Results of Operations for the Fiscal Years Ended
The following table shows the results of our operations and the percentage of revenues, cost of goods sold, gross loss, operating expenses, operating loss and other items to total revenues in our statements of operations for the fiscal years endedOctober 31, 2020 and 2019: 2020
2019
Statements of Operations Data Amount % Amount % Revenues$ 97,256,146 100.00 %$ 97,249,109 100.00 % Cost of Goods Sold 99,813,857 102.63 % 101,759,731 104.64 % Gross Loss (2,557,711) (2.63) % (4,510,622) (4.64) % Operating Expenses 3,552,328 3.65 % 3,200,285 3.29 % Operating Loss (6,110,039) (6.29) % (7,710,907) (7.93) % Other Income (Expense), Net (256,127) (0.26) % (563,329) (0.58) % Net Loss$ (6,366,166) (6.55) %$ (8,274,236) (8.51) % The following table shows the sources of our revenues for the fiscal years endedOctober 31, 2020 and 2019. 2020 2019 Percentage of Percentage of Revenue Sources Amount Total Revenues Amount Total Revenues Ethanol Sales$ 75,161,967 77.28 %$ 75,541,437 77.68 % Modified Wet Distillers Grains Sales 4,163,426 4.28 % 3,874,384 3.98 % Dried Distillers Grains Sales 14,123,366 14.52 % 14,700,718 15.12 % Corn Oil Sales 3,807,387 3.92 % 3,132,570 3.22 % Total Revenues$ 97,256,146 100.00 %$ 97,249,109 100.00 % Revenues Ethanol Our total revenues were similar for the fiscal year endedOctober 31, 2020 , compared to the fiscal year endedOctober 31, 2019 . Revenue from ethanol sales decreased by approximately 0.5% during the fiscal year endedOctober 31, 2020 compared to the fiscal year endedOctober 31, 2019 primarily due to lower ethanol prices during the fiscal year endedOctober 31, 2020 compared to the fiscal year endOctober 31, 2019 . The average ethanol sales price per gallon we received for the fiscal year endedOctober 31, 2020 was approximately 2.2% lower than the average price received for the fiscal year endedOctober 31, 2019 . However, we experienced an increase in the gallons of ethanol sold during the fiscal year endedOctober 31, 2020 , compared to the fiscal year endedOctober 31, 2019 . The gallons of ethanol we sold during the fiscal year endedOctober 31, 2020 increased by 1.7% as compared to the number of gallons of ethanol sold for the fiscal year endedOctober 31, 2019 . Ethanol prices have been negatively affected for an extended period by lower domestic demand resulting in part from the use by theEnvironmental Protection Agency ("EPA") of the small refinery exemption and a decline in ethanol exports due to trade disputes with foreign governments and the institution of a tariff byChina on ethanol produced inthe United States . Ethanol prices further decreased due to a collapse in both domestic and foreign demand as a result of restrictions put in place in response to the COVID-19 pandemic. As a result of poor economic conditions, many ethanol plants curtailed or stopped ethanol production. The decrease in industry-wide production coupled with a gradual increase in domestic demand due to the lifting of COVID-19 restrictions in some areas had a positive effect on ethanol prices towards the end of the period. Ethanol prices will likely decrease as ethanol plants return to higher ethanol production levels. In addition, ethanol prices will continue to be negatively impacted by the COVID-19 pandemic until restrictions inthe United States are lifted and domestic fuel demand fully returns. It is uncertain when this may occur. Continued declines in ethanol exports due to decreased global fuel consumption in response to the COVID-19 pandemic and trade disputes with foreign governments could 23 -------------------------------------------------------------------------------- also lead to an decrease in ethanol export demand and lower ethanol prices. Other factors likely to affect ethanol prices in the coming fiscal year include the results of the 2020 presidential election inthe United States , theEPA's use of the the small refinery exemption, approval of the year-round sale of E15 and changes in domestic corn prices. The increase in ethanol gallons sold for the fiscal year endedOctober 31, 2020 , as compared to the number of gallons of ethanol we sold for the fiscal year endedOctober 31, 2019 , resulted primarily from increased ethanol production rates due to our receipt of our updated air permit inOctober 2019 . This was partially offset by reduced ethanol production levels by up to 25% during the months of March, April, May and June due to unfavorable operating conditions in the ethanol industry and the COVID-19 pandemic. Our ethanol production levels are currently at an annual rate of approximately 64 million gallons. Management anticipates that the amount of ethanol produced will remain relatively consistent in the future unless economic conditions worsen and we reduce ethanol production levels. In the ordinary course of business, we enter into forward contracts for our commodity purchases and sales. AtOctober 31, 2020 , we had no forward fixed price ethanol sales contracts. For the fiscal years endedOctober 31, 2020 and 2019, we recorded losses due to changes in the fair value of our outstanding ethanol derivative positions of approximately$623,000 and$240,000 , respectively.
Distillers Grains
Revenue from distillers grains decreased by approximately 1.6% during the fiscal year endedOctober 31, 2020 compared to the fiscal year endedOctober 31, 2019 , primarily due to a decrease in tons of dried distillers grains sold during the fiscal year endedOctober 31, 2020 , compared to same period of 2019. The tons of dried distillers grains we sold during the fiscal year endedOctober 31, 2020 decreased by approximately 5.2% as compared to the tons of dried distillers grains we sold during the fiscal year endedOctober 31, 2019 . The tons of modified distillers grains we sold during the fiscal year endedOctober 31, 2020 , were similar when compared to the same period for 2019. Overall, the number of tons of distillers grains sold decreased during our fiscal year endedOctober 31, 2020 , as compared to the fiscal year endedOctober 31, 2019 due primarily to higher corn oil production levels for the period. Management anticipates that the amount of distillers grains produced will remain relatively consistent in the future unless economic conditions worsen and we reduce ethanol production levels which would then have a corresponding effect on distillers grains. For the fiscal year endedOctober 31, 2020 , the average price per ton that we received for our dried distillers grains was approximately 1.3% higher than the average price we received during the fiscal year endedOctober 31, 2019 , due primarily to a decrease in supply during our second fiscal quarter resulting from some ethanol plants reducing or shutting down production and an increase in corn and soybean prices in the latter part of the period. For the fiscal year endedOctober 31, 2020 , the average price per ton that we received for our modified distillers grains was approximately 7.0% higher than during the fiscal year endedOctober 31, 2019 due to increased demand and reduced production in our local area. Distillers grains prices typically change in proportion to domestic corn prices and availability of corn. Domestic demand for distillers grains could decrease if corn prices decline and end-users switch to lower priced alternatives. Management anticipates that both domestic and foreign demand for distillers grains may be negatively affected by the COVID-19 pandemic. Other factors likely to affect distillers grains prices include the imposition byChina of anti-dumping and anti-subsidy duties on distillers grains produced inthe United States and other trade actions bythe United States and foreign governments.
Corn Oil
Revenue from corn oil sales increased by approximately 21.5% for the fiscal year endedOctober 31, 2020 , as compared to the fiscal year endedOctober 31, 2019 primarily due to an increase in pounds of corn oil sold during the fiscal year endedOctober 31, 2020 , compared to the fiscal year endedOctober 31, 2019 . The pounds of corn oil we sold during the fiscal year endedOctober 31, 2020 increased by approximately 22.3% as compared to the pounds of corn oil we sold for the fiscal year endedOctober 31, 2019 due to improved efficiencies leading to increased production for the period. Management anticipates that the amount of corn oil produced will remain relatively consistent in the future unless economic conditions worsen and we reduce ethanol production levels which would then have a corresponding effect on corn oil. 24 -------------------------------------------------------------------------------- The average price per pound of corn oil sold sold during the fiscal year endedOctober 31, 2020 was the same when compared to the same period of 2019. Factors likely to affect corn oil prices include biodiesel demand, the status of the biodiesel blenders' tax credit and fluctuations in supply resulting from some ethanol plants changing ethanol production levels in response to economic conditions.
Cost of Goods Sold
Our two largest costs of production are corn (68.6% of cost of goods sold for the fiscal year endedOctober 31, 2020 ) and natural gas (4.9% of cost of goods sold for the fiscal year endedOctober 31, 2020 ). Our total cost of goods sold was approximately 2.2% less during the fiscal year endedOctober 31, 2020 , compared to the fiscal year endedOctober 31, 2019 .
Corn
Our average price per bushel of corn for the fiscal year endedOctober 31, 2020 increased by approximately 1.5% compared to the fiscal year endedOctober 31, 2019 primarily due to increased market value for corn. We used approximately 1.7% more bushels of corn in the fiscal year endedOctober 31, 2020 as compared to the fiscal year endedOctober 31, 2019 due to increased ethanol production. Management expects there to be an adequate corn supply available in our area to operate the ethanol plant. However, corn prices have been volatile and are likely to remain so in the future depending on weather conditions, supply and demand, stocks and other factors which could significantly impact our costs of production. AtOctober 31, 2020 , we had approximately 881,000 bushels of forward fixed basis corn purchase contracts and 1,399,000 bushels of forward fixed price corn purchase contracts valued at approximately$5,254,000 for various delivery periods throughDecember 2021 . We recorded losses due to changes in the fair value of our outstanding corn derivative positions for the fiscal years endedOctober 31, 2020 and 2019 of approximately$845,000 and$835,000 , respectively.
Natural Gas
For the fiscal year endedOctober 31, 2020 , we purchased approximately 1.1% less natural gas as compared to the same period of 2019. This decrease in natural gas usage is primarily due to the decrease in dried distillers grains production. Our average price per MMBTU of natural gas was approximately 2.1% higher for the fiscal year endedOctober 31, 2020 compared to the fiscal year endedOctober 31, 2019 . Natural gas prices were higher due to new interim tariff rates levied byNorthern Natural Gas effectiveJanuary 1, 2020 . Management anticipates that natural gas prices will continue at current levels unless the natural gas industry experiences production problems or if there are large increases in natural gas demand.
At
For the fiscal years endedOctober 31, 2020 and 2019, we recorded gains due to the change in fair value of our outstanding natural gas derivative positions of approximately$11,000 and$22,000 , respectively.
Operating Expenses
We had operating expenses for the fiscal year ended
Other Expense, Net
We had total other expense for the fiscal year endedOctober 31, 2020 of$256,127 compared to other expense of$563,329 for the fiscal year endedOctober 31, 2019 . Our other expense for the fiscal year endedOctober 31, 2020 , consisted primarily of interest expense which was offset in part by income from investments. This decrease in other expense is primarily due to a decrease in interest expense and an increase in income from investments. 25 --------------------------------------------------------------------------------
Results of Operations for the Fiscal Years Ended
The following table shows the results of our operations and the percentage of revenues, cost of goods sold, gross loss, operating expenses, operating loss and other items to total revenues in our statements of operations for the fiscal years endedOctober 31, 2019 and 2018: 2019
2018
Statements of Operations Data Amount % Amount % Revenues$ 97,249,109 100.00 %$ 94,943,746 100.00 % Cost of Goods Sold 101,759,731 104.64 % 97,723,069 102.93 % Gross Loss (4,510,622) (4.64) % (2,779,323) (2.93) % Operating Expenses 3,200,285 3.29 % 2,891,093 3.05 % Operating Loss (7,710,907) (7.93) % (5,670,416) (5.97) % Other Income (Expense), Net (563,329) (0.58) % (489,008) (0.52) % Net Loss$ (8,274,236) (8.51) %$ (6,159,424) (6.49) % The following table shows the sources of our revenues for the fiscal years endedOctober 31, 2019 and 2018. 2019 2018 Percentage of Percentage of Revenue Sources Amount Total Revenues Amount Total Revenues Ethanol Sales$ 75,541,437 77.68 %$ 72,664,310 76.53 % Modified Wet Distillers Grains Sales 3,874,384 3.98 % 3,323,857 3.50 % Dried Distillers Grains Sales 14,700,718 15.12 % 15,641,622 16.48 % Corn Oil Sales 3,132,570 3.22 % 3,313,957 3.49 % Total Revenues$ 97,249,109 100.00 %$ 94,943,746 100.00 % Revenues Ethanol Our total revenues were higher for the fiscal year endedOctober 31, 2019 compared to the fiscal year endedOctober 31, 2018 . Revenue from ethanol sales increased by approximately 3.96% during the fiscal year endedOctober 31, 2019 compared to the fiscal year endedOctober 31, 2018 primarily due to higher ethanol prices and an increase in gallons sold during the fiscal year endedOctober 31, 2019 compared to the fiscal year endOctober 31, 2018 . The average ethanol sales price per gallon we received for the fiscal year endedOctober 31, 2019 was approximately 1.6% higher than the average price received for the fiscal year endedOctober 31, 2018 . In addition, we experienced an increase in the gallons of ethanol sold during the fiscal year endedOctober 31, 2019 compared to the fiscal year endedOctober 31, 2018 . The gallons of ethanol we sold during the fiscal year endedOctober 31, 2019 increased by 2.3% as compared to the number of gallons of ethanol sold for the fiscal year endedOctober 31, 2018 . Ethanol prices were negatively affected by record levels of domestic production coupled with a decline in ethanol exports due to trade disputes with foreign governments and the institution of a tariff byChina on ethanol produced inthe United States . In addition, theEPA's continued use of the small refinery exemption had a negative impact on ethanol prices The increase in ethanol gallons sold for the fiscal year endedOctober 31, 2019 , as compared to the number of gallons of ethanol we sold for the fiscal year endedOctober 31, 2018 , was mainly due to less gallons in inventory atOctober 31, 2019 . In the ordinary course of business, we enter into forward contracts for our commodity purchases and sales. AtOctober 31, 2019 , we had no forward fixed price ethanol sales contracts. For the fiscal years endedOctober 31, 2019 and 2018, we recorded losses due to changes in the fair value of our outstanding ethanol derivative positions of approximately$240,000 and$81,000 , respectively. 26 --------------------------------------------------------------------------------
Distillers Grains
Revenue from distillers grains decreased by approximately 2.1% during the fiscal year endedOctober 31, 2019 compared to the fiscal year endedOctober 31, 2018 , primarily due to lower distillers grains prices during the fiscal year endedOctober 31, 2019 compared to same period of 2018. For the fiscal year endedOctober 31, 2019 , the average price per ton that we received for our dried distillers grains was approximately 0.5% lower than the average price we received during the fiscal year endedOctober 31, 2018 due to price decreases in the protein market that correlate to the price of soybean meal and lower export demand due to the swine flu outbreak inChina ,Vietnam and other foreign countries. For the fiscal year endedOctober 31, 2019 , the average price per ton that we received for our modified distillers grains was approximately 6.3% higher than during the fiscal year endedOctober 31, 2018 due to increased demand and reduced production in our local area. The imposition byChina of anti-dumping and anti-subsidy duties on distillers grains produced in theU.S. also had a negative effect on export demand fromChina resulting in lower distillers grains prices. In addition, trade actions by the Trump administration and foreign governments created additional uncertainty as to future agricultural export demand fromChina and other countries. The tons of dried distillers grains we sold during the fiscal year endedOctober 31, 2019 decreased by approximately 5.6% as compared to the tons of dried distillers grains we sold during the fiscal year endedOctober 31, 2018 . The tons of modified distillers grains we sold during the fiscal year endedOctober 31, 2019 , increased by approximately 9.7% as compared to the same period for 2018 due to an increase in the demand for our product in our area. Overall, the number of tons of distillers grains sold decreased during our fiscal year endedOctober 31, 2019 compared to the fiscal year endedOctober 31, 2018 due to increased efficiencies in ethanol production which resulted in our producing less distillers grains. Corn Oil Revenue from corn oil sales decreased by approximately 5.5% for the fiscal year endedOctober 31, 2019 , as compared to the fiscal year endedOctober 31, 2018 , primarily due to a decrease in pounds of corn oil sold during the fiscal year endedOctober 31, 2019 compared to the fiscal year endedOctober 31, 2018 . The pounds of corn oil we sold during the fiscal year endedOctober 31, 2019 decreased by approximately 11.7% as compared to the pounds of corn oil we sold for the fiscal year endedOctober 31, 2018 due to our corn oil extraction equipment running less efficiently. The average price per pound of corn oil sold increased during the fiscal year endedOctober 31, 2019 compared to the same period of 2018. For the fiscal year endedOctober 31, 2019 , the average price per pound of corn oil we received was approximately 4.3% higher than during the fiscal year endedOctober 31, 2018 due to increased demand from the corn oil feed market.
Cost of Goods Sold
Our two largest costs of production are corn (65.1% of cost of goods sold for the fiscal year endedOctober 31, 2019 ) and natural gas (4.7% of cost of goods sold for the fiscal year endedOctober 31, 2019 ). Our total cost of goods sold was approximately 4.1% more during the fiscal year endedOctober 31, 2019 compared to the fiscal year endedOctober 31, 2018 .
Corn
Our average price per bushel of corn for the fiscal year endedOctober 31, 2019 increased by approximately 2.2% as compared to the fiscal year endedOctober 31, 2018 primarily due to increased market value for corn. We used approximately 2.1% less bushels of corn in the fiscal year endedOctober 31, 2019 as compared to the fiscal year endedOctober 31, 2018 due to improved efficiencies in ethanol production. AtOctober 31, 2019 , we had approximately 190,000 bushels of forward fixed basis corn purchase contracts and 453,000 bushels of forward fixed price corn purchase contracts valued at approximately$1,725,000 for various delivery periods throughJuly 2021 . We recorded losses due to changes in the fair value of our outstanding corn derivative positions for the fiscal years endedOctober 31, 2019 and 2018 of approximately$835,000 and$149,000 , respectively.
Natural Gas
For the fiscal year endedOctober 31, 2019 , we purchased approximately 5.6% less natural gas as compared to the same period of 2018. This decrease in natural gas usage is primarily due to the decrease in dried distillers grains production. 27 -------------------------------------------------------------------------------- Our average price per MMBTU of natural gas was approximately 4.2% lower for the fiscal year endedOctober 31, 2019 compared to the fiscal year endedOctober 31, 2018 . Natural gas prices were lower on average for the fiscal year endedOctober 31, 2019 due to an increased supply and our locking in prices for the majority of our natural gas requirements.
At
For the fiscal years endedOctober 31, 2019 and 2018, we recorded gains due to the change in fair value of our outstanding natural gas derivative positions of approximately$22,000 and$38,000 , respectively.
Operating Expenses
We had operating expenses for the fiscal year ended
Other Income (Expense), Net
We had total other expense for the fiscal year endedOctober 31, 2019 of$563,329 compared to other expense of$489,008 for the fiscal year endedOctober 31, 2018 . Our other expense for the fiscal year endedOctober 31, 2019 , consisted primarily of interest expense which was offset in part by income from investments.
Changes in Financial Condition for the Fiscal Years Ended
The following table highlights the changes in our financial condition for the fiscal year endedOctober 31, 2020 from our previous fiscal year endedOctober 31, 2019 : October 31, 2020 October 31, 2019 Current Assets$ 15,705,336 $ 12,604,430 Current Liabilities 12,749,753
10,794,082
Long-Term Liabilities 11,417,150
7,244,124
Current Assets. The increase in current assets atOctober 31, 2020 was primarily the result of increases in accounts receivable and inventories. These increases were partially offset by decreases in cash and cash equivalents and derivative instruments. Current Liabilities. The increase in current liabilities atOctober 31, 2020 was primarily the result of increases in accounts payable and current maturities of long-term debt and adoption of ASC 842.
Long-Term Liabilities. Long-term debt increased at
Liquidity and Capital Resources
The ethanol industry experienced adverse conditions throughout most of 2018 and 2019 as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels. These adverse conditions continued into 2020 and were compounded by the COVID-19 pandemic. As a result of these factors, we have experienced negative operating margins, lower cash flow from operations and net operating losses. In response, we reduced our ethanol production levels by up to 25%. As conditions improved, we began increasing production levels to an annual rate of approximately 64 million gallons. We continue to monitor COVID-19 developments and the effect on demand for our products to make adjustments to production levels as warranted. Based on financial forecasts prepared by our management, we anticipate that we will have sufficient cash on hand, cash from our current credit facilities, and cash from our operations to continue to operate the ethanol plant for the next 12 months. We do not currently anticipate seeking additional equity or debt financing in the near term in order 28 -------------------------------------------------------------------------------- to fund operations. However, if market conditions worsen, we could be forced to make further reductions in ethanol production levels or even temporarily shut down ethanol production. The following table shows cash flows for the fiscal years endedOctober 31, 2020 and 2019: October 31, 2020 October 31, 2019 Net cash provided by (used in) operating activities $ (247,864)$ 2,957,651 Net cash used in investing activities (3,275,201) (1,709,039) Net cash provided by (used in) financing activities 2,551,268 (40,200) Cash Flow From Operations We experienced a decrease in our cash provided by (used in) operating activities for the fiscal year endedOctober 31, 2020 , as compared to the fiscal year endedOctober 31, 2019 . This decrease was primarily due to changes in accounts receivables, inventories and accrued expense during the fiscal year endedOctober 31, 2020 .
Cash Flow From Investing Activities
We used more cash for investing activities during the fiscal year ended
Cash Flow From Financing Activities
We experienced an increase in our cash for financing activities during the fiscal year endedOctober 31, 2020 , as compared to the fiscal year endedOctober 31, 2019 . This increase was primarily a result of increased net borrowings on long-term debt during the fiscal year endedOctober 31, 2020 , as compared to the fiscal year endedOctober 31, 2019 . The following table shows cash flows for the fiscal years endedOctober 31, 2019 and 2018:October 31, 2019 October 31, 2018
Net cash provided by operating activities
4,393,981
Net cash used in investing activities (1,709,039)
(2,274,830)
Net cash used in financing activities (40,200)
(2,426,658)
Cash Flow From Operations
We experienced a decrease in our cash provided by operating activities for the fiscal year endedOctober 31, 2019 , as compared to the fiscal year endedOctober 31, 2018 . This decrease was primarily due to an increase in our net loss during the fiscal year endedOctober 31, 2019 .
Cash Flow From Investing Activities
We used less cash for investing activities during the fiscal year endedOctober 31, 2019 as compared to the fiscal year endedOctober 31, 2018 . This change was primarily due to a decrease in capital expenditures during the fiscal year endedOctober 31, 2019 .
Cash Flow From Financing Activities
We used less cash for financing activities during the fiscal year endedOctober 31, 2019 , as compared to the fiscal year endedOctober 31, 2018 . This decrease was primarily a result of increased borrowings on long-term debt and a decrease in the amount we paid towards the principal balance on our loan and decreased distributions to members during the fiscal year endedOctober 31, 2019 , as compared to the fiscal year endedOctober 31, 2018 . 29 --------------------------------------------------------------------------------
Short-Term and Long-Term Debt Sources
Our loan facility with Compeer Financial f/k/aAgStar Financial Services , PCA ("Compeer") included a$15,000,000 Variable Rate Term Loan and a$20,000,000 Term Revolving Loan. OnSeptember 14, 2020 , we amended our loan facility to add a$6,000,000 term loan (the "2020 Term Loan") to be used to fund certain improvements to the ethanol production facility. We paid$30,000 in commitment and amendment fees in connection with this loan. Our loan facility with Compeer is secured by substantially all business assets and also subjects the Company to various financial and non-financial covenants. Subsequent to our fiscal year end, onNovember 25, 2020 , Compeer waived our violation atOctober 31, 2020 , of the minimum debt service coverage ratio in our loan documents.
Variable Rate Term Loan
The Variable Rate Term Loan was for$15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate atOctober 31, 2020 was 3.40%. We paid monthly principal payments on the Variable Rate Term Loan of approximately$250,000 plus accrued interest based upon a five year amortization. Payments of all amounts outstanding were due onJanuary 22, 2021 . AtOctober 31, 2020 , the balance on this note was$0 as we paid off the loan in the current year.
Term Revolving Loan
The Term Revolving Loan is for up to$20,000,000 with a variable interest rate that is based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate atOctober 31, 2020 was 3.40%. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan with payment of all amounts outstanding due onJanuary 22, 2023 . The outstanding balance on this note was$5,999,000 atOctober 31, 2020 . We pay interest at a rate of 1.50% on amounts outstanding for letters of credit which also reduce the amount available under the Term Revolving Loan. We had no letters of credit outstanding atOctober 31, 2020 . We are also required to pay unused commitment fees for the Term Revolving Loan as defined in the loan documents.
2020 Term Loan
The 2020 Term Loan is for up to$6,000,000 with a variable interest rate based on theWall Street Journal's Prime Rate plus 45 basis points with no minimum interest rate. The applicable interest rate atOctober 31, 2020 was 3.70%. BeginningJanuary 1, 2021 , monthly principal payments will be due on the 2020 Term Loan of approximately$250,000 plus accrued interest with payments of all amounts outstanding due onSeptember 14, 2022 . The outstanding balance on this note was$6,000,000 atOctober 31, 2020 .
Covenants and other Miscellaneous Financing Agreement Terms
The loan facility with Compeer is secured by substantially all business assets. We executed a mortgage in favor of Compeer creating a first lien on our real estate and plant and a security interest in all personal property located on the premises and assigned in favor of Compeer, all rents and leases to our property, our marketing contracts, our risk management services contract, and our natural gas, electricity, water service and grain procurement agreements. We are also subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage and working capital requirements. Our debt service coverage ratio is to be no less than 1.25:1.00 measured annually by comparing our adjusted EBITDA to our scheduled payments of principal and interest. Our minimum working capital is$8,250,000 , which is calculated as current assets plus the amount available for drawing under our Term Revolving Loan and undrawn amounts on outstanding letters of credit, less current liabilities, and is measured quarterly. We are limited to annual capital expenditures of$5,000,000 without prior approval, incurring additional debt over certain amounts without prior approval, and making additional investments as described in the Amended and Restated Credit Agreement without prior approval. We are allowed to make cash distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to$8,250,000 , or 100% of net income if working capital is greater than or equal to$11,000,000 , or an unlimited amount if working capital is greater than or equal to$11,000,000 and there is no outstanding balance on the Term Loan. Presently, we are meeting our liquidity needs and complying with our financial covenants and the other terms of our loan agreements with Compeer except as to our violation, atOctober 31, 2020 , of the minimum debt service coverage ratio requirement of 1.25:1.00 which was waived by Compeer onNovember 25, 2020 . We will continue to work with Compeer to 30 -------------------------------------------------------------------------------- try to ensure that the terms of our loan agreements are met going forward. However, we cannot provide any assurance that our actions will result in sustained profitable operations or that we will not be in violation of our loan covenants or in default on our principal payments in the future. Should unfavorable market conditions result in our violation of the terms or covenants of our loan and we fail to obtain a waiver of any such term or covenant, Compeer could deem us in default of our loans and require us to immediately repay a significant portion or possibly the entire outstanding balance of our loans. In the event of a default, Compeer could also elect to proceed with a foreclosure action on our plant. PPP Loan InMarch 2020 ,Congress passed a stimulus bill called the CARES Act to provide economic relief related to the COVID-19 pandemic. One of the programs established by the Act is the Paycheck Protection Program ("PPP"), authorizing loans to small business for use in paying employees that continue to work throughout the COVID-19 pandemic and for qualifying rent, utilities and interest on mortgages. Loans obtained through the PPP are administered by theSmall Business Administration and eligible to be forgiven as long as the proceeds are used for qualifying purposes and other conditions are met. OnApril 14, 2020 , we were awarded a PPP loan in the amount of$712,200 . Management expects that the entire loan will be used to pay employees and for other qualifying costs and will be substantially forgiven. To the extent it is not forgiven, we would be required to repay that portion at an interest rate of 1% over twelve months beginning onMay 1, 2021 .
Capital Expenditures
OnAugust 26, 2020 , we entered into an agreement withNelson Baker Biotech, Inc. to install a system which will allow us to produce hydrous USP grade ethanol for use in the hand sanitizer and sanitizer market. We commenced construction in November, 2020 and expect to complete the project during the second quarter of our 2021 fiscal year.
Contractual Cash Obligations
In addition to our long-term debt obligations, we have certain other
contractual cash obligations and commitments. The following tables provide
information regarding our contractual obligations and approximate commitments as
of
Payment Due by Period Less than One
One to Three Three to Five After Five
Total Year Years Years Years Long-Term Debt Obligations$ 12,978,063 $ 3,045,828 $ 9,932,235 $ - - Operating Lease Obligations 617,760 168,480 336,960 112,320 - Finance Lease Obligations 1,609,200 178,800 357,600 357,600 715,200 Purchase Obligations 16,019,590 13,004,970 3,014,620 - - Total Contractual Obligations$ 31,224,613 $ 16,398,078 $
13,641,415
Critical Accounting Estimates
Management uses various estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Accounting estimates that are the most important to the presentation of our results of operations and financial condition, and which require the greatest use of judgment by management, are designated as our critical accounting estimates. We have the following critical accounting estimates:
Long-Lived Assets
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
Impairment testing for assets requires various estimates and assumptions, including an allocation of cash flows to those assets and, if required, an estimate of the fair value of those assets. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management's assumptions, which do not reflect unanticipated events and circumstances that may occur.
Given the
31 -------------------------------------------------------------------------------- significant assumptions required and the possibility that actual conditions will differ, we consider the assessment of carrying value of property and equipment to be a critical accounting estimate.
Inventory Valuation
We value our inventory at lower of cost or net realizable value. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management's assumptions which do not reflect unanticipated events and circumstances that may occur. In our analysis, we consider corn costs and ethanol prices, break-even points for our plant and our risk management strategies in place through our derivative instruments. Given the significant assumptions required and the possibility that actual conditions will differ, we consider the valuation of the lower of cost or net realizable value on inventory to be a critical accounting estimate. Derivatives We are exposed to market risks from changes in interest rates, corn, natural gas, and ethanol prices. We may seek to minimize these commodity price fluctuation risks through the use of derivative instruments. In the event we utilize derivative instruments, we will attempt to link these instruments to financing plans, sales plans, market developments, and pricing activities. Such instruments in and of themselves can result in additional costs due to unexpected directional price movements. We have entered into ethanol, corn and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices. In practice, as markets move, we actively attempt to manage our risk and adjust hedging strategies as appropriate. We do not use hedge accounting which would match the gain or loss on our hedge positions to the specific commodity contracts being hedged. Instead, we use fair value accounting for our hedge positions, which means that as the current market price of our hedge position changes, the gains and losses are immediately recognized in our statement of operations. The immediate recognition of hedging gains and losses under fair value accounting can cause net income (loss) to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged. As ofOctober 31, 2020 , the fair values of our commodity-based derivative instruments are a net liability of$890,000 . As the prices of the hedged commodity moves in reaction to market trends and information, our statement of operations will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to protect the Company over the term of the contracts for the hedged amounts.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
© Edgar Online, source