Company Quick10K Filing
Heron Lake Bioenergy
Price-0.00 EPS-0
Shares78 P/E0
MCap-0 P/FCF-0
Net Debt-5 EBIT-3
TEV-5 TEV/EBIT2
TTM 2019-07-31, in MM, except price, ratios
10-Q 2020-07-31 Filed 2020-09-14
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 2018-01-29
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 2013-07-01
10-Q 2013-01-31 Filed 2013-06-11
10-K 2012-10-31 Filed 2013-02-13
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 2011-03-15
10-K 2010-10-31 Filed 2011-01-21
10-Q 2010-07-31 Filed 2010-08-25
10-Q 2010-04-30 Filed 2010-06-14
10-Q 2010-01-31 Filed 2010-03-17
10-K 2009-10-31 Filed 2010-01-29
8-K 2020-06-19 Enter Agreement, Off-BS Arrangement
8-K 2020-04-29
8-K 2020-03-19
8-K 2020-03-18
8-K 2019-12-23
8-K 2019-10-29
8-K 2019-10-22
8-K 2019-10-04
8-K 2019-05-07
8-K 2019-03-25
8-K 2018-12-19
8-K 2018-07-25
8-K 2018-04-09
8-K 2018-03-27

C964 10Q Quarterly Report

Part I. Financial 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-10.1 hlb-20200731ex10114584d.htm
EX-10.2 hlb-20200731ex102da65e9.htm
EX-31.1 hlb-20200731ex3110916ae.htm
EX-31.2 hlb-20200731ex31273ae00.htm
EX-32.1 hlb-20200731ex32110fb09.htm
EX-32.2 hlb-20200731ex32298be4c.htm

Heron Lake Bioenergy Earnings 2020-07-31

Balance SheetIncome StatementCash Flow
806448321602012201420172020
Assets, Equity
503929188-22012201420172020
Rev, G Profit, Net Income
10.05.00.0-5.0-10.0-15.02012201420172020
Ops, Inv, Fin

10-Q 1 hlb-20200731x10q.htm 10-Q

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 July 31, 2020

OR

Transition report under Section 13 or 15(d) of the Exchange Act.

For the transition period from to .

COMMISSION FILE NUMBER 000-51825

HERON LAKE BIOENERGY, LLC

(Exact name of Registrant as specified in its charter)

Minnesota

41-2002393

(State or other jurisdiction of organization)

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

91246 390th Avenue, Heron Lake, MN 56137-1375

(Address of principal executive offices)

(507) 793-0077

(Issuer’s telephone number)

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

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

None

NA

NA

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T 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, or a smaller reporting 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

Accelerated filer

Smaller reporting company

Non-accelerated filer

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

As of September 14, 2020, there were 62,932,107 Class A units and 15,000,000 Class B units issued and outstanding.



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

July 31, 2020

    

October 31, 2019

(unaudited)

ASSETS

Current Assets

Cash

$

2,119,603

$

4,541,295

Restricted cash

227,505

52,516

Accounts receivable

 

273,062

 

4,891,249

Inventory

 

3,867,419

 

6,276,258

Commodity derivative instruments

 

28,492

 

95,823

Prepaid expenses and other current assets

 

586,018

 

408,325

Total current assets

 

7,102,099

 

16,265,466

Property and Equipment, net

 

37,602,164

 

39,408,195

Operating lease right of use assets

9,617,229

Other assets

 

697,254

 

922,254

Total Assets

$

55,018,746

$

56,595,915

LIABILITIES AND MEMBERS' EQUITY

Current Liabilities

Current maturities of long-term debt

$

1,241,000

$

333,977

Checks drawn in excess of bank balances

 

685,724

 

Accounts payable

 

1,834,453

 

5,386,618

Commodity derivative instruments

31,826

Accrued expenses

 

1,105,612

 

423,266

Operating lease, current liabilities

1,328,023

Total current liabilities

 

6,226,638

 

6,143,861

Long-Term Debt, less current portion

 

5,092,977

 

300,203

Operating Lease, long-term liabilities

8,289,206

Other Long-Term Liabilities

585,443

551,000

Commitments and Contingencies

Members' Equity

Members' equity attributable to Heron Lake BioEnergy, LLC consists of 77,932,107 units issued and outstanding at July 31, 2020 and October 31, 2019

 

34,824,482

 

47,599,276

Non-controlling interest

 

 

2,001,575

Total members' equity

 

34,824,482

 

49,600,851

Total Liabilities and Members' Equity

$

55,018,746

$

56,595,915

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

1


HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

Three Months Ended July 31,

Nine Months Ended July 31,

(unaudited)

(unaudited)

2020

2019

2020

2019

Revenues

$

14,165,041

$

27,367,787

$

56,450,290

$

78,560,104

Cost of Goods Sold

 

17,314,863

 

26,119,684

 

66,494,154

 

78,765,455

Gross Profit (Loss)

 

(3,149,822)

 

1,248,103

 

(10,043,864)

 

(205,351)

Operating Expenses

 

(769,859)

 

(866,410)

 

(2,644,253)

 

(2,641,692)

Operating Income (Loss)

 

(3,919,681)

 

381,693

 

(12,688,117)

 

(2,847,043)

Other Income (Expense):

Interest income

 

740

 

19,475

 

13,147

 

61,875

Interest expense

 

(74,737)

 

(42,990)

 

(116,342)

 

(58,320)

Other income, net

 

33,105

 

3,407

 

239,943

 

228,300

Total other income (expense), net

 

(40,892)

 

(20,108)

 

136,748

 

231,855

Net Income (Loss)

 

(3,960,573)

 

361,585

 

(12,551,369)

 

(2,615,188)

Less: Net Income Attributable to Non-controlling Interest

 

 

(35,006)

 

(67,827)

 

(197,025)

Net Income (Loss) Attributable to Heron Lake BioEnergy, LLC

$

(3,960,573)

$

326,579

$

(12,619,196)

$

(2,812,213)

Weighted Average Units Outstanding—Basic and Diluted (Class A and B)

 

77,932,107

 

77,932,107

 

77,932,107

 

77,932,107

Net Income (Loss) Per Unit Attributable to Heron Lake BioEnergy, LLC—Basic and Diluted (Class A and B)

$

(0.05)

$

$

(0.16)

$

(0.04)

Distributions Per Unit (Class A and B)

$

$

$

$

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

2


HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Members’ Equity (unaudited)

    

    

    

Members' equity

    

    

attributable to

Heron Lake

Non-

Total

BioEnergy,

controlling 

Members'

Class A Units

Class B Units

LLC

Interest

Equity

Balance—October 31, 2019

 

62,932,107

 

15,000,000

$

47,599,276

$

2,001,575

$

49,600,851

Acquisition of non-controlling interest

 

 

 

(155,598)

 

(2,069,402)

 

(2,225,000)

Net income attributable to non-controlling interest

 

 

 

 

67,827

 

67,827

Net loss attributable to Heron Lake BioEnergy, LLC

 

 

 

(2,416,374)

 

 

(2,416,374)

Balance—January 31, 2020

62,932,107

15,000,000

$

45,027,304

$

$

45,027,304

Net loss attributable to Heron Lake BioEnergy, LLC

(6,242,249)

(6,242,249)

Balance—April 30, 2020

62,932,107

15,000,000

$

38,785,055

$

$

38,785,055

Net loss attributable to Heron Lake BioEnergy, LLC

(3,960,573)

(3,960,573)

Balance—July 31, 2020

 

62,932,107

 

15,000,000

$

34,824,482

$

$

34,824,482

Balance—October 31, 2018

 

62,932,107

 

15,000,000

$

53,054,846

$

1,723,839

$

54,778,685

Net income attributable to non-controlling interest

 

 

 

91,406

 

91,406

Net loss attributable to Heron Lake BioEnergy, LLC

 

 

 

(2,023,640)

 

 

(2,023,640)

Balance—January 31, 2019

62,932,107

15,000,000

$

51,031,206

$

1,815,245

$

52,846,451

Net income attributable to non-controlling interest

70,613

70,613

Net loss attributable to Heron Lake BioEnergy, LLC

(1,115,152)

(1,115,152)

Balance—April 30, 2019

 

62,932,107

 

15,000,000

$

49,916,054

$

1,885,858

$

51,801,912

Net income attributable to non-controlling interest

35,006

35,006

Net income attributable to Heron Lake BioEnergy, LLC

326,579

326,579

Balance—July 31, 2019

 

62,932,107

 

15,000,000

$

50,242,633

$

1,920,864

$

52,163,497

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

3


HERON LAKE BIOENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Nine Months Ended July 31,

2020

2019

    

(unaudited)

    

(unaudited)

Cash Flow From Operating Activities:

Net loss

$

(12,551,369)

$

(2,615,188)

Adjustments to reconcile net loss to net cash provided by (used in) operations:

Depreciation and amortization

 

3,936,813

 

3,956,087

(Gain) loss on sale of asset

 

(2,000)

 

4,864

Change in fair value of commodity derivative instruments

 

999,167

 

(670,652)

Change in operating assets and liabilities:

Accounts receivable

 

4,618,187

 

3,191,915

Inventory

 

2,408,839

 

(2,431,544)

Commodity derivative instruments

 

(900,010)

 

810,170

Prepaid expenses and other current assets

 

(177,693)

 

(297,902)

Accounts payable

 

(3,428,588)

 

(1,192,638)

Accrued expenses

 

682,346

 

(332,614)

Accrued railcar rehabilitation costs

34,443

Net cash provided by (used in) operating activities

 

(4,379,865)

 

422,498

Cash Flows from Investing Activities:

Capital expenditures

 

(2,252,359)

 

(206,461)

Net cash used in investing activities

 

(2,252,359)

 

(206,461)

Cash Flows from Financing Activities:

Checks drawn in excess of bank balance

 

685,724

 

Proceeds from Paycheck Protection Program loan

595,693

Proceeds from long-term debt

 

22,070,984

 

Payments on long-term debt

(16,966,880)

(168,461)

Acquisition of non-controlling interest

(2,000,000)

Net cash provided by (used in) financing activities

 

4,385,521

 

(168,461)

Net increase (decrease) in Cash and Restricted Cash

 

(2,246,703)

 

47,576

Cash and Restricted Cash—Beginning of Period

 

4,593,811

 

5,995,982

Cash and Restricted Cash—End of Period

$

2,347,108

$

6,043,558

Reconciliation of Cash and Restricted Cash

Cash - Balance Sheet

$

2,119,603

$

6,043,558

Restricted Cash - Balance Sheet

227,505

Cash and Restricted Cash

$

2,347,108

$

6,043,558

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for:

Interest expense

$

116,342

$

58,320

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Capital expenditures included in accounts payable

$

1,609

$

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

4


Table of Contents

Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Heron Lake BioEnergy, LLC owns and operates an ethanol plant near Heron Lake, Minnesota with a permitted capacity of approximately 72.3 million gallons per year of undenatured ethanol on a twelve-month rolling sum basis.  In addition, Heron Lake BioEnergy, LLC produces and sells distillers’ grains with solubles and corn oil as co-products of ethanol production.  

Heron Lake BioEnergy, LLC’s wholly owned subsidiary, HLBE Pipeline Company, LLC (“HLBE Pipeline Company”), is the sole owner of Agrinatural Gas, LLC (“Agrinatural”). Agrinatural is a natural gas pipeline company that was formed to construct, own, and operate the natural gas pipeline that provides natural gas to the Company’s ethanol production facility and other customers through a connection with the natural gas pipeline facilities of Northern Border Pipeline Company in Cottonwood County, Minnesota. Beginning as of December 11, 2019, HLBE holds a 100% interest in Agrinatural. At October 31, 2019, HLBE held a 73% interest in Agrinatural.  

Basis of Presentation and Principles of Consolidation

The condensed consolidated unaudited financial statements as of July 31, 2020 include the accounts of Heron Lake BioEnergy, LLC and its wholly owned subsidiary, HLBE Pipeline Company (collectively, the “Company”).  Given the Company’s control over the operations of Agrinatural and its majority voting interest, the Company consolidates the unaudited financial statements of Agrinatural with its consolidated unaudited financial statements, with the equity and earnings attributed to the remaining 27% non-controlling interest identified separately in the accompanying condensed consolidated balance sheets and statements of operations through December 11, 2019, when the remaining non-controlling interest was acquired. All significant intercompany balances and transactions are eliminated in consolidation.

The 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 condensed consolidated unaudited 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. 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 significant matters including, among others, the economic lives of property and equipment, the assumptions used in the analysis of impairment of long-lived assets, valuation of commodity derivative instruments, inventory, inventory purchase and sales commitments, and evaluation of railcar rehabilitation costs. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made. Actual results could differ from those estimates.

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Table of Contents

Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

Non-controlling Interest

Amounts recorded as non-controlling interest on the October 31, 2019 balance sheet relates to the net investment by an unrelated party in Agrinatural through December 11, 2019 when the remaining non-controlling interest was acquired.

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 three distinct marketing companies as discussed 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, Gavilon, Inc, to sell one hundred percent of the distillers’ grains it produces at the plant. Gavilon 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 Gavilon and the Company.  Our performance obligations consist of our obligation to deliver distillers grains 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.

Agrinatural generates revenue from the transportation of natural gas to residential and commercial customers. Revenue is recognized at the point when natural gas is delivered at the transaction price established in the contract.

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.

6


Table of Contents

Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

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 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.

Property and Equipment

In July 2020, the Company experienced major issues with its boiler, which negatively impacted production. The Company ordered a temporary boiler, which allowed operations to continue in August 2020 until repair or replacement of the boiler could be completed. The Company determined that the purchase and installation of a new boiler would be more economical and efficient than attempted repairs to the failing boiler. The new boiler is expected to be installed in October 2020. On September 2, 2020, the Company received notice of approval of the new boiler from the Minnesota Pollution Control Agency. As a result, the Company abandoned the failing boiler, is currently operating with the temporary boiler, and plans to operate with the new boiler upon its completed installation. The Company will record the cost for the abandonment during the fourth fiscal quarter once it has determined the asset value, and what, if any, of the existing equipment can be salvaged. The Company anticipates a loss of approximately $1.8 million in the fourth fiscal quarter of 2020 due to the abandonment of the failing boiler. The estimated cost of the new boiler is approximately $5.2 million.

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

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Table of Contents

Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

“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.  

Reportable Operating Segments

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

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

Natural Gas Pipeline.  The Company has majority ownership in Agrinatural, through its wholly owned subsidiary, HLBE Pipeline, LLC, and operations of Agrinatural’s natural gas pipeline are aggregated into another financial reporting segment.

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 and distillers’ grains to customers primarily located in the U.S. Corn for the production process is supplied to the plant primarily from local agricultural producers. Ethanol sales average 70% to 90% of total revenues and corn costs average 70% to 90% of cost of goods sold.

The Company’s operating and financial performance is largely driven by the prices at which it sells ethanol, distillers’ grains, and corn oil and the related costs of corn. The price of ethanol is influenced by factors such as supply and demand, the weather, government policies and programs, 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 commodities 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 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 $1 million for the nine months ended July 31, 2020. In response to the low margin environment, the Company idled its ethanol production from on or about March 30, 2020 through approximately May 31, 2020 and continues to monitor COVID-19 developments in order to determine whether further adjustments to production are warranted. The Company believes its cash on hand and available debt from its 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.

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Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

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 nine months ended July 31, 2020 and 2019:

Three Months Ended July 31, 2020

(unaudited)

Ethanol Production

Natural Gas Pipeline

Total

Ethanol

$

11,920,049

$

$

11,920,049

Distillers’ Grains

1,645,859

1,645,859

Corn Oil

401,623

401,623

Other

71,519

71,519

Natural Gas

125,991

125,991

Total Revenues

$

14,039,050

$

125,991

$

14,165,041

Nine Months Ended July 31, 2020

(unaudited)

Ethanol Production

Natural Gas Pipeline

Total

Ethanol

$

43,306,209

$

$

43,306,209

Distillers’ Grains

9,481,770

9,481,770

Corn Oil

2,051,049

2,051,049

Other

559,242

559,242

Natural Gas

1,052,020

1,052,020

Total Revenues

$

55,398,270

$

1,052,020

$

56,450,290

Three Months Ended July 31, 2019

(unaudited)

Ethanol Production

Natural Gas Pipeline

Total

Ethanol

$

21,645,992

$

$

21,645,992

Distillers’ Grains

4,371,122

4,371,122

Corn Oil

930,041

930,041

Other

320,001

320,001

Natural Gas

100,631

100,631

Total Revenues

$

27,267,156

$

100,631

$

27,367,787

Nine Months Ended July 31, 2019

(unaudited)

Ethanol Production

Natural Gas Pipeline

Total

Ethanol

$

60,083,968

$

$

60,083,968

Distillers’ Grains

13,939,013

13,939,013

Corn Oil

2,619,651

2,619,651

Other

844,568

844,568

Natural Gas

1,072,904

1,072,904

Total Revenues

$

77,487,200

$

1,072,904

$

78,560,104

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Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

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 the natural gas customers of 20 days.

Shipping and Handling Costs

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

Inventory consisted of the following:

July 31, 2020

October 31, 2019

    

(unaudited)

    

 

Raw materials

$

1,575,307

$

932,503

Work in process

 

599,085

 

732,243

Finished goods

 

358,621

 

3,157,429

Supplies

 

1,334,406

 

1,454,083

Totals

$

3,867,419

$

6,276,258

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the market values of certain inventories are less than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol.  Based on the lower of cost or net realizable value analysis, the Company recorded a loss on ethanol inventories, as a component of cost of goods sold, of approximately $155,000 and $581,000 for the nine months ended July 31, 2020 and 2019, respectively. Based on the lower of cost or net realizable value analysis, the Company recorded a loss on corn inventories, as a component of cost of goods sold, of approximately $184,000 and $21,000 for the nine months ended July 31, 2020 and 2019, respectively.

5.DERIVATIVE INSTRUMENTS

As of July 31, 2020, the total notional amount of the Company’s outstanding corn derivative instruments was approximately 3,355,000 bushels, comprised of long corn futures positions on 2,055,000 bushels that were entered into to hedge forecasted ethanol sales through December 2020, and short corn futures positions on 1,085,000 bushels that were entered into to hedge forecasted corn purchases through December 2021. Additionally, there are corn options positions of 215,000 bushels through December 2020. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

As of July 31, 2020, the Company had approximately $228,000 of cash collateral (restricted cash) related to derivatives held by a broker.

The following table provides detail regarding the Company’s derivative instruments at July 31, 2020, none of which are designated as hedging instruments:

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Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

    

Consolidated Balance Sheet Location

    

Assets

    

Liabilities

 

Corn contracts

Commodity derivative instruments

$

28,492

$

Ethanol contracts

Commodity derivative instruments

31,826

Totals

$

28,492

$

31,826

As of October 31, 2019, the total notional amount of the Company’s outstanding corn derivative instruments was approximately 5,398,000 bushels, comprised of long corn futures positions on 2,131,000 bushels that were entered into to hedge forecasted ethanol sales through July 2020, and short corn futures positions on 3,267,000 bushels that were entered into to hedge forecasted corn purchases through December 2021. Additionally, there are corn options positions of 4,000,000 bushels through March 2020. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.  

As of October 31, 2019, the Company had a $52,000 in cash collateral (restricted cash) related to derivatives held by a broker.

The following table provides detail regarding the Company’s derivative financial instruments at October 31, 2019, none of which were designated as hedging instruments:

    

Consolidated Balance Sheet Location

    

Assets

    

Liabilities

 

Corn contracts

Commodity derivative instruments

$

20,060

$

Ethanol contracts

Commodity derivative instruments

75,763

Totals

$

95,823

$

The following tables provide detail regarding the gains (losses) from the Company’s derivative financial instruments in its condensed consolidated unaudited statements of operations, none of which are designated as hedging instruments:

    

Consolidated Statement of

    

Three Months Ended July 31,

 

Nine Months Ended July 31,

    

Operations Location

    

2020

    

2019

 

2020

    

2019

    

Corn contracts

 

Cost of goods sold

$

(287,301)

$

409,362

$

(803,632)

$

638,832

Ethanol contracts

Revenues

(31,945)

31,820

(195,535)

31,820

Total gain (loss)

$

(319,246)

$

441,182

$

(999,167)

$

670,652

6.FAIR VALUE

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis at July 31, 2020:

Fair Value Measurement Using

 

Carrying Amount in

Quoted Prices

Significant Other

Significant

 

Consolidated Balance Sheet

Active Markets

Observable Inputs

Unobservable inputs

 

Financial Assets:

    

Fair Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Commodity Derivative instruments - Corn

$

28,492

$

28,492

$

28,492

$

$

Financial Liabilities:

Commodity Derivative instruments - Ethanol

$

31,826

$

31,826

$

31,826

$

$

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Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

The following table sets forth, by level, the Company assets and liabilities that were accounted for at fair value on a recurring basis at October 31, 2019:

Fair Value Measurement Using

 

Carrying Amount in

Quoted Prices in

Significant Other

Significant

Consolidated

Active Markets

Observable Inputs

Unobservable Inputs

 

Financial Assets:

    

Balance Sheet

Fair Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Commodity Derivative instruments - Corn

$

20,060

$

20,060

$

20,060

$

$

Commodity Derivative instruments - Ethanol

$

75,763

$

75,763

$

75,763

$

$

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

7.DEBT FINANCING

Long-term debt consists of the following:

July 31, 2020

October 31, 2019

(unaudited)

Amended revolving term note payable to lending institution, see terms below.

$

2,270,918

$

Single advance term note payable to lending institution, see terms below.

3,000,000

Assessment payable as part of water treatment agreement, due in semi-annual installments of $189,393 with interest at 6.55%, enforceable by statutory lien, with the final payment due in 2021. The Company made deposits for one years' worth of debt service payments of approximately $364,000, which is included with other assets that are held on deposit to be applied with the final payments of the assessment.

 

467,366

634,180

SBA Paycheck Protection Program Loan

 

595,693

Totals

 

6,333,977

 

634,180

Less amounts due within one year

 

1,241,000

 

333,977

Net long-term debt

$

5,092,977

$

300,203

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Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

Revolving Term Note

The 2020 Credit Facility includes an amended and restated revolving term loan with a $8,000,000 principal commitment, which was increased to a $13,000,000 principal commitment in June 2020.  This loan replaces the amended revolving term note and seasonal revolving loan made under the 2018 Credit Facility. The loan is secured by substantially all of the Company’s assets, including a subsidiary guarantee. The 2020 Credit Facility contains customary covenants, including restrictions on the payment of dividends and loans and advances to Agrinatural, and maintenance of certain financial ratios including minimum working capital, minimum net worth and a debt service coverage ratio as defined by the credit facility. During the second fiscal quarter of 2020, the 2020 Credit Facility was amended to reduce the working capital covenant to $8 million, from the original $10 million working capital covenant, for the period of April 30, 2020 through December 31, 2020, and increasing to $10 million beginning January 1, 2021. Additionally, the current portion of leases will be excluded from the calculation of current liabilities. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the revolving term loan and/or the imposition of fees, charges, or penalties. In May 2020, the Company had an event of non-compliance related to the minimum working capital requirement as defined in the amended credit facility. The Company has obtained a waiver from its lender for this event of non-compliance. The Company was in compliance with all covenants on July 31, 2020. However, the Company anticipates an event of non-compliance with respect to our debt service coverage ratio for the period ended October 31, 2020. The Company intends to obtain a waiver from its lender for this anticipated event of noncompliance.    

As part of the 2020 Credit Facility closing, the Company entered into an amended administrative agency agreement with CoBank, ACP (“CoBank”).  As a result, CoBank will continue to act as the agent for the lender with respect to the 2020 Credit Facility. The Company agreed to pay CoBank an annual fee of $2,500 for its services as administrative agent.

Under the terms of the amended revolving term loan, the Company may borrow, repay, and reborrow up to the aggregate principal commitment amount of $13,000,000. Final payment of amounts borrowed under the amended revolving term loan is due December 1, 2022. Interest on the amended revolving term loan accrues at a variable weekly rate equal to 3.35% above the higher of 0.00% or the One-Month London Interbank Offered Rate (“LIBOR”) Index rate, which totaled 3.50% at July 31, 2020.    

The Company also agreed to pay an unused commitment fee on the unused available portion of the amended revolving term loan commitment at the rate of 0.500% per annum, payable monthly in arrears.

Single Advance Term Note

In June 2020, the Company entered into a single advance term note with a $3,000,000 principal commitment, with the purpose to finance the construction of a new grain bin and provide principal reduction on the Revolving Term Note.  The interest rate is fixed at 3.80%.  Principal with interest is to be paid in 10 consecutive, semi-annual installments, with the first installment due on December 20, 2020 and the last installment due on June 20, 2025. The note is secured as provided in the 2020 Credit Facility.

SBA Paycheck Protection Program Loan

In March 2020, Congress passed the Paycheck Protection Program, authorizing loans to small businesses for use in paying employees that they continue to employ throughout the COVID-19 pandemic and for rent, utilities and interest on mortgages. Loans obtained through the Paycheck Protection Program are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. On April 18, 2020, the Company received a loan in the amount of $595,693 through the Paycheck Protection Program. Management expects that the entire loan will be used for payroll, utilities and interest; therefore, management anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, the Company would be required to repay that portion at an interest rate of 1% over a period of two years, beginning May 2021 with a final installment in May 2022.

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Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

Estimated annual maturities of long-term debt at July 31, 2020 are as follows based on the most recent debt agreements, for the twelve months ended July 31:

2021

    

$

1,241,000

 

2022

 

3,292,977

2023

600,000

2024

 

600,000

2025

 

600,000

Total debt

$

6,333,977

8.LEASES

Adoption of ASC 842

As discussed in Note 1, on November 1, 2019, the Company adopted the provisions of ASC 842 using the modified retrospective approach, which applies the provisions of ASC 842 upon adoption, with no change to prior periods. This adoption resulted in the Company recognizing initial right of use assets and lease liabilities of approximately $10.9 million at November 1, 2019. The adoption did not have a significant impact on the Company’s statement of operations.

Upon the initial adoption of ASC 842, 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. Additionally, the Company elected the short-term lease exemption policy, applying the requirements of ASC 842 to only long-term (greater than one year) leases.

The Company leases rail cars for its facility to transport ethanol and dried distillers’ grains to its end customers. 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 readily determinable, as the discount rate for each lease in determining the present value of lease payments. For the nine months ended July 31, 2020, the Company’s weighted average discount rate was 4.87%.  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 leases have remaining terms of approximately one to seven years. For the nine months ended July 31, 2020, the weighted average remaining lease term was four years.

The Company elected to use a portfolio approach for lease classification, which allows for an entity to group together leases with similar characteristics provided that its application does not create a material difference when compared to accounting for the leases at a contract level. For railcar leases, the Company elected to combine the railcars within each rider and account for each rider as an individual lease.

The following table summarizes the remaining maturities of the Company’s operating lease liabilities as of July 31, 2020:

Twelve Months Ended July 31,

2021

$

1,767,000

2022

1,767,000

2023

1,767,000

2024

1,698,750

2025

1,650,000

Thereafter

2,575,000

Totals

11,224,750

Less: Amount representing interest

1,607,521

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Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

Lease liabilities

$

9,617,229

For the three months ended July 31, 2020, the Company recorded operating lease costs of approximately $591,000 in cost of goods sold in the Company’s statement of operations, which approximates the cash paid for the period. For the nine months ended July 31, 2020, the Company recorded operating lease costs of approximately $1,731,000 in cost of goods sold in the Company’s statement of operations, which approximates the cash paid for the period.

9.COMMITMENTS AND CONTINGENCIES

Corn Forward Contracts

At July 31, 2020, the Company had cash and basis contracts for forward corn purchase commitments for approximately 4,613,000 bushels for deliveries through March 2021.

Given the uncertainty of future ethanol and corn prices, the Company could incur a loss on the outstanding corn purchase contracts in future periods. Management has evaluated these forward contracts and its inventories using the lower of cost or net realizable value evaluation, similar to the method used on its inventory, and has determined that an impairment loss of $824,000 existed at July 31, 2020, and no impairment loss existed at or October 31, 2019.

Ethanol Forward Contracts

At July 31, 2020, the Company had forward contracts to sell approximately $6,069,000 of ethanol for various periods through September 2020.

Distillers’ Grains Forward Contracts

At July 31, 2020, the Company had forward contracts to sell approximately $325,000 of distillers’ grains for delivery through December 2020.

Corn Oil Forward Contracts

At July 31, 2020, the Company had contracts to sell approximately $701,000 of corn oil for delivery through September 2020.

Rail Car Rehabilitation Costs

The Company leases 50 hopper rail cars under a multi-year agreement which ends in May 2027. Under the agreement, the Company is required to pay to rehabilitate each car for “damage” that is considered to be other than normal wear and tear upon turn in of the car(s) at the termination of the lease. Prior to the year ending October 31, 2019, the Company believed ongoing repairs resulted in an insignificant future rehabilitation expense. During the year ending October 31, 2019, based on new information, we re-evaluated our assumptions and believe that it is probable that we may be assessed for damages incurred. Company management has estimated total costs to rehabilitate the cars at July 31, 2020 and October 31, 2019 to be approximately $585,000 and $551,000, respectively. During the three and nine months ended July 31, 2020, the Company has recorded an expense in cost of goods of approximately $16,000 and $70,000, respectively.

10.MEMBERS’ EQUITY

Heron Lake BioEnergy, LLC is authorized to issue up to 80,000,000 capital units, of which 65,000,000 have been designated Class A units and 15,000,000 have been designated as Class B units. Members of Heron Lake BioEnergy, LLC are holders of units who have been admitted as members and who hold at least 2,500 units. Any holder of units who is not a member will not have voting rights. Transferees of units must be approved by Heron Lake BioEnergy, LLC’s Board of Governors to become members. Members are entitled to one vote for each unit held. Subject to Heron Lake BioEnergy,

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Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

LLC’s Member Control Agreement, all units share equally in the profits and losses and distributions of assets on a per unit basis.

Heron Lake BioEnergy, LLC has a total of 62,932,107 Class A units and 15,000,000 Class B units issued and outstanding, for an aggregate total of 77,932,107 units issued and outstanding at July 31, 2020 and October 31, 2019.

On December 11, 2019, HLBE Pipeline Company acquired the remaining non-controlling interest of Agrinatural for a total price of $2.225 million. A deposit of $225,000 was paid in October 2019 and recorded within other assets at October 31, 2019, and the remaining amount was paid on December 11, 2019. The change of interest is recorded as an equity transaction in accordance with ASC 805.  

11.RELATED PARTY TRANSACTIONS

Granite Falls Energy, LLC

The Company has a management services agreement with Granite Falls Energy, LLC (“GFE”, a related party). Under the terms of the management services agreement, GFE supplies its own personnel to act as part-time officers and managers of the Company for the positions of Chief Executive Officer, Chief Financial Officer, and Commodity Risk Manager and the Company pays GFE 50% of the total salary, bonuses, and other expenses and costs incurred by GFE for the three management positions. The management services agreement automatically renews for successive one-year terms unless and until the Company or GFE gives the other party 90-days written notice of termination prior to expiration of the then current term. The management services agreement may also be terminated by either party for cause under certain circumstances. Total expenses under this agreement were approximately $122,000 and $116,000 for the three months ended July 31, 2020 and 2019, respectively, and approximately $380,000 and $337,000 for the nine months ended July 31, 2020 and 2019, respectively.

Agrinatural has a natural gas local distribution company management agreement with GFE for, among other purposes, the purpose of sharing certain management employees. The agreement automatically renews for successive one-year terms unless and until Agrinatural or GFE gives the other party 30 days’ written notice of termination prior to expiration of the initial term or the start of a renewal term. The agreement may also be terminated by either party for cause under certain circumstances. Under the agreement, GFE supplies its personnel to act as part-time officers of Agrinatural for the positions of chief executive officer and chief financial officer. In return, Agrinatural pays GFE $9,000 per month, excluding fees for third-party services. GFE responsible for and agreed to directly pay salary, wages, and/or benefits to the persons providing management services under the agreement. Total expenses under this agreement were $27,000 for the three months ended July 31, 2020, and $54,000 for the nine months ended July 31, 2020.

Corn Purchases - Members

The Company purchased corn from board members of approximately $57,000 and $2,633,000 for the three months ended July 31, 2020 and 2019, respectively, and approximately $5,872,000 and $7,219,000 for the nine months ended July 31, 2020 and 2019, respectively.

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Table of Contents

Heron Lake BioEnergy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

July 31, 2020

12.BUSINESS SEGMENTS

The Company groups its operations into the following two business segments:

Ethanol Production

Ethanol and co-product production and sales

Natural gas pipeline

Ownership and operations of natural gas pipeline

Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses. The accounting policies for each segment are the same as those described in the summary of significant accounting policies. Segment income or loss does not include any allocation of shared-service costs. Segment assets are those that are directly used in or identified with segment operations. Inter-segment balances and transactions have been eliminated.

The following tables summarize financial information by segment and provide a reconciliation of segment revenue, contribution to operating income (loss), and total assets:

Three Months Ended

Nine Months Ended

July 31, 2020

July 31, 2019

July 31, 2020

July 31, 2019

Revenue:

    

(unaudited)

    

(unaudited)

(unaudited)

(unaudited)

Ethanol production

$

14,039,050

$

27,267,156

$

55,398,271

$

77,487,200

Natural gas pipeline

439,448

541,283

2,182,563

2,398,915

Eliminations

(313,457)

(440,652)

(1,130,544)

(1,326,011)

Total Revenue

$

14,165,041

$

27,367,787

$

56,450,290

$

78,560,104

Three Months Ended

Nine Months Ended

July 31, 2020

July 31, 2019

July 31, 2020

July 31, 2019

Operating Income (Loss):

(unaudited)

    

(unaudited)

(unaudited)

(unaudited)

Ethanol production

    

$

(4,033,933)

    

$

208,535

$

(13,414,332)

    

$

(3,720,809)

 

Natural gas pipeline

 

203,565

 

322,222

 

1,102,387

 

1,356,744

Eliminations

 

(89,313)

 

(149,064)

 

(376,172)

 

(482,978)

Operating Income (Loss)

$

(3,919,681)

$

381,693

$

(12,688,117)

$

(2,847,043)

July 31, 2020

October 31, 2019

Assets: