Document

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.

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

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," "smaller reporting company," or an "emerging growth company" in Rule 12b-2 of the Exchange Act:



Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer x	Smaller Reporting Company o
	Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o



ASSETS	December 31, 2018		September 30, 2018
	(Unaudited)
Current Assets
Cash	$	13,441,278	$	17,989,013
Restricted cash	938,151		1,248,979
Trade accounts receivable	8,433,770		9,539,007
Miscellaneous receivables	197,784		519,721
Inventories	26,680,276		16,552,600
Prepaid and other current assets	471,703		170,953
Futures & Options Derivatives	159,175		281,438
Forward Purchase/Sales Derivatives	41,957		49,302
Total current assets	50,364,094		46,351,013

Property, plant, and equipment, net	95,206,651		96,948,671

Other Assets
Investment	1,295,192		1,295,192
Total other assets	1,295,192		1,295,192

Total Assets	$	146,865,937	$	144,594,876



LIABILITIES AND MEMBERS' EQUITY

Current Liabilities
Advances from customers	1,600,000		—
Accounts payable	2,644,976		2,711,578
Accounts payable-grain	15,145,954		9,597,822
Accrued expenses	1,178,316		1,289,929
Commodity derivative instruments	389,531		1,913,913
Current maturities of long-term debt	1,428,571		1,428,571
Total current liabilities	22,387,348		16,941,813

Long-Term Debt, net of current maturities	6,810,438		7,314,867

Commitments and Contingencies

Members’ Equity
Members' contributions, net of cost of raising capital, 14,606 units authorized, issued and outstanding	70,912,213		70,912,213
Retained earnings	46,755,938		49,425,983
Total members' equity	117,668,151		120,338,196

Total Liabilities and Members’ Equity	$	146,865,937	$	144,594,876



	Three Months Ended
	December 31, 2018			December 31, 2017

Revenues	$	50,134,468		$	55,855,489

Cost of Goods Sold	50,994,861			52,454,137

Gross Profit (Loss)	(860,393		)	3,401,352

Operating Expenses	1,740,777			1,638,748

Operating Income (Loss)	(2,601,170		)	1,762,604

Other Income (Expense)
Interest expense	(111,321		)	(188,867		)
Miscellaneous income	42,446			30,771
Total	(68,875		)	(158,096		)

Net Income (Loss)	$	(2,670,045	)	$	1,604,508

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

Net Income (Loss) Per Unit - basic and diluted	$	(183	)	$	110

Distributions Per Unit	$	—		$	400



	Three Months Ended			Three Months Ended
	December 31, 2018			December 31, 2017

Cash Flows from Operating Activities
Net income (loss)	$	(2,670,045	)	$	1,604,508
Adjustments to reconcile net income to net cash provided by operations:
Depreciation	2,825,613			2,890,328
Change in fair value of commodity derivative instruments	(1,394,774		)	(477,367		)
Loss (gain) on sale of equipment	1,218			(9,560		)
Trade accounts receivables	1,109,037			3,767,287
Miscellaneous receivable	321,937			161,778
Inventories	(10,127,676		)	(12,498,330		)
Prepaid and other current assets	(300,750		)	(277,892		)
Commodity derivative instruments	—			(128,991		)
Advances from customers	1,600,000			1,500,000
Accounts payable	(51,327		)	(1,430,727		)
Accounts payable-grain	5,548,132			8,106,647
Accrued expenses	(111,613		)	1,010,472
Net cash provided by (used in) operating activities	(3,250,248		)	4,218,153

Cash Flows from Investing Activities
Capital expenditures	—			(1,580,724		)
Payments for construction in progress	(1,103,886		)	(89,525		)
Proceeds from sale of equipment	—			10,000
Net cash used for investing activities	(1,103,886		)	(1,660,249		)

Cash Flows from Financing Activities
Distributions paid	—			(5,842,400		)
Proceeds from long-term debt	—			3,524,049
Payments on long-term debt	(504,429		)	(789,108		)
Net cash used for financing activities	(504,429		)	(3,107,459		)

Net Decrease in Cash and Restricted Cash	(4,858,563		)	(549,555		)

Cash and Restricted Cash – Beginning of Period	19,237,992			19,397,161

Cash and Restricted Cash – End of Period	$	14,379,429		$	18,847,606



	Three Months Ended		Three Months Ended
	December 31, 2018		December 31, 2017
Reconciliation of Cash and Restricted Cash
Cash - Balance Sheet	$	13,441,278	$	18,675,293
Restricted Cash - Balance Sheet	938,151		172,313
Cash and Restricted Cash	14,379,429		18,847,606

Supplemental Cash Flow Information
Interest paid	$	115,335	$	202,869

Supplemental Disclosure of Non-cash Investing and Financing Activities
Construction in process included in accrued expenses and accounts payable	$	8,368	$	139,451



	Member Contributions	Retained Earnings
Balance - September 30, 2017	$70,912,213	$55,670,618

Net Income for the three-month period ended December 31, 2017	—	1,604,508

Member Distributions	—	(5,842,400)

Balance - December 31, 2017	$70,912,213	$51,432,726

	Member Contributions	Retained Earnings
Balance - September 30, 2018	$70,912,213	$49,425,983

Net loss for the three-month period ended December 31, 2018	—	(2,670,045)

Balance - December 31, 2018	$70,912,213	$46,755,938

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, 2018, contained in the Company's annual report on Form 10-K.

Cardinal Ethanol, LLC, (the “Company”) is an Indiana limited liability company currently producing fuel-grade ethanol, distillers grains, corn oil and carbon dioxide near Union City, Indiana and sells these products throughout the continental United States. During the three months ended December 31, 2018 and 2017, the Company produced approximately 30,044,000 and 32,051,000 gallons of ethanol, respectively.

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

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, the valuation of inventory purchase and sale commitments 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.

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.

Credit terms are extended to customers in the normal course of business. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral. Accounts receivable are recorded at their estimated net realizable value. Accounts are considered past due if payment is not made on a timely basis in accordance with the Company's credit terms. Amounts considered uncollectible are written off. The Company's estimate of the allowance for doubtful accounts is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any. At December 31, 2018 and September 30, 2018, the Company determined that an allowance for doubtful accounts was not necessary.

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

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.

On November 6, 2018, we experienced an explosion in one of our distillers grain silos. There were no injuries related to the incident and the damage was limited to the distillers grains silos and the associated materials handling equipment. Operations at the plant were temporarily suspended for four days pending an evaluation and assessment of the situation. The plant resumed operations but did not return to full production rates until mid to late December. The extent of the monetary damages related to the incident has not yet been fully determined. We have presently engaged an engineering firm to help us assess the extent of the damage and cost of repairs needed and to assist us with substantiating the claims with the insurance carrier. We believe that our policies cover the damages to the silo and the business interruption costs.

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

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

In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded in the statement of operations, depending on the item being hedged.

normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our financial statements.

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

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.

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets, initially measured at the present value of the lease payments. The accounting guidance for lessors is largely unchanged. The ASU is effective for the Company beginning in October 2019. It is to be adopted using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of this guidance will have on the Company’s financial statements and anticipates the new guidance will significantly impact its financial statements given the Company has leased a significant number of rail cars for transporting Dried Distillers' Grains with Solubles (DDGS) to its customers.

On October 1, 2018, the Company adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers, and all related amendments (“new revenue standard”) and applied it to all contracts using the modified retrospective transition method. There were no adjustments to the October 1, 2018 balance sheet for the adoption of the new revenue standard. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. In addition, there was no impact of adoption on the statements of operations or balance sheets for the three months ended December 31, 2018 and 2017.

Revenue is recognized at a single point in time when the Company satisfies its performance obligation under the terms of a contract with a customer. Generally, this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration expected, as specified in the contract with a customer, to be received in exchange for transferring goods or providing services.



	Ethanol Production		Grain Trading		Total
Revenues from contracts with customers under ASC Topic 606
Ethanol	$	32,613,479	$	—	$	32,613,479
Distillers' grains	10,166,079		—		10,166,079
Corn Oil	1,767,284		—		1,767,284
Carbon Dioxide	139,520		—		139,520
Other	14,151		4,500		18,651
Total revenues from contracts with customers	44,700,513		4,500		44,705,013

Revenues from contracts accounted for as derivatives under ASC Topic 815 ⁽¹⁾
Soybeans and other grains	—		5,429,455		5,429,455
Total revenues from contracts accounted for as derivatives	—		5,429,455		5,429,455
Total Revenues	$	44,700,513	$	5,433,955	$	50,134,468

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

Two major customers accounted for approximately 91% of the outstanding accounts receivable balance at December 31, 2018 and 87% at September 30, 2018. These same two customers accounted for approximately 85% of revenue for the three month period ended December 31, 2018 and 87% of revenue for the three month period ended December 31, 2017.



	December 31, 2018 (Unaudited)		September 30, 2018
Ethanol Division:
Raw materials	$	7,865,631	$	7,053,371
Work in progress	1,310,142		1,299,716
Finished goods	4,166,598		1,929,177
Spare parts	2,798,580		2,927,438
Ethanol Division Subtotal	$	16,140,951	$	13,209,702
Trading Division:
Grain inventory	$	10,539,325	$	3,342,898
Trading Division Subtotal	$	10,539,325	$	3,342,898
Total Inventories	$	26,680,276	$	16,552,600

In the ordinary course of business, the Company enters into forward purchase contracts for its commodity purchases and sales. Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. At December 31, 2018, the Company had forward corn purchase contracts at various fixed prices for various delivery periods through May 2020 for approximately 5.1% of expected production needs for the next 17 months. Approximately 4.9% of the forward corn purchases were with related parties. Given the uncertainty of future ethanol and corn prices, the Company could incur a loss on the outstanding corn purchase contracts in future periods. Management has evaluated these forward contracts using a methodology similar to that used in the lower of cost or net realizable value evaluation with respect to inventory valuation, and has determined that no impairment existed at December 31, 2018 or September 30, 2018. The Company has elected not to apply the normal purchase and sale exemption to its forward soybean contracts and therefore treats them as derivative instruments.

At December 31, 2018, the Ethanol Division had forward dried distiller grains sales contracts for approximately 24.1% of expected production for the next 3 months at various fixed prices for delivery periods through March 2019. At December 31, 2018, the Company had forward corn oil contracts at various prices for delivery through February 2019, which approximates just part of that month's production. Also, at December 31, 2018, the Company had forward natural gas contracts for approximately 29.6% of expected purchases for the next 22 months at various prices for various delivery periods through October 2020. Additionally, at December 31, 2018, the Trading Division had forward soybean purchase contracts for various delivery periods through November 2019 (See Note 4). Approximately 10.8% of the forward soybean purchases were with related parties.

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

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

At December 31, 2018, the Ethanol Division had a net short (selling) position of 3,215,000 bushels of corn under derivative contracts used to hedge its forward corn contracts, corn inventory and ethanol sales. These corn derivatives are traded on the Chicago Board of Trade as of December 31, 2018 and are forecasted to settle for various delivery periods through March 2020. At December 31, 2018, the Company had a net short (selling) position of 420,000 gallons of ethanol under derivative contracts used to hedge its future ethanol sales. These ethanol derivatives are traded on the New York Mercantile Exchange and are forecasted to settle for various delivery periods through May 2019. At December 31, 2018, the Trading Division also had a net short (selling) position of 1,480,000 bushels of soybeans under derivative contracts used to hedge its forward soybean contract purchases. These soybean derivatives are traded on the Chicago Board of Trade and are, as of December 31, 2018, forecasted to settle for various delivery periods through November 2019. These derivatives have not been designated as effective hedges for accounting purposes.



Instrument	Balance Sheet Location	Assets		Liabilities
Ethanol Futures and Options Contracts	Commodity Derivative Instruments - Current	$	—	$	8,967
Corn Futures and Options Contracts	Commodity Derivative Instruments - Current	$	159,175	$	—
Soybean Futures and Options Contracts	Commodity Derivative Instruments - Current	$	—	$	89,446
Soybean Forward Purchase and Sales Contracts	Commodity Derivative Instruments - Current	$	41,957	$	291,118
Totals	Commodity Derivative Instruments - Current	$	201,132	$	389,531



Instrument	Balance Sheet Location	Assets		Liabilities
Ethanol Futures and Options Contracts	Commodity Derivative Instruments - Current	$	—	$	118,062
Corn Futures and Options Contracts	Commodity Derivative Instruments - Current	$	—	$	156,056
Soybean Futures and Options Contracts	Commodity Derivative Instruments - Current	$	281,438	$	—
Soybean Forward Purchase and Sales Contracts	Commodity Derivative Instruments - Current	$	49,302	$	1,639,795
Totals	Commodity Derivative Instruments - Current	$	330,740	$	1,913,913



Instrument	Statement of Operations Location	Three Months Ended December 31, 2018			Three Months Ended December 31, 2017
Corn Futures and Options Contracts	Cost of Goods Sold	$	(74,454	)	$	256,335
Ethanol Futures and Options Contracts	Revenues	21,739			(72,784		)
Natural Gas Futures and Options Contracts	Cost of Goods Sold	37,727			120,429
Soybean Futures and Options Contracts	Cost of Good Sold	(199,602		)	350,214
Soybean Forward Purchase Contracts	Cost of Goods Sold	1,649,846			(176,827		)
Totals		$	1,435,256		$	477,367



Instruments	Carrying Amount			Fair Value			Level 1			Level 2			Level 3
Corn Futures and Options Contracts	$	159,175		$	159,175		$	159,251		$	(76	)	$	—
Ethanol Futures and Options Contracts	$	(8,967	)	$	(8,967	)	$	(8,967	)	$	—		$	—
Soybean Futures and Options Contracts	$	(89,446	)	$	(89,446	)	$	(98,638	)	$	9,192		$	—
Soybean Forward Purchase Contracts	$	(249,161	)	$	(249,161	)	$	—		$	(249,161	)	$	—
Soybean Inventory	$	10,539,325		$	10,539,325		$	—		$	10,539,325		$	—



Instruments	Carrying Amount			Fair Value			Level 1			Level 2			Level 3
Corn Futures and Options Contracts	$	(156,056	)	$	(156,056	)	$	(164,625	)	$	8,569		$	—
Ethanol Futures and Options Contracts	$	(118,062	)	$	(118,062	)	$	(118,062	)	$	—		$	—
Soybean Futures and Options Contracts	$	281,438		$	281,438		$	281,438		$	—		$	—
Soybean Forward Purchase Contracts	$	(1,590,493	)	$	(1,590,493	)	$	—		$	(1,590,493	)	$	—
Soybean Inventory	$	3,342,898		$	3,342,898		$	—		$	3,342,898		$	—

We determine the fair value of commodity futures derivative instruments utilizing Level 1 inputs by obtaining fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade market and New York Mercantile Exchange. Corn futures and

The Company has a loan agreement consisting of three loans, the Declining Revolving Loan (Declining Loan), the Revolving Credit Loan and the Grain Loadout Facility Loan (formerly the Construction Loan) in exchange for liens on all property (real and personal, tangible and intangible) which include, among other things, a mortgage on the property, a security interest on commodity trading accounts and assignment of material contracts. The loan agreement assigns an interest rate of LIBOR plus 290 basis points (2.9%) to each of the individual loans. The Revolving Credit Loan is assigned the one month LIBOR rate which changes on the first day of every month. The Declining Loan and the Grain Loadout Facility Loan each have interest charged based on the ninety day (three month) LIBOR rate. The interest rate is assigned at the beginning of the ninety day period and not all of the loans have the same interest rate beginning and ending dates.

The maximum availability of the Declining Loan is $5,000,000 with such amount to be available for working capital purposes. The interest rate on the Declining Loan at December 31, 2018 was 5.30% and at September 30, 2018 was 5.24%. There were no borrowings outstanding on the Declining Loan at December 31, 2018 or at September 30, 2018.

The Revolving Credit Loan has a limit of $15,000,000 supported by a borrowing base made up of the Company's corn, ethanol, dried distillers grain, corn oil and soybean inventories reduced by accounts payable associated with those inventories having a priority. It is also supported by the eligible accounts receivable and commodity trading account excess margin funds.The interest rate at December 31, 2018 was 5.25% and at September 30, 2018 was 5.01%. There were no borrowings outstanding on the Revolving Credit Loan at December 31, 2018 or at September 30, 2018.

The Grain Loadout Facility Loan (formerly Construction Loan) had a limit of $10,000,000. The interest rate at December 31, 2018 was 5.64% and at September 30, 2018 was 5.23%. There were borrowings in the amount of approximately $8,239,000 and $8,743,000 outstanding on the Grain Loadout Facility Loan at December 31, 2018 and September 30, 2018, respectively. The principal balance on the Construction Loan of $10,000,000 was converted to term debt effective December 31, 2017. The Grain Loadout Facility Loan requires monthly installment payments of principal of approximately $119,000 plus interest accrued in arrears from the date of the last payment, such payments commenced on February 1, 2018, with a final maturity date of February 28, 2023.

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

At December 31, 2018, the Company had entered into an agreement with its ethanol marketer to lease 225 tank cars needed for ethanol rail transportation at a rate up to current market rates per tank car per month through November 2022. The ethanol purchase and sale agreement was amended from the previous agreement which charged the Company a fixed price per gallon of ethanol through July 27, 2018. This amendment results in a commitment classified as an operating lease as reported in the table below.

In February 2010, a lawsuit against the Company was filed by an unrelated party claiming the Company's operation of the oil separation system in a patent infringement. In connection with the lawsuit, in February 2010, the agreement for the construction and installation of the tricanter oil separation system was amended. In this amendment the manufacturer and installer of the tricanter oil separation system indemnifies the Company against all claims of infringement of patents, copyrights or other intellectual property rights from the Company's purchase and use of the tricanter oil system and agrees to defend the Company in the lawsuit filed at no expense to the Company. On October 23, 2014, the court granted summary judgment finding that all of the patents claimed were invalid and that the Company had not infringed. In addition, on September 15, 2016, the United States District Court granted summary judgment finding that the patents were invalid due to inequitable conduct before the US Patent and Trademark Office by the inventors and their attorneys. The Company has since settled with the attorneys for the inventors. A motion to reconsider the decision regarding inequitable conduct is pending. In addition, an appeal regarding the current ruling on inequitable conduct has been filed. The manufacturer has, and the Company expects it will continue, to vigorously defend itself and the Company in these lawsuits and in any appeal filed.

based on a reasonable royalty to, or lost profits of, the plaintiff. If the court deems the case exceptional, attorney's fees may be awarded and are likely to be $1,000,000 or more. The manufacturer has also agreed to indemnify the Company for these fees. However, in the event that damages are awarded and if the manufacturer is unable to fully indemnify the Company for any 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.

On January 4, 2018, the Company received a letter from the Indiana Department of Environmental Management, Office of Air Quality (“IDEM”) alleging violations of the Company's air permit. While the Company believes it has certain defenses to these allegations, it is currently unable to determine with any certainty the outcome of this matter including the extent of any potential monetary sanctions that may result.

The Company has certain risks and uncertainties that it experiences during volatile market conditions, which can have a severe impact on operations. The Company's revenues are primarily derived from the sale and distribution of ethanol, distillers grains and corn oil to customers primarily located in the U.S. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. Ethanol sales average approximately 65% of total revenues and corn costs average 67% 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.

Based on the growth of the Company's Trading Division during the first quarter of fiscal 2018 and operations in fiscal 2018, the Company has determined it now has two reportable operating segments. Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses. The accounting policies for each segment are the same as those described in the summary of significant accounting policies. Segment income or loss does not include any allocation of shared-service costs. Segment assets are those that are directly used in or identified with segment operations. Inter-segment balances and transactions have been eliminated.



	Three Months Ended
	December 31, 2018			December 31, 2017
Revenue:	(unaudited)			(unaudited)
Ethanol production	$	44,700,513		$	50,718,988
Grain trading	$	5,433,955		$	5,136,501
Total Revenue	$	50,134,468		$	55,855,489

	Three Months Ended
	December 31, 2018			December 31, 2017
Gross Profit (Loss):	(unaudited)			(unaudited)
Ethanol production	$	(709,568	)	$	3,051,662
Grain trading	$	(150,825	)	$	349,690
Total Gross Profit (Loss)	$	(860,393	)	$	3,401,352

	Three Months Ended
	December 31, 2018			December 31, 2017
Operating Income (Loss):	(unaudited)			(unaudited)
Ethanol production	$	(2,133,101	)	$	1,597,479
Grain trading	$	(468,069	)	$	165,125
Total Operating Income (Loss)	$	(2,601,170	)	$	1,762,604



	December 31, 2018		September 30, 2018
Grain Inventories:	(unaudited)
Ethanol production	$	7,865,631	$	7,053,371
Grain trading	$	10,539,325	$	3,342,898
Total Grain Inventories	$	18,404,956	$	10,396,269

	December 31, 2018		September 30, 2018
Total Assets:	(unaudited)
Ethanol production	$	124,753,466	$	128,960,169
Grain trading	$	22,112,471	$	15,634,707
Total Assets	$	146,865,937	$	144,594,876

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three month period ended December 31, 2018, compared to the same period of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

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.

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.

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

On November 6, 2018, we experienced an explosion in one of our distillers grains silos. There were no injuries related to the incident and the damage was limited to the distillers grains silos and the associated materials handling equipment. Operations at the plant were temporarily suspended for four days pending an evaluation and assessment of the situation. The plant resumed operations but did not return to full production rates until mid to late December. The extent of monetary damages related to the incident has not yet been fully determined. We have presently engaged an engineering firm to help us assess the extent of the damage and cost of repairs needed and to assist us with substantiating the claims with the insurance carrier. We believe that our policies cover the damages to the silo and the business interruption costs.



	2018					2017
Statement of Operations Data	Amount			%		Amount			%
Revenue	$	50,134,468		100.0		$	55,855,489		100.0
Cost of Goods Sold	50,994,861			101.7		52,454,137			93.9
Gross Profit (Loss)	(860,393		)	(1.7	)	3,401,352			6.1
Operating Expenses	1,740,777			3.5		1,638,748			2.9
Operating Income (Loss)	(2,601,170		)	(5.2	)	1,762,604			3.2
Other Expense, Net	(68,875		)	(0.1	)	(158,096		)	0.1
Net Income (Loss)	$	(2,670,045	)	(5.3	)	$	1,604,508		2.9

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

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



	2018				2017
Revenue Source	Amount		% of Revenues		Amount			% of Revenues
Ethanol Sales	$	32,613,479	73.0	%	$	39,849,570		78.6	%
Distillers Grains Sales	10,166,079		22.7		8,495,025			16.8
Corn Oil Sales	1,767,284		4.0		2,251,340			4.4
Carbon Dioxide Sales	139,520		0.3		123,375			0.2
Other Revenue	14,151		—		(322		)	—
Total Revenues	$	44,700,513	100.0	%	$	50,718,988		100.0	%

We experienced an decrease in ethanol gallons sold of approximately 9.5% for the three months ended December 31, 2018 as compared to the same period in 2017 resulting primarily from lower ethanol production due for the period due to a temporary plant shut down and decreased production rates related to an explosion in one of our distillers grains silos on November 6, 2018. We are currently operating at approximately 30% above our nameplate capacity. Management expects ethanol production will increase going forward due to plans for completion of various projects which are expected to increase our annual ethanol production rate to approximately 140 million gallons unless we experience unfavorable operating conditions in the ethanol industry that result in our limiting production. In addition, this expected increase may be offset somewhat by the lower production we experienced in the three months ended December 31, 2018.

The average price per gallon of ethanol sold for the three months ended December 31, 2018 was approximately 10.0% lower than our average price per gallon of ethanol sold for the same period in 2017. This decrease in average market price for the three months ended December 31, 2018 as compared to the same period in 2017 is due to falling prices during the period in 2018. Ethanol prices overall have been declined because months of increased industry-wide production in excess of demand have caused ethanol stocks in the United States to become extremely high, inhibiting current domestic demand. In addition, the drop in crude oil and gasoline prices over the past several months has brought near parity to the price of unleaded gasoline and ethanol, reducing discretionary blending by refiners. This narrow spread between ethanol and the blend stock for gasoline has also resulted in a decrease in export demand. Finally, recent trade disputes with countries such as China, Mexico and the European Union and the imposition of tariffs on products produced in the United States have had a negative effect on ethanol prices.

Management anticipates that ethanol prices will continue to change in relation to changes in corn and energy prices. If crude oil and gasoline prices remain at current levels for a significant period of time, that would have a significant negative impact on the market price of ethanol and our profitability, particularly should ethanol stocks remain high due to increased production in the industry. A decline in ethanol exports due to trade disputes resulting in tariffs imposed on ethanol produced in the United States would also likely contribute to higher ethanol stocks unless additional demand could be created domestically through the use of higher blends. Finally, the granting of additional EPA waivers to refiners would have a negative effect on ethanol prices.

Our revenues from distillers grains increased in the three months ended December 31, 2018 as compared to the same period in 2017. This increase in revenues is the result of an increase in the average market price per ton of distillers grains sold for the period ended December 31, 2018 as compared to the same period in 2017.

The average price per ton of distillers grains sold for the three months ended December 31, 2018 was approximately 22.5% higher than the average price per ton of distillers grains sold for the same period in 2017. This increase in the market price of distillers grains is due to a seasonal increase in demand for distillers grains due to cattle farms switching from grazing to feeding grains and higher soybean prices resulting in a switch to distillers grains as a lower priced alternative.

China has been a significant consumer of exported distillers grains. However, an anti-dumping investigation beginning in January of 2016 into distillers grains produced in the United States led to the imposition by China of preliminary anti-dumping and anti-subsidy duties on imports of ethanol produced in the United States in the fall of 2016 and a final ruling imposing even higher duties in January 2017. The investigation and imposition of these duties resulted in a decline in demand from China. Recent trade disputes with countries such as China, Mexico and the European Union have created additional uncertainty as to future export demand. If export demand suffers, this could lead to lower distillers grains prices unless additional demand can be sustained from domestic or other foreign markets. Domestic prices for distillers grains could also decrease due to expansion of production capacity in the ethanol industry combined with stagnate demand or if lower corn or soybean prices result in end-users switching to lower priced alternatives. In addition, growing conditions in a particular season’s harvest may cause the corn crop to be of poor quality resulting in lower distillers grains prices.

We sold approximately 2.3% less tons of distillers grains in the three months ended December 31, 2018 as compared to the same period in 2017 resulting primarily from lower ethanol production levels for the period which resulted in decreased distillers grains production. In addition, we experienced shipping delays in distillers grains due to damage to materials handling equipment. Management expects that our annual distillers grains production volume will increase going forward due to plans for completion of various projects which are expected to increase our annual ethanol production rate to approximately 140 million gallons unless we experience unfavorable operating conditions in the ethanol industry that result in our limiting production. In addition, this expected increase in production may be offset somewhat by the lower production we experienced in the three months ended December 31, 2018.

Our revenues from corn oil sales decreased in the three months ended December 31, 2018 as compared to the same period in 2017 which was mainly the result of lower corn oil prices. The average price per pound of corn oil was approximately 7.1% lower for the three months ended December 31, 2018 as compared to the same period in 2017 due primarily to increased production by the ethanol industry and to uncertainty of biodiesel demand. We sold approximately 16.7% less tons of corn oil in the three months ended December 31, 2018 as compared to the same period in 2017 due to lower ethanol production levels for the period which resulted in lower corn oil production.

Management anticipates that higher production and an over-supply will keep prices low in the near term. Corn oil prices may be negatively affected if the biodiesel tax credit which was retroactively extended for 2017 is not further extended by Congress. In addition, recent trade disputes have created additional uncertainty which could have a negative affect on corn oil prices. Management expects corn oil production will increase going forward due to plans for completion of various projects which are expected to increase our annual ethanol production rate to approximately 140 million gallons unless we experience unfavorable operating conditions that result in our limiting production. In addition, this expected increase may be offset somewhat by the lower production we experienced in the three months ended December 31, 2018.

During the three months ended December 31, 2018 our revenues were derived primarily from transporting and selling soybeans. Our revenues from soybeans sales increased in the three months ended December 31, 2018 as compared the to the same period in 2017. This increase in revenues is the result of higher bushels of soybeans sold of approximately 20.5% for the three months ended December 31, 2018 as compared to the same period in 2017 resulting primarily from 2017 being our first three months in business and smaller ending stocks, commonly referred to as carryout in the grain industry, in the local region than we anticipated. We expect that soybean sales will stay relatively consistent because of us becoming established with local producers and a return to more normal market conditions.

We experienced a decrease in the average price per bushel of soybeans sold for the three months ended December 31, 2018 that was approximately 12.3% lower than our average price per bushel of soybeans sold for the same period in 2017 due to ample harvest in both 2017 and 2018 resulting in a large carryout. Also international trade disputes caused weaker export demand. We expect that soybean prices will rise above $9.00 per bushel into the summer growing months. Summer growing season conditions will determine prices thereafter unless trade disputes cause unusual disruption.

Our cost of goods sold for this division as a percentage of its total revenues was approximately 101.6% for the three months ended December 31, 2018 as compared to approximately 94% for the same period in 2017. This increase in cost of goods sold as a percentage of revenues was the result of decreased ethanol prices relative to the price of corn for the three months ended December 31, 2018 as compared to the same period in 2017. Our two largest costs of production are corn and natural gas. Cost of goods sold also includes net gains or losses from derivatives related to our commodities purchases.

Our largest cost associated with the production of ethanol, distillers grains and corn oil is corn cost. During the three months ended December 31, 2018, we used approximately 4.7% less bushels of corn to produce our ethanol, distillers grain and corn oil as compared to the same period in 2017 due to lower ethanol production levels for the period. During the three months ended December 31, 2018, our average price paid per bushel of corn was approximately 0.9% higher as compared to the same period in 2017. Increased volatility in corn prices during the three months ended December 31, 2018, was primarily due to producers storing grain and wet weather hampering harvest. Corn supplies have been sufficient locally and we have had no difficulty sourcing corn during our third fiscal quarter.

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

Our natural gas cost after hedging was lower during the three months ended December 31, 2018 as compared to the three months ended September 30, 2018. This decrease in cost of natural gas for the three months ended December 31, 2018 as compared to the same period in 2017 was primarily the result of a decrease of approximately 12.7% in the average price per MMBTU of natural gas due to increased natural gas stocks and mild weather in December. We also used approximately 3.9% less natural gas for the three months ended December 31, 2018 as compared to the same period in 2017, mostly because of lower ethanol production levels for the period.

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

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

Our operating expenses as a percentage of revenues were approximately 3.5% for the three months ended December 31, 2018 as compared to operating expenses of approximately 2.9% of revenues for the same period in 2017. 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 into and throughout our 2019 fiscal year.

Our operating loss for the three months ended December 31, 2018 was approximately (5.2)% of revenues as compared to operating income of approximately 3.2% of revenues for the same period in 2017. The decrease in operating income for the three months ended December 31, 2018 was primarily the result of decreased ethanol prices relative to the cost of corn and decreased production for the period as discussed above.

We experienced an increase in our current assets at December 31, 2018 as compared to September 30, 2018. This increase was primarily driven by an increase in our grain inventories at December 31, 2018 as compared to September 30, 2018 due to operations of our Trading Division. This increase was partially offset by a decrease in our cash due to payments for grain inventories. We also experienced a decrease in our commodity derivative instruments. The value of our derivative instruments is most affected by movements in market prices. We also experienced a decrease in our trade accounts receivable due to lower ethanol prices in December 2018 as compared to September 2018.

We experienced an increase in our total current liabilities at December 31, 2018 as compared to September 30, 2018. This decrease was primarily due to an increase in grain accounts payable because our farmer producers deferred more bushels for payment until January 2019. This increase was partially offset by a decrease in our commodity derivative instrument liability position sat December 31, 2018 as compared to September 30, 2018.

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 2019 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.



	2018			2017
Net cash provided by (used in) operating activities	$	(3,250,248	)	$	4,218,153
Net cash used for investing activities	$	(1,103,886	)	$	(1,660,249	)
Net cash used for financing activities	$	(504,429	)	$	(3,107,459	)
Net decrease in Cash and Restricted cash	$	(4,858,563	)	$	(549,555	)
Cash and Restricted cash, beginning of period	$	19,237,992		$	19,397,161
Cash and Restricted cash, end of period	$	14,379,429		$	18,847,606

We experienced a decrease in our cash flow from operations for the three months ended December 31, 2018 as compared to the same period in 2017. This was primarily the result of decreased net income as a result of decreased ethanol prices relative to the cost of corn and cash used on inventory and other working capital components for the three months ended December 31, 2018 compared with the same period in 2017.

We used less cash in investing activities for the three months ended December 31, 2018 as compared to the same period in 2017. This decrease was primarily the result of decreased payments for capital expenditures because the construction of the grain receiving and loading facility for our Trading Division was finished at the beginning of 2018 and we had no large projects or other capital equipment purchases during the period ended December 30, 2018.

We used less cash in financing activities for the three months ended December 31, 2018 as compared to the same period in 2017. This decrease was mainly the result of less cash paid for distributions, and less payments on long term debt during the three months ended December 31, 2018 compared with the same period in 2017, as partially offset by debt borrowings in the 2017 period.

Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains improve relative to price levels as of December 31, 2018 as the markets indicate, we expect operations to generate adequate cash flows to maintain operations.

We have a loan agreement consisting of three loans, the Declining Revolving Loan ("Declining Loan"), the Revolving Credit Loan and a Grain Loadout Facility Loan (formerly the Construction Loan). In exchange for these loans, we granted liens on all property (real and personal, tangible and intangible) which include, among other things, a mortgage on the property, a security interest on commodity trading accounts, and assignment of material contracts. Please refer to Item 1 - Financial Statements, Note 6 - Bank Financing for additional details.

The Revolving Credit Loan has a limit of $15,000,000 supported by a borrowing base made up of our corn, ethanol, dried distillers grain, corn oil and soybean inventories reduced by accounts payable associated with those inventories having a priority. It is also supported by the eligible accounts receivable and commodity trading account excess margin funds. The interest rate on the Revolving Credit Loan is based on the 1-month LIBOR plus two hundred ninety basis points. The interest rate at December 31, 2018 was 5.25%. There were no borrowings outstanding on the Revolving Credit Note at December 31, 2018 or September 30, 2018.

The Grain Loadout Facility Loan (formerly construction loan) has a limit of $10,000,000. The interest rate on the Grain Loadout Facility Loan is based on the 3-month LIBOR plus two hundred ninety basis points and at December 31, 2018 was 5.64%. There were borrowings in the amount of approximately $8,239,000 outstanding on the Grain Loadout Facility Loan at December 31, 2018. There were borrowings of $8,743,438 on the Grain Loadout Facility Loan at September 30, 2018. The principal balance on the Construction Loan of $10,000,000 was converted to term debt effective December 31, 2017. The Grain Loadout Facility Loan requires monthly installment payments of principal of approximately $119,000 plus interest accrued in arrears from the date of the last payment, such payments commenced on February 1, 2018, with a final maturity date of February 28, 2023.

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

We are meeting our liquidity needs and complying with our financial covenants and the other terms of our loan agreements at December 31, 2018. 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 December 31, 2019. 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.

The board of directors has approved various capital projects for the 2019 fiscal year in order to make certain improvements to our ethanol plant. These improvements are expected to allow us to increase our annual ethanol production rate to approximately 140 million gallons. We have executed an agreement with Nelson Engineering to construct an additional liquefaction tank and fermenter which are expected to cost approximately $3,200,000. We expect to use funds from operations and our existing debt facilities to fund these improvements. We do not intend to start construction of these projects until we have received certain approvals from the Indiana Department of Environmental Management, Office of Air Quality (“IDEM”) related to our air permit. We anticipate these approvals will be received sometime late in Spring 2019.

In September 2007, the Company entered into a development agreement with Randolph County Redevelopment Commission (“the Commission”) to promote economic development in the area. Under the terms of this agreement, beginning in January 2008 through December 2028, the money the Company pays toward property tax expense is allocated to an expense and an acquisition account. The funds in the acquisition account can be used by the Commission to purchase equipment, at the Company's

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.

Management uses various estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Our most critical accounting estimates, which require the greatest use of judgment by management, are designated as critical accounting estimates and include policies related to the useful lives of fixed assets; allowance for doubtful accounts; the valuation of basis and delay price contracts on corn purchases; derivatives; inventory; patronage dividends, long-lived assets and inventory purchase commitments. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. 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 three months ended December 31, 2018.

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 are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from our Declining Loan, Revolving Credit Loan and Grain Loadout Facility Loan (formerly Construction Loan) which bear variable interest rates. The interest rate on the Declining Loan is the 3-month LIBOR plus 290 basis points with no minimum. There were no borrowings outstanding on the Declining Loan and the applicable interest rate was 5.30% at December 31, 2018. The interest rate for the Revolving Credit Note is the 1-month LIBOR rate plus 290 basis points with no minimum. There were no outstanding balances on the Revolving Credit Note at December 31, 2018 and the applicable interest rate was 5.25%. The interest rate on the Grain Loadout Facility Loan is the 3-month LIBOR plus 290 basis points with no minimum. There were borrowings in the amount of approximately $8,239,000 outstanding on the Grain Loadout Facility Loan and the applicable interest rate was 5.64% at December 31, 2018. The specifics of the Declining Loan, the Revolving Credit Loan and the Grain Loadout Facility Loan are discussed in greater detail above. If we were to experience a 10% adverse change in LIBOR, the annual effect such change would have on our statement of operations, based on the amount we had outstanding on our variable interest rate loans at December 31, 2018, would be approximately $46,000.

We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as corn and natural gas, and finished products, such as ethanol and distiller's grains, through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an

economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our cost of goods sold or as an offset to revenues. The immediate recognition of hedging gains and losses can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

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



	Three Months Ended			Three Months Ended
	December 31, 2018			December 31, 2017
Corn Futures and Options Contracts	$	(74,454	)	$	256,335
Ethanol Futures and Options Contracts	21,739			(72,784		)
Natural Gas Futures and Options Contracts	37,727			120,429
Soybean Futures and Options Contracts	(199,602		)	350,214
Soybean Forward Purchase Contracts	1,649,846			(176,827		)
Totals	$	1,435,256		$	477,367

These soybean contracts will be marked to market as the contract periods expire. This means that any gains or losses realized will be recognized in our gross margin at each month end until they are delivered upon. Due to the volatility and risk involved in the commodities market, we cannot be certain that these gains or losses will be realized.

As corn prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us.

A sensitivity analysis has been prepared to estimate our exposure to ethanol, distillers grains, corn oil, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas and average ethanol, distillers grains and corn oil prices as of December 31, 2018 net of the forward and future contracts used to hedge our market risk. The volumes are based on our expected use and sale of these commodities for a one year period from December 31, 2018. 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, 2018	Approximate Adverse Change to Income
Natural Gas	3,300,000	MMBTU	10%	$	435,957
Ethanol	135,000,000	Gallons	10%	$	17,010,000
Corn	43,170,488	Bushels	10%	$	14,777,833
DDGs	324,000	Tons	10%	$	4,724,168
Corn Oil	31,500,000	Pounds	10%	$	744,742
Soybeans	5,000,000	Bushels	10%	$	4,167,677

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

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), Jeffrey 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 December 31, 2018. Based on this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

On June 27, 2008, we entered into a Tricanter Purchase and Installation Agreement with ICM, Inc. for the construction and installation of a Tricanter Oil Separation System. On February 12, 2010, GS CleanTech Corporation ("GS CleanTech") filed a lawsuit in the United States District Court for the Southern District of Indiana, claiming that the Company's operation of the oil recovery system manufactured and installed by ICM, Inc. infringes a patent claimed by GS CleanTech. GS CleanTech sought royalties and damages associated with the alleged infringement, as well as attorney's fees from the Company. GS CleanTech subsequently filed actions against at least fourteen other ethanol producing companies for infringement of its patent rights, adding several additional patents. GS CleanTech successfully petitioned for the cases to be joined in a multi-district litigation ("MDL") which was assigned to the United States District Court for the Southern District of Indiana (Case No. 1:10-ml-02181). We subsequently answered and counterclaimed that the patent claims at issue are invalid and that the Company is not infringing.

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

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

On January 4, 2018, we received a letter from the Indiana Department of Environmental Management, Office of Air Quality (“IDEM”) alleging violations of our air permit. IDEM alleges that we (i) constructed and operated a fermenter without previous construction or operational approval; (ii) constructed and operated emission units (conveyors and legs) without the appropriate emission controls (two baghouses instead of one larger baghouse); (iii) constructed and operated emission units (steel bins) without emission controls; and (iv) operated emission units above the emission limits. IDEM indicates that it intends to refer this matter for formal enforcement action. We are currently reviewing the allegations and have provided IDEM with additional information. While we believe that we have certain defenses to these allegations, we are currently unable to determine with any certainty the outcome of this matter including the extent of any potential monetary sanctions that may result.



Exhibit No.			Exhibit
31.1			Certificate Pursuant to 17 CFR 240.13a-14(a).*
31.2			Certificate Pursuant to 17 CFR 240.13a-14(a).*
32.1			Certificate Pursuant to 18 U.S.C. Section 1350.*
32.2			Certificate Pursuant to 18 U.S.C. Section 1350.*
101			The following financial information from Cardinal Ethanol, LLC's Quarterly Report on Form 10-Q for the quarter ended December 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of December 31, 2018 and September 30, 2018, (ii) Condensed Statements of Operations for the three months ended December 31, 2018 and 2017, (iii) Condensed Statements of Cash Flows for the three months ended December 31, 2018 and 2017, (iv) Condensed Statements of Changes in Members' Equity for the three months ended December 31, 2018 and 2017, and (v) the Notes to Condensed Unaudited Financial Statements.**



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

	For the quarterly period ended December 31, 2018.

	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



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)



	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	21
Item 3. Quantitative and Qualitative Disclosures about Market Risk	29
Item 4. Controls and Procedures	31
PART II. OTHER INFORMATION	31
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3. Defaults Upon Senior Securities	32
Item 4. Mine Safety Disclosures	32
Item 5. Other Information	32
Item 6. Exhibits	32
SIGNATURES	33



Grain Loadout facility loan	$	8,239,009
Less amounts due within one year	$	1,428,571
Net long-term debt	$	6,810,438



January 1, 2019 to December 31, 2019	$	1,428,571
January 1, 2020 to December 31, 2020	1,428,571
January 1, 2021 to December 31, 2021	1,428,571
January 1, 2022 to December 31, 2022	1,428,571
January 1, 2023 to December 31, 2023	2,524,725
Total long-term debt	$	8,239,009


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


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


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



	Total
January 1, 2019 to December 31, 2019	$	2,503,260
January 1, 2020 to December 31, 2020	2,839,360
January 1, 2021 to December 31, 2021	2,762,860
January 1, 2022 to December 31, 2022	1,921,360
January 1, 2023 to December 31, 2023	335,160
Total minimum lease commitments	$	10,362,000


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


•	Decreases in export demand due to the imposition of tariffs by foreign governments on ethanol and distillers grains produced in the United States.



	December 31, 2018 (Unaudited)		September 30, 2018
Current Assets	$	50,364,094	$	46,351,013
Current Liabilities	$	22,387,348	$	16,941,813
Long-Term Liabilities	$	6,810,438	$	7,314,867
Member's Equity	$	117,668,151	$	120,338,196



		CARDINAL ETHANOL, LLC

Date:	February 7, 2019	/s/ Jeffrey Painter
		Jeffrey Painter
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	February 7, 2019	/s/ William Dartt
		William Dartt
		Chief Financial Officer
		(Principal Financial and Accounting Officer)