Company Quick10K Filing
Granite Falls Energy
Price-0.00 EPS-162
Shares0 P/E0
MCap-0 P/FCF0
Net Debt-4 EBIT-5
TEV-4 TEV/EBIT1
TTM 2019-07-31, in MM, except price, ratios
10-Q 2020-04-30 Filed 2020-06-15
10-Q 2020-01-31 Filed 2020-03-16
10-K 2019-10-31 Filed 2020-01-29
10-Q 2019-07-31 Filed 2019-09-16
10-Q 2019-04-30 Filed 2019-06-14
10-Q 2019-01-31 Filed 2019-03-18
10-K 2018-10-31 Filed 2019-01-29
10-Q 2018-07-31 Filed 2018-09-14
10-Q 2018-04-30 Filed 2018-06-14
10-Q 2018-01-31 Filed 2018-03-19
10-K 2017-10-31 Filed 2018-01-30
10-Q 2017-07-31 Filed 2017-09-14
10-Q 2017-04-30 Filed 2017-06-14
10-Q 2017-01-31 Filed 2017-03-17
10-K 2016-10-31 Filed 2017-01-30
10-Q 2016-07-31 Filed 2016-09-14
10-Q 2016-04-30 Filed 2016-06-14
10-Q 2016-01-31 Filed 2016-03-16
10-K 2015-10-31 Filed 2016-01-28
10-Q 2015-07-31 Filed 2015-09-14
10-Q 2015-04-30 Filed 2015-06-15
10-Q 2015-01-31 Filed 2015-03-16
10-K 2014-10-31 Filed 2015-01-28
10-Q 2014-07-31 Filed 2014-09-16
10-Q 2014-04-30 Filed 2014-06-16
10-Q 2014-01-31 Filed 2014-03-17
10-K 2013-10-31 Filed 2014-01-29
10-Q 2013-07-31 Filed 2013-09-16
10-Q 2013-04-30 Filed 2013-06-14
10-Q 2013-01-31 Filed 2013-03-18
10-K 2012-10-31 Filed 2013-01-29
10-Q 2012-07-31 Filed 2012-09-14
10-Q 2012-04-30 Filed 2012-06-14
10-Q 2012-01-31 Filed 2012-03-16
10-K 2011-10-31 Filed 2012-01-30
10-Q 2011-07-31 Filed 2011-09-14
10-Q 2011-04-30 Filed 2011-06-14
10-Q 2011-01-31 Filed 2011-03-16
10-K 2010-10-31 Filed 2011-01-26
10-Q 2010-07-31 Filed 2010-09-13
10-Q 2010-04-30 Filed 2010-06-14
10-Q 2010-01-31 Filed 2010-03-16
10-K 2009-10-31 Filed 2010-01-22
8-K 2020-04-23
8-K 2020-04-16
8-K 2020-04-06
8-K 2020-03-19
8-K 2019-12-23
8-K 2019-10-01
8-K 2019-03-25
8-K 2018-12-19
8-K 2018-07-06
8-K 2018-03-27

C749 10Q Quarterly Report

Part Ifinancial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits.
EX-31.1 gfe-20200430ex311441941.htm
EX-31.2 gfe-20200430ex312ba3ecd.htm
EX-32.1 gfe-20200430ex3212e019f.htm
EX-32.2 gfe-20200430ex322c25c5c.htm

Granite Falls Energy Earnings 2020-04-30

Balance SheetIncome StatementCash Flow
14011284562802012201420172020
Assets, Equity
8567493113-42012201420172020
Rev, G Profit, Net Income
25131-11-23-352012201420172020
Ops, Inv, Fin

10-Q 1 gfe-20200430x10q.htm 10-Q gfe_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended April 30, 2020

 

OR

 

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

 

For the transition period from               to               .

 

COMMISSION FILE NUMBER 000-51277

 

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)

 

 

 

 

Minnesota

 

41-1997390

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

15045 Highway 23 SE, Granite Falls, MN 56241-0216

(Address of principal executive offices)

 

(320) 564-3100

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

None

 

N/A

 

N/A

 

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

☒Yes    ☐No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

 

 

 

 

 

 

Large Accelerated Filer

Non-Accelerated Filer

Accelerated Filer

Smaller Reporting Company

 

 

Emerging Growth Company

 

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).

Yes    ☒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 June 15, 2020, there were 30,606 membership units outstanding.

 

 

 

 

2

 

PART IFINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

    

April 30, 2020

    

October 31, 2019

 

 ASSETS

    

(unaudited)

    

 

 

Current Assets

 

 

 

 

 

 

 

Cash

 

$

5,868,761

 

$

13,521,774

 

Restricted cash

 

 

351,068

 

 

52,516

 

Accounts receivable

 

 

159,793

 

 

7,427,895

 

Inventory

 

 

13,535,362

 

 

13,803,025

 

Commodity derivative instruments

 

 

359,269

 

 

823,098

 

Prepaid expenses and other current assets

 

 

1,093,065

 

 

534,948

 

Total current assets

 

 

21,367,318

 

 

36,163,256

 

 

 

 

 

 

 

 

 

Property and Equipment, net

 

 

54,080,658

 

 

58,269,142

 

 

 

 

 

 

 

 

 

Goodwill

 

 

1,372,473

 

 

1,372,473

 

 

 

 

 

 

 

 

 

Investments

 

 

8,736,095

 

 

9,327,584

 

 

 

 

 

 

 

 

 

Operating lease right of use asset

 

 

21,173,883

 

 

 —

 

 

 

 

 

 

 

 

 

Other Assets

 

 

697,254

 

 

922,254

 

 

 

 

 

 

 

 

 

Total Assets

 

$

107,427,681

 

$

106,054,709

 

 

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS' EQUITY

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

1,405,406

 

$

1,405,406

 

Checks drawn in excess of bank balances

 

 

807,756

 

 

 —

 

Accounts payable

 

 

1,666,116

 

 

11,168,471

 

Commodity derivative instruments

 

 

241,650

 

 

 —

 

Accrued expenses

 

 

2,469,394

 

 

780,795

 

Operating lease, current liabilities

 

 

3,622,457

 

 

 —

 

Total current liabilities

 

 

10,212,779

 

 

13,354,672

 

 

 

 

 

 

 

 

 

Long-Term Debt, less current portion

 

 

13,534,447

 

 

6,639,488

 

 

 

 

 

 

 

 

 

Operating Lease, long-term liabilities

 

 

17,551,426

 

 

 —

 

 

 

 

 

 

 

 

 

Other Long-Term Liabilities

 

 

1,398,962

 

 

1,376,000

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members' Equity

 

 

 

 

 

 

 

Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both April 30, 2020 and October 31, 2019

 

 

52,005,932

 

 

65,468,635

 

Non-controlling interest

 

 

12,724,135

 

 

19,215,914

 

Total members' equity

 

 

64,730,067

 

 

84,684,549

 

 

 

 

 

 

 

 

 

Total Liabilities and Members' Equity

 

$

107,427,681

 

$

106,054,709

 

 

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

 

3

 

 

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended April 30, 

 

Six Months Ended April 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

33,106,922

 

$

49,424,390

 

$

86,463,248

 

$

98,799,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Goods Sold

 

 

45,653,163

 

 

50,418,243

 

 

99,951,982

 

 

102,528,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Loss

 

 

(12,546,241)

 

 

(993,853)

 

 

(13,488,734)

 

 

(3,729,378)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

1,909,655

 

 

1,626,519

 

 

3,683,343

 

 

3,396,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(14,455,896)

 

 

(2,620,372)

 

 

(17,172,077)

 

 

(7,126,070)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

 

207,581

 

 

226,206

 

 

207,527

 

 

227,665

 

Interest income

 

 

8,191

 

 

43,436

 

 

43,669

 

 

116,711

 

Interest expense

 

 

(113,114)

 

 

(80,526)

 

 

(217,112)

 

 

(194,189)

 

Investment loss

 

 

(690,174)

 

 

 —

 

 

(591,489)

 

 

 —

 

Total other income (expense), net

 

 

(587,516)

 

 

189,116

 

 

(557,405)

 

 

150,187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$

(15,043,412)

 

$

(2,431,256)

 

$

(17,729,482)

 

$

(6,975,883)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Net Loss Attributable to Non-controlling Interest

 

 

3,160,225

 

 

528,607

 

 

4,345,596

 

 

1,495,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Granite Falls Energy, LLC

 

$

(11,883,187)

 

$

(1,902,649)

 

$

(13,383,886)

 

$

(5,480,151)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Units Outstanding - Basic and Diluted

 

 

30,606

 

 

30,606

 

 

30,606

 

 

30,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Granite Falls Energy, LLC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Unit - Basic and Diluted

 

$

(388.26)

 

$

(62.17)

 

$

(437.30)

 

$

(179.05)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions Per Unit

 

$

 —

 

$

 —

 

$

 —

 

$

40.00

 

 

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

4

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Members’ Equity

 

 

 

 

 

 

 

 

 

Members' Equity attributable to

 

 

 

 

 

 

Granite Falls Energy, LLC

 

Non-controlling Interest

 

Total Members' Equity

 

 

 

 

 

 

 

Balance - October 31, 2019

 

$ 65,468,635

 

$ 19,215,914

 

$ 84,684,549

 

 

 

 

 

 

 

Acquisition of non-controlling interest

 

(78,817)

 

(2,146,183)

 

(2,225,000)

Net loss attributable to non-controlling interest

 

 -

 

(1,185,371)

 

(1,185,371)

Net loss attributable to Granite Falls Energy, LLC

 

(1,500,699)

 

 -

 

(1,500,699)

 

 

 

 

 

 

 

Balance - January 31, 2020

 

63,889,119

 

15,884,360

 

79,773,479

 

 

 

 

 

 

 

Net loss attributable to non-controlling interest

 

 -

 

(3,160,225)

 

(3,160,225)

Net loss attributable to Granite Falls Energy, LLC

 

(11,883,187)

 

 -

 

(11,883,187)

 

 

 

 

 

 

 

Balance - April 30, 2020

 

$ 52,005,932

 

$ 12,724,135

 

$ 64,730,067

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - October 31, 2018

 

$ 75,083,782

 

$ 21,846,265

 

$ 96,930,047

 

 

 

 

 

 

 

Member Distribution

 

(1,224,226)

 

 -

 

(1,224,226)

Net loss attributable to non-controlling interest

 

 -

 

(967,125)

 

(967,125)

Net loss attributable to Granite Falls Energy, LLC

 

(3,577,502)

 

 -

 

(3,577,502)

 

 

 

 

 

 

 

Balance - January 31, 2019

 

70,282,054

 

20,879,140

 

91,161,194

 

 

 

 

 

 

 

Net loss attributable to non-controlling interest

 

 -

 

(528,607)

 

(528,607)

Net loss attributable to Granite Falls Energy, LLC

 

(1,902,649)

 

 -

 

(1,902,649)

 

 

 

 

 

 

 

Balance - April 30, 2019

 

$ 68,379,405

 

$ 20,350,533

 

$ 88,729,938

 

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

 

 

 

 

5

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

    

Six Months Ended April 30, 

 

 

 

 

 

2020

 

2019

 

    

 

 

 

(unaudited)

 

(unaudited)

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(17,729,482)

 

$

(6,975,883)

 

 

 

Adjustments to reconcile net loss to net cash used in operations:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,690,652

 

 

4,720,009

 

 

 

Change in fair value of  derivative instruments

 

 

1,140,186

 

 

(288,819)

 

 

 

Loss on equity method investments

 

 

591,489

 

 

 —

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Commodity derivative instruments

 

 

(434,707)

 

 

1,225,222

 

 

 

Accounts receivable

 

 

7,268,102

 

 

(18,682)

 

 

 

Inventory

 

 

267,663

 

 

2,589,078

 

 

 

Prepaid expenses and other current assets

 

 

(558,117)

 

 

(561,142)

 

 

 

Accounts payable

 

 

(9,390,656)

 

 

(5,314,204)

 

 

 

Accrued expenses

 

 

1,688,599

 

 

12,860

 

 

 

Accrued railcar rehabilitation costs

 

 

22,962

 

 

 —

 

 

 

Net Cash Used In Operating Activities

 

 

(12,443,309)

 

 

(4,611,561)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

Payments for capital expenditures

 

 

(613,867)

 

 

(392,707)

 

 

 

Net Cash Used in Investing Activities

 

 

(613,867)

 

 

(392,707)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

Checks drawn in excess of bank balances

 

 

807,756

 

 

 —

 

 

 

Proceeds from paycheck protection program loan

 

 

1,299,593

 

 

 —

 

 

 

Proceeds from long-term debt

 

 

17,786,740

 

 

 —

 

 

 

Payments on long-term debt

 

 

(12,191,374)

 

 

(11,901)

 

 

 

Acquisition of non-controlling interest

 

 

(2,000,000)

 

 

 —

 

 

 

Member distributions paid

 

 

 —

 

 

(1,224,226)

 

 

 

Net Cash Provided by (Used in) Financing Activities

 

 

5,702,715

 

 

(1,236,127)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Decrease in Cash and Restricted Cash

 

 

(7,354,461)

 

 

(6,240,395)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and Restricted Cash - Beginning of Period

 

 

13,574,290

 

 

14,901,091

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and Restricted Cash - End of Period

 

$

6,219,829

 

$

8,660,696

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Cash and Restricted Cash

 

 

 

 

 

 

 

 

 

Cash - Balance Sheet

 

$

5,868,761

 

$

8,260,821

 

 

 

Restricted Cash - Balance Sheet

 

 

351,068

 

 

399,875

 

 

 

Cash and Restricted Cash

 

$

6,219,829

 

$

8,660,696

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

Interest expense

 

$

217,112

 

$

194,189

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

 

Capital expenditures and construction in process included in accounts payable

 

$

13,487

 

$

29,464

 

 

 

 

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

 

6

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

Granite Falls Energy, LLC (“GFE”) is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers' grains, and crude corn oil near Granite Falls, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental United States and on the international market. GFE's plant has an approximate annual production capacity of 60 million gallons, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve-month rolling sum basis.

 

Additionally, GFE owns a majority interest in Heron Lake BioEnergy, LLC (“HLBE”). HLBE is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers' grains, and crude corn oil near Heron Lake, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental United States. HLBE's plant has an approximate annual production capacity of 60 million gallons, but is permitted to produce approximately 72.3 million gallons of undenatured ethanol on a twelve-month rolling sum basis. Beginning December 11, 2019, HLBE owns a 100% interest in Agrinatural Gas, LLC (“Agrinatural”), which operates a natural gas pipeline that provides natural gas to HLBE's ethanol production facility and other customers. At October 31, 2019, HLBE held a 73% interest in Agrinatural.

 

All references to “we”, “us”, “our”, and the “Company” collectively refer to GFE and its wholly-owned and majority-owned subsidiaries.

 

Basis of Presentation and Principles of Consolidation

 

The condensed consolidated unaudited financial statements as of April 30, 2020 consolidate the operating results and financial position of GFE, and its approximately 50.7% owned subsidiary, HLBE (through GFE's 100% ownership of Project Viking, LLC). Given the Company’s control over the operations of HLBE and its majority voting interest, the Company consolidates the condensed consolidated unaudited financial statements of HLBE with GFE's condensed consolidated unaudited financial statements. The remaining 49.3% ownership of HLBE is included in the condensed consolidated unaudited financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owned approximately 73% of Agrinatural as of October 31, 2019. Given HLBE’s control over the operations of Agrinatural and its majority voting interest, HLBE consolidates the financial statements of Agrinatural with its consolidated unaudited financial statements, with the equity and earnings attributed to the remaining approximately 27% noncontrolling interest through December 11, 2019 when the remaining non-controlling interest was acquired. All significant intercompany balances and transactions are eliminated in consolidation.

 

The accompanying condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and 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 consolidated financial statements for the year ended October 31, 2019, contained in the Company’s annual report on Form 10-K.

 

In the opinion of management, the condensed consolidated unaudited financial statements reflect all adjustments consisting of normal recurring accruals that we consider necessary to present fairly the Company’s results of operations, financial position and cash flows. The results reported in these condensed consolidated unaudited financial statements should not be regarded as necessarily indicative of results that may be expected for any other fiscal period or for the fiscal year.

 

Accounting Estimates

 

Management uses estimates and assumptions in preparing these condensed consolidated unaudited financial statements in accordance with generally accepted accounting principles in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for the following significant matters, among others: economic lives of property and equipment, valuation of commodity derivatives, inventory, inventory purchase and sale commitments, evaluation of railcar rehabilitation costs, and the assumptions used

7

in the impairment analysis of long-lived assets, which includes goodwill. Actual results may differ from previously estimated amounts, and such differences may be material to our condensed consolidated unaudited financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.

 

Revenue Recognition

 

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

 

·

Ethanol. The Company sells its ethanol via a marketing agreement with Eco-Energy, Inc. Eco-Energy sells one hundred percent of the Company's ethanol production based on agreements with end users at prices agreed upon mutually among the end user, Eco-Energy and the Company. Our performance obligations consist of our obligation to deliver ethanol to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. The marketing agreement calls for control and title to pass to Eco-Energy once a rail car is released to the railroad or a truck is released from the Company's scales. Revenue is recognized then at the price in the agreement with the end user, net of commissions, freight, and fees.

 

·

Distillers’ grains. The Company engages another third-party marketing company, RPMG, Inc., to sell one hundred percent of the distillers’ grains it produces at the plant. RPMG takes title and control once a rail car is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG and the Company.  Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

 

·

Distillers’ corn oil (corn oil). The Company sells one hundred percent of its corn oil production to RPMG, Inc.  The process for selling corn oil is the same as our distillers’ grains. RPMG takes title and control once a rail car is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG and the Company. Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value. Cost for all inventories is determined using the first in first out method. Net realizable value is the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. Inventory consists of raw materials, work in process, finished goods, and supplies. Corn is the primary raw material along with other raw materials.  Finished goods consist of ethanol, distillers' grains, and corn oil.

 

Derivative Instruments

 

From time to time the Company enters into derivative transactions to hedge its exposures to commodity price fluctuations. The Company is required to record these derivatives on the balance sheets at fair value.

 

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

8

 

commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded in earnings.

 

Additionally, the Company is required to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted as “normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our condensed consolidated unaudited financial statements.

 

In order to reduce the risks caused by market fluctuations, the Company occasionally hedges its anticipated corn, natural gas, and denaturant purchases and ethanol sales by entering into options and futures contracts. These contracts are used with the intention to fix the purchase price of anticipated requirements for corn in the Company's ethanol production activities and the related sales price of ethanol. The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter market conditions. Although the Company believes its commodity derivative positions are economic hedges, none have been formally designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings or losses. The Company does not enter into financial instruments for trading or speculative purposes.

 

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 5.

 

Investments 

 

The Company has investment interests in two companies in related industries. The investments are accounted for by the equity method, under which the Company’s share of the net income of the investee is recognized as income in the Company’s Condensed Consolidated Statements of Operations and added to the investment account, and distributions received from the affiliates are treated as a reduction of the investment.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (FASB) issued new guidance on accounting for leases under Accounting Standards Codification 842 (ASC 842). Under the new guidance, lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted cash flow basis; and (2) a “right of use” asset, which is an asset that represents the lessee’s right to use the specified asset for the lease term. Lease expense under the new guidance is substantially the same as prior to the adoption. See Note 8 for further information. 

 

2.   RISKS AND UNCERTAINTIES

 

The Company has certain risks and uncertainties that it experiences during volatile market conditions. These volatilities can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol, distillers' grains, corn oil, and natural gas to customers primarily located in the United States. Corn for the production process is supplied to our plant primarily from local agricultural producers and from purchases on the open market.

 

The Company's operating and financial performance is largely driven by the prices at which they sell ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, the weather, government policies and programs, and unleaded gasoline prices and the petroleum markets as a whole. 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, the weather, government policies and programs, and a risk management program used to protect against the price volatility of these commodities. Market fluctuations in the price of and demand for these products may have a significant adverse effect on the Company’s operations, profitability and the availability and adequacy of cash flow to meet the Company’s working capital

9

 

requirements. The Company’s risk management program is used to protect against the price volatility of these commodities.

 

The Company, and the ethanol industry as a whole, experienced significant adverse conditions throughout most of 2018 and 2019, and thus far into 2020, as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels. These factors, which are compounded by the recent impact of the novel coronavirus (“COVID-19”), resulted and continue to result in negative operating margins, lower cash flow from operations and net operating losses, which included write downs of inventory and impairment of corn forward purchase contracts of approximately $179,000 for the six months ended April 30, 2020. In response to the low margin environment, GFE idled its ethanol production from on or about April 3, 2020 through approximately May 18, 2020. The Company continues to monitor COVID-19 developments in order to determine whether further adjustments to production are warranted. The Company believes its cash on hand, available debt from its lender, and additional debt with its current lender will provide sufficient liquidity to meets its anticipated working capital, debt service and other liquidity needs through the next twelve months. If market conditions worsen affecting our ability to profitably operate the plant or if we are unable to transport ethanol, we may be forced to further idle ethanol production altogether.

10

 

3.   REVENUE

 

Revenue by Source

 

All revenues from contracts with customers under ASC Topic 606 are recognized at a point in time. The following table disaggregates revenue by major source for the three and six months ended April 30, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended April 30, 2020

 

 

Ethanol Production

 

 

Natural Gas Pipeline

 

 

Total

Ethanol

$

23,753,704

 

$

 

$

23,753,704

Distillers’ Grains

 

7,389,829

 

 

 

 

7,389,829

Corn Oil

 

1,534,832

 

 

 

 

1,534,832

Other

 

191,806

 

 

 

 

191,806

Natural Gas

 

 

 

236,751

 

 

236,751

Total Revenues

$

32,870,171

 

$

236,751

 

$

33,106,922

 

 

 

 

 

 

 

 

 

 

Three Months Ended April 30, 2019

 

 

Ethanol Production

 

 

Natural Gas Pipeline

 

 

Total

Ethanol

$

38,521,636

 

$

 

$

38,521,636

Distillers’ Grains

 

8,651,733

 

 

 

 

8,651,733

Corn Oil

 

1,600,398

 

 

 

 

1,600,398

Other

 

260,264

 

 

 

 

260,264

Natural Gas

 

 

 

390,359

 

 

390,359

Total Revenues

$

49,034,031

 

$

390,359

 

$

49,424,390

 

 

 

 

 

 

 

 

 

 

Six Months Ended April 30, 2020

 

 

Ethanol Production

 

 

Natural Gas Pipeline

 

 

Total

Ethanol

$

64,605,693

 

$

 

$

64,605,693

Distillers’ Grains

 

17,021,121

 

 

 

 

17,021,121

Corn Oil

 

3,422,683

 

 

 

 

3,422,683

Other

 

487,723

 

 

 

 

487,723

Natural Gas

 

 

 

926,028

 

 

926,028

Total Revenues

$

85,537,220

 

$

926,028

 

$

86,463,248

 

 

 

 

 

 

 

 

 

 

Six Months Ended April 30, 2019

 

 

Ethanol Production

 

 

Natural Gas Pipeline

 

 

Total

Ethanol

$

74,486,921

 

$

 

$

74,486,921

Distillers’ Grains

 

19,221,992

 

 

 

 

19,221,992

Corn Oil

 

3,593,734

 

 

 

 

3,593,734

Other

 

524,567

 

 

 

 

524,567

Natural Gas

 

 

 

972,273

 

 

972,273

Total Revenues

$

97,827,214

 

$

972,273

 

$

98,799,487

 

Payment Terms

 

The Company has contractual payment terms with each respective marketer that sells ethanol, distillers’ grains, and corn oil. These terms are 10 calendar days after the transfer of control date. The Company has contractual payment terms with natural gas customers of 20 days.

 

Shipping and Handling Costs

 

11

 

Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment activity and are included in cost of goods sold. Accordingly, amounts billed to customers for such costs are included as a component of revenue.

 

4.   INVENTORY

 

Inventories consist of the following:

 

 

 

 

 

 

 

 

 

 

    

April 30,  2020

    

October 31,  2019

 

 

 

(unaudited)

    

 

 

Raw materials

 

$

4,135,879

 

$

3,253,361

 

Supplies

 

 

3,203,833

 

 

3,330,513

 

Work in process

 

 

1,083,206

 

 

1,434,552

 

Finished goods

 

 

5,112,444

 

 

5,784,599

 

Totals

 

$

13,535,362