Cardinal Ethanol LLC (Form: 10-Q, Received: 05/08/2017 15:31:02)

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 March 31, 2017.

	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 000-53036

CARDINAL ETHANOL, LLC

(Exact name of registrant as specified in its charter)



Indiana				20-2327916
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

1554 N. County Road 600 E., Union City, IN 47390
(Address of principal executive offices)

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

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting 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 May 8, 2017 , there were 14,606 membership units outstanding.

Table of Contents

INDEX



	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	25
Item 4. Controls and Procedures	27
PART II. OTHER INFORMATION	27
Item 1. Legal Proceedings	27
Item 1A. Risk Factors	28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3. Defaults Upon Senior Securities	28
Item 4. Mine Safety Disclosures	28
Item 5. Other Information	28
Item 6. Exhibits	28
SIGNATURES	29

Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

CARDINAL ETHANOL, LLC

Condensed Balance Sheets



ASSETS	March 31, 2017		September 30, 2016
	(Unaudited)
Current Assets
Cash	$	13,101,228	$	23,002,139
Restricted cash	831,313		1,460,772
Trade accounts receivable	11,872,592		11,574,847
Miscellaneous receivables	141,260		135,517
Inventories	20,115,081		12,093,469
Prepaid and other current assets	417,720		248,999
Commodity derivative instruments	396,786		14,100
Total current assets	46,875,980		48,529,843

Property, plant, and equipment, net	105,422,964		104,461,078

Other Assets
Investment	1,096,237		938,251
Total other assets	1,096,237		938,251

Total Assets	$	153,395,181	$	153,929,172



LIABILITIES AND MEMBERS' EQUITY

Current Liabilities
Accounts payable	$	3,605,002	$	2,472,212
Accounts payable-corn	5,364,998		4,761,547
Accrued expenses	1,684,505		1,213,753
Commodity derivative instruments	514,049		341,050
Current maturities of long-term debt	2,915,171		2,888,290
Total current liabilities	14,083,725		11,676,852

Long-Term Debt, net of current maturities	10,476,663		11,932,063

Commitments and Contingencies

Members’ Equity
Members' contributions, net of cost of raising capital, 14,606 units authorized, issued and outstanding	70,912,213		70,912,213
Retained earnings	57,922,580		59,408,044
Total members' equity	128,834,793		130,320,257

Total Liabilities and Members’ Equity	$	153,395,181	$	153,929,172

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

Table of Contents

CARDINAL ETHANOL, LLC

Condensed Statements of Operations (Unaudited)



	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	March 31, 2017			March 31, 2016			March 31, 2017			March 31, 2016
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	59,473,502		$	51,589,923		$	117,528,266		$	109,134,959

Cost of Goods Sold	55,018,000			48,600,758			104,468,176			102,994,832

Gross Profit	4,455,502			2,989,165			13,060,090			6,140,127

Operating Expenses	1,434,866			1,486,206			2,621,623			2,855,811

Operating Income	3,020,636			1,502,959			10,438,467			3,284,316

Other Expense
Interest income	—			250			—			250
Interest expense	(134,427		)	(84,475		)	(270,467		)	(143,567		)
Miscellaneous income	15,089			3,440			31,335			25,309
Total	(119,338		)	(80,785		)	(239,132		)	(118,008		)

Net Income	$	2,901,298		$	1,422,174		$	10,199,335		$	3,166,308

Weight Average Units Outstanding - basic and diluted	14,606			14,606			14,606			14,606

Net Income Per Unit - basic and diluted	$	199		$	97		$	698		$	217

Distributions Per Unit	$	200		$	300		$	800		$	800

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

Table of Contents

CARDINAL ETHANOL, LLC

Condensed Statements of Cash Flows (Unaudited)



	Six Months Ended			Six Months Ended
	March 31, 2017			March 31, 2016

Cash Flows from Operating Activities
Net income	$	10,199,335		$	3,166,308
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	5,142,156			4,566,053
Change in fair value of commodity derivative instruments	(2,034,778		)	(2,965,860		)
Non-cash dividend income	(157,986		)	(114,757		)
Change in operating assets and liabilities:
Restricted cash	629,459			1,211,476
Trade accounts receivables	(297,745		)	(17,220		)
Miscellaneous receivable	(5,743		)	218,276
Inventories	(8,021,612		)	(6,400,048		)
Prepaid and other current assets	(168,721		)	103,590
Commodity derivative instruments	1,825,091			1,594,408
Accounts payable	1,132,791			(487,270		)
Accounts payable-corn	603,451			536,663
Accrued expenses	(733,262		)	(537,023		)
Net cash provided by operating activities	8,112,436			874,596

Cash Flows from Investing Activities
Capital expenditures	(1,155,175		)	(4,736,918		)
Payments for construction in progress	(3,744,854		)	—
Net cash used for investing activities	(4,900,029		)	(4,736,918		)

Cash Flows from Financing Activities
Distributions paid	(11,684,799		)	(11,684,801		)
Proceeds from long-term debt	—			6,516,964
Payments on long-term debt	(1,428,519		)	—
Net cash used for financing activities	(13,113,318		)	(5,167,837		)

Net Decrease in Cash	(9,900,911		)	(9,030,159		)

Cash – Beginning of Period	23,002,139			20,827,614

Cash – End of Period	$	13,101,228		$	11,797,455

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

Table of Contents

CARDINAL ETHANOL, LLC

Condensed Statements of Cash Flows (Unaudited)



	Six Months Ended		Six Months Ended
	March 31, 2017		March 31, 2016

Supplemental Cash Flow Information
Interest paid	$	267,796	$	115,067

Supplemental Disclosure of Noncash Investing and Financing Activities
Construction in process included in accrued expenses and accounts payable	$	1,270,578	$	795,642

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

Table of Contents

CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2017

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the year ended September 30, 2016 , contained in the Company's annual report on Form 10-K.

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

Nature of Business

Cardinal Ethanol, LLC, (the “Company”) is an Indiana limited liability company currently producing fuel-grade ethanol, distillers grains, corn oil and carbon dioxide near Union City, Indiana and sells these products throughout the continental United States. The Company's plant has an approximate annual production capacity exceeding 120 million gallons.

Accounting Estimates

Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for the following significant matters, among others; the useful lives of fixed assets, allowance for doubtful accounts, the valuation of basis and delay price contracts on corn purchases, derivatives, inventory, patronage dividends, long-lived assets and inventory purchase commitments. Actual results may differ from previously estimated amounts, and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.

Restricted Cash

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

Trade Accounts Receivable

Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of

its customers' financial condition and, generally, requires no collateral. Accounts receivable are recorded at their estimated net

realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company's

credit terms. Amounts considered uncollectible are written off. The Company's estimate of the allowance for doubtful accounts

is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any.

Inventories

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

Property, Plant and Equipment

Property, plant, and equipment are stated at cost. Depreciation is provided over estimated useful lives by use of the straight line depreciation method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.

Table of Contents

CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2017

Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service.

Long-Lived Assets

The Company reviews its long-lived assets, such as property, plant and equipment and financing costs, subject to depreciation and amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Investments

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

Revenue Recognition

The Company generally sells ethanol and related products pursuant to marketing agreements. Revenues from the production of ethanol and the related products are recorded when the customer has taken title and assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. The Company believes that there are no ethanol sales, during any given month, which should be considered contingent and recorded as deferred revenue. The Company's products are sold Free on Board (FOB) shipping point.

In accordance with the Company's agreements for the marketing and sale of ethanol and related products, marketing fees, commissions and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these commissions and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.

Net Income per Unit

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

Recently Issued Accounting Pronouncements

Restricted Cash (Evaluating)

In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-18, Restricted Cash, which amended Statement of Cash Flows (Topic 230) of the Accounting Standards Codification. The new guidance will require amounts generally described as restricted cash and restricted cash equivalents to 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. The amendments will be effective for the Company beginning October 1, 2018. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements.

2. CONCENTRATIONS

Two major customers accounted for approximately 95.6% of the outstanding accounts receivable balance at March 31, 2017 and 93.7% at September 30, 2016 . These same two customers accounted for approximately 96.2% of revenue for the three and six month periods ended March 31, 2017 and 96.0% for the three and six month period ended March 31, 2016 .

Table of Contents

CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2017

3. INVENTORIES

Inventories consist of the following as of:



	March 31, 2017 (Unaudited)		September 30, 2016
Raw materials	$	12,848,954	$	4,677,336
Work in progress	1,210,618		1,252,919
Finished goods	3,303,513		3,638,427
Spare parts	2,751,996		2,524,787
Total	$	20,115,081	$	12,093,469

In the ordinary course of business, the Company enters into forward purchase contracts for its commodity purchases and sales. Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. At March 31, 2017 , the Company had forward corn purchase contracts at various fixed prices for various delivery periods through December 2018 for approximately 2.4% of expected production needs for the next twenty-one months . Approximately 11.0% of the forward corn purchases were with related parties. Given the uncertainty of future ethanol and corn prices, the Company could incur a loss on the outstanding corn purchase contracts in future periods. Management has evaluated these forward contracts using a methodology similar to that used in the lower of cost or net realizable value evaluation with respect to inventory valuation, and has determined that no impairment existed at March 31, 2017 or September 30, 2016 . The Company has elected not to apply the normal purchase and sale exemption to its forward soybean contracts and therefore treats them as derivative instruments.

At March 31, 2017 , the Company had forward dried distiller grains sales contracts for approximately 36.4% of expected production for the next two months at various fixed prices for delivery periods through May 2017 . At March 31, 2017 , the Company had forward corn oil contracts at various prices for delivery through April 2017 , which approximates 76.9% of expected production for that time period. Also, at March 31, 2017 , the Company had forward natural gas contracts for approximately 40.1% of expected purchases for the next twenty-four months at various prices for various delivery periods through March 2019 . Additionally, at March 31, 2017 , the Company had forward soybean purchase contracts for various delivery periods through March 2018 related to our current construction project which is intended to add grain receiving and train loading facilities and additional rail spurs, track and grain storage to provide the flexibility to receive and ship additional grain commodities.

4. DERIVATIVE INSTRUMENTS

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

Commodity Contracts

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

At March 31, 2017 , the Company had a net short (selling) position of 3,464,700 bushels of corn under derivative contracts used to hedge its forward corn contracts, corn inventory and ethanol sales. These corn derivatives are traded on the Chicago Board of Trade as of March 31, 2017 and are forecasted to settle for various delivery periods through March 2018 . At March 31, 2017 , the Company had a net long (buying) position of 1,890,000 gallons of ethanol under derivative contracts used to hedge its future

Table of Contents

CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2017

ethanol sales. These ethanol derivatives are traded on the New York Mercantile Exchange and are forecasted to settle for various delivery periods through September 2017 . At March 31, 2017 , the Company also had a net short (selling) position of 245,000 bushels of soybeans under derivative contracts used to hedge its forward soybean contract purchases. These soybean derivatives are traded on the Chicago Board of Trade and are as of March 31, 2017 forecasted to settle for various delivery periods through January 2018 . These derivatives have not been designated as an effective hedge for accounting purposes.

The following table provides balance sheet details regarding the Company's derivative financial instruments at March 31, 2017 :



Instrument	Balance Sheet Location	Assets		Liabilities

Ethanol derivative contracts	Commodity Derivative Instruments - Current	$	—	$	322,077
Corn derivative contracts	Commodity Derivative Instruments - Current	$	221,417	$	—
Soybean derivative contracts	Commodity Derivative Instruments - Current	$	175,369	$	191,972

As of March 31, 2017 the Company had approximately $831,000 cash collateral (restricted cash) related to ethanol, corn, natural gas and soybean derivatives.

The following table provides balance sheet details regarding the Company's derivative financial instruments at September 30, 2016 :



Instrument	Balance Sheet Location	Assets		Liabilities

Ethanol derivative contracts	Commodity Derivative Instruments - Current	$	—	$	188,475
Corn derivative contracts	Commodity Derivative Instruments - Current	$	—	$	152,575
Natural gas derivative contracts	Commodity Derivative Instruments - Current	$	14,100	$	—

As of September 30, 2016 the Company had approximately $1,461,000 of cash collateral (restricted cash) related to ethanol and corn derivatives held by three brokers.

The following table provides details regarding the gains and (losses) from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments for the three months ended March 31, 2017 :



Instrument	Statement of Operations Location	Amount
Corn Derivative Contracts	Cost of Goods Sold	$	162,724
Ethanol Derivative Contracts	Revenues	1,384,770
Natural Gas Derivative Contracts	Cost of Goods Sold	62,845
Soybean Derivative Contracts	Cost of Good Sold	(2,208		)
Totals		$	1,608,131



Instrument	Statement of Operations Location	Amount
Corn Derivative Contracts	Cost of Goods Sold	$	828,182
Ethanol Derivative Contracts	Revenues	301,107
Natural Gas Derivative Contracts	Cost of Goods Sold	(176,481		)
Totals		$	952,808

Table of Contents

CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2017



Instrument	Statement of Operations Location	Amount
Corn Derivative Contracts	Cost of Goods Sold	$	556,596
Ethanol Derivative Contracts	Revenues	1,346,560
Natural Gas Derivative Contracts	Cost of Goods Sold	133,830
Soybean Derivative Contracts	Cost of Goods Sold	(2,208		)
Totals		$	2,034,778



Instrument	Statement of Operations Location	Amount
Corn Derivative Contracts	Cost of Goods Sold	$	3,006,696
Ethanol Derivative Contracts	Revenues	221,901
Natural Gas Derivative Contracts	Cost of Goods Sold	(262,737		)
Totals		$	2,965,860

5. FAIR VALUE MEASUREMENTS

The following table provides information on those assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 :



Derivatives	Carrying Amount			Fair Value			Level 1			Level 2			Level 3
Corn Derivative Contracts	$	221,417		$	221,417		$	215,312		$	6,105		—
Ethanol Derivative Contracts	$	(322,077	)	$	(322,077	)	$	(322,077	)	—			—
Soybean Derivative Contracts	$	(16,603	)	$	(16,603	)	$	146,769		$	(163,372	)	—

The following table provides information on those assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 :



Derivatives	Carrying Amount			Fair Value			Level 1			Level 2		Level 3
Corn Derivative Contracts	$	(152,575	)	$	(152,575	)	$	174,969		(327,544	)	—
Ethanol Derivative Contracts	$	(188,475	)	$	(188,475	)	$	(188,475	)	—		—
Natural Gas Derivative Contracts	$	14,100		$	14,100		$	14,100		—		—

We determine the fair value of commodity futures derivative instruments utilizing Level 1 inputs by obtaining fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade market and New York Mercantile Exchange. We determine the fair value of corn and soybean Level 2 instruments by model-based techniques in which all significant inputs are observable in the markets noted above.

6. BANK FINANCING

The Company has a loan agreement consisting of four loans, the Term Loan, Declining Revolving Loan (Declining Loan), the Revolving Credit Loan and the Construction Loan in exchange for liens on all property (real and personal, tangible and intangible)

Table of Contents

CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2017

which include, among other things, a mortgage on the property, a security interest on commodity trading accounts and assignment of material contracts.

On March 23, 2017, we executed the Tenth Amendment of First Amended and Restated Construction Loan Agreement to be effective as of February 28, 2017, which amends the First Amended and Restated Construction Loan Agreement dated June 10, 2013 (the "Amendment"). The primary purpose of the Amendment is to provide additional financing to fund a construction project which is expected to add grain receiving and train loading facilities and additional rail spurs, track and grain storage to provide the flexibility to receive and ship additional grain commodities (the Construction Loan). In connection therewith, we also executed a Disbursing Agreement, Construction Note and a Third Amendment of First Amended and Restated Construction Loan Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement.

The Amendment provides for a construction loan in the maximum principal amount of $10,000,000 with an interest rate equal to the 3-month LIBOR plus two hundred ninety basis points. The financing is secured by a mortgage on all of our real property and a security interest in all other assets, both tangible and intangible. The Amendment provides for monthly interest payments on the Construction Note during the draw period and then the principal balance of the construction advances is expected to be converted, on or before October 31, 2017, to term debt amortized over approximately seven years with a final maturity date of February 28, 2023. The Amendment provides for a minimum fixed charge coverage ratio of no less than 1.15:1.0 measured quarterly on a rolling four quarter average basis if our working capital is less than $25,000,000 for any reporting period. The Amendment also provides for a new debt service charge coverage ratio of no less than 1.25:1.0 measured quarterly on a rolling four quarter average basis, in lieu of the fixed charge coverage ratio, if our working capital is equal to or more that $25,000,000 . The minimum $15,000,000 working capital requirement remains in place from a prior amendment as well. The Amendment modifies the capital expenditures covenant to limit those expenditures to $7,000,000 during the 2017 fiscal year, returning the limit to $5,000,000 for subsequent fiscal years. The grain loading and shipping project is excluded from the calculation. Finally, the Amendment extends the termination date of the Revolving Credit Loan from February 28, 2017 to February 28, 2018 and amends the mortgage to add the additional 64 acres of land purchased in October 2016.

Term Loan

The interest rate on the Term Loan is based on the 3-month LIBOR plus two hundred ninety basis points. The interest rate on the Term Loan at March 31, 2017 was 3.90% and at September 30, 2016 was 3.75% . There were borrowings in the amount of approximately $13,391,000 outstanding on the Term Loan at March 31, 2017 and approximately $14,820,000 outstanding at September 30, 2016 . The Term Loan requires monthly installment payments of principal and interest of approximately $282,700 which commenced on September 1, 2016, with a final maturity date of February 28, 2021.

Declining Note

The maximum availability of the Declining Loan is $5,000,000 with such amount to be available for working capital purposes. The interest rate on the Declining Loan is 3-month LIBOR plus two hundred ninety basis points. The interest rate on the Declining Loan at March 31, 2017 was 3.90% and at September 30, 2016 was 3.75% . There were no borrowings outstanding on the Declining Loan at March 31, 2017 or at September 30, 2016 .

Revolving Credit Loan

The Revolving Credit Loan has a limit of $15,000,000 supported by a borrowing base made up of the Company's corn, ethanol, dried distillers grain and corn oil inventories reduced by accounts payable associated with those inventories having a priority. It is also supported by the eligible accounts receivable and commodity trading account excess margin funds. The interest rate on the Revolving Credit Loan is based on the 1-month LIBOR plus two hundred ninety basis points. The interest rate at March 31, 2017 was 3.89% and at September 30, 2016 was 3.44% . There were no borrowings outstanding on the Revolving Credit Loan at March 31, 2017 .

Construction Loan

The Construction Loan has a limit of $10,000,000 . The interest rate on the Construction Loan is based on the 3-month LIBOR plus two hundred ninety basis points and at March 31, 2017 was 3.90% . There were no borrowings on the Construction Loan at March 31, 2017 .

Table of Contents

CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2017

Long-term debt, as discussed above, consists of the following at March 31, 2017 :



Term note	$	13,391,834
Less amounts due within one year	2,915,171
Net long-term debt	$	10,476,663

The estimated maturities of long-term debt at March 31, 2017 are as follows:



April 1, 2017 to March 31, 2018	$	2,915,171
April 1, 2018 to March 31, 2019	3,032,553
April 1, 2019 to March 31, 2020	3,154,169
April 1, 2020 to March 31, 2021	3,281,669
April 1, 2021 to March 31, 2022	1,008,272
Total long-term debt	$	13,391,834

7. LEASES

At March 31, 2017 , the Company had the following operating lease minimum commitments for payments of rentals under leases which at inception had a non-cancellable term of more than one year:



	Total
April 1, 2017 to March 31, 2018	$	1,172,964
April 1, 2018 to March 31, 2019	682,588
Total minimum lease commitments	$	1,855,552

8. COMMITMENTS AND CONTINGENCIES

Capital Projects

The board of directors has approved a management proposal of capital projects for fiscal year 2017 to add a fermenter, an additional cooling tower cell and a beer-degasser. The projects are expected to cost approximately $5,000,000 . In connection with the projects, the Company has executed construction contracts. The projects are expected to be complete by the September 30, 2017.

The board of directors has also approved a project to add grain loading facilities and additional rail track and grain storage. This project is expected to cost approximately $9,300,000 . These additions are intended to provide the flexibility to receive and ship additional grain commodities if desired. The Company obtained construction financing providing up to $10,000,000 in funding for this project. See Note 6 for more disclosure regarding the Construction Loan.

Legal Proceedings

In February 2010, a lawsuit against the Company was filed by an unrelated party claiming the Company's operation of the oil separation system in a patent infringement. In connection with the lawsuit, in February 2010, the agreement for the construction and installation of the tricanter oil separation system was amended. In this amendment the manufacturer and installer of the tricanter oil separation system indemnifies the Company against all claims of infringement of patents, copyrights or other intellectual property rights from the Company's purchase and use of the tricanter oil system and agrees to defend the Company in the lawsuit

Table of Contents

CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2017

filed at no expense to the Company. On October 23, 2014, the court granted summary judgment finding that all of the patents claimed were invalid and that the Company had not infringed. In addition, on September 15, 2016, the United States District Court granted summary judgment finding that the patents were invalid due to inequitable conduct before the US Patent and Trademark Office by the inventors and their attorneys. We expect that GS CleanTech will appeal the rulings on the motions for summary judgment. The manufacturer has, and the Company expects it will continue, to vigorously defend itself and the Company in these lawsuits and in any appeal filed.

If the ruling was to be successfully appealed, the Company estimates that damages sought in this litigation if awarded would be

based on a reasonable royalty to, or lost profits of, the plaintiff. If the court deems the case exceptional, attorney's fees may be awarded and are likely to be $1,000,000 or more. The manufacturer has also agreed to indemnify the Company for these fees. However, in the event that damages are awarded, if the manufacturer is unable to fully indemnify the Company for any reason, the Company could be liable. In addition, the Company may need to cease use of its current oil separation process and seek out a replacement or cease oil production altogether.

9. 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, distillers grains and corn oil to customers primarily located in the U.S. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. Ethanol sales average approximately 83% of total revenues and corn costs average 78% of total cost of goods sold.

The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol, distillers grains and corn oil, and the related cost of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and the unleaded gasoline and 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.

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 periods ended March 31, 2017 , compared to the same period of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2016 .

Forward Looking Statements

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


•	Reduction, delay, or elimination of the Renewable Fuel Standard;


•	Changes in the availability and price of corn and natural gas;


•	Our inability to secure credit or obtain additional equity financing we may require in the future to continue our operations;


•	Decreases in the price we receive for our ethanol, distiller grains and corn oil;


•	Our ability to satisfy the financial covenants contained in our credit agreements with our senior lender;


•	Our ability to profitably operate the ethanol plant and maintain a positive spread between the selling price of our products and our raw material costs;


•	Negative impacts that our hedging activities may have on our operations;


•	Ethanol and distiller grains supply exceeding demand and corresponding price reductions;


•	Our ability to generate free cash flow to invest in our business and service our debt;


•	Changes in the environmental regulations that apply to our plant operations;


•	Changes in our business strategy, capital improvements or development plans;


•	Changes in plant production capacity or technical difficulties in operating the plant;


•	Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;


•	Lack of transport, storage and blending infrastructure preventing our products from reaching high demand markets;


•	Changes in federal and/or state laws;


•	Changes and advances in ethanol production technology;


•	Competition from alternative fuel additives;


•	Changes in interest rates or the lack of credit availability;


•	Changes in legislation benefiting renewable fuels;


•	Our ability to retain key employees and maintain labor relations;


•	Volatile commodity and financial markets; and


•	Limitations and restrictions contained in the instruments and agreements governing our indebtedness.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements even though our situation may change in the future. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements with these cautionary statements.

Overview

Cardinal Ethanol, LLC is an Indiana limited liability company currently operating a 100 million gallon per year nameplate capacity ethanol plant in east central Indiana near Union City, Indiana. We began producing ethanol and distillers grains at the plant in November 2008. We are currently operating above our 100 million gallons per year nameplate capacity and expect to continue to operate above our nameplate capacity into the near future.

Our revenues are primarily derived from the sale of our ethanol, distillers grains and corn oil. We market and sell our products primarily in the continental United States using third party marketers. Murex, LLC markets all of our ethanol. Our

Table of Contents

distillers grains are marketed by CHS, Inc. We market and distribute all of the corn oil we produce directly to end users and third party brokers.

We have recently completed projects to add storage capacity to our plant and increase annual production capacity to approximately 135 million gallons. These projects were substantially complete at September 30, 2016 for a total cost of approximately $16,500,000. We continue to work to improve process efficiencies and reduce bottlenecks and expect to reach our goal of operating at an annual ethanol production rate of approximately 135 million gallons during our fiscal year ending September 30, 2017.

The board of directors has approved capital projects for fiscal year 2017 to add a fermenter, an additional cooling tower cell, a beer-degasser and miscellaneous de-bottlenecking. The projects are expected to cost approximately $5,000,000 . The projects are expected to be complete by the end of the fiscal year ended September 30, 2017.

The board of directors has also approved a construction project which is expected to add grain receiving and train loading facilities and additional rail spurs, track and grain storage to provide the flexibility to receive and ship additional grain commodities This project is expected to cost approximately $9,300,000 . To provide funding for this project, we executed a Tenth Amendment of First Amended and Restated Construction Loan Agreement with our primary lender, First National Bank of Omaha, to be effective as of February 28, 2017, which amends the First Amended and Restated Construction Loan Agreement dated June 10, 2013. In connection therewith, we also executed a Disbursing Agreement, Construction Note and a Third Amendment of First Amended and Restated Construction Loan Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement. Please refer to Item 1 - Financial Statements, Note 6 - Bank Financing for additional details regarding the terms of our construction financing.

On February 14, 2017, the board of directors declared a cash distribution. The date and amount is listed in the table below:



Date Declared	Distribution Declared Per Unit		Total Distribution Amount		Month Distribution Paid
February 14, 2017	$	200	$	2,921,200	February 2017

In the past, China has been the world's largest importer of distillers grains produced in the U.S. However, last year, China began an anti-dumping and countervailing duty investigation related to distillers grains imported from the United States which contributed to a decline in distillers grains shipped to China. Last fall, China issued a preliminary ruling imposing immediate anti-dumping and anti-subsidy duties on distillers grains that are produced in the United States. On January 10, 2017, China then announced a final ruling increasing anti-dumping duties to a range of 42.2% to 53.7%, up from 33.8% in its preliminary decision. Anti-subsidy duties will range from 11.2% to 12.0%, up from 10.0% to 10.7% in its preliminary decision. The imposition of these duties are expected to result in a further decline in demand from this top importer requiring United States producers to seek out alternative markets.

We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our current credit facilities as amended. However, should we experience unfavorable operating conditions in the ethanol industry that prevent us from profitably operating the ethanol plant, we may need to seek additional funding.

Results of Operations for the Three Months Ended March 31, 2017 and 2016

The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the three months ended March 31, 2017 and 2016 :

Table of Contents



	2017					2016
Statement of Operations Data	Amount			%		Amount			%
Revenue	$	59,473,502		100.00		$	51,589,923		100.00
Cost of Goods Sold	55,018,000			92.51		48,600,758			94.21
Gross Profit	4,455,502			7.49		2,989,165			5.79
Operating Expenses	1,434,866			2.41		1,486,206			2.88
Operating Income	3,020,636			5.08		1,502,959			2.91
Other Expense, Net	(119,338		)	(0.20	)	(80,785		)	(0.16	)
Net Income	$	2,901,298		4.88		$	1,422,174		2.75

Revenues

Our revenues from operations come from three primary sources: sales of fuel ethanol, distillers grains and corn oil. Revenues also include net gains or losses from derivatives related to products sold. The following table shows the sources of our revenue for the three months ended March 31, 2017 and 2016 :



	2017				2016
Revenue Source	Amount		% of Revenues		Amount		% of Revenues
Ethanol Sales	$	49,525,748	83.27	%	$	39,473,367	76.51	%
Distillers Grains Sales	7,675,673		12.91		9,822,215		19.04
Corn Oil Sales	1,949,748		3.28		1,896,130		3.68
Carbon Dioxide Sales	123,377		0.21		206,950		0.40
Other Revenue	198,956		0.33		191,261		0.37
Total Revenues	$	59,473,502	100.00	%	$	51,589,923	100.00	%

Ethanol

Our revenues from ethanol increased for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 . This increase in revenues is the result of an increase in the average market price per gallon of ethanol sold and an increase in gallons of ethanol sold during the three months ended March 31, 2017 as compared to the same period in 2016 .

The average price per gallon of ethanol sold for the three months ended March 31, 2017 was approximately 12.6% higher than our average price per gallon of ethanol sold for the same period in 2016 . This increase in average market price for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 is due to increased domestic driving demand and export demand, particularly from Brazil, which put upward pressure on ethanol prices. In 2016, lower crude oil and unleaded gasoline prices and an increase in national ethanol supply had a negative effect on ethanol prices during the three months ended March 31, 2016 .

Management anticipates that ethanol prices will continue to change in relation to changes in corn and energy prices. If corn, crude oil and gasoline prices decrease, that could have a significant negative impact on the market price of ethanol and our profitability, particularly should ethanol stocks grow because of expansion of production capacity in the industry or other factors. A decline in U.S. ethanol exports would also likely contribute to higher ethanol stocks unless additional demand could be created domestically.

We experienced an increase in ethanol gallons sold of approximately 11.8% for the three months ended March 31, 2017 as compared to the same period in 2016 resulting primarily from increased ethanol demand and production rates. We are currently operating at approximately 29% to 32% above our nameplate capacity. Management anticipates that the gallons of ethanol sold by our plant will increase due to our plans to increase our annual ethanol production rate to approximately 135 million gallons during our fiscal year ended September 30, 2017.

Table of Contents

Distillers Grains

Our revenues from distillers grains decreased in the three months ended March 31, 2017 as compared to the same period in 2016 . This decrease in revenues is the result of a decrease in the average market price per ton of distillers grains sold for the period ended March 31, 2017 as compared to the same period in 2016 .

The average price per ton of distillers grains sold for the three months ended March 31, 2017 was approximately 32.4% lower than the average price per ton of distillers grains sold for the same period in 2016 . This decline in the market price of distillers grains is due to lower domestic demand and lower export demand, particularly from China, which has resulted in a decline in the price of distillers grains as a percentage of corn values.

China has been a significant consumer of exported distillers grains particularly since December 2014 following the resolution of a dispute related to China's objection to the presence of an unapproved genetically modified organism in some U.S. shipments. However, an anti-dumping investigation began by the Chinese government on January 12, 2016 into distillers grains produced in the U.S. and the recent imposition by China of anti-dumping and anti-subsidy duties on U.S. imports has had a negative effect on export demand from China resulting in lower distillers grains prices. Last fall, China issued a preliminary ruling imposing immediate anti-dumping and anti-subsidy duties on distillers grains that are produced in the United States. On January 10, 2017, China then announced a final ruling increasing anti-dumping and anti-subsidy duties. The imposition of these duties are expected to result in a further decline in demand from this top importer and distillers grains prices could remain low unless additional demand can be created from other foreign markets or domestically. Domestic demand for distillers grains could also remain low due to expansion of production capacity in the ethanol industry and end-users switching to lower priced alternatives.

We sold approximately 15.8% more tons of distillers grains in the three months ended March 31, 2017 as compared to the same period in 2016 due primarily to an increase in ethanol production rates resulting in higher distillers grains production. Management anticipates that the distillers grains sold by our plant will increase due to our plans to increase our annual ethanol production rate to approximately 135 million gallons during our fiscal year ended September 30, 2017.

Corn Oil

Our revenues from corn oil sales increased approximately 2.8% in the three months ended March 31, 2017 as compared to the same period in 2016 which was primarily a result of an increase in the price of corn oil sold in the three months ended March 31, 2017 as compared to the same period in 2016 . The average price per pound of corn oil was approximately 12.0% higher for the three months ended March 31, 2017 as compared to the same period in 2016 due to increased demand from the feed industry. We sold approximately 9.1% fewer tons of corn oil in the three months ended March 31, 2017 as compared to the same period in 2016 due primarily to decreased oil extraction rates per bushel of corn.

Management expects corn oil prices will remain relatively steady in the near term. However, corn oil prices may be negatively affected if the biodiesel tax credit that expired on December 31, 2016 is not renewed by Congress. Corn oil prices may also decrease if biodiesel plants switch to lower priced alternatives such as soybean oil. Management expects its corn oil production will increase due to our plans to increase our annual ethanol production rate to approximately 135 million gallons during our fiscal year ended September 30, 2017 which would also increase our corn oil production.

Cost of Goods Sold

Our cost of goods sold as a percentage of revenues was approximately 92.5% for the three months ended March 31, 2017 as compared to approximately 94.2% for the same period in 2016 . This decrease in cost of goods sold as a percentage of revenues was the result of the widening of the margin between ethanol prices relative to the cost of corn for the three months ended March 31, 2017 as compared to the same period in 2016 . Our two largest costs of production are corn and natural gas. Cost of goods sold also includes net gains or losses from derivatives related to our commodities purchases.

Corn

Our largest cost associated with the production of ethanol, distillers grains and corn oil is corn cost. During the three months ended March 31, 2017 , we used approximately 10.4% more bushels of corn to produce our ethanol, distillers grain and corn oil as compared to the same period in 2016 . During the three months ended March 31, 2017 , our average price paid per bushel of corn was approximately 2.4% higher as compared to the same period in 2016 . Corn prices have been fairly steady throughout our second fiscal quarter. Corn supplies have been sufficient locally and we have had no difficulty sourcing corn during our second fiscal quarter.

Table of Contents

Weather, world supply and demand, current and anticipated stocks, agricultural policy and other factors can contribute to volatility in corn prices. If corn prices rise, it will have a negative effect on our operating margins unless the price of ethanol and distillers grains out paces rising corn prices. Volatility in the price of corn could significantly impact our cost of goods sold.

Natural Gas

Our natural gas cost after hedging was higher during the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 . This increase in cost of natural gas for the three months ended March 31, 2017 as compared to the same period in 2016 was primarily the result of an increase of approximately 13.5% in the average price per MMBTU of natural gas due to increased demand and lower production which have used up natural gas stocks built up in 2015. We also used approximately 7.5% more natural gas for the three months ended March 31, 2017 as compared to the same period in 2016 because of higher ethanol production.

Natural gas prices are expected to increase in the future due to producers shutting down wells resulting in lower natural gas production and to the conversion of power plants across the U.S. from coal to natural gas. If the nation were to experience a catastrophic weather event causing problems related to the supply of natural gas, this could result in higher natural gas prices.

Derivatives

We enter into hedging instruments to minimize price fluctuations in the prices of our finished products and inputs. As the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our revenues and our cost of goods sold. These commodity-based derivatives are not designated as effective hedges for accounting purposes. Please refer to Item 3 - Quantitative and Qualitative Disclosures About Market Risk-Commodity Price Risk for information on our derivatives.

Operating Expense

Our operating expenses as a percentage of revenues were approximately 2.4% for the three months ended March 31, 2017 as compared to operating expenses of approximately 2.9% of revenues for the same period in 2016 . Operating expenses include salaries and benefits of administrative employees, insurance, taxes, professional fees and other general administrative costs. Our efforts to optimize efficiencies and maximize production may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses generally do not vary with the level of production at the plant, we expect our operating expenses to remain relatively steady throughout the remainder of the 2017 fiscal year .

Operating Income

Our income from operations for the three months ended March 31, 2017 was approximately 5.1% of our revenues as compared to operating income of approximately 2.9% of revenues for the same period in 2016 . The increase in operating income for the three months ended March 31, 2017 was primarily the result of increased ethanol prices relative to the price of corn.

Other Income (Expense)

Our other expense for the three months ended March 31, 2017 and for the same period in 2016 was minimal. Our other expense for the three months ended March 31, 2017 and March 31, 2016 consisted primarily of interest expense.

Results of Operations for the Six Months Ended March 31, 2017 and 2016

Table of Contents



	2017					2016
Statement of Operations Data	Amount			%		Amount			%
Revenue	$	117,528,266		100.00		$	109,134,959		100.00
Cost of Goods Sold	104,468,176			88.89		102,994,832			94.37
Gross Profit	13,060,090			11.11		6,140,127			5.63
Operating Expenses	2,621,623			2.23		2,855,811			2.62
Operating Income	10,438,467			8.88		3,284,316			3.01
Other Expense	(239,132		)	(0.20	)	(118,008		)	(0.11	)
Net Income	$	10,199,335		8.68		$	3,166,308		2.90

Revenues



	2017				2016
Revenue Source	Amount		% of Revenues		Amount		% of Revenues
Ethanol Sales	$	97,805,477	83.22	%	$	85,412,493	78.26	%
Distillers Grains Sales	15,193,586		12.93		19,480,561		17.85
Corn Oil Sales	4,056,484		3.45		3,782,459		3.47
Carbon Dioxide Sales	235,150		0.20		268,185		0.25
Other Revenue	237,569		0.20		191,261		0.17
Total Revenues	$	117,528,266	100.00	%	$	109,134,959	100.00	%

Ethanol

Our revenues from ethanol increased for the six months ended March 31, 2017 as compared to the six months ended March 31, 2016 . This increase in revenues is the result of an increase in the average market price per gallon of ethanol sold and an increase in gallons of ethanol sold during the six months ended March 31, 2017 as compared to the same period in 2016 .

The average price per gallon of ethanol sold for the six months ended March 31, 2017 was approximately 10.00% higher than our average price per gallon of ethanol sold for the same period in 2016 . This increase in average market price for the six months ended March 31, 2017 as compared to the six months ended March 31, 2016 is due to increased domestic driving demand and export demand which put upward pressure on ethanol prices. In 2016, lower crude oil and unleaded gasoline prices and an increase in national supply had a negative effect on ethanol prices during the six months ended March 31, 2016 .

We experienced an increase in ethanol gallons sold of approximately 4.2% for the six months ended March 31, 2017 as compared to the same period in 2016 resulting primarily from increased ethanol production rates. We are currently operating at approximately 29% to 32% above our nameplate capacity.

Distillers Grains

Our revenues from distillers grains decreased in the six months ended March 31, 2017 as compared to the same period in 2016 . This decrease in revenues is the result of a decrease in the average market price per ton of distillers grains sold for the period ended March 31, 2017 as compared to the same period in 2016 .

The average price per ton of distillers grains sold for the six months ended March 31, 2017 was approximately 26.4% lower than the average price per ton of distillers grains sold for the same period in 2016 . This decline in the market price of distillers grains is due to lower domestic demand and lower export demand, particularly from China.

We sold approximately 6.0% more tons of distillers grains in the six months ended March 31, 2017 as compared to the same period in 2016 due primarily to an increase in ethanol production rates and timing of distillers grains shipments.

Table of Contents

Corn Oil

Our revenues from corn oil sales increased approximately 7.2% in the six months ended March 31, 2017 as compared to the same period in 2016 which was primarily a result of an increase in the price of corn oil sold in the three months ended March 31, 2017 as compared to the same period in 2016 . The average price per pound of corn oil was approximately 26% higher for the six months ended March 31, 2017 as compared to the same period in 2016 due to increased demand from the feed industry. We sold approximately 7.9% fewer tons of corn oil in the six months ended March 31, 2017 as compared to the same period in 2016 due primarily to decreased oil extraction rates per bushel of corn.

Cost of Goods Sold

Our cost of goods sold as a percentage of revenues was approximately 88.9% for the six months ended March 31, 2017 as compared to approximately 94.4% for the same period in 2016 . This decrease in cost of goods sold as a percentage of revenues was the result of the widening of the margin between ethanol price relative to the cost of corn for the six months ended March 31, 2017 as compared to the same period in 2016 . Our two largest costs of production are corn and natural gas. Cost of goods sold also includes net gains or losses from derivatives related to our commodities purchases.

Corn

Our largest cost associated with the production of ethanol, distillers grains and corn oil is corn cost. During the six months ended March 31, 2017 , we used approximately 4.8% more bushels of corn to produce our ethanol, distillers grain and corn oil as compared to the same period in 2016 . During the six months ended March 31, 2017 , our average price paid per bushel of corn was approximately 6.2% lower as compared to the same period in 2016 . Corn prices have trended lower due to the plentiful 2016 harvest, compared to the 2015 crop year where wetter weather lowered corn yields locally. Corn supplies have been sufficient locally and we have had no difficulty sourcing corn during our second fiscal quarter.

Natural Gas

Our natural gas cost after hedging was higher during the six months ended March 31, 2017 as compared to the six months ended March 31, 2016 . This increase in cost of natural gas for the six months ended March 31, 2017 as compared to the same period in 2016 was primarily the result of an increase of approximately 14.2% in the average price per MMBTU of natural gas due to increased demand and lower production which have used up natural gas stocks built up in 2015. We also used approximately 5.3% more natural gas for the six months ended March 31, 2017 as compared to the same period in 2016 because of higher ethanol production.

Derivatives

Operating Expense

Our operating expenses as a percentage of revenues were approximately 2.2% for the six months ended March 31, 2017 as compared to operating expenses of approximately 2.6% of revenues for the same period in 2016 . Operating expenses include salaries and benefits of administrative employees, insurance, taxes, professional fees and other general administrative costs. Our efforts to optimize efficiencies and maximize production may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses generally do not vary with the level of production at the plant, we expect our operating expenses to remain relatively steady throughout the remainder of the 2017 fiscal year .

Operating Income

Our income from operations for the six months ended March 31, 2017 was approximately 8.9% of our revenues as compared to operating income of approximately 3.0% of revenues for the same period in 2016 . The increase in operating income for the six months ended March 31, 2017 was primarily the result of increased ethanol prices relative to the price of corn.

Table of Contents

Other Income (Expense)

Our other expense for the six months ended March 31, 2017 and for the same period in 2016 was minimal. Our other expense for the six months ended March 31, 2017 and March 31, 2016 consisted primarily of interest expense.

Changes in Financial Condition for the Six Months Ended March 31, 2017

The following table highlights the changes in our financial condition:



	March 31, 2017 (Unaudited)		September 30, 2016
Current Assets	$	46,875,980	$	48,529,843
Current Liabilities	$	14,083,725	$	11,676,852
Long-Term Liabilities	$	10,476,663	$	11,932,063
Member's Equity	$	128,834,793	$	130,320,257

We experienced a decrease in our current assets at March 31, 2017 as compared to September 30, 2016 . This decrease was primarily driven by a decrease in our cash at March 31, 2017 as compared to September 30, 2016 due primarily to increased cash outlays for ongoing capital projects. This decrease was partially offset by an increase in our inventories at March 31, 2017 compared to September 30, 2016 due to increased corn inventories as the crop has come into storage from the 2016 harvest.

We experienced an increase in our total current liabilities at March 31, 2017 as compared to September 30, 2016 . This increase was primarily due to an increase in our accounts payable at March 31, 2017 as compared to September 30, 2016 due to ongoing capital projects. We also experienced an increase in accounts payable corn at March 31, 2017 as compared to September 30, 2016 due to an increase in corn deliveries.

We experienced a decrease in our long-term liabilities as of March 31, 2017 as compared to September 30, 2016 . At March 31, 2017 , we had $10,476,663 of outstanding borrowings in the form of long-term loans as compared to $11,932,063 at September 30, 2016 . The decrease is due to monthly principal payments on the long-term debt.

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. We do not anticipate seeking additional equity financing during our 2017 fiscal year. Operating margins were steady during our first two fiscal quarters and are expected to continue to be positive during our next fiscal quarter. However, should we experience unfavorable operating conditions in the ethanol industry that prevent us from profitably operating the ethanol plant, we could have difficulty maintaining our liquidity and may need to rely on our revolving lines of credit for operations.

The following table shows cash flows for the six months ended March 31, 2017 and 2016 :



	2017			2016
Net cash provided by operating activities	$	8,112,436		$	874,596
Net cash used for investing activities	$	(4,900,029	)	$	(4,736,918	)
Net cash used for financing activities	$	(13,113,318	)	$	(5,167,837	)
Net decrease in cash	$	(9,900,911	)	$	(9,030,159	)
Cash, beginning of period	$	23,002,139		$	20,827,614
Cash, end of period	$	13,101,228		$	11,797,455

Cash Flow from Operations

We experienced an increase in our cash flow from operations for the six months ended March 31, 2017 as compared to the same period in 2016 . This was primarily the result of increased net income as a result of increased ethanol prices relative to the cost of corn for the six months ended March 31, 2017 compared with the same period in 2016 .

Table of Contents

Cash Flow used for Investing Activities

We used more cash in investing activities for the six months ended March 31, 2017 as compared to the same period in 2016 . Cash used in investing activities was used for payments for construction in progress due to our capital projects described below in Capital Improvements .

Cash Flow used for Financing Activities

We used more cash in financing activities for the six months ended March 31, 2017 as compared to the same period in 2016 . This increase was the result of our making payments on our long term debt for the six months ended March 31, 2017 compared to receiving proceeds from long term debt for the period ended March 31, 2016 .

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 with the relative price levels as of March 31, 2017 , we expect operations to generate adequate cash flows to maintain operations.

Short and Long Term Debt Sources

We have a loan agreement consisting of four loans, the Term Loan, the Declining Revolving Loan ("Declining Loan"), the Revolving Credit Loan and a Construction Loan. In exchange for these loans, we granted liens on all property (real and personal, tangible and intangible) which include, among other things, a mortgage on the property, a security interest on commodity trading accounts, and assignment of material contracts. On March 23, 2017, we executed a Tenth Amendment of First Amended and Restated Construction Loan Agreement to be effective as of February 28, 2017, which amends the First Amended and Restated Construction Loan Agreement dated June 10, 2013 (the "Amendment"). The primary purpose of the Amendment was to provide an additional $10,000,000 in financing to fund a construction project which is expected to add grain receiving and train loading facilities and additional rail spurs, track and grain storage to provide the flexibility to receive and ship additional grain commodities (the "Construction Loan"). The Amendment also extends the termination date of the Revolving Credit Loan from February 28, 2017 to February 28, 2018 and amends the mortgage to add an additional 64 acres of land purchased in October 2016. Please refer to Item 1 - Financial Statements, Note 6 - Bank Financing for additional details regarding the Amendment.

Term Loan

The interest rate on the Term Loan is based on the 3-month London Interbank Offered Rate ("LIBOR") plus two hundred ninety basis points. The interest rate at March 31, 2017 was 3.90% . The Term Loan requires monthly installment payments of approximately $282,700 commencing on September 1, 2016, with a final maturity date of February 28, 2021. There was approximately $13,392,000 outstanding on the Term Loan at March 31, 2017 and approximately $14,820,000 outstanding on the Term Loan at September 30, 2016 .

Declining Loan

The maximum availability of the Declining Loan is $5,000,000 with such amount to be available for working capital purposes. The interest rate on the Declining Loan is based on the 3-month LIBOR plus two hundred ninety basis points. The interest rate at March 31, 2017 was 3.90% . There was no balance outstanding on the Declining Loan at March 31, 2017 or September 30, 2016 .

Revolving Credit Loan

The Revolving Credit Loan has a limit of $15,000,000 supported by a borrowing base made up of our corn, ethanol, dried distillers grain and corn oil inventories reduced by accounts payable associated with those inventories having a priority. It is also supported by the eligible accounts receivable and commodity trading account excess margin funds. The interest rate on the Revolving Credit Loan is based on the 1-month LIBOR plus two hundred ninety basis points. The interest rate at March 31, 2017 was 3.89% . There were no borrowings outstanding on the Revolving Credit Note at March 31, 2017 or September 30, 2016 .

Table of Contents

Construction Loan

The Construction Loan has a limit of $10,000,000. The interest rate on the Construction Loan is based on the 3-month LIBOR plus two hundred ninety basis points and at March 31, 2017 was 3.90% . There were no borrowings on the Construction Loan at March 31, 2017 or at September 30, 2016 .

Covenants

During the term of the loans, we will be subject to certain financial covenants. Our minimum working capital is $15,000,000, which is calculated as our current assets plus the amount available for drawing under our long term revolving note, less current liabilities. Our minimum fixed charge coverage ratio is no less than 1.15:1.0 measured on a rolling four quarter average basis. However, for any reporting period, if our working capital is equal to or more than $25,000,000, we will be subject to maintaining a debt service charge coverage ratio of no less than 1.25:1.0 in lieu of the fixed charge coverage ratio.

Our loan agreement also requires us to obtain prior approval from our lender before making, or committing to make, capital expenditures exceeding an aggregate amount of $5,000,000 in any single fiscal year except for the 2017 fiscal year when we are allowed $7,000,000 of expenditures without prior approval excluding the grain loading and receiving project from the calculation.

We are meeting our liquidity needs and complying with our financial covenants and the other terms of our loan agreements at March 31, 2017 . Based on current management projections, we anticipate that future operations will be sufficient to generate enough cash flow to maintain operations, service any new debt and comply with our financial covenants and other terms of our loan agreements through March 31, 2018. Should market conditions deteriorate in the future, circumstances may develop which could result in us violating the financial covenants or other terms of our loan agreements. Should we violate the terms or covenants of our loan or fail to obtain a waiver of any such term or covenant, our primary lender could deem us in default of our loans and require us to immediately repay a significant portion or possibly the entire outstanding balance of our loans if we have a balance outstanding. In that event, our lender could also elect to proceed with a foreclosure action on our plant.

Development Agreement

In September 2007, the Company entered into a development agreement with Randolph County Redevelopment Commission (“the Commission”) to promote economic development in the area. Under the terms of this agreement, beginning in January 2008 through December 2028, the money the Company pays toward property tax expense is allocated to an expense and an acquisition account. The funds in the acquisition account can be used by the Commission to purchase equipment, at the Company's direction, for the plant. The Company does not have title to or control over the funds in the acquisition account, no amounts have been recorded in the balance sheet relating to this account.

Tax Abatement

In October 2006, the real estate that our plant was constructed on was determined to be an economic revitalization area, which qualified us for tax abatement. The abatement period is for a ten year term, with an effective date beginning calendar year end 2009 for the property taxes payable in calendar year 2010. The program allows for 100% abatement of property taxes beginning in year 1, and then decreases on a ratable scale so that in year 11 the full amount of property taxes are due and payable. We must apply annually and meet specified criteria to qualify for the abatement program.

Capital Improvements

We have recently completed projects to add storage capacity to our plant and increase annual production capacity to approximately 135 million gallons. These projects were substantially complete at September 30, 2016, for a total cost of approximately $16,500,000. We continue to work to improve process efficiencies and reduce bottlenecks and expect to reach our goal of operating at an annual production rate of approximately 135 million gallons during the fiscal year ending September 30, 2017.

The board of directors has approved capital projects for fiscal year 2017 to add a fermenter, an additional cooling tower cell, a beer-degasser and miscellaneous de-bottlenecking. The projects are expected to cost approximately $5,000,000 . In connection with the construction of these projects, we have an agreement with Nelson Engineering, Inc. The projects are expected to be complete by the end of the fiscal year ended September 30, 2017. The board of directors has also approved a project to add grain loading facilities and additional rail track and grain storage. These additions are intended to provide the flexibility to receive

Table of Contents

and ship additional grain commodities if desired and is expected to cost approximately $9,300,000 . Please refer to Item 1 - Financial Statements, Note 6 - Bank Financing for additional details regarding the terms of our construction financing for this project.

Critical Accounting Estimates

Management uses various estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Our most critical accounting estimates, which require the greatest use of judgment by management, are designated as critical accounting estimates and include policies related to the useful lives of fixed assets; allowance for doubtful accounts; the valuation of basis and delay price contracts on corn purchases; derivatives; inventory; patronage dividends, long-lived assets and inventory purchase commitments. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 . Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed financial statements in accordance with generally accepted accounting principles. There have been no changes in the policies for our accounting estimates for the six months ended March 31, 2017 .

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 interest rates and commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn and natural gas. 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.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our Term Loan, Declining Loan, Revolving Credit Loan and Construction Loan which bear variable interest rates. The interest rate for the Term Loan is the 3-month LIBOR rate plus 290 basis points with no minimum. There were borrowings in the amount of $13,391,000 outstanding on the Term Loan and the applicable interest rate was 3.90% at March 31, 2017 . The interest rate on the Declining Loan is the 3-month LIBOR plus 290 basis points with no minimum. There were no borrowings outstanding on the Declining Loan and the applicable interest rate was 3.90% at March 31, 2017 . The interest rate for the Revolving Credit Note is the 1-month LIBOR rate plus 290 basis points with no minimum. There were no outstanding balances on the Revolving Credit Note at March 31, 2017 and the applicable interest rate was 3.89% . The interest rate on the Construction Loan is the 3-month LIBOR plus 290 basis points with no minimum. There were no borrowings outstanding on the Construction Loan and the applicable interest rate was 3.90% at March 31, 2017 . The specifics of the Term Loan, Declining Loan, the Revolving Credit Loan and the Construction Loan are discussed in greater detail above. If we were to experience a 10% adverse change in LIBOR, the annual effect such change would have on our statement of operations, based on the amount we had outstanding on our variable interest rate loans at March 31, 2017 , would be approximately $14,000.

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 in the ethanol production process and the sale of ethanol.

We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as corn and natural gas, and finished products, such as ethanol and distiller's grains, through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our cost of goods sold or as an offset to revenues. The immediate recognition of hedging gains and losses can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

Table of Contents

We enter into forward contracts for our commodity purchases and sales on a regular basis. It is our intent that, as we enter in to these contracts, we will use various hedging instruments 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 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.

At March 31, 2017 , we had a net long (buying) position of 1,890,000 gallons of ethanol under derivative contracts used to hedge our future ethanol sales for various delivery periods through September 2017 , a net short (selling) position of 3,464,700 bushels of corn under derivative contracts used to hedge our forward corn contracts, corn inventory and ethanol sales for various delivery periods through March 2018 , and no MMBTUs of natural gas under derivative contracts used to hedge our forward natural gas purchases. Also at March 31, 2017 , the Company also had a net short (selling) position of 245,000 bushels of soybeans under derivative contracts used to hedge its forward soybean contract purchases forecasted to settle for various delivery periods through January 2018 . These derivatives have not been designated as an effective hedge for accounting purposes. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding as disclosed above. The following table provides details regarding the gains and (losses) from our derivative instruments in the statements of operations, none of which are designated as hedging instruments, for the three and six months ended March 31, 2017 and 2016 :



	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	March 31, 2017			March 31, 2016			March 31, 2017			March 31, 2016
Corn Derivative Contracts	$	162,724		$	828,182		$	556,596		$	3,006,696
Ethanol Derivative Contracts	1,384,770			301,107			1,346,560			221,901
Natural Gas Derivative Contracts	62,845			(176,481		)	133,830			(262,737		)
Soybean Derivative Contracts	(2,208		)	—			(2,208		)	—
Totals	$	1,608,131		$	952,808		$	2,034,778		$	2,965,860

At March 31, 2017 , we had forward corn purchase contracts at various fixed prices for various delivery periods through December 2018 for approximately 2.4% of our expected production needs for the next 21 months, forward dried distiller grains sales contracts at various fixed prices for various delivery periods through May 2017 for approximately 36.4% of expected production for the next 2 months and forward corn oil contracts at various prices for various delivery periods through April 2017 for approximately 76.9% of expected production for the next 1 month.

Also, at March 31, 2017 , we had forward natural gas contracts for approximately 40.1% of expected purchases for the next 24 months at various prices for various delivery periods through March 2019 . As contracts are delivered, any gains or losses realized will be recognized in our gross margin. Additionally, March 31, 2017 , the Company had forward soybean purchase contracts for various period for delivery through March 2018. These soybean contracts will be marked to market as the contract periods expire. This means that any gains or losses realized will be recognized in our gross margin at each month end until they are delivered upon. Due to the volatility and risk involved in the commodities market, we cannot be certain that these gains or losses will be realized.

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. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us.

A sensitivity analysis has been prepared to estimate our exposure to ethanol, distillers grains, corn oil, corn and natural gas price risk. Market risk related to these factors 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 average ethanol, distillers grains and corn oil prices as of March 31, 2017 net of the forward and future contracts used to hedge our market risk. The volumes are based on our expected use and sale of these commodities for a one year period from March 31, 2017 . The results of this analysis, which may differ from actual results, are approximately as follows:

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 as of March 31, 2017		Approximate Adverse Change to Income
Natural Gas	1,516,000	MMBTU	10	%		$	484,000
Ethanol	132,000,000	Gallons	10	%		$	21,120,000
Corn	39,734,000	Bushels	10	%		$	14,344,000
DDGs	296,000	Tons	10	%		$	2,722,000
Corn Oil	29,202,000	Pounds	10	%		$	818,000

Liability Risk

We participate in a captive reinsurance company (the “Captive”). The Captive re-insures losses related to worker's compensation, commercial property and general liability. Premiums are accrued by a charge to income for the period to which the premium relates and is remitted by our insurer to the captive re-insurer. The Captive re-insures catastrophic losses in excess of a predetermined amount. Our premiums are structured such that we have made a prepaid collateral deposit estimated for losses related to the above coverage. The Captive insurer has estimated and collected an amount in excess of the estimated losses but less than the catastrophic loss limit insured by the Captive. We cannot be assessed in excess of the amount in the collateral fund.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

Our management, including our Chief Executive Officer (the principal executive officer), Jeff Painter, along with our Chief Financial Officer (the principal financial officer), William Dartt, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of March 31, 2017 . Based on this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our second quarter of our 2017 fiscal year that have materially affected, or are likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Patent Infringement

On June 27, 2008, we entered into a Tricanter Purchase and Installation Agreement with ICM, Inc. for the construction and installation of a Tricanter Oil Separation System. On February 12, 2010, GS CleanTech Corporation ("GS CleanTech") filed a lawsuit in the United States District Court for the Southern District of Indiana, claiming that the Company's operation of the oil recovery system manufactured and installed by ICM, Inc. infringes a patent claimed by GS CleanTech. GS CleanTech sought royalties and damages associated with the alleged infringement, as well as attorney's fees from the Company. GS CleanTech subsequently filed actions against at least fourteen other ethanol producing companies for infringement of its patent rights, adding several additional patents. GS CleanTech successfully petitioned for the cases to be joined in a multi-district litigation ("MDL")

Table of Contents

which was assigned to the United States District Court for the Southern District of Indiana (Case No. 1:10-ml-02181). We subsequently answered and counterclaimed that the patent claims at issue are invalid and that the Company is not infringing.

Motions for summary judgment were filed by the defendants, including the Company, and GS CleanTech. Meanwhile, GS Cleantech filed suit against another group of defendants which were joined with the MDL. On October 23, 2014, the United States District Court granted summary judgment finding that all of the patents claimed by GS CleanTech were invalid and that the Company had not infringed. In addition, on September 15, 2016, the United States District Court granted summary judgment finding that the patents were invalid due to inequitable conduct before the US Patent and Trademark Office by the inventors and their attorneys. We expect that GS CleanTech will appeal the rulings on the motions for summary judgment.

On February 16, 2010, ICM, Inc. agreed to indemnify the Company from and against all claims, demands, liabilities, actions, litigations, losses, damages, costs and expenses, including reasonable attorney's fees arising out of any claim of infringement of patents, copyrights or other intellectual property rights by reason of our purchase and use of the oil recovery system and agrees to defend the Company. Several of the other defendants also use equipment and processes provided by ICM, Inc. ICM, Inc. has, and we expect it will continue, to vigorously defend itself and the Company in this lawsuit and in any appeal filed by GS CleanTech. If GS CleanTech were to be successful in any appeal filed and allowed to continue to pursue its claims, we estimate that damages, if awarded, would be based on a reasonable royalty to, or lost profits of, GS CleanTech. Because of its rulings, it seems unlikely that the District Court would deem the case exceptional. However, in the event it would be deemed to be exceptional, attorney's fees may be awarded and are likely to be $1,000,000 or more. ICM, Inc. has also agreed to indemnify us. However, in the event that damages were to be awarded, if ICM, Inc. does not fully indemnify us for any reason, we could be liable and could also be required to cease use of our oil separation process and seek out a replacement or cease oil production altogether.

Item 1A. Risk Factors

There have been no material changes in the risks that we face since the date when we filed our Annual Report on Form 10-K.

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.

Item 6. Exhibits.


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

Table of Contents



Exhibit No.			Exhibit
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.*
10.1			Tenth Amendment of First Amended and Restated Construction Loan Agreement with First National Bank of Omaha dated effective February 28, 2017.*
10.2			Disbursing Agreement with First National Bank of Omaha dated effective February 28, 2017.*
10.3			Construction Note with First National Bank of Omaha dated effective February 28, 2017.*
10.4			Third Amendment of First Amended and Restated Construction Loan Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement with First National Bank of Omaha dated effective February 28, 2017.*
101			The following financial information from Cardinal Ethanol, LLC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of March 31, 2017 and September 30, 2016, (ii) Condensed Statements of Operations for the three and six months ended March, 2017 and 2016, (iii) Condensed Statements of Cash Flows for the six months ended March 31, 2017 and 2016, and (iv) the Notes to Condensed Unaudited 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.



		CARDINAL ETHANOL, LLC

Date:	May 8, 2017	/s/ Jeff Painter
		Jeff Painter
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	May 8, 2017	/s/ William Dartt
		William Dartt
		Chief Financial Officer
		(Principal Financial and Accounting Officer)



Lender	Revolving Credit Loan Commitment	Declining Revolving Credit Loan Commitment	Term Loan Commitment*	Construction Loan Commitment
First National Bank of Omaha	$15,000,000	$5,000,000.00	$15,000,000	$10,000,000



ITEM SPECIAL DOCUMENTATION	SPECIAL DOCUMENTATION
Lender charges (interest, fees, etc.) Attorneys’ fees (including Lender’s counsel) and Construction Inspector fees Real estate taxes on the Project and Project Site Insurance Premiums Other indirect (non-construction) items	None Copy of Statement Copy of Bill Copy of Statement As specified by Lender and/or Title Company




	/s/ William Dartt
	William Dartt, Chief Financial Officer
	(Principal Financial Officer)

	Dated:	May 8, 2017


(i)	Accrued and unpaid interest on the Construction Loan will be paid monthly, in arrears, on the first (1st) day of each month until the Soybean Facility Completion Date, when all accrued but unpaid interest on the Construction Loan is due and payable in full;


(ii)	Subject to Soybean Facility Loan Conversion, the outstanding principal balance the Construction Loan is due and payable in full on the Soybean Facility Completion Date. On or before the Soybean Facility Completion Date and as conditions precedent to Soybean Facility Loan Conversion, Borrower shall provide the following to the Lender:


(1)	a certificate from a duly authorized officer of the Borrower certifying Substantial Completion of the Soybean Facility Improvements, along with such supporting evidence as the Lender may require;


(2)	copies of all Permits relating to the Soybean Facility Improvements;


(3)	Borrower has paid the Lender all of the Obligations which have accrued to such date, and any other fees and expenses provided for in this Agreement which have not been previously paid and are due under the terms of this Agreement;


(4)	Borrower has paid all accrued and outstanding interest on the outstanding principal balance of the Construction Loan as of the Soybean Facility Loan Conversion;


(5)	Borrower has submitted to the Lender and the Title Company final lien waivers from each Contractor related to the Soybean Facility Improvements with invoices which exceed $20,000.00; and


(6)	such other documents, instruments, and certificates as the Lender may reasonably request.


(a)	Initial Soybean Facility Construction Advance . As a condition to Borrower submitting the initial Draw Request and Lender’s obligation to make the initial Soybean Facility Construction Advance, the Lender shall be furnished with the following documents or instruments or satisfaction of the following conditions:


(i)	interim lien waivers or other evidence of payment acceptable to the Lender and/or the Title Company from all Persons who have furnished labor, materials and/or services to the construction of the Soybean Facility Improvements whose invoices are in excesses of $20,000, covering work performed, materials and equipment supplied and services rendered to the date of the initial Draw Request;


(ii)	Borrower has obtained and been issued all Permits, including, but not limited to, building permits, required for the construction of the Soybean Facility Improvements;


(iii)	Borrower has submitted to Lender, and Lender has approved, the Soybean Facility Budget, Soybean Facility Construction Schedule, and the Soybean Facility Plans; and


(iv)	Borrower has submitted to the Lender a Draw Request in the form and with the supporting detail required in this Agreement.


(b)	Requirements for All Soybean Facility Construction Advances . As a condition to Borrower submitting any Draw Request and Lender’s obligation to make the requested Soybean Facility Construction Advance, with each Draw Request the Borrower shall furnish to the Lender the following documents or instruments or shall satisfy the following conditions:


(ii)	Borrower shall submit written Lien waivers from the applicable Contractor for work done, materials furnished and/or services provided by them which were paid for by the immediately preceding Draw Request


(iii)	supporting invoices for the work done, materials furnished and/or services provided to be paid with the requested Soybean Facility Construction Advance;


(iv)	if required by Lender or the Title Company, approval of the Draw Request by the Construction Inspector;


(v)	the terms and conditions with respect to Soybean Facility Construction Advances contained in the Soybean Facility Disbursing Agreement have been satisfied; and


(vi)	such other documents and matters as are reasonably required by the Lender.


(b)	The Construction Note required in this Amendment above executed and delivered by Borrower in favor of Lender;


(c)	A Third Amendment of First Amended and Restated Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement executed and delivered by Borrower in favor of Lender, which includes the encumbrance of the Additional Land;


(d)	The Soybean Facility Disbursing Agreement, in form and substance acceptable to Lender, duly executed and delivered by Borrower, Lender and the Title Company;


(e)	A Secretary’s Certificate and resolutions in form and substance acceptable to Lender;


___	The undersigned does not have knowledge of the occurrence of a Default or Event of Default under the Credit Agreement.


___	The undersigned has knowledge of the occurrence of a Default or Event of Default under the Credit Agreement and attached hereto is a statement of the facts with respect thereto.


(b)	Pursuant to Section 4.09 of the Credit Agreement as of the fiscal quarter ending ___________, Borrower’s Working Capital is $__________________, and the [Fixed Charge Coverage


1.	I have reviewed this quarterly report on Form 10-Q of Cardinal Ethanol, LLC;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: