UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.1934 |
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| For the quarterly period ended December 31, 2017 | June 30, 2021 |
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| OR |
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o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.1934 |
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| For the transition period from to . |
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| COMMISSION FILE NUMBER Commission File Number: | 000-52033 |
RED TRAIL ENERGY, LLC
(Exact name of registrant as specified in its charter)
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North Dakota | | 76-0742311 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.) |
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3682 Highway 8 South, P.O. Box 11, Richardton, ND 58652 |
(Address of principal executive offices) |
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(701) 974-3308 |
(Registrant's telephone number, including area code) |
3682 Highway 8 South, P.O. Box 11, Richardton, ND 58652
Indicate by check mark whether the registrant (1) has filed all reports required(Address of principal executive offices)
(701) 974-3308
(Registrant's telephone number, including area code)
Securities registered pursuant to be filed by Section 13 or 15(d)12(b) 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.Act:
x Yes o No | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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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. |
☒ | Yes | ☐ | 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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). |
☒ | Yes | ☐ | 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 or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act:
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Large Accelerated Filer | o | Accelerated Filer | o |
Non-Accelerated Filer | x | Smaller Reporting Company | ☐ |
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Large Accelerated Filer o
| Accelerated Filer o
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Non-Accelerated Filer x
| Smaller Reporting Company o
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| Emerging Growth Companyo |
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 ☐ |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x ☒ No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of February 14, 2018,August 10, 2021, there were 41,466,34040,148,160 Class A Membership Units outstanding.
INDEX
PART II. FINANCIAL INFORMATION
Item 1. Financial Statements
RED TRAIL ENERGY, LLC
Condensed Balance Sheets
| | | | | | | | | | | | | | |
ASSETS | | June 30, 2021 | | September 30, 2020 |
| | (Unaudited) | | |
Current Assets | | | | |
Cash and equivalents | | $ | 7,829,688 | | | $ | 9,304,638 | |
Restricted cash - margin account | | 3,824,172 | | | 1,807,851 | |
Accounts receivable, net, primarily related party | | 2,920,313 | | | 1,963,236 | |
| | | | |
Commodities derivative instruments, at fair value (see note 3) | | 582,410 | | | 42,005 | |
Inventory | | 9,749,318 | | | 10,137,872 | |
Prepaid expenses | | 648,387 | | | 371,283 | |
Total current assets | | 25,554,288 | | | 23,626,885 | |
| | | | |
Property, Plant and Equipment | | | | |
Land | | 1,333,681 | | | 1,333,681 | |
Land improvements | | 4,465,311 | | | 4,465,311 | |
Buildings | | 8,135,994 | | | 8,135,994 | |
Plant and equipment | | 88,763,119 | | | 88,442,644 | |
Construction in progress | | 23,843,159 | | | 9,805,770 | |
| | 126,541,264 | | | 112,183,400 | |
Less accumulated depreciation | | 71,471,600 | | | 67,855,740 | |
Net property, plant and equipment | | 55,069,664 | | | 44,327,660 | |
| | | | |
Other Assets | | | | |
Right of use operating lease assets, net | | 854,328 | | | 1,008,677 | |
Investment in RPMG | | 605,000 | | | 605,000 | |
Patronage equity | | 4,540,963 | | | 4,540,963 | |
Deposits | | 40,000 | | | 40,000 | |
Total other assets | | 6,040,291 | | | 6,194,640 | |
| | | | |
Total Assets | | $ | 86,664,243 | | | $ | 74,149,185 | |
|
| | | | | | | | |
ASSETS | | December 31, 2017 | | September 30, 2017 |
| | (Unaudited) | |
|
Current Assets | |
| |
|
Cash and equivalents | | $ | 11,293,024 |
| | $ | 3,223,342 |
|
Restricted cash - margin account | | 5,683,142 |
| | 5,906,666 |
|
Accounts receivable, primarily related party | | 3,039,006 |
| | 4,059,227 |
|
Other receivables | | 15,474 |
| | 8,764 |
|
Inventory | | 15,879,209 |
| | 16,413,742 |
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Prepaid expenses | | 279,968 |
| | 33,364 |
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Total current assets | | 36,189,823 |
| | 29,645,105 |
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| |
| |
|
Property, Plant and Equipment | |
| |
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Land | | 1,342,381 |
| | 1,342,381 |
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Land improvements | | 4,266,953 |
| | 4,266,953 |
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Buildings | | 8,036,031 |
| | 8,036,031 |
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Plant and equipment | | 86,987,706 |
| | 86,460,902 |
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Construction in progress | | 133,995 |
| | 628,454 |
|
| | 100,767,066 |
| | 100,734,721 |
|
Less accumulated depreciation | | 54,766,673 |
| | 53,592,985 |
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Net property, plant and equipment | | 46,000,393 |
| | 47,141,736 |
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| |
| |
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Other Assets | |
| |
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Investment in RPMG | | 605,000 |
| | 605,000 |
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Patronage equity | | 3,270,279 |
| | 3,270,279 |
|
Deposits | | 40,000 |
| | 40,000 |
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Total other assets | | 3,915,279 |
| | 3,915,279 |
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| |
| |
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Total Assets | | $ | 86,105,495 |
| | $ | 80,702,120 |
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Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
Condensed Balance Sheets
| | | | | | | | | | | | | | |
LIABILITIES AND MEMBERS' EQUITY | | June 30, 2021 | | September 30, 2020 |
| | (Unaudited) | | |
Current Liabilities | | | | |
| | | | |
Accounts payable | | $ | 3,206,996 | | | $ | 4,299,764 | |
Accrued expenses | | 2,563,208 | | | 1,937,555 | |
| | | | |
Accrued loss on firm purchase commitments (see notes 4 and 8) | | 0 | | | 130,000 | |
Customer deposits | | 7,334 | | | 0 | |
Current maturities of notes payable | | 716,918 | | | 1,276,256 | |
Current portion of operating lease liabilities | | 370,150 | | | 364,862 | |
Total current liabilities | | 6,864,606 | | | 8,008,437 | |
| | | | |
Long-Term Liabilities | | | | |
Notes payable | | 4,081,439 | | | 4,916,081 | |
Long-term operating lease liabilities | | 484,178 | | | 643,815 | |
Total long-term liabilities | | 4,565,617 | | | 5,559,896 | |
Commitments and Contingencies (Notes 4, 5, 7 and 8) | | | | |
| | | | |
Members’ Equity 40,148,160 Class A Membership Units issued and outstanding | | 75,234,020 | | | 60,580,852 | |
| | | | |
Total Liabilities and Members’ Equity | | $ | 86,664,243 | | | $ | 74,149,185 | |
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LIABILITIES AND MEMBERS' EQUITY | | December 31, 2017 | | September 30, 2017 |
| | (Unaudited) | |
|
Current Liabilities | |
| |
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Accounts payable | | $ | 3,585,115 |
| | $ | 2,409,171 |
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Accrued expenses | | 9,531,874 |
| | 3,670,338 |
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Commodities derivative instruments, at fair value (see note 2) | | 1,276,525 |
| | 933,312 |
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Accrued loss on firm purchase commitments (see note 7) | | 13,000 |
| | 5,000 |
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Current maturities of notes payable | | 2,622 |
| | 2,617 |
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Total current liabilities | | 14,409,136 |
| | 7,020,438 |
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Long-Term Liabilities | |
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Notes payable | | 2,264 |
| | 2,921 |
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| |
| |
|
Members’ Equity (41,466,340 as of December 31, 2017 and September 30, 2017, respectively, of Class A Membership Units issued and outstanding) | | 71,694,095 |
| | 73,678,761 |
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| | | | |
Total Liabilities and Members’ Equity | | $ | 86,105,495 |
| | $ | 80,702,120 |
|
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
Condensed Statements of Operations (Unaudited)
| | | | | | | | | | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended |
| Three Months Ended | | Three Months Ended | | June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
| December 31, 2017 | | December 31, 2016 | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) |
Revenues, primarily related party | $ | 26,122,856 |
| | $ | 30,004,460 |
| Revenues, primarily related party | $ | 42,741,846 | | | $ | 22,670,742 | | | $ | 104,563,490 | | | $ | 72,649,799 | |
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| |
| |
Cost of Goods Sold |
| |
| Cost of Goods Sold | |
Cost of goods sold | 27,743,282 |
| | 27,127,930 |
| Cost of goods sold | 32,371,643 | | | 19,220,909 | | | 84,150,555 | | | 71,726,947 | |
Lower of cost or market inventory adjustment | 70,979 |
| | — |
| |
Lower of cost or net realizable value adjustment | | Lower of cost or net realizable value adjustment | 0 | | | 0 | | | 263,777 | | | 241,294 | |
Loss on firm purchase commitments | 8,000 |
| | — |
| Loss on firm purchase commitments | 0 | | | 0 | | | 0 | | | 100,000 | |
Total Cost of Goods Sold | 27,822,261 |
| | 27,127,930 |
| Total Cost of Goods Sold | 32,371,643 | | | 19,220,909 | | | 84,414,332 | | | 72,068,241 | |
|
| |
| |
Gross Profit (Loss) | (1,699,405 | ) | | 2,876,530 |
| |
Gross Profit | | Gross Profit | 10,370,203 | | | 3,449,833 | | | 20,149,158 | | | 581,558 | |
|
| |
| |
General and Administrative Expenses | 715,911 |
| | 690,934 |
| General and Administrative Expenses | 854,179 | | | 1,272,698 | | | 3,173,878 | | | 3,096,666 | |
|
| |
| | | | | | | | |
Operating Income (Loss) | (2,415,316 | ) | | 2,185,596 |
| Operating Income (Loss) | 9,516,024 | | | 2,177,135 | | | 16,975,280 | | | (2,515,108) | |
|
| |
| |
Other Income (Expense) |
| |
| Other Income (Expense) | |
Interest income | 23,427 |
| | 18,112 |
| Interest income | (615) | | | 18,369 | | | 40,016 | | | 86,758 | |
Other income | 407,233 |
| | 568,269 |
| |
Other income, net | | Other income, net | 2,587 | | | 9,099 | | | 888,316 | | | 145,178 | |
Interest expense | (10 | ) | | (15 | ) | Interest expense | (12,562) | | | (39) | | | (38,588) | | | (171) | |
Total other income (expense), net | 430,650 |
| | 586,366 |
| |
Total other income, net | | Total other income, net | (10,590) | | | 27,429 | | | 889,744 | | | 231,765 | |
|
| |
| | | | | | | | |
Net Income (Loss) | $ | (1,984,666 | ) | | $ | 2,771,962 |
| Net Income (Loss) | $ | 9,505,434 | | | $ | 2,204,564 | | | $ | 17,865,024 | | | $ | (2,283,343) | |
|
| |
| | | | | | | | |
Weighted Average Units Outstanding | | | | Weighted Average Units Outstanding | |
Basic | 41,466,340 |
| | 41,406,697 |
| Basic | 40,148,160 | | | 40,148,160 | | | 40,148,160 | | | 40,148,160 | |
|
| |
| | | | | | | | |
Diluted | 41,466,340 |
| | 41,406,697 |
| Diluted | 40,148,160 | | | 40,148,160 | | | 40,148,160 | | | 40,148,160 | |
| | | | | | | | | | | |
Net Income (Loss) Per Unit |
| | | Net Income (Loss) Per Unit | |
Basic | $ | (0.05 | ) | | $ | 0.07 |
| Basic | $ | 0.24 | | | $ | 0.05 | | | $ | 0.44 | | | $ | (0.06) | |
|
| |
| | | | | | | | |
Diluted | $ | (0.05 | ) | | $ | 0.07 |
| Diluted | $ | 0.24 | | | $ | 0.05 | | | $ | 0.44 | | | $ | (0.06) | |
| | | | | | | | | | | |
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
Condensed Statements of Cash Flows(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| June 30, 2021 | | June 30, 2020 |
Cash Flows from Operating Activities | | | |
Net income (loss) | $ | 17,865,024 | | | $ | (2,283,343) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 3,615,860 | | | 3,568,154 | |
Loss (gain) on disposal of fixed assets | 0 | | | (8,212) | |
Change in fair value of derivative instruments | (540,405) | | | (39,716) | |
Lower of cost of net realizable value adjustment | 263,777 | | | 241,294 | |
Loss on firm purchase commitments | 0 | | | 100,000 | |
| | | |
Loan forgiveness | (873,400) | | | 0 | |
Changes in operating assets and liabilities: | | | |
| | | |
Accounts receivable, net, primarily related party | (957,077) | | | 769,411 | |
| | | |
Inventory | 124,776 | | | (1,566,996) | |
Prepaid expenses | (277,104) | | | (443,571) | |
Customer deposits | 7,334 | | | 0 | |
Accounts payable | (1,214,371) | | | (2,749,658) | |
Accrued expenses | 625,653 | | | 6,806,799 | |
Accrued loss on firm purchase commitments | (130,000) | | | (55,000) | |
Net cash provided by operating activities | 18,510,067 | | | 4,339,162 | |
| | | |
Cash Flows from Investing Activities | | | |
Proceeds from disposal of fixed assets | 0 | | | 8,212 | |
Capital expenditures | (14,236,260) | | | (6,062,324) | |
Net cash (used in) investing activities | (14,236,260) | | | (6,054,112) | |
| | | |
Cash Flows from Financing Activities | | | |
Distribution paid | (3,211,856) | | | 0 | |
| | | |
| | | |
Proceeds from notes payable | 0 | | | 873,400 | |
| | | |
Debt repayments | (520,580) | | | (3,386) | |
Net cash provided by (used in) financing activities | (3,732,436) | | | 870,014 | |
| | | |
Net Change in Cash, Cash Equivalents and Restricted Cash | 541,371 | | | (844,936) | |
Cash, Cash Equivalents and Restricted Cash - Beginning of Period | 11,112,489 | | | 10,522,069 | |
Cash, Cash Equivalents and Restricted Cash - End of Period | $ | 11,653,860 | | | $ | 9,677,133 | |
| | | |
Reconciliation of Cash, Cash Equivalents and Restricted Cash | | | |
Cash and cash equivalents | $ | 7,829,688 | | | $ | 8,065,941 | |
Restricted cash | 3,824,172 | | | 1,611,192 | |
Total Cash, Cash Equivalents and Restricted Cash | $ | 11,653,860 | | | $ | 9,677,133 | |
| | | |
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| | | | | | | |
| Three Months Ended | | Three Months Ended |
| December 31, 2017 | | December 31, 2016 |
Cash Flows from Operating Activities |
| |
|
Net income (loss) | $ | (1,984,666 | ) | | $ | 2,771,962 |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
| |
|
Depreciation and amortization | 1,173,688 |
| | 1,170,669 |
|
Change in fair value of derivative instruments | 343,213 |
| | (63,498 | ) |
Lower of cost or market inventory adjustment | 70,979 |
| | — |
|
Loss on firm purchase commitments | 8,000 |
| | — |
|
Change in operating assets and liabilities: |
| |
|
Restricted cash | 223,524 |
| | (247,525 | ) |
Accounts receivable | 1,020,221 |
| | 125,591 |
|
Other receivables | (6,710 | ) | | 64,887 |
|
Inventory | 455,553 |
| | (6,696,029 | ) |
Prepaid expenses | (246,604 | ) | | (167,756 | ) |
Accounts payable | 1,175,944 |
| | 1,629,501 |
|
Accrued expenses | 5,861,537 |
| | 12,058,830 |
|
Accrued purchase commitment losses | 8,000 |
| | (54,000 | ) |
Net cash provided by operating activities | 8,102,679 |
| | 10,592,632 |
|
| | | |
Cash Flows from Investing Activities |
| |
|
Capital expenditures | (32,345 | ) | | (174,001 | ) |
Net cash (used in) investing activities | (32,345 | ) | | (174,001 | ) |
| | | |
Cash Flows from Financing Activities |
| |
|
Unit repurchase | — |
| | (564,963 | ) |
Debt repayments | (652 | ) | | (648 | ) |
Net cash (used in) financing activities | (652 | ) | | (565,611 | ) |
|
| |
|
Net Increase in Cash and Equivalents | 8,069,682 |
| | 9,853,020 |
|
Cash and Equivalents - Beginning of Period | 3,223,342 |
| | 10,274,166 |
|
Cash and Equivalents - End of Period | $ | 11,293,024 |
| | $ | 20,127,186 |
|
|
| |
|
Supplemental Disclosure of Cash Flow Information |
| |
|
Interest paid | $ | 3,683 |
| | $ | 15 |
|
Units issued in exchange for property | $ | — |
| | $ | 3,320,000 |
|
| | | | | | | | | | | |
Supplemental Disclosure of Cash Flow Information | | | |
Interest paid | $ | 38,588 | | | $ | 12 | |
Noncash Investing and Financing Activities | | | |
Finance lease asset acquired | $ | 0 | | | $ | 23,173 | |
Operating lease asset acquired | 81,729 | | | 168,300 | |
Capital expenditures in accounts payable | $ | 121,604 | | | $ | 8,891 | |
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2021
The accompanying condensed unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the fiscal year ended September 30, 2017,2020, contained in the Company's Annual Report on Form 10-K.
In the opinion of management, the interim condensed unaudited financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2018.2021.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Red Trail Energy, LLC, a North Dakota limited liability company (the “Company”), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota (the “Plant”).
Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, inventory and allowance for doubtful accounts. Actual results could differ from those estimates.
Net Income Per Unit
Net income per unit is calculated on a basic and fully diluted basis using the weighted average units outstanding during the period.
Recently IssuedAdopted Accounting Pronouncements
Revenue from Contracts with CustomersMeasurement of Credit Losses on Financial Instruments
In May 2014,June 2016, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” which supersedes the guidance in “Revenue Recognition (Topic 605)” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. The Company has evaluated the new standard and anticipates a change in the reporting of revenue as enhanced disclosures will be required. The Company does not anticipate a significant impact on our financial statements due to the nature of our revenue streams and our revenue recognition policy.
Simplifying the 2016-13, “Measurement of Inventory
In July 2015, the FASB issuedCredit Losses on Financial Instruments.” ASU No. 2015-11, "Simplifying the Measurements of Inventory" regarding inventory2016-13 adds a current expected credit loss (“CECL”) impairment model to U.S. GAAP that is measured using the first-in, first-out or average cost method. The guidance does not applybased on expected losses rather than incurred losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to inventory measured using the last-in, first-out or the retail inventory method. The guidance requires inventory within its scope to be measured at the lower of cost or net realizable value, which is the estimated selling price in the normal course of business less reasonable predictable costs of completion, disposal and transportation. These amendments more closely align GAAP with International Financial Reporting Standards (IFRS). ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and should be applied prospectively with early adoption permittedretained earnings as of the beginning of anthe period of adoption. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim or annual reporting period. Theperiods within the year of adoption. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Effective October 1, 2020, the Company has adopted ASU 2016-13 using the new standard during the quarter andmodified retrospective approach. As of June 30, 2021 there has been no significant impact of adoption for the fiscal year ended September 30, 2021. The Company expects the impact of adopting the new standard to our financial statements.be immaterial on an ongoing basis.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017
Lease Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, "Leases (topic 842)" which requires a lessee to recognize a right to use asset and a lease liability on its balance sheet for all leases with terms of twelve months or greater. This guidance is effective for fiscal years beginning after December 15, 2018, included interim periods within those years with early adoption permitted. TheEffective October 1, 2019 the Company has evaluatedadopted ASU No. 2016-02 using the new standard and expects it will have a material impact on the financial statements as we will have to begin capitalizing leases on the balance sheet when the new standard is implemented.modified retrospective approach. See note 67 for current operating and financing lease commitments.
In November 2016,RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2021
2. REVENUE
Revenue Recognition
The Company recognizes revenue from sales of ethanol and co-products at the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" which requires that a statement of cash flows explainpoint in time when the change during the periodperformance obligations in the totalcontract are met, which is when the customer obtains control of cash, cash equivalents,such products and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts showntypically occurs upon shipment depending on the statementterms of cash flows. ASU No. 2016-18the underlying contracts. Revenue is effectivemeasured as the amount of consideration expected to be received in exchange for annal periods beginning after December 15, 2017, and interim periods within those annual periods. Thetransferring goods or providing services. In some instances, the Company has evaluatedenters into contracts with customers that contain multiple performance obligations to deliver specified volumes of co-products over a contractual period of less than 12 months. In such instances, the new standard and anticipates a changeCompany allocates the transaction price to each performance obligation identified in the presentationcontract based on relative standalone selling prices and recognizes the related revenue as control of restricted cash oneach individual product is transferred to the cash flow statement oncecustomer in satisfaction of the standard is adopted.corresponding performance obligation.
2.
The following table disaggregates revenue by major source for the three and nine months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | For the three months ended June 30, 2021 (unaudited) | | For the three months ended June 30, 2020 (unaudited) | | For the nine months ended June 30, 2021 (unaudited) | | For the nine months ended June 30, 2020 (unaudited) |
Ethanol, E85 and Industrial Alcohol | | $ | 32,583,227 | | | $ | 17,529,809 | | | $ | 80,799,293 | | | $ | 55,630,844 | |
Distillers Grains | | 7,932,798 | | | 4,176,444 | | | 18,618,186 | | | 13,906,736 | |
Syrup | | 476,873 | | | 59,274 | | | 877,630 | | | 253,344 | |
Corn Oil | | 1,706,942 | | | 868,578 | | | 4,131,184 | | | 2,726,614 | |
Other | | 42,006 | | | 36,637 | | | 137,197 | | | 132,261 | |
Total revenue from contracts with customers | | $ | 42,741,846 | | | $ | 22,670,742 | | | $ | 104,563,490 | | | $ | 72,649,799 | |
Shipping and Handling Costs
We account for shipping and handling activities related to contracts with customers as costs to fulfill our promises to transfer the associated products. Accordingly, we record customer payments associated with shipping and handling costs as a component of revenue, and classify such costs as a component of cost of goods sold.
3. DERIVATIVE INSTRUMENTS
Commodity Contracts
As part of its hedging strategy, the Company may enter into ethanol, soybean, soybean oil, natural gas and corn commodity-based derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices in order to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales, corn oil sales, and corn purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Ethanol derivative fair market value gains or losses are included in the results of operations and are classified as revenue, and corn derivative changes in fair market value are included in cost of goods sold.
|
| | | | | | | | | | | | | | | | | | |
As of: | | December 31, 2017 (unaudited) | | September 30, 2017 |
Contract Type | | # of Contracts | Notional Amount (Qty) | Fair Value | | # of Contracts | Notional Amount (Qty) | Fair Value |
Corn futures | | 1,000 |
| 5,000,000 |
| bushels | $ | 12,850 |
| | 81 |
| 405,000 |
| bushels | $ | 16,688 |
|
Corn options | | 1,300 |
| 6,500,000 |
| bushels | $ | (1,289,375 | ) | | 1,800 |
| 9,000,000 |
| bushels | $ | (950,000 | ) |
Total fair value | | | | | $ | (1,276,525 | ) | | | | | $ | (933,312 | ) |
Amounts are combined on the balance sheet - negative numbers represent liabilities |
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of: | | June 30, 2021 (unaudited) | | September 30, 2020 |
Contract Type | | # of Contracts | Notional Amount (Qty) | Fair Value | | # of Contracts | Notional Amount (Qty) | Fair Value |
Corn futures | | 0 | | 0 | | bushels | $ | 0 | | | 30 | | 1,260,000 | | bushels | $ | 104,068 | |
Corn options | | 100 | | 500,000 | | bushels | $ | (75,625) | | | 83 | | 415,000 | | bushels | $ | (62,063) | |
| | | | | | | | | | |
| | | | | | | | | | |
Ethanol futures | | 35 | | 1,470,000 | | gal | $ | 658,035 | | | 0 | | 0 | | gal | $ | 0 | |
| | | | | | | | | | |
| | | | | | | | | | |
Total fair value | | | | | $ | 582,410 | | | | | | $ | 42,005 | |
Amounts are combined on the balance sheet - negative numbers represent liabilities |
The following tables provide details regarding the Company's derivative financial instruments at December 31, 2017June 30, 2021 and September 30, 2017:2020:
| | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | |
| | | | |
Balance Sheet - as of June 30, 2021 (unaudited) | | Asset | | Liability |
Commodity derivative instruments, at fair value | | $ | 582,410 | | | $ | 0 | |
Total derivatives not designated as hedging instruments for accounting purposes | | $ | 582,410 | | | $ | 0 | |
| | | | |
Balance Sheet - as of September 30, 2020 | | Asset | | Liability |
Commodity derivative instruments, at fair value | | $ | 42,005 | | | $ | 0 | |
Total derivatives not designated as hedging instruments for accounting purposes | | $ | 42,005 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Statement of Operations Income/(Expense) | | Location of gain (loss) in fair value recognized in income | | Amount of gain (loss) recognized in income during the three months ended June 30, 2021 (unaudited) | | Amount of gain (loss) recognized in income during the three months ended June 30, 2020 (unaudited) | | Amount of gain (loss) recognized in income during the nine months ended June 30, 2021 (unaudited) | | Amount of gain (loss) recognized in income during the nine months ended June 30, 2020 (unaudited) |
Corn derivative instruments | | Cost of Goods Sold | | $ | 567,691 | | | $ | (270,925) | | | $ | 1,266,401 | | | $ | (539,099) | |
Ethanol derivative instruments | | Revenue | | 493,764 | | | 233,372 | | | 1,288,915 | | | 258,836 | |
| | | | | | | | | | |
Natural gas derivative instruments | | Cost of Goods Sold | | 0 | | | 0 | | | 1,410 | | | 0 | |
Total | | | | $ | 1,061,455 | | | $ | (37,553) | | | $ | 2,556,726 | | | $ | (280,263) | |
|
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | |
| | | | |
Balance Sheet - as of December 31, 2017 (unaudited) | | Asset | | Liability |
Commodity derivative instruments, at fair value | | $ | — |
| | $ | 1,276,525 |
|
Total derivatives not designated as hedging instruments for accounting purposes | | $ | — |
| | $ | 1,276,525 |
|
| | | | |
Balance Sheet - as of September 30, 2017 | | Asset | | Liability |
Commodity derivative instruments, at fair value | | $ | — |
| | $ | 933,312 |
|
Total derivatives not designated as hedging instruments for accounting purposes | | $ | — |
| | $ | 933,312 |
|
|
| | | | | | | | | | |
Statement of Operations Income/(Expense) | | Location of gain (loss) in fair value recognized in income | | Amount of gain(loss) recognized in income during the three months ended December 31, 2017 (unaudited) | | Amount of gain (loss) recognized in income during the three months ended December 31, 2016 (unaudited) |
Corn derivative instruments | | Cost of Goods Sold | | $ | (568,536 | ) | | $ | 218,357 |
|
Ethanol derivative instruments | | Revenue | | 1,800 |
| | 40,950 |
|
Soybean oil derivative instruments | | Revenue | | — |
| | 12,216 |
|
Natural gas derivative instruments | | Cost of Goods Sold | | — |
| | 10,500 |
|
Total | | | | $ | (566,736 | ) | | $ | 282,023 |
|
3.4. INVENTORY
Inventory is valued at the lower of cost or net realizable value. Inventory values as of December 31, 2017June 30, 2021 and September 30, 20172020 were as follows:
| | | | | | | | | | | | | | |
| | June 30, 2021 (unaudited) | | September 30, 2020 |
Raw materials, including corn, chemicals and supplies | | $ | 5,032,919 | | | $ | 4,031,086 | |
Work in process | | 1,072,680 | | | 765,673 | |
Finished goods, including ethanol and distillers grains | | 2,091,975 | | | 3,914,117 | |
Spare parts | | 1,551,744 | | | 1,426,996 | |
Total inventory | | $ | 9,749,318 | | | $ | 10,137,872 | |
| | | | |
|
| | | | | | | | |
As of | | December 31, 2017 (unaudited) | | September 30, 2017 |
Raw materials, including corn, chemicals and supplies | | $ | 12,385,830 |
| | $ | 11,952,560 |
|
Work in process | | 784,509 |
| | 773,786 |
|
Finished goods, including ethanol and distillers grains | | 794,415 |
| | 1,577,066 |
|
Spare parts | | 1,914,455 |
| | 2,110,330 |
|
Total inventory | | $ | 15,879,209 |
| | $ | 16,413,742 |
|
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2021
Lower of cost or net realizable value adjustments for the three and nine months ended December 31, 2017June 30, 2021 and 20162020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, 2021 (unaudited) | | For the three months ended June 30, 2020 (unaudited) | | For the nine months ended June 30, 2021 (unaudited) | | For the nine months ended June 30, 2020 (unaudited) |
Loss on firm purchase commitments | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 100,000 | |
Loss on lower of cost or net realizable value adjustment for inventory on hand | | $ | 0 | | | $ | 0 | | | $ | 263,777 | | | $ | 241,294 | |
Total loss on lower of cost or net realizable value adjustments | | $ | 0 | | | $ | 0 | | | $ | 263,777 | | | $ | 341,294 | |
|
| | | | | | | | |
| | For the three months ended December 31, 2017 (unaudited) | | For the three months ended December 31, 2016 (unaudited) |
Loss on firm purchase commitments | | $ | 8,000 |
| | $ | — |
|
Loss on lower of cost or market adjustment for inventory on hand | | $ | 70,979 |
| | $ | — |
|
Total loss on lower of cost or market adjustments | | $ | 78,979 |
| | $ | — |
|
The Company has entered into forward corn purchase contracts under which it is required to take delivery at the contract price. At the time the contracts were created, the price of the contract approximated market price. Subsequent changes in market conditions could cause the contract prices to become higher or lower than market prices. As of December 31, 2017,June 30, 2021, the average price of corn purchased under certain fixed price contracts, that had not yet been delivered, was greater than approximated market price. Based on this information, the Company has an $8,0000 estimated loss on firm purchase commitments for the threenine months ended December 31, 2017June 30, 2021 and noa $100,000 estimated loss on firm purchase commitments for the threenine months ended December 31, 2016.June 30, 2020. The loss is recorded in “Loss on firm purchase commitments” on the statement of operations.operations and "Accrued loss on firm purchase commitments" on the balance sheet. The amount of the potential loss was determined by applying a methodology similar to that used in the impairment valuation with respect to inventory. Given the uncertainty of future ethanol prices, furtherfuture losses on the outstanding purchase commitments could be recorded in future periods.
4.5. BANK FINANCING
|
| | | | | | | | |
As of | | December 31, 2017 (unaudited) | | September 30, 2017 |
Capital lease obligations (Note 6) | | $ | 4,886 |
| | $ | 5,538 |
|
Total Long-Term Debt | | 4,886 |
| | 5,538 |
|
Less amounts due within one year | | 2,622 |
| | 2,617 |
|
Total Long-Term Debt Less Amounts Due Within One Year | | $ | 2,264 |
| | $ | 2,921 |
|
The Company hadOn July 13, 2020, we received a $10$5.41 million operating line-of-credit with First Nationalloan through the Bank of Omaha that maturedNorth Dakota's Ethanol Recovery Program and Cornerstone Bank ("Cornerstone"). The Ethanol Recovery Program was developed by the North Dakota Ethanol Producers Association and the Bank of North Dakota to use the existing Biofuels Partnership in Assisting Community Expansion ("PACE") program and Value-added Guarantee Loan program to help ethanol production facilities weather the economic challenges caused by the COVID-19 pandemic. Ethanol producers could qualify for up to $15 million of a low interest loan of 1% based on March 20, 2017.the amount of such producers' annual corn grind. The outstanding balance as of June 30, 2021 is $4.78 million. The maturity date of the loan is July 13, 2025. The fixed interest rate on June 30, 2021 was 3.75% with an interest rate buy down through the Bank of North Dakota to 1%.
On March 20, 2017,February 1, 2021 we entered into a newrenewed our $10 million revolving loan (the "Revolving Loan") with U.S. Bank National Association ("U.S. Bank"). The Revolving Loan replaced the revolving loan we had with First National Bank of Omaha.Cornerstone. The maturity date of the Revolving Loan is MayJanuary 31, 2018. Our ability to draw funds on2022. At June 30, 2021, we had $10 million available under the Revolving Loan is subject to a borrowing base calculation as set forth in the Credit Agreement. At December 31, 2017, we had $10,000,000 available on the Revolving Loan, taking into account the borrowing base calculation. We had $0 drawn on the Revolving Loan as of December 31, 2017.Loan. The variable interest rate on DecemberJune 30, 2021 was 3.00%.
On January 22, 2020, we entered into a $7 million construction loan (the "Construction Loan") with Cornerstone. The original maturity date of the Construction Loan was June 1, 2021. On June 3, 2021 we extended the maturity date to February 1, 2022. At June 30, 2021, we had $7 million available under the Construction Loan. The variable interest rate on June 30, 2021 was 3.00%.
On February 1, 2021 we entered into a $28 million construction loan (the "CCS Construction Loan") with Cornerstone for the carbon capture and storage project. The maturity date of the CCS Construction Loan is January 31, 20172022. At June 30, 2021 we had $28 million available under the CCS Construction Loan. The variable interest rate on June 30, 2021 was 3.40%3.00%. Of the $10 million revolving line-of-credit,
On April 16, 2020, the Company received a Paycheck Protection Program Loan (the "PPP Loan") for $873,400 with Cornerstone. The maturity date of the PPP Loan was not allowed to draw $687,597 which is reserved as a sourceApril 16, 2022. The fixed interest rate was 1.00%. Under the terms of funds to support a guaranteed paymentthe PPP Loan, the Company agreed to related to its natural gas pipeline. Whileapplied for forgiveness of the entire amount of the PPP Loan on October 31, 2020, in accordance with PPP regulations, which provided for the possibility of loan forgiveness because the Company does not expect that it will be required to make a direct paymentused all proceeds of the PPP Loan for qualifying expenses in accordance with PPP requirements. The entire amount of the natural gas pipeline, the Company's agreement requires it to have funds available in the event the Company is required to make the guaranteed payment. See note 6 for the Company's additional future minimum lease commitments.PPP Loan was forgiven on January 20, 2021. The forgiven amount was recorded as other income.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2021
The Company's loans are secured by a lien on substantially all of the assets of the Company. As of December 31, 2017, the Company was in compliance with all of its debt covenants.
| | | | | | | | |
Schedule of debt maturities for the twelve months ending June 30 | | Totals |
2021 | | $ | 716,918 | |
2022 | | 745,002 | |
2023 | | 772,869 | |
2024 | | 800,130 | |
2025 | | 1,763,438 | |
Total | | $ | 4,798,357 | |
5.
6. FAIR VALUE MEASUREMENTS
The following table provides information on those assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2017June 30, 2021 and September 30, 2017,2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using |
| Carrying Amount as of June 30, 2021 (unaudited) | | Fair Value as of June 30, 2021 (unaudited) | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | |
Commodities derivative instruments | $ | 582,410 | | | $ | 582,410 | | | $ | 582,410 | | | $ | 0 | | | $ | 0 | |
Total | $ | 582,410 | | | $ | 582,410 | | | $ | 582,410 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | |
| | | | | Fair Value Measurement Using |
| Carrying Amount as of September 30, 2020 | | Fair Value as of September 30, 2020 | | Level 1 | | Level 2 | | Level 3 |
Assets | | | | | | | | | |
Commodities derivative instruments | $ | 42,005 | | | $ | 42,005 | | | $ | 42,005 | | | $ | 0 | | | $ | 0 | |
Total | $ | 42,005 | | | $ | 42,005 | | | $ | 42,005 | | | $ | 0 | | | $ | 0 | |
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017
|
| | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using |
| Carrying Amount as of December 31, 2017 (unaudited) | | Fair Value as of December 31, 2017 (unaudited) | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | |
Commodities derivative instruments | $ | 1,276,525 |
| | $ | 1,276,525 |
| | $ | 1,276,525 |
| | $ | — |
| | $ | — |
|
Total | $ | 1,276,525 |
| | $ | 1,276,525 |
| | $ | 1,276,525 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | |
| | | | | Fair Value Measurement Using |
| Carrying Amount as of September 30, 2017 | | Fair Value as of September 30, 2017 | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | |
Commodities derivative instruments | $ | 933,312 |
| | $ | 933,312 |
| | $ | 933,312 |
| | $ | — |
| | $ | — |
|
Total | $ | 933,312 |
| | $ | 933,312 |
| | $ | 933,312 |
| | $ | — |
| | $ | — |
|
The fair value of the corn, ethanol, soybean oil and natural gas derivative instruments is based on quoted market prices in an active market.
6.7. LEASES
Effective October 1, 2019, the Company adopted the provisions of ASU No. 2016-02, "Leases (topic 842)" using the modified retrospective approach which applies the provisions of ASU No. 2016-02 upon adoption, with no change to prior periods. This adoption resulted in the Company recognizing initial right of use assets and lease liabilities of $1,418,000. The adoption did not have a significant impact on the Company's statement of operations.
Upon the initial adoption of ASU No. 2016-02, the Company elected the following practical expedients allowable under the guidance: not to reassess whether any expired or existing contracts are or contain leases; not to reassess the lease classification for any expired or existing leases; not to reassess initial direct costs for any existing leases; not to separately identify lease and nonlease components; and not to evaluate historical land easements. Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASU No. 2016-02 to only long-term (greater than one year) leases.
The Company leases equipment under operatingrailcar and capital leases through January 2023.plant equipment. Operating lease right of use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate, unless an implicit rate is generally responsiblereadily determinable, as the discount rate for maintenance, taxes, and utilities for leased equipment. Equipment under operatingeach lease includes a locomotive and rail cars. Rent expense for operating leases was approximately $154,000 and $93,000 forin determining the three months ended December 31, 2017 and 2016, respectively. Equipment under capital leases consists of office equipment and plant equipment.
Equipment under capital leases is as follows at:
|
| | | | | | | | |
As of | | December 31, 2017 (unaudited) | | September 30, 2017 |
Equipment | | $ | 483,488 |
| | $ | 483,488 |
|
Less accumulated amortization | | (125,394 | ) | | (120,029 | ) |
Net equipment under capital lease | | $ | 358,094 |
| | $ | 363,459 |
|
At December 31, 2017, the Company had the following minimum commitments, which at inception had non-cancelable terms of more than one year. Amounts shown below are for the 12 months period ending December 31:
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2021
present value of lease payments. For the nine months ended June 30, 2021, the Company's estimated discount rate was 3.00%. Operating lease expense is recognized on a straight-line basis over the lease term.
The Company determines if an arrangement is a lease or contains a lease at inception. The Company's existing leases have remaining lease terms of approximately one year to four years, which may include options to extend the leases when it is reasonably certain the Company will exercise those options. At June 30, 2021 the weighted average remaining lease term was two years. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants. The Company does not have any sublease agreements.
The Company is generally responsible for maintenance, taxes, and utilities for leased equipment. Rent expense for operating leases was approximately $506,900 and $570,000 for the nine months ended June 30, 2021 and 2020, respectively.
Equipment under financing leases consists of office equipment and plant equipment. At June 30, 2021 and September 30, 2020, equipment under financing leases was as follows:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | September 30, 2020 |
Equipment | | $ | 493,414 | | | $ | 493,414 | |
Less accumulated amortization | | (190,528) | | | (172,944) | |
Net equipment under financing lease | | $ | 302,886 | | | $ | 320,470 | |
At June 30, 2021, the Company had the following minimum commitments, which at inception had non-cancellable terms of more than one year. Amounts shown below are for the 12 month periods ending June 30:
| | | | | | | | | | | | | | |
| | Operating Leases | | Financing Leases |
2021 | | $ | 370,150 | | | $ | 4,534 | |
2022 | | 350,220 | | | 4,568 | |
2023 | | 133,958 | | | 4,602 | |
2024 | | 0 | | | 1,836 | |
| | | | |
Thereafter | | 0 | | | 0 | |
Total minimum lease commitments | | $ | 854,328 | | | 15,540 | |
Less amount representing interest | | | | 0 | |
Present value of minimum lease commitments included in notes payable on the balance sheet | | | | $ | 15,540 | |
|
| | | | | | | | |
| | Operating Leases | | Capital Leases |
2018 | | $ | 375,553 |
| | $ | 2,622 |
|
2019 | | 326,608 |
| | 2,264 |
|
2020 | | 210,023 |
| | — |
|
2021 | | 167,111 |
| | — |
|
2022 | | 132,600 |
| | — |
|
Thereafter | | 11,050 |
| | — |
|
Total minimum lease commitments | | $ | 1,222,945 |
| | 4,886 |
|
Less amount representing interest | | | | — |
|
Present value of minimum lease commitments included in current maturities of long-term debt on the balance sheet | | | | $ | 4,886 |
|
7.8. COMMITMENTS AND CONTINGENCIES
Firm Purchase Commitments for Corn
To ensure an adequate supply of corn to operate the Plant, the Company enters into contracts to purchase corn from local farmers and elevators. At December 31, 2017,June 30, 2021, the Company had various fixed price contracts for the purchase of approximately 0.7 million bushels of corn. Using the stated contract price for the fixed price contracts, the Company had commitments of approximately $2.4$3.5 million related to the 0.7 million bushels under contract.
Water
On April 21, 2015, we entered into a ten-year contract to purchase raw water from Southwest Water Authority in order to meet the Plant's water requirements. Our contract requires us to purchase a minimum of 160 million gallons of water per year. The Company also has various unpriced basis contractsminimum estimated obligation for the purchasethis contract is $424,000 per year.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2021
Profit and Cost Sharing Agreement
The Company has entered into a Profit and Cost Sharing Agreement with Bismarck Land Company, LLC, which became effective on November 1, 2016. The Profit and Cost Sharing Agreement provides that the Company will share 70% of the net revenue generated by the Company from business activities which are brought to the Company by Bismarck Land Company, LLC and conducted on the real estate purchased from the Bismarck Land Company, LLC. The real estate was initially purchased in exchange for 2 million membership units of the Company at $1.66 per unit. This obligation will terminate ten years after the real estate closing date of October 11, 2016 or after Bismarck Land Company, LLC receives $10 million in proceeds from the agreement. In addition, the Profit and Cost Sharing Agreement provides that the Company will pay Bismarck Land Company, LLC 70% of any net proceeds received by the Company from the sale of the subject real estate if a sale were to occur prior to termination of this obligation in the future, subject toaccordance with the $10 million cap andor the 10 year terminationten-year term of this obligation. No payments have been made to theThe Company had paid Bismarck Land Company, LLC at$28,315 as of June 30, 2021.
Carbon Capture and Storage Project
On July 30, 2018, the Company entered into a research agreement with the University of North Dakota Energy and Environmental Research Center to explore the feasibility of injecting carbon dioxide ("CO2") from the fermentation process into a saline formation to lower the carbon intensity value of our ethanol. The Company committed to fund up to $950,000 for this time.research. The Company had incurred $949,631 through the third quarter of the 2020 fiscal year which is recorded as consulting services under general and administrative expenses. The commitment was fully paid as of June 30, 2021.
On October 1, 2020, the Company entered into an agreement with Salof LTD, Inc. for the design, engineering, fabrication and start up of the CO2 capture and liquefaction facility for the carbon capture and storage project. The price of the system including all equipment and services is $11,845,000. The Company has paid $5,922,500 as of June 30, 2021 which is recorded as construction in progress. 8.
On May 6, 2021, the Company entered into an agreement with Direct Automation for the DCS Computer System for the carbon capture and storage project. The price of the system including all equipment and installation is $800,992. The Company has paid $342,825 as of June 30, 2021 which is recorded as construction in progress.
Industrial Alcohol Project
On October 6, 2020, the Company entered into an agreement with Praj Industries Limited to purchase a 25 million gallon per year Eco-Smart Distillation unit to produce United States Pharmacopeia ("USP") grade alcohol. The price of the system is $2,659,500, of which the Company had paid $2,659,500 as of June 30, 2021 which is recorded as construction in progress.
On April 13, 2021, the Company entered into an agreement with Tooz Construction, Inc. for the construction of the building foundation for the new distillation building for the Eco-Smart Distillation unit. The price of materials and labor is $178,057. The Company has paid $27,382 as of June 30, 2021 which is recorded as construction in progress.
As of June 30, 2021 the Company has paid a total of $4.3 million towards the Industrial Alcohol Project and a total of $15.1 million towards the Carbon Capture and Storage Project, which are both recorded as construction in progress. The remaining cost to complete the Industrial Alcohol Project is roughly $1.9 million and the remaining cost to complete the Carbon Capture and Storage Project is roughly $14 million.
9. RELATED PARTY TRANSACTIONS
The Company has balances and transactions in the normal course of business with various related parties for the purchase of corn, sale of distillers grains and sale of ethanol. The related parties include unit holders, members of the board of governors of the Company, and RPMG, Inc. (“RPMG”). During the Company's first quarter of 2018, the Company received a capital account refund from RPMG which is included in other income (expense) in the Company's Statement of Operations. Significant related party activity affecting the financial statements is as follows:
|
| | | | | | | | |
| | December 31, 2017 (unaudited) | | September 30, 2017 |
Balance Sheet | | | | |
Accounts receivable | | $ | 2,497,558 |
| | $ | 4,027,061 |
|
Accounts Payable | | 12,594 |
| | 1,569 |
|
Accrued Expenses | | 2,377,979 |
| | 925,503 |
|
| | | | |
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2021
| | | | | | | | | | | | | | |
| | June 30, 2021 (unaudited) | | September 30, 2020 |
Balance Sheet | | | | |
Accounts receivable | | $ | 2,701,564 | | | $ | 1,777,576 | |
Accounts payable | | 121,374 | | | 188,457 | |
Accrued expenses | | 448,758 | | | 650,833 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, 2021 (unaudited) | | For the three months ended June 30, 2020 (unaudited) | | For the nine months ended June 30, 2021 (unaudited) | | For the nine months ended June 30, 2020 (unaudited) |
Statement of Operations | | | | | | | | |
Revenues | | $ | 39,664,319 | | | $ | 19,128,595 | | | $ | 95,934,627 | | | $ | 64,823,447 | |
| | | | | | | | |
Cost of goods sold | | 533,438 | | | 260,158 | | | 1,605,195 | | | 1,551,865 | |
General and administrative | | 109,447 | | | 30,286 | | | 169,910 | | | 105,444 | |
Other income | | 0 | | | 119,825 | | | 0 | | | 239,650 | |
| | | | | | | | |
Inventory Purchases | | $ | 4,842,958 | | | $ | 6,449,514 | | | $ | 10,504,616 | | | $ | 14,852,088 | |
|
| | | | | | | | |
| | For the three months ended December 31, 2017 (unaudited) | | For the three months ended December 31, 2016 (unaudited) |
Statement of Operations | | | | |
Revenues | | $ | 24,798,144 |
| | $ | 28,998,771 |
|
Cost of goods sold | | 6,462 |
| | 9,730 |
|
General and administrative | | 19,067 |
| | 16,161 |
|
Other income/expense | | 140,539 |
| | 247,307 |
|
Inventory Purchases | | $ | 4,293,979 |
| | $ | 6,078,986 |
|
9.10. UNCERTAINTIES IMPACTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS
TheDuring volatile market conditions, the Company hasexperiences certain risks and uncertainties, that it experiences during volatile market conditions, which cancould have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the United States. Corn for the production process is supplied to the Plant primarily from local agricultural producers and from purchases on the open market. The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol and distillers grains and by the cost at which it is able to purchase corn for operations. The price of ethanol is influenced by factors such as prices, supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets, although since 2005 the prices of ethanol and gasoline began a divergence with ethanol, which has generally been selling for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.
The Company's financial performance is highly dependent on the Federal Renewable Fuels Standard ("RFS"), which requires that a certain amount of renewable fuels must be used each year in the United States. Corn based ethanol, such as the ethanol the Company produces, can be used to meet a portion of the RFS requirement. In November 2013, the EPA issued a proposed rule which would reduce the RFS for 2014, including the RFS requirement related to corn based ethanol. The EPA proposed rule was subject to a comment period which expired in January 2014. On November 30, 2015, the EPA released its final ethanol use requirements for 2014, 2015 and 2016, which were lower than the statutory requirements in the RFS. However, the final RFS for 2017 equaled the statutory requirement which was also the case for the 2018, 2019 and 2020 RFS final rule.rules. No final RFS has been established for 2021.
The Company anticipates that the results of operations during the remainder of fiscal year 20182021 will continue to be affected by volatility in the commodity markets. The volatility is due to various factors, including uncertainty with respect to the availability and supply of corn, increased demand for grain from global and national markets, speculation in the commodity markets, and demand for corn from the ethanol industry.
10. MEMBER'S EQUITY
Unregistered Units Sales by the Company.
On October 10, 2016, the Company issued two million of the Company's membership units to Bismarck Land Company, LLC as part of the consideration for the acquisition of 338 acres of land adjacentindustry and continued effects from decreased ethanol demand due to the ethanol planttravel restrictions that were implemented during the Company will use to expand its rail yard. The membership units were issued pursuant to the exemption from registration set forth in Regulation D, Rule 506(b), as Bismarck Land Company, LLC is an accredited investor.COVID-19 pandemic.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2021
Unit Purchases By the Company.
|
| | | | |
| (a) | (b) | (c) | (d) |
Period | Total Number of Units Purchased | Average Price Paid per Unit | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of the Units that May Yet Be Purchased Under the Plans or Programs |
October 2016 | None | None | None | None |
November 2016 | None | None | None | None |
December 2016 | 564,963 | $1.00 | None | None |
January 2017 | 116,857 | $1.00 | None | None |
February 2017 | None | None | None | None |
March 2017 | None | None | None | None |
April 2017 | None | None | None | None |
May 2017 | None | None | None | None |
June 2017 | None | None | None | None |
Total | 681,820 | $1.00 | None | None |
*681,820 Units were purchased other than through a publicly announced plan or program, pursuant to a Membership Unit Repurchase Agreement, a private transaction between the Company and a Member.
11. MEMBER'S EQUITY
Changes in member's equity for the nine months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A Member Units | | Additional Paid in Capital | | Accumulated Deficit/Retained Earnings | | Treasury Units | | Total Member Equity |
Balances - September 30, 2020 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 21,620,256 | | | $ | (159,540) | | | $ | 60,580,852 | |
Net income (loss) | | | | | | 2,265,694 | | | | | 2,265,694 | |
Balances December 31, 2020 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 23,885,950 | | | $ | (159,540) | | | $ | 62,846,546 | |
Distribution | | | | | | (3,211,856) | | | | | (3,211,856) | |
Net income (loss) | | | | | | 6,093,896 | | | | | 6,093,896 | |
Balances - March 31, 2021 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 26,767,990 | | | $ | (159,540) | | | $ | 65,728,586 | |
Net income (loss) | | | | | | $ | 9,505,434 | | | | | $ | 9,505,434 | |
Balances - June 30, 2021 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 36,273,424 | | | $ | (159,540) | | | $ | 75,234,020 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A Member Units | | Additional Paid in Capital | | Accumulated Deficit/Retained Earnings | | Treasury Units | | Total Member Equity |
Balances - September 30, 2019 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 21,613,668 | | | $ | (159,540) | | | $ | 60,574,264 | |
Net income (loss) | | | | | | (1,251,913) | | | | | (1,251,913) | |
Balances - December 31, 2019 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 20,361,755 | | | $ | (159,540) | | | $ | 59,322,351 | |
Distribution | | | | | | $ | 0 | | | | | $ | 0 | |
Net income (loss) | | | | | | $ | (3,235,994) | | | | | $ | (3,235,994) | |
Balances - March 31, 2020 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 17,125,761 | | | $ | (159,540) | | | $ | 56,086,357 | |
Net income (loss) | | — | | | — | | | 2,204,564 | | | — | | | 2,204,564 | |
| | | | | | | | | | |
| | | | | | | | | | |
Balances - June 30, 2020 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 19,330,325 | | | $ | (159,540) | | | $ | 58,290,921 | |
| | | | | | | | | | |
| | | | | | | | | | |
12. SUBSEQUENT EVENTEVENTS
Management evaluated all other activity of the Company and concluded that no subsequent events have occurred that would require recognition in the condensed financial statements or disclosure in the notes to the condensed financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and nine month periodperiods ended December 31, 2017,June 30, 2021, compared to the same periodperiods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements, notes and information contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2020. Unless otherwise stated, references in this report to particular years, quarters, months, or periods refer to our fiscal years ended in September and the associated quarters, months, or periods of those fiscal years.
Forward Looking Statements
This report contains forward-looking statements that involve future events, our future performance and our future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the following factors:
•Reductions in the corn-based ethanol use requirement in the Federal Renewable Fuels Standard;
•Small refinery exemptions from the RFS granted by the EPA;
•Market prices and availability of corn that we require to operate the ethanol plant;
•Continued economic impacts from the COVID-19 pandemic, including reduced gasoline demand;
•Lower oil prices which result in lower ethanol prices;
•Negative operating margins which result from lower ethanol prices;
•Lower distillers grains prices which result from the Chinese anti-dumping and countervailing duty tariffs;
•Lower ethanol prices due to the Chinese ethanol tariff and the Brazilian ethanol tariff;
•Logistics difficulties preventing us from delivering our products to our customers;
•Fluctuations in the price and market for ethanol, distillers grains and corn oil;
•Availability and costs of products and raw materials, particularly corn and natural gas;
•Changes in the environmental regulations that apply to our plant operations and our ability to comply with such regulations;
•Ethanol supply exceeding demand and corresponding ethanol price reductions impacting our ability to operate profitably and maintain a positive spread between the selling price of our products and our raw material costs;
•Our ability to generate and maintain sufficient liquidity to fund our operations and meet debt service requirements andour necessary capital expenditures;
•Our ability to continue to meet our loan covenants;
•Limitations and restrictions contained in the instruments and agreements governing our indebtedness;
•Results of our hedging transactions and other risk management strategies;
•Changes and advances in ethanol production technology; and
•Competition from alternative fuels and alternative fuel additives.
Overview
Red Trail Energy, LLC, a North Dakota limited liability company (the "Company," "Red Trail," or "we," "our," or "us"), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota. Our revenues are derived from the sale and distribution of our ethanol, distillers grains and corn oil primarily in the continental United States. Corn is our largest cost component and our profitability is highly dependent on the spread between the price of corn and the price of ethanol.
The ethanol industry is dependent on several economic incentives to produce ethanol, the most significant of which is the Federal Renewable Fuels Standard (the "RFS"). The RFS requires that in each year, a certain amount of renewable fuels must be used in the United States. The RFS statutory volume requirement increases incrementally each year until the United States is required to use 36 billion gallons of renewable fuels by 2022. The United States Environmental Protection Agency (the "EPA") has the authority to waive the RFS statutory volume requirement, in whole or in part, provided one of the following two conditions have been met: (1) there is inadequate domestic renewable fuel supply; or (2) implementation of the requirement would severely harm the economy or environment of a state, region or the United States. Annually, the EPA is supposed to pass a rule that establishes the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligations. The RFS statutory Renewable Volume Obligation (RVO) for all renewable fuels for 2017 was 24 billion gallons, of which corn-based ethanol could meet 15 billion gallons of the RVO. On November 30, 2017, the final RVO for 2018 was set at 19.29 billion gallons and the corn-based ethanol RVO was set at 15 billion gallons, lower than the statutory RVO.
In recent years, the ethanol industry in the United States has increased exports of ethanol and distillers grains. However, in 2017 China instituted tariffs on ethanol and distillers grains produced in the United States and Brazil instituted a tariff on ethanol
produced in the United States. Both China and Brazil have been major sources of import demand for United States ethanol and distillers grains. These trade actions may result in negative operating margins for U.S. ethanol producers.
In January 2017, the Chinese issued final tariffs on U.S. distillers grains. China announced a final ruling related to its anti-dumping and countervailing duty investigation imposing anti-dumping duties from a range of 42.2% to 53.7% and anti-subsidy duties from 11.2% to 12.0%. These tariffs have had a negative impact on market ethanol and distillers grains prices in the United States.
In August 2017, Brazil instituted an import quota for ethanol produced in the United States and exported to Brazil, along with a 20% tariff on ethanol imports in excess of the quota. This tariff and quota have reduced exports of ethanol to Brazil and may continue to negatively impact ethanol exports from the United States. Any reduction in ethanol exports could negatively impact market ethanol prices in the United States.
On March 20, 2017,February 1, 2021 we renewed our $10 million Revolving Loan with Cornerstone Bank. In addition, on February 1, 2021 we entered into a new $10$28 million revolvingconstruction loan (the "Revolving Loan") with U.S.Cornerstone Bank National Association ("U.S. Bank"). As part of this transaction, we signed a Credit Agreement dated March 17, 2017 (the "Credit Agreement"). The Revolving Loan replaces our credit facilities with First National Bank of Omaha. Interest accrues on any outstanding balance onfor the Revolving Loan at a rate of 1.77% in excess of the one-month London Interbank Offered Rate ("LIBOR").carbon capture and storage project. The maturity date of the Revolving Loanloan is MayJanuary 31, 2018. Our ability to draw2022. The variable interest rate is 3.00%. As of June 30, 2021 the Company has not drawn any funds on the Revolving Loan is subject to a borrowing base calculation as set forth in the Credit Agreement. The Revolving Loan is subject to certain financial covenants as set forth in the Credit Agreement. The most significant financial covenants require us to maintain a fixed charge coverage ratioeither loan.
Results of Operations for the Three Months Ended December 31, 2017June 30, 2021 and 20162020
The following table shows the results of our operations and the percentages of revenues, cost of goods sold, general and administrative expenses and other items to total revenues in our unaudited statements of operations for the three months ended December 31, 2017June 30, 2021 and 2016:2020:
| | | Three Months Ended December 31, 2017 (Unaudited) | | Three Months Ended December 31, 2016 (Unaudited) | | Three Months Ended June 30, 2021 (Unaudited) | | Three Months Ended June 30, 2020 (Unaudited) |
Statement of Operations Data | Amount | | % | | Amount | | % | Statement of Operations Data | Amount | | % | | Amount | | % |
Revenues | $ | 26,122,856 |
| | 100.00 |
| | $ | 30,004,460 |
| | 100.00 | Revenues | $ | 42,741,846 | | | 100.00 | | | $ | 22,670,742 | | | 100.00 | |
Cost of Goods Sold | 27,822,261 |
| | 106.51 |
| | 27,127,930 |
| | 90.41 | Cost of Goods Sold | 32,371,643 | | | 75.74 | | | 19,220,909 | | | 84.78 | |
Gross Profit (Loss) | (1,699,405 | ) | | (6.51 | ) | | 2,876,530 |
| | 9.59 | |
Gross Profit | | Gross Profit | 10,370,203 | | | 24.26 | | | 3,449,833 | | | 15.22 | |
General and Administrative Expenses | 715,911 |
| | 2.74 |
| | 690,934 |
| | 2.30 | General and Administrative Expenses | 854,179 | | | 2.00 | | | 1,272,698 | | | 5.61 | |
Operating Income (Loss) | (2,415,316 | ) | | (9.25 | ) | | 2,185,596 |
| | 7.28 | |
Other Income | 430,650 |
| | 1.65 |
| | 586,366 |
| | 1.95 | |
Net Income (Loss) | $ | (1,984,666 | ) | | (7.60 | ) | | $ | 2,771,962 |
| | 9.24 | |
Operating Income | | Operating Income | 9,516,024 | | | 22.26 | | | 2,177,135 | | | 9.60 | |
Other Income, net | | Other Income, net | (10,590) | | | (0.02) | | | 27,429 | | | 0.12 | |
Net Income | | Net Income | $ | 9,505,434 | | | 22.24 | | | $ | 2,204,564 | | | 9.72 | |
The following table shows additional data regarding production and price levels for our primary inputs and products for the three months ended December 31, 2017June 30, 2021 and 2016.2020.
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 (unaudited) | | Three Months Ended June 30, 2020 (unaudited) |
Production: | | | | |
Ethanol sold (gallons) | | 14,335,793 | | | 11,885,715 | |
Industrial ethanol sold (gallons) | | — | | | 1,094,855 | |
Dried distillers grains sold (tons) | | 24,761 | | | 22,073 | |
Modified distillers grains sold (tons) | | 27,608 | | | 20,160 | |
Corn oil sold (pounds) | | 3,660,850 | | | 3,723,500 | |
Revenues: | | | | |
Fuel grade ethanol average price per gallon (net of hedging) | | $ | 2.28 | | | $ | 1.17 | |
Industrial ethanol average price per gallon | | — | | | 3.28 | |
Dried distillers grains average price per ton | | 196.76 | | | 135.76 | |
Modified distillers grains average price per ton | | 110.86 | | | 58.52 | |
Corn oil average price per pound | | 0.47 | | | 0.23 | |
Primary Inputs: | | | | |
Corn ground (bushels) | | 4,925,520 | | | 4,726,840 | |
Natural gas (MMBtu) | | 354,266 | | | 319,470 | |
Costs of Primary Inputs: | | | | |
Corn average price per bushel (net of hedging) | | $ | 5.34 | | | $ | 2.78 | |
Natural gas average price per MMBtu (net of hedging) | | 2.59 | | | 1.84 | |
Other Costs (per gallon of ethanol sold): | | | | |
Chemical and additive costs | | $ | 0.087 | | | $ | 0.081 | |
Denaturant cost | | 0.038 | | | 0.028 | |
Electricity cost | | 0.048 | | | 0.055 | |
Direct labor cost | | 0.070 | | | 0.077 | |
|
| | | | | | | | |
| | Three Months ended December 31, 2017 (unaudited) | | Three Months ended December 31, 2016 (unaudited) |
Production: | | | | |
Ethanol sold (gallons) | | 16,627,106 |
| | 16,202,835 |
|
Dried distillers grains sold (tons) | | 30,963 |
| | 29,625 |
|
Modified distillers grains sold (tons) | | 27,506 |
| | 25,122 |
|
Corn oil sold (pounds) | | 3,117,040 |
| | 4,413,620 |
|
Revenues: | | | | |
Ethanol average price per gallon (net of hedging) | | $ | 1.18 |
| | $ | 1.50 |
|
Dried distillers grains average price per ton | | 122.09 |
| | 104.50 |
|
Modified distillers grains average price per ton | | 63.63 |
| | 51.99 |
|
Corn oil average price per pound | | 0.28 |
| | 0.27 |
|
Primary Inputs: | | | | |
Corn ground (bushels) | | 5,720,943 |
| | 5,687,614 |
|
Natural gas (MMBtu) | | 431,963 |
| | 415,586 |
|
Costs of Primary Inputs: | | | | |
Corn average price per bushel (net of hedging) | | $ | 3.26 |
| | $ | 3.54 |
|
Natural gas average price per MMBtu (net of hedging) | | 2.67 |
| | 2.75 |
|
Other Costs (per gallon of ethanol sold): | | | | |
Chemical and additive costs | | $ | 0.108 |
| | $ | 0.094 |
|
Denaturant cost | | 0.036 |
| | 0.032 |
|
Electricity cost | | 0.038 |
| | 0.043 |
|
Direct labor cost | | 0.068 |
| | 0.065 |
|
Revenue
Our total revenue was lower forhigher in the firstthird quarter of our 20182021 fiscal year compared to the same period of our 20172020 fiscal year primarily due to a decrease in thehigher average sales prices we received for our products along with increased quantity of ethanol and distillers grains sold during the first2021 period. During the third quarter of our 2018 fiscal year. During the first quarter of our 20182021 fiscal year, approximately 75.0%76.2% of our total revenue was derived from ethanol sales, approximately 21.2%18.6% was from distillers grains sales and approximately 3.3%4.0% was from corn oil sales. During the firstthird quarter of our 20172020 fiscal year, approximately 81.1%77.3% of our total revenue was derived from ethanol sales, approximately 14.7%18.4% was from distillers grains sales and approximately 3.9%3.8% was from corn oil sales.
Ethanol
The average price we received for our ethanol was approximately 21.3% lesssignificantly higher during the firstthird quarter of our 20182021 fiscal year compared to the firstthird quarter of our 20172020 fiscal year. Management attributes this decreasethe increase in the price we received for our ethanol during the firstthird quarter of our 20182021 fiscal year to lower market corn prices and increaseddecreased ethanol supplystocks along with higher gasoline demand in the market. Gasoline demand increased during the third quarter of our 2021 fiscal year as the COVID-19 vaccination was distributed and certain COVID-19 restrictions were lifted. Management anticipates thatgasoline demand will continue to increase, which management believes will positively impact ethanol prices. In addition, corn prices may continue lower during our 2018 fiscal year due to a combination of factors, including anticipated increases in United States ethanol production along with lower export demand from Brazil and China. Many ethanol producers are expanding their production capacity, which, along with the Chinese and Brazilian ethanol tariffs, have increased thesignificantly which have resulted in higher market supply of ethanol beyond demand which has negatively impacted ethanol prices. Management anticipates that this excess ethanol supply may continue unless new export markets for ethanol are developed or domestic demand for ethanol increases. The United States ethanol industry is continuing to work to open export markets for ethanol, including the Mexican market, which may positively impact domestic ethanol prices. Export markets are not as reliable as the domestic ethanol market which can lead to ethanol price volatility.
We sold more gallons of ethanol during the firstthird quarter of our 20182021 fiscal year compared to the firstthird quarter of our 20172020 fiscal year due to increased production from our increased operating capacity at the ethanol plant during the 2021 period. Management attributes this increased production to less plant downtime and improved operating efficiency incorn to ethanol conversion rates during the 2018 period. Management anticipates that our ethanol production and sales will continue to be higher during our 2018 fiscal
year compared to our 2017 fiscal year due to the plant improvements we made which increased our total production capacity. In addition, the amount of ethanol we produced per bushel of corn we ground increased for the firstthird quarter of our 20182021 fiscal year compared to the first quartersame period of our 20172020 fiscal year, which positively impacted our profitability. Weyear. Management anticipates ethanol production to remain at current levels provided market conditions allow us to continue to workoperate the ethanol plant at capacity. We anticipate continuing to focus on operating the ethanol plant as efficiently as possible in order to maximize the additional production capacity of our ethanol plant and improve our ethanol production efficiency.profitability.
From time to time we enter into forward sales contracts for our products. At December 31, 2017,June 30, 2021, we experienced a realized gain of approximately $494,000 related to our ethanol derivative instruments, which increased our revenue. At June 30, 2021, we had open ethanol futures contracts for 1,470,000 gallons of ethanol with a fair value of approximately $658,000. At June 30, 2020, we had no open ethanol futures contracts. Ethanol futures contracts resulted in aWe had no gain of approximately $1,800or loss on ethanol derivative instruments during the firstthird quarter of our 20182020 fiscal year. Ethanol futures contracts for
Distillers Grains
During the firstthird quarter of our 20172021 fiscal year, resulted in a loss of approximately $41,000.
Distillers Grains
Previously, we sold a majoritymore tons of distillers grains compared to the same period of our 2020 fiscal year due to decreased corn oil production which results in more tons of distillers grains in the dried form due to market conditions which favored that product. However, due to the Chinese anti-dumping and countervailing duty tariffs which have decreased export demandavailable for distillers grains, we increased the amountsale. We also sold a greater percentage of modified distillers grains we produced and sold. Modifiedcompared to dried distillers grains are used in our local market and are less impacted by world distillers grains markets. The average prices we received for both our dried and modified distillers grains were higher during the firstthird quarter of our 20182021 fiscal year compared to the firstsame period of our 2020 fiscal year due to market conditions favoring modified distillers grains. Cattle producers in our geographical area have a higher percentage of cattle on feed which led to higher demand for modified distillers grains than in prior years. The average price we received for our modified distillers grains was higher during the third quarter of our 20172021 fiscal year. Management attributes these increasesyear compared to the third quarter of our 2020 fiscal year due to increased overall demand for modified distillers grains.grains along with higher corn prices. The average price we received for our dried distillers grains was higher during the third quarter of our 2021 fiscal year compared to the third quarter of our 2020 fiscal year due to higher corn prices and increased export demand. Management believes prices for distillers grains have been strong due to higher corn prices and reduced worldwide corn supplies. Management anticipates distillers grains prices will remain at current levels unless we experience a significant increasehigher during the rest of our 2021 fiscal year. Further, depending on the number of bushels of corn which are harvested in export demand for distillers grains.
We produced and sold more total tonsthe fall of 2021, these higher distillers grains prices may continue into our 2022 fiscal year. Management anticipates relatively consistent distillers grains production throughout the remainder of our 2021 fiscal year provided we can maintain favorable operating margins.
Corn Oil
The total pounds of corn oil we sold was lower during the firstthird quarter of our 20182021 fiscal year compared to the firstthird quarter of our 20172020 fiscal year due to lower corn oil production from grinding lower quality corn. Management anticipates that our corn oil production will remain at current levels for the remaining quarters of our 2021 fiscal year provided market conditions allow us to continue to operate the ethanol plant at capacity. The average price we received for our corn oil during the third quarter of our 2021 fiscal year was higher compared to the average price we received during the third quarter of our
2020 fiscal year. In 2019, the biodiesel blenders' tax credit was renewed retroactively from January 1, 2018 through December 31, 2022. This extension of the tax credit has created greater certainty in the biodiesel industry, which has resulted in increased demand for corn oil.
Cost of Goods Sold
Our cost of goods sold is primarily made up of corn and natural gas expenses. Our cost of goods sold was greater for the third quarter of our 2021 fiscal year as compared to the third quarter of our 2020 fiscal year due primarily to increased corn costs per bushel and increased natural gas costs per MMBtu along with increased consumption of corn and natural gas during the 2021 fiscal year.
Corn Costs
Our cost of goods sold related to corn was higher for the third quarter of our 2021 fiscal year compared to the third quarter of our 2020 fiscal year due to increased average corn costs per bushel, without taking derivative instrument positions into account, along with an increase in the number of bushels of corn used to produce ethanol. For the third quarter of our 2021 fiscal year, we used approximately 4.2% more bushels of corn compared to the third quarter of our 2020 fiscal year due to increased ethanol production, partially offset by improved corn to ethanol conversion during the third quarter of our 2021 fiscal year. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately 92.1% higher for the third quarter of our 2021 fiscal year compared to the third quarter of our 2020 fiscal year due to higher market corn prices during the third quarter of our 2021 fiscal year. In addition, during the third quarter of our 2021 fiscal year, we had a realized gain of approximately $568,000 for our corn derivative instruments, which decreased our cost of goods sold related to corn. For the third quarter of our 2020 fiscal year, we had a realized loss of approximately $271,000 for our corn derivative instruments, which increased our cost of goods sold related to corn during that period. Management anticipates corn prices will increase during the rest of our 2021 fiscal year due to decreased corn supplies in the market and uncertainty about the number of bushels of corn that will be harvested in the fall of 2021. Decreased corn supplies have resulted from a smaller corn crop during the 2020 crop year along with relatively stable corn demand.
Natural Gas Costs
We consumed approximately 10.9% more MMBtu of natural gas during the third quarter of our 2021 fiscal year compared to the third quarter of our 2020 fiscal year due to increased overall production at the ethanol plantplant. Our average cost per MMBtu of natural gas was approximately 40.8% higher during the firstthird quarter of our 20182021 fiscal year compared to the third quarter of our 2020 fiscal year due to higher energy price generally, having fewer hedged MMBtus during our 2021 fiscal year along with decreaseda colder winter which resulted in natural gas price spikes. Management anticipates these higher natural gas prices will continue during the rest of our 2021 fiscal year.
General and Administrative Expenses
Our general and administrative expenses were lower for the third quarter of our 2021 fiscal year compared to the third quarter of our 2020 fiscal year primarily due to a decrease in labor and consulting fees associated with the carbon capture and storage project during the third quarter of the 2021 fiscal year.
Other Income/Expense
We had less interest income during the third quarter of our 2021 fiscal year compared to the third quarter of our 2020 fiscal year due to having less cash on hand during our 2021 fiscal year. Our other income was less during the third quarter of our 2021 fiscal year compared to the third quarter of our 2020 fiscal year due to the forgiveness of finance charges. We had more interest expense during the third quarter of our 2021 fiscal year compared to the third quarter of our 2020 fiscal year due to increased borrowing on our loans.
Results of Operations for the Nine Months Ended June 30, 2021 and 2020
The following table shows the results of our operations and the percentages of revenues, cost of goods sold, general and administrative expenses and other items to total revenues in our unaudited statements of operations for the nine months ended June 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended June 30, 2021 (Unaudited) | | Nine Months Ended June 30, 2020 (Unaudited) |
Statement of Operations Data | Amount | | % | | Amount | | % |
Revenues | $ | 104,563,490 | | | 100.00 | | | $ | 72,649,799 | | | 100.00 | |
Cost of Goods Sold | 84,414,332 | | | 80.73 | | | 72,068,241 | | | 99.20 | |
Gross Profit | 20,149,158 | | | 19.27 | | | 581,558 | | | 0.80 | |
General and Administrative Expenses | 3,173,878 | | | 3.04 | | | 3,096,666 | | | 4.26 | |
Operating Income (Loss) | 16,975,280 | | | 16.23 | | | (2,515,108) | | | (3.46) | |
Other Income, net | 889,744 | | | 0.85 | | | 231,765 | | | 0.32 | |
Net Income (Loss) | $ | 17,865,024 | | | 17.09 | | | $ | (2,283,343) | | | (3.14) | |
The following table shows additional data regarding production and price levels for our primary inputs and products for the nine months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | |
| | Nine Months Ended June 30, 2021 (unaudited) | | Nine Months Ended June 30, 2020 (unaudited) |
Production: | | | | |
Ethanol sold (gallons) | | 47,275,959 | | | 43,925,605 | |
Industrial ethanol sold (gallons) | | — | | | 1,094,855 | |
Dried distillers grains sold (tons) | | 57,012 | | | 62,173 | |
Modified distillers grains sold (tons) | | 112,300 | | | 90,723 | |
Corn oil sold (pounds) | | 10,746,450 | | | 11,512,650 | |
Revenues: | | | | |
Fuel grade ethanol average price per gallon (net of hedging) | | $ | 1.71 | | | $ | 1.18 | |
Industrial ethanol average price per gallon | | — | | | 3.28 | |
Dried distillers grains average price per ton | | 176.05 | | | 134.11 | |
Modified distillers grains average price per ton | | 76.42 | | | 61.38 | |
Corn oil average price per pound | | 0.38 | | | 0.24 | |
Primary Inputs: | | | | |
Corn ground (bushels) | | 15,378,054 | | | 16,020,466 | |
Natural gas (MMBtu) | | 1,087,727 | | | 1,045,796 | |
Costs of Primary Inputs: | | | | |
Corn average price per bushel (net of hedging) | | $ | 4.18 | | | $ | 3.13 | |
Natural gas average price per MMBtu (net of hedging) | | 2.58 | | | 2.13 | |
Other Costs (per gallon of ethanol sold): | | | | |
Chemical and additive costs | | $ | 0.079 | | | $ | 0.077 | |
Denaturant cost | | 0.032 | | | 0.033 | |
Electricity cost | | 0.045 | | | 0.049 | |
Direct labor cost | | 0.064 | | | 0.068 | |
Revenue
Our revenue was greater in the nine months ended June 30, 2021 compared to the same period of our 2020 fiscal year primarily due to increased ethanol and distillers grains sales along with higher average prices for our products, partially offset by lower corn oil production. When we produce more poundsproduction and sales. During the nine months ended June 30, 2021, approximately 77.3% of our total revenue was derived from ethanol sales, approximately 17.8% was from distillers grains sales and approximately 4.0% was from corn oil it decreasessales. During the nine months ended June 30, 2020 approximately 76.6% of our total revenue was derived from ethanol sales, approximately 19.1% was from distillers grains sales and approximately 3.8% was from corn oil sales.
Ethanol
The average price we received for our ethanol was significantly higher during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020. Management attributes the increase in the price we received for our ethanol during the nine months ended June 30, 2021 to higher gasoline demand and decreased ethanol supply in the market.
We sold more gallons of ethanol during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020 due to increased production at the ethanol plant during the 2021 period. Management attributes this increased production to improved operations at the ethanol plant which resulted in additional ethanol production during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020. Production rates were slower during the nine months ended June 30, 2020 due to lower new crop corn availability from our producers.
From time to time we enter into forward sales contracts for our products. For the nine months ended June 30, 2021, we experienced a gain of approximately $1.3 million related to our ethanol derivative instruments, which increased our revenue. We experienced a gain of approximately $259,000 for the nine months ended June 30, 2020, which increased our revenue during that period. For the nine months ended June 30, 2021, we had open ethanol futures contracts for 1,470,000 gallons of ethanol with a fair value of approximately $658,000.
Distillers Grains
During the nine months ended June 30, 2021, we sold a larger percentage of our distillers grains in the modified form compared to the nine months ended June 30, 2020 due to market conditions which favored modified distillers grains. Cattle producers in our geographical area had a higher percentage of cattle on feed which lead to higher demand for modified distillers grains than prior years. In addition, the total volume of distillers grains we produce. Management anticipates relatively stablesold was greater during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020 due to increased production during the nine months ended June 30, 2021. The average price we received for our modified distillers grains production going forward.was higher during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020 due to demand for modified distillers grains. The average price we received for our dried distillers grains was higher during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020 due to higher corn prices and decreased corn supplies in the market.
Corn Oil
The total pounds of corn oil we sold was lesslower during the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 compared to the first quarter of our 2017 fiscal yearnine months ended June 30, 2020 due to a change in thelower production process where less corn oil is being extracted. Management anticipates that our corn oil production will continue at the current level for the remaining quarters of our 2018 fiscal year.from grinding lower quality corn. The average price we received for our corn oil was slightly higher during the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 was higher compared to the first quarter of our 2017 fiscal yearaverage price we received during the nine months ended June 30, 2020 due primarily to increased corn oil demand from the biodiesel industry.higher demand.
Cost of Goods Sold
Our cost of goods sold is primarily made up of corn and natural gas expenses. Our cost of goods sold was higher for the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 as compared to the first quarter of our 2017 fiscal yearnine months ended June 30, 2020 due primarily to increasedhigher average corn consumptioncosts per bushel and increased natural gas usecosts per MMBtu during the first quarter of our 2018 fiscal year as compared to the first quarter of our 2017 fiscal year. The increase in our cost of goods sold was greater than the increase in our revenue during the first quarter of our 2018 fiscal year as compared to the first quarter of our 2017 fiscal year, which decreased our profitability.nine months ended June 30, 2021.
Corn Costs
Our cost of goods sold related to corn was lessgreater for the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 compared to the first quarter of our 2017 fiscal yearnine months ended June 30, 2020 due to the net effect of increased corn consumption offset by decreasedhigher average corn costs per bushel, beforewithout taking derivative instrument positions into
account, our hedge positions.partially offset by a decreased in the number of bushels of corn we used to produce ethanol. For the first quarter of our 2018 fiscal year,nine months ended June 30, 2021, we used approximately 0.6% more4.0% fewer bushels of corn compared to the first quarter of our 2017 fiscal year.nine months ended June 30, 2020 due to improved corn to ethanol conversion rates during the nine months ended June 30, 2021. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately 7.6% less33.5% higher for the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 compared to the first quarter of our 2017 fiscal year.nine months ended June 30, 2020 due to higher market corn prices during the 2021 period. In addition, during the first quarternine months ended June 30, 2021, we had a realized gain of approximately $1.3 million for our 2018 fiscal year,corn derivative instruments, which decreased our cost of goods sold related to corn. For the nine months ended June 30, 2020, we had a realized loss of approximately $569,000$539,000 for our corn derivative instruments, which increased our cost of goods sold. For the first quarter of our 2017 fiscal year, we had a realized gain of approximately $218,000 for oursold related to corn derivative instruments which decreased our cost of goods sold.during that period. Management anticipates that we will consume more corn in the future due to our natural gas conversion project which allows us to produce more of our products. Management anticipates that corn prices will remain relatively stableincrease during the rest of our 20182021 fiscal year due to ample corn suppliesincreased exports and relatively stable corn demand.less acres seeded in our geographical area based on the amount of prevent plant acres registered in North Dakota.
Natural Gas Costs
We consumed approximately 3.9%4.0% more MMBtu of natural gas during the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 compared to the first quarter of our 2017 fiscal year,nine months ended June 30, 2020, due to increased production and colder weather duringat the 2018 period.ethanol plant. Our average
cost per MMBtu of natural gas was approximately 2.9% less21.1% higher during the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 compared to the first quarternine months ended June 30, 2020 due to having fewer hedged MMBtus during our 2021 fiscal year. Management anticipates natural gas prices will remain higher during the rest of our 20172021 fiscal year due to ample local natural gas supply.year.
General and Administrative Expenses
Our general and administrative expenses were higher forduring the first quarter of our 2018 fiscal year compared tonine months ended June 30, 2021 and the first quarter of our 2017 fiscal yearnine months ended June 30, 2020 due to additional consulting services needed during our 2018 fiscal year.an increase in insurance premiums.
Other Income/Expense
We had less interest income during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020 due to having less cash on hand during our 2021 fiscal year. Our other income was greater during the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020 due to a gain on sale of used equipment no longer needed for operations and our PPP loan forgiveness. We had more interest incomeexpense during the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 compared to the first quarter of our 2017 fiscal yearnine months ended June 30, 2020 due to having greater cash balances duringincreased borrowing on our 2017 fiscal year. We had less other income during the first quarter of our 2018 fiscal year compared to the first quarter of our 2017 fiscal year due to a decreased capital account refund we received from our marketer during the 2018 period.loans.
Changes in Financial Condition for the ThreeNine Months Ended December 31, 2017June 30, 2021
Current Assets. We had moreless cash and equivalents at December 31, 2017June 30, 2021 compared to September 30, 20172020 primarily due to an increase incash we used for capital expenditures during our accounts payable due to deferred corn payments owed to our corn suppliers in our 20182021 fiscal year. We had lessmore restricted cash at December 31, 2017June 30, 2021 compared to September 30, 2017 related to2020 because we had more cash we deposit in our margin account forassociated with our hedging transactions. Due to higher prices for our products, the timingvalue of payments from our marketers, we had fewer accounts receivable was higher at December 31, 2017June 30, 2021 compared to September 30, 2017.2020. We had less inventory on hand at December 31, 2017June 30, 2021 compared to September 30, 20172020 due primarily to having less ethanol and finished goods inventory at December 31, 2017.June 30, 2021 compared to September 30, 2020 due to the timing of shipments of our goods at the end of each period. Our prepaid expenses were higher at June 30, 2021 compared to September 30, 2020 due to a deposit to hold our natural gas contracts and an increase in our insurance premiums paid for the year.
Property, Plant and Equipment. The value of our property, plant and equipment was lowerhigher at December 31, 2017June 30, 2021 compared to September 30, 2017 primarily2020 due to theconstruction of our carbon capture and storage project and industrial alcohol project partially offset by regular depreciation of our assets.assets during the first nine months of our 2021 fiscal year.
Current Liabilities. Our accounts payable was higherless at December 31, 2017June 30, 2021 compared to September 30, 20172020 due to having morefewer corn payablespayments at December 31, 2017.June 30, 2021. Our accrued expenses were higher at December 31, 2017June 30, 2021 compared to September 30, 2017 because we had2020 due to more basis contracts and deferred payments for corn payments owed to our corn suppliersdeliveries at December 31, 2017 compared to SeptemberJune 30, 2017.
Long-term Liabilities. Our long-term liabilities were less at December 31, 20172021 compared to September 30, 2017 because2020. We had fewer current payments due on our loans due to the forgiveness of capital leaseour PPP loan.
Long-Term Liabilities. We had less notes payable at June 30, 2021 compared to September 30, 2020 due to payments we made on our long-term loans and the PPP loan forgiveness we received during our 20182021 fiscal year. We had fewer long-term liabilities for our operating leases at June 30, 2021 due to amortization of our leases.
Liquidity and Capital Resources
Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months. Should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity sources for working capital or other purposes.
The following table shows cash flows for the threenine months ended December 31, 2017June 30, 2021 and 2016:2020:
| | | | | | | | | | | | | | |
| | June 30, 2021 (unaudited) | | June 30, 2020 (unaudited) |
Net cash provided by operating activities | | $ | 18,510,067 | | | $ | 4,339,162 | |
Net cash (used in) investing activities | | (14,236,260) | | | (6,054,112) | |
Net cash provided by (used in) financing activities | | (3,732,436) | | | 870,014 | |
Net increase (decrease) in cash | | $ | 541,371 | | | $ | (844,936) | |
Cash, cash equivalents and restricted cash, end of period | | $ | 11,653,860 | | | $ | 9,677,133 | |
|
| | | | | | | | |
| | December 31, 2017 (unaudited) | | December 31, 2016 (unaudited) |
Net cash provided by operating activities | | $ | 8,102,679 |
| | $ | 10,592,632 |
|
Net cash (used in) investing activities | | (32,345 | ) | | (174,001 | ) |
Net cash (used in) financing activities | | (652 | ) | | (565,611 | ) |
Net increase in cash | | $ | 8,069,682 |
| | $ | 9,853,020 |
|
Cash and cash equivalents, end of period | | $ | 11,293,024 |
| | $ | 20,127,186 |
|
Cash Flow from Operations
Our operations provided lessmore cash during the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 compared to the same period of our 20172020 fiscal year due primarily to decreased profitabilityincreased net income during the 20182021 period.
Cash Flow From Investing Activities
We used lessmore cash for capital expenditures during the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 compared to the same period of our 20172020 fiscal year. During the 20182021 period, our primary capital expenditures were for finishing parts for the hammer millour carbon capture and storage project that was started last fiscal year.and our industrial alcohol project.
Cash Flow from Financing Activities
We used less cash forOur financing activities used more cash during the first quarter of our 2018 fiscal yearnine months ended June 30, 2021 compared to the first quartersame period of our 20172020 fiscal year because we did not have any unit repurchasesdue to increased debt payments and distribution payments during the 20182021 period.
Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains remain consistent, we expect operations to generate adequate cash flows to maintain operations.operations for the next 12 months.
Capital Expenditures
The Company had approximately $134,000$24 million in construction in progress as of December 31, 2017June 30, 2021 primarily relating to improvements being madethe carbon capture and storage project and industrial alcohol project. The Company has secured two construction loans with Cornerstone Bank to the additional land and railroad track purchased last fiscal year.finance these projects.
Capital Resources
Revolving Loan
On March 20, 2017,January 22, 2020, we entered into a new $10 million revolving loan (the "Revolving Loan") with U.S.Cornerstone Bank National Association ("U.S. Bank"Cornerstone"). The Revolving Loan replaced a similar revolving loan we had with First National Bank of Omaha. Interest accrues on any outstanding balance on the Revolving Loan at a rate of 1.77% in excess1.2% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The Revolving Loan has a minimum interest rate of the one-month London Interbank Offered Rate ("LIBOR")3.0%. The maturity date of the Revolving Loan is May 31, 2018. Our ability to draw funds onwas January 21, 2021. On February 1, 2021, the Revolving Loan was renewed, and the
new maturity date is subject toJanuary 31, 2022. The Revolving Loan is secured by a borrowing base calculation as set forth in the Credit Agreement.lien on substantially all of our assets. At December 31, 2017,June 30, 2021, we had $10 million available on the Revolving Loan. We had $0 drawnThe variable interest rate on June 30, 2021 was 3.00%.
Construction Loans
On January 22, 2020, we entered into a new $7 million construction loan (the "Construction Loan") with Cornerstone to finance our carbon capture and storage project. Interest accrues on any outstanding balance on the RevolvingConstruction Loan as of December 31, 2017. Interest accrued on the Revolving Loan as of December 31, 2017 at a rate of 3.40%.
Restrictive Covenants
1.2% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The Revolvingmaturity date of the Construction Loan is subjectJune 1, 2021. On June 3, 2021 the maturity date was extended to certain financial covenants as set forth inFebruary 1, 2022. The Construction Loan is secured by a lien on substantially all of our assets. At June 30, 2021, we had $7 million available under the Credit Agreement.Construction Loan. The most significant financial covenants require usvariable interest rate on June 30, 2021 was 3.00%.
On February 1, 2021, we entered into a new $28 million construction loan (the "CCS Construction Loan") with Cornerstone to maintainfinance our carbon capture and storage project. Interest accrues on any outstanding balance on the CCS Construction Loan at a fixed charge coverage ratiorate of no1.2% less than 1.25:1.00 andthe prime rate as published by the Wall Street Journal, adjusted monthly. The CCS Construction Loan has a current ratiominimum interest rate of no less than 1.50:1.00. Our3.0%. The maturity date of the CCS Construction Loan is January 31, 2022. The CCS Construction Loan is secured by a lien on substantially all of our assets. At June 30, 2021, we had $28 million available under the CCS Construction Loan. The variable interest rate on June 30, 2021 was 3.00%.
Paycheck Protection Program Loan
On April 16, 2020, we entered into a new $873,400 Paycheck Protection Program Loan (the "PPP Loan") with Cornerstone. The fixed charge coverage ratio measures our ability to pay our fixed expenses. Our current ratio measures our liquidity and ability to pay short-term and long-term obligations.
As ofinterest rate on December 31, 2017,2020 was 1.00%. The maturity date of the PPP Loan was April 16, 2022. Under the terms of the loan, we wereapplied for forgiveness of the entire amount of the PPP Loan on October 31, 2020, in complianceaccordance with ourPPP regulations, which provided for the possibility of loan covenants.forgiveness because we used all proceeds of the PPP Loan for qualifying expenses in accordance with PPP requirements. The entire amount of the PPP Loan was forgiven on January 20, 2021. The forgiven amount was recorded as other income.
Ethanol Recovery Program
On July 13, 2020, we entered into a $5.41 million loan through the Bank of North Dakota's Ethanol Recovery Program and Cornerstone. The Ethanol Recovery Program was developed by the North Dakota Ethanol Producers Association and the Bank of North Dakota to use the existing Biofuels Partnership in Assisting Community Expansion ("PACE") program and Value-added Guarantee Loan program to help ethanol production facilities weather the economic challenges caused by the COVID-19 pandemic. Ethanol producers could qualify for up to $15 million of a low interest loan of 1% based on the amount of such producers' annual corn grind. The maturity date of the loan is July 13, 2025. The fixed interest rate as of June 30, 2021 was 3.75% with an interest rate buy down through the Bank of North Dakota to 1%. We typically make monthly payments of approximately $74,000 per month, and the balance outstanding on June 30, 2021 was approximately $4,780,000.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2020. We discuss our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2020. There has been no significant change in our significant accounting policies or critical accounting estimates since the end of our 20172020 fiscal year. Effective October 1, 2020 the Company adopted ASU2016-13 using the modified retrospective approach. Effective October 1, 2019 the Company adopted ASU No. 2016-02 using the modified retrospective approach (see note 7).
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.Praj Industries Limited ("Praj") has provided the Company with a Standby Letter of Credit of $265,950 as a performance guarantee for the Eco-Smart Distillation unit purchased for the Industrial Alcohol Project. The Eco-Smart Distillation unit will allow the Company to produce up to 25 million gallons per year of USP grade industrial alcohol. The Standby Letter of Credit covers Praj's liability toward under-performance of the distillation unit based on daily plant capacity, steam consumption, and quality of USP grade alcohol produced. The Standby Letter of Credit is payable upon written demand
by the Company of non-performance of the distillation unit during the performance trial run. The Standby Letter of Credit expires on March 31, 2022.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to the impact of market fluctuations associated with commodity prices as discussed below. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn and ethanol. We do not enter into these derivative financial instruments for trading
or speculative purposes, nor do we designate these contracts as hedges for accounting purposes pursuant to the requirements of Generally Accepted Accounting Principles ("GAAP").
Commodity Price Risk
We expect to be exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process and the sale of ethanol.
We enter into fixed price contracts for corn purchases on a regular basis. It is our intent that, as we enter into these contracts, we will use various hedging instruments (puts, calls and futures) to maintain a near even market position. For example, if we have 1one million bushels of corn under fixed price contracts we would generally expect to enter into a short hedge position to offset our price risk relative to those bushels we have under fixed price contracts. Because our ethanol marketing company (RPMG)("RPMG") is selling substantially all of the gallons it markets on a spot basis we also include the corn bushel equivalent of the ethanol we have produced that is inventory but not yet priced as bushels that need to be hedged.
Although we believe our hedge positions will accomplish an economic hedge against our future purchases, they are not designated as hedges for accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We use fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of sales. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter and year to year due to the timing of the change in value of derivative instruments relative to the cost of the commodity being hedged. However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.
As of December 31, 2017,June 30, 2021, we had fixed corn purchase contracts for approximately 700,000662,000 bushels of corn, and we had no corn futures or option contracts. As of June 30, 2021 we had corn futures and option contracts for approximately 11.5 million500,000 bushels of corn. As of December 31, 2017June 30, 2021 we had an unrealized loss of approximately $569,000$76,000 related to our corn futures and optionoptions contracts.
It is the current position of our ethanol marketing company, RPMG, that under current market conditions, selling ethanol in the spot market will yield the best price for our ethanol. RPMG will, from time to time, contract a portion of the gallons they market with fixed price contracts. At June 30, 2021, we had no fixed ethanol sales contracts and ethanol futures and option contracts for approximately 1,470,000 gallons of ethanol. As of June 30, 2021 we had an unrealized gain of approximately $658,000 related to our ethanol futures and option contracts.
We estimate that our corn usage will be between 21 million and 23 million bushels per calendar year for the production of approximately 59 million to 64 million gallons of ethanol. As corn prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments.
A sensitivity analysis has been prepared to estimate our exposure to corn, natural gas and ethanol price risk. Market risk related to our corn, natural gas and ethanol prices is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas, and our average ethanol sales price as of December 31, 2017,June 30, 2021, net of the forward and future contracts used to hedge our market risk for corn, natural gas and ethanol. The volumes are based on our expected use and sale of these commodities for a one year period from December 31, 2017.June 30, 2021. The results of this analysis, which may differ from actual results, are as follows:
| | | Estimated Volume Requirements for the next 12 months (net of forward and futures contracts) | | Unit of Measure | | Hypothetical Adverse Change in Price | | Approximate Adverse Change to Income | | Estimated Volume Requirements for the next 12 months (net of forward and futures contracts) | | Unit of Measure | | Hypothetical Adverse Change in Price | | Approximate Adverse Change to Income |
Ethanol | 63,900,000 |
| | Gallons | | 10 | % | | $ | (7,029,000 | ) | Ethanol | 63,900,000 | | | Gallons | | 10 | % | | $ | (13,734,600) | |
Corn | 22,820,000 |
| | Bushels | | 10 | % | | $ | (3,490,000 | ) | Corn | 22,821,000 | | | Bushels | | 10 | % | | $ | (9,307,000) | |
Natural gas | 1,664,000 |
| | MMBtu | | 10 | % | | $ | (466,000 | ) | Natural gas | 1,664,000 | | | MMBtu | | 10 | % | | $ | (499,000) | |
For comparison purposes, our sensitivity analysis for our quarter ended June 30, 2020 is set forth below: | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Volume Requirements for the next 12 months (net of forward and futures contracts) | | Unit of Measure | | Hypothetical Adverse Change in Price | | Approximate Adverse Change to Income |
Ethanol | 63,900,000 | | | Gallons | | 10 | % | | $ | (8,740,000) | |
Corn | 22,821,000 | | | Bushels | | 10 | % | | $ | (5,520,000) | |
Natural gas | 1,664,000 | | | MMBtu | | 10 | % | | $ | (262,000) | |
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.
Our management, including our President and Chief Executive Officer (the principal executive officer), Gerald Bachmeier, along with our Chief Financial Officer, (the principal financial officer), Jodi Johnson, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2017.June 30, 2021. Based on this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.
For the fiscal quarter ended December 31, 2017, we made the following changesJune 30, 2021, there has been no change in our internal control over financial reporting which havethat has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting:reporting.
A review and updating of month-end standard operating procedures.
An additional step was added for the CFO and CEO to review all unusual transactions prior to financial statement preparation.
We made these material changes in our internal control over financial reporting as a result of a material weakness we identified in our annual report on Form 10-K for the fiscal year ended September 30, 2017.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers' compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings.
Item 1A. Risk Factors
There has nothave been anyno material changechanges to the risk factors which were previously disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2017.2020.
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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(a) | The following exhibits are filed as part of this report. |
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Exhibit No. | | Exhibits | | Incorporated by Reference |
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101101.INS* |
| XBRL Instance Document | The following financial information from Red Trail Energy, LLC's Quarterly Report on Form 10-Q for the quarter ended December 31, 2017, formatted in | |
101.SCH* | | XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of December 31, 2017 and September 30, 2017, (ii) Statements of Operations for the three months ended December 31, 2017 and 2016, (iii) Statements of Cash Flows for the three months ended December 31, 2017 and 2016, and (iv) the Notes to Unaudited Condensed Financial Statements.**Schema Document | | |
101.CAL* | | XBRL Calculation Document | | |
101.LAB* | | XBRL Labels Linkbase Document | | |
101.PRE* | | XBRL Presentation Linkbase Document | | |
101.DEF* | | XBRL Definition Linkbase Document | | |
(*) Filed herewith.
(**) Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | RED TRAIL ENERGY, LLC |
| | | |
Date: | August 10, 2021 | | RED TRAIL ENERGY, LLC |
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Date: | February 14, 2018 | | /s/ Gerald Bachmeier |
| | | Gerald Bachmeier |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
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Date: | February 14, 2018August 10, 2021 | | /s/ Jodi Johnson |
| | | Jodi Johnson |
| | | Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |