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OFFON

HIGHWATER ETHANOL, LLC

(HEOL)
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HIGHWATER ETHANOL LLC : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

06/12/2020 | 12:58pm EDT

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and six month periods ended April 30, 2020, compared to the same periods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2019.

Forward-Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "will," "may," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Many factors could cause actual results to differ materially from those projected in forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to: Ÿ Changes in the availability and price of corn and natural gas; Ÿ Reduction or elimination of the Renewable Fuel Standard; Ÿ Volatile commodity and financial markets; Ÿ Changes in legislation benefiting renewable fuels; Ÿ Our ability to comply with the financial covenants contained in our credit

   agreements with our lenders;
Ÿ  Our ability to profitably operate the ethanol plant and maintain a positive

spread between the selling price of our products and our raw material costs; Ÿ Results of our hedging activities and other risk management strategies; Ÿ Ethanol and distillers grains supply exceeding demand and corresponding price

reductions;

Ÿ Our ability to generate cash flow to invest in our business and service our

debt;

Ÿ Changes in the environmental regulations that apply to our plant operations

and changes in our ability to comply with such regulations; Ÿ Changes in our business strategy, capital improvements or development plans; Ÿ Changes in plant production capacity or technical difficulties in operating

   the plant;
Ÿ  Changes in general economic conditions or the occurrence of certain events

causing an economic impact in the agriculture, oil or automobile industries; Ÿ Lack of transportation, storage and blending infrastructure preventing

   ethanol from reaching high demand markets;
Ÿ  Changes in federal and/or state laws or policies impacting the ethanol

industry;

Ÿ Changes and advances in ethanol production technology and the development of

alternative fuels and energy sources and advanced biofuels; Ÿ Competition from alternative fuel additives; Ÿ Changes in interest rates and lending conditions; Ÿ Decreases in the price we receive for our ethanol and distillers grains; Ÿ Our inability to secure credit or obtain additional equity financing we may

   require in the future;
Ÿ  Our ability to retain key employees and maintain labor relations;
Ÿ  Changes in the price of oil and gasoline;
Ÿ  Competition from clean power systems using fuel cells, plug-in hybrids and
   electric cars;
Ÿ  International trade disputes and the imposition of tariffs by foreign

governments on our products; Ÿ Use by the EPA of small refinery exemptions; and Ÿ A slowdown in global and regional economic activity, reduced demand for our

   products and the potential for labor shortages and shipping disruptions
   resulting from the COVID-19 pandemic.


The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We are not under any duty to update the forward-looking statements contained in this report. Furthermore, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only


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as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Available Information

Our website address is www.highwaterethanol.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), are available, free of charge, on our website at www.highwaterethanol.com under the link "SEC Compliance," as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this Quarterly Report on Form 10-Q.

Overview

Highwater Ethanol, LLC ("we," "our," "Highwater Ethanol" or the "Company") was formed as a Minnesota limited liability company organized on May 2, 2006, for the purpose of constructing, owning, and operating an ethanol plant near Lamberton, Minnesota. Since August 2009, we have been engaged in the production of ethanol and distillers grains at the plant.

The ethanol industry experienced industry-wide record low ethanol prices throughout most of 2018 and 2019 due to reduced demand and high industry inventory levels. This continued into 2020 and the situation was compounded by the impact of the COVID-19 pandemic. In response to unfavorable operating conditions, we have reduced our ethanol production levels by up to 25%. We continue to monitor the impact of COVID-19 in order to make adjustments to production levels as needed. The plant was operating at an average ethanol production rate of approximately 67 million gallons annually prior to making the decision to curtail production.

We received a loan in the amount of $712,200 through the Payroll Protection Program which offers loans to small businesses impacted by the COVID-19 pandemic. These loans are forgiven to the extent proceeds are spent on certain qualifying costs and other conditions are met. Management anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, we would be required to repay that portion at an interest rate of 1% over twelve months beginning on May 1, 2020.

We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our current credit facilities. However, should we experience unfavorable operating conditions in the ethanol industry that prevent us from profitably operating the ethanol plant, we may need to seek additional funding.

© Edgar Online, source Glimpses

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