Cardinal 10-Q FQE 3.31.14

10-Q 1 cardinal10-qfqe33114.htm 10-Q Cardinal 10-Q FQE 3.31.14

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, 2014

	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

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 6, 2014, there were 14,606 membership units outstanding.

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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	12
Item 3. Quantitative and Qualitative Disclosures about Market Risk	22
Item 4. Controls and Procedures	23
PART II. OTHER INFORMATION	24
Item 1. Legal Proceedings	24
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	25
SIGNATURES	27

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

CARDINAL ETHANOL, LLC

Balance Sheets



ASSETS	March 31, 2014			September 30, 2013
	(Unaudited)
Current Assets
Cash	$	11,749,317		$	24,216,700
Restricted cash	6,665,104			1,859,132
Trade accounts receivable	17,585,049			20,857,587
Miscellaneous receivables	47,396			99,008
Inventories	16,666,133			10,324,442
Prepaid and other current assets	770,635			547,913
Commodity derivative instruments	1,436,350			9,241
Total current assets	54,919,984			57,914,023

Property, Plant, and Equipment
Land and land improvements	21,124,597			21,124,597
Plant and equipment	125,823,014			122,831,387
Building	7,007,100			7,007,100
Office equipment	546,050			546,050
Vehicles	31,928			31,928
Construction in process	656,884			422,624
	155,189,573			151,963,686
Less accumulated depreciation	(45,972,463		)	(41,652,470		)
Net property, plant, and equipment	109,217,110			110,311,216

Other Assets
Deposits	—			80,000
Investment	718,553			474,837
Total other assets	718,553			554,837

Total Assets	$	164,855,647		$	168,780,076

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

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CARDINAL ETHANOL, LLC

Balance Sheets



LIABILITIES AND MEMBERS' EQUITY	March 31, 2014		September 30, 2013
	(Unaudited)
Current Liabilities
Accounts payable	$	4,282,632	$	3,634,513
Accounts payable-corn	5,469,847		3,003,673
Accrued expenses	1,683,785		1,843,249
Commodity derivative instruments	4,967,624		197,431
Derivative instruments - interest rate swap	—		681,233
Current maturities of long-term debt	—		3,789,265
Total current liabilities	16,403,888		13,149,364

Long-Term Debt	—		24,154,710

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
Accumulated other comprehensive loss	—		(681,233		)
Retained earnings	77,539,546		61,245,022
Total members' equity	148,451,759		131,476,002

Total Liabilities and Members’ Equity	$	164,855,647	$	168,780,076

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

CARDINAL ETHANOL, LLC

Condensed Statements of Operations and Comprehensive Income (Unaudited)



	Three Months Ended		Three Months Ended			Six Months Ended			Six Months Ended
	March 31, 2014		March 31, 2013			March 31, 2014			March 31, 2013

Revenues	$	73,065,869	$	89,769,233		$	156,638,634		$	174,852,618

Cost of Goods Sold	54,829,756		81,670,819			114,746,972			165,092,043

Gross Profit	18,236,113		8,098,414			41,891,662			9,760,575

Operating Expenses	1,085,336		1,200,458			2,306,201			2,270,381

Operating Income	17,150,777		6,897,956			39,585,461			7,490,194

Other Income (Expense)
Interest income	—		690			9,188			1,555
Interest expense	—		(618,786		)	(726,737		)	(1,281,405		)
Miscellaneous income	1,432		(10,618		)	22,096			(3,076		)
Total	1,432		(628,714		)	(695,453		)	(1,282,926		)

Net Income	$	17,152,209	$	6,269,242		$	38,890,008		$	6,207,268

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

Net Income Per Unit - basic and diluted	$	1,174.33	$	429.22		$	2,662.61		$	424.98

Distributions Per Unit	$	1,072	$	—		$	1,547		$	—

Comprehensive Income:
Net income	$	17,152,209	$	6,269,242		$	38,890,008		$	6,207,268
Interest rate swap fair value change and reclassification, net	—		357,287			681,233			726,725
Comprehensive Income	$	17,152,209	$	6,626,529		$	39,571,241		$	6,933,993

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

CARDINAL ETHANOL, LLC

Statements of Cash Flows (Unaudited)



	Six Months Ended			Six Months Ended
	March 31, 2014			March 31, 2013

Cash Flows from Operating Activities
Net income	$	38,890,008		$	6,207,268
Adjustments to reconcile net income to net cash from operations:
Depreciation and amortization	4,319,993			4,316,209
Change in fair value of commodity derivative instruments	279,510			(3,430,211		)
Loss on sale of equipment	—			12,259
Non-cash dividend income	(243,716		)	—
Change in operating assets and liabilities:
Restricted cash	(4,805,972		)	1,077,258
Trade accounts receivables	3,272,538			(1,455,547		)
Miscellaneous receivable	51,612			(200,542		)
Inventories	(6,341,691		)	(9,159,570		)
Prepaid and other current assets	(222,722		)	(442,982		)
Deposits	80,000			—
Commodity derivative instruments	3,063,574			2,435,375
Accounts payable	435,254			494,110
Accounts payable-corn	2,466,174			(2,476,168		)
Accrued expenses	(351,302		)	67,436
Net cash provided by (used in) operating activities	40,893,260			(2,555,105		)

Cash Flows from Investing Activities
Capital expenditures	(2,650,741		)	(264,114		)
Payments for construction in process	(170,443		)	(338,650		)
Proceeds from sale of equipment	—			259,780
Net cash used for investing activities	(2,821,184		)	(342,984		)

Cash Flows from Financing Activities
Checks written in excess of bank balances	—			2,796,773
Distributions paid	(22,595,484		)	—
Proceeds from line of credit, net	—			2,750,000
Payments on long-term debt	(27,943,975		)	(1,775,891		)
Net cash provided by (used for) financing activities	(50,539,459		)	3,770,882

Net Increase (Decrease) in Cash	(12,467,383		)	872,793

Cash – Beginning of Period	24,216,700			682,943

Cash – End of Period	$	11,749,317		$	1,555,736

Supplemental Cash Flow Information
Interest paid	$	1,255,531		$	1,321,092

Supplemental Disclosure of Noncash Investing and Financing Activities
Capital expenditures included in accounts payable	$	212,865		$	3,991
Construction in process included in accrued expenses	$	191,838		$	—

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

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CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2014

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, 2013, contained in the Company's annual report on Form 10-K.

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

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 between 100 and 115 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.

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 market. Market is based on current replacement values except that it does not exceed net realizable values and it is not less than net realizable values reduced by allowances from normal profit margins.

Property, Plant and Equipment

Property, plant, and equipment are stated at cost. Depreciation is provided over estimated useful lives by use of the straight line depreciation method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service. Depreciation expense totaled approximately $2,172,000 and $4,320,000 for the three and six month periods ended March 31, 2014. Depreciation for the same periods in 2013 was approximately $2,132,000 and $4,263,000, respectively.

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CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2014

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 and comprehensive income.

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.

2. CONCENTRATIONS

Two major customers accounted for approximately 98% and 97% of the outstanding accounts receivable balance at March 31, 2014 and September 30, 2013, respectively. These same two customers accounted for approximately 96% of revenue for both the three and six month periods ended March 31, 2014. Revenue percentages for the same customer for both the three and six month periods ended March 31, 2013 were 97%.

3. INVENTORIES

Inventories consist of the following as of:



	March 31, 2014 (Unaudited)		September 30, 2013
Raw materials	$	6,301,492	$	2,454,803
Work in progress	1,677,547		2,382,833
Finished goods	6,733,574		3,756,410
Spare parts	1,953,520		1,730,396
Total	$	16,666,133	$	10,324,442

In the ordinary course of business, the Company enters into forward purchase contracts for its commodity purchases and sales. At March 31, 2014, the Company had forward corn purchase contracts at various fixed prices for various delivery periods through January 2016 for a total commitment of approximately $23,641,000. Approximately $2,773,000 of the forward corn purchases were with a related party. 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 market evaluation with respect to inventory valuation, and has determined that no impairment existed at March 31, 2014 or September 30, 2013. At March 31, 2014, the Company had approximately 2,800,000 gallons of forward, fixed price ethanol sales contracts. In addition, the Company has forward dried distiller grains sales contracts of approximately 119,000 tons at various fixed prices for various delivery periods through December 2014.

4. DERIVATIVE INSTRUMENTS

The Company enters into corn, ethanol and natural gas 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 and natural gas 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 and natural gas derivative instruments are included as a component of cost of goods sold.

The table below shows the underlying quantities of corn, ethanol and natural gas resulting from the short (selling) positions and long (buying) positions that the Company had to hedge its forward corn contracts, corn inventory, ethanol sales and natural gas purchases. Corn positions are traded on the Chicago Board of Trade and ethanol and natural gas positions are traded on the New York Mercantile Exchange. These derivatives have not been designated as an effective hedge for accounting purposes. Corn, ethanol and natural gas derivatives are forecasted to settle for various delivery periods through March 2016, June 2014 and July 2014, respectively, as of March 31, 2014.

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CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2014

The following table indicates the bushels of corn under derivative contracts as of:



	March 31, 2014	September 30, 2013
Short	3,065,000	2,115,000
Long	3,800,000	6,105,000

The following table indicates the gallons of ethanol under derivative contracts as of:



	March 31, 2014	September 30, 2013
Short	18,060,000	2,310,000
Long	24,780,000	6,636,000

The following table indicates the MMBTUs of natural gas under derivative contracts as of:



	March 31, 2014	September 30, 2013
Long	160,000	—

Interest Rate Contract

The Company previously managed part of its floating rate debt using an interest rate swap associated with the "Fixed Rate Note" as defined in our loan agreement. Please see Note 6 below. The Company had entered into a fixed rate swap to alter its exposure to the impact of changing interest rates on its results of operations and future cash outflows for interest. Fixed rate swaps are used to reduce the Company's risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision.

On October 8, 2013, the Company terminated the interest rate swap and therefore at March 31, 2014, the Company had no amount outstanding in the swap agreement.

The following table provides balance sheet details regarding the Company's derivative financial instruments at March 31, 2014:



Instrument	Balance Sheet Location	Assets		Liabilities

Ethanol derivative contracts	Commodity Derivative Instruments - Current	$	—	$	4,955,244
Corn derivative contracts	Commodity Derivative Instruments - Current	1,436,350		—
Natural gas derivative contracts	Commodity Derivative Instruments - Current	—		12,380

As of March 31, 2014 the Company had approximately $6,665,000 of cash collateral (restricted cash) related to ethanol, corn and natural gas derivatives held by two brokers. The Company currently utilizes two brokerage accounts, and subsequent to the fiscal quarter ended March 31, 2014, the Company had a net margin call of $107,000 in order to maintain their minimum maintenance requirements.

The following table provides balance sheet details regarding the Company's derivative financial instruments at September 30, 2013:



Instrument	Balance Sheet Location	Assets		Liabilities

Interest rate swap	Derivative Instruments - Current	$	—	$	681,233
Ethanol derivative contracts	Commodity Derivative Instruments - Current	9,241		—
Corn derivative contracts	Commodity Derivative Instruments - Current	—		197,431

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CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2014

As of September 30, 2013 the Company had approximately $1,859,000 of cash collateral (restricted cash) related to ethanol and corn derivatives held by two brokers. Subsequent to the fiscal year ended September 30, 2013, the Company had a margin call

in order to maintain their minimum maintenance requirements.

The following tables provide details regarding the gains and (losses) from the Company's derivative instruments in other comprehensive income and statement of operations for the three months ended March 31, 2013. There was no effect for the three month period ended March 31, 2014 as the Company terminated the swap agreement.



Derivatives in Cash Flow Hedging Relationship	Amount of Loss Recognized In OCI on Derivative		Location of Loss Reclassified From Accumulated OCI into Income	Amount of Gain Reclassified From Accumulated OCI into Income on Derivative		Location of Gain Recognized in Income	Amount of Gain or (Loss) Recognized in Income on Derivative (ineffective portion)
Interest rate swap	$	15,933	Interest expense	$	373,220	Interest expense	$	—

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, 2014:



Instrument	Statement of Operations Location	Amount
Corn Derivative Contracts	Cost of Goods Sold	$	3,214,731
Ethanol Derivative Contracts	Revenues	(4,435,605		)
Natural Gas Derivative Contracts	Cost of Goods Sold	(12,969		)
Totals		$	(1,233,843	)

The following table provides details regarding the gains 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, 2013:



Instrument	Statement of Operations Location	Amount
Corn Derivative Contracts	Cost of Goods Sold	$	688,161
Ethanol Derivative Contracts	Revenues	306,374
Natural Gas Derivative Contracts	Cost of Goods Sold	11,170
Totals		$	1,005,705

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CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2014



Derivatives in Cash Flow Hedging Relationship	Amount of Gain Recognized In OCI on Derivative		Location of Loss Reclassified From Accumulated OCI into Income	Amount of Gain Reclassified From Accumulated OCI into Income on Derivative		Location of Gain Recognized in Income	Amount of Gain or (Loss) Recognized in Income on Derivative (ineffective portion)
Interest rate swap	$	18,636	Interest expense	$	662,597	Interest expense	$	—

The amount of gain reclassified from accumulated other comprehensive income into income on derivatives included a reclassification of $662,597 into earnings as interest expense resulting from the termination of the swap.



Derivatives in Cash Flow Hedging Relationship	Amount of Loss Recognized In OCI on Derivative		Location of Loss Reclassified From Accumulated OCI into Income	Amount of Gain Reclassified From Accumulated OCI into Income on Derivative		Location of Gain Recognized in Income	Amount of Gain or (Loss) Recognized in Income on Derivative (ineffective portion)
Interest rate swap	$	21,778	Interest expense	$	748,504	Interest expense	$	—



Instrument	Statement of Operations Location	Amount
Corn Derivative Contracts	Cost of Goods Sold	$	1,509,930
Ethanol Derivative Contracts	Revenues	(1,774,955		)
Natural Gas Derivative Contracts	Cost of Goods Sold	(14,485		)
Totals		$	(279,510	)



Instrument	Statement of Operations Location	Amount
Corn Derivative Contracts	Cost of Goods Sold	$	3,196,308
Ethanol Derivative Contracts	Revenues	222,733
Natural Gas Derivative Contracts	Cost of Goods Sold	11,170
Totals		$	3,430,211

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, 2014:



Derivatives	Carrying Amount			Fair Value			Level 1			Level 2		Level 3
Corn Derivative Contracts	$	1,436,350		$	1,436,350		$	1,436,350		$	—	$	—
Ethanol Derivative Contracts	$	(4,955,244	)	(4,955,244		)	(4,955,244		)	—		—
Natural Gas Derivative Contracts	$	(12,380	)	(12,380		)	(12,380		)	—		—

The following table provides information on those assets and liabilities measured at fair value on a recurring basis as of September 30, 2013:

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CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2014



Derivatives	Carrying Amount			Fair Value			Level 1			Level 2			Level 3
Interest Rate Swap Liability	$	(681,233	)	$	(681,233	)	$	—		$	(681,233	)	$	—
Corn Derivative Contracts	$	(197,431	)	(197,431		)	(197,431		)	—			—
Ethanol Derivative Contracts	$	9,241		9,241			9,241			—			—

We determined the fair value of the interest rate swap shown in the table above by using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each instrument. The analysis reflects the contractual terms of the swap agreement, including the period to maturity and uses observable market-based inputs and uses the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. We determine the fair value of commodity derivative instruments 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.

6. BANK FINANCING

On December 19, 2006, the Company entered into a definitive loan agreement with a financial institution for a construction loan of up to $83,000,000, a short-term revolving line of credit of $10,000,000 and letters of credit of $3,000,000. In connection with this agreement, the Company also entered into an interest rate swap agreement fixing the interest rate on $41,500,000 of debt. In April 2009, the construction loan was converted into three separate term loans: a fixed rate note, a variable rate note, and a long term revolving note. The fixed rate note was applicable to the interest rate swap agreement. The term loans had a maturity of five years with a ten-year amortization and were set to mature on April 8, 2014.

On June 10, 2013, the Company closed on a new loan agreement which replaces an earlier agreement. The agreement establishes two new notes, the Declining Revolving Note (Declining Note) and the Revolving Credit Note in exchange for liens on all property (real and personal, tangible and intangible) which include, among other things, a mortgage on the property, a security interest on commodity trading accounts, and assignment of material contracts. On October 8, 2013, we executed a First Amendment of the First Amended and Restated Construction Loan Agreement (the "First Amendment") with our lender. The First Amendment amends the date upon which the Declining Revolving Credit Note begins to revolve, from April 8, 2014 to October 8, 2013.

On February 27, 2014, the Company executed a Second Amendment of the First Amended and Restated Construction Loan Agreement (the "Second Amendment") with our lender. The Second Amendment reduces the maximum availability of the Declining Note from approximately $26,000,000 to $5,000,000. In addition, the Company will now be required to make monthly interest payments on the Declining Note rather than the quarterly principal and interest payments previously required. The Second Amendment also deleted the requirements that the Company make excess cash flow payments and maintain a certain fixed charge coverage ratio, increased the maximum annual capital expenditures limit from $4,000,000 to $5,000,000 and removed all restrictions on redemptions of membership units and distributions to members. Finally, the Second Amendment extended the termination date of the Revolving Credit Note from June 11, 2014 to February 28, 2015.

Declining Note

The Declining Note had an initial principal balance of $28,889,410 and incorporated an interest rate swap from the earlier loan agreement which was set to expire on April 8, 2014. The interest rate swap fixed the interest rate at 8.11% per year until expiration. On October 8, 2013, the interest rate swap was terminated. The amount paid upon termination of the interest rate swap was $662,597. In addition, we paid $10,958,643 towards the balance of the Declining Note on October 8, 2013 and an additional $16,985,332 towards the Declining Note to pay the balance in full on October 17, 2013. The interest rate on the Declining Note is now based on the 3-month LIBOR plus three hundred basis points. The interest rate at March 31, 2014 was 3.24%. There were no borrowings outstanding on the Declining Note at March 31, 2014. The fair value of the interest rate swap at March 31, 2014 was $0 and was $681,233 at September 30, 2013 and is included in current liabilities on the balance sheet (Note 4).

Revolving Credit Note The Revolving Credit Note 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 Note is based on the 1-month LIBOR plus three hundred basis points. The interest

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CARDINAL ETHANOL, LLC

Notes to Condensed Unaudited Financial Statements

March 31, 2014

rate at March 31, 2014 was 3.16%. There were no borrowings outstanding on the Revolving Credit Note at March 31, 2014 or September 30, 2013.

These loans are subject to protective covenants, which require the Company to maintain various financial ratios. The covenants include a working capital requirement of $15,000,000, and a capital expenditures covenant that allows the Company $5,000,000 of expenditures per year without prior approval.

7. LEASES

At March 31, 2014, the Company had the following commitments for payments of rentals under leases which at inception had a non-cancellable term of more than one year:



	Total
April 1, 2014 to March 31, 2015	$	1,075,764
April 1, 2015 to March 31, 2016	1,172,964
April 1, 2016 to March 31, 2017	1,172,964
April 1, 2017 to March 31, 2018	1,172,964
April 1, 2018 to March 31, 2019	682,588
Total minimum lease commitments	$	5,277,244

8. COMMITMENTS AND CONTINGENCIES

Contingencies

In February 2010, a lawsuit against the Company was filed by an unrelated party claiming the Company's operation of the oil separation system is a patent infringement. In connection with the lawsuit, in February 2010, the agreement for the construction and installation of the tricanter oil separation system was amended. In this amendment the manufacturer and installer of the tricanter oil separation system indemnifies the Company against all claims of infringement of patents, copyrights or other intellectual property rights from the Company's purchase and use of the tricanter oil system and agrees to defend the Company in the lawsuit filed at no expense to the Company. The Company is not currently able to predict the outcome of this litigation with any degree of certainty. The manufacturer has, and the Company expects it will continue, to vigorously defend itself and the Company in these lawsuits. 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 75% of total revenues and corn costs average 82% 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.

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

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and six month periods ended March 31, 2014, compared to the same periods 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, 2013.

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 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 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 at 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

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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.

On February 11, 2014, the Cardinal Ethanol, LLC board of directors declared a cash distribution of $1,072 per membership unit to the holders of our units of record at the close of business on February 11, 2014 for a total distribution of $15,657,632. This distribution was paid in late February 2014.

On February 27, 2014, we and our primary lender, First National Bank of Omaha, entered into a Second Amendment of First Amended and Restated Construction Loan Agreement (the "Amendment") that amends the First Amended and Restated Construction Loan Agreement dated June 10, 2013. In connection with the Amendment, we also executed a First Amended and Restated Declining Revolving Credit Note dated February 27, 2014 that replaces the Declining Revolving Credit Note dated June 10, 2013. The Amendment reduces the maximum availability of the Declining Revolving Credit Loan from approximately $26,000,000 to $5,000,000. In addition, we will now be required to make monthly interest payments on the Declining Revolving Credit Loan rather than the quarterly principal and interest payments previously required. The Amendment also deleted the requirements that we make excess cash flow payments and maintain a certain Fixed Charge Coverage ratio, increased the maximum annual capital expenditures from $4,000,000 to $5,000,000 and removed the restrictions on redemptions of units and distributions to members. Finally, the Amendment extended the termination date of the Revolving Credit Loan from June 11, 2014 to February 28, 2015.

The ethanol industry is dependent on several economic incentives which if reduced or eliminated could significantly impact ethanol demand. One of these is the Renewable Fuels Standard (“RFS”) program which requires that, in each year, a certain amount of renewable fuels be used in the United States. However, the EPA has the authority to waive the RFS statutory volume requirement, in whole or in part, provided one of the following two conditions have been met: (1) there is inadequate domestic renewable fuel supply; or (2) implementation of the requirement would severely harm the economy or environment of a state, region or the United States. Annually, the EPA passes a rule that establishes the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligations. The RFS for 2013 was approximately 16.55 billion gallons, of which corn based ethanol could be used to satisfy approximately 13.8 billion gallons. The RFS statutory volume requirement for 2014 is approximately 18.15 billion gallons, of which corn based ethanol can be used to satisfy approximately 14.4 billion gallons. However, on November 15, 2013, the EPA announced a proposal to significantly reduce the 2014 standard to 15.21 billion gallons of which corn based ethanol could be used to satisfy only 13 billion gallons. This proposal would result in a lowering of the 2014 standard below the 2013 level of 13.8 billion gallons. The EPA also sought comment on several petitions it has received for partial waiver of the statutory volumes for 2014. The 60-day public comment period ended on January 28, 2014. Furthermore, there have also been recent proposals in Congress to reduce or eliminate the RFS. If the EPA's proposal becomes a final rule significantly reducing the RFS or if the RFS were to be otherwise reduced or eliminated by the exercise of the EPA waiver authority or by Congress, the market price and demand for ethanol could decrease which will negatively impact our financial performance. Current domestic ethanol production capacity exceeds the EPA's proposed 2014 standard which can be satisfied by corn based ethanol.

High demand upon the rail industry and an unusually harsh winter has resulted in delays and rail logistical problems. Rail delays have caused some ethanol plants to slow or suspend production. Due to our location, we have not been materially affected by these logistical problems. However, if inadequate rail logistics persists, we may face increased delays in shipment of our products which could have a negative affect on our financial performance.

We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our current credit facilities. 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, 2014 and 2013

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, 2014 and 2013:

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	2014			2013
Statement of Operations Data	Amount		%	Amount			%
Revenue	$	73,065,869	100.00	$	89,769,233		100.00
Cost of Goods Sold	54,829,756		75.04	81,670,819			90.98
Gross Profit	18,236,113		24.96	8,098,414			9.02
Operating Expenses	1,085,336		1.49	1,200,458			1.34
Operating Income	17,150,777		23.47	6,897,956			7.68
Other Income (Expense), net	1,432		—	(628,714		)	(0.70	)
Net Income	$	17,152,209	23.47	$	6,269,242		6.98

Our revenues from operations comes from three primary sources: sales of fuel ethanol, distillers grains and corn oil. The following table shows the sources of our revenue for the three months ended March 31, 2014 and 2013:



	2014				2013
Revenue Source	Amount		% of Revenues		Amount		% of Revenues
Ethanol Sales	$	55,126,984	75.45	%	$	66,922,135	74.55	%
Distillers Grains Sales	14,807,907		20.27		20,361,246		22.68
Corn Oil Sales	2,680,276		3.67		2,392,807		2.67
Other Revenue	450,702		0.61		93,045		0.10
Total Revenues	$	73,065,869	100.00	%	$	89,769,233	100.00	%

Revenues

In the three month period ended March 31, 2014, we received approximately 76% of our revenue from the sale of fuel ethanol, approximately 20% of our revenue from the sale of distillers grains and approximately 4% of our revenue from sale of corn oil. Sales of carbon dioxide represented less than 1% of our total sales. Comparatively, for the three month period ended March 31, 2013, we received approximately 74% of our revenue from the sale of fuel ethanol and approximately 23% of our revenue from the sale of distillers grains and approximately 3% of total sales from corn oil. Sales of carbon dioxide represented less than 1% of our total sales.

Ethanol

Our revenues from ethanol decreased for our three month period ended March 31, 2014 as compared to our three month period ended March 31, 2013. This decrease in revenues is the result of a decrease in ethanol gallons sold and a decrease in the average price per gallon of ethanol sold for the three month period ended March 31, 2014 as compared to the same period in 2013.

We experienced a decrease in ethanol gallons sold of approximately 4.81% for the three month period ended March 31, 2014 as compared to the same period in 2013 resulting primarily from timing of ethanol shipments. However, our ethanol production rates were higher for the three month period ended March 31, 2014 as compared to the same period in 2013 and we are currently operating at approximately 13% above our nameplate capacity. Management anticipates that the gallons of ethanol sold by our plant will remain relatively consistent.

Our average price per gallon of ethanol sold for the three month period ended March 31, 2014 was approximately 13.58% lower than our average price per gallon of ethanol sold for the same period in 2013. This decline in average market price is due primarily to significantly lower corn prices during the three month period ended March 31, 2014 as compared to the same period in 2013 as changes in ethanol prices are typically directionally consistent with changes in corn prices. However, although ethanol prices were lower during the three month period ended March 31, 2014 as compared to the same period in 2013, the decline in ethanol prices has been less than the corresponding decline in corn prices as a result of low national ethanol supply due to ethanol plants being forced to curtail production in response to inadequate rail logistics, increased ethanol exports and higher than expected gasoline demand during the the three month period ended March 31, 2014. These factors have created a favorable spread between the price of ethanol and the price of corn and resulted in an improvement in operating margins, particularly during the month of March. Management anticipates that ethanol prices will continue to change in relation to changes in corn and energy prices. However, rail delays may make it more difficult for the industry to replenish low stocks which could support higher ethanol prices if rail logistical problems persist. In contrast, if the RFS were to be reduced as proposed by the EPA, demand for ethanol could decrease which will negatively impact ethanol prices unless additional demand can be created from foreign markets.

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In the ordinary course of business, we enter into forward contracts for our commodity purchases and sales. At March 31, 2014, we have 2,800,000 gallons of forward ethanol sales contracts. As of March 31, 2014, we have open short (selling) positions for 18,060,000 gallons of ethanol and 24,780,000 open long (buying) position for gallons of ethanol on the New York Mercantile Exchange to hedge our forward corn contracts and ethanol inventory. Our ethanol derivatives are forecasted to settle through June 2014. For the three month periods ended March 31, 2014 and 2013, we recorded net losses on our ethanol derivative contracts of $4,435,605 and gains of $306,374, respectively. These gains and losses were recorded with our revenues in the statement of operations.

Distillers Grains

Our revenues from distillers grains decreased in the three month period ended March 31, 2014 as compared to the same period in 2013. This decrease in revenues is primarily the result of a decrease in the average market price per ton of distillers grains for the period ended March 31, 2014 compared to the same period in 2013. The average price per ton of distillers grains sold for the three month period ended March 31, 2014 was approximately 26.85% lower than the average price per ton of distillers grains sold for the same period in 2013. This decline in the market price of distillers grains is due primarily to significantly lower corn prices during the three month period ended March 31, 2014 as compared to the same period in 2013 as market prices for distillers grains change in relation to the prices of other animal feeds, such as corn and also soybean meal. However, although distillers grains prices were lower during the three month period ended March 31, 2014 as compared to the same period in 2013, distillers grain prices were significantly higher as a percentage of corn value than the 80% typically expected due to an increase in foreign exports. Management expects that distillers grains prices will generally continue to follow corn and will likely decline or revert closer to traditional levels as a percentage of corn value due to lower demand if end-users switch to lower priced alternatives or if there is a weakening in demand from foreign markets. China recently rejected shipments of distillers grains which contained a non-approved GMO trait. If China continues to reject shipments of distiller grains, it may negatively impact distiller grains prices in the United States. However, if ethanol plants are forced to curtail ethanol production due to persisting rail logistical issues this could result in a decrease in the supply of distillers grains which could positively impact distillers grains prices.

We experienced a decrease of approximately 1.01% in distillers grains tons sold in the three month period ended March 31, 2014 as compared to the same period in 2013 due primarily to increased corn oil production rates. Management anticipates that the distillers grains sold by our plant will remain relatively consistent.

At March 31, 2014, we have forward distillers grains contracts of approximately 119,000 tons at various prices for various delivery periods through December 2014.

Corn Oil

Our revenues from corn oil sales increased approximately 12.01% in the three month period ended March 31, 2014 as compared to the same period in 2013 which was primarily a result of an increase in production rates of corn oil in the three month period ended March 31, 2014 as compared to the same period in 2013. The average price per pound of corn oil was approximately 16.22% lower for the quarter ended March 31, 2014 as compared to the same period in 2013.

Management expects corn oil prices will remain relatively steady in the near term but could decrease due to additional plants entering into the market and producing corn oil which could result in an oversupply negatively affecting prices unless additional demand can be created. Management expects corn oil production will remain relatively steady.

Cost of Goods Sold

Our cost of goods sold as a percentage of revenues was approximately 75% for the three months ended March 31, 2014 as compared to approximately 91% for the same period in 2013. This decrease in cost of goods sold as a percentage of revenues was the result of increased ethanol prices relative to corn prices for the three months ended March 31, 2014 as compared to the same period in 2013. Our two largest costs of production are corn and natural gas.

Corn

Our largest cost associated with the production of ethanol, distillers grains and corn oil is corn cost. During the three month period ended March 31, 2014, we used approximately 10.45% more bushels of corn to produce our ethanol, distillers grain and corn oil as compared to the same period in 2013. More bushels were used in production because ethanol production rates were higher during the three months ended March 31, 2014 compared to the same period in 2013. We also built up our ethanol inventory levels at the end of March 31, 2014 compared to the same period in 2013. Although corn prices trended upwards

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somewhat throughout the three month period ended March 31, 2014, our average price paid per bushel of corn decreased approximately 48.45% as compared to the same period in 2013 due to increased supply resulting from a plentiful 2013 harvest in our corn supply region. In addition, corn supplies have been sufficient locally and we had no difficulty in sourcing corn during our second fiscal quarter. Management expects that corn prices will remain lower through our third fiscal quarter. However, weather, world supply and demand, current and anticipated stocks, agricultural policy and other factors can contribute to volatility in corn prices. In addition, if producers plant fewer acres in response to lower corn prices, volatility in the price of corn could increase. If corn prices rise again, it will have a negative effect on our operating margins unless the price of ethanol and distillers grains out paces rising corn prices.

In the ordinary course of business, we entered into forward purchase contracts for our commodity purchases. At March 31, 2014, we have forward corn purchase contracts for various delivery periods through January 2016 for a total commitment of approximately $23,641,000. Approximately $2,773,000 of the forward corn purchases were with a related party. As of March 31, 2014, we also have open short (selling) positions for 3,065,000 bushels of corn on the Chicago Board of Trade and long (buying) positions for 3,800,000 bushels of corn on the Chicago Board of Trade to hedge our forward corn contracts and corn inventory. Our corn derivatives are forecasted to settle through March 2016. For the three month periods ended March 31, 2014 and 2013, we recorded net gains on our corn derivative contracts of $3,214,731 and $688,161, respectively. These gains were recorded against cost of goods sold in the statement of operations. Volatility in the price of corn could significantly impact our cost of goods sold.

Natural Gas

Our natural gas cost was higher during our three month period ended March 31, 2014 as compared to the three month period ended March 31, 2013. This increase in cost of natural gas for the three month period ended March 31, 2014 as compared to the same period in 2013 was primarily the result of an increase of approximately 176.41% in the average price per MMBTU of our natural gas due to exceptionally cold weather experienced throughout the United States. We also used approximately 6.91% more natural gas for the three month period ended March 31, 2014 as compared to the same period in 2013 due to higher production rates.

Natural gas prices rose dramatically during our second fiscal quarter and started to decline near the end of the quarter. Management anticipates that natural gas prices will slowly decline going into the spring and summer months, unless we experience a catastrophic weather event that would cause problems related to the supply of natural gas.

As of March 31, 2014, we have open long (buying) positions for 160,000 MMBTUs of natural gas on the New York Mercantile Exchange to hedge our natural gas purchases. Our natural gas derivatives are forecasted to settle through July 2014. We recorded net losses on our natural gas derivative contracts of $12,969 and gains of $11,170 for the three month periods ended March 31, 2014 and 2013, respectively. These net losses and gains were recorded in our cost of goods sold in our statement of operations.

Operating Expense

Our operating expenses as a percentage of revenues were approximately 1% for the three months ended March 31, 2014 and 2013. 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 steady throughout the remainder of the 2014 fiscal year.

Operating Income

Our income from operations for the three months ended March 31, 2014 was approximately 23% of our revenues compared to operating income of approximately 8% of revenues for the same period in 2013. The increase in operating income for the three month period ended March 31, 2014 was primarily the result of the higher prices we received for our ethanol relative to the cost of corn.

Other Expense

We had no other expense for the three months ended March 31, 2014 compared to other expense of approximately 0.7% of revenues for the same period in 2013. This decrease in other expense for the three months ended March 31, 2013, was primarily due to debt repayment which reduced our interest expense.

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Results of Operations for the Six Months Ended March 31, 2014 and 2013



	2014					2013
Statement of Operations Data	Amount			%		Amount			%
Revenues	$	156,638,634		100.00	%	$	174,852,618		100.00	%
Cost of Goods Sold	114,746,972			73.26	%	165,092,043			94.42	%
Gross Profit	41,891,662			26.74	%	9,760,575			5.58	%
Operating Expenses	2,306,201			1.47	%	2,270,381			1.30	%
Operating Income	39,585,461			25.27	%	7,490,194			4.28	%
Other Expense, net	(695,453		)	(0.44	)%	(1,282,926		)	(0.73	)%
Net Income	$	38,890,008		24.83	%	$	6,207,268		3.55	%

Our revenues from operations come from three primary sources: sales of fuel ethanol, distillers grains and corn oil. The following table shows the sources of our revenue for the six months ended March 31, 2014 and 2013:



	2014				2013
Revenue Source	Amount		% of Revenues		Amount		% of Revenues
Ethanol Sales	$	120,031,369	76.63	%	$	130,235,529	74.48	%
Dried Distillers Grains Sales	30,968,336		19.77	%	39,731,437		22.72	%
Corn Oil Sales	5,096,767		3.25	%	4,682,522		2.68	%
Other Revenue	542,162		0.35	%	203,130		0.12	%
Total Revenues	$	156,638,634	100.00	%	$	174,852,618	100.00	%

Revenues

For the six month period ended March 31, 2014, ethanol sales comprised approximately 77% of our revenues, distillers grains sales comprised approximately 20% of our revenues and corn oil sales comprised approximately 3% of our revenues. Sales of carbon dioxide represented less than 1% of our total sales. For the six month period ended March 31, 2013, ethanol sales comprised approximately 74% of our revenue, distillers grains sales comprised approximately 23% of our revenue and corn oil sales comprised approximately 3% of our revenues. Sales of carbon dioxide represented less than 1% of our total sales.

Ethanol

Our revenues from ethanol decreased for our six month period ended March 31, 2014 as compared to the six month period ended March 31, 2013. This decrease in revenues is the result of a decrease in average ethanol prices per gallon for the six month period ended March 31, 2014 as compared to the same period in 2013. We had an increase in the amount of ethanol sold of approximately 2.35% for the six month period ended March 31, 2014 as compared to the same period in 2013.

Our average price per gallon of ethanol sold for the six month period ended March 31, 2014 was approximately 9.70% lower than our average price per gallon of ethanol sold for the same period in 2013.

For the six month period ended March 31, 2014, we recorded net losses on our ethanol derivative contracts of $1,774,955 as compared to gains of $222,733 for the same period in 2013. These losses and gains were recorded against our revenues in the statement of operations.

Distillers Grains

Our revenues from distillers grains decreased in the six month period ended March 31, 2014 as compared to the same period in 2013. This decrease was primarily the result of a decrease in the average price per ton of distillers grains in the six month period ended March 31, 2014 as compared to the same period in 2013. Our average price per ton of distillers grains sold for the six month period ended March 31, 2014, was approximately 23.92% lower than our average price per ton for the same period in 2013.

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We experienced an increase in distillers grain shipments of approximately 2.70% for the six month period ended March 31, 2014 as compared to the same period in 2013.

Corn Oil

Our revenue from corn oil sales increased in the six month period ended March 31, 2014 as compared to the same period in 2013 which was primarily a result of an increase in quantity of corn oil sales in the six month period ended March 31, 2014 as compared to the same period in 2013. The average price per pound of corn oil was approximately 16.22% lower for the six months ended March 31, 2014 as compared to the same period in 2013. During the six month period ended March 31, 2014, we sold approximately 29.39% more corn oil as compared to the same period in 2013.

Cost of Goods Sold

Our cost of goods sold as a percentage of revenues were approximately 73% for the six month period ended March 31, 2014 compared to 94% for the same period of 2013. This decrease in cost of goods sold as a percentage of revenues was primarily the result of a decrease in the price of corn relative to the price of ethanol for the six months ended March 31, 2014 as compared to the same period in 2013. Our two largest costs of production are corn and natural gas.

Corn

During the six month period ended March 31, 2014, we used approximately 5.56% more bushels of corn to produce our ethanol, distillers grain and corn oil as compared to the same period in 2013. During the six month period ended March 31, 2014, our average price per bushel of corn decreased approximately 43.55% as compared to the same period in 2013.

For the six month period ended March 31, 2014, we recorded net gains on our corn derivative contracts of $1,509,930. For the same period in 2013, we recorded net gains on our corn derivative contracts of $3,196,308. These net gains were recorded in our costs of goods sold in our statement of operations.

Natural Gas

During our six month period ended March 31, 2014, we purchased approximately 3.67% more MMBTU's of natural gas as compared to the same period in 2013. Management attributes this increase in natural gas to higher production rates. During the six month period ended March 31, 2014, the our average price per MMBTU of natural gas increased approximately 92.05% as compared to the same period in 2013.

For the six month period ended March 31, 2014, we recorded net losses of $14,485 on our natural gas derivative contracts. For the same period in 2013, we recorded net gains of $11,170 on our natural gas derivative contracts. These net gains and losses were recorded in our cost of good sold in our statement of operations.

Operating Expense

Our operating expenses as a percentage of revenues were approximately 1% for the six months ended March 31, 2014 and 2013. 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. We expect that going forward our operating expenses will remain relatively steady.

Operating Income

Our income from operations for the six months ended March 31, 2014 was approximately 25% of our revenues compared to operating income of approximately 4% of our revenues for the six months ended March 31, 2013. The increase in income as a percentage of revenue was primarily a result of higher ethanol prices relative to the cost of corn for the period ended March 31, 2014 as compared to the same period in 2013.

Other Expense

Other expense was approximately 0.4% of our revenues for the six months ended March 31, 2014 and approximately 0.7% of our revenues for the same period in 2013. Other expense consisted primarily of interest expense.

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Changes in Financial Condition for the Six Months Ended March 31, 2014

The following table highlights the changes in our financial condition:



	March 31, 2014(Unaudited)		September 30, 2013
Current Assets	$	54,919,984	$	57,914,023
Current Liabilities	$	16,403,888	$	13,149,364
Long-term Liabilities	$	—	$	24,154,710
Member's Equity	$	148,451,759	$	131,476,002

We experienced a decrease in our total current assets at March 31, 2014 compared to September 30, 2013. The decrease is primarily due to a decrease in cash of approximately $12,467,000 at March 31, 2014 as compared to September 30, 2013 due to margin calls on our hedge accounts causing cash to be restricted. We also experienced a decrease in trade accounts receivable of approximately $3,273,000 due to timing of ethanol shipments. These decreases in current assets were partially offset by an increase of approximately $6,342,000 in the value of our inventory at March 31, 2014 compared to September 30, 2013 due to having more corn and ethanol on hand at March 31, 2014 and an increase in commodity derivative instruments of approximately $1,427,000 at March 31, 2014 as compared to September 30, 2013 due to increased corn derivative gains.

We experienced an increase in our total current liabilities at March 31, 2014 compared to September 30, 2013. The increase is primarily due to an increase in our commodity derivative instruments of approximately $4,770,000 at March 31, 2014 as compared to September 30, 2013 due to increased ethanol derivative losses during the six months ended March 31, 2014 and an increase of approximately $2,466,000 in our accounts payable related to corn due to producers delaying payment on corn they have already delivered. These increases were partially offset by a decrease in our current maturities of long-term debt of approximately $3,789,000 at March 31, 2014 as compared to September 30, 2013 due to paying off our debt in October 2013.

We experienced a decrease in our long-term liabilities as of March 31, 2014 compared to September 30, 2013. At March 31, 2014 we had no outstanding borrowings in the form of long-term loans, compared to approximately $24,155,000 at September 30, 2013. The decrease is due to our paying the balance of our Declining Note and terminating our interest rate swap in October 2013.

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 2014 fiscal year. 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:



	2014			2013
Net cash provided by (used for) operating activities	$	40,893,260		$	(2,555,105	)
Net cash used for investing activities	$	(2,821,184	)	$	(342,984	)
Net cash provided by (used for) financing activities	$	(50,539,459	)	$	3,770,882
Net increase (decrease) in cash	$	(12,467,383	)	$	872,793
Cash, beginning of period	$	24,216,700		$	682,943
Cash, end of period	$	11,749,317		$	1,555,736

Cash Flow from Operations

We experienced an increase in our cash flow from operations for the six month period ended March 31, 2014 as compared to the same period in 2013. Approximately $40,893,000 of cash was provided by operating activities for the six months ended March 31, 2014 as compared to approximately $2,555,000 used by operating activities for the six months ended March 31, 2013.

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This was primarily due to increased operating margins for the six months ended March 31, 2014 compared with the same period in 2013.

Cash Flow used for Investing Activities

Cash used for investing activities was approximately $2,821,000 for the six months ended March 31, 2014 as compared to approximately $343,000 for the same period in 2013. Cash used in investing activities increased due to an increase in capital expenditures for the six months ended March 31, 2014 as compared to the same period in 2013. The increase in capital expenditures is due to the construction of a new 730,000 bushel grain bin, which was placed in service during the first quarter of fiscal year 2014.

Cash Flow used for Financing Activities

Cash used for financing activities was approximately $50,539,000 for the six months ended March 31, 2014 as compared to approximately $3,771,000 provided by financing activities for the same period in 2013. This change was primarily the result of payments on long term debt of approximately $27,944,000 for the six months ended March 31, 2014 as compared to approximately $1,776,000 for the six months ended March 31, 2013 and distributions of approximately $22,595,000 for the six months ended March 31, 2014 as compared to no distributions for the six months ended March 31, 2013. We also borrowed $2,750,000, net, against our line of credit for the six months ended March 31, 2013.

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, 2014 we expect operations to generate adequate cash flows to maintain operations.

Short and Long Term Debt Sources

On December 19, 2006, we entered into a loan agreement with First National Bank of Omaha ("FNBO") establishing a senior credit facility for the construction of our plant. The credit facility was in the amount of $96,000,000, consisting of an $83,000,000 construction note, a $10,000,000 revolving line of credit and a $3,000,000 letter of credit. We also entered into an interest rate swap agreement for $41,500,000 of the construction term loan in order to achieve a fixed rate on a portion of this loan. The term loans had a maturity of five years with a ten-year amortization and were set to mature on April 8, 2014.

On June 10, 2013, we closed on a new loan agreement with FNBO, the First Amended and Restated Construction Loan Agreement which replaces the earlier agreement and establishes two new notes, the Declining Revolving Note ("Declining Note") and the Revolving Credit Note. In exchange, 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 October 8, 2013, we executed a First Amendment of the First Amended and Restated Construction Loan Agreement (the "First Amendment") with FNBO which amends the date upon which the Declining Revolving Credit Loan begins to revolve from April 8, 2014 to October 8, 2013.

On February 27, 2014, we entered into a Second Amendment of First Amended and Restated Construction Loan Agreement (the "Second Amendment") that amends the First Amended and Restated Construction Loan Agreement dated June 10, 2013 and executed a First Amended and Restated Declining Revolving Credit Note dated February 27, 2014 that replaces the Declining Revolving Credit Note dated June 10, 2013. The Second Amendment reduces the maximum availability of the Declining Revolving Credit Loan from approximately $26,000,000 to $5,000,000. In addition, we will now be required to make monthly interest payments on the Declining Revolving Credit Loan rather than the quarterly principal and interest payments previously required. The Second Amendment also deletes the requirements that we make excess cash flow payments and maintain a certain fixed charge coverage ratio, increases the maximum annual capital expenditures from $4,000,000 to $5,000,000 and removes the restrictions on redemptions of units and distributions to members. Finally, the Second Amendment extended the termination date of the Revolving Credit Loan from June 11, 2014 to February 28, 2015.

Declining Note

The Declining Note had an initial principal balance of $28,889,410 which replaced the fixed rate note that had been established by the earlier loan agreement. The Declining Note incorporated the interest rate swap which fixed the interest rate at 8.11% percent per year until expiration and could be prepaid and amounts borrowed back based on a declining schedule. On October 8, 2013, the interest rate swap was terminated and the the date upon which the Declining Revolving Credit Loan began

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to revolve was amended from April 8, 2014 to October 8, 2013. The amount paid upon termination of the interest rate swap was $1,008,169. In addition, we paid $10,958,643 towards the balance of the Declining Note on October 8, 2013 and an additional $16,985,332 towards the Declining Note to pay the balance in full on October 17, 2013. On February 27, 2014, we entered into the Second Amendment which reduces the maximum availability under the Declining Note from approximately $26,000,000 to $5,000,000. In addition, we will now be required to make monthly interest payments rather than the quarterly principal and interest payments previously required. The interest rate on the Declining Note is based on the 3-month LIBOR plus three hundred basis points. The interest rate at March 31, 2014 was 3.24%. The fair value of the interest rate swap at March 31, 2014 was $0 and was $681,233 at September 30, 2013 and is included in current liabilities on the balance sheet (Note 4). There were no borrowings outstanding on the Declining Note at March 31, 2014.

Revolving Credit Note

The Revolving Credit Note 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 over FNBO. It is also supported by the eligible accounts receivable and commodity trading account excess margin funds. On February 27, 2014, the Revolving Credit Note was extended to February 28, 2015. The interest rate on the Revolving Credit Note is based on the 1-month LIBOR plus three hundred basis points. The interest rate at March 31, 2014 was 3.17%. There were no borrowings outstanding on the Revolving Credit Note at March 31, 2014 or September 30, 2013.

Covenants

Our loans are secured by our assets and material contracts. In addition, 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 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.

We are meeting our liquidity needs and complying with our financial covenants and the other terms of our loan agreements at March 31, 2014. 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, 2015. 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.

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

In September 2013, we began construction on a steel grain bin with an approximate capacity of 730,000 bushels of corn. The new grain bin was placed in service during the first quarter of fiscal year 2014. The cost of constructing the steel grain bin and necessary conveying equipment was approximately $2,400,000. We expect to begin installation of certain technologies during our third fiscal quarter which we anticipate will decrease plant downtime, alleviate plant bottlenecks and better utilize fermentation capacities to increase production rates. The cost of these technologies is expected to be approximately $1,067,000.

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

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useful lives of fixed assets; the valuation of basis and delay price contracts on corn purchases; derivatives; inventory; patronage dividends, long-lived 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, 2013. 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 month period ended March 31, 2014.

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. We used derivative financial instruments to alter our exposure to interest rate risk.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our Declining Note and our Revolving Credit Note which bear a variable interest rate. The interest rate for the Declining Note is the 3-month LIBOR rate plus 300 basis points with no minimum. The interest rate for the Revolving Credit Note is the 1-month LIBOR rate plus 300 basis points with no minimum. There were no outstanding balances on the Declining Note or the Revolving Credit Note at March 31, 2014.

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

We enter into fixed price contracts for corn purchases 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.

As of March 31, 2014, we have open short (selling) positions for 3,065,000 bushels of corn on the Chicago Board of Trade and open short (selling) positions for 18,060,000 gallons of ethanol on the New York Mercantile Exchange and Chicago Board of Trade to hedge our forward corn contracts and corn inventory. As of March 31, 2014, we have open long (buying) positions for 3,800,000 bushels of corn on the Chicago Board of Trade. We have open long (buying) positions for 24,780,000 gallons of ethanol on the New York Mercantile Exchange . We have open long (buying) positions for 160,000 MMBTUs of natural gas on the New York Mercantile Exchange. These derivatives have not been designated as an effective hedge for accounting purposes. Corn derivatives are forecasted to settle through March 2016, ethanol derivatives are forecasted to settle through June 2014 and natural gas derivatives are forecasted to settle through July 2014. 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. For the six months ended March 31,

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2014, we recorded a gain due to the change in fair value of our outstanding corn derivative positions of $1,509,930, a loss due to the change in fair value of our outstanding ethanol derivative positions of $1,774,955 and a loss due to the change in fair value of our outstanding natural gas derivative positions of $14,485.

At March 31, 2014, we have committed to purchase approximately 4,892,000 bushels of corn through January 2016 at an average bushel price of $4.83 and the spot price at March 31, 2014 was $4.97 per bushel. As contracts are delivered, any gains or losses realized will be recognized in our gross margin. 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. As of March 31, 2014, we had price protection in place for approximately 12% of our anticipated corn needs for the next 12 months.

A sensitivity analysis has been prepared to estimate our exposure to ethanol, distillers grains, 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 prices and average ethanol and distillers grains price as of March 31, 2014 of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from March 31, 2014. The results of this analysis, which may differ from actual results, are approximately as follows:



	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price as of December 31, 2013		Approximate Adverse Change to Income
Natural Gas	3,057,000	MMBTU	10	%		$	1,535,000
Ethanol	111,200,000	Gallons	10	%		$	43,479,000
Corn	35,108,000	Bushels	10	%		$	17,449,000
DDGs	199,000	Tons	10	%		$	4,973,000

Liability Risk

We participate in a captive reinsurance company (the “Captive”). The Captive reinsures 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 reinsurer. The Captive reinsures 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, 2014. 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

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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 fiscal 2014 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 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 Corporation. GS CleanTech Corporation sought a preliminary injunction, which was denied, and seeks royalties and damages associated with the alleged infringement, as well as attorney's fees from the Company. On February 16, 2010, ICM, Inc. agreed to indemnify, at ICM's expense, 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 the Company's purchase and use of the oil recovery system.

GS CleanTech Corporation subsequently filed actions against at least fourteen other ethanol producing companies for infringement of its patent rights, adding several additional patents. Several of the other defendants also use equipment and processes provided by ICM, Inc. GS CleanTech Corporation then petitioned for the cases to be joined in a multi-district litigation ("MDL"). This petition was granted and the MDL was assigned to the United States District Court for the Southern District of Indiana (Case No. 1:10-ml-02181). We have since answered and counterclaimed that the patent claims at issue are invalid and that the Company is not infringing. Motions for summary judgment have been filed by the defendants and GS CleanTech Corporation and are presently pending before the Court. Meanwhile, GS Cleantech filed suit against another group of defendants which have now been joined with the MDL and are progressing through discovery. We anticipate that this may delay rulings on the summary judgment motions. We anticipate that after rulings are entered on those motions and discovery issues common to all of the defendants have been determined in the MDL, the cases will proceed in the respective districts in which they were originally filed.

We are not currently able to predict the outcome of this litigation with any degree of certainty. ICM, Inc. has, and we expect it will continue, to vigorously defend itself and the Company in these lawsuits. We estimate that damages sought in this litigation if awarded would be based on a reasonable royalty to, or lost profits of, GS CleanTech Corporation. If the court deems the case 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 are awarded, if ICM, Inc. is unable to fully indemnify us for any reason, the Company could be liable. In addition, we may need to cease use of its current oil separation process and seek out a replacement or cease oil production altogether.

Air Emissions Permit

In January 2010 we applied for a Title V Operating Permit for air emissions from the Indiana Department of Environmental Management ("IDEM"). IDEM issued the permit on August 5, 2010. This permit increased our operating capacity and emission limits. The new permit increased the Company's potential to emit criteria pollutants, which includes particulate matter. Each criteria pollutant must be less than 250 tons per consecutive twelve month period. This provision was based on a rule change issued by the Environmental Protection Agency ("EPA") on May 1, 2007, which allowed ethanol plants to emit up to 250 tons per criteria pollutant, excluding fugitive dust, instead of only 100 tons per criteria pollutant, including fugitive dust.

On September 8, 2010, the National Resource Defense Council ("NRDC") filed an administrative appeal of the Company's Title V Operating Permit challenging IDEM's authority to grant the Title V Operating Permit. NRDC is arguing the IDEM failed to incorporate the May 1, 2007 EPA rule change into the EPA - approved State Implementation Plan ("SIP") and that as a result, the Permit was improperly issued as the existing SIP still limited ethanol plants to 100 tons of particulate matter. The NRDC appeal regarding our Title V Operating Permit has been stayed pending resolution of similar administrative appeals filed by NRDC against other ethanol plants in Indiana.

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NRDC was successful in one of its administrative appeals, resulting in a January 11, 2011 ruling by an administrative law judge that IDEM cannot change its interpretation of Indiana's rules to match the EPA's rules without first revising the Indiana SIP. That decision was later reversed on appeal in a decision issued on May 15, 2012 by the Marion County Superior Court. However, on April 23, 2013, the Indiana Court of Appeals reversed the earlier decision by the Marion County Superior Court affirming the OEA's original decision. IDEM filed a petition for rehearing with the Court of Appeals, which was denied on July 31, 2013. IDEM has petitioned to transfer the matter to the Indiana Supreme Court and the parties are awaiting a decision on the petition. Although we intend to vigorously defend our Title V Operating Permit and believe we have legal arguments not available to the other ethanol plants whose permits have been appealed, should NRDC's challenge of our Permit ultimately be successful, we would be limited to our original operating permit parameters set forth in the federally enforceable state operating permit. This would result in a decrease in our production of ethanol and distillers grains and could have a negative effect on our profitability.

Item 1A. Risk Factors

The following risk factor is provided due to material changes from the risk factors previously disclosed in our annual report on Form 10-K. The risk factor set forth below should be read in conjunction with the risk factors section and the Management's Discussion and Analysis section for the fiscal year ended September 30, 2013, included in our annual report on Form 10-K.

If the rail logistical problems persist, we may face delays in shipments of our products which could negatively impact our financial performance. High demand and an unusually harsh winter has resulted in rail delays and rail logistical problems. Rail delays have caused some ethanol plants to slow or suspend production. Due to our location, we have not been materially affected by these logistical problems. However, if inadequate rail logistics persist, we may face increased delays in shipment of our products which could have a negative affect on our financial performance.

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.

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Exhibit No.			Exhibit
10.1			Second Amendment of First Amended and Restated Construction Loan Agreement between First National Bank of Omaha and Cardinal Ethanol, LLC dated February 27, 2014.
10.2			First Amended and Restated Declining Revolving Credit Note between First National Bank of Omaha and Cardinal Ethanol, LLC dated February 27, 2014.
31.1			Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2			Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1			Certificate Pursuant to 18 U.S.C. Section 1350*
32.2			Certificate Pursuant to 18 U.S.C. Section 1350*
101			The following financial information from Cardinal Ethanol, LLC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of March 31, 2014 and September 30, 2013, (ii) Condensed Statements of Operations and Comprehensive Income for the three and six months ended March 31, 2014 and 2013, (iii) Statements of Cash Flows for the six months ended March 31, 2014 and 2013, and (iv) the Notes to Condensed Financial Statements.**

* Filed herewith.

** Furnished herewith.

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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 6, 2014	/s/ Jeff Painter
		Jeff Painter
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	May 6, 2014	/s/ William Dartt
		William Dartt
		Chief Financial Officer
		(Principal Financial and Accounting Officer)