs related to the carbon capture and storage project during the 2020 period.

Other Income/Expense

We had more interest income during the second quarter of our 2020 fiscal year compared to the second quarter of our 2019 fiscal year due to having more cash on hand during our 2020 fiscal year. Our other income was less during the second quarter of our 2020 fiscal year compared to the second quarter of our 2019 fiscal year due to a lower capital account distribution from RPMG.

Table of Contents

Results of Operations for the Six Months Ended March 31, 2020 and 2019



	Six Months Ended March 31, 2020 (Unaudited)					Six Months Ended March 31, 2019 (Unaudited)
Statement of Operations Data	Amount			%		Amount			%
Revenues	$	49,979,057		100.00		$	52,140,936		100.00
Cost of Goods Sold	52,847,332			105.74		52,115,107			99.95
Gross Profit (Loss)	(2,868,275		)	(5.74	)	25,829			0.05
General and Administrative Expenses	1,823,968			3.65		1,330,765			2.55
Operating Income (Loss)	(4,692,243		)	(9.39	)	(1,304,936		)	(2.50	)
Other Income, net	204,336			0.41		284,472			0.55
Net Income (Loss)	$	(4,487,907	)	(8.98	)	$	(1,020,464	)	(1.96	)

The following table shows additional data regarding production and price levels for our primary inputs and products for the six months ended March 31, 2020 and 2019.



	Six Months Ended March 31, 2020 (unaudited)		Six Months Ended March 31, 2019 (unaudited)
Production:
Ethanol sold (gallons)	32,039,890		32,463,812
Dried distillers grains sold (tons)	40,100		47,422
Modified distillers grains sold (tons)	70,563		80,684
Corn oil sold (pounds)	7,789,150		5,554,280
Revenues:
Ethanol average price per gallon (net of hedging)	$	1.19	$	1.22
Dried distillers grains average price per ton	133.20		141.79
Modified distillers grains average price per ton	62.20		51.87
Corn oil average price per pound	0.24		0.23
Primary Inputs:
Corn ground (bushels)	11,293,626		11,951,038
Natural gas (MMBtu)	726,326		853,885
Costs of Primary Inputs:
Corn average price per bushel (net of hedging)	$	3.28	$	3.25
Natural gas average price per MMBtu (net of hedging)	2.25		2.84
Other Costs (per gallon of ethanol sold):
Chemical and additive costs	$	0.076	$	0.092
Denaturant cost	0.034		0.034
Electricity cost	0.047		0.047
Direct labor cost	0.064		0.060

Revenue

Our revenue was less for the six months ended March 31, 2020 compared to the same period of our 2019 fiscal year due to decreased sales of our ethanol and distillers grains along with lower prices we received for our ethanol during the 2020 period. During the six months ended March 31, 2020, approximately 76.2% of our total revenue was derived from ethanol sales, approximately 19.5% was from distillers grains sales and approximately 3.7% was from corn oil sales. During the six months

Table of Contents

ended March 31, 2019, approximately 76.1% of our total revenue was derived from ethanol sales, approximately 20.9% was from distillers grains sales and approximately 2.5% was from corn oil sales.

Ethanol

The average price we received for our ethanol was less during the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due to lower gasoline prices and decreased ethanol demand. In addition, we sold fewer gallons of ethanol during the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due to decreased production during the 2020 period. Management attributes this decreased production to slower production rates during the beginning of our 2020 fiscal year due to lower new crop corn availability from our producers.

For the six months ended March 31, 2020 we had a realized gain of approximately $25,000 for our ethanol derivative instruments. We had no gain or loss on ethanol derivative instruments during the six months ended March 31, 2019.

Distillers Grains

We produced fewer tons of distillers grains during the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due to decreased overall production at the ethanol plant along with increased corn oil production during the 2020 period, which reduces the amount of distillers grains we have to sell. The average price we received for our dried distillers grains was lower during the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due to weaker export demand and lower corn prices. The average price we received for our modified distillers grains during the six months ended March 31, 2020 was greater compared to the six months ended March 31, 2019 due to stronger local demand for modified distillers grains.

Corn Oil

The total pounds of corn oil we sold was significantly greater during the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due to improved corn oil yields which increased the amount of corn oil we have available to sell. The average price we received for our corn oil during the six months ended March 31, 2020 was approximately approximately 4.3% greater compared to the six months ended March 31, 2019 due to increased biodiesel demand.

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 greater for the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due primarily to increased repairs and maintenance along with an inventory adjustment during the 2020 period.

Corn Costs

Our cost of goods sold related to corn was less for the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due to using less corn during the 2020 period, partially offset by greater corn costs per bushel, without taking derivative instrument positions into account. We also had an adjustment to our cost of goods sold based on forward purchase contracts we had in place during the 2020 period and an adjustment of the value of our corn inventory based on current market conditions. For the six months ended March 31, 2020, we used approximately 5.5% fewer bushels of corn compared to the six months ended March 31, 2019 due to decreased production at the plant. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately ~~10.3%~~0.9% greater for the ~~first quarter of our~~six months ended March 31, 2020 ~~fiscal year~~ compared to the ~~first quarter of our~~six months ended March 31, 2019 ~~fiscal year~~ due to higher market corn prices ~~and less favorable basis~~ during the 2020 period. In addition, during the ~~first quarter of our~~six months ended March 31, 2020, ~~fiscal year,~~ we had a realized ~~gain~~loss of approximately ~~$105,000~~$268,000 for our corn derivative instruments which ~~decreased~~increased our cost of goods sold related to corn. For the ~~first quarter of our~~six months ended March 31, 2019, ~~fiscal year,~~ we had a realized ~~gain~~loss of approximately ~~$2.1 million~~$882,000 for our corn derivative instruments which ~~decreased~~increased our cost of goods sold related to corn. ~~Management anticipates comparable corn prices~~We had a lower of cost or net realizable value adjustment of approximately $241,000 which increased our cost of goods sold during the ~~rest~~2020 period along with a loss on our firm purchase commitments of $100,000 which also increased our ~~2020 fiscal year unless unfavorable weather conditions and late planting negatively impact~~cost of goods sold during the 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.period.

Natural Gas Costs

We consumed approximately ~~17.3%~~14.9% less MMBtu of natural gas during the ~~first quarter of our~~six months ended March 31, 2020 ~~fiscal year~~ compared to the ~~first quarter of our~~six months ended March 31, 2019, ~~fiscal year,~~ due to decreased production during the 2020 period. Our average cost per MMBtu of natural gas was approximately ~~19.0%~~20.8% less during the ~~first quarter of our~~six months ended March 31, 2020 ~~fiscal year~~ compared to the ~~first quarter of our~~six months ended March 31, 2019 ~~fiscal year~~ due to plentiful natural gas ~~supply.~~supply and lower energy prices during the 2020 period.

Table of Contents

General and Administrative Expenses

Our general and administrative expenses were greater for the ~~first quarter of our~~six months ended March 31, 2020 ~~fiscal year~~ compared to the ~~first quarter of our~~six months ended March 31, 2019 ~~fiscal year primarily~~ due to increased labor and consulting costs related to the carbon capture and storage project during the 2020 period.

Other Income/Expense

We had more interest income during the ~~first quarter of our~~six months ended March 31, 2020 ~~fiscal year~~ compared to the ~~first quarter of our~~six months ended March 31, 2019 ~~fiscal year~~ due to having more cash on hand during our 2020 fiscal year. We also had less other income during the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due to a lower capital account distribution from RPMG.

Changes in Financial Condition for the ~~Three~~Six Months Ended ~~December~~March 31, ~~2019~~2020

Current Assets. We had less cash and equivalents at ~~December~~March 31, ~~2019~~2020 compared to September 30, 2019 primarily due to decreased profitability during the ~~timing of our quarter end compared to when we received payments from our marketer.~~2020 period. We had more restricted cash at ~~December~~March 31, ~~2019~~2020 compared to September 30, 2019 because we had more cash in our margin account associated with our hedging transactions. Due to the timing of payments from our marketers and the decrease in market price, we had ~~more~~less accounts receivable at ~~December~~March 31, ~~2019~~2020 compared to September 30, 2019. We had more inventory on hand at ~~December~~March 31, ~~2019~~2020 compared to September 30, 2019 due primarily to having more corn ~~and ethanol~~ inventory at ~~December~~March 31, ~~2019.~~2020. Our prepaid expenses were greater at March 31, 2020 compared to September 30, 2019 due to a deposit to hold our natural gas contracts.

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

Other Assets. Our other assets were greater at March 31, 2020 compared to September 30, 2019 due to an accounting standard change which we implemented which requires us to account for leases differently from past periods.

Current Liabilities. Our accounts payable were lower at ~~December~~March 31, ~~2019~~2020 compared to September 30, 2019 due to having ~~more~~fewer deferred corn payments at ~~December~~March 31, ~~2019.~~2020. Our accrued expenses were higher at ~~December~~March 31, ~~2019~~2020 compared to September 30, 2019 ~~because we had more~~due to deferred payments for corn deliveries at ~~December~~March 31, ~~2019~~2020 compared to September 30, 2019. We ~~also~~included the current portion of our operating leases as a current liability at March 31, 2020 due to the changed accounting standard regarding treatment of leases.

Long-Term Liabilities. We had a ~~larger accrued loss on~~long-term liability for our ~~deferred corn purchase commitments~~operating leases at ~~December~~March 31, ~~2019 compared~~2020 due to ~~September 30, 2019.~~the new lease accounting standard we implemented.

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.

The following table shows cash flows for the six months ended March 31, 2020 and 2019:



	March 31, 2020 (unaudited)			March 31, 2019 (unaudited)
Net cash provided by operating activities	$	800,984		$	4,308,701
Net cash (used in) investing activities	(1,136,257		)	(346,322		)
Net cash (used in) financing activities	(2,266		)	(3,098		)
Net increase (decrease) in cash	$	(337,539	)	$	3,959,281
Cash, cash equivalents and restricted cash, end of period	$	10,184,530		$	14,832,620

1821

Table of Contents

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

December 31, 2019 (unaudited) December 31, 2018 (unaudited)
Net cash (used in) operating activities $ (691,615 ) $ (1,176,982 )
Net cash (used in) investing activities (707,802 ) (80,306 )
Net cash (used in) financing activities (1,149 ) (657 )
Net decrease in cash $ (1,400,566 ) $ (1,257,945 )
Cash, cash equivalents and restricted cash, end of period $ 9,121,503
$ 9,615,394

Cash Flow from Operations

Our operations provided less cash during the ~~three~~six months ended ~~December~~March 31, ~~2019~~2020 compared to the same period of our 2019 fiscal year due to decreased net income along with changes in our ~~derivative instrument positions~~inventory and ~~inventory~~accounts payable which ~~resulted in less~~reduced cash ~~being~~ generated by our ~~operations.~~operations during the 2020 period.

Cash Flow From Investing Activities

We used more cash for capital expenditures during the ~~three~~six months ended ~~December~~March 31, ~~2019~~2020 compared to the same period of our 2019 fiscal year. During the ~~2019~~2020 period, our primary capital expenditures were for our ~~Carbon Capture~~carbon capture and ~~Storage Project~~storage project research.

Cash Flow from Financing Activities

We used ~~more~~less cash for financing activities during the ~~three~~six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~three~~six months ended ~~December~~March 31, 2019 ~~due to a new copier financing lease.~~because we did not have any dividend payments during the 2020 period.

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 ~~$1.2~~$1.6 million in construction in progress as of ~~December~~March 31, ~~2019~~2020 primarily relating to the carbon capture and storage project research.

Capital Resources

Revolving Loan

On January 22, 2020, we entered into a new $10 million revolving loan (the "Revolving Loan") with Cornerstone Bank ("Cornerstone"). Interest accrues on any outstanding balance on the Revolving Loan at a rate of 1.2% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The Revolving Loan has a minimum interest rate of 3.0%. The maturity date of the Revolving Loan is January 21, 2021. The Revolving Loan is secured by a lien on all of our assets. At March 31, 2020, we had $10 million available on the Revolving Loan. The variable interest rate on March 31, 2020 was 3.55%.

Construction Loan

On January 22, 2020, we entered into a new $7 million construction loan (the "Construction Loan") with Cornerstone to finance our carbon capture and storage project. Interest accrues on any outstanding balance on the Construction Loan at a rate of 1.2% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The maturity date of the Construction Loan is June 1, 2021. The Construction Loan is secured by a lien on all of our assets. At March 31, 2020, we had $7 million available on the Construction Loan. The variable interest rate on March 31, 2020 was 3.55%

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, 2019. We discuss our

~~Table of Contents~~

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, 2019. There has been no significant change in our critical accounting estimates since the end of our 2019 fiscal year. Effective October 1, 2019 the Company adopted ASU No. 2016-02 using the modified retrospective ~~approach.~~approach (see note 7). Effective October 1, 2018, the Company has adopted ASC 606 using the modified retrospective approach for all of its ~~contracts.~~contracts (see note 2). 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.

Table of Contents

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 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 ~~December~~March 31, ~~2019~~2020, we had fixed corn purchase contracts for approximately ~~1.30 million~~350,000 bushels of corn and we had corn futures and option contracts for approximately ~~1.40~~1.8 million bushels of corn. As of ~~December~~March 31, ~~2019~~2020 we had an unrealized ~~gain~~loss of approximately ~~$26,000~~$503,000 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 ~~December~~March 31, ~~2019,~~2020, 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 ~~December~~March 31, ~~2019.~~2020. The results of this analysis, which may differ from actual results, are as follows:



	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	%	$	(4,473,000	)
Corn	22,821,000	Bushels	10	%	$	(7,258,000	)
Natural gas	1,664,000	MMBtu	10	%	$	(94,000	)

2023

Table of Contents

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 % $ (7,668,000 )
Corn 22,821,000
Bushels 10 % $ (7,069,000 )
Natural gas 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 ~~December~~March 31, ~~2019.~~2020. 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~~In the first quarter of fiscal ~~quarter ended December 31, 2019,~~year 2020, the Company ~~worked~~implemented new internal controls 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 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.

Item 1A. Risk Factors

~~There have been no~~The following risk factors are provided due to material changes tofrom the risk factors previously ~~discussed~~disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2019. The risk factors set forth below should be read in conjunction with the risk factors section and the Management's Discussion and Analysis section included in our annual report on Form 10-K for the fiscal year ended September 30, 2019.

We are subject to global and regional economic downturns and related risks.

The level of demand for our products is affected by global and regional demographic and macroeconomic conditions. A significant downturn in global economic growth, or recessionary conditions in major geographic regions for prolonged periods, may lead to reduced demand for our products, which could have a negative effect on the market price of our products in the United States. For example, in December 2019, a novel strain of coronavirus surfaced in Wuhan, China (“COVID-19”). In just a few months, the spread of COVID-19 has resulted in businesses suspending or terminating global operations and travel, self-imposed or government-mandated quarantines, and an overall slowdown of economic activity in some areas. Cases have been confirmed worldwide. To the extent that such economic conditions negatively impact consumer and business confidence, travel and consumption patterns or volumes for our products, our business and results of operations could be significantly and adversely affected.

COVID-19 may negatively impact our ability to operate our business which could decrease or eliminate the value of our units.

COVID-19 has resulted in significant uncertainty in many areas of our business. We do not know how long these conditions will last. This uncertainty is expected to negatively impact our operations. We may experience labor shortages if our employees are unable or unwilling to come to work. In addition, if our suppliers cannot deliver the supplies we need to operate our business, including corn and chemicals for our operations, we may be forced to shutdown operations or reduce production. In addition, if we are unable to ship our products because of trucking or rail shipping disruptions, it could also result in a forced shutdown or reduction of production. If we are unable to operate the ethanol plant at capacity, it may result in unfavorable operating results, especially since we will continue to pay our fixed costs of maintaining the facility. Any shutdown or reduction of production, especially for an extended period of time, could reduce or eliminate the value of our units.

Table of Contents

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~~ 31.1			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~~* 1350*
32.2			Certificate Pursuant to 18 U.S.C. Section ~~1350~~* 1350*
101			The following financial information from Red Trail Energy, LLC's Quarterly Report on Form 10-Q for the quarter ended ~~December~~March 31, ~~2019,~~2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of ~~December~~March 31, ~~2019~~2020 and September 30, 2019, (ii) Statements of Operations for the three and six months ended ~~December~~March 31, ~~2019~~2020 and ~~2018,~~2019, (iii) Statements of Cash Flows for the three and six months ended ~~December~~March 31, ~~2019~~2020 and ~~2018,~~2019, 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:	~~February 14,~~May 15, 2020	/s/ Gerald Bachmeier
		Gerald Bachmeier
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	~~February 14,~~May 15, 2020	/s/ Jodi Johnson
		Jodi Johnson
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

2225



	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	15
Item 3. Quantitative and Qualitative Disclosures about Market Risk	2023
Item 4. Controls and Procedures	2124
PART II. OTHER INFORMATION	2124
Item 1. Legal Proceedings	2124
Item 1A. Risk Factors	2124
Item 2. Unregistered Sales of Equity Securities	2125
Item 3. Defaults Upon Senior Securities	2125
Item 4. Mine Safety Disclosures	2125
Item 5. Other Information	2125
Item 6. Exhibits	2225
SIGNATURES	2225



	December 31, 2019 (unaudited)			December 31, 2018 (unaudited)
Net cash (used in) operating activities	$	(691,615	)	$	(1,176,982	)
Net cash (used in) investing activities	(707,802		)	(80,306		)
Net cash (used in) financing activities	(1,149		)	(657		)
Net decrease in cash	$	(1,400,566	)	$	(1,257,945	)
Cash, cash equivalents and restricted cash, end of period	$	9,121,503		$	9,615,394